KEEP MOVING
Annual Report 2019
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9
MTR Corporation Limited
MTR Headquarters Building, Telford Plaza
Kowloon Bay, Kowloon, Hong Kong
GPO Box 9916, Hong Kong
Telephone : (852) 2993 2111
: (852) 2798 8822
Facsimile
www.mtr.com.hk
VISION
We aim to be a leading
multinational company that
connects and grows communities
with caring service.
MISSION
• We will strengthen our Hong Kong
corporate citizen reputation
• We will grow and enhance our
Hong Kong core business
• We will accelerate our success in
the Mainland and internationally
• We will inspire, engage and
develop our staff
VALUES
• Excellent Service
• Value Creation
• Mutual Respect
• Enterprising Spirit
CONTENTS
Overview
2
4
6
8
Highlights
Key Figures
Hong Kong Operating Network with
Future Extensions
Mainland of China and International
Businesses at a Glance
10 Chairman’s Letter
14 CEO’s Review of Operations and Outlook
Business Review and Analysis
Corporate Governance
94 Corporate Governance Report
115 Audit Committee Report
118 Risk Management
122 Risk Committee Report
124 Capital Works Committee Report
125 Remuneration Committee Report
130 Board and Executive Directorate
145 Key Corporate Management
146 Report of the Members of the Board
Business Review
34 – Hong Kong Transport Operations
44 – Hong Kong Station Commercial Businesses
48 – Hong Kong Property and Other Businesses
58 – Hong Kong Network Expansion
62 – Mainland of China and International Businesses
70 Financial Review
80 Ten-Year Statistics
82 Investor Relations
84 Corporate Responsibility
90 Human Resources
93 MTR Academy
Financials and Other Information
177 Contents of Consolidated Accounts and Notes
178 Independent Auditor’s Report
182 Consolidated Profit and Loss Account
183 Consolidated Statement of Comprehensive Income
184 Consolidated Statement of Financial Position
185 Consolidated Statement of Changes in Equity
186 Consolidated Cash Flow Statement
187 Notes to the Consolidated Accounts
263 Glossary
1
Annual Report 2019 HIGHLIGHTS
In the 40 years since our service operations started, MTR has grown with the people
of Hong Kong to become a critical component of the transport infrastructure, as
well as the creator of new integrated communities above and near stations. From
a single line that opened in 1979, we now operate a 262.6-km railway network
in Hong Kong that in 2019 carried over 1.9 billion passengers,
together with a wide range of businesses including the development
of residential and commercial properties, property leasing and
management, advertising, telecommunication services and railway
consultancy services. Since 2007, we have been building a portfolio of
railway operations in the Mainland of China, Europe and Australia.
1.9+ billion
Patronage in Hong Kong
99.9%
Passenger Journeys On-time
Sydney Metro North West Line,
Hangzhou Metro Line 5 Initial Section,
Macao Light Rapid Transit Taipa Line
Commenced Service
Tuen Ma Line
Phase 1
Commenced Service
BUSINESS
PERFORMANCE
2
Sydney Metro City and
Southwest Line
contract concluded and
Beijing Metro Line 17 awarded
3
Awarded 3
Property Development Packages
MTR Corporation COVID-19
Challenges
GROWTH
AND OUTLOOK
No Actual
Adjustment to
MTR Fares
for the remainder of 2020
Realising Future Mobility Vision Through
Digital
Transformation
About 22,000
residential units
and 3 Shopping Malls
under development
Worked with Government on
detailed planning and design of
3 New Lines
-21% Heavy
Rail Electricity
Consumption
per passenger-km
compared with 2008
ENVIRONMENTAL,
SOCIAL
AND GOVERNANCE
-2%
Reportable
Events
in our heavy rail and
light rail network,
excluding impact of
public order events
About 83,000
Participants
in Our Youth and
Children’s Programmes
Adopted Corporate
Governance
Best Practices
3
Annual Report 2019 KEY FIGURES
2019
2018
HK$ million
%
HK$ million
% Inc./(Dec.) %
36.6
12.5
9.4
38.7
2.8
100.0
–
100.0
28.1
29.1
20.4
6.3
(10.9)
73.0
27.1
(0.1)
27.0
100.0
(4.4)
37.9
31.6
8.1
(17.4)
2.1
57.9
42.3
(0.2)
42.1
100.0
Total revenue
Recurrent businesses
– Hong Kong transport operations
– Hong Kong station commercial businesses
– Hong Kong property rental and management businesses
– Mainland of China and international railway, property rental and
management subsidiaries
– Other businesses
Non-recurrent businesses
– Mainland of China property development
Total revenue
Total EBITDA(1)
Recurrent business EBITDA
– Hong Kong transport operations
– Hong Kong station commercial businesses
– Hong Kong property rental and management businesses
– Mainland of China and international railway, property rental and
management subsidiaries
– Other businesses and project studies and business
development expenses
Non-recurrent business EBITDA
– Hong Kong property development
– Mainland of China property development
Total EBITDA
Total EBIT (2)
Recurrent business EBIT
EBIT
– Hong Kong transport operations
– Hong Kong station commercial businesses
– Hong Kong property rental and management businesses
– Mainland of China and international railway, property rental and
management subsidiaries
– Other businesses and project studies and business
development expenses
Share of profit or loss of associates and joint venture
Non-recurrent business EBIT
– Hong Kong property development
– Mainland of China property development
Total EBIT
Interest and finance charges
Investment property revaluation
Profit before taxation
Income tax
Profit for the year
Non-controlling interests
Profit for the year attributable to shareholders of
the Company
Profit for the year attributable to shareholders of
the Company arising from:
Recurrent businesses (3)
Non-recurrent businesses
Underlying businesses (3)
Investment property revaluation
Total profit for the year attributable to shareholders of
the Company (3)
19,938
6,799
5,137
21,085
1,545
54,504
–
54,504
5,909
6,119
4,286
1,325
(2,288)
15,351
5,707
(25)
5,682
21,033
(591)
5,122
4,264
1,089
(2,353)
288
7,819
5,707
(25)
5,682
13,501
(859)
1,372
14,014
(1,922)
12,092
(160)
11,932
4,980
5,580
10,560
1,372
11,932
36.1
12.0
9.4
38.7
3.7
99.9
0.1
100.0
38.1
27.5
19.8
4.1
(1.6)
87.9
12.0
0.1
12.1
100.0
13.4
33.9
28.5
4.9
(2.7)
4.4
82.4
17.4
0.2
17.6
100.0
19,490
6,458
5,055
20,877
1,990
53,870
60
53,930
8,171
5,891
4,242
876
(337)
18,843
2,574
25
2,599
21,442
1,985
5,025
4,225
722
(404)
658
12,211
2,574
25
2,599
14,810
(1,074)
4,745
18,481
(2,325)
16,156
(148)
16,008
9,020
2,243
11,263
4,745
16,008
2.3
5.3
1.6
1.0
(22.4)
1.2
(100.0)
1.1
(27.7)
3.9
1.0
51.3
(578.9)
(18.5)
121.7
n/m
118.6
(1.9)
n/m
1.9
0.9
50.8
(482.4)
(56.2)
(36.0)
121.7
n/m
118.6
(8.8)
(20.0)
(71.1)
(24.2)
(17.3)
(25.2)
8.1
(25.5)
(44.8)
148.8
(6.2)
(71.1)
(25.5)
Note 1 EBITDA represents operating profit before depreciation, amortisation, variable annual payment and share of profit or loss of associates and joint venture.
Note 2 EBIT represents profits before interest, finance charges and taxation and after variable annual payment.
Note 3 On a normalised basis, recurrent business profit, underlying business profit and total profit for the year attributable to shareholders of the Company would have
increased by 7.7%, 35.8% and 4.1% respectively. Results on normalised basis are estimates based on certain assumptions to represent financial information if the
adverse impact of the public order events in Hong Kong on the Group’s Hong Kong businesses (HK$2.3 billion), and the provisions for the Hung Hom incidents of the
SCL project in Hong Kong (HK$2 billion) and the South Western Railway franchise agreement in The United Kingdom (HK$0.4 billion) had been excluded.
n/m:
not meaningful
4
MTR Corporation
Financial ratios
EBITDA margin(4) (in %)
EBITDA margin(4) (excluding Mainland of China and international subsidiaries) (in %)
EBIT margin(5) (in %)
EBIT margin(5) (excluding Mainland of China and international subsidiaries) (in %)
Net debt-to-equity ratio(6) (in %)
Return on average equity attributable to shareholders of the Company arising from
underlying businesses (in %)
Interest cover(7) (times)
Share information
Basic earnings per share (in HK$)
Basic earnings per share arising from underlying businesses (in HK$)
Ordinary dividend per share (in HK$)
Share price at 31 December (in HK$)
Market capitalisation at 31 December (HK$ million)
Operations highlights
Total passenger boardings for Hong Kong (million)
Domestic Service
Cross-boundary Service
High Speed Rail
Airport Express
Light Rail and Bus
Average number of passengers (thousand)
Domestic Service (weekday)
Cross-boundary Service (daily)
High Speed Rail (daily)
Airport Express (daily)
Light Rail and Bus (weekday)
Average fare (in HK$)
Domestic Service
Cross-boundary Service
High Speed Rail
Airport Express
Light Rail and Bus
Proportion of franchised public transport boardings (in %)
2019
2018
Inc./(Dec.) %
28.1
42.0
13.8
19.3
15.4
5.8
15.3
35.0
54.5
21.5
32.8
18.1
6.5
13.6
(6.9)% pts.
(12.5)% pts.
(7.7)% pts.
(13.5)% pts.
(2.7)% pts.
(0.7)% pt.
1.7 times
1.94
1.72
1.23
46.05
283,574
2.64
1.86
1.20
41.20
252,947
1,568.2
104.2
16.9
15.8
207.3
4,658
285.4
46.4
43.2
598.6
8.11
29.08
88.73
64.16
3.27
47.4
1,670.0
117.4
5.3@
17.7
230.4
4,862
321.8
53.0^
48.5
652.9
7.92
29.56
89.44
65.25
3.14
49.0#
(26.5)
(7.5)
2.5
11.8
12.1
(6.1)
(11.3)
219.2
(11.0)
(10.0)
(4.2)
(11.3)
(12.6)
(11.0)
(8.3)
2.3
(1.7)
(0.8)
(1.7)
4.1
(1.6)% pts
Note 4 EBITDA margin represents total EBITDA (excluding profit on Hong Kong property development) as a percentage of total revenue.
Note 5 EBIT margin represents total EBIT (excluding profit on Hong Kong property development and share of profit or loss of associates and joint venture) as a percentage of
total revenue.
Note 6 Net debt-to-equity ratio represents loans and other obligations, bank overdrafts, short-term loans, obligations under service concession and loans from holders of
non-controlling interests net of cash, bank balances and deposits in the consolidated statement of financial position as a percentage of total equity.
Note 7 Interest cover represents operating profit before depreciation, amortisation, variable annual payment and share of profit or loss of associates and joint venture
divided by gross interest and finance charges before capitalisation, utilisation of government subsidy for Shenzhen Metro Longhua Line operation.
@ High Speed Rail service commenced on 23 September 2018.
^ Average of 23 September 2018 to 31 December 2018.
# Market share for 2018 was rebased to reflect the impact on the opening of Hong Kong – Zhuhai – Macao Bridge.
5
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview HONG KONG OPERATING NETWORK
WITH FUTURE EXTENSIONS
LEGEND
Station
Proposed Station
Shenzhen Metro Network
Interchange Station
Proposed Interchange Station
*
Racing days only
EXISTING NETWORK
Airport Express
Disneyland Resort Line
East Rail Line
High Speed Rail
Island Line
Kwun Tong Line
Light Rail
Tuen Ma Line Phase 1
South Island Line
Tseung Kwan O Line
Tsuen Wan Line
Tung Chung Line
West Rail Line
PROJECTS IN PROGRESS
Shatin to Central Link (Tai Wai to Hung Hom Section)
Shatin to Central Link (Hung Hom to Admiralty Section)
H ung Shui Kiu
Siu H ong
Long
Ping
47
41
Tin Shui W ai
POTENTIAL FUTURE EXTENSIONS UNDER RAILWAY
DEVELOPMENT STRATEGY 2014
Northern Link and
Kwu Tung Station
Tuen Mun South Extension
East Kowloon Line
Tung Chung West
Extension and Possible
Tung Chung East
Station
Hung Shui Kiu Station
South Island Line (West)
North Island Line
29
39
30
Tuen M un
Tuen M un South
28
Asia W orld-
Expo
Airport
Disneyland
Resort
Sunny Bay
Cable Car
Ngong Ping 360
Tung
Chung
West
Tung Chung East
19
Tung
Chung
Lantau Island
31 Citylink Plaza
32 MTR Hung Hom Building /
Hung Hom Station Carpark
PROPERTIES OWNED / DEVELOPED / MANAGED BY THE CORPORATION
01 Telford Gardens / Telford Plaza I and II
02 World-wide House
03 Admiralty Centre
04 Argyle Centre
05 Luk Yeung Sun Chuen / Luk Yeung Galleria
06 New Kwai Fong Gardens
07 Sun Kwai Hing Gardens
08 Fairmont House
09 Kornhill / Kornhill Gardens
10 Fortress Metro Tower
11 Hongway Garden / Infinitus Plaza
12 Perfect Mount Gardens
13 New Jade Garden
14 Southorn Garden
15 Heng Fa Chuen / Heng Fa Villa / Paradise Mall
16 Park Towers
17 Felicity Garden
18 Tierra Verde / Maritime Square 1 / Maritime Square 2
19 Tung Chung Crescent / Citygate / Novotel Citygate /
Seaview Crescent / Coastal Skyline / Caribbean Coast
33 Trackside Villas
34 The Capitol / Le Prestige / Hemera / Wings at Sea
35 The Palazzo
36 Lake Silver
37 Festival City
38 The Riverpark
39 Century Gateway
42 The Austin / Grand Austin
45 Ocean Pride / Ocean Supreme /
46 Cullinan West
47 The Spectra
PARC CITY / THE PAVILIA BAY / City Point
20 Central Park / Island Harbourview / Park Avenue /
Harbour Green / Bank of China Centre / HSBC Centre /
Olympian City One / Olympian City Two
21 The Waterfront / Sorrento / The Harbourside /
The Arch / Elements / The Cullinan / The Harbourview
Place / W Hong Kong / International Commerce
Centre / The Ritz-Carlton, Hong Kong
22 One International Finance Centre / Two International
Finance Centre / IFC Mall / Four Seasons Hotel /
Four Seasons Place
23 Central Heights / The Grandiose / The Wings /
PopCorn 1 / PopCorn 2 / Crowne Plaza Hong Kong
Kowloon East / Holiday Inn Express Hong Kong Kowloon
East / Vega Suites
24 Residence Oasis / The Lane
25 No.8 Clear Water Bay Road / Choi Hung Park & Ride
26 Metro Town
27 Royal Ascot / Plaza Ascot
28 Ocean Walk
29 Sun Tuen Mun Centre / Sun Tuen Mun Shopping Centre
30 Hanford Garden / Hanford Plaza
6
PROPERTY DEVELOPMENTS
UNDER CONSTRUCTION / PLANNING
34 LOHAS Park Packages
40 Tai Wai Station
41 Tin Wing Stop
43 Wong Chuk Hang Station Packages
44 Ho Man Tin Station Packages
51 Yau Tong Ventilation Building
WEST RAIL LINE PROPERTY
DEVELOPMENTS (AS AGENT FOR THE
RELEVANT SUBSIDIARIES OF KCRC)
39 Century Gateway
45 Ocean Pride / Ocean Supreme /
PARC CITY / THE PAVILIA BAY / City Point
46 Cullinan West
47 The Spectra / Sol City
48 Yuen Long Station
49 Kam Sheung Road Station Packages
50 Pat Heung Maintenance Centre
Shenzhen
Lo W u
Lok M a Chau
Sheung Shui
K w u Tung
Fanling
Yuen Long
48
50
Ka m
Sheung
Road
49
Tai W o
Tai Po M arket
33
New Territories
M a O n Shan
36
W u Kai Sha
H eng O n
Tai
Shui
Hang
Shek M un
Racecourse*
City O ne
Sha
Tin
W ai
U niversity
27
35
Fo Tan
31
Sha Tin
38
Che Kung
Te m ple
Dia m ond Hill
25
Choi
H ung
Choi W an
Ko wloon
Bay
01
N gau Tau Kok
K w un Tong
Shun Tin
Sau M au Ping
Po Tat
Po La m
24
Hang Hau
La m Tin
Yau Tong
51
23
26
Tseung
K w an O
Tiu
Keng
Leng
34
LOHAS Park
N orth
Point
Q uarry Bay
Tai Koo
09
17
12
Sai W an H o
Shau Kei W an
15
13
H eng Fa Chuen
Chai W an
Hong Kong Island
Tsuen W an W est
45
18
Tsing Yi
Tsuen W an
05
Tai W o Hau
K w ai Hing
07
K w ai Fong
06
Lai King
Tai W ai
Lai Chi Kok
Cheung
Sha W an
Sha m
Shui Po
40
37
Hin Keng
Ko wloon
Tong
Lok Fu
W ong
Tai Sin
Kowloon
Prince
Ed w ard
04
42
A ustin
Tsim
Sha
Tsui
Shek
Kip M ei
M ong
Kok
Yau
M a
Tei
Jordan
M ong
Kok East
44
H o
M an
Tin
H ung
H o m
32
East Tsim
Sha Tsui
Exhibition
Centre
Cause w ay
Bay N orth
Kai Tak
Sung
W ong
Toi
To
K w a
W an
W ha m poa
Fortress Hill
10
16
Tin
Hau
14
W an
Chai
Cause w ay
Bay
M ei Foo
46
Na m
Cheong
20
Oly m pic
21
Ko wloon
H ong Kong
W est Ko wloon
22
H ong Kong
Ta m ar
A d miralty
03
08
Tin W an
A berdeen
South
H orizons
Lei Tung
43
W ong
Chuk
Hang
Ocean
Park
Sai Ying Pun
Kennedy
To w n
H K U
11
Sheung W an
02
Central
Q ueen M ary
H ospital
Cyberport
W ah Fu
MTR Corporation
Long
Ping
47
41
Tin Shui W ai
Yuen Long
48
50
Sheung
Ka m
Road
49
Tai W o
Tai Po M arket
33
New Territories
H ung Shui Kiu
Siu H ong
30
39
Tuen M un
Tuen M un South
28
29
Disneyland
Resort
Sunny Bay
Asia W orld-
Expo
Airport
19
Tung
Chung
Tung
Chung
West
Lantau Island
Cable Car
Ngong Ping 360
Tung Chung East
Shenzhen
Lo W u
Lok M a Chau
Sheung Shui
K w u Tung
Fanling
Intercity Through
Train Route Map
Beijing
Beijing Line
Shanghai Line
Guangdong Line
Zhaoqing*
Foshan*
G uangzhou
D ongguan
Shanghai
HONG KONG SAR
* Intercity Through Train stopped terminating at Foshan and Zhaoqing with effect from
10 July 2019.
M a O n Shan
36
W u Kai Sha
H eng O n
Tai
Shui
Hang
Shek M un
Racecourse*
City O ne
Sha
Tin
W ai
U niversity
27
35
Fo Tan
31
Sha Tin
38
Che Kung
Te m ple
Tai W ai
Prince
Ed w ard
Lai Chi Kok
Cheung
Sha W an
Sha m
Shui Po
Shek
Kip M ei
M ong
Kok
Yau
M a
Tei
Jordan
42
04
40
37
Hin Keng
Ko wloon
Tong
W ong
Lok Fu
Tai Sin
Kowloon
Kai Tak
M ong
Kok East
Sung
W ong
To
Toi
K w a
44
W an
H o
M an
Tin
W ha m poa
Shun Tin
Sau M au Ping
Po Tat
25
Choi W an
Dia m ond Hill
Choi
H ung
Ko wloon
Bay
N gau Tau Kok
01
K w un Tong
La m Tin
Yau Tong
Po La m
24
Hang Hau
26
23
Tseung
K w an O
Tiu
Keng
Leng
H ung
H o m
32
East Tsim
Sha Tsui
Exhibition
Centre
Cause w ay
Bay N orth
16
Tin
Hau
Cause w ay
Bay
10
Fortress Hill
N orth
Point
Q uarry Bay
Hong Kong Island
51
09
17
12
Tai Koo
Sai W an H o
Shau Kei W an
H eng Fa Chuen
Chai W an
34
LOHAS Park
15
13
45
Tsuen W an W est
Tsing Yi
18
Tsuen W an
05
Lai King
Tai W o Hau
07
K w ai Hing
K w ai Fong
06
M ei Foo
46
Na m
Cheong
20
Oly m pic
Sai Ying Pun
Kennedy
To w n
H K U
Q ueen M ary
H ospital
Cyberport
W ah Fu
21
Ko wloon
A ustin
Tsim
Sha
Tsui
H ong Kong
W est Ko wloon
H ong Kong
Ta m ar
22
11
Sheung W an
02
Central
A d miralty
03
08
14
W an
Chai
Tin W an
A berdeen
South
H orizons
Lei Tung
43
W ong
Chuk
Hang
Ocean
Park
96
Stations
262.6 km
Route Length
7
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview MAINLAND OF CHINA
AND INTERNATIONAL
BUSINESSES AT A GLANCE
Stockholm
London
TfL Rail/
Elizabeth
Line
South
Western
Railway
Stockholm
Metro
MTR Express
Stockholm
Commuter Rail
(Stockholms
pendeltåg)
MAINLAND OF CHINA
Beijing
Tianjin
Shenzhen
Macao
Metro Line 4
24 Stations
28.2 km
Metro Line 4 – Daxing Line
11 Stations
21.8 km
Metro Line 14*
37 Stations
47.3 km
Metro Line 16*
29 Stations
49.8 km
Metro Line 17
(under construction)
21 Stations
49.7 km
Ginza Mall
Shopping Mall
(under construction)
Metro Line 4
15 Stations
20.5 km
Tiara
TIA Mall
Hangzhou
Metro Line 1
31 Stations
48 km
Metro Line 1 Extension
3 Stations
5.6 km
Metro Line 5*
38 Stations
51.5 km
EUROPE
United Kingdom
Sweden
TfL Rail/Elizabeth Line*^
41 Stations
118 km
South Western
Railway^
203 Stations 998 km
Stockholm Metro
100 Stations 108 km
MTR Express^
6 Stations
457 km
Stockholm
Commuter Rail^
(Stockholms pendeltåg)
54 Stations
247 km
* Currently under partial operation
^ Some stations are not managed by MTR’s subsidiaries / associates / joint venture,
please refer to page 69 for details
8
Light Rapid Transit
Taipa Line
11 Stations
9.3 km
AUSTRALIA
Melbourne
Metropolitan Rail Service
222 Stations 409 km
Sydney
Sydney Metro North West Line
13 Stations
36 km
Sydney Metro City
and Southwest Line
(under construction)
30 km
18 Stations
MTR Corporation
Ginza Mall
Metro
Line 4
Metro
Line 4 –
Daxing Line
Metro
Line 14
Metro
Line 16
Metro
Line 17
Tianjin
Beijing
Shopping Mall
Hangzhou
Metro
Line 1
Metro
Line 1
Extension
Metro
Line 5
Shenzhen
Macao
Metro
Line 4
Tiara
TIA Mall
Light Rapid
Transit Taipa
Line
Sydney
Sydney Metro
North West Line
Sydney Metro City
and Southwest Line
Melbourne
Metropolitan
Rail Service
9
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview CHAIRMAN’S LETTER
Dear Shareholders and other Stakeholders,
By any measure, 2019 could be rated as the most difficult year in our 40 years of service, with a significant part due to the public
order events that affected our Company and Hong Kong as a whole. Since taking up the Chairmanship of MTR in July 2019,
I have been working closely with members of the Board and senior management to set the strategic direction for the Company.
Together, we are making every effort to win back the confidence of the people of Hong Kong and maintain our leading position
in the international railway community in order to sustain our continuous growth and success.
10
MTR Corporation We were deeply distressed by the public order events that
caused such heavy damage to our trains and stations and
disrupted our services during the latter half of the year.
The safety of our customers, staff and our infrastructure is
especially concerning for us as this has always been our top
priority. Thanks to the commitment and professionalism of
our dedicated staff, many of whom often worked through the
night to reinstate service the next morning, we were able to
keep Hong Kong moving during most of this difficult period.
We also had to contend with the recent outbreak of
COVID-19. Extensive measures have been implemented to
deal with this serious health threat in order to protect the
health and safety of our customers and staff. I would like to
thank our staff for the professionalism they have exhibited
during this difficult period.
Equally concerning for us and the public were the incidents
involving the derailment of a train in service near Hung Hom
Station and the collision between two trains while testing a
new signalling system, albeit during non-traffic hours, as well
as the ongoing controversy over the construction works of
Hung Hom Station extension.
Reflecting on what has taken place over the past year, we
have learned valuable lessons and we are taking actions
to prevent the occurrence of those of a similar nature. We
are also looking at new initiatives to further strengthen our
corporate governance and corporate culture.
BUSINESS PERFORMANCE
AND GROWTH
Despite the tremendous challenges of the year, we continued
to work hard on expanding our world-leading network in
Hong Kong, the Mainland of China and overseas.
In Hong Kong, we made steady progress on the Shatin
to Central Link project. The Tuen Ma Line Phase 1 opened
successfully on 14 February 2020, with the launch of two new
stations at Hin Keng and Kai Tak, and an expanded Diamond
Hill Station. Now that the Tuen Ma Line Phase 1 has gone into
service, passengers travelling to and from the New Territories,
East Kowloon and Hong Kong Island East can enjoy improved
convenience and shorter journey times ahead of the full
completion of the Shatin to Central Link in 2022.
On 26 March 2019, the Government published the
redacted Interim Report of the Commission of Inquiry
(“COI”) on the quality of work for the Hung Hom Station
extension of the Shatin to Central Link. While recognising
it to be an Interim Report, the COI found that although the
Hung Hom Station extension diaphragm wall and platform
slab construction works are safe, they were not executed in
accordance with the relevant contract in material respects.
The COI also made a number of comments regarding the
Company’s performance and systems as well as a number
of recommendations for the future. The Final Report of the
COI is expected to be submitted to Government by
31 March 2020.
The Company carried out a further review and revalidation
of the Shatin to Central Link Cost to Complete which was
submitted to Government for review in February 2020.
The Company’s submission included an additional amount
of project management cost for the Company which
Government has objected such inclusion. The Company is
currently addressing these matters with Government.
We were pleased to hear in the Chief Executive’s 2019 Policy
Address about the Government’s intention to commence
detailed planning and design for three new railway projects
under the Railway Development Strategy 2014, namely the
Tung Chung Line Extension, Tuen Mun South Extension and
Northern Link (and Kwu Tung Station). We look forward to
working with the Government on progressing these projects,
which are important to the Hong Kong public.
During the year, we continued our efforts to enhance the
customer experience on our existing lines by upgrading
station facilities, services and the train environment. These
upgrades included the addition of new ventilation units,
babycare rooms, public toilets, water dispensers, more wide
gates and seats, mobile charging spots, and accessibility
features for customers in need. In addition, we have
continued with our digitalisation efforts through adopting
new digital technology and smart mobility initiatives, such
as enhancing our MTR Mobile app with more personalised
services, to help customers better plan their trips.
11
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview We also made good progress outside Hong Kong, with
the commencement of passenger service on the Sydney
Metro North West Line, the initial section of Hangzhou
Metro Line 5 and Macao Light Rapid Transit Taipa Line. In
Beijing, our associate was awarded the Beijing Metro Line 17
Operations and Maintenance concession, while in Australia
the Northwest Rapid Transit Consortium, of which we are a
leading member, concluded the Public Private Partnership
contract with Sydney Metro covering the project works and
railway operations of the City and Southwest Line.
FINANCIAL PERFORMANCE
Apart from the provisions made in the first half of the year
related to the Shatin to Central Link project and the South
Western Railway franchise in the UK, our profitability was also
affected by the public order events in the second half of the
year, which reduced ridership and impacted our earnings in
our station commercial and property rental businesses.
Profit attributable to equity shareholders from recurrent
businesses declined by 44.8% to HK$4,980 million. Together
with profit for the year from property development
businesses, which increased by 148.8% to HK$5,580 million,
profit attributable to shareholders from underlying
businesses was 6.2% lower at HK$10,560 million.
Including the gain arising from investment property
revaluation, which was lower than that in 2018, net
profit attributable to shareholders of the Company fell
by 25.5% to HK$11,932 million. Earnings per share after
revaluation was HK$1.94. Your Board has proposed a
final ordinary dividend of HK$0.98 per share, which
together with the interim dividend of HK$0.25 per
share, would bring the full year dividend to HK$1.23
per share, an increase of 2.5% over last year.
FUTURE DIRECTIONS FOR MTR
MTR has been growing with Hong Kong in the past
40 years and will continue to do so in the years to come.
Over the years, MTR has become an integral part of the
Hong Kong fabric, carrying over 5.5 million passengers
per weekday and providing almost 50% of franchised
public transport services in Hong Kong. MTR has played a
critical role in the success of our city and is a major reason
why Hong Kong is such a vibrant place to live and work.
Outside Hong Kong, MTR has become one of the
leaders among the world’s major metro operators, and
we are recognised for our reliability, service quality,
well-maintained metro systems and sustainability
performance. MTR is truly an international brand that
we, the people of Hong Kong, can take great pride in.
While Hong Kong will always be our core market, we
must also look at opportunities outside Hong Kong, as
both the Mainland of China and international markets are
becoming increasingly important for driving the growth
of MTR. One example is the Mainland of China’s Belt and
Road initiative and the support we can offer through the
MTR Academy, which was established to share our railway
expertise across the region.
Our Environmental, Social and Governance (“ESG”)
performance is certainly an important element of our
strategy, not only in Hong Kong but also worldwide. As
one of the major corporations in Hong Kong, we can
play a leading role in ESG by operating our business with
environmental protection as a top priority. As more and
more of us recognise the threat posed by climate change,
we must step up our efforts to protect the environment
and our natural resources, while further reducing our
electricity consumption and carbon emissions through
the use of new technology.
At the same time, we will continue to support our staff
in preparing for the future through continuous training
and development initiatives including corporate
12
CHAIRMAN’S LETTERMTR Corporation programmes, workshops, seminars and benchmarking
visits. Externally, we will maintain our commitment to
connect communities by offering more community
engagement initiatives, such as our STEM Challenge
and ‘Train’ for Life’s Journeys programmes that benefit
our young people, as well as our More Time Reaching
Community volunteering scheme and donations to
charity organisations.
Just as important is the need to ensure and maintain
high standards of corporate governance. The Board
firmly believe that good corporate governance forms
the cornerstone for ensuring the best interests of
our stakeholders and is conscious about the need for
continuous improvement in corporate governance
through applying best practices in response to the
growing expectations of our stakeholders and
identified opportunities.
OUTLOOK
In the year ahead, I and the Board, along with the senior
management of MTR, will work together to strengthen
our corporate reputation and make progress on our
growth journey, despite the prevailing social, political,
economic and health challenges in Hong Kong, the
Mainland of China and overseas. In particular, the
recent outbreak of COVID-19 has been impacting many
aspects of our operations, and we have implemented
a number of cost control measures to mitigate its
negative financial impact. Considering the tremendous
challenges faced by various sectors amidst the COVID-19
epidemic, the Company is launching special relief
measures to ride out the tough times together with the
public. These measures include no actual adjustment
to MTR fares for the remainder of 2020 and half of the
rent for February and March 2020 waived for small to
medium sized tenants at all MTR stations and
13 shopping malls.
At the same time, I have great confidence that the people
of MTR will continue to maintain their professionalism
and MTR’s success as a world-class railway company.
Their contributions have made the Company what it is
today, and I am extremely proud of the way they handled
themselves throughout this challenging period. I would
like to extend my sincere thanks to all of them for their
dedicated service to MTR and the people of Hong Kong
and the world-wide communities that we serve.
In closing, we have a very efficient Board and I would like
to take this opportunity to thank Professor Frederick Ma for
his many contributions to the Board during his tenure as a
member and Chairman, and also thank Mr Vincent Cheng
Hoi-chuen, Mr Lau Ping-cheung, Kaizer and Mr Abraham
Shek Lai-him, who retired from the Board on 22 May 2019 for
their invaluable service to the Company during their tenure
with us. Additionally, I would like to welcome Mr Walter
Chan Kar-lok, Mr Cheng Yan-kee and Mr Jimmy Ng Wing-ka,
who have been appointed as Independent Non-executive
Directors of the Board effective from 22 May 2019. I would
also like to welcome Dr Jacob Kam, who was appointed as
the Company’s CEO on 1 April 2019, and thank Mr Lincoln
Leong, who retired from the Company after 31 March 2019,
for his contributions during his time at MTR.
I look forward to working with the Board and everyone at
MTR to set us on a new path towards an even brighter future.
Rex Auyeung Pak-kuen
Chairman
Hong Kong, 5 March 2020
13
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview CEO’S REVIEW OF
OPERATIONS AND OUTLOOK
Dear Shareholders and other Stakeholders,
The year 2019 was a special one for the Company, as it marked the 40th year of MTR service to the people of Hong Kong. However,
it was also the most challenging year in our history, particularly for our Hong Kong railway operations and projects. Despite the
unprecedented social challenges and difficult macro-economic environment, we maintained our commitment to excellence and
continued to keep Hong Kong moving.
When I began my duties as CEO, I set three main priorities: to restore public confidence in MTR, to maintain a safe, reliable and
value-for-money service for our customers, and to continue ensuring our complex businesses are managed efficiently and effectively.
To maintain our core as well as to embrace the future challenges ahead, we are undergoing a corporate strategy review on
different strategic areas to get ourselves better prepared for the future challenges and opportunities. We will sharpen certain
areas of strategic focus while continuously enhancing our MTR’s core businesses in Hong Kong – our bedrock of long-term
success. With our good track record on railway operations performance, we will continue to expand our Mainland of China and
14
MTR Corporation international businesses and explore new business engines
by leveraging on innovation and technological levers which
will add fuel to our growth, and all the while paying attention
to sustainability, Environmental, Social and Governance
(“ESG”) as well as inclusion and diversity to strengthen
our commitment and enhance the values we bring to the
communities that we serve.
During the latter half of 2019, our businesses were adversely
affected by the public order events that erupted across
Hong Kong. Nevertheless, we at MTR persevered during
this period and provided passenger services whenever
possible, despite the damages and disruption inflicted
on our network. I am deeply moved by the efforts and
professionalism of our colleagues, who worked tirelessly to
keep Hong Kong moving, often in perilous circumstances.
The recent outbreak of COVID-19 has been impacting Hong
Kong and many aspects of our operations. To ensure the
health and safety of our customers and staff, extensive
measures have been implemented including the intensified
cleaning of our stations, trains, managed properties and
shopping malls, provision of protective equipment to our
frontline staff and special work arrangements for office staff.
Additionally, all our cross-boundary services, including the
Cross-boundary Service to Lo Wu and Lok Ma Chau, High
Speed Rail (“HSR”) and Intercity service, were suspended
temporarily as requested by Government.
Although this health crisis was still ongoing as we are writing
this, all of the senior management of MTR would like to extend
their heartfelt appreciation to our staff, whose professionalism
and dedication during this difficult time are greatly appreciated.
Other issues of great concern to us during the year were the
train derailment near Hung Hom Station in September and
the collision of two non-passenger trains near Central Station
during a non-service hours test of a new signalling system in
March. Investigation panels comprising experts from Hong
Kong and overseas were set up to determine the causes of
these incidents. We consider these incidents to be extremely
serious and have taken actions to prevent the occurrence of
those of a similar nature.
In our property development business, we awarded two new
projects during the year, namely LOHAS Park Package 11 and
Wong Chuk Hang Station Package 4. In February 2020, LOHAS
Park Package 12 was also awarded.
With regard to our new railway projects, we continued to
make good progress on the Shatin to Central Link. In this
connection, the Tuen Ma Line Phase 1 opened successfully on
14 February 2020.
We also welcomed the intention of the Government, as
announced in the Chief Executive’s 2019 Policy Address, to
commence detailed planning and design for three new lines:
the Tung Chung Line Extension, Tuen Mun South Extension
and Northern Link (and Kwu Tung Station). We look forward
to working together with Government on bringing all three of
these new railway projects to fruition.
Highlights of our Mainland of China and International
Businesses during the year included the commencement
of service on the Sydney Metro North West Line, the initial
section of Hangzhou Metro Line 5, as well as the Macao
Light Rapid Transit (“LRT”) Taipa Line. TfL Rail in London,
the future Elizabeth line, also commenced service between
Paddington and Reading.
In the Mainland of China, our associate was awarded the
Beijing Metro Line 17 (“BJL17”) Operations and Maintenance
(“O&M”) concession. In Australia, the existing Northwest
Rapid Transit (“NRT”) consortium, of which we are a member,
concluded the Public Private Partnership (“PPP”) contract
with Sydney Metro, covering the project works and railway
operations of the City and Southwest Line. The future City and
Southwest Line will operate as a single line with the current
North West Line upon its target opening in 2024.
Looking at the numbers, profit attributable to equity
shareholders from recurrent businesses decreased by
44.8% to HK$4,980 million. Property development profit
for the year increased by 148.8% to HK$5,580 million. As a
result, profit attributable to shareholders from underlying
businesses was 6.2% lower at HK$10,560 million. Return
on average equity attributable to shareholders arising from
underlying businesses was 5.8% in 2019, compared with
6.5% in 2018. Including the gain arising from investment
property revaluation, net profit attributable to shareholders
of the Company decreased by 25.5% to HK$11,932 million,
representing earnings per share after revaluation of HK$1.94.
Excluding the HK$2 billion provision relating to the Shatin
to Central Link project, a HK$436 million provision relating
to the South Western Railway franchise and the adverse
impact of HK$2.3 billion brought about by the public order
events in Hong Kong, recurrent business profit, underlying
business profit and net profit attributable to shareholders
15
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview of the Company would have increased by 7.7% to HK$9,712
million, 35.8% to HK$15,292 million and 4.1% to HK$16,664
million respectively in 2019. Return on average equity
attributable to shareholders arising from underlying
businesses would have been 8.2% in 2019.
Your Board has proposed a final ordinary dividend of HK$0.98
per share, which together with the interim dividend of
HK$0.25 per share, brings the full year dividend to HK$1.23 per
share, representing an increase of 2.5% over last year.
HONG KONG BUSINESSES
MTR's businesses in Hong Kong are based on our proven
“Rail plus Property” business model, under which we are
engaged in the provision of services on our rail network as
well as station commercial activities, property rental and
property developments over and adjacent to stations and
depots. The “Rail plus Property” business model not only
bridges the funding gap when building new rail lines but
also promotes transport-oriented city development and
integrated communities along the railway lines.
Effect of the Public Order Events on our
Hong Kong Businesses
As mentioned previously, our businesses in Hong Kong,
including our transport operations, station commercial and
property rental businesses, were adversely affected by the
public order events in Hong Kong. For Hong Kong transport
operations, our weekday patronage fell to 5.61 million, a drop
of 4.5% from 2018. Total patronage recorded 2.5% growth
in the first half of 2019, but a 14.8% decrease in the second
half. Expenditures for hiring additional staff during this period
and carrying out extensive repairs and replacements also had
an adverse effect on our financial and operational results.
Similarly, the performance of our station commercial and
property rental businesses was affected as a result of early
closures during the public order events and the concessions
granted to some tenants in our stations and shopping malls.
As a result of the vandalism, many of our railway stations,
Light Rail stops and other railway facilities were damaged,
and many of our stations were closed early or had their
service hours curtailed. Indeed, on 5 October we were forced
to take the unprecedented move of shutting down the
services of the entire network for the first time in our 40 years
of service. The primary reason for these station closures was
for the safety of our passengers and staff.
In the process of rebuilding MTR, we are reviewing our
approach to station design to include from a security
perspective, such as replacing broken glass panels with metal
ones as an interim solution, and exploring enhancement
measures in our future railway station design.
Transport Operations
HK$ million
Hong Kong Transport Operations
Total Revenue
EBITDA
EBIT
EBITDA Margin (in %)
EBIT Margin (in %)
Year ended 31 December
2019
2018
Inc./(Dec.) %
19,938
5,909
(591)
29.6%
(3.0)%
19,490
8,171
1,985
41.9%
10.2%
2.3
(27.7)
n/m
(12.3)% pts.
(13.2)% pts.
The revenue of our Hong Kong transport operations
increased by 2.3% to HK$19,938 million in 2019, mainly due
to the full year impact of the opening of HSR in September
2018, which more than offset the adverse impact brought
about by the public order events. Loss before interest,
finance charges and taxation and after the variable annual
payment was HK$591 million, mainly due to a reduction
in total patronage and additional operating, repair and
maintenance costs incurred as a result of the impact of the
public order events in Hong Kong.
16
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation Patronage and Revenue
Hong Kong Transport Operations
Domestic Service
Cross-boundary Service
HSR
Airport Express
Light Rail and Bus
Intercity
Others
Total
The public order events in Hong Kong during the latter
half of 2019, together with a weakening economy and a
decrease in tourism arrivals, resulted in a 6.1% decline in
total patronage of our Domestic Service to 1,568.2 million
from 1,670.0 million the year before. On our Cross-boundary
Service to Lo Wu and Lok Ma Chau, patronage fell by 11.3%
to 104.2 million mainly owing to the substantial decrease in
Mainland visitors. Similarly, patronage of the Airport Express
recorded a 11.0% drop in customers, due to the decline in
tourist arrivals during the year.
Accordingly, total patronage of all our rail and bus passenger
services in 2019 declined by 6.4% from that in 2018 to
1,914.3 million, while average weekday patronage dropped
by 4.5% to 5.61 million from 5.88 million the year before.
Market Share
The Company’s overall market share of the franchised public
transport market in Hong Kong in 2019 was 47.4%, compared
with 49.0% in 2018. This decline was mainly due to the decrease
in patronage for all rail services as a result of the public order
events. Of this, the share of cross-harbour traffic was 67.5%,
compared with 69.1% in 2018. Our share of the cross-boundary
business for 2019, including HSR and Cross-boundary Service,
fell from 52.1% to 51.3%. Our market share to and from the
airport went down from 22.0% to 20.5%.
Fare Adjustment, Promotions and Concessions
The overall adjustment rate of MTR fares for 2019/2020, in
accordance with the Fare Adjustment Mechanism (“FAM”),
was +3.3%. To commemorate our 40th anniversary of
service, we offered a 3.3% rebate for every Octopus trip
Patronage
in million
Revenue
HK$ million
2019
Inc./(Dec.) %
2019
Inc./(Dec.) %
1,568.2
104.2
16.9
15.8
207.3
1.9
1,914.3
(6.1)
(11.3)
219.2
(11.0)
(10.0)
(48.2)
(6.4)
12,714
3,164
2,098
1,011
677
175
19,839
99
19,938
(3.9)
(8.9)
249.7
(12.5)
(6.4)
(18.2)
2.3
6.5
2.3
effective from 30 June 2019 until 4 April 2020, and we
extended the offer until the end of June 2020 in view of
the recent outbreak of COVID-19. Under the scheme, all
Octopus users can enjoy a 3.3% fare discount on every
paid journey they take on the MTR, Light Rail and MTR Bus,
which translates into no actual MTR fare increase for every
passenger travelling with Octopus. The existing prices of the
MTR City Saver, Monthly Pass Extras and Tuen Mun – Nam
Cheong Day Pass will remain unchanged till end of June 2020
as applicable to benefit frequent users of our services.
The overall fare savings to customers under the new
promotion package will be over HK$900 million in 2019/2020
as compared with over HK$500 million in the previous
period. Together with over HK$2.6 billion in on-going fare
concessions and interchange discounts, the Company will
be providing customers with over HK$3.5 billion in fare
concessions in 2019/2020.
In view of the outbreak of COVID-19, the Company has
also decided to ensure, through fare rebates or other
arrangements, that there will be no actual adjustment to MTR
fares for the remainder of 2020 despite the fare adjustment
rate for 2020/2021 under the FAM that will only be derived
after the Census and Statistics Department announces the
year-on-year percentage change in the Nominal Wage
Index (Transportation Section) for December 2019 and other
relevant figures later in the first quarter of 2020. Detailed
arrangements will be announced by the end of March
2020 when the statistics are published. After this plan is
implemented, Octopus fares would have stayed the same
from January 2019 to the end of 2020.
17
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview Service Performance
Enhancing the Customer Experience
Train service delivery and passenger journeys on-time in
our heavy rail network remained at 99.9%, excluding the
effects of the public and external events. This exceeded
both the targets in our Operating Agreement and our own
more demanding Customer Service Pledges. Train service
delivery is a measure of the actual train trips run against
the train trips scheduled to be run by the Company, and
passenger journeys on-time is a measure of all passenger
journeys that are completed within five minutes of their
scheduled journey times.
In 2019, more than 2.07 million train trips were made on
our heavy rail network and more than 0.96 million trips on
our light rail network. There were 10 delays on the heavy
rail network and no delays on the light rail network lasting
31 minutes or more caused by factors within our control, a
decrease of 16.7% from the year before.
One of the incidents impacting our service performance
was the train derailment that occurred on East Rail Line near
Hung Hom Station on 17 September. Immediately after the
incident, we suspended train service on the East Rail Line
between Hung Hom and Mong Kok East stations and worked
through the night to restore service the next day. We set up
an investigation panel comprising MTR personnel as well
as experts from Hong Kong and overseas, and the results of
its investigation were made public on 3 March 2020. It was
concluded that the incident was caused by dynamic track
gauge widening at a turnout near Hung Hom Station. The
Company has accepted the recommendations made by the
panel and is taking actions to prevent the occurrence of those
of a similar nature.
Prior to this incident, two non-passenger trains collided on
the Tsuen Wan Line in March near Central Station during
a test of a new signalling system after service hours. An
investigation panel comprising senior MTR personnel as well
as local and overseas experts from outside the Company
was subsequently set up, and its findings were made
public in July 2019. The detailed investigation concluded
that the incident was caused by software implementation
errors made by the contractor of the new signalling system,
and a number of improvement measures have been
recommended for the contractor. We have been overseeing
the contractor in implementing the improvement measures
and will exercise extra vigilance and strengthen monitoring
of the contractor’s deliveries.
More Frequent Services
To help make our customers’ journeys more convenient, we
implemented new rounds of MTR train service enhancements
in April and July 2019. These included an extra 101 train trips
per week on the Island Line, Tsuen Wan Line, Kwun Tong Line
and East Rail Line.
In order to increase the frequency of our services to deal with
peak hour demand, we are in the process of upgrading our
signalling system. The replacement of the signalling systems
for the Tsuen Wan, Island, Kwun Tong, Tseung Kwan O, Tung
Chung and Disneyland Resort lines, as well as the Airport
Express, were all underway during the year. After the train
collision incident during a non-service hours test for the new
signalling system in March 2019, all train tests relating to
the new signalling systems were immediately suspended.
As safety is always our top priority, we will only resume train
testing after obtaining the consent of Government.
MTR will continue to address the challenge of peak hour
demand, although this is a situation that will only be partly
alleviated on the existing cross-harbour section of Tsuen Wan
Line after the completion of the new cross-harbour rail line of
the Shatin to Central Link.
Greater Comfort for Passengers
To provide a more comfortable travel experience for our
passengers, we have ordered new trains and light rail
vehicles. Seven of the 93 new trains and two of 40 new light
rail vehicles acquired were received in Hong Kong and under
testing and commissioning during the year. Our target is
to start deploying the new light rail vehicles for passenger
service from 2020 onwards.
To provide a more comfortable station environment for
passengers, we have been replacing about half of the air
conditioning systems in our network. Two out of five chiller
replacement phases were completed up to 2019, with
61 chillers replaced. Target completion for all other phases
will be in 2022.
Enhancing Station Facilities
We have also been upgrading our station facilities as part
of our effort to enhance the customer experience. These
include the addition of babycare rooms, public toilets,
water dispensers, more wide gates, seats and mobile
charging spots.
To meet the special needs of an aging population, we
embarked on new initiatives at designated stations, focusing
18
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation on accessibility and mobility, as well as the provision of toilets
and information. Enhancements include the addition of
middle handrails and additional seats in longer adits, large
signage, magnifiers and alphabet cards at Customer Service
Centres to help customers in need to identify their exits.
Enhancing Passenger Journeys through Technology
We have been making progress adopting new digital
technology to enhance the customer experience on board
our trains and in our stations. This is part of our ongoing
effort to improve safety, connectivity and convenience
for passengers, which is in line with our “smart city, smart
mobility” vision for MTR.
Across our various mobile applications, we have been making
use of Artificial Intelligence (AI) and Internet of Things (IoT)
technologies to offer a wide range of personalised services,
such as a new Alighting Reminder, Estimated Waiting Time
Indicator at Admiralty Station and MTR Bus Real-Time
Schedules. We have also upgraded our Trip Planner to
provide point-to-point transport advice, such as connecting
public transport information, and revamped the user
interface of the Airport Express function on the MTR Mobile
app. The MTR Mobile app had about 1.4 million active users
per month in 2019.
Internally, we have been applying technology to improve
internal processes and maintenance. These include chatbots
and Robotic Process Automation (RPA) tools that help to
reduce repetitive office tasks. Additionally, we have been
using big data and AI to optimise planning and engineering
works scheduling, as well as video and image analytics
to monitor the health of our railway assets. We have also
introduced Augmented Reality and Virtual Reality in our
training curriculum to simulate actual working conditions
with a totally immersive 3D environment.
Another example of how we are exploring digital technology
to enhance the customer experience is Mobility-as-a-Service
(“MaaS”). Now being developed or in use in Europe, this
platform helps users to plan multiple trips on a variety of
transport modes with just one payment. We will continue to
explore opportunities with other mobility operators with the
aim of developing a MaaS solution for our customers.
Station Commercial Businesses
HK$ million
Hong Kong Station Commercial Businesses
Station retail rental revenue
Advertising revenue
Telecommunication income
Other station commercial income
Total Revenue
EBITDA
EBIT
EBITDA Margin (in %)
EBIT Margin (in %)
Year ended 31 December
2019
4,800
1,130
743
126
6,799
6,119
5,122
90.0%
75.3%
2018
Inc./(Dec.) %
4,424
1,212
696
126
6,458
5,891
5,025
91.2%
77.8%
8.5
(6.8)
6.8
–
5.3
3.9
1.9
(1.2)% pts.
(2.5)% pts.
Total revenue from our Hong Kong station commercial
businesses in 2019 increased 5.3% to HK$6,799 million as
compared with HK$6,458 million the year before, mainly
attributable to the incremental contribution from HSR in
station retail rental revenue.
Station retail rental revenue rose by 8.5% to HK$4,800
million, mainly due to the full-year effect of new Duty
Free Shops at Hong Kong West Kowloon Station, the rate
increases derived from refinements to the trade mix and
renewals by tenants (the majority of which were concluded
before mid-2019). During the year, we continued with our
station renovation projects and re-layout of shops to create
additional retail space in our stations. We also launched a
new retail business model of unmanned shop incorporating
innovative use of technology. Rental reversion and the
average occupancy rate in 2019 in our station kiosks were
3.7% and over 99% respectively.
Advertising revenue decreased by 6.8% to HK$1,130 million
in 2019 as both the tourism and retail markets contracted in
the second half of the year. To offset the slump in advertising
sales, we launched a series of aggressive and flexible sales
packages as well as sales incentive programmes.
19
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview Revenue from telecommunications in 2019 rose by 6.8% to
HK$743 million as a result of the incremental revenue from
new service contracts and capacity enhancement projects.
During the year, we worked with telecom operators to
explore the provision of advanced 5G wireless technology in
our stations that will enhance mobile communications on our
railway network.
Property Businesses
Property Rental and Management
HK$ million
Hong Kong Property Rental and Property
Management Businesses
Revenue from Property Rental
Revenue from Property Management
Total Revenue
EBITDA
EBIT
EBITDA Margin (in %)
EBIT Margin (in %)
Year ended 31 December
2019
2018
Inc./(Dec.) %
4,833
304
5,137
4,286
4,264
83.4%
83.0%
4,748
307
5,055
4,242
4,225
83.9%
83.6%
1.8
(1.0)
1.6
1.0
0.9
(0.5)% pt.
(0.6)% pt.
Property rental revenue increased by 1.8% to HK$4,833
million in 2019, mainly due to rental growth in our shopping
malls, partly offset by the rent concession granted to some
tenants whose businesses had been adversely affected by the
public order events. Rental reversion in 2019 in our shopping
mall portfolio in Hong Kong recorded a 3.1% growth (or 7%
including a special rental case). As at 31 December 2019, our
shopping malls in Hong Kong and the Company’s 18 floors in
Two International Finance Centre were close to 100% let.
In the latter half of 2019, we closely monitored the public
order events and implemented a number of security
measures in our malls. In recognition of the long-term
relationships we have developed with our tenants, and to
offer them support during difficult times, we granted rental
concessions on a case-by-case basis, with priority given to
small to medium sized tenants. In the year ahead, we will
continue to build on our marketing and promotional efforts
to maintain the competitiveness of our shopping malls.
Our property management revenue in Hong Kong decreased
slightly by 1.0% to HK$304 million in 2019. As at 31 December
2019, MTR managed more than 104,000 residential units and
more than 772,000 square metres of office and commercial
space in Hong Kong.
Property Development
Hong Kong property development profit in 2019 was
HK$5,531 million, which was mainly derived from the share
of surplus proceeds from MALIBU and sharing in kind from
The LOHAS, as well as sales of inventory units.
In 2019, we made good progress in our pre-sales activities for
the property development projects we had launched in the
market, particularly in the first half of the year. MONTARA and
GRAND MONTARA (LOHAS Park Package 7) were fully sold,
while pre-sales of the remaining units in Wings at Sea and
Wings at Sea II (LOHAS Park Package 4), MALIBU (LOHAS Park
Package 5) and LP6 (LOHAS Park Package 6) continued, with
about 97% of the units sold. Pre-sales of MARINI and GRAND
MARINI (LOHAS Park Package 9) were launched in the third
quarter of 2019, with about 83% and about 49% of the units
sold respectively.
For the West Rail property development projects where we
act as agent for the relevant subsidiaries of Kowloon-Canton
Railway Corporation (“KCRC”), pre-sales of Cullinan West III
(Nam Cheong Station) were launched in September 2019,
and pre-sales continued for Sol City (Long Ping Station (South)).
In our property tendering activities, LOHAS Park Package
11 was awarded to the consortium formed by Sino Land
Company Limited, K. Wah International Holdings Limited and
China Merchants Land Limited in April 2019. Wong Chuk
Hang Station Package 4 was awarded to the consortium
formed by Kerry Properties Limited, Swire Properties Limited
and Sino Land Company Limited in October 2019. LOHAS
Park Package 12 was awarded to a subsidiary of Wheelock
and Company Limited in February 2020.
20
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation GROWING OUR
HONG KONG BUSINESSES
Shatin to Central Link
By the end of 2019, we had completed 99.8% of the Tai Wai to
Hung Hom Section and 82.3% of the Hung Hom to Admiralty
Section of the Shatin to Central Link project. When the entire
17-km Shatin to Central Link is completed, connectivity will
be greatly improved and travel time to and from the New
Territories, Kowloon and Hong Kong Island notably reduced.
On 11 February 2020, the Company entered into relevant
agreements with Government and KCRC to supplement the
current agreements to enable the Company to operate the
Tuen Ma Line Phase 1 in substantially the same manner as the
existing railway network for a period of two years from
14 February 2020. The first phase, which opened on
14 February 2020, enables passengers on the Ma On Shan
Line to travel directly to Kai Tak Station in East Kowloon
via Hin Keng and Diamond Hill stations. Meanwhile,
the expanded Diamond Hill Station has become a new
interchange between the Tuen Ma Line and Kwun Tong
Line, allowing passengers from the New Territories North
and East districts to travel onward to East Kowloon and Hong
Kong Island East more conveniently. The full line opening
of the Tuen Ma Line is anticipated to be in 2021. As for the
Hung Hom to Admiralty Section (East Rail Line extending
to Admiralty Station), the targeted completion in the first
quarter of 2022 is still facing challenges and there are
continuing efforts being made with the aim of meeting
the programme.
As the existing East Rail Line will connect with the future
Hung Hom to Admiralty section, its signalling system must
be upgraded for compatibility with the Shatin to Central Link
project. Damage to facilities on the East Rail Line as a result
of the recent public order events has caused delays to the
originally scheduled testing of the new signalling system
during non-service hours.
With regard to the project quality issues at the Hung Hom
Station extension, the Government published a redacted
Interim Report of the Commission of Inquiry (“COI”) on
26 March 2019. The Final Report of the COI is expected to be
submitted to Government by 31 March 2020.
In July 2019, the Company submitted to Government two
separate final reports in respect of construction incidents
relating to the Hung Hom Station extension, the Hung Hom
North Approach Tunnel and South Approach Tunnel and the
Hung Hom Stabling Sidings.
The Company carried out a further review and revalidation
of the Shatin to Central Link Cost to Complete which was
submitted to Government for review on 11 February
2020. The Company’s submission included an additional
amount of project management cost for the Company.
Government responded with requests for further
information and clarification and has objected to the
inclusion of any additional amount of project management
cost. As stated in the Company’s announcement on
28 February 2020, the Company notes that Government
has issued its paper for the first stage of the Legislative
Council process for the approval of additional funding for
the Shatin to Central Link project and that Government’s
paper does not include any provision by Government for
any additional amount of project management cost for
the Company. The Company is currently addressing these
matters with Government. Once these issues are resolved
the Company will issue an announcement regarding this
matter. The Company continues to exercise rigorous cost
control with the objective of ensuring that construction
costs are contained as far as possible.
Other New Railway Projects
In addition to the three new projects noted in the Chief
Executive’s 2019 Policy Address, we continued to work
closely with Government on a number of other new projects.
These included the East Kowloon Line and North Island Line,
for which we provided the technical and financial information
as requested.
For the remaining two projects to be implemented under the
Railway Development Strategy 2014 (“RDS 2014”), namely
Hung Shui Kiu Station and South Island Line (West), we were
invited in 2019 to submit project proposals and are currently
undertaking technical studies in preparation for submission
of the proposals in 2020.
We also look forward to participating in other strategic
studies on railways in 2020.
Expanding the Property Portfolio
Investment Properties
During the year, we geared up for the opening of our new
mall at LOHAS Park in the second half of 2020, which has
been officially named The LOHAS, with pre-leasing activities
currently underway.
We also made good progress on two other shopping malls
during the year, with the completion of foundation works for
21
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview the shopping mall at Tai Wai Station and the commencement
of foundation works for the shopping mall at Wong Chuk
Hang Station. Both projects are on course for their target
completion dates in 2023.
When all three of these new malls open for business, they will
add around 49% to the total attributable GFA in our existing
retail portfolio as of 31 December 2019.
The Company announced on 26 February 2020 that
the Company had signed agreements with New World
Development Company Limited and Chow Tai Fook
Enterprises Limited to acquire their interests in Telford Plaza
II shopping centre in Kowloon Bay and PopCorn 2 shopping
centre in Tseung Kwan O for a total consideration of
HK$3 billion. Upon completion of the transactions on or
before 31 March 2020, the Company will hold the entire
economic interest of these two shopping centres, which
will help to provide a sustainable funding solution to the
Company's railway business.
Residential Property Development
Over the next six years or so, we will deliver about 22,000
residential units from 16 property projects to the market
in Hong Kong. These include the recently awarded LOHAS
Park Package 11, Package 12 and Wong Chuk Hang Station
Package 4, offering around 4,650 residential units and around
237,448 square metres GFA in total.
The successful tendering of LOHAS Park Package 11
and 12 means that the vast majority of the packages at
LOHAS Park have now been awarded and are in various
stages of development.
For the Siu Ho Wan Depot site, which will be developed into
a community comprising both public and private housing
totalling around 14,000 units, community facilities and a
30,000 square metre shopping mall, we are currently in
negotiation with Government and are exploring how we can
best advance this project. There is still no assurance at this
early stage whether or not it will be commercially viable.
MAINLAND OF CHINA AND INTERNATIONAL BUSINESSES
Mainland of China and International Businesses
Mainland of China and Macao
Railway, Property Rental
and Property
Management Businesses
International Railway Businesses
Total
2019
2018 Inc./(Dec.) %
2019
2018 Inc./(Dec.) %
2019
2018 Inc./(Dec.) %
1,881
529
517
517
28.1%
27.5%
472
1,458
388
376
376
26.6%
25.8%
338
29.0
36.3
37.5
19,204
796
572
19,419
488
346
(1.1)
63.1
65.3
21,085
1,325
1,089
20,877
876
722
37.5
1.5% pts
1.7% pts
39.6
412
4.1%
3.0%
200
198
2.5%
1.8%
48
108.1
1.6% pts
1.2% pts
316.7
1.0
51.3
50.8
61.8
2.1% pts
1.7% pts
74.1
(37.5)
(87.6)
929
6.3%
5.2%
672
602
54
574
4.2%
3.5%
386
963
437
1,005
457
989
470
1.6
(2.8)
(403)
(403)
(26)
(33)
(1,450.0)
(1,121.2)
Year ended 31 December
HK$ million
Recurrent Businesses
Subsidiaries
Revenue
EBITDA
EBIT
EBIT
(Net of Non-controlling Interests)
EBITDA Margin (in %)
EBIT Margin (in %)
Recurrent Business Profit
Associates and Joint Venture
Share of EBIT
Share of Profit/(Loss)
EBIT of Subsidiaries (Net of
Non-controlling Interests)
and Share of EBIT of
Associates and Joint Venture
1,522
1,365
11.5
9
172
(94.8)
1,531
1,537
(0.4)
Profit attributable to Shareholders of the Company
– Arising from Recurrent Businesses (before Business Development Expenses)
– Business Development Expenses
– Arising from Recurrent Businesses (after Business Development Expenses)
– Arising from Mainland of China Property Development
– Total
Number of passengers carried by our railway subsidiaries, associates and joint venture outside of Hong Kong
(in millions)
22
726
(201)
525
49
574
823
(263)
560
90
650
2,276
2,186
(11.8)
(23.6)
(6.3)
(45.6)
(11.7)
4.1
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation
The first three phases of BJL14 recorded a combined
passenger trips of about 251 million and average
weekday patronage of over 788,000 in 2019, an increase
of 6% over 2018.
Construction works for the remaining sections of BJL16 and
BJL14 continued to make progress during the year. Both
lines are targeted for full line operation after 2021.
Shenzhen
Shenzhen Metro Line 4 (“SZL4”) recorded 3% patronage
growth to 239 million, with average weekday patronage of
666,000 and on-time performance of 99.9%.
Although patronage on SZL4 continued to grow during
the year, there has been no increase in fares since
we began operating the line in 2010. Currently, the
Shenzhen Municipal Government is in the planning
process to implement a fare adjustment mechanism. If a
suitable fare adjustment mechanism is not put in place
in the near future, the long-term financial viability of this
line will be impacted.
For SZL4 North Extension, discussions with the Shenzhen
Municipal Government continued with regard to the
operational and maintenance arrangements in preparation
for its opening at the end of 2020.
Hangzhou
Patronage of Hangzhou Metro Line 1 (“HZL1”) recorded
a 9.6% growth in patronage to 296 million, with average
weekday patronage of 822,000, and on-time train
performance remaining at 99.9%.
The initial section of Hangzhou Metro Line 5 (“HZL5”)
commenced service in June 2019, with positive response
received from our passengers. Total patronage since
its opening was 16 million, with an average weekday
patronage of 92,000. The latter section is targeted to start
service in the first half of 2020.
Outside Hong Kong, we have used our expertise and
experience to build a growing portfolio of railway-related
businesses in the Mainland of China, Macao, Europe and
Australia. Our railway businesses outside Hong Kong
carried an average of about 7.2 million passengers per
weekday in 2019.
In the Mainland of China and Macao, recurrent
business profit from our railway, property rental and
property management subsidiaries increased by
39.6% to HK$472 million, mainly due to incremental
contributions from Macao LRT Taipa Line O&M and
project management services.
In our International businesses, recurrent business profit
from our railway subsidiaries increased by 316.7% to
HK$200 million, mainly due to the recognition of profit
from Sydney Metro City & Southwest’s Early Works Deed
and the reduced loss of MTR Pendeltågen AB.
Our share of profit from our associates and joint venture
decreased by 87.6% to HK$54 million, mainly due to the
onerous contract provision made for First MTR South
Western Trains Limited.
Excluding Mainland of China property development, our
railway, property rental and management subsidiaries
(after business development expenses), together with
our associates and joint venture outside of Hong Kong,
contributed net after-tax profits of HK$525 million in 2019
on an attributable basis, a decrease of 6.3% compared with
2018, and represented 10.5% of total 2019 recurrent profits.
Railway Businesses in the
Mainland of China
Beijing
In Beijing, our associate operates Beijing Metro Line 4
(“BJL4”), Daxing Line, the first three phases of Beijing Metro
Line 14 (“BJL14”) and the Northern Section of Beijing Metro
Line 16 (“BJL16”). Average on-time performance of these
four lines in 2019 was 99.9%.
The combined ridership of BJL4 and the Daxing Line was
about 455 million passenger trips in 2019, while average
weekday patronage was more than 1.35 million, similar
to 2018.
23
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview Property Business in the Mainland of China
The Tiara residential development at Shenzhen Metro
Longhua Line Depot Site Lot 1 has a total developable GFA
of approximately 206,167 square metres, including a retail
centre of about 10,000 square metres (GFA). More than
98% of the residential units have been sold and handed
over to buyers. TIA Mall held its official opening in August
2019, and the average occupancy rate was 74% during
the period.
In Tianjin, a Sale and Purchase Agreement was signed
in 2018 for the acquisition of a shopping centre to be
developed on the Beiyunhe Station site. Based on the
construction progress, project completion is expected
to be delayed from 2022 to 2024 due to the additional
works required for railway safety assurance during
basement construction.
In the Guangdong-Hong Kong-Macao Greater Bay Area,
we are providing Transit Oriented Development technical
assistance relating to a mixed-use property development
adjacent to Chencun Station in the Shunde district of
Foshan, Guangdong province.
The Company also manages self-developed and other
third-party properties in the Mainland of China, with a total
managed area of 390,000 square metres as at
31 December 2019. The average occupancy rate of our
shopping mall in Beijing, Ginza Mall, was 98% in 2019.
Macao Railway Businesses
In Macao, we are responsible for the operation and
maintenance of the Macao LRT Taipa Line, the first rapid
transit system in the city. Since commencing operation
on 10 December, it has received a favourable response
from the public and passengers. Service on the 9.3-km,
11-station LRT Taipa Line connects the Taipa Ferry Terminal
to Ocean Station.
European Railway Businesses
United Kingdom
In London, our subsidiary operates the Crossrail operating
concession under the TfL Rail brand. In 2019, the overall
performance of TfL Rail was satisfactory and remained one
of the most reliable rail services in the UK. In addition to
the existing TfL Rail service between Liverpool Street and
Shenfield in the east of London, and between Paddington
and Heathrow Airport in the west, TfL Rail commenced
service in December 2019 on the 57-km route running
between Paddington and Reading. As the operator of
the line, to be renamed the Elizabeth Line upon full line
opening, we continue to support Transport for London on
its phased opening.
Through our associate First MTR South Western Trains
Ltd, we also operate the South Western Railway
franchise, one of the UK’s largest rail networks. In 2019,
the financial performance of this franchise continued to
suffer owing to a number of reasons, and we have made
an announcement on the provision of GBP43 million
representing our share of the maximum potential loss
under the Franchise Agreement.
First MTR South Western Trains Ltd is in discussions
with the Department for Transport regarding potential
commercial and contractual remedies in respect of the
uncertainties affecting the performance of the franchise,
including infrastructure reliability, timetabling delays
and industrial action. Although these discussions are
constructive, they remain ongoing. The outcome, and
therefore the impact on the associate’s ability to continue
operating the franchise, is uncertain at this stage.
Sweden
In Sweden, MTR is the largest rail operator by passenger
volume with three key rail businesses: Stockholm Metro,
MTR Express and the Stockholm commuter rail service
(“Stockholms pendeltåg”).
During the year, Stockholm Metro continued to register
stable operation and satisfactory performance.
MTR Express, which was ranked the second most
innovative company in Sweden on the Swedish Innovation
Index, continued to increase patronage in 2019 with
narrowed losses. New marketing initiatives have been
implemented to stimulate ridership.
24
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation The operational and financial performance of Stockholms
pendeltåg significantly improved in 2019 following the
difficulties in 2018. However, MTR Pendeltågen AB, our
wholly owned subsidiary operating Stockholms pendeltåg,
will likely remain in a loss-making position for a year or so
despite narrowed losses in 2019. During the year, MTR Tech
AB bought out the other 50% shareholding in Emtrain AB,
which maintains the rolling stock of Stockholms pendeltåg,
bringing rolling stock maintenance for the Stockholms
pendeltåg fully under our management.
Australia Railway Businesses
In Melbourne, the operational performance of the
Melbourne metropolitan rail network was affected due to a
variety of reasons, including network improvement works
initiated by the city government. We have since made
rectification plans and put in place the resources needed to
bring service back to previous performance levels. Indeed,
our good record of performance over the term of the
previous franchise was one of the reasons for the renewal
of our concession to November 2024, with an option to
further extend for a maximum of three years.
Sydney Metro North West Line, Australia’s first driverless
railway, commenced service in May 2019 and achieved
a high customer satisfaction score in its initial period of
operation. Equipped with state-of-the-art rail service
features such as fully automated (driverless) trains and
platform screen doors, it has been commended by the
Premier of the New South Wales State Government and
well received by the public.
Growth Beyond Hong Kong
Outside Hong Kong, we are committed to pursuing
rail franchise and rail-related property
development opportunities.
In the Mainland of China, we were awarded the 49.7-km
BJL17 O&M concession in December 2019. This is a 20-year
concession (no later than 31 December 2045) commencing
from the first phase opening of the line, which is targeted
for the end of 2021. We will lease the rolling stock over
the 20-year period, with lease payments to be paid in two
instalments after the opening of each phase. During the
year, we continued our efforts to identify development
opportunities in Beijing, Hangzhou and, in particular, the
Guangdong-Hong Kong-Macao Greater Bay Area.
A Letter of Intent (LoI) was signed on 14 January 2020
in which the Company was invited by Chengdu Rail
Transit Group to joint-venture with them on station retail
businesses. Both parties are looking forward to concluding
the deal in joint-venture agreement(s) subject to a business
case assessment that justifies our participation in this new
line of business in the Mainland of China.
In the UK, we submitted a bid for the West Coast
Partnership franchise but were unsuccessful.
In Stockholm, we submitted a bid for the O&M of
Roslagsbanan, the commuter network connecting
Stockholm and the municipalities north of the city. The
result of the bid is expected in the second quarter of 2020.
In Australia, the NRT consortium, of which we are a
member, reached an agreement with the New South Wales
Government in November 2019 to conclude the contract
for the extension to the existing NRT PPP with Sydney
Metro. The NRT PPP contract package includes new metro
trains and core rail systems as well as the operations and
maintenance component for NRT to operate the combined
Metro North West and City and Southwest lines until 2034.
MTR will invest in the project and take the lead in the NRT
PPP project works and railway operations and maintenance
of both the City and Southwest Line and the Metro North
West Line as a combined single line from 2024.
25
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview FINANCIAL REVIEW
A review of the Group’s result and operations is featured in the preceding sections. This section discusses and analyses such
results in greater level of details.
Profit and Loss
HK$ million
Total Revenue
Recurrent Business Profit
EBIT
Hong Kong Transport Operations
Hong Kong Station Commercial Businesses
Hong Kong Property Rental and Management Businesses
Mainland of China and International Railway,
Property Rental and Management Subsidiaries
Others#
Share of Profit or Loss of Associates and Joint Venture
Profit before Interest, Finance Charges and Taxation
Interest and Finance Charges
Income Tax
Non-controlling Interests
Recurrent Business Profit
Non-recurrent Business Profit
Property Development Profit (Post-tax)
Hong Kong
Mainland of China
Non-recurrent Business Profit
Underlying Business Profit
Investment Property Revaluation
Net Profit Attributable to Shareholders of the Company
Results on Normalised Basis^
Recurrent Business Profit
Property Development Profit
Underlying Business Profit
Investment Property Revaluation
Net Profit Attributable to Shareholders of the Company
n/m: not meaningful
Year ended 31 December
Inc./(Dec.)
2019
54,504
2018
HK$ million
53,930
574
(591)
5,122
4,264
1,089
(2,353)
288
7,819
(939)
(1,740)
(160)
4,980
5,531
49
5,580
10,560
1,372
11,932
9,712
5,580
15,292
1,372
16,664
1,985
5,025
4,225
722
(404)
658
12,211
(1,208)
(1,835)
(148)
9,020
2,153
90
2,243
11,263
4,745
16,008
9,020
2,243
11,263
4,745
16,008
(2,576)
97
39
367
(1,949)
(370)
(4,392)
(269)
(95)
12
(4,040)
3,378
(41)
3,337
(703)
(3,373)
(4,076)
692
3,337
4,029
(3,373)
656
%
1.1
n/m
1.9
0.9
50.8
(482.4)
(56.2)
(36.0)
(22.3)
(5.2)
8.1
(44.8)
156.9
(45.6)
148.8
(6.2)
(71.1)
(25.5)
7.7
148.8
35.8
(71.1)
4.1
#
^
Others represents “Other Businesses, and Project Study and Business Development Expenses”.
Results on normalised basis are estimates based on certain assumptions to represent financial performance if the adverse impact of the public order events in Hong Kong
on the Group’s Hong Kong businesses (HK$2.3 billion), and the provisions for the Hung Hom incidents of the SCL project in Hong Kong (HK$2 billion) and the South Western
Railway franchise agreement in the United Kingdom (HK$0.4 billion) had been excluded.
26
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation
Total Revenue
Total revenue of the Group in 2019 was HK$54,504 million
up slightly by 1.1% when compared with 2018, mainly due
to the full year contribution from HSR and higher revenue
contributions from our Mainland of China and international
subsidiaries, but offset mostly by the reduction in fare
revenue in our Hong Kong transport operations (“HKTO”), as
well as the rental concessions granted to some tenants in our
station kiosks and shopping malls because of the public order
events in Hong Kong since June 2019.
Recurrent Business Profit
Recurrent business profit decreased by 44.8% to HK$4,980
million. If the adverse impact from the public order events
in Hong Kong and the provisions made had been excluded,
recurrent business profit would have increased by 7.7% to
HK$9,712 million.
EBIT
HKTO recorded an EBIT loss of HK$591 million in 2019,
compared with a profit of HK$1,985 million in 2018, mainly
due to a reduction of 6.4% in total patronage and additional
operating, repair and maintenance costs incurred as a result
of the impact of the public order events in Hong Kong.
EBIT of the Hong Kong station commercial businesses
increased by 1.9% to HK$5,122 million, mainly due to the full
year rental income from the new Duty Free Shops at Hong
Kong West Kowloon Station and rental income growth of
station kiosks, partly offset by the drop in advertising revenue
and the rental concessions granted to some station kiosk
tenants who had been adversely affected by the public order
events in Hong Kong.
EBIT of the Hong Kong property rental and management
businesses increased marginally by 0.9% to HK$4,264 million,
mainly due to the rental income growth of our shopping
malls, partly offset by the rent concessions granted to some
tenants who had also been adversely affected by the public
order events in Hong Kong.
EBIT of the Mainland of China and international railway,
property rental and management subsidiary businesses
increased by 50.8% to HK$1,089 million, mainly as a result of
the performance improvement of Stockholms pendeltåg and
higher operating profits from Macao LRT Taipa Line project
management and O&M services.
EBIT of others (mainly including project management services
performed for Government, Ngong Ping 360 and consultancy
businesses, net of project study and business development
expenses) reported a loss of HK$2,353 million in 2019,
compared with a loss of HK$404 million in 2018, mainly due
to the provision of HK$2 billion made in 2019 for the Hung
Hom incidents of the SCL project in Hong Kong.
Share of Profit or Loss of Associates and Joint Venture
Share of profit of associates and joint venture decreased
by 56.2% to HK$288 million, mainly due to a provision of
onerous contract made in 2019 in respect of the South
Western Railway franchise agreement in the United Kingdom
amounting to HK$436 million. If the provision had been
excluded, the share of profit would have increased by
HK$66 million, or 10.0%, which was mainly contributed by
our associates in Australia and Hangzhou.
Non-recurrent Business Profit
Property development profit increased by 148.8% to
HK$5,580 million, mainly derived from the surplus proceeds
of MALIBU (LOHAS Park Package 5) and sharing in kind of The
LOHAS, as well as sales of inventory units.
Net Profit Attributable to Shareholders
of the Company
Revaluation of the Group’s investment properties in Hong
Kong and Mainland of China, which was performed by
independent professional valuation firms, resulted in a
revaluation gain of HK$1,372 million in 2019, down by 71.1%
when compared with 2018. The decrease was mainly due
to the economic downturn stemming from China-US trade
tensions as well as the public order events in Hong Kong.
Net profit attributable to shareholders of the Company was
reduced by 25.5% when compared with 2018. Should the
adverse impact of the public order events in Hong Kong and
the provisions made be excluded, the net profit attributable
to shareholders of the Company would have increased by
4.1% to HK$16,664 million.
27
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview Financial Position
HK$ million
Net Assets
Total Assets
Total Liabilities
Gross Debt
Net Debt-to-equity Ratio (in %)
Net Assets
Our financial position remained strong. The Group’s net
assets increased by 3.4% from HK$180,619 million as at
31 December 2018 to HK$186,798 million as at
31 December 2019.
Total Assets
Total assets increased by 5.3% from HK$274,687 million to
HK$289,214 million. This was mainly due to:
•
•
increase in investment properties due to (i) receipt of
a new shopping mall of LOHAS Park Package 7, and (ii)
investment revaluation gain of existing portfolio;
increase in property development receivables upon
recognition of property development profit of MALIBU;
•
increase in cash retained; and partly offset by
• decrease in property development in progress upon
profit recognition of our property development.
As at
31 December
2019
As at
31 December
2018
Inc./(Dec.)
HK$ million
186,798
289,214
102,416
39,456
15.4%
180,619
274,687
94,068
40,205
18.1%
6,179
14,527
8,348
(749)
%
3.4
5.3
8.9
(1.9)
(2.7)% pts
Total Liabilities
Total liabilities increased by 8.9% from HK$94,068 million to
HK$102,416 million. This was mainly due to:
•
increase in amount received in respect of Hong Kong
property development; and
• provision of HK$2.0 billion made in respect of the Hung
Hom incidents of the SCL project in Hong Kong.
Gross Debt and Cost of Borrowing
Gross debt of the Group (being loans and other obligations,
bank overdrafts and short-term loans) decreased by 1.9% to
HK$39,456 million. Weighted average borrowing cost of the
Group’s interest-bearing borrowings remained at 2.8% p.a.,
the same as that in 2018.
Net Debt-to-equity Ratio
Net debt-to-equity ratio was 15.4% at 31 December 2019, a
decrease of 2.7% points from 18.1% as at 31 December 2018,
mainly driven by an increase in cash balances generated
by operating activities, as well as cash receipts in respect of
Hong Kong property development.
28
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation Cash Flow
HK$ million
Net Cash Generated from Operating Activities, Net of Fixed and Variable Annual Payments
Net Receipts from Property Development
Other Cash Outflow in Investing Activities
Net Repayment of Debts and Net Interest Payment
Dividends Paid to Shareholders of the Company
Increase in Cash, Bank Balances and Deposits#
#
Excluding effect of exchange rate change
2019
13,988
5,916
(7,490)
(2,362)
(6,649)
3,286
2018
8,267
3,720
(7,956)
(2,390)
(1,281)
207
Net Cash Generated from Operating Activities, Net of
Fixed and Variable Annual Payments
Net cash generated from operating activities, net of fixed
and variable annual payments for Hong Kong railway
and related operations was HK$13,988 million, which was
HK$5,721 million higher than that in 2018, mainly due to the
payment of the land premium for the Wong Chuk Hang Station
package to the Government amounting to HK$5,214 million in
2018 (which was not repeated in 2019).
Net Receipts from Property Development
Net receipts from property development were
HK$5,916 million, comprising mainly cash receipts from
LOHAS Park, Wu Kai Sha Station and Wong Chuk Hang
packages, partly offset by the Company’s contribution
payment for the LOHAS Park package.
Other Cash Outflow from Investing Activities
Other cash outflow from investment activities was
HK$7,490 million, which mainly included capital expenditure
of HK$6,072 million (comprising HK$5,291 million for investing
in additional assets for our Hong Kong existing railways and
related operations, HK$308 million for Hong Kong investment
properties, HK$292 million for Hong Kong railway extension
projects and HK$181 million for the Mainland of China and
overseas subsidiaries), and investments of HK$1,416 million in
our associate and joint venture.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
ESG is becoming increasingly important to our operations
across MTR, not only in terms of our environmental and
social performance but also with regard to our corporate
governance. All are essential to the way we conduct our
business and help us maintain our reputation as a responsible
business that connects communities and betters the lives of
our passengers, customers and staff.
We are looking into current trends on sustainability initiatives
such as inclusive mobility, carbon-neutral transit and transport,
congestion reduction and better access to multi-modal
transit, as well as inclusion and diversity. Beyond this, we
encourage every part of our business to be conscious of ESG
and to set appropriate ESG targets.
Electrically powered mass transit railway is widely regarded as
the most environmentally sustainable way to transport large
numbers of people in cities. At MTR, we strive to be one
of the most resource efficient and ecologically sustainable
railways in the industry. We have set targets to reduce
electricity consumed per passenger-km by 21% in our heavy
rail network by 2020 compared with 2008 and to achieve a
12% reduction in energy use for our investment property
portfolio by 2023, using 2013 as the baseline. In addition to
lowering our energy consumption, we have implemented
initiatives in our existing railway network and railway
development plans that help us reduce our environmental
impacts. We have also developed a Green Finance
Framework to provide support to our green finance initiatives
for increasing energy efficiency, using natural resources
sustainably and adapting to climate change.
29
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview At the same time, we understand the importance of
engaging our stakeholders in the communities where we
operate. We prioritise safety at all levels in our Company and
promote a Safety First culture among our staff, customers and
contractors. Additionally, we have introduced community
engagement activities that connect us with young people,
children, the elderly and vulnerable social groups. We also
aim to create a work environment that is engaging and
supportive of our staff, whom we consider to be our most
valuable asset.
Just as important is the need to ensure and maintain high
corporate governance standards in order to align ourselves
with the interests of our stakeholders. We have thus adopted
best practices in corporate governance, with a well-defined
governance structure, board diversity and mechanism for
effective crisis management.
To keep our stakeholders informed about our sustainability
performance, we have been publishing a sustainability report
every year for the past two decades that outlines our ESG
initiatives and the progress we have made, including our
ESG targets. It is prepared in accordance with the reporting
standards published by the Global Reporting Initiative: Core
option and in compliance with the disclosure requirements of
the ESG Reporting Guide of the Hong Kong Stock Exchange.
Our sustainability report is available on a separate and
standalone sustainability website.
Safety First
Safety, which is always our highest priority, is a key
element of our ESG strategy. During the year, we launched
a “Zero Harm” initiative to raise awareness of safety
among our customers, staff and contractors. It equips staff
with clear guidelines and sound training for instilling a
preventive “Zero Harm” culture at MTR for the protection
of our staff and customers.
This initiative augments our Corporate Strategic Safety Plan,
which is reviewed and revised every four years to guide
us on managing safety across all our business units. The
Corporate Strategic Safety Plan complements our Corporate
Safety Management Model, which provides an effective and
robust framework for assuring our safety performance across
our businesses.
As a result of the public order events in Hong Kong, the total
number of reportable events1 on our Hong Kong heavy rail
and light rail networks increased by 16% in 2019. Excluding
the impact caused by the public order events, the total
number of reportable events would have decreased by 2%.
Enterprise Risk Management
Our business by its very nature is subject to a variety of risks
and uncertainties, many of which change over time. This
was particularly true of the past year, when our operations
were affected by incidents associated with the public order
events. Accordingly, we have been adopting many measures
to further enhance the security and safety of our stations,
passengers and staff, including early closures of the stations
and additional security staffing.
On an ongoing basis, business units across the Company
follow the Company’s Enterprise Risk Management (“ERM”)
framework that underpins their day-to-day business activities.
The Risk Committee, which is one of the Board Committees,
reviews the ERM framework and policy, as well as the
Company’s top risks and emerging risks, and their respective
mitigation measures.
The current top three focus areas for risk management of
the Company include maintaining an effective and balanced
relationship with key stakeholders, people and operations
safety and new projects delivery and cost. All of us at the
senior management level are fully aware of the key risks we
face and are committed to attain the highest standards of
corporate governance to ensure we are on top of these risks
and able to take prompt actions accordingly.
1 Reportable events are occurrences affecting railway premises, plant and equipment, or directly affecting persons (with or without injuries), that are reportable to the
Secretary for Transport and Housing and Director of Electrical and Mechanical Services of Government under the Mass Transit Railway Regulations, ranging from suicides/
attempted suicides, trespassing onto tracks, to accidents on escalators, lifts and moving paths.
30
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation OUR PEOPLE
As at 31 December 2019, MTR along with our subsidiaries
employed a total of 17,742 people in Hong Kong and
16,521 people outside Hong Kong. Our associates employed
an additional 16,534 people in and outside Hong Kong.
Our goal is to develop our colleagues in line with our
business growth and succession needs, and their
personal development. Our commitment to providing a
fulfilling and caring environment to nurture and motivate
our colleagues for better job performance and career
advancement is demonstrated by the stability of our
workforce, with the voluntary staff turnover rate remained
low at 4.4% in Hong Kong during 2019. We provided an
average of 7.1 training days per staff in Hong Kong during
the year. We also continued to recognise and reward
our colleagues for their dedication and professionalism
through our robust human resources strategies in place
in Hong Kong, the Mainland of China and international
business hubs.
MTR ACADEMY
Our MTR Academy was established to train railway
management and operational talents, as well as provide
railway-related services, maintenance and management
programmes for local and overseas participants. The MTR
Academy also offers programmes that bring our rail expertise
into the Mainland of China and Belt and Road countries. In
2019, close to 1,100 participants attended these programmes.
OUTLOOK
As I indicated at the beginning of my review, 2019 has
been the most challenging year in our 40-year history as a
company and certainly in my 24-year career with MTR.
Looking forward, we expect the outlook for both the
global and local economy to be challenging, with many
uncertainties in the current environment, such as the slower
growth in major economies, the global geopolitical situation,
ongoing local public order events in Hong Kong and the
COVID-19 outbreak.
In our Hong Kong transport operations, even though our
patronage has some defensiveness against slow economic
growth, we will need to contend with a variety of risks and
uncertainties, including higher unemployment, reduced
tourist arrivals and, particularly, the recent COVID-19 outbreak.
As previously disclosed by the Company, the Group’s Hong
Kong transport operations, Hong Kong station commercial
businesses and Hong Kong property rental businesses
have been adversely affected as a result of the public order
events in Hong Kong, which affected patronage, involved
damage and vandalism to certain MTR stations and facilities,
necessitating repair, maintenance or replacement and led to
other costs being incurred for the enhancement of staffing
and security as well as retail concessions and abatements.
Since the beginning of 2020, the COVID-19 epidemic
has caused a significant impact on Hong Kong and other
parts of the world. As a part of Hong Kong, we have been
working together with the people of Hong Kong to fight
against this outbreak.
As a result of the COVID-19 outbreak, several boundary
crossings between Hong Kong and the Mainland have
been closed (including the crossings at our Lo Wu, Lok Ma
Chau and Hong Kong West Kowloon stations, as well as the
31
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview Intercity through train control point at Hung Hom Station),
resulting in no cross boundary passengers during the period
of closure and the closure of the station shops at these
stations. As we have previously announced, in addition, the
work-from-home and school closure measures, coupled
with the much reduced tourist and local leisure travellers, are
having a significant negative impact on the patronage of our
Domestic Service.
For the two months of January and February in 2020, the
Group’s total rail and bus patronage under Hong Kong
transport operations was down 34% as compared with the
same period in 2019, mainly due to the impacts of COVID-19
and the aftermath effect of public order events. The recently
opened Tuen Ma Line Phase 1 will only generate a marginal
patronage increase, and hence its financial contribution
is expected to be minimal in 2020. We have also recently
announced that there will be no actual adjustment to MTR
fares for the remainder of 2020.
The performance of our station retail and property rental
businesses will depend on the retail market condition,
which is likely to result in a decline in performance as a
result of the public order events in Hong Kong and the
more recent COVID-19 outbreak. For current leases, the
Company has been implementing a number of rental
relief measures, particularly for small to medium sized
tenants (by waiving half of their rent in February and March
2020) while for leases to be renewed, we expect there will
be downward pressure on the rentals. The LOHAS, our
new mall at LOHAS Park, is still expected to open in the
second half of 2020, but pre-leasing has been slower than
expected as a result of the COVID-19 outbreak. The longer
term impact of COVID-19 and the Hong Kong public order
events on the asset valuation of our investment property
portfolio will only be able to be ascertained once the
market conditions have stabilised.
As a result of the above issues and, in particular, the COVID-19
outbreak, the Group’s Hong Kong transport operations, Hong
Kong station commercial and property rental businesses and
also our Mainland China businesses, are being significantly
affected. Based on our preliminary unaudited internal
management accounts (which have not been reviewed
or audited by the auditor of the Group), the estimated
total financial impact of the COVID-19 outbreak and the
aftermath of the Hong Kong public order events for the first
two months of 2020 amounted to around HK$1.3 billion on
the net profit of the Group’s recurrent businesses, mainly
attributable to lower patronage and therefore, lower revenue,
relief agreed for tenants in relation to station closures, the
half-month rental reduction granted to small to medium
sized tenants for February, lower advertising revenue, as
well as the negative financial impact on our Mainland China
businesses. In response to this challenging situation and
to mitigate the financial impact of it, while seeking to keep
Hong Kong moving, the Group has taken a number of cost
control measures. The impact of the COVID-19 outbreak on
the Group is likely to continue for some time, but the precise
timing and scale of the impact is difficult to predict and will
depend on the development of the situation.
When taking into account the rail and property businesses
as a whole, the Board of Directors of the Company is of the
view that the overall financial position of the Group remains
sound. The Board of Directors of the Company currently
proposes to maintain the Company's present progressive
ordinary dividend policy. The Board of Directors of the
Company will continue to monitor the financial position
and business prospects of the Group and will make further
announcement(s), as appropriate.
On the property development front, after the award of
LOHAS Park Package 12 in February 2020, in the next 12
months or so, subject to market conditions, we aim to tender
32
CEO’S REVIEW OF OPERATIONS AND OUTLOOKMTR Corporation times of the past nine months. They have played a critical
role in keeping our trains and property services running and
maintained the highest level of professionalism at all times.
We will continue to work together with the communities
to keep Hong Kong and all the cities that we serve moving
forward in the year to come.
Dr Jacob Kam Chak-pui
Chief Executive Officer
Hong Kong, 5 March 2020
out three property development packages which are likely
to be our last package at LOHAS Park and our fifth and sixth
packages at Wong Chuk Hang Station. These packages are
expected to provide about 4,050 residential units in total. The
booking of development profits from LOHAS Park Package 6
is now dependent on construction progress. Depending on
market conditions, we currently expect to conduct pre-sales
of LOHAS Park Package 8, 9C (OCEAN MARINI) and 10 and Tai
Wai Station in the next 12 months.
For our new railway projects in Hong Kong, we will continue
to work on the remaining sections of the Shatin to Central
Link project and to prepare for the opening of the full Tuen
Ma Line in 2021. As for the Hung Hom to Admiralty Section
(East Rail Line extending to Admiralty Station), the targeted
completion in the first quarter of 2022 is still facing challenges
and there are continuing efforts being made with the aim of
meeting the programme. We also anticipate working closely
with Government on the three new railway projects referred
to in the 2019 Policy Address and will seek new opportunities
for growth in markets outside of Hong Kong.
I want to take this opportunity to congratulate Mr Adi Lau
on his appointment to the role of Managing Director –
Operations and Mainland Business, having previously served
as Operations Director. He is succeeded in this latter role by
Dr Tony Lee who, until his new appointment, was the Deputy
Operations Director. Additionally, I would like to welcome Ms
Linda Choy as the Company’s new Corporate Affairs Director.
She succeeds Ms Linda So, whom we thank for her years of
service to the Company.
Finally, I want to extend a tremendous vote of thanks to all
our staff, who have continued to show their commitment
to our customers and communities during the challenging
33
Annual Report 2019Corporate GovernanceFinancials and Other InformationBusiness Review and AnalysisOverview 2%
fewer reportable
events
excluding impact of
public order events
99.9%
passenger
journeys
on-time
5.61 million
average weekday
patronage
HONG KONG
TRANSPORT OPERATIONS
34
MTR Corporation AIM
We strive to be the best public transport service provider in
Hong Kong by offering safe, reliable and caring service to our
customers. At the same time, we seek to generate sustainable
returns so that we can invest in our network, further
improve our high levels of service and address the changing
expectations of our customers. These investments involve
replacing and upgrading our existing railway assets as well
as constructing new railway lines. Together, they are part of
our plan for the next generation of railways that will support
Hong Kong’s development as an economy and as a society.
CHALLENGES
• Safety of our railway operations services
• Managing major asset upgrades and replacements
without compromising our service performance or the
customer experience
• Workforce transition and how to deliver extensive training
to our railway operations employees relevant to the
innovative technologies we are introducing
STRATEGIES
• Review our approach to risk management and station
design for enhanced security
• Deliver on our excellent track record and safety culture.
Equip staff with clear guidelines and sound training
with regard to operations and customers and raise
our customers’ awareness of safety through targeted
campaigns and information
• Maintain high performance standards that exceed the
targets set out in the Operating Agreement and our own
more demanding Customer Service Pledges. Continue our
stringent maintenance regime, investing significantly in
renewing and upgrading our railway assets
• Understand and deliver what matters most to our
customers, enhance the travel experience of commuters
and also meet the needs of an aging population
• Develop our staff by inspiring, engaging and training them
while continuing to offer long-term, rewarding careers in
various disciplines
OUTLOOK
Despite the major challenges faced by MTR during the year,
we believe that railway will continue to be the backbone
of public transportation in Hong Kong well into the
foreseeable future.
Although our business will continue to be resilient during
economic change, we will need to contend with a variety
of risks, including uncertainties surrounding higher
unemployment, reduced tourist arrivals, and particularly
the recent COVID-19 outbreak. As a result of the COVID-19
outbreak, several boundary crossings between Hong Kong
and the Mainland had been closed (including the closure
of our Lo Wu, Lok Ma Chau and Hong Kong West Kowloon
stations as well as the Intercity through train control point
at Hung Hom Station) resulting in no cross boundary
passengers during the period of closure and the closure of
station shops at these stations, while the work from home
and school closure measures coupled with much reduced
tourist and local leisure travellers are having a significant
negative impact on the patronage of our Domestic Service.
During the year, we adjusted fares by +3.3% underpinned by
the Fare Adjustment Mechanism, while simultaneously offering
a 3.3% fare discount for Octopus users. Hence, there was no
actual fare increase for Octopus users in 2019/2020. In view of
the outbreak of COVID-19, we have also decided that there will
be no actual adjustment to MTR fares for the remainder of 2020
by means of fare rebates or other arrangements.
Ahead of the opening of the full Shatin to Central Link,
we opened the Tuen Ma Line Phase 1 on 14 February 2020,
allowing passengers on the Ma On Shan Line to travel
directly to Kai Tak Station in East Kowloon.
35
Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and AnalysisAnnual Report 2019 FINANCIAL PERFORMANCE
HK$ million
Hong Kong Transport Operations
Total Revenue
EBITDA
EBIT
EBITDA Margin (in %)
EBIT Margin (in %)
Year ended 31 December
2019
2018
Inc./(Dec.) %
19,938
5,909
(591)
29.6%
(3.0)%
19,490
8,171
1,985
41.9%
10.2%
2.3
(27.7)
n/m
(12.3)% pts.
(13.2)% pts.
The revenue of our Hong Kong transport operations
increased by 2.3% to HK$19,938 million in 2019, mainly due
to the full year impact of the opening of HSR in September
2018, which more than offset the adverse impact brought
about by the public order events. Loss before interest, finance
charges and taxation and after variable annual payment was
HK$591 million, mainly due to a reduction in total patronage
and additional operating and repair and maintenance costs
incurred as a result of the impact of the public order events in
Hong Kong.
SAFETY
We continued to place the highest priority on passenger
safety. Nevertheless, we experienced an increase of 16%
on the number of reportable events on our Hong Kong
heavy rail and light rail network, mainly due to public
order events. Excluding the impact caused by the public
order events, the total number of reportable events would
have decreased by 2%. Further details on our safety
performance can be found in the Ten-Year Statistics of this
Annual Report.
To raise awareness of safety on our railways, we
continued to support People On Board Social Enterprise
Limited by joining them in hosting exhibition booths at
the Hong Kong Book Fair, where we promoted railway
safety and courteous behaviour.
In July 2019, we kicked off Escalator Safety Campaign
2019 with MTR Ambassador T Chai, featuring WhatsApp
stickers, posters and a video to promote escalator safety.
We also held a campaign on the importance of safety on
our escalators by organising four Escalator Safety Walks
with the Escalator Safety Special Task Force. Other escalator
campaigns included hosting Escalator Safety Promotion
Booths at stations and organising a post-escalator accident
prevention programme.
To improve platform gap safety, we set up a Platform Gap
Incident Special Task Force and published platform gap
safety messages.
We continued to host the Budding Station Master
programme, in which children acted as station ambassadors
to distribute safety messages and gifts at selected stations.
At Light Rail, our innovative Integrated Speed and Position
Supervision System was implemented so that the speed
of light rail vehicles can be monitored in real time, further
improving operational safety and efficiency.
36
BUSINESS REVIEWHONG KONG TRANSPORT OPERATIONSMTR Corporation PATRONAGE AND REVENUE
Hong Kong Transport Operations
Domestic Service
Cross-boundary Service
HSR
Airport Express
Light Rail and Bus
Intercity
Others
Total
Patronage
in million
Revenue
HK$ million
2019
Inc./(Dec.) %
2019
Inc./(Dec.) %
1,568.2
104.2
16.9
15.8
207.3
1.9
1,914.3
(6.1)
(11.3)
219.2
(11.0)
(10.0)
(48.2)
(6.4)
12,714
3,164
2,098
1,011
677
175
19,839
99
19,938
(3.9)
(8.9)
249.7
(12.5)
(6.4)
(18.2)
2.3
6.5
2.3
Total patronage of all our rail and bus passenger services
in 2019 decreased by 6.4% to 1,914.3 million passenger
trips as a result of public order events during the latter
half of 2019, as well as a decrease in visitor arrivals and a
weakening economy.
Breaking these figures down, our Domestic Service
(comprising the Kwun Tong, Tsuen Wan, Island, Tung Chung,
Tseung Kwan O, Disneyland Resort, East Rail (excluding the
Cross-boundary Service), West Rail, Ma On Shan and South
Island lines) recorded total patronage of 1,568.2 million for
the 12 months of 2019, or 6.1% lower than the previous year.
For the Cross-boundary Service to Lo Wu and Lok Ma Chau,
patronage fell by 11.3% to 104.2 million, mainly due to
the substantial decrease in Mainland visitors. Patronage of
the HSR was 16.9 million. Patronage of the Airport Express
dropped by 11.0% to 15.8 million as a result of the decline in
tourist arrivals.
In 2019, average weekday patronage of all our rail and
bus passenger services declined by 4.5% to 5.61 million
passenger trips, while our Domestic Service, reported a 4.2%
drop to 4.66 million.
Domestic Service – Passengers and Fares
Fare Trend
20
18
16
14
12
10
8
6
4
2
0
7.49
7.81
7.84
7.92
1,568.2
12.7
8.11
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
450
400
350
300
250
200
150
100
50
0
2015
2016
2017
2018
2019
1990
1995
2000
2005
2010
2015
2019
Number of
Passengers
(million)
(right scale)
Revenue
(HK$ billion)
(left scale)
Average Fare
(HK$)
(left scale)
HK Payroll Index
(avg. 5.1%
growth p.a.)
Average Fare
(Domestic Service only)
(avg. 2.6% growth p.a.)
Composite
Consumer Price
Index (avg. 3%
growth p.a.)
Annual Report 2019
3737
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis MARKET SHARE
Market Shares of Major Transport
Operators in Hong Kong
(Percentage)
2018#
2.2
2.1
13.3
13.5
11.0
11.7
47.4
49.0
25.3
24.5
2019
MTR
KMB
Other buses
Green minibus
Trams and ferries
# Market share for 2018 was rebased to reflect the impact on the opening
of Hong Kong – Zhuhai – Macao Bridge.
Our overall share of the franchised public transport market
in Hong Kong during the year was 47.4% as compared with
49.0% in 2018, a decrease of 1.6% points from the year before.
The decline was mainly due to the decrease in patronage for
all rail services as a result of the public order events. Of this
total, the share of cross-harbour traffic was 67.5%, compared
with 69.1% in 2018.
Market Shares of Major Transport
Operators Crossing the Harbour
(Percentage)
3.4
3.3
27.5
29.2
67.5
69.1
2018
2019
MTR
Bus
Ferries
In 2019, MTR’s Cross-boundary Service and HSR registered a
decrease in market share of cross-boundary business from
52.1% to 51.3%. Our market share to and from the airport fell
from 22.0% to 20.5%.
38
BUSINESS REVIEWHONG KONG TRANSPORT OPERATIONSMTR Corporation FARE ADJUSTMENTS, PROMOTIONS AND CONCESSIONS
For 2019/2020, the overall adjustment rate of MTR fares
was +3.3%, which was in accordance with the Fare
Adjustment Mechanism (“FAM”). To thank our passengers,
commemorate our 40th anniversary and in view of recent
outbreak of COVID-19, we offered the following major fare
promotions, with overall fare savings amounted to more
than HK$900 million as compared with over HK$500 million
in the previous period:
The scheme enables all Octopus users to enjoy a 3.3% fare
discount on every paid journey on the MTR, Light Rail and
MTR Bus.
Other on-going fare concessions and interchange discounts
are offered to different sectors of the community, including
the elderly, children, eligible students and persons with
disabilities. Along with over HK$2.6 billion on-going fare
concessions and interchange discounts, we will be providing
customers with over HK$3.5 billion in fare concessions in
2019/2020.
•
From 30 June 2019 to end of June 2020, we are offering
a 3.3% rebate for every Octopus trip, totalling over
HK$500 million
• No price adjustment will be made on “MTR City Saver”
and “Tuen Mun – Nam Cheong Day Pass” until end of
June 2020
• No price adjustment will be made for Monthly Pass Extras
until end of June 2020
•
The Early Bird Discount Promotion was extended for one
year to 31 May 2020, with the discount rate increased to
35% starting October 2019 and the number of stations
covered increased to 45
In view of the outbreak of COVID-19, the Company has
also decided to ensure, through fare rebates or other
arrangements, that there will be no actual adjustment to MTR
fares for the remainder of 2020, despite the fare adjustment
rate for 2020/2021 under the FAM that will only be derived
after the Census and Statistics Department announces the
year-on-year percentage change in the Nominal Wage
Index (Transportation Section) for December 2019 and other
relevant figures later in the first quarter of 2020. Detailed
arrangements will be announced by the end of March
2020 when the statistics are published. After this plan is
implemented, Octopus fares charged would have stayed the
same from January 2019 to the end of 2020.
SERVICE PERFORMANCE
Train service delivery and passenger journeys on-time in our
heavy rail network remained at 99.9%, excluding the effects
of public and external events. This exceeded both the targets
in our Operating Agreement and our own more demanding
Customer Service Pledges. Train service delivery is a measure
of the actual train trips run against the train trips scheduled to
be run by the Company, and passenger journeys on-time is a
measure of all passenger journeys that are completed within
five minutes of their scheduled journey times.
In 2019, more than 2.07 million train trips were made on
our heavy rail network and more than 0.96 million trips on
our light rail network. There were 10 delays on the heavy
rail network and no delays on the light rail network lasting
31 minutes or more caused by factors within our control, a
decrease of 16.7% from the year before.
Our service performance was marred by two incidents during
the year. The first, on 18 March, involved a collision between
two non-passenger trains on the Tsuen Wan Line near Central
Station during a test of a new signalling system after service
hours. A panel comprising senior MTR personnel and local
and overseas experts was subsequently set up to investigate
the root causes of the incident, and its findings were made
public in July 2019. The detailed investigation concluded
that the incident was caused by software implementation
errors made by the contractor of the new signalling system,
and a number of improvement measures have been
recommended for the contractor. We have been overseeing
the contractor in implementing the improvement measures,
and will exercise extra vigilance and strengthen monitoring
on the contractor’s deliveries.
39
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Operations Performance in 2019
Service Performance Item
Train service delivery
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line and Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
– Light Rail
Passenger journeys on-time
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line and Disneyland Resort Line
– Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
Train punctuality
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line,Tung Chung Line and Disneyland Resort Line
– Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
– Light Rail
Train reliability: train car-km per train failure causing delays ≥5 minutes
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line and Airport Express
– East Rail Line (including Ma On Shan Line) and West Rail Line
Ticket reliability: smart ticket transactions per ticket failure
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line, Airport Express,
East Rail Line (including Ma On Shan Line) and West Rail Line
Add value machine reliability
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line and Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
Ticket machine reliability
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line and Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
– Light Rail
Ticket gate reliability
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line and Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
Light Rail platform Octopus processor reliability *
Escalator reliability
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line and Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
Passenger lift reliability
– Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line,
South Island Line, Tung Chung Line, Disneyland Resort Line and Airport Express
– East Rail Line (including Ma On Shan Line)
– West Rail Line
Temperature and ventilation
– Trains, except Light Rail: to maintain a cool, pleasant and comfortable train environment
generally at or below 26ºC
– Light Rail: on-train air-conditioning failures per month
– Stations: to maintain a cool, pleasant and comfortable environment generally at or
below 27ºC for platforms and 29ºC for station concourses, except on very hot days
Cleanliness
– Train compartment: cleaned daily
– Train exterior: washed every two days (on average)
Northwest transit service area bus service
– Service Delivery
– Cleanliness: washed daily
Passenger enquiry response time within six working days
Performance
Requirement
Customer
Service
Pledge Target
Actual
Performance
98.5%
98.5%
98.5%
98.5%
98.5%
98.5%
98.5%
98.5%
98.0%
98.0%
98.0%
98.0%
98.0%
99.5%
99.5%
99.5%
99.5%
99.5%
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.9%
99.8%
99.9%
99.9%
99.9%
99.9%
99.8%
99.9%
99.8%
99.9%
99.9%
99.9%
99.9%
N/A
N/A
700,000
700,000
3,400,912
8,798,055
N/A
10,500
49,140
98.0%
98.0%
98.0%
97.0%
97.0%
97.0%
N/A
97.0%
97.0%
97.0%
N/A
98.0%
98.0%
98.0%
98.5%
98.5%
98.5%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.0%
N/A
99.0%
99.0%
99.0%
99.5%
99.5%
99.5%
97.5%
<3
93.0%
99.0%
99.0%
99.0%
99.0%
99.0%
99.8%
99.8%
99.9%
99.7%
99.9%
99.8%
99.7%
99.9%
99.9%
99.9%
N/A
99.9%
99.9%
99.9%
99.7%
99.8%
99.9%
99.9%
0
99.8%
99.9%
100.0%
99.8%
100.0%
100.0%
* Performance data for Light Rail will be available after completion of installation, testing and trial operations of the new Light Rail platform Octopus
processors.
40
BUSINESS REVIEWHONG KONG TRANSPORT OPERATIONSMTR Corporation The second incident, on 17 September, involved a train
derailment on East Rail Line near Hung Hom Station. Three
cars of a Hung Hom-bound East Rail Line train shifted out
of their positions on the track and the fourth and fifth cars
were separated.
Following this incident, we set up an investigation panel
comprising MTR personnel as well as experts from Hong
Kong and overseas, and the results of its investigation were
made public on 3 March 2020. It was concluded that the
incident was caused by dynamic track gauge widening at a
turnout near Hung Hom Station. The Company has accepted
the recommendations made by the panel and is taking
actions to prevent the occurrence of those of a similar nature.
To gauge customer satisfaction levels concerning our services
and fares, we carry out regular surveys and research, the
results of which are published in our Service Quality Index
and Fare Index respectively. Our performance in 2019 was
mainly affected by the adjusted train services during public
order events in Hong Kong.
Service Quality Index
2019
2018
Domestic and Cross-boundary services
Airport Express
Light Rail
Bus
HSR
Fare Index
Domestic and Cross-boundary services
Airport Express
Light Rail
Bus
HSR
66
79
58
68
83
70
82
67
71
–
2019
2018
56
70
58
66
78
59
75
68
68
–
The high level of service provided by MTR was again
recognised in the number of awards received during the year,
some of which are listed below:
• Best Long Service Award, Top Service Awards 2019
Next Magazine
• Public Transportation Category Award,
Hong Kong Service Awards 2019
East Week Magazine
• Public Transportation Category Award,
Sing Tao Service Awards 2018
Sing Tao Daily
• UITP Excellence in Marketing Campaign Award 2019
UITP
•
WEBSITE STREAM and MOBILE STREAM –
TRIPLE GOLD AWARD,
Web Accessibility Recognition Scheme 18/19
Hong Kong Internet Registration Corporation
MTR is one of the participants of The Community of Metros
(“CoMET”), which comprises 19 metro systems around the
world to benchmark performance and improve practices
across the industry. In 2018, performance in terms of service
reliability, punctuality and our cost efficiency level was
one of the best among the participants. The 2018 CoMET
benchmarking results can be found in the “Performance
Metrics” section on our sustainability website.
41
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Greater Comfort for Passengers
For a total investment of HK$6 billion, we are purchasing
93 new, more comfortable 8-car trains to replace the existing
trains on the Kwun Tong, Tsuen Wan, Island and Tseung
Kwan O lines. In 2019, seven more trains, in addition to
the five delivered, were sent to Hong Kong. All new trains
underwent rigorous testing and commissioning.
New Light Rail Vehicles
As demand for our light rail services increases, we are
replacing 30 light rail vehicles and purchasing 10 additional
light rail vehicles at a total cost of HK$745 million. Testing
and commissioning of the first two replacement light rail
vehicles entered the final stages in 2019 and will be ready to
enter passenger service starting in 2020. The 10 additional
new light rail vehicles will be used to expand the size of the
Light Rail fleet to 150 in 2023.
The new light rail vehicles are designed to enhance the
passenger experience by providing an advanced LED
lighting system as well as better handrail and straphanger
arrangements in the compartment.
Replacement of Air Conditioning Systems
For the comfort of our passengers, we have been replacing
the air conditioning systems in stations across our network.
The work involves the replacement of 160 chillers (about half
of all our chillers) with new, more energy-efficient versions.
The replacement programme will be carried out in five
phases with target completion in 2022. In the first and second
phases, the replacement of 61 chillers in 11 stations and four
depots were completed. The third phase of the project, which
will take place from 2019 to 2020, covers 31 existing chillers
for 10 stations and one depot.
ENHANCING THE CUSTOMER EXPERIENCE
To achieve our vision for the future of rail travel in Hong
Kong, we continued major upgrades and replacements
on the existing rail network and implemented a variety of
technology initiatives to enhance the customer experience.
Over HK$9.8 billion was invested to maintain, upgrade and
renew our Hong Kong railway assets in 2019.
New Trains
More Frequent Services
Extra train trips
To make our customers’ journeys more comfortable,
new rounds of MTR train service enhancements were
implemented in April and July 2019, when an extra 101 train
trips per week were added to the Island Line, Tsuen Wan Line,
Kwun Tong Line and East Rail Line.
Since 2012, more than 3,200 train trips per week have been
added to the MTR heavy rail network and over 600 trips per
week to the light rail network.
Upgrade of Signalling System
During the year, work continued on the upgrade of our
signalling system, which is necessary for increasing the
frequency of our services. The contract for the replacement
of the signalling systems for the Tsuen Wan, Island, Kwun
Tong, Tseung Kwan O, Tung Chung and Disneyland Resort
lines, as well as the Airport Express, was awarded at about
HK$3.3 billion in 2015.
After the non-passenger train collision incident during a
non-traffic hours drill test for the new signalling system in
March 2019, all train tests relating to the new signalling
systems were immediately suspended. As safety is always our
top priority, we will only resume train testing after obtaining
the consent of Government.
We also completed reliability tests on the new signalling
system for East Rail Line, which is different from the new
system for Tsuen Wan Line.
42
BUSINESS REVIEWHONG KONG TRANSPORT OPERATIONSMTR Corporation provide point-to-point transport advice, such as connecting
public transport information, and revamped the user
interface of the Airport Express function on the MTR Mobile
app. The MTR Mobile app had about 1.4 million active users
per month in 2019.
Internally, we have been applying technology to improve
internal processes and maintenance. These include chatbots
and Robotic Process Automation (RPA) tools that help to
reduce repetitive office tasks. Additionally, we have been
using big data and AI to optimise planning and engineering
works scheduling, as well as video and image analytics
to monitor the health of our railway assets. We have also
introduced Augmented Reality and Virtual Reality in our
training curriculum to simulate actual working conditions
with a totally immersive 3D environment.
To keep up with trends in mobile phone payments, we began
accepting Alipay, Alipay HK, WeChat Pay and WeChat Pay HK
at selected Ticket Issuing Machines in our stations.
Enhancing Station Facilities
We are providing public toilets for passengers at interchange
stations when these stations are undergoing major
renovation works.
During the year, new toilets were opened at Central, Tiu Keng
Leng, Yau Tong and Lai King stations. New toilets at Yau Ma
Tei and North Point stations are also targeted for opening in
the second half of 2020, and in Tsim Sha Tsui Station by the
third quarter of 2021. Babycare rooms will also be provided in
the new public toilets.
Other feature upgrades include the installation of additional
wide gates and seats, mobile charging spots, water
dispensers for refillable bottles, as well as new footbridges,
exits and entrances.
As Hong Kong’s population is aging, we are also trying
to meet the needs of the elderly with new initiatives at
designated stations that focus on four key areas: accessibility,
mobility, and the provision of toilets and information.
Included in these enhancements are the addition of
middle handrails and seats in longer adits, large signage,
magnifiers and alphabet cards at Customer Service Centres in
our network.
Enhancing Passenger Journeys
through Technology
Another aspect of enhancing the customer experience
is investing in new technology that will deliver more
personalised services and smoother journeys.
Across our various mobile applications, we have been making
use of Artificial Intelligence (AI) and Internet of Things (IoT)
technologies to offer a wide range of personalised services,
such as a new Alighting Reminder, Estimated Waiting
Time Indicator at Admiralty Station and MTR Bus Real-Time
Schedules. We have also upgraded our Trip Planner to
43
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis 48,148
Advertising Units
4G
Data Access
along the
Journey
1,492
Station Shops with
67,337m2
HONG KONG STATION
COMMERCIAL BUSINESSES
44
MTR Corporation AIM
Our aim is to provide an enhanced travel experience for our
customers by offering a variety of railway related services,
particularly through our station retail outlets, advertising and
telecommunications services.
CHALLENGES
Station Retail
• Damage caused to MTR stations during public order
events curtailed the business of our retail tenants
• New forms of e-commerce presented increasing
challenges to traditional retailers
Advertising
• A weakened local and global economy caused advertising
revenue to decline as advertisers tightened spending
• Damaged station environments due to public order
events led to booking postponements
• Competition with mobile advertising continued to grow at
the expense of traditional media
Telecommunications
• Rapidly growing demand for mobile data has put a strain
on the telecom systems
STRATEGIES
Station Retail
• Maintain goodwill among our tenants during public order
events by offering rental concessions, giving priority to
sole proprietors and small to medium sized tenants
• Optimise trade floor space and retail value on existing and
new lines
• Broaden the tenant base and maximise
growth opportunities
• Refine the trade mix to enhance customer service
and rentals
Advertising
• Offer more aggressive and flexible sales packages as well
as extra sales incentives
• Promptly repair the damaged advertising units
• Continue the digital transformation of
advertising products
Telecommunications
• Work with telecom operators to explore the provision
of 5G services in MTR in order to enhance mobile
communications for our customers within the
railway network
• Continue to facilitate operators to upgrade the
telecommunications infrastructure
OUTLOOK
In an uncertain economic environment affected by the
public order events and the recent COVID-19 outbreak, our
Hong Kong station commercial businesses will face additional
challenges in the year ahead.
Over the longer term, demand for space in MTR stations
should remain robust, given the high traffic from millions
of commuters travelling through our stations each day.
Along with the 35 shops opened in 2018 at Hong Kong West
Kowloon Station, the opening of the Tuen Ma Line Phase 1 on
14 February 2020 added 32 new shops.
703 new advertising units from the opening of the Tuen
Ma Line Phase 1 will bring incremental contributions,
while digitisation will ensure the longer term growth of
advertising revenue.
45
Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and AnalysisAnnual Report 2019 Year ended 31 December
2019
2018
Inc./(Dec.) %
4,800
1,130
743
126
6,799
6,119
5,122
90.0%
75.3%
4,424
1,212
696
126
6,458
5,891
5,025
91.2%
77.8%
8.5
(6.8)
6.8
–
5.3
3.9
1.9
(1.2)% pts.
(2.5)% pts.
FINANCIAL PERFORMANCE
In HK$ million
Hong Kong Station Commercial Businesses
Station Retail Rental Revenue
Advertising Revenue
Telecommunication Income
Other Station Commercial Income
Total Revenue
EBITDA
EBIT
EBITDA Margin (in %)
EBIT Margin (in %)
Revenue from Hong Kong
Station Commercial Businesses
(HK$ million)
5,380
5,544
183
548
1,109
5,975
126
635
1,071
170
561
1,090
6,799
6,458
126
696
1,212
126
743
1,130
3,540
3,723
4,143
4,424
4,800
2015
2016
2017
2018
2019
Station Retail
Telecommunication Services
Advertising
Others
Total revenue of the Hong Kong station commercial
businesses in 2019 was 5.3% higher than in 2018 at HK$6,799
million, mainly attributable to the incremental contribution
from HSR in station retail rental revenue.
STATION RETAIL
Station retail rental revenue during the year rose by 8.5%
to HK$4,800 million, mainly due to the full-year effect
of new Duty Free Shops at Hong Kong West Kowloon
Station, rate increases derived from refinements to the
trade mix, and renewals by tenants, the majority of which
were concluded before mid-2019. Rental reversion and
the average occupancy rate in 2019 in our station kiosks
were 3.7% and over 99% respectively.
As at 31 December 2019, there were 1,492 station
shops occupying 67,337 square metres of retail space,
representing an increase of 22 shops and 1,045 square
metres of lettable space when compared with
46
MTR CorporationBUSINESS REVIEWHONG KONG STATION COMMERCIAL BUSINESSES 31 December 2018. The increases were mainly due to the
new opening of shops in University, North Point, Kowloon,
Lo Wu, Tsuen Wan West, Austin, Nam Cheong and Hong
Kong West Kowloon stations.
To support non-governmental organisations and social
enterprises to provide caring services for the community, we rent
selected station shops to them along West Rail Line at a nominal
rate to run their businesses. In 2019, a total of 10 station shops
were leased on this basis.
ADVERTISING
Advertising revenue decreased by 6.8% to HK$1,130 million
in 2019 as both tourism and retail markets contracted in the
second half of the year. To offset the slump in advertising
sales, we launched a series of aggressive and flexible sales
packages as well as sales incentive programmes. We are also
continuing our digital strategy on the advertising formats for
longer term growth.
As at 31 December 2019, the number of advertising units
in stations and trains had increased to 48,148, including
new 108” LED Zones installed at Central, Causeway Bay and
Kowloon Tong stations. MTR continued to provide free
advertising space to 51 non-profit organisations to support
their work during 2019.
TELECOMMUNICATIONS
Revenue from telecommunications in 2019 rose by
6.8% to HK$743 million as a result of incremental
revenue from new service contracts and capacity
enhancement projects.
To provide more capacity, a new commercial telecom
system is being installed by operators at 31 stations.
By 31 December 2019, the works had been completed
at 21 stations.
We continued to work with telecom operators to explore the
provision of 5G services in our stations.
47
Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and AnalysisAnnual Report 2019 Managing over
104,000
Residential Units
13
Shopping
Malls in our
Portfolio
22,000
About
Residential Units and
3 Shopping Malls
Under Development
HONG KONG PROPERTY AND
OTHER BUSINESSES
48
MTR Corporation AIM
In addition to connecting communities, we aim to be an
industry leader by creating integrated communities along
our rail network. To provide excellent service for these
developments, we apply our expertise in all aspects of
property development and management, as well as engaging
the community.
CHALLENGES
Property Rental
• Expanding our investment property portfolio without
affecting existing railway operations and new railway projects
• Changes in customer behaviour and retail space demand
due to the evolving market environment such as
e-commerce development
• Uncertainties arising from US-China trade tensions, public
order events and the recent COVID-19 outbreak in Hong
Kong affected sentiment and tourist spending
Property Management
• Statutory changes are impacting the residential property
management industry in Hong Kong, ranging from
licensing to procurement and maintenance
Property Development
• The property development market is vulnerable to the
recent COVID-19 outbreak and to fluctuations in global
capital flows
STRATEGIES
Property Safety
• Safety at our construction sites, investment and managed
properties and adjoining railway facilities is our top priority
• Closely monitor the public order events and take
appropriate measures in our malls
Property Rental
• Enhance the capital value of our investment property
portfolio by optimising the trade mix in existing malls and
achieving growth in attributable gross floor area through
the addition of retail space
• Develop sustainable and innovative strategies to combat
the impact of e-commerce
Property Management
• Offer a world-class property management service that
meets or exceeds customer requirements and expectations
• Develop and promote more green projects with greater
energy efficiency for the health of our residents and tenants
Property Development
• Optimise the integration between our property
developments and the railway network, as well as other
modes of transport
• Expand by seeking the rezoning of feasible existing
railway sites and by applying our proven Rail plus
Property integrated development model to potential new
rail projects
• Deliver property developments of a high standard, on
time and within budget
• Continuously improve our standards through innovation
and by capturing new development opportunities
OUTLOOK
Property rental income will be subject to market conditions,
though partly moderated by the stable rent structure in the
typical three-year tenancy cycle. Retail sales in Hong Kong are
expected to be negatively affected by the public order
events and the recent COVID-19 outbreak. For current leases,
the Company has been implementing a number of rental
relief measures, particularly for small to medium sized
tenants (by waiving half of their rent in February and March
2020). For leases to be renewed, we expect there will be
downward pressure on the rentals. The LOHAS, our new mall
at LOHAS Park, is expected to be opened in the second
half of 2020. However the pre-leasing is slower than expected
as a result of the COVID-19 outbreak. Revenue from property
management is recurrent and dependent on the properties
under management, which will increase as new projects
are completed.
Profit from property development is dependent on the sale
of property developments and construction progress, and
will vary from year to year. The booking of development
profits of LOHAS Park Package 6 is now dependent on
construction progress. After the award of LOHAS Park
Package 12 in February 2020, in the next 12 months or so,
subject to market conditions, we aim to tender out three
property development packages, which are likely to be our
last package at LOHAS Park and our fifth and sixth packages
at Wong Chuk Hang Station. These packages are expected to
provide about 4,050 residential units in total.
49
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis FINANCIAL PERFORMANCE
In HK$ million
Hong Kong Property Rental and Property
Management Businesses
Revenue from Property Rental
Revenue from Property Management
Total Revenue
EBITDA
EBIT
EBITDA Margin (in %)
EBIT Margin (in %)
PROPERTY RENTAL
In 2019, property rental revenue increased by 1.8% to
HK$4,833 million, mainly due to rental growth in our
shopping malls, and partly offset by the rent concessions
granted to some tenants whose business had been
adversely affected by the public order events. Our
shopping malls in Hong Kong achieved a positive rental
reversion rate of 3.1% during the year (or 7% including
a special rental case), mainly due to the fact that leases
Year ended 31 December
2019
2018
Inc./(Dec.) %
4,833
304
5,137
4,286
4,264
83.4%
83.0%
4,748
307
5,055
4,242
4,225
83.9%
83.6%
1.8
(1.0)
1.6
1.0
0.9
(0.5)% pt.
(0.6)% pt.
expiring in 2019 had already been renewed or re-let in
late 2018 and early 2019 when market sentiment was
more positive.
As at 31 December 2019, our shopping malls in Hong
Kong and the Company’s 18 floors in Two International
Finance Centre were close to 100% let.
As at 31 December 2019, the Company’s attributable
share of investment properties in Hong Kong was 217,774
square metres of lettable floor area of retail properties,
39,410 square metres of lettable floor area of offices and
17,764 square metres of property for other use.
Our retail portfolio won many awards during the year.
Telford Plaza received the “Top 25 My Favourite Shopping
Mall Events” award at Shopping Mall Awards 2019,
organised by Hong Kong Economic Times. ELEMENTS
received the “Digital EX 2019 Awards” in the Top Ten Malls
competition organised by Metro Finance.
Reducing energy consumption is an important goal for
us. In 2013, we set a target to reduce energy use in our
investment properties portfolio by 12% by 2023. As of
2019, the target reduction of 12% had been achieved.
Further discussion can be found in our Sustainability
Report 2019.
50
BUSINESS REVIEWHONG KONG PROPERTY AND OTHER BUSINESSESMTR Corporation Investment Property Portfolio in Hong Kong (as at 31 December 2019)
Location
Telford Plaza I, Kowloon Bay, Kowloon
Telford Plaza II 7-8/F, Kowloon Bay, Kowloon
Telford Plaza II 3-6/F, Kowloon Bay, Kowloon
Luk Yeung Galleria, Tsuen Wan, New Territories
Paradise Mall, Heng Fa Chuen, Hong Kong
Maritime Square 1, Tsing Yi
Maritime Square 2, Tsing Yi
The Lane, Hang Hau
PopCorn 2, Tseung Kwan O
PopCorn 1, Tseung Kwan O
G/F, No. 308 Nathan Road, Kowloon
G/F, No. 783 Nathan Road, Kowloon
New Kwai Fong Gardens, Kwai Chung, New Territories
International Finance Centre (“ifc”), Central, Hong Kong
– Two ifc
– One and Two ifc
Phase I, Carpark Building, Kornhill, Quarry Bay, Hong Kong
Roof Advertising Signboard, Admiralty Centre,
No. 18 Harcourt Road, Hong Kong
Ten Shop Units, First Floor Podium, Admiralty Centre,
No. 18 Harcourt Road, Hong Kong
Olympian City One, Tai Kok Tsui, Kowloon
Olympian City Two, Tai Kok Tsui, Kowloon
Choi Hung Park & Ride Public Car Park,
No. 8 Clear Water Bay Road, Choi Hung, Kowloon
Elements, No. 1 Austin Road West, Kowloon
Type
Shopping Centre
Car Park
Shopping Centre
Shopping Centre
Car Park
Shopping Centre
Car Park
Shopping Centre
Wet Market
Kindergarten
Car Park
Shopping Centre
Kindergarten
Car Park
Motorcycle Park
Shopping Centre
Car Park
Motorcycle Park
Shopping Centre
Car Park
Motorcycle Park
Shopping Centre
Car Park
Shopping Centre
Car Park
Motorcycle Park
Shop Unit
Shop Unit
Kindergarten
Car Park
Office
Car Park
Car Park
Advertising Signboard
Shop Unit
Indoor Sports Hall
Shop Unit
Car Park
Motorcycle Park
Park & Ride
Shopping Centre
Car Park
Cross Border Coach Terminus, No. 1 Austin Road West, Kowloon
Coach Terminus
Kindergarten, No. 1 Austin Road West, Kowloon
Plaza Ascot, Fo Tan
Royal Ascot, Fo Tan
Ocean Walk, Tuen Mun
Sun Tuen Mun Shopping Centre, Tuen Mun
Kindergarten
Shopping Centre
Car Park
Residential
Car Park
Shopping Centre
Car Park
Shopping Centre
Car Park
Lettable floor
area (sq. m.)
No. of parking
spaces
Company’s
economic
interest
39,331
–
2,397
19,057
–
11,094
–
15,410
1,216
2,497
–
28,547
920
–
–
6,448
–
–
2,629
–
–
8,456
–
12,173
–
–
70
36
540
–
39,410
–
–
–
286
13,512
1,096
–
–
–
45,510
–
5,113
1,045
7,720
–
2,784
–
6,083
–
9,022
–
–
993
–
–
136
–
651
–
–
–
415
–
–
220
50
–
65
21
–
16
1
–
50
–
115
16
–
–
–
126
–
1,308
292
–
–
–
–
54
10
450
–
898
–
–
–
67
–
20
–
32
–
421
100%
100%
100%
50%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
70%
70%
50%
50%
50%
100%
100%
100%
100%
100%
51%
100%
100%
50%
100%
100%
100%
100%
100%
81%
81%
100%
81%
100%
100%
100%
100%
100%
100%
100%
100%
51
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Investment Property Portfolio in Hong Kong (as at 31 December 2019)(continued)
Location
Hanford Plaza, Tuen Mun
Retail Floor and 1-6/F., Citylink Plaza, Shatin
The Capitol, LOHAS Park
Le Prestige, LOHAS Park
The Riverpark, Che Kung Temple
Hemera, LOHAS Park
Type
Shopping Centre
Car Park
Shopping Centre
Shop Unit
Residential Care Home
for the Elderly
Kindergarten
Car Park
Shop Unit
Kindergarten
Car Park
Kindergarten
Lettable floor
area (sq. m.)
No. of parking
spaces
Company’s
economic
interest
1,924
–
12,154
391
2,571
800
–
154
708
–
985
–
22
–
–
–
–
2
–
–
5
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
All Properties are held by the Company and its subsidiaries under Government Leases for over 50 years except for:
•
Telford Plaza I and II, Luk Yeung Galleria, Maritime Square 1 and 2, New Kwai Fong Gardens, ifc, Olympian City, Elements, Cross Border Coach Terminus and Kindergarten at
No. 1 Austin Road West, Plaza Ascot, Royal Ascot, Ocean Walk, Sun Tuen Mun Shopping Centre and Hanford Plaza where the Government Leases expire on 30 June 2047
Choi Hung Park & Ride where the Government Lease expires on 11 November 2051
The Lane where the Government Lease expires on 21 October 2052
PopCorn 2 where the Government Lease expires on 27 March 2052
LOHAS Park where the Government Lease expires on 15 May 2052
Citylink Plaza where the Government Leases expire on 1 December 2057
The Shop Units and Kindergarten of The Riverpark, Che Kung Temple where the Government Lease expires on 21 July 2058
•
•
•
•
•
•
Properties held for sale (as at 31 December 2019)
Location
Olympian City One, No. 11 Hoi Fai Road, Kowloon
Bank of China Centre, No. 11 Hoi Fai Road, Kowloon
The Arch, No. 1 Austin Road West, Kowloon
Harbour Green, No. 8 Sham Mong Road, Kowloon
Type
Shopping Centre
Car Park
Car Park
Residential
Car Park
Kindergarten
Residence Oasis, No. 15 Pui Shing Road, Hang Hau, Tseung Kwan O
Motorcycle Park
The Grandiose, No. 9 Tong Chun Street, Tseung Kwan O
Wings at Sea and Wings at Sea II, LOHAS Park, Tseung Kwan O
MALIBU, LOHAS Park, Tseung Kwan O
The Palazzo, No. 28 Lok King Street, Shatin
Festival City, No. 1 Mei Tin Road, Shatin
Lake Silver, No. 599 Sai Sha Road, Shatin
The Riverpark, No. 8 Che Kung Miu Road, Shatin
Lettable floor area
*
** Brochure gross floor area as per previously issued marketing brochures
*** Saleable area
Motorcycle Park
Residential
Car Park
Motorcycle Park
Residential
Car Park
Motorcycle Park
Residential
Retail
Car Park
Motorcycle Park
Car Park
Residential
Car Park
Car Park
Gross floor
area (sq. m.)
No. of parking
spaces
Company’s
economic
interest
6,026 *
–
–
548 **
–
1,299
–
–
4,725 ***
–
–
2,394 ***
–
–
285 ***
2,000
–
–
–
1,198 ***
–
–
–
330
117
–
12
–
5
24
–
435
46
–
157
7
–
–
11
5
79
–
18
2
40%
40%
40%
1%
1%
50%
71%
70%
20.1%
20.1%
20.1%
47%
47%
47%
55%
55%
55%
55%
100%
92.88%
92.88%
87%
52
BUSINESS REVIEWHONG KONG PROPERTY AND OTHER BUSINESSESMTR Corporation Investment Properties in Hong Kong
90
80
70
60
50
40
30
20
10
0
84.0
3,487
3,652
3,814
3,921
3,973
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2015
2016
2017
2018
2019
Value of Investment Properties in use
(HK$ billion) (left scale)
Net rental income
(HK$ million) (right scale)
Distribution of Hong Kong Property
Management Income
(Percentage)
9.9
4.7
3.7
10.4
16.8
15.8
70.1
68.6
2018
2019
Residential
Retail
Office
Car Park
EXPANDING THE RETAIL PORTFOLIO
Over the next few years, we will open three new malls that will
add around 49% to the attributable GFA of our existing retail
portfolio as of 31 December 2019, for a total of up to 152,120
square metres. Our target is to open The LOHAS in the second
half of 2020 as well as new shopping centres in Tai Wai and
Wong Chuk Hang in 2023.
house Hong Kong’s largest indoor ice rink, the largest cinema
in Tseung Kwan O, and space for nearly 150 retail tenants
providing entertainment, leisure and community services.
As at 31 December 2019, fitout work of The LOHAS is
progressing, and is remained on track for its scheduled
opening in the second half of 2020.
The Company announced on 26 February 2020 that
the Company had signed agreements with New World
Development Company Limited and Chow Tai Fook Enterprises
Limited to acquire their interests in Telford Plaza II shopping
centre in Kowloon Bay and PopCorn 2 shopping centre in
Tseung Kwan O for a total consideration of HK$3 billion. Upon
completion of the transactions on or before 31 March 2020, the
Company will hold the entire economic interest of these two
shopping centres, which helps to provide a sustainable funding
solution to the Company’s railway business.
The LOHAS
The LOHAS is a three-storey, 44,500 square metre shopping
centre at LOHAS Park that will connect seamlessly with the
LOHAS Park Station and nearby residential buildings. It will
Tai Wai shopping centre
Construction of the 60,620 square metre GFA shopping
centre at Tai Wai Station made progress in 2019. Work on
the foundation had been halted due to measures taken
to address ground settlement at a localised area of the
southbound platform on the East Rail Line at Tai Wai Station.
However, this work resumed in January 2019, and the project
was rescheduled for completion in 2023.
Wong Chuk Hang shopping centre
Foundation works on this 47,000 square metres GFA shopping
centre at Wong Chuk Hang commenced during the year, and
the project is on target for completion at the end of 2023.
PROPERTY MANAGEMENT
Hong Kong property management revenue in 2019
decreased slightly by 1.0% to HK$304 million. As at 31
December 2019, MTR managed more than 104,000
residential units and more than 772,000 square metres of
office and commercial space in Hong Kong.
53
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis PROPERTY DEVELOPMENT
Hong Kong property development profit in 2019 totalled
HK$5,531 million, which was derived mainly from the share
of surplus proceeds from MALIBU and sharing in kind from
The LOHAS, as well as sales of inventory units.
Pre-sales
During the year, the launch of our property development
projects at LOHAS Park received a favourable response in
the market:
• GRAND MARINI (Package 9B), launched in September
2019: about 49% of 503 units sold
• MARINI (Package 9A), launched in August 2019: about
83% of 647 units sold
• GRAND MONTARA (Package 7B), launched in June 2019:
100% of 504 units sold
• MONTARA (Package 7A), launched in May 2019: 100% of
616 units sold
Pre-sales of Wings at Sea (Package 4A), Wings at Sea II
(Package 4B), MALIBU (Package 5) and LP6 (Package 6)
continued throughout the year.
For the West Rail property development projects, where we
act as agent for the relevant subsidiaries of KCRC, 75% of the
1,172 units at Cullinan West III (Nam Cheong Station) were
presold as at 31 December 2019 while pre-sales for Sol City
(Long Ping Station (South)) continued.
Property tendering and
future development
LOHAS Park Package 12 was awarded to a subsidiary of
Wheelock and Company Limited in February 2020.
Wong Chuk Hang Station Package 4 was awarded to a
consortium formed by Kerry Properties Limited, Swire
Properties Limited and Sino Land Company Limited in
October 2019.
LOHAS Park Package 11 was awarded to a consortium
formed by Sino Land Company Limited, K. Wah
International Holdings Limited and China Merchants Land
Limited in April 2019.
With the successful tendering of LOHAS Park Package 11 and
12, the majority of the packages at LOHAS Park have now
been awarded and are in various stages of development.
A total of 16 new residential property projects now under
development will come on stream to provide about 22,000
new units in the market, which will be delivered over the next
six years or so.
At the Siu Ho Wan Depot Site, approval was received on
12 February 2019 from the Chief Executive in Council for
the draft Outline Zoning Plan to develop this area into a
community, comprising about 14,000 public and private
housing units together with a 30,000 square metre shopping
mall. We are currently conducting detailed technical studies
of this project, and our discussions with Government are
ongoing. At this early stage, there is no assurance that the
project will be commercially viable.
54
BUSINESS REVIEWHONG KONG PROPERTY AND OTHER BUSINESSESMTR Corporation Progress of Property Development Packages Awarded
Project Status
Location
Design
Foundation Works
Superstructure
Ho Man Tin Station Package 1
Ho Man Tin Station Package 2
LOHAS Park Package 4
LOHAS Park Package 5
LOHAS Park Package 6
LOHAS Park Package 7
LOHAS Park Package 8
LOHAS Park Package 9
LOHAS Park Package 10
LOHAS Park Package 11
Tai Wai Station
Tin Wing Stop
Wong Chuk Hang Station Package 1
Wong Chuk Hang Station Package 2
Wong Chuk Hang Station Package 3
Wong Chuk Hang Station Package 4
Yau Tong Ventilation Building
Completed
In Progress
Completed
Completed
Completed
Completed
Completed
Completed
Completed
In Progress
Completed
Completed
Completed
Completed
Completed
In Progress
In Progress
In Progress
Completed
Completed
Completed
Completed
Completed
Completed
Completed
In Progress
Completed
Completed
In Progress
Completed
Completed
In Progress
In Progress
In Progress
In Progress
In Progress
In Progress
In Progress
In Progress
West Rail Line Property Development Plan
The Company acts as development agent for the West Rail property projects.
Station/Site
Property Development Packages Awarded
Tuen Mun
Tsuen Wan West (TW7)
Nam Cheong
Long Ping (North)
Tsuen Wan West (TW5) Cityside
Tsuen Wan West (TW5) Bayside
Tsuen Wan West (TW6)
Long Ping (South)
Yuen Long
Kam Sheung Road Package 1
Property Development Packages to be Awarded
Kam Sheung Road Package 2
Pat Heung Maintenance Centre
Total
Site Area
(hectares)
Actual/Expected
tender
award date
Actual/Expected
completion date
August 2006
September 2008
October 2011
October 2012
January 2012
August 2012
January 2013
June 2013
August 2015
May 2017
By phases from
2012 – 2014
2014
By phases from
2017 – 2019
2017
2018
2018
2018
2019
2022
2025
2024 – 2025
Under review
2031 – 2032
Under review
2.65
2.37
6.18
0.99
1.34
4.29
1.38
0.84
3.91
4.17
28.12
About 5.17
About 23.56
28.73
56.85
55
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Property Development Packages Completed during the year and Awarded
Location
Developers
Type
(sq. m.) Tender award date
Gross floor
area
Expected
completion date
Goldin Properties Holdings Limited
Chinachem Group
Residential
Residential
69,000
59,400
December 2016
October 2018
2022
2024
Ho Man Tin Station
Package 1
Package 2
LOHAS Park Station
MALIBU
LP6
MONTARA and
GRAND MONTARA
Package 8
MARINI, GRAND MARINI
and Phase 9C (OCEAN MARINI)
Package 10
Package 11
Package 12
Tai Wai Station
Tai Wai
Tin Wing Stop
Tin Wing
Wong Chuk Hang Station
Package 1
Package 2
Package 3
Package 4
Kam Sheung Road Station #
Package 1
Long Ping Station #
Sol City
Nam Cheong Station #
Cullinan West
Yuen Long Station #
Yuen Long
Wheelock and Company Limited
Nan Fung Group Holdings Limited
Wheelock and Company Limited
CK Asset Holdings Limited
Wheelock and Company Limited
Nan Fung Group Holdings Limited
Sino Land Company Limited,
K. Wah International Holdings Limited and
China Merchants Land Limited
Wheelock and Company Limited
New World Development Company Limited
Sun Hung Kai Properties Limited
Road King Infrastructure Limited and
Ping An Real Estate Company Limited
Kerry Properties Limited and
Sino Land Company Limited
CK Asset Holdings Limited
Kerry Properties Limited, Swire Properties
Limited and Sino Land Company Limited
Residential
Residential
Residential
Retail
Kindergarten
Residential
Residential
Kindergarten
Residential
Residential
102,336
136,970
70,260
44,500
1,160
97,000
104,110
810
75,400
88,858
November 2014
January 2015
June 2015
October 2015
December 2015
March 2016
April 2019
Residential
89,290
February 2020
Residential
Retail
Residential
Retail
190,480
60,620*
91,051
205
October 2014
February 2015
Residential
53,600
February 2017
Residential
45,800
December 2017
Residential
Retail
Residential
92,900
47,000
59,300
August 2018
October 2019
Residential
30,225
May 2018
2019
2020
By phases in 2021
2019
2019
2021
By phases in 2021
2022
2025
2026
2022
2024
2022
2023
2024
2025
2025
2025
Sino Land Company Limited,
China Overseas Land & Investment Limited and
K. Wah International Holdings Limited
Residential
114,896
May 2017
Chinachem Group
Residential
41,990
June 2013
2019
Sun Hung Kai Properties Limited
Sun Hung Kai Properties Limited
Residential
Retail
Kindergarten
Residential
Retail
214,700
26,660
1,000
126,455
11,535^
October 2011
By phases from
2017 – 2019
August 2015
2022
Yau Tong Ventilation Building
Yau Tong Ventilation Building
Sino Land Company Limited and
CSI Properties Limited
# as a development agent for the relevant subsidiaries of KCRC
*
^
excluding a bicycle park with cycle track
including a 24-hour pedestrian walkway and a covered landscape plaza
Property Development Packages to be Awarded Notes 1 and 2
Location
LOHAS Park Station
Wong Chuk Hang Station
Type
Residential
Residential
Gross floor area
(sq. m.)
About 140,000
105,900
Period of
package tenders
Expected
completion date
2020 – 2021
2025 – 2026
Notes:
1 Property development packages for which we are acting as development agent for the relevant subsidiaries of KCRC are not included.
2 These property development packages are subject to review in accordance with planning approval, land grant conditions and completion of statutory processes.
56
BUSINESS REVIEWHONG KONG PROPERTY AND OTHER BUSINESSESMTR Corporation
OTHER BUSINESSES
Ngong Ping 360
Visitor numbers and revenue at the Ngong Ping Cable Car
and associated theme village (“Ngong Ping 360”) dropped
as a result of the public order events and decline in visitors to
Hong Kong. Revenue decreased by 17.6% to HK$392 million,
and patronage dropped by 20.6% to 1.45 million.
Promotional activities launched during the year targeted
different customer segments. These included special offers
to Hong Kong residents as well as a joint promotion with
High Speed Rail and Hong Kong-Zhuhai-Macao Bridge. Other
promotions were held to attract families for the Chinese New
Year, Easter and Christmas holidays.
Octopus
The Company’s share of profit from Octopus Holdings
Limited in 2019 increased by 5.9% to HK$234 million, mainly
due to higher revenue from transaction business, good sales
of Octopus Ornaments, Sold Tourist Octopus and Corporate
Octopus as well as higher investment income. As at 31
December 2019, more than 22,000 service providers in Hong
Kong accepted Octopus payments. Total cards and other
stored-value Octopus products in circulation stood at 35.9
million, while average daily transaction volumes and value
were 14.9 million and HK$214.9 million respectively.
57
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Shatin to Central Link
Tai Wai to
Hung Hom Section
99.8%
Complete
Hung Hom to
Admiralty
Section
82.3%
Complete
Worked with Government on
detailed planning and design
of 3 Railway
Projects
under Railway Development
Strategy 2014
HONG KONG
NETWORK EXPANSION
58
MTR Corporation Hung Hom to
Admiralty
Section
Worked with Government on
detailed planning and design
AIM
The expansion of our Hong Kong railway network contributes
to our goals by enhancing connectivity and ensuring we
meet future transport needs. All new railway projects take
years of careful planning and diligent execution to ensure
they meet the community’s expectations for safety, efficiency
and the environment.
CHALLENGES
• Target completion of full Tuen Ma Line is anticipated
to be in 2021, and the targeted completion of Hung Hom
to Admiralty Section in the first quarter of 2022 is still
facing challenges
• Continue to cooperate with relevant authorities, including
the Commission of Inquiry, on their review of the Hung
Hom incidents under the Shatin to Central Link project
• Maintain knowledge pool and expertise gained during
construction projects for future railway projects under
Railway Development Strategy 2014, including the three
new lines mentioned in the 2019 Policy Address
STRATEGIES
• Deliver Targets: Implement modern digitised project
management platform to ensure good progress and
safety of the Shatin to Central Link project
•
Interfacing Effectiveness: Strengthen collaboration among
internal departments and with key external stakeholders.
Enhance integration on the handover of railway extension
projects to the operating railway
• Growth and Development: Create a dynamic and
interactive platform to develop new railway projects
and establish a pipeline of future project deliveries in
Hong Kong. Leverage opportunities from projects to
grow competency that can contribute to the Company’s
business diversification and long-term sustainability
OUTLOOK
Although we made steady progress on the Shatin to
Central Link project during the year, its final delivery will be
dependent on a number of factors both within and outside
the Company’s control. These include the timeliness and
quality of construction work carried out by contractors,
interface and integration issues with existing operating lines,
as well as repairs to damage caused during the public order
events. While the Tuen Ma Line Phase 1 commenced service
in February 2020, we will work to complete the remaining
sections of the Shatin to Central Link. We also anticipate
working closely with Government on the three new railway
projects under Railway Development Strategy 2014 on their
detailed planning and design.
In 2019, we made further progress on the Shatin to Central
Link. Looking beyond the Shatin to Central Link, the projects
announced under the Railway Development Strategy 2014
(“RDS 2014”) have the potential to increase Hong Kong’s
railway network by a further 35 km. We welcomed the
intention of the Government, as mentioned in the 2019 Policy
Address, to commence the detailed planning and design for
three new lines: the Tung Chung Line Extension, Tuen Mun
South Extension and Northern Link (and Kwu Tung Station).
i
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59
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis
SHATIN TO CENTRAL LINK
The ten-station 17-km Shatin to Central Link, a project
managed by MTR on behalf of Government, is a strategic
railway that will enhance the existing rail network and
improve connectivity in Hong Kong. The first phase is the
11-km Tai Wai to Hung Hom Section, and the second phase is
the 6-km Hung Hom to Admiralty Section.
The first phase, the Tai Wai to Hung Hom Section, will connect
the Ma On Shan Line to the West Rail Line, via Diamond Hill
and Hung Hom stations, to form the Tuen Ma Line. When
the second phase, the Hung Hom to Admiralty Section is
completed, the East Rail Line will run under Victoria Harbour
to Exhibition Centre Station and Admiralty Station via
Hung Hom.
When completed, the Shatin to Central Link as a whole will
connect several existing railway lines and significantly reduce
travel time between the New Territories North, Kowloon and
Hong Kong Island. Passengers will also have more alternative
routes to choose from, particularly in the busy cross-harbour
section of the Tsuen Wan Line and the Tai Wai to Kowloon
Tong section of the East Rail Line.
Project Progress
As at 31 December 2019, 99.8% of the Tai Wai to Hung Hom
Section and 82.3% of the Hung Hom to Admiralty Section
had been completed.
At Exhibition Centre Station, all bulk excavation works for
the station were completed in June 2019. Progress on the
remaining foundation works, including piling works for
station entrances and nearby facilities, continued during the
year as did construction works for the station superstructure,
West Approach Tunnels and related ventilation facilities.
Construction works for the cross-harbour immersed tube
tunnel and the bored tunnels on the Hong Kong Island
section were completed in 2019. At year end, the project
team was carrying out track laying, electrical and mechanical
installation works to pave the way for the installation of the
overhead line and trackside equipment.
Programme for delivery
On 11 February 2020, the Company entered into relevant
agreements with Government and KCRC to supplement the
current agreements to enable the Company to operate the
Tuen Ma Line Phase 1 in substantially the same manner as
the existing railway network for a period of two years from 14
February 2020.
The Tuen Ma Line Phase 1 opened on 14 February 2020
enables passengers on the Ma On Shan Line to travel directly
to Kai Tak Station in East Kowloon via Hin Keng and Diamond
Hill stations. Meanwhile, the expanded Diamond Hill Station
has become a new interchange between the Tuen Ma Line
and Kwun Tong Line, allowing passengers from the New
Territories North and East districts to travel onward to East
Kowloon and Hong Kong Island East more conveniently.
The full line opening of the Tuen Ma Line is anticipated
to be in 2021. As for the Hung Hom to Admiralty Section
(East Rail Line extending to Admiralty Station), the targeted
completion in the first quarter of 2022 is still facing challenges
and there are continuing efforts being made with the aim of
meeting the programme.
As the existing East Rail Line will connect with the future
Hung Hom to Admiralty section, its signalling system must
be upgraded for compatibility with the Shatin to Central Link
project. Damage to facilities on the East Rail Line as a result
of the recent public order events has caused delays to the
originally scheduled testing of the new signalling system
during non-service hours.
Concerns relating to construction works
In the first half of 2018, allegations were raised concerning
the workmanship of certain construction matters relating to
three stations of the Shatin to Central Link, in particular the
works at Hung Hom Station extension.
We took immediate steps to investigate these matters and
report the Company’s findings to Government while reserving
the Company’s position against relevant contractors.
A Commission of Inquiry (“COI”) was subsequently set up by
the HKSAR Chief Executive in Council to investigate matters
relating to the diaphragm wall and the platform slab at the
Hung Hom Station extension, as well as the adequacy of the
Company’s project management and supervision systems,
among other issues.
On 19 February 2019, Government announced that the
terms of reference of the COI had been expanded to cover
issues relating to the North Approach Tunnels (“NAT”), the
South Approach Tunnels (“SAT”) and the Hung Hom Stabling
Sidings (“HHS”) under Contract No. 1112.
On 26 March 2019, the Government published the redacted
Interim Report of the COI concerning project quality issues at
the Hung Hom Station extension. While recognising it to be
60
BUSINESS REVIEWHONG KONG NETWORK EXPANSIONMTR Corporation an interim report, the COI found that the Hung Hom Station
extension diaphragm wall and platform slab construction
works are safe.
The COI also made a number of comments regarding the
Company’s performance and systems as well as a number
of recommendations for the future. We welcomed such
recommendations, many of which concurred with the
findings of our own review conducted by the Capital
Works Committee of the Board. We have already begun
implementing some of the recommendations and will
continue to strengthen our project management regime.
The Final Report of the COI is expected to be submitted to
Government by 31 March 2020.
In July 2019, the Company submitted to Government two
separate final reports in respect of incidents relating to the
Hung Hom Station extension, NAT, SAT and HHS. These
reports contain, inter alia, proposals for suitable measures
required at certain locations to achieve code compliance.
Funding
Under the entrustment agreement for the construction and
commissioning of the Shatin to Central Link between the
Company and Government dated 29 May 2012 (“Entrustment
Agreement”), Government is responsible for bearing all the
work costs specified in the Entrustment Agreement, except
for certain costs for which the Company is responsible under
the existing service concession agreement with KCRC.
On 5 December 2017, the Company submitted its updated
estimate to Government for review on the estimated Shatin
to Central Link Cost to Complete for the main construction
works under the Entrustment Agreement. The Company
increased its estimate by HK$16,501 million from HK$70,827
million to HK$87,328 million. Since submission of this
updated estimate to the Government, the Company has
been liaising with the Government to facilitate their review
and verification process.
The Company carried out a further review and revalidation
of the Shatin to Central Link Cost to Complete which was
submitted to Government for review on 11 February 2020.
The Company’s submission included an additional amount
of project management cost for the Company. Government
responded with requests for further information and
clarification and has objected to the inclusion of any additional
amount of project management cost. As stated in the
Company’s announcement on 28 February 2020, the
Company notes that Government has issued its paper for the
first stage of the Legislative Council process for the approval
of additional funding for the Shatin to Central Link project
and that Government’s paper does not include any provision
by Government for any additional amount of project
management cost for the Company. The Company is
currently addressing these matters with Government. Once
these issues are resolved the Company will issue an
announcement regarding this matter. The Company continues
to exercise rigorous cost control with the objective of ensuring
that construction costs are contained as far as possible.
OTHER NEW RAILWAY PROJECTS
In addition to the Shatin to Central Link, the Government has
identified seven additional rail projects to be implemented
under RDS 2014. Proposals have been submitted for five of
these: the Tuen Mun South Extension, the Northern Link (and
Kwu Tung Station), the East Kowloon Line, the Tung Chung
West Extension (and Tung Chung East Station) and the North
Island Line.
MTR will work with Government on the detailed planning
and design for three new lines announced in the Chief
Executive’s 2019 Policy Address, namely the Tung Chung Line
Extension, Tuen Mun South Extension and Northern Link.
We expect to commence detailed planning and design on
these new lines in 2020 and will continue to provide further
information and details to Government in order to facilitate
the formal release of Policy Support.
For the East Kowloon Line and North Island Line, we
will continue to provide supplementary information on
previously submitted project proposals to Government.
In the year ahead, we will work closely with Government
departments to address the technical and financial issues
as requested.
For the Hung Shui Kiu Station and South Island Line (West),
the two remaining projects to be implemented under RDS
2014, we received invitations to submit project proposals
in May and June 2019 respectively. Technical studies are in
progress to prepare submission of project proposals in 2020.
In the longer term, we look forward to participating in the
strategic planning and transport studies to be undertaken
by Government in 2020, to support the sustainable
development of the rail network.
61
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis 11 Railway
Services in
4 Countries
2,102 km
Operating
Route Length
outside of
Hong Kong
2,276 million
Total Patronage
outside of
Hong Kong
MAINLAND OF CHINA AND
INTERNATIONAL
BUSINESSES
62
MTR Corporation AIM
In line with our objective to become a leading multinational
company, we are taking our strategy of growing and
connecting communities into markets beyond Hong Kong.
We have established a presence in three key geographies –
Mainland of China, Europe and Australia. In each of these,
we aim to become recognised as the best rail operator by
focusing on delivering what customers really want.
CHALLENGES
•
Increasing competition in the passenger rail market
both in the Mainland of China and overseas, as more rail
operators compete outside their home markets
•
Increasing expectations from clients and customers
towards rail operators in terms of customer satisfaction
and operational performance
• Different operating and investment models are required in
the Mainland of China and overseas markets
• Returning to profitability the UK and Swedish operations
that have been underperforming
STRATEGIES
• Leverage our world leading performance in delivering
integrated railway services to capture construction,
operation and maintenance opportunities in our
existing markets
• Adapt our business models, such as Rail plus Property, to
suit the Mainland and overseas contexts
• Selectively pursue opportunities in new markets
• Strengthen our partnerships with clients and
local stakeholders
• Ensure best practices are shared among our businesses in
and outside Hong Kong to achieve our aim of becoming a
leading multinational company
OUTLOOK
Revenue from our Mainland of China and International
businesses is derived mainly from the provision of rail and
rail related services through our subsidiaries and associates.
Demand for these services depends partly on the economic
situation in the markets concerned, which varies from region
to region. Growth in profit will hinge, among other things,
on our success in overcoming the serious challenges faced
by Stockholm commuter rail and the South Western Railway
franchise. With the opening of three new lines in 2019,
namely Sydney Metro North West Line, initial section of
Hangzhou Metro Line 5 and Macao Light Rapid Transit Taipa
Line, we expect these lines will begin to make a financial
contribution in 2020. In other markets outside
Hong Kong, we will continue to seek new
growth opportunities.
The Group’s Mainland of China and international operations
are being affected by the COVID-19 outbreak, as this spreads
around the world. The Group is working hard to mitigate the
financial and operational impacts of the outbreak and to keep
its Mainland of China and international operations running to
serve essential workers and those who need to travel in the
cities in which we operate.
The expertise and experience we have gained in
Hong Kong have been used on a growing portfolio of
railway-related businesses in the Mainland of China, Macao,
Europe and Australia. Our railway businesses outside Hong
Kong carried an average of about 7.2 million passengers
per weekday in 2019.
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63
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis
FINANCIAL PERFORMANCE
Year ended 31 December
HK$ million
Recurrent Businesses
Subsidiaries
Revenue
EBITDA
EBIT
EBIT
1,881
1,458
529
517
388
376
29.0
36.3
37.5
37.5
(Net of Non-controlling Interests)
517
376
EBITDA Margin (in %)
28.1% 26.6%
1.5 % pts.
EBIT Margin (in %)
27.5% 25.8%
1.7% pts.
Recurrent Business Profit
472
338
39.6
Associates and Joint Venture
Mainland of China and International Businesses
Mainland of China and Macao
Railway, Property Rental
and Property
Management Businesses
International Railway Businesses
Total
2019
2018 Inc./(Dec.) %
2019
2018 Inc./(Dec.) %
2019
2018 Inc./(Dec.) %
19,204
19,419
(1.1)
21,085
20,877
796
572
412
4.1%
3.0%
200
488
346
198
2.5%
1.8%
48
63.1
65.3
108.1
1.6% pts.
1.2% pts.
316.7
1,325
1,089
929
6.3%
5.2%
672
602
54
876
722
574
4.2%
3.5%
386
963
437
1.0
51.3
50.8
61.8
2.1% pts.
1.7% pts.
74.1
(37.5)
(87.6)
Share of EBIT
Share of Profit/(Loss)
1,005
457
989
470
1.6
(2.8)
(403)
(403)
(26)
(33)
(1,450.0)
(1,121.2)
EBIT of Subsidiaries (Net of
Non-controlling Interests)
and Share of EBIT of
Associates and
Joint Venture
1,522
1,365
11.5
9
172
(94.8)
1,531
1,537
(0.4)
Profit attributable to Shareholders of the Company
– Arising from Recurrent Businesses (before Business Development Expenses)
– Business Development Expenses
– Arising from Recurrent Businesses (after Business Development Expenses)
– Arising from Mainland of China Property Development
– Total
Number of passengers carried by our railway subsidiaries, associates and joint venture outside of Hong Kong
(in millions)
726
823
(201)
(263)
525
49
574
560
90
650
(11.8)
(23.6)
(6.3)
(45.6)
(11.7)
2,276
2,186
4.1
In the Mainland of China and Macao, recurrent business profit
from our railway, property rental and property management
subsidiaries increased by 39.6% to HK$472 million,
mainly due to incremental contributions from Macao
Light Rapid Transit (“LRT”) Taipa Line O&M and project
management services.
In our International businesses, recurrent business profit
from our railway subsidiaries increased by 316.7% to HK$200
million, mainly due to the recognition of profit from Sydney
Metro City & Southwest’s Early Works Deed and the reduced
loss of MTR Pendeltågen AB.
Our share of profit from our associates and joint venture
decreased by 87.6% to HK$54 million, mainly due to the
onerous contract provision made for First MTR South Western
Trains Limited.
Excluding Mainland of China property development, our
railway, property rental and management subsidiaries
(after business development expenses), together with
our associates and joint venture outside of Hong Kong,
contributed net after-tax profits of HK$525 million in 2019 on
an attributable basis, a decrease of 6.3% compared with 2018,
and represented 10.5% of total 2019 recurrent profits.
64
MTR CorporationBUSINESS REVIEWMAINLAND OF CHINA AND INTERNATIONAL BUSINESSES
RAILWAY BUSINESSES IN THE MAINLAND OF CHINA
Beijing
Our 49%-owned associate, Beijing MTR Corporation Limited,
operates four lines, namely Beijing Metro Line 4 (“BJL4”), the
Daxing Line, Beijing Metro Line 14 (“BJL14”) and Beijing Metro
Line 16 (“BJL16”). On-time performance in 2019 averaged
99.9% across the four lines.
Our consultancy subsidiary in Shenzhen entered into a
project management agreement to supervise construction
of the Northern Extension of SZL4, a project that is financed
by the Shenzhen Municipal Government. As civil and E&M
works made good progress towards the completion of
the programme, discussions with the Shenzhen Municipal
Government continued with regard to the operational and
maintenance arrangements in preparation for its opening at
the end of 2020.
Beijing Metro Line 4 and the Daxing Line
For the year, the combined ridership of BJL4 and the
Daxing Line was about 455 million passenger trips, while
average weekday patronage was more than 1.35 million,
similar to 2018.
Beijing Metro Line 14
The first three phases of BJL14 recorded a combined
passenger trips of about 251 million and average weekday
patronage of over 788,000 in 2019, an increase of 6% over
2018. Targeted full line opening will be after 2021.
Beijing Metro Line 16
BJL16 is a Public Private Partnership project whose first phase,
the 19.6-km Northern Section, commenced operation in
December 2016. In 2019, the line recorded about 39 million
passenger trips, with average weekday patronage at over
120,000. Full line operation, which will mark the start of the
operating concession, is tentatively targeted after 2021.
Shenzhen
Shenzhen Metro Line 4 (“SZL4”), which is operated by MTR
Corporation (Shenzhen) Limited, saw patronage grow by 3%
to 239 million in 2019, while average weekday patronage
rose to 666,000. On-time performance remained at 99.9%.
As noted in previous reports, although patronage has
continued to grow on SZL4 there has been no increase
in fares since we started operating the line in 2010. In this
project, the public sector funding support is in the form of
cash grants. At present, the Shenzhen Municipal Government
is in the planning process to implement a fare adjustment
mechanism. If a suitable fare adjustment mechanism is not
put in place in the near future, the long-term financial viability
of this line will be impacted.
Hangzhou
Hangzhou Metro Line 1 and Extension
Our 49%-owned associate in Hangzhou, Hangzhou MTR
Corporation Limited, operates Hangzhou Metro Line 1 and its
extension. Patronage on this line increased by 9.6% in 2019
to 296 million, with average weekday patronage at 822,000.
On-time train performance remained at 99.9%.
Hangzhou Metro Line 5
The 51.5-km Hangzhou Metro Line 5 is an underground
metro line that runs from Xiangzhanglu Station in Xiaoshan
District to Lutinglu Station in the Yuhang District of
Hangzhou, with a total of 38 stations.
In June 2019, the initial section of the line went into service
and received a positive response from passengers. Total
patronage since its opening was 16 million, with an average
weekday patronage of 92,000. The latter section, which was
still under construction at the end of the year, is targeted to
go into service in the first half of 2020.
This project is a PPP contract through a joint venture
company, Hangzhou MTR Line 5 Corporation Limited,
in which we have a 60% share. Under this PPP contract,
the joint venture has responsibility for the trains and
E&M systems (including signalling and other systems),
architectural finishes, as well as subsequent operations, assets
maintenance and renewals for a period of 25 years.
The joint venture company’s total investment in this project
is estimated at RMB10.9 billion, which will be financed by
bank borrowings and equity investments from shareholders.
MTR has contributed an equity investment of RMB2.616
billion into this joint venture. The civil works, such as the
construction of stations and tunnels, are being undertaken by
Hangzhou Metro Group.
65
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis PROPERTY BUSINESSES IN THE MAINLAND OF CHINA
Shenzhen
The Tiara residential development at Shenzhen Metro
Longhua Line Depot Site Lot 1 comprises a total developable
GFA of approximately 206,167 square metres, including a
retail centre of about 10,000 square metres (GFA). More than
98% of the residential units have been sold and handed over
to buyers.
completion is expected to be delayed from 2022 to 2024 due
to the additional works required for railway safety assurance
during basement construction.
Guangdong-Hong Kong-Macao
Greater Bay Area
In the Guangdong-Hong Kong-Macao Greater Bay Area,
we are providing Transit Oriented Development technical
assistance to an associated company of Country Garden
Group and Foshan Shunde District Metro Company Limited
relating to a mixed-use property development adjacent
to Chencun Station in the Shunde district of Foshan,
Guangdong province. The completed project will have a total
GFA of approximately 391,500 square metres.
Property Rental and
Management Businesses
The Company also manages self-developed and other
third-party properties in the Mainland of China, with a total
managed area of 390,000 square metres as at 31 December
2019. The average occupancy rate of our shopping mall in
Beijing, Ginza Mall, was 98% in 2019.
TIA Mall held its official opening in August 2019 and the
average occupancy rate was 74% during the period.
Tianjin
In March 2017, a framework agreement was signed with a
subsidiary of Beijing Capital Land Limited for the disposal
of our 49% interest in Tianjin TJ-Metro MTR Construction
Company Limited, as well as the conditional future
acquisition of an approximately 91,000 square metre GFA
shopping centre to be developed on the Beiyunhe Station
site. Relevant government approval was obtained in July
2017 for the disposal of our 49% interest, and the Sale and
Purchase Agreement for the shopping centre was signed on
26 January 2018. Based on the construction progress, project
MACAO
Our wholly-owned subsidiary was awarded an MOP 5.88
billion (HK$5.71 billion) service contract for operating and
maintaining the Macao LRT Taipa Line – the first rapid transit
system in Macao – over a period of 80 months. The contract
covered the line's testing and commissioning activities,
operation of train services, as well as the maintenance of
trains, the signalling system and other infrastructure.
Commencing service on 10 December 2019, the 9.3-km line
now connects 11 stations from the Taipa Ferry Terminal to
Ocean Station, and was well accepted by the public.
66
MTR CorporationBUSINESS REVIEWMAINLAND OF CHINA AND INTERNATIONAL BUSINESSES EUROPEAN RAILWAY BUSINESSES
United Kingdom
TfL Rail/Elizabeth Line
In London, MTR Corporation (Crossrail) Limited (“MTR
Crossrail”), a wholly owned subsidiary of the Company,
operates the Crossrail operating concession under the
TfL Rail brand.
Starting in December 2019, service on 57-km route
between Paddington and Reading was commenced, in
addition to the existing TfL Rail service between Liverpool
Street and Shenfield in the east of London, and between
Paddington and Heathrow Airport in the west. As the
operator of the line (to be renamed the Elizabeth line upon
full line opening), we continue to support Transport for
London on its phased opening.
In 2019, the overall performance of TfL Rail was satisfactory
and remained one of the most reliable rail services in the UK.
South Western Railway
Through our associate First MTR South Western Trains Ltd,
we have a 30% share in the South Western Railway franchise,
one of the largest rail networks in the UK, in partnership
with FirstGroup plc. The South Western Railway runs 998 km
and serves 203 stations across London and southwestern
England. In 2019, the financial performance of this franchise
continued to suffer for a number of reasons, and we have
made an announcement on the provision of GBP43 million
against our share of maximum potential loss under the
Franchise Agreement.
First MTR South Western Trains Ltd is in discussions with the
Department for Transport regarding potential commercial
and contractual remedies in respect of the uncertainties
affecting the performance of the franchise, including
infrastructure reliability, timetabling delays and industrial
action. While these discussions are constructive, they remain
ongoing. The outcome and therefore the impact on the
associate’s ability to continue operating the franchise, is at
this stage uncertain.
Sweden
MTR, the largest rail operator in Sweden by passenger
volume, operates three key rail businesses in the country:
Stockholm Metro, MTR Express and the Stockholm commuter
rail service (“Stockholms pendeltåg”).
Stockholm Metro
In 2019, Stockholm Metro continued to register stable
operation and satisfactory performance.
MTR Express
MTR Express (Sweden) AB, a wholly-owned subsidiary
that operates the MTR Express intercity service between
Stockholm and Gothenburg, was ranked the second most
innovative company in Sweden on the Swedish Innovation
Index. Patronage growth in 2019 was steady with narrowed
losses. New marketing initiatives were implemented to
stimulate ridership.
Stockholm commuter rail
Our wholly-owned subsidiary, MTR Pendeltågen AB, operates
Stockholms pendeltåg, which serves the greater Stockholm
area with 54 stations, covering a total route length of 247 km.
The operational and financial performance of this
commuter rail service significantly improved in 2019
following the difficulties of 2018. However, MTR
Pendeltågen AB will likely remain in a loss-making position
for a year or so despite narrowed losses in 2019.
The concession for this service, which was granted to MTR
Pendeltågen AB in 2016, runs for ten years to December
2026, with an option for the public transport authority to
extend for four more years.
MTR Tech AB and Emtrain AB
The Company’s wholly-owned subsidiary MTR Tech AB,
which carries out rolling stock maintenance for Stockholm
metro, performed satisfactorily in 2019.
The concession of the Stockholm commuter rail service
includes the maintenance of rolling stock, which had been
in a 50% shareholding agreement with Euromaint Rail AB
through a company known as Emtrain AB. In 2019, MTR Tech
AB bought out the other 50% shareholding from Euromaint
Rail AB, and Emtrain AB is now a 100%-owned subsidiary of
MTR Tech AB.
67
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis AUSTRALIA
Melbourne’s Metropolitan Rail Service
In Melbourne, our 60%-owned subsidiary Metro Trains
Melbourne Pty. Ltd. operates the 409-km Melbourne
metropolitan rail network.
The operational performance of the Melbourne metropolitan
rail network was affected by network improvement works
initiated by the city government, among other issues. We
have since made rectification plans and put in place the
resources needed to restore service to previous performance
levels. Indeed, our good record of performance over the
term of the previous franchise was one of the reasons for the
renewal of our concession to November 2024, with an option
to further extend for a maximum of three years.
Sydney Metro North West Line
In Sydney, MTR is a member of a consortium, Northwest
Rapid Transit (“NRT”) Consortium, responsible for the design,
financing and construction, as well as the operation and
maintenance of the Sydney Metro North West Line, the first
stage of Sydney Metro.
The 36-km North West Line includes eight new metro stations
and five existing stations upgraded to metro standards,
and service was commenced in May 2019. A high level of
customer satisfaction achieved in its initial period of operation.
Equipped with state-of-the-art rail service features such as fully
automated (driverless) trains and platform screen doors, it has
been commended by the Premier of the New South Wales
State Government and well received by the public.
Nordic Region
In Stockholm, we submitted a bid for the O&M of
Roslagsbanan, the commuter network connecting Stockholm
and the municipalities north of the city. The result of the bid is
expected in the second quarter of 2020.
Australia
In Australia, the NRT consortium, of which we are a
member, reached an agreement with the New South Wales
Government in November 2019 to conclude the contract for
the extension to the existing NRT PPP with Sydney Metro.
The NRT PPP contract package includes new metro trains and
core rail systems as well as the operations and maintenance
component for NRT to operate the combined Metro North
West and City and Southwest lines until 2034. MTR will invest
in the project and take the lead in the NRT PPP project works
and railway operations and maintenance of both the City
and Southwest Line and the Metro North West Line as a
combined single line from 2024.
GROWTH OUTSIDE OF HONG KONG
Mainland of China
In Beijing, we were awarded the 49.7-km Beijing Metro Line
17 (“BJL17”) O&M concession in December 2019. BJL17 will
have 21 stations and serve the east of Beijing. This is a 20-year
concession (no later than 31 December 2045) commencing
from the first phase opening of the line, which is targeted
for the end of 2021. We will lease the rolling stock over the
20-year period, with lease payments to be made in two
instalments after the opening of each phase.
A Letter of Intent was signed on 14 January 2020 in which
the Company was invited by Chengdu Rail Transit Group
to joint-venture with them on station retail businesses.
Both parties are looking forward to concluding the deal on
the joint-venture agreement(s), subject to a business case
assessment that justifies our participation in this new line of
business in the Mainland of China.
We continued our efforts to identify development
opportunities in Beijing, Hangzhou and, in particular, the
Guangdong-Hong Kong-Macao Bay Area.
United Kingdom
In the UK, we submitted a bid for the West Coast Partnership
franchise but were unsuccessful.
68
MTR CorporationBUSINESS REVIEWMAINLAND OF CHINA AND INTERNATIONAL BUSINESSES Mainland of China and International Railway Businesses at a Glance
MTR
Corporation
Shareholding
Business Model
Commencement of
Franchise / Expected
Date of Commencement
of Operation
Franchise / Concession
Period
Total Number of
Stations
(Number of Stations
Managed)
Route Length
(km)
Mainland of China
Beijing Metro Line 4
(“BJL4”)
Daxing Line of BJL4
Beijing Metro Line 14
(“BJL14”)
49%
Public-Private-
Partnership (“PPP”)
49% Operations and
Maintenance
(“O&M”)
Concession
49%
PPP
Beijing Metro Line 16
49%
Phase 1: O&M
Concession
Full Line: PPP
Beijing Metro Line 17
49% O&M Concession
September 2009
December 2010
30 years
10 years
24
11
28.2
21.8
30 years from December
2015
Phase 1 to 3: 30
Full Line: 37
Note 1 Phase 1 to 3: 43.8
Full Line: 47.3
Phase 1 to 3: by
phases from May 2013
to December 2015
Full Line: Targeted
after 2021
Phase 1:
December 2016
Full Line:
Targeted after 2021
Phase 1: till full line opens
Full Line: 30 years
Subject to local
government
arrangement
20 years after service
commencement
(no later than 31
December 2045)
Phase 1: 10
Full Line: 29
Phase 1: 19.6
Full Line: 49.8
Full Line: 21
Full Line: 49.7
Shenzhen Metro Line 4
100%
Build-Operate-
Transfer Note 2
Phase 1 and 2:
by phases from
July 2010 to June 2011
30 years
Full Line: 15
Full Line: 20.5
Hangzhou Metro Line 1
(“HZL1”)
49%
PPP
November 2012
25 years
HZL1 Extension
49% O&M Concession
November 2015 End together with HZL1
concession
31
3
Hangzhou Metro Line 5
60%
PPP
Initial Section:
June 2019
Latter Section:
first half of 2020
25 years
Initial Section: 12
Latter Section: 26
48
5.6
Initial Section:
17.8
Latter Section:
33.7
100%
O&M Service
Contract
December 2019
80 months
11
9.3
100% O&M Concession
May 2015
8 years Until End 2019: 33
(23)
Full line: 41 (32)
Until End 2019: 97
Full line: 118
30% O&M Concession
August 2017
7 years
203 (186)
Macao
Macao Light Rapid
Transit Taipa Line
Europe
TfL Rail/Elizabeth Line,
United Kingdom
South Western Railway,
United Kingdom
Stockholm Metro,
Sweden
100% O&M Concession
November 2009
MTR Express, Sweden
100%
Open Access
Operation
Initial service:
March 2015
Full schedule:
August 2015
8 years till 2017 and 6
years extension till 2023
Operating license is
subject to renewal
100
6 (0)
Stockholm commuter
rail, Sweden
Australia
Melbourne’s
Metropolitan Rail Service
Sydney Metro North
West Line
Sydney Metro City and
Southwest Line
100% O&M Concession
December 2016
10 years
54 (50)
60% O&M Concession
November 2009
8 years till 2017 and 7
years extension till 2024
Mixed
PPP
(Operations, Trains
& Systems)
Mixed
PPP
(Operations, Trains
& Systems)
May 2019
15 years
Subject to local
government
arrangement,
target in 2024
10 years after service
commencement
222
13
18
998
108
457
247
409
36
30
Notes:
1 BJL14 Phase 2 East Section has 12 stations, 11 opened (one is currently bypassed). BJL14 Phase 3 Middle Section has 11 stations, ten opened (one is currently bypassed).
2
Shenzhen Metro Line 4 Phase 1 assets are owned by the Shenzhen Municipal Government and MTR Corporation (Shenzhen) Limited took over the operation of Phase 1 in
July 2010.
69
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis
HK$54,504
million
Total Revenue
Increased by 1.1%
HK$10,560
million
Underlying Business
Profit Decreased
by 6.2%
Strong Credit
Ratings
AA+
by Standard & Poor’s
(long-term)
FINANCIAL REVIEW
A review of the Group’s results and operations is featured in
the preceding sections. This section discusses and analyses
the results in greater level of details.
70
MTR Corporation PROFIT AND LOSS
HK$ million
Total Revenue
Recurrent Businesses
EBIT from Hong Kong Businesses and
Mainland of China and International Subsidiaries
Share of Profit or Loss of Associates and Joint Venture
Project Studies and Business Development Expenses
Total Recurrent EBIT
Interest and Finance Charges
Income Tax
Non-controlling Interests
Recurrent Business Profit
Non-recurrent Business Profit
Underlying Business Profit
EBIT Margin# (in %)
EBIT Margin#
Year ended 31 December
Inc. / (Dec.)
2019
54,504
2018
53,930
HK$ million
574
7,807
288
(276)
7,819
(939)
(1,740)
(160)
4,980
5,580
10,560
13.8%
11,876
658
(323)
12,211
(1,208)
(1,835)
(148)
9,020
2,243
11,263
21.5%
%
1.1
(34.3)
(56.2)
(14.6)
(36.0)
(22.3)
(5.2)
8.1
(44.8)
148.8
(6.2)
(7.7%) pts.
(13.5%) pts.
5.7
10.0
(14.6)
6.5
(22.3)
19.4
8.1
7.7
148.8
35.8
0.2% pt.
(4,069)
(370)
(47)
(4,392)
(269)
(95)
12
(4,040)
3,337
(703)
678
66
(47)
791
(269)
356
12
692
3,337
4,029
(excluding Mainland of China and International Subsidiaries) (in %)
19.3%
32.8%
Results on Normalised Basis (“Normalised Basis”)^
Recurrent Businesses
EBIT from Hong Kong Businesses and
Mainland of China and International Subsidiaries
Share of Profit or Loss of Associates and Joint Venture
Project Studies and Business Development Expenses
Total Recurrent EBIT
Interest and Finance Charges
Income Tax
Non-controlling Interests
Recurrent Business Profit
Non-recurrent Business Profit
Underlying Business Profit
EBIT Margin# (in %)
EBIT Margin#
12,554
724
(276)
13,002
(939)
(2,191)
(160)
9,712
5,580
15,292
21.7%
11,876
658
(323)
12,211
(1,208)
(1,835)
(148)
9,020
2,243
11,263
21.5%
(excluding Mainland of China and International Subsidiaries) (in %)
31.6%
32.8%
(1.2%) pts.
Excluding profit on Hong Kong property development and share of profit or loss of associates and joint venture.
#
^ Results on normalised basis are estimates based on certain assumptions to represent financial performance if the adverse impact of the public order events in Hong
Kong on the Group’s Hong Kong businesses (HK$2.3 billion), and the provisions for the Hung Hom incidents of the SCL project in Hong Kong (HK$2 billion) and the South
Western Railway franchise agreement in the United Kingdom (HK$0.4 billion) had been excluded.
71
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis
Total Revenue
The Group’s total revenue in 2019 increased slightly by 1.1%
to HK$54,504 million. The increase was mainly due to the full
year contribution from HSR and higher revenue contributions
from our Mainland of China and international subsidiaries,
but offset mostly by the reduction in fare revenue in our
Hong Kong transport operations, as well as the rental
concessions granted to some tenants in our station kiosks
and shopping malls because of the public order events in
Hong Kong since June 2019.
Total Recurrent EBIT
The Group’s total recurrent EBIT (including share of profit or
loss of associates and joint venture as well as project study
and business development expenses) in 2019 decreased by
36.0% to HK$7,819 million. The decrease was mainly due to
the impact of the public order events in Hong Kong on our
Hong Kong businesses and the provisions made for the
Hung Hom incidents of the SCL project in Hong Kong and
the South Western Railway franchise agreement in the
United Kingdom.
Total Revenue
(HK$ billion)
55.4
7.0
2.1
17.2
4.9
6.0
18.2
53.9
0.1
2.0
54.5
1.6
20.9
21.1
5.0
6.4
5.1
6.8
19.5
19.9
45.2
41.7
2.3
12.6
4.5
5.4
1.4
2.3
13.6
4.7
5.5
16.9
17.7
2015
2016
2017
2018
2019
Total Revenue
Mainland of China
Property Development
Other Businesses
Mainland of China and
International Railway,
Property Rental and
Management Subsidiaries
Hong Kong Property
Rental and Management
Businesses
Hong Kong Station
Commercial Businesses
Hong Kong Transport
Operations
Should the above adverse impacts be excluded, total normalised
recurrent EBIT would have increased by 6.5% to HK$13,002 million.
On a normalised basis, the contribution from Hong Kong
Transport Operations would have decreased 2.9% pts. to
13.4% of total normalised recurrent EBIT, mainly due to
higher depreciation and amortisation charges resulting from
asset additions to the Hong Kong railway network and a one-
off refund of Government rent and rates in 2018 that did not
recur in 2019.
Total Recurrent EBIT *
(HK$ billion)
11.1
0.4
0.6
3.7
4.2
11.6
11.4
12.2
0.5
0.5
3.9
4.4
0.5
0.8
4.1
4.7
0.7
0.7
4.2
5.0
2.5
(0.3)
2.6
(0.3)
1.7
(0.4)
2.0
(0.4)
13.0
7.8
0.3
1.1
4.3
5.1
(0.6)
(2.4)
0.7
1.1
4.4
5.4
1.7
(0.3)
2015
2016
2017
2018
2019
2019
Normalised
Basis
Total Recurrent EBIT
Share of Profit or Loss of
Associates and Joint Venture
Others #
Mainland of China and
International Railway,
Property Rental and
Management Subsidiaries
Hong Kong Property Rental
and Management Businesses
Hong Kong Station
Commercial Businesses
Hong Kong Transport
Operations
*
Including share of profit or loss of associates and joint venture as
well as project study and business development expenses
# Others represents “Other Businesses, and Project Study and
Business Development Expenses”
72
FINANCIAL REVIEWMTR Corporation On the other hand, the contribution from Mainland of China
and International Railway, Property Rental and Management
Subsidiaries would have increased 2.5% pts. to 8.4%,
mainly due to performance improvement of our Stockholm
commuter rail (“Stockholms pendeltåg”) and improved
operating profits from Macao LRT Taipa Line project
management and O&M services.
Interest and Finance Charges
Interest and finance charges for recurrent businesses were
HK$939 million, representing a decrease of 22.3% from 2018,
mainly due to higher interest income from deposits and
savings in interest expenses mainly due to lower average
debt outstanding. A detailed review of the Group’s financing
activities is featured in the ensuing section.
Underlying Business Profit
The Group’s underlying business profit was HK$10,560
million, representing a decrease of 6.2% from 2018. On a
normalised basis, underlying business profit was HK$15,292
million, an increase of 35.8% over 2018.
Underlying Business Profit
(HK$ billion)
15.3
5.6
9.7
2019
Normalised
Basis
10.9
2.3
9.4
0.5
10.5
1.9
8.6
8.9
8.6
11.3
10.6
2.3
9.0
5.6
5.0
2015
2016
2017
2018
2019
Underlying Business Profit
Non-recurrent Business Profit
Recurrent Business Profit
EBIT Margin
On a normalised basis, total EBIT margin (excluding profit on
Hong Kong property development and share of profit or loss
of associates and joint venture) would have increased by
0.2% pt. to 21.7%, in line with 2018. The increase was mainly
due to the improvement in EBIT margin for Mainland of China
and International subsidiaries, partly offset by the lower EBIT
margin for Hong Kong businesses. The improvement in EBIT
margin for Mainland of China and International subsidiaries
was mainly attributable to the performance improvement
of Stockholms pendeltåg and higher operating profit from
Macao LRT Taipa Line project management and O&M
services. The lower EBIT margin for Hong Kong businesses
was mainly due to higher depreciation and amortisation
charges resulting from asset additions to the Hong Kong
railway network and a one-off refund of Government rent
and rates in 2018 that did not recur in 2019, as mentioned in
the preceding section.
EBIT Margin ^
(Percentage)
35
30
25
20
15
31.6%
21.7%
19.3%
13.8%
2015
2016
2017
2018
2019
EBIT Margin
(Excluding Mainland of
China and International
Subsidiaries)
Normalised EBIT Margin
(Excluding Mainland of
China and International
Subsidiaries)
EBIT Margin
Normalised EBIT Margin
^ Excluding profit on Hong Kong property development and share of
profit or loss of associates and joint venture
73
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis STATEMENT OF FINANCIAL POSITION
HK$ million
Fixed Assets
Property Development in Progress
Interests in Associates and Joint Venture
Debtors and Other Receivables
Cash, Bank Balances and Deposits
Other Assets
Total Assets
Total Loans and Other Obligations
Creditors and Other Liabilities
Obligations Under Service Concession
Deferred Tax Liabilities
Total Liabilities
Net Assets
Represented by:
Total Equity Attributable to Shareholders of the Company
Non-controlling Interests
Total Equity
As at
31 December
2019
As at
31 December
2018
Inc. / (Dec.)
HK$ million
225,605
12,022
10,359
11,169
21,186
8,873
215,925
14,840
8,756
9,576
18,022
7,568
9,680
(2,818)
1,603
1,593
3,164
1,305
289,214
274,687
14,527
(39,456)
(38,881)
(10,350)
(13,729)
(102,416)
(40,205)
(30,475)
(10,409)
(12,979)
(94,068)
186,798
180,619
186,606
192
186,798
180,447
172
180,619
(749)
8,406
(59)
750
8,348
6,179
6,159
20
6,179
%
4.5
(19.0)
18.3
16.6
17.6
17.2
5.3
(1.9)
27.6
(0.6)
5.8
8.9
3.4
3.4
11.6
3.4
Fixed Assets
Fixed assets increased by 4.5% to HK$225,605 million, mainly
due to receipt of the shopping mall of LOHAS Park Package
7 and investment revaluation gain of the existing portfolio,
the recognition of right-of-use assets upon the adoption
of HKFRS 16, as well as renewal and upgrade works for our
existing Hong Kong railway network. With the new asset
additions in our Hong Kong railway network, depreciation
and amortisation increased by 5.1%.
Property Development in Progress
Property development in progress decreased mainly due to
profit recognition of MALIBU and The LOHAS.
Interests in Associates and Joint Venture
Interests in associates and joint venture increased, mainly
due to the equity injections into Hangzhou Line 5 (HZL5) joint
venture and Sydney Metro Northwest (SMNW) and share of
profit from associates.
Fixed Assets Growth
(HK$ billion)
209.8
215.9
201.9
175.7
28.3
29.8
30.4
225.6
31.3
27.7
79.6
103.6
102.9
102.8
102.6
68.4
70.0
77.1
82.7
91.7
2015
2016
2017
2018
2019
Total Fixed Assets
Service Concession Assets
Other Property, Plant and Equipment
Investment Properties
Debtors and Other Receivables
Debtors and other receivables increased mainly due to
the increase in property development receivables upon
recognition of the property development profit of MALIBU.
Cash, Bank Balances and Deposits
Cash, bank balances and deposits increased mainly due
to cash inflow from operating activities and cash receipts
in respect of our Hong Kong property development. The
increase was partly offset by capital expenditure and
dividend payments.
Total Loans and Other Obligations
Total loans and other obligations decreased mainly due to
the net repayment of borrowings (primarily bank loans),
partly offset by the recognition of lease liabilities upon the
adoption of HKFRS 16.
74
FINANCIAL REVIEWMTR Corporation
Creditors and Other Liabilities
Creditors and other liabilities increased mainly due to the
amount received in respect of our Hong Kong property
development, the provision for the Hung Hom incidents of
the SCL project, as well as a timing difference for provisional
tax payments in 2019.
Total Equity
Total equity increased by HK$6,179 million, mainly due to the
profit recorded for the year, partly offset by the payments of
the 2018 final ordinary dividend and 2019 interim ordinary
dividend during the year.
CASH FLOW
HK$ million
Net Cash Generated From Operating Activities and Other Receipts
Receipts from Property Developments
Net Cash Receipts
Capital Expenditure
Payments in respect of Property Developments
Fixed Annual Payment
Variable Annual Payment
Investments in Associate and Joint Venture and Loan to Associates
Total Cash Outflow
Net Cash Inflow before Financing
Net Repayment of Loans and Capital Market Instruments
Net Interest Payment
Net Repayment of Debts and Net Interest Payment
Dividends Paid to Shareholders of the Company
Other Financing Activities
Increase in Cash
Cash, Bank Balances and Deposits (incl. bank overdraft) as at 1 January
Increase in Cash
Effect of Exchange Rate Changes
Cash, Bank Balances and Deposits (incl. bank overdraft) as at 31 December
Cash Flow for the Year Ended 31 December 2019
(HK$ billion)
2019
17,164
9,175
26,339
(6,072)
(3,259)
(750)
(2,305)
(1,539)
(13,925)
12,414
(2,362)
(6,649)
(117)
3,286
18,022
3,286
(122)
21,186
(1,548)
(842)
2018
11,281
4,235
15,516
(6,447)
(515)
(750)
(1,933)
(1,840)
(11,485)
4,031
(2,.390)
(1,281)
(153)
207
18,350
207
(535)
18,022
(1,678)
(684)
9.2
(6.1)
17.2
(3.3)
(3.1)
28
24
20
16
12
8
4
–
(1.5)
12.4
(2.4)
(6.6)
(0.1)
3.3
Net Cash
Generated from
Operating
Activities and
Other Receipts
Receipts
from
Property
Developments
Capital
Expenditure
Payments in
respect of
Property
Developments
Fixed and
Variable
Annual
Payments
Investments in
Associate and
Joint Venture
and Loan to
Associates
Net Cash
Inflow before
Financing
Net Repayment
of Debts and
Net Interest
Payment
Dividends
Paid to
Shareholders
of the Company
Other
Financing
Activities
Increase
in Cash
75
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Net Cash Generated from Operating
Activities and Other Receipts
The increase in net cash generated from operating activities
and other receipts by HK$5,883 million was mainly due to
the payment of the land premium for the Wong Chuk Hang
Station package to the Government amounting to HK$5,214
million in 2018, which did not recur in 2019, and a timing
difference for provisional tax payments in 2019.
Receipts from Property Development
The increase in receipts from property development was
mainly due to cash receipts from the LOHAS Park Packages.
Capital Expenditure
In 2019, capital expenditure mainly comprised cash outflow
of HK$5,291 million for Hong Kong transport and related
operations, HK$292 million for Hong Kong railway extension
projects and HK$308 million for investment property projects.
Capital Expenditure
(HK$ billion)
6.4
0.1
0.5
0.4
5.4
6.1
0.2
0.3
0.3
5.3
2018
2019
Total Capital Expenditure
Mainland of China and
International Subsidiaries
Hong Kong
Investment Property Projects
Hong Kong Railway
Extension Projects
Purchase of Assets for
Hong Kong Transport and
Related Operations
Payments in Respect of Property
Developments
The increase in payments in respect of property development
was mainly due to the cash payments for the LOHAS
Park packages.
Investments in Associate and Joint
Venture and Loan to Associates
Investment in associate and joint venture and loans to
associates in 2019 mainly related to the equity injections into
the HZL5 joint venture and SMNW.
Net Repayment of Debts and Net
Interest Payment
In 2019, net repayment of debts and net interest payment
comprised of (i) mainly repayment of bank loans of
HK$13,337 million, (ii) proceeds mainly from capital market
instruments of HK$11,659 million to the financing portfolio to
achieve lower interest costs, and (iii) a net interest payment of
HK$684 million.
A detailed review of the Group’s financing activities is
featured in the ensuing section.
Dividends Paid to Shareholders of
the Company
The Group paid dividends of HK$6,649 million (2018:
HK$1,281 million) in cash, being the 2018 final dividend of
HK$0.95 per share and the 2019 interim dividend of HK$0.25
per share. The higher cash dividend payment was the result
of Government’s election for cash dividends in 2019 in
respect of 2018 final and 2019 interim dividends, and for
scrip dividends in 2018 in respect of 2017 final and 2018
interim dividends.
76
FINANCIAL REVIEWMTR Corporation USD short term interest rates fell, with the 3-month USD Libor
dropping from 2.81% p.a. at the start of 2019 to 1.91% p.a. at
year end. The Hong Kong Monetary Authority also lowered
its base rate three times in 2019, but HKD short term interest
rates were more volatile. The 3-month HKD Hibor started
the year at 2.33% p.a., fell to a low of 1.56% p.a. in February,
then subsequently moved within a small range between
2.12% p.a. and 2.66% p.a. in the second half of the year before
ending the year at 2.43% p.a.
Longer term USD and HKD rates both exhibited downward
trends with high volatility. The benchmark 10-year US
Treasury yield started the year at 2.68% p.a. and fell sharply
to 1.46% p.a. in September before rebounding to close the
year at 1.92% p.a. The 10-year HKD swap rate started the year
at 2.45% p.a. and fell to a low of 1.45% p.a. in August before
closing the year at 2.04% p.a.
In 2019 the Company focused on transactions that can
achieve lower interest costs. Two MTNs (total HK$1.2 billion
equivalent) and several bilateral bank loans (total HK$2.3
billion), with tenors between 6 to 12 months, were added to
the financing portfolio.
Outside Hong Kong, a 25-year bank loan of CNY 6.5 billion
was closed in June for the Hangzhou Line 5 project, and an
A$ 2.7 billion financing package was closed in November
for the Sydney Metro City and South West project and the
Sydney Metro North West project.
FINANCING ACTIVITIES
Preferred Financing Model and Debt Profile
The Preferred Financing Model exemplifies the Company’s
approach to debt management and helps to ensure
a prudent and well-balanced debt portfolio.
(Preferred Financing Model) vs. Actual debt profile
As at 31 December 2019
Source
(Percentage)
Interest rate base
(Percentage)
Maturity
(Percentage)
Currency
(Percentage)
Financing Horizon
(Month)
(45-80) 68.6
(20-55) 31.4
Capital market instruments
Bank facilities
(45-75) 62.6
(25-55) 37.4
Fixed rate
Floating rate
(0-30) 22.0
(20-55) 26.2
(35-65) 51.8
Within 2 years
2 to 5 years
Beyond 5 years
Average fixed rate debt maturity: 14.4 years
Hedged
(85-100) 100.0
(12-24) 13
Growth in the global economy slowed down during the year
against the backdrop of the US-China trade war. In January
2020, the International Monetary Fund cut its global growth
estimation for 2019 to 2.9%, the lowest projection level since
2008-2009. The growth projection for 2020 was also lowered
to 3.3%, with a rebound expected to be led by emerging
markets but major economies such as the US, China, Japan
and India slowing further.
In the absence of inflationary pressures, major central banks
have been pursuing easing monetary policies to reduce
downside risks to growth. The US Federal Reserve cut
interest rates three times in 2019, while the European Central
Bank restarted its bond purchase programme in November
and cut the interest rate on bank reserves to a historic
low. However, trade and geopolitical tensions continued
to disrupt economic activities, leading to abrupt shifts
in risk sentiment. The recent outbreak of COVID-19 only
exacerbated the situation.
77
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Net Debt-to-Equity Ratio and
Interest Coverage
%
40.0
30.0
14.4
12.7
20.0
20.2%
20.6%
10.0
11.3%
–
15.0
15.3
13.6
18.1%
15.4%
Times
20.0
15.0
10.0
5.0
–
2015
2016
2017
2018
2019
Interest cover (right axis)
Net debt-to-equity ratio (left axis)
Cost of Borrowing
The Group’s consolidated gross debt position decreased from
HK$40,205 million at year-end 2018 to HK$39,456 million at
year-end 2019. The weighted average cost of interest bearing
borrowings of the Group remained at 2.8% p.a.
Group’s Gross Debt Level and
Weighted Average Cost of
Interest Bearing Borrowings
HK$ billion
80
2.9%
39.9
2.5%
42.0
2.8%
2.8%
40.2
39.5
3.5%
20.8
60
40
20
–
2015
2016
2017
2018
2019
Weighted average cost of interest bearing borrowings (right axis)
Group’s gross debt level (left axis)
%
4.0
3.0
2.0
1.0
–
Maturity Profile
The graph below shows the maturity profiles of the
Company‘s interest bearing borrowings at the 2015-2019
year-end. This demonstrates the spread of the maturities of
the Company’s borrowings and well-managed refinancing
risk. The increase in the proportion of borrowing with
maturities within two years in 2019 was related to activities
aiming at interest cost reduction.
Maturity Profile
100%
80%
60%
40%
20%
–
32.8%
36.5%
52.0%
51.3%
51.8%
67.2%
63.5%
44.3%
46.4%
26.2%
22.0%
2015
2016
2017
2018
2019
3.7%
2.3%
Beyond 5 years
Within 2 years
2 to 5 years
* The Company monitors the refinancing risk (i.e. the debt maturity profile)
based on available committed facilities. The profiles from 2015-2018 have
been restated on this basis
Gearing Ratio and Interest Coverage
The Group’s gearing ratio, as measured by the net debt-to-
equity ratio, decreased by 2.7 percentage points to 15.4% at
year-end 2019 from 18.1% at year-end 2018, mainly due to
strong net cash inflow during the year. The Group’s interest
cover increased from 13.6 times to 15.3 times.
The graph below shows the level of leverage and our ability
to meet interest payment obligations over the past five years.
78
FINANCIAL REVIEWMTR Corporation Based on its cash balance and available committed banking
facilities as well as its ready access to both the loan and debt
capital markets, the Group believes that it will have sufficient
financing capacity to fund its capital expenditure and
investment programme.
Credit Ratings (as of 5 March 2020)
Credit ratings
Standard & Poor’s
Moody’s
Rating & Investment
Information, Inc. (R&I)
Short-term*
Long-term*
A-1+/A-1+
AA+/AA+
-/P-1
a-1+
Aa3/Aa3
AA+
* Ratings for Hong Kong dollar/foreign currency denominated debts respectively
Financing Capacity
The Group’s capital expenditure and investment mainly
consists of three parts: Hong Kong railway projects
(including maintenance), Hong Kong property investment
and development, and Mainland of China and overseas
investments. The total spending from 2020 to 2022 is
estimated at HK$45.2 billion.
Capital Expenditure and Investment
(2020-2022)
(Percentage)
26
2
8
Estimated expenditure:
2020 – HK$17.3 billion
2021 – HK$14.5 billion
2022 – HK$13.4 billion
18
46
Hong Kong
Maintenance CAPEX
Hong Kong
New Railway Projects
Advance Railway
Works related to SCL#
Mainland China &
Overseas Investment
Hong Kong Property
#
Advanced Railway Works involve modifications to or upgrades or expansion of
assets for which MTR is responsible under the existing service concession
agreement with KCRC. This will predominantly be covered by the reduction in
future maintenance CAPEX during the construction period of SCL Project which
MTR would have otherwise incurred.
Capital expenditure on the Hong Kong railway projects
(including maintenance cost for the Hong Kong railway
system) will continue to constitute a significant portion
of the capital expenditure in 2020-2022. Expenditure on
Hong Kong property investment and development is
mainly related to the enabling works at LOHAS Park and the
acquisition of the Company’s remaining interests in Telford
Plaza II shopping centre and PopCorn 2 shopping centre.
79
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis
TEN-YEAR STATISTICS
Financial
Consolidated Profit and Loss (in HK$ million)
Total revenue
– Hong Kong transport operations
– Hong Kong station commercial businesses
– Hong Kong property rental and
management businesses
– Mainland of China and international
railway, property rental and
management subsidiaries
– Other businesses
– Recurrent businesses
– Mainland of China property development
– Total
Total EBITDA
– Recurrent businesses
– Hong Kong property development
– Mainland of China property development
– Total
Depreciation and amortisation
Variable annual payment
Total EBIT
– Recurrent businesses
EBIT
Hong Kong transport operations
Hong Kong station commercial businesses
Hong Kong property rental and
management businesses
Mainland of China and international
railway, property rental and
management subsidiaries
Other businesses
Project studies and business
development expenses
Share of profit or loss of associates and
joint venture
Sub-total
– Non-recurrent businesses
Property developments
– Total
Profit attributable to shareholders of
the Company arising from:
– Recurrent businesses
– Property developments
– Underlying businesses
– Investment property revaluation
– Total
Profit for the year
Earnings per share (in HK$)
Ordinary dividend per share (in HK$)
Ordinary dividend proposed and declared
Share price at 31 December (in HK$)
Market capitalisation at 31 December
(HK$ million)
Consolidated Financial Position (in HK$ million)
Total assets
Loans, other obligations and bank overdrafts
Obligations under service concession
Total equity attributable to shareholders
of the Company
Financial Ratios
EBITDA margin◊ (in %)
EBITDA margin◊
(excluding Mainland of China and
international subsidiaries) (in %)
EBIT marginφ (in %)
EBIT marginφ
(excluding Mainland of China and
international subsidiaries) (in %)
Net debt-to-equity ratio (in %)
Return on average equity attributable to
shareholders of the Company arising from
underlying businesses (in %)
Interest cover (times)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
19,938
6,799
19,490
6,458
18,201
5,975
17,655
5,544
16,916
5,380
16,223
4,963
15,166
4,588
14,523
3,680
13,509
3,422
12,635
2,853
5,137
5,055
4,900
4,741
4,533
4,190
3,778
3,401
3,083
2,845
21,085
1,545
54,504
–
54,504
15,351
5,707
(25)
21,033
(5,237)
(2,583)
20,877
1,990
53,870
60
53,930
18,843
2,574
25
21,442
(4,985)
(2,305)
17,194
2,174
48,444
6,996
55,440
17,677
1,097
2,314
21,088
(4,855)
(1,933)
13,562
2,339
43,841
1,348
45,189
16,947
311
366
17,624
(4,127)
(1,787)
12,582
2,290
41,701
–
41,701
16,260
2,891
(140)
19,011
(3,849)
(1,649)
12,627
2,153
40,156
–
40,156
15,478
4,216
(55)
19,639
(3,485)
(1,472)
13,246
1,929
38,707
–
38,707
14,399
1,396
–
15,795
(3,372)
(1,247)
12,786
1,349
35,739
–
35,739
12,895
3,238
–
16,133
(3,208)
(883)
12,411
998
33,423
–
33,423
12,124
4,934
–
17,058
(3,206)
(647)
10,260
925
29,518
–
29,518
10,917
4,034
–
14,951
(3,120)
(45)
(591)
5,122
1,985
5,025
1,656
4,722
2,572
4,362
2,493
4,230
2,710
3,927
2,716
3,668
2,881
2,969
2,701
2,799
2,877
2,441
4,264
4,225
4,082
3,912
3,650
3,427
3,092
2,764
2,490
2,280
1,089
(2,077)
722
(81)
814
(53)
490
58
640
53
782
129
704
86
520
(7)
381
23
259
111
(276)
(323)
(332)
(361)
(304)
(454)
(486)
(323)
(123)
(216)
288
7,819
658
12,211
494
11,383
537
11,570
361
11,123
121
10,642
158
9,938
456
9,260
297
8,568
139
7,891
5,682
13,501
2,599
14,810
3,411
14,794
675
12,245
2,751
13,874
4,161
14,803
1,396
11,334
3,238
12,498
4,934
13,502
4,034
11,925
4,980
5,580
10,560
1,372
11,932
12,092
1.94
1.23
7,574
46.05
9,020
2,243
11,263
4,745
16,008
16,156
2.64
1.20
7,359
41.20
8,580
1,935
10,515
6,314
16,829
16,885
2.83
1.12
6,728
45.80
8,916
530
9,446
808
10,254
10,348
1.74
1.07
6,317
37.70
8,565
2,329
10,894
2,100
12,994
13,138
2.22
1.06
6,207
38.40
8,024
3,547
11,571
4,035
15,606
15,797
2.69
1.05
6,116
31.80
7,437
1,163
8,600
4,425
13,025
13,208
2.25
0.92
5,335
29.35
6,914
2,704
9,618
3,757
13,375
13,514
2.31
0.79
4,575
30.50
6,243
4,225
10,468
5,088
15,556
15,688
2.69
0.76
4,396
25.15
5,397
3,260
8,657
4,074
12,731
12,844
2.21
0.59
3,405
28.30
283,574
252,947
275,156
222,629
224,956
185,284
170,187
176,692
145,490
163,364
289,214
39,456
10,350
274,687
40,205
10,409
263,768
42,043
10,470
257,340
39,939
10,507
241,103
20,811
10,564
227,152
20,507
10,614
215,823
24,511
10,658
206,687
23,577
10,690
197,684
23,168
10,724
181,660
21,057
10,749
186,606
180,447
166,304
149,461
170,055
163,325
152,557
142,904
131,907
121,914
28.1
35.0
36.1
38.3
38.7
38.4
37.2
36.1
36.3
37.0
42.0
13.8
19.3
15.4
5.8
15.3
54.5
21.5
32.8
18.1
6.5
13.6
53.5
23.8
32.2
20.6
6.7
15.0
54.0
25.2
34.8
20.2
5.9
12.7
53.3
25.5
34.8
11.3
6.5
14.4
53.1
26.1
35.4
7.6
7.3
15.2
53.4
25.3
35.6
11.8
5.8
11.5
53.6
24.6
36.1
11.0
7.0
13.0
55.6
24.7
37.5
11.6
8.2
14.5
55.1
26.3
38.9
12.3
7.7
10.5
◊
φ
Excluding profit on Hong Kong property development.
Excluding profit on Hong Kong property development and share of profit or loss of associates and joint venture.
80
MTR Corporation
Hong Kong Transport Operations
Revenue car-km operated (thousand)
Domestic and Cross-boundary services
Airport Express
Light Rail
Total number of passengers (thousand)
Domestic Service
Cross-boundary Service
High Speed Rail
Airport Express
Light Rail
Bus
Intercity
Average number of passengers (thousand)
Domestic Service – weekday average
Cross-boundary Service – daily average
High Speed Rail – daily average
Airport Express – daily average
Light Rail – weekday average
Bus – weekday average
Intercity – daily average
Average passenger km travelled
Domestic and Cross-boundary services
Airport Express
Light Rail
Bus
Average car occupancy (number of passengers)
Domestic and Cross-boundary services
Airport Express
Light Rail
Proportion of franchised public transport
boardings (%)
HK$ per car-km operated
(Hong Kong Transport Operations)
Total revenue
Operating costs
Operating profit
HK$ per passenger carried
(Hong Kong Transport Operations)
Total revenue
Operating costs
Operating profit
Safety Performance
Domestic Service, Cross-boundary Service and
Airport Express
Number of reportable events^
Reportable events per million
passengers carried^
Number of staff and contractors’
staff accidents∆
Light Rail
Number of reportable events^
Reportable events per million
passengers carried^
Number of staff and contractors’
staff accidents∆
Employees
Hong Kong
Corporate management and
support departments
Station commercial businesses
Operations
Projects
Property and other businesses
Mainland of China and international businesses
Outside of Hong Kong
Offshore employees
Total
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
301,552
22,971
10,592
308,742
23,190
11,139
301,541
23,202
11,145
287,828
23,276
11,152
284,487
23,242
11,034
273,771
23,232
10,728
269,141
23,216
10,554
260,890
23,134
10,453
254,407
19,603
10,166
253,067
19,833
9,586
1,568,196
104,183
16,923
15,764
155,885
51,484
1,880
1,669,973
117,448
5,302@
17,710
179,411
51,025
3,630
1,637,898
112,549
–
16,621
178,502
50,744
3,698
1,586,522
113,274
–
16,133
178,709
50,413
3,739
1,577,457
114,241
–
15,725
176,149
50,537
4,080
1,547,757
113,049
–
14,881
174,199
50,404
4,348
1,474,659
111,362
–
13,665
171,652
47,738
4,324
1,431,040
109,707
–
12,695
167,210
45,962
4,028
1,366,587
103,881
–
11,799
161,289
43,956
3,787
1,298,714
99,954
–
11,145
154,522
40,883
3,244
4,658
285
46
43
448
151
5
10.6
28.2
2.7
4.5
59
19
40
4,862
322
53#
49
506
147
10
10.8
28.3
2.7
4.5
62
22
44
4,772
308
–
46
503
146
10
10.8
28.5
2.7
4.5
63
20
44
4,608
309
–
44
500
144
10
10.9
28.4
2.7
4.5
64
20
44
4,577
313
–
43
493
145
11
11.0
28.4
2.7
4.5
65
19
44
4,490
310
–
41
487
144
12
11.0
28.6
2.7
4.5
67
18
45
4,297
305
–
37
482
137
12
11.0
29.0
2.8
4.5
65
17
45
4,148
300
–
35
466
131
11
10.9
29.0
2.8
4.5
65
16
45
3,968
285
–
32
451
126
10
10.9
29.4
2.8
4.5
63
18
45
3,770
274
–
31
433
118
9
10.9
29.4
2.8
4.5
60
17
45
47.4
49.0&
49.1
48.4
48.5
48.1
46.9
46.4
45.4
44.3
51.7*
33.0*
18.7*
9.40*
5.99*
3.41*
53.4*
28.2*
25.2*
9.26*
4.89*
4.37*
52.5
28.5
24.0
9.10
4.93
4.17
53.0
27.7
25.3
9.06
4.73
4.33
51.3
27.2
24.1
8.73
4.63
4.10
51.0
26.8
24.2
8.52
4.47
4.05
48.4
24.9
23.5
8.31
4.27
4.04
47.6
24.2
23.4
8.20
4.18
4.02
45.9
23.1
22.8
7.99
4.02
3.97
43.2
21.5
21.7
7.86
3.91
3.95
1,164
1,056
1,148
1,134
1,246
1,327
1,408
1,761
1,769
1,592
0.69
0.58
0.65
0.66
81
163
50
87
46
104
61
191
1.05
0.48
0.58
1.07
8
2
5
8
0.73
64
157
0.89
6
0.79
57
122
0.70
4
0.88
67
118
0.69
4
1.13
58
151
0.90
2
1.19
44
164
1.02
7
1.13
46
165
1.07
5
1,899
234
12,211
1,531
1,549
318
1,932
204
11,948
1,711
1,500
331
1,882
191
11,591
2,144
1,440
276
16,521
34,263
14,270
31,896
10,781
28,305
1,837
192
11,349
2,615
1,416
230
9,866
27,505
1,792
182
10,891
2,684
1,384
194
8,157
25,284
1,756
170
10,404
2,764
1,350
180
7,530
24,154
1,676
158
10,033
2,804
1,305
182
7,078
23,236
1,600
148
9,460
2,495
1,273
224
1,486
144
9,244
2,109
1,282
179
1,362
144
9,026
1,794
1,291
212
6,955
22,155
6,851
21,295
6,672
20,501
@ High Speed Rail service commenced on 23 September 2018.
# Average of 23 September 2018 to 31 December 2018.
& Market share for 2018 was rebased to reflect the impact on the opening of Hong Kong – Zhuhai – Macao Bridge.
* Does not include the High Speed Rail service.
^ Reportable events are occurrences affecting railway premises, plant and equipment, or directly affecting persons (with or without injuries), that are reportable to the
Secretary for Transport and Housing and Director of Electrical and Mechanical Services of Government under the Mass Transit Railway Regulations, ranging from suicides/
attempted suicides, trespassing onto tracks, to accidents on escalators, lifts and moving paths.
∆ Any accident connected with the operation of the railway or with the maintenance thereof, which is notifiable to Railway Branch, Electrical and Mechanical Services
Department according to Mass Transit Railway Regulations, as a result of which an employee of the Corporation or of a contractor with the Corporation is suffering ‘fatal
injury’, ‘serious injury’, or unable to fully carry out his / her normal duties for a period exceeding 3 days immediately after the accident.
81
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis
INVESTOR RELATIONS
MTR has been participating in international capital markets in
the 40 years since its establishment.
General Meeting” section of the “Corporate Governance
Report” on pages 113 to 114 of this Annual Report.
As an acknowledged leader in investor relations practice
in Asia, we are respected for our high standards of
corporate governance and disclosure. We believe that by
communicating our strategies, business development
and future outlook to investors in a clear, transparent and
proactive manner helps to enhances shareholder value.
We therefore engage regularly with both institutional and
retail investors.
COMMUNICATING WITH
INVESTORS
Our continuous engagement with the investment
community has made MTR one of the most widely covered
listed companies in Hong Kong. We are followed by many
local and international brokers, research analysts, and a wide
range of institutional investors.
The management of MTR makes every effort to ensure that
investors have a thorough understanding of our business. In
2019, we held 359 meetings with institutional investors and
analysts in Hong Kong and elsewhere. We also participated in
investor conferences and roadshows, both in Hong Kong and
in other major financial markets around the world.
The Company’s Annual General Meeting (“AGM”) is one of
the principal channels of communication with shareholders.
Further details on the 2019 AGM are set out in the “Annual
ACCESS TO INFORMATION
Our corporate website provides investors with equal
and timely access to Company information. The Investor
Information section provides details on our financial
performance in readily accessible form. Financial reports,
patronage figures, together with other Company news and
stock exchange filings, are all accessible on the website.
In addition to the shareholder services offered by
Computershare, our dedicated hotline answered about
43,000 enquiries from individual shareholders in 2019.
INDEX LISTING
AND RECOGNITIONS
The Company’s shares have been listed on the Stock
Exchange of Hong Kong since 2000 and have been included
as one of the Hang Seng Index constituent stocks since 2001.
Our Annual Report achieves considerable recognition
each year for presenting a clear picture of the Company’s
performance and strategy. Our 2018 Annual Report, for
example, won a Bronze Award in the “General” category of
the 2019 Best Annual Reports Awards competition by the
Hong Kong Management Association, as well as 10 awards
in the 2019 International ARC Annual Report Competition by
MerComm, Inc.
SHARE PRICE PERFORMANCE
130
120
110
100
90
2019 January
December
82
59
54
49
44
39
34
MTR share price
(HK$)(right scale)
MTR share price
relative to HSI
(Relative Index)
(left scale)
MTR Corporation FINANCIAL CALENDAR 2020
Announcement of 2019 annual results
Annual General Meeting
Last day to register for 2019 final dividend
Book closure period
2019 final dividend payment date
Announcement of 2020 interim results
2020 interim dividend payment date
Financial year end
5 March
20 May
25 May
26 May to 29 May
16 July
August
October
31 December
DIVIDEND INFORMATION
Dividend per Share
2018 Total Ordinary Dividend
2019 Interim Ordinary Dividend
2019 Final Ordinary Dividend
1.20
0.25
0.98
(in HK$)
Dividend Policy
MTR is committed to a progressive ordinary dividend policy. The aim of
this policy is to steadily increase or at least maintain the Hong Kong dollar
value of ordinary dividends per share annually. The prospective dividend
growth, however, remains dependent upon the financial performance
and future funding needs of the Company.
SHAREHOLDINGS AS AT
31 DECEMBER 2019
Ordinary Shares
Shares outstanding
Hong Kong SAR Government Shareholding
Free float
6,157,948,911 shares
4,634,173,932 shares
(75.26%)
1,523,774,979 shares
(24.74%)
Market Capitalisation
(as at 31 December 2019)
HK$ 283,574 million
SHARE INFORMATION
Stock Codes
Ordinary Shares
The Stock Exchange of Hong Kong
Reuters
Bloomberg
66
0066.HK
66 HK Equity
CONTACTS
Shareholder Services
Any matters relating to your shareholding, such as transfer of shares,
change of name or address, and loss of share certificates should be
addressed in writing to the Registrar:
Computershare Hong Kong Investor Services Limited
17M Floor, Hopewell Centre,
183 Queen’s Road East, Wan Chai, Hong Kong
Telephone:
Facsimile:
(852) 2862 8628
(852) 2529 6087
Shareholder Enquiries
Shareholders are, at any time, welcome to raise questions and request
information (to the extent it is publicly available) from the Board and
management by writing to the Company Secretary, MTR Corporation
Limited, MTR Headquarters Building, Telford Plaza, Kowloon Bay,
Kowloon, Hong Kong. Any such letter from the Shareholders should be
marked “Shareholders’ Communications” on the envelope.
Our enquiry hotline is operational during normal office hours:
Telephone: (852) 2881 8888
Investor Relations
For enquiries from institutional investors and securities analysts, please
contact:
Investor Relations Department, MTR Corporation Limited
MTR Headquarters Building, Telford Plaza, Kowloon Bay,
Kowloon, Hong Kong
Email: investor@mtr.com.hk
Annual Report 2019
Shareholders can obtain copies of our annual report by writing to:
Computershare Hong Kong Investor Services Limited
17M Floor, Hopewell Centre
183 Queen’s Road East, Wan Chai, Hong Kong
If you are not a shareholder, please write to:
Corporate Affairs Division, MTR Corporation Limited
MTR Headquarters Building, Telford Plaza, Kowloon Bay,
Kowloon, Hong Kong
Our annual/interim reports and accounts are also available online at our
corporate website at http://www.mtr.com.hk
Principal Place of Business and
Registered Office
MTR Corporation Limited, incorporated and domiciled in Hong Kong.
MTR Headquarters Building, Telford Plaza, Kowloon Bay, Kowloon,
Hong Kong
Telephone:
Facsimile:
(852) 2993 2111
(852) 2798 8822
83
Financials and Other InformationOverviewCorporate GovernanceBusiness Review and AnalysisAnnual Report 2019
HK$18million
in-kind Support for
NGOs and Community
Organisations
259
volunteering projects
organised
HK$21million
Community
Investment Initiatives
CORPORATE RESPONSIBILITY
MTR’s success has been built on the clear vision, mission and
values that steer our corporate behaviour and guide us in
achieving business results. We also recognise that corporate
responsibility is crucial to maintaining our position as a
responsible business that contributes to and benefits society.
We are placing greater emphasis on our Environmental,
Social and Governance (“ESG”) behaviour and practices across
MTR. During the year, we began a comprehensive review
of our business strategy, which includes studies on how to
strengthen our reputation.
As an organisation whose mission is to connect people and
communities, we provide rail and property services that
are closely linked to the lives of people in the communities
we serve. Underpinned by our sustainable financial model,
corporate responsibility is about operating safely and
responsibly in all aspects of our business and contributing
positively to the development of the communities in which
we operate.
To keep stakeholders up to date on our ESG performance, we
have published a sustainability report every year for the past
two decades. It fulfils the disclosure requirements of both
the Hong Kong Stock Exchange ESG Reporting Guide and
the Global Reporting Initiative: Core option. We also produce
a separate sustainability website, which in addition to the
sustainability report itself, provides details of our approach to
sustainability and serves as a focal point of the Company.
84
MTR Corporation The sustainability report contained an Independent
Assurance Report prepared by an external auditor,
which performed limited assurance in relation to
certain sustainability performance data. These include
data for both the Hong Kong and Mainland of China
and International businesses covering Greenhouse
Gas (“GHG”) emissions, staff indicators such as
turnover and training days, safety performance for
operations, staff and contractors, and supply chain
management numbers.
VALUE ADDED AND DISTRIBUTION STATEMENT IN 2019
(HK$ MILLION)
Economic Value Generated
Economic Value Distributed
Revenue from Hong Kong
Transport Operations
19,938
Revenue from Hong Kong
Station Commercial
Businesses
6,799
Revenue from Hong Kong
Property Rental and
Management Businesses
5,137
Revenue from
Mainland of China and
International Subsidiaries
21,085
Revenue from Other
Businesses1
1,833
Profit from Hong Kong
Property Development2
5,731
Total: 60,523
Staff Costs3
Maintenance, Renewal
and Upgrade Expenditure
on Existing Hong Kong
Railway System
Other Operating Costs4
Fixed and Variable
Annual Payments
Interest &
Finance Costs5
Taxes6
Ordinary Dividends
Community Investment
(excludes fare
concessions and in-kind
donations)7
Employees
15,418
Existing
Hong Kong
Railway System
9,845
Suppliers &
Business Partners
18,549
KCRC
3,333
Lenders
720
56,644
TAX
Governments
1,384
HKSAR
Government
5,561
Other
Shareholders
1,813
Community
21
Economic Value Retained for Reinvestment8
3,879
Total: 60,523
Includes share of profit or loss of associates and joint venture.
Notes:
1
2 Before taking into account staff costs of HK$24 million.
3
Excludes staff costs related to Hong Kong railway system maintenance of HK$2,443 million, capitalised for asset creation of HK$1,286 million and recoverable of
HK$602 million.
For simplicity reason, operating costs include interest income, netted with profit attributable to non-controlling interests. Excludes operating costs related to Hong Kong
railway system maintenance of HK$2,320 million.
Excludes interest expenses capitalised for asset creation of HK$449 million.
5
6 Represents current income tax and excludes deferred tax for the year.
7
Includes donations, sponsorships and other community engagement contributions, and excludes ongoing fare concessions and promotions of HK$2,675 million and in-
kind donations of HK$18 million.
Economic value retained for reinvestment to generate future economic values. This represents underlying business profit attributable to shareholders of the Company
(before depreciation, amortisation and deferred tax) for the year retained, after the amounts distributed to our stakeholders and invested in asset maintenance, renewal
and upgrade of our Hong Kong railway system.
4
8
85
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis GOVERNANCE AND POLICIES
All our corporate responsibility initiatives are aligned with our
business objectives and corporate values and are supported
by our corporate governance framework.
Our management approach to corporate responsibility
comprises a number of policies, including our Corporate
Responsibility Policy, Safety Policy, Green Procurement Policy,
Climate Change Strategy, and Modern Slavery and Human
Trafficking Statement. These policies are overseen by the
Board’s Corporate Responsibility Committee, which provides
strategic guidance and reviews our corporate responsibility
practices and performance. Please also refer to the Corporate
Responsibility Committee in the “Corporate Governance
Report” (pages 99 to 100) of this annual report for its principal
responsibilities. Our Corporate Responsibility Steering
Committee supports our corporate responsibility efforts by
providing direction on responsible business practices across
all divisions.
OUR FOCUS ON SAFETY
The safety of our customers, employees and business
partners is always our number one priority. We ensure a
safe and healthy environment by cultivating a safety-first
culture, promoting continuous improvement, and engaging
and educating our stakeholders on the requirements of our
Corporate Safety Policy.
Our Corporate Strategic Safety Plan, which is reviewed and
revised every four years, helps us to manage safety across
all our business areas in support of our growth and global
expansion. We also have a Corporate Safety Management
Model with a framework for overseeing our safety
performance across eight core elements of our business.
For details on how we enhance customer safety, please refer
to the section “Hong Kong Transport Operations” (page 36)
of this Annual Report.
We also take a rigorous approach with regard to the safety
of our staff, contractors and systems. To promote our
safety-first culture, we hold a Corporate Safety Month each
year alongside ongoing initiatives to address specific safety
issues. Another initiative, Zero Harm, was launched to raise
safety awareness among our customers, staff and contractors
by providing them with clear guidelines and training in safety.
Moreover, we invest heavily in the maintenance of our
assets and assess operational safety impacts throughout the
lifecycles of our projects.
ENVIRONMENTAL PROTECTION
As an electrically powered mass transit railway, MTR is already
a provider of low-carbon and environmentally sustainable
mode of transport for large volumes of people in cities. Our
biggest contribution to the environment, therefore, comes
from avoiding pollution, such as emissions from our fleet of
road vehicles including buses.
In addition to lowering our direct emissions, we strive to use
resources as efficiently as possible and to minimise the other
environmental impacts of our business, as set out in our
Corporate Responsibility Policy.
As a builder of new railways and property developments,
we are conscientious of our environmental responsibilities
before undertaking any new projects. In Hong Kong,
Environmental Impact Assessment has to be conducted
before the start of any designated project, and we have
to ensure that appropriate mitigation measures are in
place. We are also guided by Environmental Management
Systems that are independently audited and certified to be
ISO 14001 compliant.
86
CORPORATE RESPONSIBILITYMTR Corporation In June 2018, we established a new Green Finance
Framework, which builds on our previous Green Bond
Framework to include more types of green financing, such
as green loans and green credit facilities. The framework
takes into account the recommendations of the Green Loan
Principles issued by the Asia Pacific Loan Market Association
in March 2018. With this framework in place, we are able to
pursue sustainable public transport infrastructure projects,
while demonstrating our support for green finance initiatives.
Details of our sustainable investments are provided in our
annual Green Finance Report, which will be published on our
sustainability website in May 2020.
Reducing carbon emission by continuing to cut down
electricity consumption and adopting energy efficiency
measures is an important goal for us. We have set a target of
achieving a 21% reduction from 2008 levels in the electricity
consumption per passenger-km in our heavy rail network
by 2020. One of our reduction initiatives is to replace our air
conditioning systems with more energy-efficient chillers in
our Hong Kong network. By the end of 2019, a reduction
of 12% in our electricity consumption per passenger-km as
compared to the base year had been achieved.
We have also been reporting our GHG emissions since
2002. We monitor Scope 1, 2 and 3 GHG emissions in
accordance with the Greenhouse Gas Protocol established
by the World Resources Institute and the World Business
Council for Sustainable Development. In tandem with this,
we follow the guidelines published by the Environmental
Protection Department and Electrical and Mechanical
Services Department in Hong Kong, as well as other
international guidelines.
OUR SUPPLIERS
All our suppliers and contractors are required to comply with
our Supplier Code of Practice, which sets out a compulsory
behavioural framework covering ethical standards, human
and labour rights and supply chain management. We also
have a Green Procurement Policy that promotes high
standards of environmental protection and sustainability,
both internally and among our suppliers and contractors. To
comply with the UK Modern Slavery Act, we have updated
our Modern Slavery and Human Trafficking Statement to
elucidate our commitment to preventing any incidence of
modern slavery or human trafficking within our supply chains
and business.
87
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis secondary school students’ interest in STEM (Science,
Technology, Engineering and Mathematics) subjects. In
the 2018/19 programme, over 700 students in 132 teams
submitted their proposals for sustainable infrastructure.
Finalists from 14 teams presented on the Pitch Day in May
2019, and the three best performing teams joined a study
tour to visit MTR’s railway operations in London.
A series of STEAM (Science, Technology, Engineering,
Art and Mathematics) workshops held in August, during
which parents and their children had the opportunity to
participate in specially designed interactive workshops to
challenge themselves.
Our annual summer programme, ‘Train’ for life’s journeys,
has been running for 11 years and helped secondary
school students to develop soft skills and strengthen their
self-confidence through a series of interactive workshops,
an adventure camp and job tasting at MTR. The Youth
Forum, which brought together working youth, students
and our management, also provided a platform to engage
and understand the perspectives of our young people.
We also continued to run two programmes for young
children – the Budding Station Master programme, in which
children act as station ambassadors handing out safety
HOW WE CONTRIBUTE TO SOCIETY
Community Connect is our platform for initiatives that
help a wide range of sectors in the communities we serve,
while also enhancing the liveability of our city. We offer a
wide range of programmes and activities that are carefully
designed to support and engage communities across all 18
districts of Hong Kong. In addition, we enhance passengers’
travel experiences by providing a showcase for local and
international artists through our Art in MTR programme.
We also encourage our employees to volunteer for
activities that benefit the community and, on a corporate
level, collaborate with non-profit organisations and social
enterprises to address evolving community needs.
Youth, Children and the Elderly
For many years, we have been organising youth programmes
that support young people’s aspirations for a better future.
These programmes are designed to equip them with the skills
and knowledge they will require in an increasingly complex
world, as well as provide them with opportunities to succeed
in their careers. In 2019, there were about 83,000 participants
in our youth and children’s programmes.
One of the youth programmes we offer, the STEM Challenge,
has been running since 2017 with the aim of stimulating
88
CORPORATE RESPONSIBILITYMTR Corporation messages and gifts in selected stations, and the interactive
MTR Safety Experience Zone at Tsing Yi Station, where
children receive safety tips on riding our trains.
In addition to the programmes we provide for our young
passengers, we organised a variety of activities aimed at the
elderly. These included the 18 Districts x MTR Ngong Ping 360
Elderly Programme in which elderly people from 18 districts
were invited to enjoy free cable car rides and lunch at Ngong
Ping Village. About 12,000 seniors attended this popular
programme in 2018/2019. Other initiatives aimed at seniors
in the year included a series of talks for the elderly on safety
and the Elderly Ambassadors programme in which seniors
were trained to assist their peers on how to make the most of
their MTR experience.
Community Outreach
Under our “More Time Reaching Community” scheme, we
encourage our colleagues to volunteer their own time to
serve the community. In 2019, our staff and retiree volunteers
organised a total of 259 projects, involving around 4,400
participating volunteer headcount to serve the elderly,
mentally and physically challenged people, children, youth
and underprivileged families. A series of MTR-themed
volunteering activities for underprivileged children were also
organised in celebration of MTR’s 40th Anniversary.
During the year, the Group donated and sponsored HK$12.7
million to charitable and other organisations.
Art and Culture
We offer space in various stations for art exhibitions under
the Art in MTR programme to promote artistic talent and the
public’s appreciation of art.
Under this programme, we held an exhibition in honour of
the resident artists of the Jockey Club Creative Arts Centre.
In support of the World Green Organisation’s design
competition for addressing the issue of land shortages, we
featured the work of the winners at Sheung Wan and
Sai Wan Ho stations.
RECOGNITION FOR CORPORATE RESPONSIBILITY
In 2019, MTR was again listed as a constituent member of
global sustainability indices for investors, including the Dow
Jones Sustainability Asia Pacific Index and the FTSE4Good
Index. We also achieved an AAA rating in the MSCI
Sustainability Indexes.
We also received the Award of Excellence, the Diamond
Award and Outstanding Award of the Corporate and
Employee Contribution Programme 2018/19 by The
Community Chest. These awards recognise the contributions
of our staff and the Corporation and reflect our strong
commitment to the community.
In 2019, MTR was awarded the 10 Years Plus Caring Company
Logo by the Hong Kong Council of Social Service for the fifth
consecutive year in recognition of our commitment to caring
for the community, employees and the environment.
Our commitment with corporate responsibility was also
recognised with the Corporate Responsibility Award we
received at the Hong Kong Service Awards 2019 organised by
East Week Magazine.
89
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis 7.1
Average Training
Days per Employee in
Hong Kong
50,000+
Staff Worldwide
HUMAN RESOURCES
Our staff are pivotal to our success. We are committed to
inspiring, engaging and developing our people. As at 31
December 2019, the Company together with our subsidiaries
employed 17,742 people in Hong Kong and 16,521 people
outside of Hong Kong. Our associates also employed an
additional 16,534 people in Hong Kong and worldwide.
RECRUITMENT, TALENT MANAGEMENT AND RETENTION
The Company remains a rewarding place to work, with
initiatives in place to engage and motivate staff as well as
programmes for training and talent development. In 2019,
we hired a total of 1,699 people, and voluntary staff turnover
remained low at 4.4% in Hong Kong.
To cater for our current and future operational needs,
we rolled out a number of initiatives in search of the best
candidates, including a series of Recruitment Days, our online
recruitment platform and various social media channels. We
also launched a new Employee Referral Programme in January
2019, which received encouraging responses.
90
MTR Corporation To satisfy our long-term succession and manpower
needs, we recruited high calibre graduates, including
seven Graduate Engineers, five Functional Associates
and 10 Graduate Trainees for our graduate development
programmes during the year. Our recruitment efforts
brought in 59 apprentices and 15 technician associates
to our Company. With a view to developing general
managers for our future business growth, we launched
the General Management Talent Mobility Development
Programme in 2019 for our Operations Division. We have
also arranged overseas rotations in our hubs for Graduate
Trainees and Executive Associates to broaden their
exposure of our Mainland of China and international
business and to gain critical experience to support their
career development.
In support of the Company’s initiatives on youth
development and engagement, we offered 156
internship placements to students in degree, associate
degree or higher diploma courses during the year
in Hong Kong. Our Youth Council served as a cross-
divisional advisory and consultation platform for our
young generation to be our think tank to generate new
and innovative ideas on Human Resources initiatives.
We also fully supported the HKSAR Government’s
Scheme on Corporate Summer Internship on the
Mainland and Overseas by providing 12 local university
students with the opportunity to work in our Mainland
of China and International Business hubs, where they
developed new skills and gained international exposure.
In addition, we continued our summer internship
programme for students with special education needs
under the Talent-Wise Employment Charter and Inclusive
Organisations Recognition Scheme.
To maintain our market competitiveness and enhance
staff retention, we continued to conduct regular
reviews to provide competitive pay and benefits,
short- and long-term incentive schemes, as well as a
range of career development opportunities.
STAFF MOTIVATION AND ENGAGEMENT
In celebration of our 40th anniversary, we organised
a variety of staff activities, including Theme Park
Fun Days for staff and their families and friends, and
distributed special anniversary souvenirs, which were
positively received by staff.
To familiarise new hires with their new work environment
and to help them settle in, we launched a New Joiner
Portal during the year. A series of videos was also
produced to give new staff a virtual tour of different
office premises and key locations around the Corporation.
In early 2019, we launched a series of initiatives
to promote staff wellness, including the VitaMe
programme, wellness days, and health talks on
physical, mental and financial wellbeing.
To support our staff during the public order events
since June 2019, our top management held numerous
direct communication sessions with frontline staff and
staff representatives to address their concerns and
deploy mitigation measures. Various staff recognition
initiatives were put in place, including a Special
Appreciation Award and a one-off Special Recognition
Payment to appreciate our staff’s commitment and
concerted efforts to overcome the unprecedented
challenges and maintain the delivery of professional
services to keep Hong Kong moving. A dedicated
webpage for providing staff with the latest information
was also set up, with the use of mass communication
channels to thank staff and keep them updated.
LISTENING AND RESPONDING TO STAFF
In the spirit of open communication, we have a
well-established two-tier Staff Consultation
Mechanism, which comprises the Staff Consultative
Council (“SCC”) at the corporate level and 45 Joint
Consultative Committees (“JCCs”) at departmental/
sectional levels. It enables management to exchange
views with over 1,000 staff representatives directly
elected by staff and to discuss issues of common
concern. Staff are regularly updated on the discussions
achievements arising from these constructive and
candid discussions with SCC and JCCs.
91
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis We also provide communication channels for our
managerial staff. These include face-to-face meetings at the
Executive Managers Forum; a twice-yearly Management
Communication Meeting with managers from Hong Kong,
the Mainland of China and overseas hubs; and focus group
sessions for our CEO to better understand our managers and
share his management perspective. Our Chairman, CEO and
Executives also communicate regularly through a variety of
channels to better engage staff, including the Chairman’s
Letter and CEO Blog.
Through our multinational internal communication platform,
MTRconnects, MTR staff can share corporate updates and
stories with their colleagues worldwide. In 2019, this platform
achieved a view rate of around 200,000.
A CULTURE OF CONTINUOUS LEARNING
To help staff reach their full potential, the Company provides
a wide range of training and development programmes
for new recruits and in-service staff. In 2019, we held 7,382
training courses in Hong Kong for an average of 7.1 training
days per staff member. We also provide an e-platform to
encourage staff to learn outside the classroom.
utilising different types of simulators, making better use
of Augmented Reality and Virtual Reality and increased
coverage on computer based training courseware. This has
won us the Excellence Award in the Award for Excellence
in Training and Development 2019 at an awards event
organised by the Hong Kong Management Association and
has been judged as the Best in Application of Technology.
In 2019, we continued to expand the use of technology
to help colleagues learn more effectively, including
DRIVING WORK IMPROVEMENT
MTR’s Work Improvement Team (“WIT”) programme plays
a prominent role in driving innovation and creating a spirit
of improvement. During the year, more than 70 WIT classes
were held and 755 projects organised. Our staff suggestion
scheme, which was introduced 38 years ago to encourage
creativity in the workplace, continued to be a successful
channel for soliciting creative ideas.
An online discussion platform, ID Pitch, was launched in
the first quarter of 2019 to crowdsource new ideas and
promote new ways of working. The launch event focused
on go-green initiatives, attracting the participation of 2,100
staff from various divisions with over 1,200 ideas and 3,500
posts generated in 48 hours. Some of the winning ideas were
developed into prototypes, tested and later implemented.
Staff Distribution by
Geographic Location
(Percentage)
4.0
4.9
12.0
13.6
12.4
12.7
17.0
16.3
51.8
55.3
2018
2019
Hong Kong
Australia
Sweden
Mainland of China
Others
Staff Productivity –
Earnings Per Employee*
*Hong Kong businesses excluding property development
(HK$ million)
0.94
0.96
0.97
1.04
0.81
2015
2016
2017
2018
2019
92
HUMAN RESOURCESMTR Corporation MTR ACADEMY
The MTR Academy (“MTRA”) has become well recognised in
the railway industry as a centre of railway management and
engineering expertise. Now offered in the Mainland of China
and Belt and Road countries as well as in Hong Kong, the
high quality programmes provided by MTRA, specifically the
Executive Certificate Programmes, are tailored for training the
next generation of railway professionals.
In October 2019, MTRA held its 2nd Graduation Ceremony
during which awards were presented to 49 graduates of
the Advanced Diploma in Railway Engineering, Advanced
Diploma in Transport Operations and Management, and
Diploma in Transport Studies. Among the distinguished
guests at the ceremony were our Chairman Mr Rex Auyeung,
Chief Executive Officer Jacob Kam and Acting Director of the
Electrical and Mechanical Services Department, Mr Pang
Yiu Hung, JP.
For the Applied Learning – Railway Studies programme,
MTRA began providing curriculum and teaching support to
the second cohort (2019-2021) in September. Two classes are
scheduled under this programme.
During the year, MTRA continued to create momentum
in developing local railway talent and joined with other
corporate academies to establish a platform with a common
goal. This platform, the Corporate Tech Academy Network
(“CTAN”), aims to promote Vocational & Professional
Education & Training and provide an alternative training
route for young people. MTRA, along with other CTAN
members, continued to reach students in local secondary
schools during the year.
FUTURE PLANS
The Academy will expand its portfolio by offering daytime
classes for two Accredited Programmes in the 2020/2021
academic year, with the objective of recruiting DSE graduates.
The Academy plans to diversify its programme areas by riding
on MTR’s expertise and experience to develop programmes
in security services and property management at different
levels to nurture new entrants and create lifelong learning
opportunities for industry practitioners.
Additionally, we continued to hold ongoing discussions with
the Birmingham Centre of Railway Research and Education,
University of Birmingham, to bring their MSc/PgD in Railway
Safety and Control Systems to Hong Kong. The plan is to
deliver the programme as blended learning in the near future.
93
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis CORPORATE GOVERNANCE REPORT
CORPORATE GOVERNANCE
PRACTICES
Corporate governance is the collective responsibility of
Members of the Board and the Board firmly believes that
good corporate governance is fundamental in ensuring the
proper management of the Company in the interests of all
of its stakeholders. The Board is conscious about continuous
improvement in the arena of corporate governance
and takes prompt actions in responding to identified
improvement opportunities.
This Report describes the corporate governance best
practices that the Company has adopted and highlights
how the Company has applied the principles of the Code
Provisions set out in the Corporate Governance Code (the
“Code”) contained in Appendix 14 to the Listing Rules.
Following the unearthing of various issues arising from the
construction of the Hung Hom Station Extension of the Shatin
to Central Link (“SCL”) project in 2018, improvements in the
Company’s project management processes and procedures
have been identified for implementation progressively in
2019 and beyond. Following an external review on enhancing
the checks and balances within the relevant processes and
procedures relating to the Company’s project management
regime, a special taskforce has been set up to drive and track
the implementation of the recommendations put forward by
the external consultant. The recommendations have been
categorised with target dates for completion and ownership
has been assigned to designated working groups. Digital site
management tools have been introduced to enhance site
record keeping, communications and supervision, and a new
Quality Assurance function has been established within the
Engineering Division to provide enhanced quality assurance
of project works.
With respect to a review of the Company’s internal
control and risk management systems for Hong Kong
operations (excluding Projects related processes and
procedures which have been covered under a separate
review (as mentioned in the paragraph above)),
PricewaterhouseCoopers has completed its first stage
review with seven initiatives proposed. To address the
findings from PricewaterhouseCoopers’ review mentioned
above, management will embark on a series of further
reviews. Recommended timelines for and prioritisation of
these further reviews will be presented to the Board for
approval in 2020.
CORPORATE GOVERNANCE
CODE COMPLIANCE
During the year ended 31 December 2019, the Company has
complied with the Code.
As mentioned in last year’s Report, the Company had
prepared itself for complying with the new requirements set
out in the Stock Exchange’s conclusions to its consultation
paper entitled “Review of the Corporate Governance Code
and Related Listing Rules” to, inter alia, upgrade the Code
provision relating to board diversity to form part of the Listing
Rules, to require disclosure of a nomination policy in the
Corporate Governance Report and to expand the factors for
consideration when assessing the independence of a non-
executive director, in advance of these requirements coming
into effect on 1 January 2019.
In preparing its Sustainability Report, the Company has
followed the Environmental, Social and Governance
Reporting Guide (“ESG Guide”) as set out in Appendix 27
to the Listing Rules and has made reference to various
international reporting standards and guidelines, as such, the
Company has substantially met with the new requirements
under the ESG Guide which will be implemented for financial
years commencing on or after 1 July 2020, following
the Stock Exchange’s conclusions to its consultation
paper entitled “Review of the Environmental, Social and
Governance Reporting Guide and Related Listing Rules”
published in December 2019.
The Company continues to monitor developments in the
arena of corporate governance externally to ensure the
suitability and robustness of its corporate governance
framework in light of the evolving business and regulatory
environment and to meet the expectations of stakeholders.
94
MTR Corporation THE BOARD OF DIRECTORS
Overall Management
The overall management of the Company’s business is vested in the Board. Pursuant to the Articles of Association and the
“Protocol: Matters Reserved for the Board” (the “Protocol”) adopted by the Board, the Board has delegated the day-to-day
management of the Company’s business to the Executive Committee, and focuses its attention on matters affecting the
Company’s overall strategic policies, corporate governance, finances and shareholders. These include financial statements,
dividend policy, significant changes in accounting policy, annual operating budget, certain material contracts, strategies for future
growth, major financing arrangements and major investments, corporate governance functions, risk management and internal
control systems, treasury policies and fare structures.
In 2019, recognising the public concern over the issues related to the SCL project, the train collision during signalling testing on
the Tsuen Wan Line in March and the derailment near Hung Hom Station on the East Rail Line in September, the Board had held
a number of Special Meetings to consider and monitor the incidents and issues relating to the aforesaid matters. In addition, the
Company’s Capital Works Committee (with delegated authority from the Board) held an additional meeting to discuss the issues
related to the SCL project.
Below is a diagram of the governance structure of the Company:
Note 1
Board
Audit
Committee
Capital Works
Committee
Corporate
Responsibility
Committee
Nominations
Committee
Remuneration
Committee
Risk
Committee
Executive
Committee
Note 2
Business/Functional
Management
Committees
Note 3
Notes:
1. All Board Committees are provided with sufficient resources to discharge their duties and can seek independent professional advice (as and when required) at the
Company’s expense, to perform their responsibilities. The Terms of Reference of each Committee are available on the websites of both the Company (www.mtr.com.hk)
and the Stock Exchange.
2. The Executive Committee is delegated by the Board to handle the day-to-day management of the Company’s business pursuant to the Articles of Association and the
Protocol; and is chaired by the Chief Executive Officer (“CEO”) and made up of ten other Members of the Executive Directorate.
3. Key Business/Functional Management Committees are listed out on pages 108 to 109 of this Annual Report.
95
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 Members of the Board and the Executive Directorate
Attendance of Meetings and Training in 2019
Attendance
Board Meetings
Board Committees Meetings
Joint AC
and
RiskC
Meeting
2019
AGM
TrainingΩ
RM
SM
PM
AC
NC
RC
CWC RiskC CRC
7
8
3
4
2
4
5
4
2
1
1
Total Number of Meetings
Members of the Board
Non-executive Directors ("NED")
Rex Auyeung Pak-kuen(1) (Chairman)
James Henry Lau Jr(2)
(Secretary for Financial Services and the Treasury)
Secretary for Transport and Housing
(Frank Chan Fan)(3)
Permanent Secretary for Development (Works)
(Lam Sai-hung)(4)
Commissioner for Transport
(Mable Chan)(5)
Independent Non-executive Directors ("INED")
Andrew Clifford Winawer Brandler
Walter Chan Kar-lok(6)
Dr Pamela Chan Wong Shui(7)C
Dr Dorothy Chan Yuen Tak-fai
Cheng Yan-kee(8)
Dr Anthony Chow Wing-kin
Dr Eddy Fong Ching
James Kwan Yuk-choi
Rose Lee Wai-mun(9)
Lucia Li Li Ka-lai
Jimmy Ng Wing-ka(10)
Benjamin Tang Kwok-bun
Dr Allan Wong Chi-yun
Johannes Zhou Yuan(11)
Executive Director ("ED")
Dr Jacob Kam Chak-pui (CEO)(12)
5/5
7/7
1/1
1/1
1/1C
6/7
6/8
3/3
2/2
1/4
5/7
2/8
2/3
2/2
3/4
3/7
3/8
2/3
4/5
2/4
5/7
6/8
2/3
4/4
4/4
2/2
4/4C
2/2
4/4C
2/2
4/4
4/4
4/4
4/4
3/4
2/2
4/5
3/3
5/5
5/5
3/3
5/5C
6/7
4/4
7/7
6/7
4/4
5/7
7/7
7/7
6/7
7/7
4/4
7/7
6/7
7/7
6/8
6/6
7/8
6/8
5/6
5/8
6/8
7/8
8/8
8/8
3/6
7/8
7/8
3/8
3/3
1/1
3/3
3/3
1/1
1/3
3/3
3/3
2/3
3/3
1/1
3/3
2/3
3/3
5/5
5/6
1/1
3/4
4/4C
4/4
4/4
4/4
3/4
Members of the Executive Directorate & the Executive Committee
5/5
5/6
1/1
Dr Jacob Kam Chak-pui (CEO)(12)
Adi Lau Tin-shing(13)
Roger Francis Bayliss(14)
Margaret Cheng Wai-ching
Dr Peter Ronald Ewen
Herbert Hui Leung-wah
Gillian Elizabeth Meller
Linda So Ka-pik(15)
David Tang Chi-fai
Jeny Yeung Mei-chun
Members departed during 2019
NED
Professor Frederick Ma Si-hang (Chairman)(16)
2/3
3/3
1/2
2/2
1/3
INED
Vincent Cheng Hoi-chuen(17)
Lau Ping-cheung, Kaizer(18)
Abraham Shek Lai-him(19)
2/2
ED, Member of the Executive Directorate & the Executive Committee
Lincoln Leong Kwok-kuen (CEO)(20)
1/2
2/2
2/2
2/2
1/3
3/3
3/3
2/2
2/2
1/2
2/2C
1/2
0/2
2/2
2/2
96
1/1
1/1
1/1
1/1
1/1
1/1
1/1
0/1
1/1
1/1
0/1
0/1
0/1
0/1
1/1
N/A
1/1
1/1
N/A
1/1
1/1
1/1
1/1
1/1
N/A
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
0/1
1/1
1/1
N/A
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
√
×
×
√
√
1/1
2/2
2/2
1/1
2/2
2/2
2/2
2/2
1/1C
1/1
0/1
N/A
CORPORATE GOVERNANCE REPORTMTR Corporation Legend:
Board Meetings
RM – Regular Meeting(s)
SM – Special Meeting(s)
PM – Private Meeting(s)
Notes:
Board Committee Meetings
AC – Audit Committee
NC – Nominations Committee
RC – Remuneration Committee
CWC – Capital Works Committee
RiskC – Risk Committee
CRC – Corporate Responsibility Committee
2019 AGM – Annual General Meeting of the Company held on 22 May 2019
C – Chairman of the committee
Ω – This includes (i) continuous professional development through attending
expert briefings/seminars/conferences relevant to the Company’s business or
directors’ duties arranged by the Company or external organisations, and reading
regulatory/corporate governance or industry related updates; and (ii) induction
and familiarization programmes attended by newly appointed Directors
1. Mr Rex Auyeung Pak-kuen was appointed as a NED of the Company with effect from 7 March 2019. Pursuant to Article 117(a) of the Articles of Association,
The Financial Secretary Incorporated appointed Mr Auyeung as Chairman of the Company with effect from 1 July 2019 until 31 December 2021 (both dates
inclusive). He also became the chairman of the CRC and a member of each of the NC and the RC of the Company all at the same time with effect from
1 July 2019.
2. The alternate directors of Mr James Henry Lau Jr, acting on his behalf, attended one RM, three RC meetings and the 2019 AGM. Mr Lau and his alternate
directors were not present at the relevant Board meetings or a portion thereof at which the SCL project, the Express Rail Link project or a proposed property
development project were discussed for avoidance of any actual or perceived conflict of interest.
3. The alternate directors of Mr Frank Chan Fan, acting on his behalf, attended two RM, four SM, one PM and one RC meeting. Mr Chan and his alternate directors
were not present at the relevant Board meetings or a portion thereof at which the SCL project, the Express Rail Link project or a proposed property development
project were discussed for avoidance of any actual or perceived conflict of interest.
4. The alternate director of Mr Lam Sai-hung, acting on his behalf, attended two RM, three SM and two RiskC meetings. Mr Lam and his alternate director were
not present at the relevant Board meetings or a portion thereof at which the SCL project, the Express Rail Link project or a proposed property development
project were discussed for avoidance of any actual or perceived conflict of interest.
5. The alternate director of Ms Mable Chan, acting on her behalf, attended two RM. Ms Chan and her alternate director were not present at the relevant Board
meetings or a portion thereof at which the SCL project, the Express Rail Link project or a proposed property development project were discussed for avoidance
of any actual or perceived conflict of interest.
6. Mr Walter Chan Kar-lok was elected as a new Board Member and became an INED of the Company with effect from the conclusion of the 2019 AGM, and was
appointed by the Board as a member of each of the NC and the CRC of the Company at the same time. He attended the 2019 AGM as a guest in light of his
proposed appointment as a Director.
7. Dr Pamela Chan Wong Shui was appointed by the Board as the chairman of the NC of the Company with effect from the conclusion of the 2019 AGM.
8. Mr Cheng Yan-kee was elected as a new Board Member and became an INED of the Company with effect from the conclusion of the 2019 AGM, and was
appointed by the Board as a member of each of the RC and the CWC of the Company at the same time. He attended the 2019 AGM as a guest in light of his
proposed appointment as a Director.
9. Ms Rose Lee Wai-mun attended one AC meeting by teleconference.
10. Mr Jimmy Ng Wing-ka was elected as a new Board Member and became an INED of the Company with effect from the conclusion of the 2019 AGM, and was
appointed by the Board as a member of each of the CWC and the CRC of the Company at the same time. He attended the 2019 AGM as a guest in light of his
proposed appointment as a Director.
11. Mr Johannes Zhou Yuan attended three SM, one AC meeting and the joint AC and RiskC meeting by teleconference.
12. Dr Jacob Kam Chak-pui was appointed as the CEO, a Board Member and a member of the CRC of the Company, all with effect from 1 April 2019.
13. Mr Adi Lau Tin-shing was appointed as the Managing Director – Operations and Mainland Business and ceased to be the Operations Director of the Company,
both with effect from 1 January 2020. As announced by the Company on 12 December 2019, the post of Operations Director was taken up by Dr Tony Lee Kar-yun
on 1 January 2020.
14. Mr Roger Francis Bayliss was appointed as the Projects Director and a Member of the Executive Directorate of the Company with effect from 18 March 2019.
15. As announced by the Company on 20 August 2019, Ms Linda So Ka-pik resigned as the Corporate Affairs Director and ceased to be a Member of the
Executive Directorate and a member of the CRC of the Company, all with effect from 16 January 2020. The Company announced on 23 January 2020 that
Ms Linda Choy Siu-min has been appointed as the Corporate Affairs Director, a Member of the Executive Directorate of the Company and a member
of the CRC of the Company, all with effect from 2 March 2020.
16. Professor Frederick Ma Si-hang retired as the Chairman, a Board Member, the chairman of the CRC and a member of each of the NC and the RC of the
Company, upon expiration of his tenure after 30 June 2019.
17. Mr Vincent Cheng Hoi-chuen retired as an INED and ceased to be a member of each of the RC and the CRC of the Company, all with effect from the
conclusion of the 2019 AGM.
18. Mr Lau Ping-cheung, Kaizer retired as an INED and ceased to be a member of each of the CWC and the CRC of the Company, all with effect from the
conclusion of the 2019 AGM.
19. Mr Abraham Shek Lai-him retired as an INED and ceased to be the chairman of the NC and a member of the CWC of the Company, all with effect from the
conclusion of the 2019 AGM.
20. Mr Lincoln Leong Kwok-kuen retired as the CEO and ceased to be a Board Member, a member of each of the Executive Directorate and the CRC of the
Company, all with effect from 1 April 2019.
97
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019
Mr James Henry Lau Jr, the Secretary for Financial Services
and the Treasury, is another NED of the Company.
Coming from diverse business and professional backgrounds,
Members of the Board actively bring their valuable
experience to the Board for promoting the best interests of
the Company and its shareholders. In addition, the INEDs also
contribute to ensuring that the interests of all shareholders of
the Company are taken into account by the Board and that
relevant issues are subject to objective and dispassionate
consideration by the Board.
Chairman and CEO
The posts of the Chairman and the CEO are distinct and
separate.
The non-executive Chairman is responsible for:
• Chairing and managing the operations of the Board;
• Monitoring the performance of the CEO and other
Members of the Executive Directorate;
• Making sure that adequate information about the
Company’s business is provided to the Board on a
timely basis;
• Providing leadership for the Board and promoting a
culture of openness;
•
•
•
Ensuring views on all issues are exchanged by all
Members of the Board in a timely manner;
Encouraging Members of the Board to make a full
and effective contribution to the discussion at Board
Meetings; and
Establishing good corporate governance practices
and procedures.
The CEO is:
• Head of the Executive Directorate;
• Chairman of the Executive Committee;
• Responsible to the Board for managing the business of
the Company; and
• Responsible for performing a bridging function between
the Board and the Executive Directorate.
Composition of the Board
1
5
14
INEDs
NEDs
ED
A list of Members of the Board and the Executive Directorate
and their roles and functions is available on the respective
websites of the Company (www.mtr.com.hk) and the Stock
Exchange. Biographical details of each of the Members of the
Board and the Executive Directorate are set out on pages 130
to 142 of this Annual Report.
The Board currently has 20 Members, made up of 14 INEDs,
5 NEDs and 1 ED. As shown in the above chart, the number
of INEDs currently comprises more than two-thirds of the
Company’s Board, which is well above the Listing Rules
requirement of having one-third of a board made up of
independent non-executive directors.
Government, through The Financial Secretary Incorporated,
holds approximately 75.26% of the issued shares of the
Company as at 31 December 2019, and is a substantial
shareholder of the Company. The Chief Executive of the
HKSAR, in the exercise of her right under Section 8 of the
MTR Ordinance, has appointed three persons as “additional
directors” of the Company (the “Additional Directors”).
They are:
•
•
•
The office of the Secretary for Transport and Housing
(currently held by Mr Frank Chan Fan);
The office of the Permanent Secretary for Development
(Works) (currently held by Mr Lam Sai-hung); and
The office of the Commissioner for Transport (currently
held by Ms Mable Chan).
The Additional Directors are all NEDs and are treated for all
purposes (other than the requirement to retire by rotation
according to the Articles of Association) in the same way
as other Directors and are, therefore, subject to the usual
common law duties of directors, including the requirement to
act in the best interests of the Company.
98
CORPORATE GOVERNANCE REPORTMTR Corporation Board Committees
The Board Committee memberships and the attendance
record of each Member of the Board in 2019 are set out on
pages 96 to 97 of this Annual Report.
Audit Committee
Details of the Audit Committee, including its duties and work
performed during the year are set out in the Audit Committee
Report (pages 115 to 117) of this Annual Report.
Risk Committee
Details of the Risk Committee, including its duties and work
performed during the year are set out in the Risk Committee
Report (pages 122 to 123) of this Annual Report.
Capital Works Committee
Details of the Capital Works Committee, including its duties
and work performed during the year are set out in the Capital
Works Committee Report (page 124) of this Annual Report.
Remuneration Committee
Details of the Remuneration Committee, including its duties
and work performed during the year are set out in the
Remuneration Committee Report (pages 125 to 129) of this
Annual Report.
Nominations Committee
Principal responsibilities:
• Reviewing the structure, size and composition (including
the perspectives, skills, diversity, knowledge and
experience) of the Board at least annually and making
recommendations on any proposed changes to the
Board to complement the Company’s corporate strategy;
•
Identifying individuals suitably qualified to become
Members of the Board and putting forward nominations
or recommendations to the Board for proposed
appointments to the Board;
• Assessing the independence of INEDs and, in case a
proposed director will be holding his/her seventh (or
more) listed company directorship, his/her ability to
devote sufficient time to Board matters;
• Making recommendations to the Board on the
appointment or re-appointment of Members of the Board
and succession planning for Members of the Board; and
• Nominating and recommending to the Board, candidates
for filling the positions of CEO, Finance Director and Chief
Operating Officer (provided that the Chief Operating
Officer position exists).
During the year, the Committee conducted reviews and
made corresponding recommendations to the Board in
respect of the following matters:
•
•
The nomination of new Members of the Board (i) for
appointment by the Board during 2019; and (ii) for
election by shareholders at the 2019 AGM;
The structure, size and composition of the Board and a list
of desirable skills/experience/perspectives for the Board;
• An annual assessment of the independence of each INED
of the Company; and
•
The re-election of Members of the Board retiring at the
2019 AGM.
The Nominations Committee has conducted an annual
review of (i) the current structure, size and composition
of the Board and considered the same is appropriate in
light of the Company’s strategy; and (ii) the list of skillsets
of the Board and resolved to recommend to the Board for
adding a new skillset. The Nominations Committee has also
assessed that the Board currently possesses a balanced mix
of skills, experience and diversity of perspectives, is in line
with the Company’s Board Diversity Policy (the “BD Policy”)
and is appropriate for continuing to support the execution
of the Company’s business strategies in an efficient and
effective manner.
Corporate Responsibility Committee
Principal responsibilities:
• Overseeing the Company’s stakeholder engagement and
external communication strategies;
• Recommending the Corporate Responsibility Policy to
the Board for approval;
• Monitoring and overseeing the implementation of
the Company’s Corporate Responsibility Policy and
related initiatives;
99
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 •
Identifying emerging corporate responsibility issues
arising from external trends;
• Reviewing the Company’s annual Sustainability Report
and recommending approval by the Board;
• Reviewing the Company’s environmental and social
performance; and
• Providing updates to the Board on matters falling within
the Committee’s remit as required.
Please also refer to the “Corporate Responsibility” section
(pages 84 to 89) of this Annual Report.
Work performed during the year:
• Monitoring of the progress of various youth, elderly
and district-level community engagement and
investment programmes;
• Review and recommendation of the 2018 Sustainability
Report to the Board for approval;
• Review of a new Sustainability Report publication schedule;
• Consideration of the Company’s performance on various
local and international sustainability indices; and
•
Endorsement of a Sustainable Procurement Roadmap.
Company Secretary
Ms Gillian Elizabeth Meller, being Legal and European
Business Director (“L&EBD”) and a Member of the Executive
Directorate, reports to the CEO. Her role as Company
Secretary includes:
• Providing access to advice and services for Members of
the Board;
•
Ensuring the correct Board procedures are followed;
• Advising the Board on all corporate governance matters;
• Arranging for Members of the Board, their Alternate
Directors and Members of the Executive Directorate,
upon their appointment, to receive a comprehensive,
formal and tailored induction programme on key areas
of business operations and practices of the Company,
as well as the general and specific duties of directors
under general law (common law and legislation) and
the Listing Rules;
• Recommending Members of the Board, their Alternate
Directors and Members of the Executive Directorate to
attend relevant seminars and courses; and
• Arranging for training on relevant new or amended
legislation or other regulations to be provided at
Board meetings.
In 2019, Ms Meller undertook over 15 hours of professional
training to update her skills and knowledge.
Appointment, Re-election and Removal
of Members of the Board
A person may be appointed as a Member of the Board at any
time either by:
•
•
•
the shareholders in general meeting in accordance with
the “Appointment Procedure for Members of the Board
of the Company”, which is available on the website of the
Company (www.mtr.com.hk); or
the Board upon the recommendation of the Nominations
Committee of the Company; or
the Chief Executive of the HKSAR in the case of the
Additional Directors.
Members of the Board who are appointed by the Board
during a year must retire at the first annual general
meeting after their appointment and are eligible for
election at that meeting.
Except for the Additional Directors, all other Members of
the Board are required to retire by rotation. At each annual
general meeting of the Company, Members of the Board
who were last elected or re-elected at the annual general
meeting which was held in the third calendar year prior to
the annual general meeting in question, are those who will
retire by rotation.
The Additional Directors may not be removed from office
except by the Chief Executive of the HKSAR and are not
subject to any requirement to retire by rotation.
The Company has a service contract with each of the
NEDs (with the exception of the Additional Directors) and
the INEDs, specifying the terms of his/her continuous
appointment as a NED or an INED and as the chairman or a
member of the relevant Board Committee(s), for a period not
exceeding three years.
Nomination Policy
A Nomination Policy (the “Nomination Policy”) documenting
the procedures and practices that have been adopted by the
Company was approved by the Board in January 2019, and is
posted on the Company’s website (www.mtr.com.hk).
100
CORPORATE GOVERNANCE REPORTMTR Corporation The Nomination Policy sets out the process and procedures
for governing the nomination of Members of the Board
applicable to both new appointments and re-appointments,
except for appointments made by the Chief Executive of
the HKSAR pursuant to Section 8 of the MTR Ordinance and
nomination by shareholders of the Company in accordance
with the Articles of Association.
The Board has delegated to the Nominations Committee
the authority to identify and assess potential candidates
for appointment to the Board through different means and
channels, including recommendations from Members of the
Board, use of external search firms, and any other means or
channels that it deems appropriate.
Nomination Procedures
In relation to appointments by the Board or by shareholders
at a general meeting of the Company, the Nominations
Committee will request the candidate to provide his/her
biographical information and other information deemed
necessary. The Nominations Committee will review and
take reasonable steps to verify the information obtained
from the candidate and seek clarification, where required.
The Nominations Committee may, at its discretion, invite
any candidate to meet with the Nominations Committee
members to assist them in their consideration of the
proposed nomination or recommendation. The Nominations
Committee will then submit its nomination proposal
to the Board for consideration and approval or making
recommendation to the shareholders for approval.
In case of re-appointments of Members of the Board at a
general meeting, the Nominations Committee will review
the profile of the Members of the Board who have offered
themselves for re-appointment to consider their suitability
in light of the strategy of the Company as well as the
structure, size and composition of the Board at that time. The
Nominations Committee will then make recommendations
for the Board’s consideration and the Board will, at its
discretion, make recommendations to the shareholders.
Selection Parameters
In evaluating a proposed candidate, including a Member
of the Board eligible for re-appointment, the Nominations
Committee will consider the following factors (which are by
no means exhaustive):
(i)
the strategy of the Company;
(ii) the structure, size, composition and needs of the Board
and its respective Board Committees at the time, taking
into account succession planning, where appropriate;
(iii) the required skills, which should be complementary to
those of the existing Members of the Board;
(iv) the BD Policy of the Company as amended by the Board
from time to time;
(v) any information obtained through third party references
or background checks;
(vi) any other factors that may be used as reference in
assessing the suitability of a proposed candidate,
including but not limited to the candidate’s reputation
for integrity, accomplishments and likely commitment in
terms of time and interest;
(vii) if a proposed candidate will be holding his/her seventh
(or more) listed company directorship, the candidate’s
ability to devote sufficient time to the Board; and
(viii) the independence of a candidate proposed to be
appointed as an INED, in particular by reference to the
independence requirements under the Listing Rules.
The Nominations Committee is vested with discretion to
take into account such other factors that it may consider
appropriate.
Board Diversity
The Company has posted its BD Policy on the Company’s
website (www.mtr.com.hk). The BD Policy sets out a clear
objective and provides that the Company should endeavour
to ensure that its Members of the Board have the appropriate
balance of skills, experience and diversity of perspectives that
are required to support the execution of its business strategy
and in order for the Board to be effective. The Company is
conscious of maintaining a Board made up with INEDs as
the majority, together with an appropriate level of female
Members on the Board. While conscious efforts are being
taken by the Company to fulfil its pledges, all appointments
are ultimately made on a merit basis taking into account
available and suitable candidates.
The Board reviews the BD Policy on a regular basis to ensure
its continued effectiveness. During the year, the Board
approved an update to the BD Policy to include an explicit
commitment on the part of the Company to maintain an
appropriate level of female Members on the Board.
101
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 Gender
Male (15)
Designation
INED (14)
Age Group
Female (5)
NED (5)
ED (1)
50-54 (2)
55-59 (2)
60-64 (3)
65-69 (10)
≥70 (3)
Number of Years as Board Members (Years)
0-1 (7)
2-3 (6)
4-5 (5)
≥6 (2)
Outside Directorships (Number of listed companies)
0 (13)
1-2 (4)
3-4 (3)
The BD Policy and the list of desirable skills/experience/
perspectives of Board Members were taken into account by
the Nominations Committee and the Board in considering
the following appointments during the year:
(i) Mr Rex Auyeung Pak-kuen as a new NED;
(ii) Dr Jacob Kam Chak-pui as a new ED; and
(iii) Mr Walter Chan Kar-lok, Mr Cheng Yan-kee and Mr Jimmy
Ng Wing-ka as new INEDs.
The Committee and the Board formed the view that,
with their respective extensive experience in the areas of
insurance, legal, town planning, property development,
engineering and complex construction projects, as well as
their experience gained in the public sector and political
arena, each of the new Board Members mentioned above
would be a valuable addition to the Board and would further
enrich the spectrum of skills, experience and diversity of
perspectives of the Board, thereby enhancing the diversity
and effectiveness of the Board.
Statutory Confirmations
For the year ended 31 December 2019, the Company has
received an annual confirmation from each INED about his/
her independence and, in light of the requirements under the
Listing Rules which came into effect on 1 January 2019, the
interests of his/her immediate family member(s) (as defined
under the Listing Rules).
In discharge of its duties under its Terms of Reference,
the Nominations Committee has reviewed the above
confirmations and assessed the independence of the INEDs,
and continues to consider each of them to be independent.
Each Member of the Board ensures that he/she can give
sufficient time and attention to the affairs of the Company
and contribute to the development of the Company’s
strategy and policies through independent, constructive and
informed comments.
102
CORPORATE GOVERNANCE REPORTMTR Corporation Regarding disclosure of the number and nature of offices
held by Members of the Board in public companies or
organisations and other significant commitments, as well as
their identity and the time involved (the “Commitments”), to
the Company, all Members of the Board have disclosed their
Commitments to the Company in a timely manner.
Before each regular Board meeting, the Company reminds
each Member of the Board to update his/her “Declaration of
Other Directorships, Major Appointments and Interests” (the
“Declaration”). The Declaration of each Alternate Director is
sent to him/her for update on a quarterly basis. In addition,
each Member of the Board and each Alternate Director
is required to confirm his/her other directorships, major
appointments and interests to the Company twice a year.
Save as disclosed in this Annual Report, none of the Members
of the Board or the Executive Directorate has any relationship
(including financial, business, family or other material or
relevant relationships) with another Member of the Board or
the Executive Directorate. In addition, none of the Members
of the Board holds seven (or more) directorships in listed
companies (including the Company) or holds any cross-
directorships or has significant links with other Members
of the Board through involvements in other companies or
bodies as at 31 December 2019.
MODEL CODE FOR
SECURITIES TRANSACTIONS
BY DIRECTORS OF
LISTED ISSUERS
The Company has adopted the Model Code set out in
Appendix 10 to the Listing Rules (the “Model Code”). After
having made specific enquiry, the Company confirms
that all Members of the Board and (where applicable)
their Alternate Directors and all Members of the Executive
Directorate have complied with the Model Code
throughout the year.
Senior managers, other nominated managers and staff who,
because of their office in the Company, may be in possession
of Inside Information (which term shall bear the same
meaning as in the Securities and Futures Ordinance (Cap.
571 of the Laws of Hong Kong) (the “SFO”)) of the Company
(collectively the “Model Code Managers”), have also been
requested to comply with the provisions of the Model Code.
For enhanced monitoring and effectiveness, the Company
has launched a new Model Code Managers Management
System during the year, which provides an electronic
platform to give one-stop access to the relevant key
processes to support compliance with the Model Code.
Periodic training is also required to be completed by Model
Code Managers.
DIRECTORS’ INSURANCE
As permitted under the Articles of Association, it has been
the practice of the Company to arrange Directors’ and
Officers’ (“D&O”) Liability Insurance for which Members of the
Board and officers of the Company do not have to bear any
excess. To ensure sufficient cover is provided, the Company
undertakes an annual review of the Company’s D&O
insurance policy in light of recent trends in the insurance
market and other relevant factors. The review benchmarks
the amount of cover against other similar companies and
considers whether separate cover will be required for
Members of the Executive Directorate or Members of the
Board. The conclusion of the review in year 2019 was that the
level of cover was adequate and, given this, together with
the indemnity provided by the Company to Members of the
Board, the broad policy wording and the financial strength of
the insurance panel, no additional cover was required.
CORPORATE GOVERNANCE
FUNCTIONS REVIEW
The Board conducted an annual review of its Corporate
Governance duties in accordance with its Terms of Reference
on Corporate Governance Functions and the latest review
was done in March 2020. Below is a summary of the work
performed during the year ended 31 December 2019 and up
to the date of the Report:
• Development and review of the Company’s policies
and practices on corporate governance, including the
corporate governance framework, the BD Policy and the
Nomination Policy;
• Review and monitoring of the training and continuous
professional development of Members of the Board and
senior management;
• Review and monitoring of the Company’s policies
and practices on compliance with legal and
regulatory requirements;
103
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 • Development, review and monitoring of the Code of
Conduct and Directors’ Manual; and
• Review of the Company’s compliance with the Code.
The Board considers that, overall, the Company’s Corporate
Governance Functions are adequate and appropriate for
the Company in light of its current corporate strategy.
They will be kept under review in light of the changing
legal and regulatory environment and any changes to the
Company’s business.
The Terms of Reference on Corporate Governance
Functions are available on the websites of the Company
(www.mtr.com.hk) and the Stock Exchange.
BOARD PROCEEDINGS
The Board meets in person regularly, and all Members of the
Board have full and timely access to relevant information
and may take independent professional advice at the
Company’s expense, if necessary, in accordance with the
approved procedures.
The draft agenda for regular Board meetings is prepared by
the Company Secretary (the L&EBD) and approved by the
Chairman of the Company. Members of the Board are advised
to inform the Chairman or the Company Secretary not less
than one week before the relevant Board meeting if they
wish to include a matter in the agenda of the meeting. The
agenda together with Board Papers are usually sent at least
three days before the intended date of the Board meeting.
The Board meeting dates for the following year are usually
fixed by the Company Secretary with the agreement of the
Chairman, before communicating with other Members of the
Board, in the third quarter of each year.
At regular Board meetings, Members of the Executive
Directorate together with senior managers report to the
Board on their respective areas of business.
The CEO Report, provided to the Board on a monthly basis,
covers the overall strategies, principal issues and key events
of the Company for the relevant month and provides key
information in areas such as the Group’s safety performance
in different business sectors, financial activities, contingent
liabilities, human resources developments and new railway
projects, as well as a look ahead to key issues or events
in the following three to six months. During the year, the
layout of the Report has been modified by summarising the
abovementioned information in the CEO Review section,
with fuller details in appendices and additional data in
attachments, to make the CEO Report more user friendly.
This CEO Report together with the discussions at Board
meetings, ensures that Members of the Board have an overall
understanding of the Company’s business and other key
information about the Company, and provides up-to-date
information to enable them to make informed decisions for
the benefit of the Company.
All Members of the Board have access to the advice and
services of the Company Secretary, who is responsible for
ensuring that the correct Board procedures are followed
and advising the Board on all corporate governance matters.
Members of the Board also have full access to Members of the
Executive Directorate as and when they consider necessary.
An electronic meeting solution has been used for the
Company’s Board meetings and Executive Committee
meetings starting from 2017, which has subsequently been
expanded to meetings of Board Committees. Apart from
contributing to the Company’s environmental efforts, the
electronic meeting solution also enables Members of the
Board and the Executive Committee to access meeting
documents and join virtual meetings remotely in a secure,
efficient and convenient manner.
MATERIAL INTERESTS AND
VOTING
All Members of the Board and the Executive Directorate are
required to comply with their common law duty to act in the
best interests of the Company and have particular regard to
the interest of the Company’s shareholders as a whole. To
this end, all of them are required to declare the nature and
extent of their interests, if any, in any contract, transaction,
arrangement or other proposal to be considered by the
Board at Board meetings.
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CORPORATE GOVERNANCE REPORTMTR Corporation Unless specifically permitted by the Articles of Association,
a Member of the Board cannot cast a vote on any contract,
transaction, arrangement or any other kind of proposal
in which he/she has an interest which he/she knows is
material. For this purpose, the interests of a person who
is connected with a Member of the Board (including any
of his/her associates) are treated as the interests of the
Member of the Board himself/herself. Interests purely as a
result of an interest in the Company’s shares, debentures
or other securities are disregarded. A Member of the
Board may not be included in the quorum for such part
of a meeting that relates to a resolution he or she is not
allowed to vote on but he or she shall be included in the
quorum for all other parts of that meeting. This reduces
potential conflicts which might otherwise arise between
the Company’s business and an individual Member of the
Board’s other interests or appointments.
If a conflict arises between the interests of the Company and
those of Government, each Government-nominated Director
and any Director holding a senior Government position, is not
included in the quorum for that part of the meeting which
relates to the contract, transaction, arrangement or other
proposal being considered by the Board and in relation to
which the conflict exists and is not allowed to vote on the
related resolution.
There are a number of contractual arrangements that have
been entered into between the Company and Government
(and/or its related entities), some of which are continuing in
nature. As Government is a substantial shareholder of the
Company, such contractual arrangements are connected
transactions (and in some cases continuing connected
transactions) for the purposes of the Listing Rules. The
sections headed “Connected Transactions” and “Continuing
Connected Transactions” (pages 154 to 174) of this Annual
Report explain how, in accordance with the Listing Rules,
these transactions have been treated.
Matters to be decided at Board meetings are decided by
a majority of votes from Members of the Board allowed to
vote, although the usual practice is that decisions reflect the
consensus of the Board.
BOARD MEETINGS
The Board held 18 meetings in 2019 (seven Regular Meetings,
eight Special Meetings and three Private Meetings), well
exceeding the requirement of the Code which requires every
listed issuer to hold board meetings at least four times a year.
Regular Meetings
At each Regular Meeting, the Board reviewed, discussed
and, where appropriate, approved matters relating to
the Company’s different businesses and financial and
operational performance.
In addition, other key matters discussed at Board meetings
held in 2019 included:
• Corporate Governance matters, including:
– A review of the Board’s structure and composition
and its corporate governance functions; the annual
assessment of (i) the independence of the INEDs;
and (ii) the effectiveness of the Company’s risk
management and internal control systems;
– The appointment of new Members of the Board
in 2019;
– The approval of the Nomination Policy; changes to
Board Committee composition; amendments to
the Terms of Reference of the Audit Committee and
Nominations Committee;
– Recommendation of the renewal of the Scrip
Dividend Scheme; the appointment of new Members
of the Board and election/re-election of retiring
Members of the Board, for approval by shareholders
at the 2019 AGM;
– Receipt and consideration of reports from
Management on key matters such as safety,
risk management and sustainability; and
– Receipt of shareholder analysis and investors’
feedback;
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 • Projects:
•
Financial:
– Receipt of updates on the SCL project and related
– Approval of the 2018 Annual and the 2019 Interim
matters;
• Operations:
– Review of 2018 train service performance;
– Receipt of updates on material incidents that
happened in 2019;
– Contract award for maintenance services and asset
replacement/upgrading projects; and
– Receipt of updates on digital project progress and
development roadmap – Customer Experience &
Railway Asset Management;
• Mainland China and International Businesses:
– Receipt of updates on Macau, Mainland China and
International Businesses, business development
opportunities, and approval of potential business
investments and partnership opportunities; and
– Approval of overseas projects and investment;
• Property:
– Award of contract for investment property works;
– Approval of tender arrangement for a property
development in Hong Kong; and
– Receipt of updates on property development projects
in Hong Kong;
• Human Resources:
– Approval of 2019 Annual Pay Review;
• Commercial and Marketing:
– Review of the principles for revising the Company’s
fares under the Fare Adjustment Mechanism (the
“FAM”) and approval of the Controlled Fares for 2019
under the FAM; and
– Review of the proposed fares for new stations on the
Tuen Ma Line;
Report and Accounts;
– Approval of the renewal of the US$5 Billion Debt
Issuance Programme; and
– Approval of the 2020 Budget and Longer
Term Forecast.
The minutes of Board meetings are prepared by the
Company Secretary or her delegate with details of the
matters considered by the Board and decisions reached,
including any concerns raised by Members of the Board or
dissenting views expressed. The draft minutes are circulated
to all Members of the Board for their comments within a
reasonable time after the meeting. The approval procedure
is that the Board formally adopts the draft minutes at the
subsequent meeting. If Members of the Board have any
comments on the draft minutes, they will discuss it at that
meeting and any agreed changes will be reflected in the
formal minutes of the relevant meeting. Minutes of Board
meetings are kept by the Company Secretary and are open
for inspection by all Members of the Board at the Company’s
registered office.
Special Meetings
During 2019, a total of eight Special Meetings were held to
consider matters relating to the SCL project, the material
service incidents in Hong Kong during the year, tender
matters in relation to property development projects in Hong
Kong and the impact of public order events on the Company.
Private Meetings
During 2019, the Chairman held three Private Meetings
at which a range of matters, including consideration of an
internal policy on the provision of legal support to staff,
management organisational and governance matters,
and appointments of the CEO and a senior executive were
discussed. In addition, the Chairman met with INEDs only
without the presence of other Board Members to discuss
the functioning of the Board and the contributions required
from INEDs and whether they were spending sufficient
time performing them, general strategy and organisational
matters of the Company.
106
CORPORATE GOVERNANCE REPORTMTR Corporation The attendance record of each Member of the Board (and
each Member of the Executive Directorate) during the year is
set out on pages 96 to 97 of this Annual Report.
INDUCTION PROGRAMME AND
OTHER TRAINING
Induction Programme
On appointment, each new Member of the Board (including
Government nominated Directors), Alternate Director
and Member of the Executive Directorate is given a
comprehensive, formal and tailored induction programme
which covers:
•
•
the roles of a director from the strategic, planning and
management perspectives, as well as the essence of
corporate governance and the trends in these areas; and
the general and specific duties of a director under general
law (common law and legislation) and the Listing Rules.
In addition to the above, a Familiarization Programme to
understand the key areas of the Company’s business and
operations is also provided.
All Members of the Board, Alternate Directors and Members
of the Executive Directorate are also given a Directors’
Manual on their appointment which sets out, amongst other
things, directors’ duties and the Terms of Reference of the
Board on its Corporate Governance Functions and of its
Board Committees. The Directors’ Manual is updated from
time to time to reflect developments in those areas. The
latest update to the Directors’ Manual was approved by the
Board on 7 January 2020. The updated Directors’ Manual
has been reorganised to make it more user-friendly with
increased focus on Directors’ roles and responsibilities and
their key obligations from both a statutory and a regulatory
perspective. New sections have been added, including an
overview of the Company’s governance framework and
sections on anti-bribery, Directors’ time commitments and
declarations of interest, the Company’s commitment to equal
opportunities and the Company’s whistle-blowing policy.
Training and Continuous Professional
Development
Members of the Board and the Executive
Directorate
To assist Members of the Board and the Executive Directorate
in continuing their professional development, the Company
Secretary recommends them to attend relevant seminars and
courses at the cost of the Company.
Training
Materials on the subject of corporate governance and
e-learning provided by the Stock Exchange are provided/
notified to Members of the Board, Alternate Directors and
Members of the Executive Directorate from time to time to
keep them abreast of the latest developments on this front.
Each Member of the Board and the Executive Directorate has
also provided to the Company a record of the training he/she
has received during the year, which is set out on pages 96 to
97 of this Annual Report.
Senior Executives
A comprehensive and tailored training programme has
been developed for the Senior Executives of the Company.
This programme consists of a series of workshops, seminars,
e-learning and benchmarking visits which are organised on
an on-going basis.
To support the enhancement of the business acumen,
leadership and management skills of the Senior Executives,
professors from renowned business schools are engaged
to share cutting-edge research and insights on thought
leadership, leading change, digital transformation and
innovation as well as contemporary management and
business topics. A tailored global leadership development
programme was also organised in 2019 to enable certain
key Senior Executives to enhance their leadership, customer-
centric and strategic thinking capabilities.
107
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 ACCOUNTABILITY
Members of the Board are responsible for the consolidated
accounts of the Group. The consolidated accounts are
prepared on a going concern basis and give a true and fair
view of the consolidated financial position of the Group
as at 31 December 2019, and of the Group’s consolidated
financial performance and consolidated cash flows for the
year then ended. In preparing the consolidated accounts
for the year ended 31 December 2019, Members of the
Board have selected appropriate accounting policies and,
apart from those new and amended accounting policies
as disclosed in the notes to the consolidated accounts for
the year ended 31 December 2019, have applied them
consistently with previous financial periods. Judgments
and estimates have been made that are prudent and
reasonable. The reporting responsibilities of the external
auditor of the Company (the “External Auditor”) are set out
on pages 178 to 181 of this Annual Report.
In support of the above, the consolidated accounts
presented to the Board have been reviewed by Members of
the Executive Directorate. For both the annual and interim
reports and consolidated accounts, the Finance Division is
responsible for clearing them with the External Auditor and
then the Audit Committee. In addition, all new and amended
accounting standards and requirements, as well as any
changes in accounting policies adopted by the Group, have
been discussed and approved at the Audit Committee before
adoption by the Group.
RISK MANAGEMENT AND
INTERNAL CONTROL SYSTEMS
The Board is responsible for the internal control system
and the risk management system (the “ERM” system) of the
Company and its subsidiaries, setting appropriate policies
and reviewing the effectiveness of the internal control
system and the ERM system. The internal control system and
the ERM system, with processes put in place by the Board,
management and other personnel, are designed to manage
(as opposed to eliminate) the risk of failure and provide
reasonable assurance, and not absolute assurance, against
material misstatement or loss, regarding the achievement of
objectives in the following areas:
•
Effectiveness and efficiency of operations
• Reliability of financial reporting
• Compliance with applicable laws and regulations
•
Effectiveness of risk management
Systems Overview
The Executive Committee is responsible for:
•
•
Implementing the Board’s policies on risk management
and internal controls;
Identification and evaluation of the risks faced by the
Company for consideration by the Board;
• Designing, operating and monitoring a suitable internal
control system and an ERM system; and
• Providing assurance to the Board that it has done so,
together with a confirmation that these systems are
effective and adequate.
In addition, all employees have responsibility for internal
controls and risk management within their areas of
accountability.
Business/Functional Management
Committees
A number of committees have been established to assist the
Executive Committee in the management and control of
the Company’s various core businesses and functions. Key
committees include:
• Operations Executive Management Committee
• Property Executive Management Committee
• Project Control Group
•
•
Investment Committee
European Business Management Committee
• Australian and International Consultancy Business
Management Committee
• Mainland China Business Management Committee
• Macau Business Management Committee
•
Information Technology Executive Management
Committee
• Corporate Safety Management Committee
108
CORPORATE GOVERNANCE REPORTMTR Corporation •
•
Enterprise Risk Committee
Executive Tender Panel/Tender Board
• Corporate Responsibility Steering Committee
• Cost Control Committee (Projects)
•
Executive Cost Control Committee (Projects)
• Corporate Cyber Security Committee
• Corporate Security Management Committee
• Railway Development Steering Group
•
Technical Management Steering Group
• Commercial Letting Committee
Internal Audit
The Internal Audit Department (“IAD”) provides independent,
objective assurance and consulting services designed to
add value and improve the Company’s operations. Key
responsibilities of the IAD include:
• Carrying out analysis and independent appraisal of the
adequacy and effectiveness of the risk management and
internal control systems of the Company;
• Recommending improvements to existing management
controls and resources utilisation; and
• Performing special reviews, investigations and consulting
and advisory services related to corporate governance
and controls as commissioned by management or the
Audit Committee of the Company.
The Head of Internal Audit reports directly to the CEO and
the Audit Committee. The IAD has unrestricted access
to information that allows it to review all aspects of the
Company’s risk management, control and governance
processes. On a regular basis, it conducts audits on
financial, operational and compliance controls, and the risk
management functions of the Company and its subsidiaries.
Relevant members of the management team are responsible
for ensuring that control deficiencies highlighted in internal
audit reports are rectified within a reasonable time. The
IAD produces an annual internal audit plan for the Audit
Committee’s approval. The audits are selected based on a
risk assessment to ensure that business activities with higher
risks are covered. On a half-yearly basis, the Head of Internal
Audit reports to the Audit Committee including his opinion
on the adequacy and effectiveness of the Company’s internal
control system.
ERM system
The ERM system is an essential and integral part of the
Company’s corporate governance framework and helps to
sustain business success and create value for stakeholders.
It involves a corporate-wide systematic risk identification
and management process which aims to assist the Executive
Committee and individual business unit managers to
manage the key risks facing the Company and supports the
Board in discharging its corporate governance functions.
More details of the features of the ERM system, the process
used to identify, evaluate and manage significant risks, the
significant risks being managed and the process used to
review the effectiveness of the ERM system are set out in
the “Risk Management” section (pages 118 to 121) of this
Annual Report.
Board Oversight
The Board, assisted by the Risk Committee and the Audit
Committee respectively, oversees the Company’s ERM
system and internal control system on an on-going basis and
reviews the effectiveness of the systems at least annually. The
duties of and work performed in 2019 by the Risk Committee
and Audit Committee respectively are set out in the “Risk
Committee Report” (pages 122 to 123) and “Audit Committee
Report” (pages 115 to 117) of this Annual Report.
Control Activities and Processes
Compliance with Statutes and Regulations
To ensure the efficient and effective operation of business
units and functions, and the safety of the operating railway
and construction works in railway projects, Corporation
General Instruction(s) (“CGI(s)”), divisional/departmental
procedures and manuals, committees, working groups
and quality assurance units are established to monitor and
enforce internal controls and evaluate their effectiveness.
CGIs and various departmental procedures and manuals
are established for preventing or detecting unauthorised
expenditures/payments, safeguarding the Company’s
assets, ensuring the accuracy and completeness of
accounting records and timely preparation of reliable
financial information.
All Department Heads, including General Managers/Project
Managers for overseas subsidiaries/projects, are responsible
for ensuring compliance with the statutes and regulations
applicable to their own functional units. With necessary legal
support, they are required to:
109
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 •
Identify any new or updated statutes;
(ii) the responsibilities of Model Code Managers in
• Assess their impact on the Company’s operations;
• Review at least once a year that the relevant statutes/
regulations have been complied with; and
preserving the confidentiality of Inside Information,
escalating upwards any such potential information
and cascading down the message and responsibilities
to relevant staff; and
• Report any potential and actual significant non-
(iii) the process for disclosure of Inside Information.
compliances to the respective Divisional Directors and
the Executive Committee.
•
Training for Members of the Board and the Executive
Directorate, Executive Managers, Department Heads
and Model Code Managers (on the basis that they may
be in possession of Inside Information because of their
positions in the Company) is provided from time to time.
In particular, Members of the Executive Directorate,
Executive Managers, Department Heads and Model Code
Managers are regularly required to complete a computer-
based training programme (“CBT Programme”) on Inside
Information; and
• On-going training sessions on the latest developments/
requirements of the SFO are arranged as appropriate.
The Board considers that the Company’s existing system
and measures are effective and appropriate, with supporting
compliance mechanisms to provide assurance that the
Company and its officers observe their disclosure obligations
in respect of Inside Information.
Evaluation of the Effectiveness of the
Risk Management System
The Company has surpassed the relevant best practices
in the Code by completing an effectiveness review of the
ERM system for the Company and its subsidiaries, and
extending the review to the Company’s associates operating
in Mainland China and overseas. For the year ended
31 December 2019, the Risk Committee, with delegated
authority from the Board, has evaluated the effectiveness
of the ERM system of the Company and considers that it is
overall effective and adequate.
As a learning organisation, the Company constantly looks for
improvement opportunities through internal and external
reviews and studies, as well as learning from incidents.
In 2019, the Company encountered a number of challenges
on the operational front, including the train collision during
signalling testing on the Tsuen Wan Line in March and the
derailment near Hung Hom Station on the East Rail Line
in September. Following each of these incidents, in-depth
Issues relating to compliance with statutes and regulations,
including potential and actual non-compliances, and the
status of rectification and actions taken to prevent recurrence
are reported annually to the Executive Committee and the
Audit Committee.
Divisional Directors, Department Heads, including General
Managers/Project Managers for overseas subsidiaries/
projects, are required to conduct annual assessments and
certifications on the effectiveness of internal controls and risk
management systems within their areas of responsibility.
Whistle-blowing Policy
A whistle-blowing policy has been put in place to deal with
concerns related to fraudulent or unethical acts or non-
compliances with laws and the Company’s policies that
have or could have significant adverse financial, legal or
reputational impacts on the Company. The policy applies
to all staff, parties who deal with the Company as well as
the general public. Every half year, a summary of all whistle-
blowing cases handled by the Whistle Blowing Panel
and staff complaints handled by the Human Resources
Management Department and management initiated
investigations are reported to the Executive Committee and
the Audit Committee.
Inside Information Policy
The Company has developed a system with established
policies, processes and procedures across all relevant
Division(s) and Department(s) for the handling and
dissemination of Inside Information, which encompasses
the following:
• A CGI sets out:
(i) the internal processes for identifying, assessing
and escalating potential Inside Information to the
Executive Committee and the Board;
110
CORPORATE GOVERNANCE REPORTMTR Corporation investigations were undertaken with lessons learned
identified for continuous improvement, and risk controls
have also been enhanced.
Details about the “Process of System Effectiveness Review”
are set out in the Risk Management section (page 121) of this
Annual Report.
Evaluation of the Effectiveness of the
Internal Control System
For the year ended 31 December 2019, the Audit Committee,
with delegated authority from the Board, evaluated the
effectiveness of the internal control system of the Company
and its subsidiaries based on the following:
• A review of significant issues arising from internal audit
reports and the external audit reports;
• Private sessions with internal and external auditors;
• A review of the annual assessment and certification
of internal controls from Members of the Executive
Directorate, management of overseas subsidiaries and
Department Heads in their areas of responsibility;
• A review of papers submitted/prepared by the Executive
Committee and the IAD covering periodic Financial
Reports and Accounts; preview of Annual Accounting
and Financial Reporting issues; Annual Internal Audit
Plan; IAD’s Half-yearly Reports; Whistle-blowing Reports;
Report on the Company’s Risk Management and Internal
Control System; Report on Evaluation of Effectiveness
of IAD; and Report on Outstanding Litigation and
Compliance Issues; and
•
The results from internal audits performed during the
year on the effectiveness of the internal control system of
the Company and its subsidiaries.
The Audit Committee concluded that the internal control
system was overall effective.
Evaluation of the Adequacy of Resources
of the Company’s Accounting, Financial
Reporting and Internal Audit Functions
For the year ended 31 December 2019, the annual
assessment performed by Finance Division and IAD
concluded that there were adequate resources, staff
qualifications and experience, training programmes and
budget of the Company’s accounting, financial reporting
and internal audit functions.
The Company is committed to recruit, train and develop
a team of qualified and competent accountants in order
to oversee the Group’s financial reporting and other
accounting-related matters. A process to capture and
update relevant laws, rules and regulations applicable to the
reporting and accounting function is in place. Designated
officers will ensure relevant standards and ordinances
including Hong Kong Financial Reporting Standards, the
Listing Rules and the Companies Ordinance under their
responsibility are complied with. Resources and provisions
required to deliver the accounting and financial reporting
function are critically reviewed during the annual budgeting
exercise. Company-wide recruitment processes and staff
development programmes are in place to address the
competency, qualifications and experience required.
Adherence to the process is confirmed on an annual basis
by the designated officers to the Finance Director who
will conduct a formal annual review and report the review
results to the Audit Committee. Based on the above, the
Audit Committee considered the resources, qualifications
and experience of staff of the Company’s accounting and
financial reporting function, and their training programmes
and budget were adequate.
In terms of internal audit, the Company is also committed to
recruit, train and develop a team of qualified and competent
internal auditors to provide independent and objective
assurance and consulting services designed to add value
and improve the Company’s operations. A process to
capture updated standards and best practices relating to
internal audit is in place. Proper recruitment processes and
staff development programmes are in place to address the
competency, qualifications and experience required. The
Head of Internal Audit conducts a formal annual review on
the adequacy of staff resources, qualifications and experience
of the internal audit function and reports the review results
to the Audit Committee. Based on the above, the Audit
Committee considered the resources, qualifications and
experience of staff of the Company’s internal audit function,
and its training programmes and budget were adequate.
Board’s Annual Review
The Board has, through the Risk Committee and the Audit
Committee, overseen the Company’s risk management and
internal control systems on an on-going basis. The Board
has conducted its annual review of the risk management
and internal control systems of the Company and its
111
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 subsidiaries and key associates for the year ended 31
December 2019, and considers that such systems are
overall effective and adequate.
The Board has conducted a review of the adequacy of
resources, staff qualifications and experience, training
programmes and budget of the Company’s accounting,
financial reporting and internal audit functions for the year
ended 31 December 2019, and considers the above resource
components to be adequate.
CRISIS MANAGEMENT
To uphold the reputation of being one of the world’s
leading railway operators and in order to help ensure
that the Company will respond to and recover from crises
in an organised and highly effective manner, including
timely communication with principal stakeholders such
as Government departments and shareholders, the
Company has an established mechanism to activate the
formation of the Crisis Management Team in the event of
a crisis. The Crisis Management Team comprises relevant
Members of the Executive Directorate and Executive
Managers, and its operation is governed by a Crisis
Management Plan which, among other things, sets out
the duties of respective members. The Crisis Management
Plan is kept in line with world-class standards and up-to-
date through regular reviews. The operation of the Crisis
Management Team is aided by an information system to
keep track of the latest crisis situation, issues and strategic
actions and disseminate crisis related information. Regular
Crisis Management Team exercises are held to validate
the crisis management organisation and arrangements
and to provide practices for members.
In order to manage the impacts on our businesses arising
from the prolonged public order events in Hong Kong in
the second half of 2019, the Crisis Management Team was
activated to monitor the situation and direct the Company’s
responses and actions in a coordinated manner, with the
safety of our customers, staff and contractors always placed
as the top priority. In response to the outbreak of Coronavirus
Disease-2019 (COVID-19) in January 2020, the Crisis
Management Team was activated to manage its potential
impacts on the Company’s operations.
GOVERNANCE OF SUBSIDIARIES
AND ASSOCIATES
The Company has a number of subsidiaries and associates
which operate independent businesses in Hong Kong,
the Mainland of China and overseas. Notwithstanding
the fact that these subsidiaries and associates are
separate legal entities, the Company has implemented a
management governance framework (the “Governance
Framework”) to ensure that it exercises an appropriate
level of control and oversight as a shareholder of these
subsidiaries and associates.
The Company’s refined Governance Framework promotes
collaboration between the corresponding functions in
the Company on the one hand and the subsidiaries and
associates on the other hand and the implementation
process has been enhanced to promote a proper Governance
Framework in the Company’s subsidiaries and associates
from inception of any new business operations/investments.
Pursuant to the Governance Framework, the Company
exercises its control and oversight through formulation
of a governance structure that is tailored for individual
subsidiaries and associates through (i) imposition of
certain internal controls in key areas; and (ii) adoption of
management practices and policies that are appropriate to
the business nature and local situation. As a result, adequate
internal controls will be adopted by subsidiaries and
associates and the Company will be consulted and notified
on important matters, complemented by regular reporting
and assurance. Compliance with this governance structure
is reported by subsidiaries and associates with significant
operations on an annual basis.
BUSINESS ETHICS
Practising integrity and responsible business ethics is
paramount to the Company’s continued success. The
Company’s Code of Conduct lays down the requirements of
the Company in terms of ethical practices and obliges staff
to operate transparently and under the highest principles of
fairness, impartiality and integrity in all of the places where
the Company does business.
112
CORPORATE GOVERNANCE REPORTMTR Corporation The Code of Conduct is reviewed and updated periodically to
ensure appropriateness and compliance with corporate and
regulatory requirements. Following the release of a revised
Code of Conduct to all staff in early May 2018, education
programmes including seminars and mandatory CBT
Programmes have been introduced to raise staff awareness.
In November 2019, a new mandatory CBT Programme on
“Understanding Personal Data (Privacy) Ordinance” for all
staff was launched with a short quiz as part of the Code of
Conduct CBT Programme series. Staff members are also
encouraged to report existing or perceived violations or
malpractices. Proper procedures have already been put in
place pursuant to the whistle-blowing policy of the Company,
under which staff members can raise their concerns in a
safe environment and in complete confidence if they have
genuine suspicions about wrongdoings.
To enable new recruits to embrace the Company’s values
and ethical commitments, they will be briefed on the Code
of Conduct as part of the staff induction programme. New
recruits are also required to complete the mandatory CBT
Programmes within three months of joining the Company.
The Code of Conduct is also uploaded onto the Company’s
website (www.mtr.com.hk).
In addition, the Code of Conduct serves as a guideline to
establish a comparable ethical culture in our subsidiaries and
associates in Hong Kong, the Mainland of China and overseas.
EXTERNAL AUDITOR
The Company engages KPMG as its External Auditor. In
order to maintain KPMG’s independence and objectivity and
the effectiveness of the audit process in accordance with
applicable standards, the Audit Committee, under its Terms of
Reference, pre-approves all audit services to be provided by
KPMG and discusses with KPMG the nature and scope of their
audit and reporting obligations before the audit commences.
The Audit Committee also reviews and pre-approves the
engagement of KPMG to provide any non-audit services, for
complying with relevant legal requirements and seeks to
balance the maintenance of objectivity with value for money.
The nature of audit and non-audit services provided by KPMG
and fees paid to KPMG (including any entity that is under
common control, ownership or management with KPMG or
any entity that a reasonable and informed third party having
knowledge of all relevant information would reasonably
conclude as part of KPMG nationally or internationally) are set
out in note 10B to the consolidated accounts on page 206 of
this Annual Report.
For maintaining integrity and objectivity as the External
Auditor of the Company, KPMG implements policies
and procedures to comply with professional ethics and
independence policies and requirements applicable to the
work it performs. In addition, KPMG requires its audit partner
serving the Group to rotate off the audit engagement with
the Group at least once every seven years in accordance with
the Hong Kong Institute of Certified Public Accountants/
International Federation of Accountants Code of Ethics.
COMMUNICATION WITH
SHAREHOLDERS
Annual General Meeting (the “AGM”)
The Company’s AGM is one of the principal channels
of communication with its shareholders. It provides an
opportunity for shareholders to communicate face to face
with the Directors about the Company’s performance and
operations. It has been the practice for the Chairman of
the Company, the chairman of each Board Committee, all
Members of the Executive Directorate and the External
Auditor of the Company to attend AGMs to answer
shareholders’ questions.
The 2019 AGM was held on 22 May 2019 and, for the first
time, the Company provided sign language interpretation
in addition to simultaneous Cantonese, English and
Putonghua interpretation. For the benefit of the Company’s
shareholders who did not attend the AGM, the whole
proceedings were webcast and posted on the Company’s
website (www.mtr.com.hk) in the same evening.
The 2020 AGM has been scheduled on 20 May 2020 and the
Company plans to continue providing the abovementioned
simultaneous interpretation to further facilitate smooth and
direct communication between the shareholders of the
Company and the Company’s Directors and management.
The Company is committed to making available meeting
facilities to enable all eligible attendees to be able to
participate in the AGM.
Resolutions passed at the 2019 AGM
The Chairman proposed separate resolutions for each
substantially separate issue at the 2019 AGM. Before the
resolutions were considered, the Chairman exercised his
right as the Chairman of the 2019 AGM under Article 71 of
the Articles of Association to call a poll on all resolutions
conducted by electronic means.
113
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 A total of 13 resolutions were passed at the 2019
AGM (with resolution no. 3 comprising four separate
resolutions), each supported by over 98% of the votes
cast. The full text of the resolutions is set out in the
2019 AGM Circular (which comprised Notice of the 2019
AGM) dated 12 April 2019 and the results of the AGM
are available on the respective websites of the Company
(www.mtr.com.hk) and the Stock Exchange.
Calling General Meetings
Directors of the Company may call a general meeting of
the Company.
Shareholders representing at least 5% of the total voting
rights of all the shareholders having a right to vote at general
meetings may request the Directors of the Company to call a
general meeting of the Company.
The requesting shareholders must state in their request the
general nature of the business to be dealt with, and may
include the text of a resolution to be moved at the general
meeting. The request may consist of several documents
in like form and may be sent to the Company in hard copy
or electronic form, which must be authenticated by the
requesting shareholders.
The Directors of the Company are required to call the general
meeting within 21 days after the date on which the Company
receives such requests, and the general meeting must be
held on a date not more than 28 days after the date of the
notice convening the general meeting. If the requests include
a resolution to be moved at the general meeting, the notice
of the general meeting must include notice of the resolution.
If the resolution is to be proposed as a special resolution,
the Directors of the Company are required to specify the
intention to propose the resolution as a special resolution in
the notice of the general meeting.
If, within 21 days after the date on which the Company
receives the required requests, the Directors of the
Company do not proceed duly to call a general meeting, the
shareholders who requested the general meeting, or any of
them representing more than one-half of the total voting
rights of all of them, may themselves call a general meeting,
provided that the general meeting must be called for a
date not more than 3 months after the date on which the
Company receives the required requests.
Procedures for Shareholders Putting
Forward Proposals
Shareholders may put forward proposals for consideration
at a general meeting according to the Companies Ordinance
and the Articles of Association.
As regards proposing a person for election as a director,
please refer to the “Appointment Procedure for Members of
the Board of the Company” which is available on the website
of the Company (www.mtr.com.hk).
Enquiries from Shareholders
The Company has a Shareholders’ Communication Policy
(available on the website of the Company (www.mtr.com.hk))
to provide shareholders with information about the
Company to enable them to engage actively with the
Company and exercise their rights as shareholders in an
informed manner.
The Company’s Shareholders Communication Policy has set
out, amongst other things, a channel for shareholders access
to the Board and management by writing to the Company
Secretary of the Company.
Please also refer to the Investor Relations section (pages 82 to
83) of this Annual Report on other means of communication
with shareholders.
CONSTITUTIONAL DOCUMENT
The Articles of Association (in both English and Chinese) are
available on the websites of both the Company (www.mtr.
com.hk) and the Stock Exchange. During the year ended
31 December 2019, there was no change to the Articles
of Association.
For and on behalf of the Board
Gillian Elizabeth Meller
Company Secretary
Hong Kong, 5 March 2020
114
CORPORATE GOVERNANCE REPORTMTR Corporation AUDIT COMMITTEE REPORT
As at the date of this Report, the Audit Committee of the
Company (referred to as the “Committee” in this Report)
consists of six Non-executive Directors, five of whom are
Independent Non-executive Directors of the Company.
Details of the Committee’s membership and members’
attendance records during 2019 are set out on pages 96 to
97 of this Annual Report. None of the Committee members
is a partner or former partner of KPMG, the Company’s
external auditor.
The Finance Director (the “FD”), the Head of Internal Audit
(the “Head of IA”) and representatives of the external auditor
attend all meetings of the Committee. At the discretion of the
Committee, others may also be invited to attend meetings.
The Committee normally meets four times a year, and the
Chairman of the Committee, the external auditor or the
FD may request an additional meeting if they consider it
necessary. The Committee, upon request, also considers and,
if thinks fit, approves the appointment of the Company’s
external auditor for undertaking non-audit work.
TERMS OF REFERENCE OF THE
COMMITTEE
The Terms of Reference of the Committee (the “ToR”) is
available on the respective websites of the Company
(www.mtr.com.hk) and the Stock Exchange.
DUTIES OF THE COMMITTEE
Under the ToR, the duties of the Committee primarily
comprise the following:
• Oversight of the relationship with the Company’s
external auditor, including but not limited to making
recommendations to the Board on the appointment of
and any change to the Company’s external auditor and
communicating with the external auditor on financial
matters of the Company;
• Review of the financial information of the Company,
including but not limited to monitoring the integrity of
financial statements;
• Oversight of the Company’s financial reporting and
internal control systems, including but not limited
to overseeing the adequacy of the resources and
competence of the Company’s accounting and financial
reporting functions; and
• Overseeing the Company’s Internal Audit function,
including but not limited to liaison with the Head of
IA, approval of the annual internal audit plan of the
Company and receiving periodic reports from the
Head of IA.
More details on the duties of the Committee are set out in
the ToR and further information can be found in the “Risk
Management and Internal Control Systems” section of the
Corporate Governance Report on pages 108 to 112 of this
Annual Report.
Reporting to the Board
The Chairman of the Committee summarises the activities of
the Committee and highlights issues arising therefrom in a
report to the Board after each Committee meeting.
The minutes of Committee meetings are prepared by
the secretary of the meetings with details of the matters
considered by Committee members and decisions reached,
including any concerns raised by Committee members,
dissenting views expressed and suggestions for enhancing
the governance and internal control systems of the
Company. The draft minutes are circulated to Committee
members for comment after each meeting. The Committee
formally adopts the draft minutes at the next subsequent
meeting, after taking into account any comments that
Committee members may have made. Minutes of Committee
meetings are open for inspection by Committee members at
the Company’s registered office.
In advance of the first regular Committee meeting each
year, the secretary of the meetings pre-agrees key agenda
items for the year with the Chairman of the Committee
who makes a final determination on the agenda for the
Committee meetings.
115
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 WORK PERFORMED BY THE
COMMITTEE IN 2019
In 2019, the Committee held four regular meetings.
Representatives of the external auditor, the FD and the Head
of IA attended all four regular meetings to report and answer
questions about their work. The Committee devoted its
attention to the review of the Company’s annual and interim
results announcement/accounts at the February and August
meetings respectively, allowing more time to review and
discuss the Company’s internal controls, internal audit and
other activities at the May and November regular meetings.
The Committee from time to time invited relevant Members
of the Executive Directorate to join the financial presentations
by the FD and the presentations on the latest cost positions
of the Company’s railway construction projects under
entrustment by the HKSAR Government by the General
Manager – Procurement and Contracts.
As mentioned in the last Report, the Committee has
mandated the management team to carry out a review of the
Company’s internal control and risk management systems for
non-Railway Projects – Hong Kong operations (the “Review”),
with the support of an external consultant, PwC. During the
year, the Committee and the Risk Committee jointly endorsed
in principle PwC’s recommendations from the Review, with
focus on reviewing and strengthening the Three Lines of
Defence. In addition, the Committee commissioned Internal
Audit Department to conduct a special review of the internal
controls over the bidding process on the overseas businesses
(the “Overseas Review”). A report was then presented to the
Committee. To address the findings from the Review and
the Overseas Review, management will embark on a series
of further Stage 2 reviews. Recommended timelines and
prioritisation for these Stage 2 reviews will be presented to
the Board for approval in 2020.
Other major works performed by the Committee in
2019 include:
Financial
• Reviewed the draft 2018 Annual Report and Accounts
and 2019 Interim Report and Accounts, including
the financial impact of the Company’s railway
construction projects under entrustment by the
HKSAR Government, and the relevant disclosure notes
in the said Accounts and recommendation of the
same for the Board’s approval;
• Received updates on the carrying value of the Group’s
fixed assets;
• Received updates on the latest cost positions of
the Company’s railway construction projects under
entrustment by the HKSAR Government; and
• Previewed the 2019 interim and annual accounting and
financial reporting issues.
Internal Audit
• Reviewed Internal Audit Department’s Reports;
• Reviewed and endorsed an evaluation paper on Risk
Management and Internal Control Systems Effectiveness
for 2018 for submission to the Board (focused on the
internal control system, as the risk management system
effectiveness was separately reviewed and endorsed by
the Risk Committee of the Company);
• Reviewed and endorsed a paper on Continuing Connected
Transactions for 2018 for submission to the Board;
• Reviewed Whistle-blowing Progress Reports;
• Reviewed a Report on Evaluation of Effectiveness of
Internal Audit Department for 2018;
• Received a review on the resources requirements of
Internal Audit Department;
• Received a special review report relating to a
European project;
• Approved the 2020 Internal Audit Plan;
• Approved updates to the Internal Audit Charter; and
• Held private sessions with the Head of IA without the
presence of Management.
116
AUDIT COMMITTEE REPORTMTR Corporation RE-APPOINTMENT OF
EXTERNAL AUDITOR
The Committee was satisfied with KPMG’s work, its
independence and objectivity, and therefore recommended
the re-appointment of KPMG (which has indicated its
willingness to continue in office) as the Group’s external
auditor for 2020 for approval by the Company’s Shareholders
at the 2020 Annual General Meeting.
Dr Eddy Fong Ching
Audit Committee Chairman
Hong Kong, 5 March 2020
The Audit Committee Report has been reviewed and endorsed by the Committee.
External Auditor
• Reviewed KPMG’s Audit Plan and strategy for the year
ended 31 December 2019;
• Received a summary of KPMG services provided to the
Company and fees received by them;
• Pre-approved audit and non-audit services provided
by KPMG;
• Received KPMG’s reports on the salient features
of the 2018 Annual Accounts and 2019 Interim
Accounts respectively;
• Received an update relating to Service Concession
Payments and tax matters;
• Reviewed the 2018 Auditor’s Report;
• Reviewed and approved KPMG’s fee proposal for the
2019 annual audit and the 2020 interim review, as well as
other audit related and tax services;
• Considered KPMG’s independence and other relevant
factors when approving the appointment of KPMG
in providing non-audit services; and noted KPMG’s
confirmation of independence in its audit report in
respect of the 2018 Annual Accounts and 2019 Interim
Accounts respectively; and
• Held private sessions with representatives of KPMG
without the presence of Management.
Governance
• Received the 2018 report on outstanding litigation/
potential litigation, compliance with statutes and
regulations, Operating Agreement and Rail Merger
Related Agreements;
• Received interim updates on the review of the
Company’s Internal Control and Risk Management
Framework from PwC;
• Received updates on the Railway Projects Assurance
Framework and Second Line of Defence controls for
Capital Works Projects; and
• Received the Audit/Risk/Governance Committee Minutes
of various subsidiaries of the Company.
117
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 RISK MANAGEMENT
SYSTEM FEATURES
Business units across the Company embrace the Company’s
Enterprise Risk Management (“ERM”) framework that
underpins their day-to-day business activities. The framework
provides a simple and effective management process to:
•
Identify and review risks across all business units of
the organisation
• Prioritise resources to manage risks
• Give management a clear view of the significant risks
facing the Company
•
Support decision making and project execution for better
business performance
The Board, with the assistance of the Risk Committee,
oversees the Company’s ERM framework and top risks,
whereas the Executive Committee, with the support of the
Enterprise Risk Committee (“ERC”), is overall accountable
for the ERM policy and system implementation and
continuous improvement.
The Executives provided top-down views on the key risks of
the Company through discussions on the quarterly enterprise
risk reports. Two “Blue Sky” workshops were also held in 2019
to discuss (i) the objectives of and expected outcomes from
the ERM function; and (ii) possible longer term risk scenarios
associated with the recent public order events in Hong Kong
and possible risk controls.
The Company’s risks are rigorously identified, assessed and
managed. Each risk is evaluated on the basis of the likelihood
of the identified risk and the consequence of the risk event,
taking into consideration the control measures in place. A
risk matrix is used to determine risk ratings (E1 – E4), with
E1 being a very high risk and E4 being a low risk. The risk
ratings reflect the required management attention and risk
treatment effort, and take into account the Company’s risk
appetite. The highest category of risks, “E1”, is subject to
Board, Risk Committee and Executive Committee oversight.
Exercise ongoing risk oversight
Establish appropriate risk management strategies
•
•
• Oversee the ERM framework
•
•
Review top risks and emerging risks
Conduct annual review of ERM system effectiveness
•
•
•
•
Implement and continuously improve ERM framework
Enterprise Risk Committee
- Chaired by Legal and European Business Director
- Comprises representatives from key business functions
-
Steers framework implementation and improvement
- Reviews Company’s top risks and key emerging risks
- Reports to Executive Committee and Risk Committee
quarterly, and to Board every six months
Establish arrangements and implement risk management
process consistent with the Company’s ERM framework and
policy
Capture identified risks in risk registers for regular review and
monitoring
Board
assisted by
Risk
Committee*
Executive Committee
assisted by
Enterprise Risk Committee
Business Units
* See the Risk Committee Report (pages 122 to 123 of this Annual Report) for duties
and work performed by the Committee in 2019
118
MTR Corporation While risk taking is inevitable in the course of business, the
Company’s appetite for risk varies, but is particularly low in
certain areas, such as in relation to safety and the provision of
a reliable transport service.
The Company’s ERM system provides an important internal
control in identifying and managing enterprise risks
affecting the Company. As a learning organisation, the
Company constantly looks for improvement opportunities
through internal and external reviews and studies, as well as
learning from incidents encountered during its operations.
Investigations of material incidents such as issues seen in
relation to the Shatin to Central Link project, the train collision
during signalling testing on the Tsuen Wan Line and the
derailment near Hung Hom Station on the East Rail Line,
have been undertaken and improvement actions have been
identified for implementation.
MANAGEMENT PROCESS FOR
SIGNIFICANT RISKS
The Company takes proactive measures to identify, evaluate
and manage significant risks arising from its recurrent and
growth businesses and from the constantly changing business
environment. Risk management strategies are developed
for different areas including but not limited to construction,
operations, finance, treasury, safety and insurance.
The ERM Team within the Legal and Secretarial Division
maintains a list of running issues and risk drivers pertinent
to the changing business and external environments, which
is used to assist the ERC in identifying potential risks that
may emerge.
In 2019, the ERM Team had reviewed the external case of
the Boeing 737-Max airplane failure to understand the issues
involved and identify lessons learned that could be applied to
the Company.
In addition, the ERC, the Executive Committee and the Risk
Committee review the Company’s enterprise risk profile
and brainstorm emerging risks quarterly to ensure that
key risks and those cutting across different areas of the
business are captured.
Identify Risk*
Evaluate Risk
Treat Risk*
Report and
Monitor Risk
• Existing businesses
• Evaluate risk by
• Take into account
• Capture risks in risk
estimating likelihood
and consequence of
the risk event
• Determine risk rating
using the risk matrix
(E1-E4)
registers
• Periodic ERM
reports to
– Enterprise Risk
Committee
– Executive
Committee
– Risk Committee
– Board
risk appetite
• Avoid risks where no
appetite and possible
to do so
• Mitigate – review
controls in place to
evaluate adequacy
and effectiveness
and ensure owners in
place to implement
• Transfer – take out
insurance to transfer
risks where cost
effective and efficient
• Accept once
mitigated to an
appropriate level
• Changing external
environment
• New projects or
business ventures
• New and emerging
issues or trends
which may pose
significant risks
• List of running issues
and risk drivers for
brainstorming
• Change in laws and
regulations
* Areas below are not exhaustive
119
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 Key focus areas for risk management of the Company include:
Effective and Balanced Relationship with Key Stakeholders
Key Challenges
• More challenging political landscape and diverse stakeholders’ expectations
• Uphold trust and public confidence in light of the Shatin to Central Link incident, the Public Order Events and operational
incidents
Key Controls
Implement tailored engagement plans for different stakeholders to maintain effective communication and understanding
•
• Observe the Company’s operating obligations and maintain good performance of the Company
Key Challenges
Key Controls
Key Challenges
Key Controls
Key Challenges
Key Controls
Key Challenges
Key Controls
Key Challenges
Key Controls
People and Operations safety
• Safety and security threats associated with the Public Order Events
• More challenging staff relations management due to more diverse profiles and polarised views
• Health threat and loss of production arising from the coronavirus pandemic
• Enhanced security arrangements
• Review of asset and design standards
• Proactive engagement of staff through enhanced communication channels
•
• Enhanced cleaning and sterilisation at business premises, including trains, and provision of personal health protective
Implementation of business continuity arrangements
equipment for staff
New Projects Quality, Delivery and Cost
• Adherence to programme and cost of projects
• Compliance with quality standards and record keeping requirements
• Periodic audits and assurance to ensure compliance with processes and procedures
• Monitoring project quality and progress against Key Performance Indicators
• Familiarization of staff with the processes and procedures relevant to their work and encouraging lessons learned to be
shared
• Adoption of technology to strengthen supervision and record keeping
• Stringent control of contingency funds
New Business Model / Technological Disruption / Competition
• Current business model disrupted by new technology
• Manage competition from other transport modes
• Capitalise on e-commerce and technology to explore new business models
• Monitor competition from other transport modes and implement initiatives to maintain market share
Delivery of Growth Strategy
• Challenging business model for future new lines in Hong Kong
• Keen competition for business opportunities outside Hong Kong
• Business performance below the bid models and assumptions
• Formulate innovative business models for new lines in Hong Kong
• Maximise branding effect of the Company
• Conduct regular environmental scan for new business opportunities outside Hong Kong
• Formulate and implement business plans for underperforming businesses for improvement and monitoring
Security threat (cyber / physical)
• Threats associated with Public Order Events
• Threat of cyber-attack on Operations and IT systems
• Terrorist attack threat, in particular for railway operations of the Company outside Hong Kong
• Enhanced security measures
• Enhanced IT network resilience to protect the Company against cyber attacks
•
• Enhanced corporate security governance framework
Implementation of cyber security protection systems for IT and railway operations systems
120
RISK MANAGEMENTMTR Corporation Process of System Effectiveness Review
On behalf of the Executive Committee, the ERC evaluates the effectiveness of the ERM system at least annually. The Legal and
European Business Director, who chairs the ERC, presented the ERM system effectiveness review results for the year ended 31
December 2019 to the Executive Committee, which confirmed the review results, on 6 February 2020, and to the Risk Committee
on 18 February 2020.
For the year ended 31 December 2019, the Risk Committee, with delegated authority from the Board, has evaluated the
effectiveness and adequacy of the Company’s ERM system and considers that it is overall effective and adequate, based on a
number of review areas.
Factors considered during the review
• Review areas suggested in the Corporate Governance Code for
the Board’s annual review of the risk management system
• Annual internal certification of risk management effectiveness
by Department Heads and Heads of subsidiaries/associates
• Risk management of subsidiaries and associates
• Benchmarking/roundtable/peer group ideas exchange
• Risk management training and promotion held in 2019
Conclusion
The ERM system was
considered overall effective
and adequate for the year
ended 31 December 2019.
CONTINUOUS PROCESS IMPROVEMENT
Key initiatives undertaken in relation to the ERM system in 2019 include the following:
•
The ERM Team continued to produce quarterly ERM Newsletters for dissemination to all staff focusing on topical issues in risk
management, aiming to raise risk awareness, share good risk management practices and lessons learned from case studies.
• A series of 3 bite-size animated videos, which form a story to promote risk management principles and application, has also
been developed. Two of the three videos have been launched, with the last one released in early 2020. The fun and innovative
approach has received a good response with over 2,000 staff having watched the videos and participated in the quizzes.
• Acting through the Audit Committee and the Risk Committee, the Board has mandated a review of the Company’s internal
control and risk management systems for Hong Kong operations, as the first phase, by PwC (“Review”). The first phase of
the Review has been completed and the observations were presented to the Audit Committee and the Risk Committee in
September 2019. An action plan will be brought back to the Board in 2020 for implementing the recommendations, and one
of the key recommendations is an in-depth review of ERM’s positioning and structure.
We keep ourselves abreast of the latest developments in risk management through reviews with users, cross-industry
benchmarking and experience sharing, including through participation in the UK ERM Roundtable and the HK ERM Roundtable
meetings.
121
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 RISK COMMITTEE REPORT
As at the date of this Report, the Risk Committee of the
Company (referred to as the “Committee” in this report)
consists of seven non-executive Directors, five of whom
are Independent Non-executive Directors of the Company
(“INEDs”). Details of the Committee’s members and their
attendance records during 2019 are set out on pages 96 to 97
of this Annual Report.
The Committee, with delegated authority from the Board, has
evaluated the effectiveness and adequacy of the Company’s
Enterprise Risk Management (“ERM”) system and considers
that it is overall effective and adequate.
DUTIES OF THE COMMITTEE
The Committee’s Terms of Reference are available on the
respective websites of the Company (www.mtr.com.hk) and
The Stock Exchange of Hong Kong Limited.
The principal duties of the Committee include reviewing
the Company’s ERM framework, guidelines, policy and
procedures for risk assessment and risk management;
reviewing the Company’s top risks and key emerging risks
and the controls in place to mitigate such risks; monitoring
the Company’s risk profile; conducting “deep dive” reviews
on selected key risk areas; reviewing the effectiveness of
the ERM function; and reviewing the Company’s crisis
management arrangements.
The Committee assists the Board in overseeing the
Company’s ERM system on an ongoing basis. The Committee
reviews the effectiveness of the Company’s ERM system
annually, and reports to the Board in relation to such review.
More details of the features of the ERM system and processes,
the significant areas of risk being managed, and the process
used to review the effectiveness of the ERM system are set
out in the “Risk Management” section on pages 118 to 121
of this Annual Report. Each year, the Committee agrees on
a list of reviews and presentations in respect of selected key
risk areas to be considered for that year, taking into account
the ongoing activities of the Company at the material time;
and invites relevant management to present on the subjects
and conduct interactive discussions. The list of matters to
be considered is updated as required to include any topical
subjects or risks that may emerge during the year. The
Committee provides observations and, where applicable,
recommendations to management, based on their reviews
and discussions.
The secretary of the meetings draws up agendas for each
meeting in consultation with the chairman of the Committee,
making reference to the list of reviews and presentations
determined by the Committee, as well as topical matters at
the relevant time.
The chairman of the Committee summarises the activities of
the Committee and highlights issues arising therefrom by a
report to the Board after each Committee meeting.
The minutes of the Committee meetings are prepared by
the secretary of the meetings with details of the matters
considered by the Committee Members, including
recommendations and any observations raised by the
Committee Members. Draft minutes are circulated to the
Committee Members before adoption. The Committee
formally adopts the draft minutes at its next subsequent
meeting, after taking into account any comments that the
Committee Members may have on the draft minutes.
A total of four meetings have been scheduled to be held on a
quarterly basis in 2020.
122
MTR Corporation WORK PERFORMED BY THE
COMMITTEE IN 2019
In 2019, the Committee held four meetings. During the year,
the Committee reviewed the Company’s ERM quarterly
reports and the effectiveness of the Company’s ERM system
for the year ended 31 December 2018. A review of the
Company’s ERM annual report and ERM system effectiveness
for the year ended 31 December 2019 was conducted by the
Committee on 18 February 2020.
The Committee reviewed the Company’s risk profile, top
risks and key emerging risks at each of its meetings. At its
first meeting, the Committee agreed on a list of “deep dive”
reviews and presentations on selected key risk areas for the
year (as adjusted during the course of year), which reviews
and presentations took place as planned. Relevant Members
of the Executive Directorate and managers were invited
to present on the “deep dive” reviews to the Committee,
with comments and recommendations provided by the
Committee for appropriate action by management.
Acting through the Committee and the Audit Committee,
the Board has mandated a review of the Company’s
internal control and risk management systems for Hong
Kong operations, as the first phase, by PwC (“Review”).
The first phase of the Review has been completed and the
observations were presented to the Committee and the
Audit Committee in September 2019. An action plan will
be brought back to the Board in 2020 for implementing the
recommendations, and one of the key recommendations is
an in-depth review of ERM’s positioning and structure.
The Legal and European Business Director, the General
Manager – Governance & Risk Management and the Senior
Manager – Enterprise Risk, representing the ERM function,
attended all four meetings in 2019 to report and answer
questions on ERM related matters.
The Committee considered the following key matters in 2019:
•
Impact of pandemics on railway operations
• Handling of super typhoons and service resumption
•
Signalling replacement project risks update
• Risk review of Tuen Ma Line phased opening options
• Readiness and preparation for opening of Sydney Metro
Northwest, initial section of Hangzhou Metro Line 5 and
Macao Light Rapid Transit Taipa Line
• High Speed Rail operations
•
•
Financial sustainability risk update
Insurance summary update
• Horizon scan on cyber threats
• Data protection, recovery and response
• Octopus cyber security
• Notable cyber incidents summary overviews
• Major global rail accidents summary overviews
• Boeing 737-Max case study
Andrew Brandler
Risk Committee Chairman
Hong Kong, 5 March 2020
The Risk Committee Report has been reviewed and endorsed by the Committee.
123
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 CAPITAL WORKS COMMITTEE REPORT
WORK PERFORMED BY THE
COMMITTEE IN 2019
In 2019, the Committee held five meetings at which the
following key matters were reviewed and considered:
•
reports on the progress and cost status of the Company’s
capital projects under construction including the Express
Rail Link and Shatin to Central Link
• half-yearly reports on projects-related audits conducted
by the Company’s Internal Audit Department
• half-yearly reports on the construction programme and
cost status of all the awarded development projects
of the Company’s Property Division in Hong Kong,
and quarterly updates on the Tai Wai Station Property
Development
•
special reports on Exhibition Centre Station, To Kwa
Wan Station and Hung Hom Station under Shatin to
Central Link
• updates on Projects Transformation Programme and
implementation of recommendations suggested by
independent consultant, Turner & Townsend
Projects Director had attended four Committee meetings
after his appointment in March 2019, Engineering Director
attended four Committee meetings in 2019, Managing
Director – Operations & Mainland Business attended one
Committee meetings in 2019, and General Manager –
Procurement & Contracts attended four Committee meetings
in 2019 to report and answer questions on progress of
projects and cost related matters. Other Executives and senior
managers were also invited to attend Committee meetings
when required.
Dr Allan Wong Chi-yun
Capital Works Committee Chairman
Hong Kong, 5 March 2020
The Capital Works Committee Report has been reviewed and endorsed by the
Committee.
As at the date of this Report, the Capital Works Committee of
the Company (referred to as the “Committee” in this report)
consists of seven Non-executive Directors, six of whom
are Independent Non-executive Directors of the Company
(“INEDs”). Details of the Committee’s members and their
attendance records during 2019 are set out on pages 96 to 97
of this Annual Report.
DUTIES OF THE COMMITTEE
The Committee’s Terms of Reference are available on the
website of the Company (www.mtr.com.hk).
The principal duties of the Committee include overseeing
any capital project of the Company in Hong Kong and
outside of Hong Kong involving design and/or construction
activities (“Relevant Project”) with a capital value in excess
of HK$10 billion and any other Relevant Project, in the
event that such Relevant Project is four months or more
behind programme on an overall basis; reviewing the
progress of such projects, from both a programme and cost
perspective; reviewing matters that could have a material
impact on the quality, delivery and management of such
projects, including processes and protocols adopted by
the Company in supervising and managing the projects
and non-compliances in relation to materials, works and
processes; checking that there are adequate resources for
and supervision of such projects; keeping under review the
Company’s communication strategy and protocols, and crisis
management plan in respect of each of such projects; and
reporting to the Board on a quarterly basis and on ad hoc basis
if the Committee deems appropriate, in respect of the above.
The secretary of the meetings draws up agendas for each
meeting in consultation with the chairman of the Committee,
which may take into account topical matters relating to the
projects at the relevant time.
The chairman of the Committee summarises the activities of
the Committee and highlights issues arising therefrom by a
report to the Board after each Committee meeting.
The minutes of the Committee meetings are prepared by
the secretary of the meetings with details of the matters
considered by the Committee Members, including
recommendations and any observations raised by the
Committee Members. Draft minutes are circulated to the
Committee Members before adoption. The Committee
formally adopts the draft minutes at its next subsequent
meeting, after taking into account any comments that the
Committee Members may have on the draft minutes.
124
MTR Corporation CAPITAL WORKS COMMITTEE REPORT
REMUNERATION COMMITTEE REPORT
INTRODUCTION
The Remuneration Committee has been delegated the
authority to consider and recommend to the Board the
Company’s remuneration policy and the remuneration
packages of the Non-executive Directors, as well as to
review and determine the remuneration packages for
the Chief Executive Officer and other Members of the
Executive Directorate.
Throughout the year, the Committee met regularly to
discuss and approve remuneration issues pertaining
to the Company’s core incentive scheme, long-term
incentive scheme, and also the remuneration packages
of the Chief Executive Officer and other Members of
the Executive Directorate in the light of the Company’s
remuneration policy, and to consider and make
recommendations to the Board on the remuneration
packages of the Non-executive Directors. In determining
the remuneration of the Chief Executive Officer, the
Committee consults with the Chairman and in the
case of other Members of the Executive Directorate,
the Committee consults with both the Chairman
and the Chief Executive Officer in respect of their
recommendations.
Currently, the Committee has seven Non-executive
Directors, four of whom are independent Non-executive
Directors. The Chairman of the Remuneration Committee
is an independent Non-executive Director. As necessary
and with the agreement of the Chairman of the
Remuneration Committee, the Remuneration Committee
is authorised to obtain outside independent professional
advice to support the Committee on relevant issues. No
individual Director or any of his associates is involved in
deciding his own remuneration.
The principal responsibilities of the Remuneration
Committee include:
•
Formulating a remuneration policy and practices that
facilitate the employment of top quality personnel;
• Recommending to the Board the remuneration of the
Non-executive Directors;
• Determining, with delegated responsibility, the
remuneration packages of Members of the Executive
Directorate; and
• Reviewing and approving performance-based
remuneration of Members of the Executive Directorate
by reference to the Board’s corporate goals and
objectives.
The Committee’s responsibilities are set out in its Terms of
Reference and are consistent with the Code.
This Remuneration Committee Report has been
reviewed and authorised by the Remuneration
Committee of the Company.
REMUNERATION POLICY
It is the Company’s policy to ensure that remuneration
is appropriate and aligns with the Company’s goals,
objectives and performance. To achieve this, the Company
has taken into consideration a number of relevant factors
such as salaries paid by comparable companies, job
responsibilities, duties and scope, employment conditions
elsewhere in the Company and its subsidiaries, market
practices, financial and non-financial performance, and the
desired mix of fixed and performance-based remuneration.
The Company is committed to effective corporate
governance and employing and motivating top quality
personnel. The Company also recognizes the importance of
a formal and transparent remuneration policy covering its
Board and Executive Directorate.
125
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 REMUNERATION FOR NON-
EXECUTIVE DIRECTORS
The Remuneration Committee makes recommendations
to the Board from time to time on the remuneration of the
Members of the Board who are Non-executive Directors.
The remuneration of Non-executive Directors is in the form
of annual director’s fees.
To ensure that Non-executive Directors are appropriately
remunerated for their time and responsibilities devoted to
the Company, the Committee undertakes periodic reviews
and considers the following factors as they put forward
recommendations to the Board:
•
•
Fees paid by comparable companies;
Time commitment;
• Responsibilities of the Non-executive Directors; and
•
Employment conditions elsewhere in the Company.
Details of the remuneration for Non-executive Directors
are set out in note 11 to the accounts. The current Non-
executive Director remuneration framework, in effect since
1 January 2017, is set out below:
Board
– Chairman
– Other Members
Audit Committee and Capital Works Committee
– Chairman
– Other Members
Risk Committee, Remuneration Committee,
Nominations Committee, and Corporate
Responsibility Committee
– Chairman
– Other Members
(HK$)
1,500,000
300,000
150,000
90,000
110,000
60,000
REMUNERATION FOR
EMPLOYEES
The Company’s remuneration structure for its employees,
including the Chief Executive Officer and other Members
of the Executive Directorate, comprises:
•
•
•
fixed compensation – base salary, allowances and
benefits-in-kind (e.g. medical);
variable incentives – discretionary or performance-
based payment and other business-specific cash
incentive plans;
long-term incentives – e.g. restricted shares and
performance shares; and
•
retirement schemes.
The specifics of these components are described below.
Fixed Compensation
Base salary and allowances are set and reviewed annually.
The annual review process takes into consideration the
Company’s remuneration policy, competitive market
positioning, market practice, as well as the Company’s
and the individuals’ performance. Benefits-in-kind
are reviewed as and when appropriate taking into
consideration market practices.
Variable Incentives
The Chief Executive Officer, other Members of the
Executive Directorate and management of the Company
are eligible to receive an annual performance-based
cash incentive under the Company’s Core Incentive
Scheme (“CIS”), the terms and rules of which are regularly
reviewed by the Remuneration Committee.
Under the current scheme rules, the payouts are based on
the performance of the Company and the individuals. The
Company’s performance is measured by both financial
and non-financial factors including:
Financial Factors
• Operating profit;
•
EBITDA margin; and
• Hong Kong property development profits.
126
REMUNERATION COMMITTEE REPORTMTR Corporation Non-financial Factors
• Results from Customer feedback surveys;
•
•
Fulfillment of the Customer Service Pledges; and
Fulfillment of Performance Requirements in relation to
“Train Service Delivery”, “Passenger Journeys on Time”
and “Train Punctuality” as defined in Schedule 2, Part 1
of the Operating Agreement.
Payouts will be automatically reduced if the Company
does not achieve any one or more of the Performance
Requirements. They will also be adjusted subject
to the Company’s achievement of all the Customer
Service Pledges.
Following the end of each year, the Company engages
an independent expert to conduct a review and audit of
its performance versus the Performance Requirements
and Customer Service Pledges. The results of this
audit are shared with the Remuneration Committee
to determine if adjustments to the payouts under the
scheme are appropriate.
Individual performance ratings are part of the thorough
annual performance assessment process that is applied
throughout the Company. The performance ratings and
assessments reflect the full range of factors over which
the individual has accountability, including operational,
other non-financial and financial factors. Performance for
the Chief Executive Officer is assessed by the Chairman,
and the individual performance ratings for other Members
of the Executive Directorate are determined by the Chief
Executive Officer.
Target incentive levels for the Chief Executive Officer and
other Members of the Executive Directorate represent
approximately 25-35% of total cash compensation.
In addition, the Company operates other business-related
incentive schemes to motivate the staff concerned to
reach specific business targets of the Company.
Discretionary Awards
In 2019, discretionary awards were provided to non-
managerial staff with competent or above performance,
as a recognition of their contribution to the Company’s
good performance and achievements in the past year and
to motivate staff to strive for continuous business growth.
In addition, a one-off special discretionary award was
granted to all staff including managers in 2019 as a token
of appreciation for their contribution over the years.
Long-Term Incentives
During 2019, the Company maintained the 2007 Share
Option Scheme and the Executive Share Incentive Scheme
(formerly the “2014 Share Incentive Scheme”).
(i) 2007 Share Option Scheme
The 2007 Share Option Scheme was approved and
adopted by shareholders at the Company’s Annual
General Meeting on 7 June 2007 and terminated on 6 June
2014. Under the terms of the 2007 Scheme, no new grant
of options could be made after 5:00 p.m. on 6 June 2014.
The Scheme includes a provision which specifies that
options cannot be exercised under the Scheme unless the
Company has satisfied each of the three Key Performance
Requirements included in the Operating Agreement in
order for any options to be exercised.
Options exercised and outstanding in respect of each
Member of the Executive Directorate as at 31 December
2019 under the 2007 Scheme are set out under the
paragraph “Directors’ Interests in Shares and Underlying
Shares of the Company” of the Report of the Members of
the Board.
Details of the 2007 Scheme and options granted to
Members of the Executive Directorate and selected
employees of the Company under the Schemes are set out
in notes 11 & 42 to the accounts.
(ii) Executive Share Incentive Scheme
On 15 August 2014, the Board approved the adoption
of the Executive Share Incentive Scheme, following the
expiry of the 2007 Share Option Scheme on 6 June 2014.
The Executive Share Incentive Scheme took effect on 1
January 2015 for a term of 10 years (unless terminated
earlier by the Company).
The purposes of the Executive Share Incentive Scheme
are to retain management and key employees, to align
participants’ interest with the long-term success of the
Company and to drive the achievement of strategic
objectives of the Company.
127
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 The Remuneration Committee may, from time to time,
at its absolute discretion, determine the criteria for any
eligible employee to participate in the Executive Share
Incentive Scheme as award holders in accordance with the
rules of the Executive Share Incentive Scheme. An award
holder may be granted an award of Restricted Shares and/
or Performance Shares. Awards under the Executive Share
Incentive Scheme were granted to selected employees
of the Company, including Members of the Executive
Directorate, in 2019. Award holders are entitled to cash
dividends accrued in respect of unvested Restricted Shares
that are granted on or after 1 January 2018.
Restricted Shares are awarded on the basis of the
individual performance of the relevant eligible employee.
Performance Shares are awarded which vest subject to
the performance of the Company over a pre-determined
performance period, assessed by reference to such
Board-approved performance metric and in respect of
such performance period, and any other performance
conditions, as determined by the Remuneration
Committee from time to time.
In general, the Company will pay to the third party trustee
(the “Trustee”) monies and may give directions or a
recommendation to the Trustee to apply such amount
of monies and/or such other net amount of cash derived
from shares held as part of the funds of the trust to acquire
existing shares from the market. Such shares will be held
on trust by the Trustee for the relevant award holder. The
Trustee shall not exercise any voting rights in respect of
any shares held in the trust and no award holder is entitled
to instruct the Trustee to exercise the voting rights in
respect of any unvested award shares.
As part of the overall governance of the Executive
Share Incentive Scheme, the Company reviews scheme
features on a regular basis to ensure continued relevance
and effectiveness.
Details of the Executive Share Incentive Scheme and
shares granted to Members of the Executive Directorate
and selected employees of the Company under the
Executive Share Incentive Scheme are set out in notes 11 &
42 to the accounts.
Retirement Schemes
In Hong Kong, the Company operates four retirement
schemes under trust, the MTR Corporation Limited
Retirement Scheme (the “MTR Retirement Scheme”),
the MTR Corporation Limited Provident Fund Scheme
(the “MTR Provident Fund Scheme”) and two Mandatory
Provident Fund (“MPF”) Schemes, the “MTR MPF Scheme”
and the “KCRC MPF Scheme”, with details as follows:
(i) MTR Retirement Scheme
The MTR Retirement Scheme is a defined benefit scheme
registered under the Occupational Retirement Schemes
Ordinance (Cap. 426) (the “ORSO”) and has been granted
an MPF Exemption Certificate by the Mandatory Provident
Fund Schemes Authority (the “MPFA”).
The MTR Retirement Scheme has been closed to new
employees from 1 April 1999 onwards. It is administrated
in accordance with the Trust Deed and Rules by the Board
of Trustees, comprising management and employee
representatives, and independent non-employer
trustees. It provides benefits based on the greater of a
multiple of final salary times service and a factor times
the accumulated member contributions with investment
returns. Members’ contributions are based on fixed
percentages of base salary. The Company’s contributions
are determined by reference to an annual actuarial
valuation carried out by an independent actuarial
consulting firm.
(ii) MTR Provident Fund Scheme
The MTR Provident Fund Scheme is a defined contribution
scheme registered under the ORSO and has been granted
an MPF Exemption Certificate by the MPFA. All benefits
payable under the MTR Provident Fund Scheme are
calculated by reference to members’ own contributions
and the Company’s contributions, together with
investment returns on these contributions. Both members’
and the Company’s contributions are based on fixed
percentages of members’ base salary.
128
REMUNERATION COMMITTEE REPORTMTR Corporation (iii) MTR MPF Scheme
The MTR MPF Scheme is a defined contribution scheme
covered under an MPF master trust registered with the MPFA.
It covers those employees who did not opt for or who are
not eligible to join the MTR Retirement Scheme or the MTR
Provident Fund Scheme. Both members and the Company
each contribute to the MTR MPF Scheme at the mandatory
levels as required by the Mandatory Provident Fund Schemes
Ordinance (Cap. 485) (the “MPFSO”). The Company makes
additional contributions above the mandatory level for
eligible members who joined the MTR MPF Scheme before
1 April 2008, subject to individual terms of employment.
(iv) KCRC MPF Scheme
The KCRC MPF Scheme is a defined contribution scheme
covered under an MPF master trust registered with the MPFA.
It covers those former KCRC employees who were previously
members of the KCRC MPF scheme and are eligible to join the
MTR Provident Fund Scheme but opt to re-join the KCRC MPF
Scheme. Both members and the Company each contribute to
the KCRC MPF Scheme at the mandatory levels as required by
the MPFSO.
The Members of the Executive Directorate who were hired
by the Company before 1 April 1999 are eligible to join the
MTR Retirement Scheme. Other Members of the Executive
Directorate are eligible to join either the MTR Provident Fund
Scheme or the MTR MPF Scheme.
Dr. Jacob Kam, the Company’s Chief Executive Officer
effective from 1 April 2019, participates in the MTR Provident
Fund Scheme.
For subsidiary companies in Hong Kong, Macau, the Mainland
of China, United Kingdom, Sweden and Australia, the Group
operates retirement schemes established in accordance with,
in the case of subsidiaries in Hong Kong, the MPFSO and, in
the case of subsidiaries in Macau, the Mainland of China and
overseas, their respective local laws and regulations.
WORK PERFORMED BY THE
REMUNERATION COMMITTEE
DURING THE YEAR
• Approved the 2018 Remuneration Committee Report as
incorporated in the 2018 Annual Report;
•
•
•
•
reviewed and approved payouts under the Company’s
performance-based CIS for the 2018 performance period;
reviewed and approved restricted share and/or
performance share awards for eligible employees under
the Executive Share Incentive Scheme;
conducted an annual review of the remuneration
packages for Members of the Executive Directorate,
which took effect in July 2019; and
reviewed and approved the appointment, contract
renewal and contract expiry arrangement for Members of
the Executive Directorate
REMUNERATION OF
NON-EXECUTIVE AND
EXECUTIVE DIRECTORS
The total remuneration of the Members of the Board and
the Executive Directorate (excluding share-based payments)
is shown below and the remuneration details are set out in
note 11 to the accounts.
in HK$ million
Fees
Base salaries, allowances and other
benefits-in-kind
Variable remuneration related to
performance
Retirement scheme contributions
Total
2019
10.0
55.1
8.1
6.2
79.4
2018
10.0
61.4
23.1
7.7
102.2
Please refer to note 11 to the accounts for information
relating to the five highest paid employees of the Company
for the year ended 31 December 2019.
Dr Dorothy Chan Yuen Tak-fai
Remuneration Committee Chairperson
Hong Kong, 26 February 2020
129
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 BOARD AND EXECUTIVE DIRECTORATE
Full biographical details of Members of the Board and the Executive Directorate are available on the Company’s website
(www.mtr.com.hk).
MEMBERS OF THE BOARD
Rex
Auyeung Pak-kuen*
Age 67
Chairman since 1 July 2019
NED since 7 March 2019
Corporate Responsibility
Committee (Chairman)
Nominations Committee
(Member)
Remuneration Committee
(Member)
Mr Auyeung is an independent non-executive director of
HSBC Provident Fund Trustee (Hong Kong) Limited and China
Construction Bank (Asia) Corporation Limited.
Mr Auyeung has over 40 years of experience in the insurance
industry in Canada and Hong Kong. Before his retirement
in June 2017, Mr Auyeung was Chairman – Asia of the
Principal Financial Group Inc. (‘PFG’), a Fortune 500 company,
responsible for PFG’s overall businesses in Asia.
Mr Auyeung also actively serves the public sector and is
currently an observer of the Independent Police Complaints
Council Observers Scheme, and a member of the Board of
Directors of the Investor and Financial Education Council
under the Securities and Futures Commission. In addition,
he is a member of the Investment Sub-committee of The
Community Chest of Hong Kong, a board member of Bo
Charity Foundation (Food Angel) and a convenor of the
Jockey Club Community eHealth Care Project.
Mr Auyeung was previously an independent non-executive
director of Standard Life (Asia) Limited and Sompo Insurance
China Co., Ltd., the chairman of Hong Kong Strategy
for Financial Literacy Sub-committee on Stakeholder
Coordination and Collaboration, a member of the
Independent Review Committee on Hong Kong’s Franchised
Bus Service, the chairman of the Council of Lingnan University
and the Senior Strategy and Business Advisor at Athenex Inc.,
a company listed on NASDAQ in the United States of America.
Dr Jacob
Kam Chak-pui*
Age 58
Chief Executive Officer
since 1 April 2019
Corporate Responsibility
Committee (Member)
Dr Kam joined the Company in 1995 and had held various
management positions in Operations, Projects and Mainland
China and International Business Divisions.
As the CEO, Dr Kam is responsible for all performances of
the Company and its group companies both in and outside
Hong Kong.
Dr Kam is the chairman of the Regional and Suburban
Railways Division of the International Association of Public
Transport (UITP), a council member of Vocational Training
Council in Hong Kong, a member of Hong Kong Quality
Assurance Agency Governing Council, a member of the
board of directors of The Community Chest of Hong Kong,
and a member of the General Committee of The Hong Kong
General Chamber of Commerce.
Dr Kam qualified as a Chartered Engineer in the United
Kingdom in 1989.
Andrew Clifford
Winawer Brandler ^
Age 63
INED since 17 May 2017
Risk Committee (Chairman)
Audit Committee (Member)
Mr Brandler is the chairman of Sir Elly Kadoorie & Sons
Limited. He was formerly the group managing director and
chief executive officer of CLP Holdings Limited from 2000
to 2013, an executive director between October 2013 and
130
MTR Corporation BOARD AND EXECUTIVE DIRECTORATE
April 2014, and currently is a non-executive director of that
company. Mr Brandler is also the non-executive deputy
chairman of The Hongkong and Shanghai Hotels, Limited,
and a non-executive director of Tai Ping Carpets International
Limited. He is also currently the Chairman of the Board of
Governors of the Chinese International School.
Prior to joining CLP Holdings Limited in 2000, Mr Brandler
was an investment banker, his last position being Head of
Asia Pacific Corporate Finance at Schroders based in Hong
Kong. He is the former chairman of The Hong Kong General
Chamber of Commerce and a member of the Operations
Review Committee of the Independent Commission
Against Corruption.
Mr Brandler is a member of The Institute of Chartered
Accountants in England and Wales.
Walter
Chan Kar-lok
Age 66
INED since 22 May 2019
Nominations Committee
(Member)
Corporate Responsibility
Committee (Member)
Mr Chan has been a practising lawyer for over 37 years and
is currently a consultant of Messrs. So, Lung & Associates,
Solicitors and Messrs. Rowland Chow, Chan & Co., Solicitors.
He is also a China Appointed Attesting Officer. Mr Chan
currently is the chairman of The Hong Kong Housing Society,
a convenor-cum-member of the Pensions Appeal Panel
under Civil Service Bureau, and a member of the Board of
Advisors of Radio Television Hong Kong and the Advisory
Committee on Post-service Employment of Civil Servants.
Mr Chan was formerly the chairman of Appeal Tribunal
(Buildings), a non-executive director of the Urban Renewal
Authority, and a member of the Housing Authority, the Town
Planning Board and the Harbourfront Commission.
Dr Pamela
Chan Wong Shui ^
Age 73
INED since 4 July 2013
Nominations Committee
(Chairman)
Corporate Responsibility
Committee (Member)
Dr Chan is chairman of The Insurance Complaints Bureau,
vice-chairman of The Boys’ and Girls’ Clubs Association of
Hong Kong, an independent director of the Travel Industry
Council of Hong Kong, a member of the Judicial Officers
Recommendation Commission and the Private Columbaria
Appeal Board, chairman of the Advisory Committee of
the Department of Social Behavioural Sciences of City
University of Hong Kong and a member of the board of The
Community Chest of Hong Kong. She is also currently patron
of Consumers International.
Dr Chan was chief executive of the Consumer Council,
chairman of Hong Kong Deposit Protection Board, deputy
chairman of the Hong Kong Baptist University Council
and the Court, chairman of the governing committee of
Princess Margaret Hospital, and a member of the Law Reform
Commission of Hong Kong, Hospital Authority, The Hong
Kong Housing Authority and Estate Agents Authority.
Dr Dorothy
Chan Yuen Tak-fai ^*
Age 70
INED since 4 July 2013
Remuneration Committee
(Chairman)
Capital Works Committee
(Member)
Dr Chan is currently the Deputy Director (Administration
and Resources), Head of Centre for Logistics & Transport
and advisor of International College of HKU School of
Professional and Continuing Education, and a council
131
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis member of HKU SPACE Po Leung Kuk Stanley Ho Community
College. She is an independent non-executive director of
AMS Public Transport Holdings Limited, the chairperson of
the Sustainable Agricultural Development Fund Advisory
Committee, a director of TWGHs E-Co Village Limited, a
Strategy Advisor to the Serco Group (HK) Limited, a member
of the Board of Governors of the Hong Kong Institute for
Public Administration, and the Global Chairperson and a
Global Advisor for Women in Logistics and Transport of the
Chartered Institute of Logistics and Transport (‘CILT’).
Dr Chan was a board member of the Logistics and Supply
Chain MultiTech R&D Centre Limited, a member of the
Social Welfare Advisory Committee and the Advisory
Council on Environment of the HKSAR Government, and
the International President of CILT. She was previously the
Deputy Commissioner for Transport of Government from
1995 to 2002. From 2000 to 2002, Dr Chan was the Alternate
Director to the office of the Commissioner for Transport, a
Non-executive Director of the Company.
Cheng Yan-kee
Age 65
INED since 22 May 2019
Remuneration Committee
(Member)
Capital Works Committee
(Member)
Mr Cheng is a practising civil and structural engineer, and
an Authorised Person and a Registered Structural Engineer
under the Buildings Ordinance. He is also a Class 1 Registered
Structural Engineer in the People’s Republic of China.
Mr Cheng currently is a director of H. K. Cheng & Partners
Limited and is a member of the Advisory Committee on
Post-service Employment of Civil Servants.
Mr Cheng formerly was an independent non-executive
director of K. H. Group Holdings Limited, President of the
Institution of Structural Engineers, and Chairman of both
the Council of the Hong Kong Baptist University and the
Corruption Prevention Advisory Committee under the
Independent Commission Against Corruption. He was also a
member of the Hospital Authority, Town Planning Board and
the Hong Kong Housing Authority.
Dr Anthony
Chow Wing-kin
Age 69
INED since 18 May 2016
Capital Works Committee
(Member)
Remuneration Committee
(Member)
Dr Chow is a solicitor admitted to practise in Hong Kong and
England and Wales. He has been a practising solicitor in Hong
Kong for over 34 years and is currently the Senior Consultant
and Global Chairman of the law firm Messrs. Guantao &
Chow Solicitors and Notaries. Dr Chow is a China Appointed
Attesting Officer and an arbitrator of the South China
International Economic and Trade Arbitration Commission/
Shenzhen Court of International Arbitration. He is currently
the chairman of the board of stewards of The Hong Kong
Jockey Club, the deputy chairman of the Council of The
Hong Kong Academy for Performing Arts, a non-executive
director of Kingmaker Footwear Holdings Limited, and an
independent non-executive director of S. F. Holding Co., Ltd.
and Ping An Healthcare and Technology Company Limited.
Dr Chow was previously a non-executive director of China
City Construction Group Holdings Limited, an independent
non-executive director of Fountain Set (Holdings) Limited
and the president of The Law Society of Hong Kong and is
the former chairman of the Process Review Panel for the
Securities and Futures Commission of Hong Kong.
132
BOARD AND EXECUTIVE DIRECTORATEMTR Corporation Dr Eddy
Fong Ching*
Age 73
INED since 13 January 2015
Audit Committee (Chairman)
Nominations Committee
(Member)
James
Kwan Yuk-choi
Age 68
INED since 14 October 2014
Capital Works Committee
(Member)
Risk Committee (Member)
Mr Kwan is currently an independent non-executive director
of Towngas China Company Limited.
Mr Kwan was previously a senior adviser, an executive
director and the chief operating officer of The Hong Kong
and China Gas Company Limited, and a director of Shenzhen
Gas Corporation Limited. He was also the President of
The Institution of Gas Engineers (currently known as The
Institution of Gas Engineers & Managers) (‘IGEM’) in the
United Kingdom in 2000/2001 and The Hong Kong Institution
of Engineers (‘HKIE’) in 2004/2005. Mr Kwan is a former
member of the Construction Industry Council, the Transport
Advisory Committee, the Vocational Training Council, and
the Standing Committee on Disciplined Services Salaries and
Conditions of Service of the HKSAR Government.
Mr Kwan is a Chartered Engineer.
Dr Fong is currently an independent non-executive
director of Standard Chartered Bank (Hong Kong) Limited,
Standard Chartered Bank (China) Limited and SC Digital
Solutions Limited.
Dr Fong was the non-executive chairman of the Securities
and Futures Commission from 2006 to 2012 and the past
chairman of both the Council of The Open University of
Hong Kong and the Process Review Panel in relation to the
Regulation of Mandatory Provident Fund Intermediaries.
His other past public duties include director of The Hong
Kong Mortgage Corporation Limited, the Mandatory
Provident Fund Schemes Authority and the Exchange Fund
Investment Limited, a member of The Hong Kong Housing
Authority and the Greater Pearl River Delta Business Council,
and a council member of The Hong Kong Academy for
Performing Arts. Dr Fong was also a senior audit partner with
PricewaterhouseCoopers specializing in capital markets work
in Hong Kong and the Mainland of China until his retirement
in 2003.
Dr Fong is a member of the Institute of Chartered
Accountants in England and Wales and the Hong Kong
Institute of Certified Public Accountants.
133
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Rose
Lee Wai-mun
Age 67
INED since 16 May 2018
Audit Committee (Member)
Risk Committee (Member)
Authority, a board member and treasurer of Chung Ying
Theatre Company (HK) Limited and a member of a task force
formed by the Commissioner for Innovation and Technology
to follow up the Director of Audit’s Report No. 61 with regard
to the Small Entrepreneur Research Assistance Programme.
Mrs Li is a Fellow member of the Hong Kong Institute of
Certified Public Accountants.
Ms Lee is an Independent Non-Executive Director of CK
Hutchison Holdings Limited and Swire Pacific Limited. Ms
Lee is also a member of the Election Committee of the 13th
National People’s Representative Meeting, a Board Member
of the West Kowloon Cultural District Authority, and Vice
Patron of the Community Chest of Hong Kong. Ms Lee is a
Fellow of The Hong Kong Institute of Bankers.
She was previously Vice-Chairman and Chief Executive of
Hang Seng Bank Limited, Group General Manager of HSBC
Holdings plc, Director of The Hongkong and Shanghai
Banking Corporation Limited and Chairman of the Board
of Governors of Hang Seng University. In addition, she was
previously Vice President of The Hong Kong Institute of
Bankers, Board Member, Deputy Chairman of the Executive
Committee of The Community Chest of Hong Kong, and a
member of the Financial Services Advisory Committee of the
Hong Kong Trade Development Council.
Lucia
Li Li Ka-lai
Age 65
INED since 14 October 2014
Audit Committee (Member)
Corporate Responsibility
Committee (Member)
Mrs Li is a retired civil servant. She was Director of Accounting
Services of the HKSAR Government from October 2003 to
January 2009. Mrs Li was formerly a member of the Public
Service Commission, a member of the Communications
Jimmy
Ng Wing-ka
Age 50
INED since 22 May 2019
Capital Works Committee
(Member)
Corporate Responsibility
Committee (Member)
Mr Ng is a solicitor admitted to practise in Hong Kong
and currently is a partner of Messrs. Tung, Ng, Tse & Lam,
Solicitors. He is a Legislative Council member representing
the Industrial (Second) Functional Constituency. Mr Ng is an
independent non-executive director of Yanchang Petroleum
International Limited and Glorious Sun Enterprises Limited.
He is the chairman of Hong Kong – Taiwan Business
Co-operation Committee and the HKSAR Passports Appeal
Board, a director of Hong Kong Science and Technology
Parks Corporation, and a member of the Council of The
Hong Kong Polytechnic University, the Small and Medium
Enterprises Committee of Trade and Industry Department
and the Chinese People’s Political Consultative Conference of
Chongqing City, the People’s Republic of China.
Mr Ng was formerly an independent non-executive director
of China Weaving Materials Holdings Limited.
134
BOARD AND EXECUTIVE DIRECTORATEMTR Corporation Benjamin
Tang Kwok-bun
Age 68
INED since 14 October 2014
Remuneration Committee
(Member)
Risk Committee (Member)
Johannes
Zhou Yuan ^
Age 64
INED since 17 May 2017
Audit Committee (Member)
Risk Committee (Member)
Mr Zhou is an independent director of Citibank (China) Co., Ltd.
Mr Zhou retired in June 2016 as Chief Strategic Officer of China
Investment Corporation (‘CIC’). He joined CIC in 2008 and held
a variety of portfolios of responsibilities including alternative
assets, direct investments, asset allocation, and finance/treasury.
Prior to that, Mr Zhou led Asia business development at
Chicago Mercantile Exchange. From 2001 to 2005, he
worked as a financial researcher and consultant, working on
assignments ranging in asset management, private equity,
hedge funds, risk models, financial software architecture,
and financial market reform, with consulting work done for
China Securities Regulatory Commission, Shanghai Futures
Exchange, as well as a number of western firms. From 1998
to 2001, Mr Zhou was chief executive officer of HKFE Clearing
Corporation Limited and concurrently chief financial officer
of Hong Kong Futures Exchange Limited, responsible for the
Exchanges’s finance, treasury, risk and clearing functions.
He was UBS AG’s China country head from 1994 to 1998,
responsible for the bank’s investment banking, commercial
banking, asset management and private banking businesses
in China. From 1988 to 1994, Mr Zhou worked at State Street
Bank in Boston where he founded and managed the research
department. Prior to that, he taught at Brandeis University,
United States of America.
Mr Tang is Chairman of the Operations Review Committee
and a member of the Advisory Committee on Corruption of
the Independent Commission Against Corruption, a member
of the Communications Authority and an independent
non-executive director of BE Reinsurance Limited.
Mr Tang joined the Hong Kong Civil Service in 1974. From
the late 1990s to early 2000s, he served as the Government
Printer and the Commissioner of Insurance. Mr Tang was
appointed by the Central Government of the People’s
Republic of China as the Director of Audit of the HKSAR
in December 2003 until he retired in July 2012. He was
appointed a Commissioner of the Commission of Inquiry Into
the Collision of Vessels Near Lamma Island in 2012 and the
Commission’s report was presented to the Chief Executive in
April 2013.
Dr Allan
Wong Chi-yun #*
Age 69
INED since 11 August 2015
Capital Works Committee
(Chairman)
Nominations Committee
(Member)
Dr Wong is the chairman and group chief executive officer
of VTech Holdings Limited, the deputy chairman and an
independent non-executive director of The Bank of East Asia,
Limited, and an independent non-executive director of both
China-Hongkong Photo Products Holdings Limited and Li &
Fung Limited.
135
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis James Henry Lau Jr
(Secretary for Financial
Services and the Treasury)
Age 69
NED since 4 July 2017
Nominations Committee
(Member)
Remuneration Committee
(Member)
Secretary for Transport
and Housing @
(Frank Chan Fan)
Age 62
NED since 1 July 2017
Nominations Committee
(Member)
Remuneration Committee
(Member)
Mr Lau sits on the boards of several public bodies including
the Airport Authority Hong Kong, Mandatory Provident Fund
Schemes Authority, The Hong Kong Mortgage Corporation
Limited and West Kowloon Cultural District Authority, and is
the Chairman of the Kowloon-Canton Railway Corporation,
and an ex-officio member of the Financial Services
Development Council, Hong Kong in his official capacity.
He is also, in his official capacity, a director of Hongkong
International Theme Parks Limited.
Mr Lau joined the Hong Kong Government as an
Administrative Officer (‘AO’) in 1979 and was promoted
through the ranks to AO Staff Grade C in April 1988. He joined
the Hong Kong Monetary Authority (‘HKMA’) in April 1993
and was the Head and Executive Director of various divisions
of the HKMA until 2004. In July 2004, Mr Lau was seconded
to The Hong Kong Mortgage Corporation Limited as Chief
Executive Officer until he retired in December 2012. He was
the Under Secretary for Financial Services and the Treasury
from January 2014 to June 2017.
Alternate Directors
(i) Andrew Lai Chi-wah (since 10 July 2017)
(ii) Joseph Chan Ho-lim (since 2 May 2019)
(iii) Alice Lau Yim (since 2 May 2019)
Mr Chan, in his official capacity, acts as the chairman of The
Hong Kong Housing Authority and a board member of
Airport Authority Hong Kong. He is also a non-executive
director of The Hong Kong Mortgage Corporation Limited.
Mr Chan joined the Electrical and Mechanical Services
Department as an Assistant Electronics Engineer in August
1982. He was promoted to Chief Electronics Engineer in
February 2001 and to Government Electrical and Mechanical
Engineer in May 2005. Mr Chan was appointed as the Deputy
Director of Electrical and Mechanical Services in January 2009
and was the Director of Electrical and Mechanical Services
and the General Manager of the Electrical and Mechanical
Services Trading Fund from December 2011 to June 2017.
Mr Chan is an Honorary Fellow of the Institution of
Mechanical Engineers, United Kingdom, and a Fellow of The
Hong Kong Institution of Engineers.
Alternate Directors
(i) Under Secretary for Transport and Housing
(Dr Raymond So Wai-man since 25 September 2017)
(ii) Permanent Secretary for Transport and Housing (Transport)
(Joseph Lai Yee-tak since 28 May 2012)
(iii) Deputy Secretaries for Transport and Housing (Transport)
(Kevin Choi since 11 September 2017 and Sharon Yip Lee
Hang-yee since 15 July 2019)
136
BOARD AND EXECUTIVE DIRECTORATEMTR Corporation Permanent Secretary for
Development (Works) @
(Lam Sai-hung)
Age 58
NED since 13 October 2018
Capital Works Committee
(Member)
Risk Committee (Member)
Commissioner for
Transport @
(Mable Chan)
Age 54
NED since 11 October 2017
Audit Committee (Member)
Risk Committee (Member)
Mr Lam joined the Hong Kong Government in August 1986
and was the Director of Civil Engineering and Development
from September 2016 to October 2018.
Mr Lam is a Fellow of The Hong Kong Institution of Engineers,
the Institution of Civil Engineers, United Kingdom, and the
China Hong Kong Railway Institution.
Alternate Director
Deputy Secretary for Development (Works)2
(Mak Shing-cheung since 5 October 2016)
Ms Chan joined the Administrative Service of the Hong
Kong Government in 1989 and has served in various policy
bureaux and departments. She is also, in her official capacity,
a director of several transport-related companies including
The Kowloon Motor Bus Company (1933) Limited, Long Win
Bus Company Limited, New World First Bus Services Limited,
New Lantao Bus Company (1973) Limited, Citybus Limited,
The “Star” Ferry Company, Limited, New Hong Kong Tunnel
Company Limited, Western Harbour Tunnel Company
Limited and Route 3 (CPS) Company Limited.
Alternate Director
Deputy Commissioner for Transport/Transport Services and
Management (Macella Lee Sui-chun since 1 September 2016)
Notes:
* Also a director of the Company’s subsidiary(ies).
^ Up for retirement by rotation and eligible for re-election at the Company’s forthcoming Annual General Meeting (“AGM”).
# Director who will retire after the conclusion of the Company’s forthcoming AGM.
@ Director appointed by the Chief Executive of the HKSAR pursuant to Section 8 of the MTR Ordinance, who is not required to retire by rotation under
the Articles of Association.
INED : independent non-executive director
NED : non-executive director
137
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis BOARD AND EXECUTIVE DIRECTORATE
MEMBERS OF THE EXECUTIVE DIRECTORATE
Dr Jacob Kam Chak-pui*
Age 58
Adi Lau Tin-shing*
Age 60
Chief Executive Officer (since 1 April 2019 )
Corporate Responsibility Committee (Member)
Managing Director – Operations and Mainland
Business (since 1 January 2020)
His biographical details are set out on page 130.
Mr Lau joined the Company in 1982 and has held various
management positions related to the design, construction,
operations and maintenance of the Company’s railway
system in Hong Kong and the Company’s rail business in the
Mainland of China.
138
MTR Corporation Roger Francis Bayliss
Age 62
Projects Director (since 18 March 2019)
Mr Bayliss is responsible for overseeing the Company’s
railway network expansion projects in Hong Kong.
Mr Bayliss has 40 years of experience in project management,
implementation and delivery of large scale infrastructure and
railway projects in Hong Kong, the Mainland of China and
the United Kingdom. Between 1992 and 2004, he worked
for the Company and managed the completion of several
construction contracts leading to the delivery of the Lantau
Airport Railway, the Tseung Kwan O Extension and Ngong
Ping 360. In 2004, Mr Bayliss joined BAA plc. (now known as
LHR Airports Limited), prior to joining Skanska UK in 2007.
Before joining the Company, he was the Senior Vice President
Operational Efficiency (responsible for driving operational
efficiency and the development of a digital business strategy)
at Skanska AB, a company listed in Sweden.
Mr Bayliss is a Fellow of The Hong Kong Institution of
Engineers and the Institution of Civil Engineers in the
United Kingdom.
Margaret Cheng Wai-ching*
Age 54
Human Resources Director (since 1 June 2016)
Corporate Responsibility Committee (Member)
Ms Cheng is responsible for all of the Company’s human
resources and administration affairs.
Ms Cheng is a seasoned human resources practitioner with
rich senior management experience. She took up different
human resources roles in Citibank, N.A. between 1993 and
1997, and was with JP Morgan as Vice President, Human
Resources between 1997 and 2001. From 2001 to 2013,
Ms Cheng was with The Hongkong and Shanghai Banking
Corporation Limited (‘HSBC’) and was Head of Human
Resources, Hong Kong and Global Business, Asia Pacific when
she left HSBC. Before joining the Company, she was Group
Head of Human Resources of the Hong Kong Exchanges and
Clearing Limited.
139
Members of the Executive Directorate
From left to right:
Linda Choy Siu-min, Jeny Yeung Mei-chun, Herbert Hui Leung-wah,
David Tang Chi-fai, Dr Jacob Kam Chak-pui, Dr Peter Ronald Ewen,
Gillian Elizabeth Meller, Adi Lau Tin-shing, Margaret Cheng Wai-ching,
Roger Francis Bayliss, Dr Tony Lee Kar-yun
A composite photograph at the Hin Keng Station.
Mr Lau is responsible for managing and overseeing the
Company’s railway related operations in Hong Kong and its
rail and property businesses in the Mainland of China. He is
also responsible for overseeing railway operations standards
and ensuring mutual sharing and learning of best practices
among all the Company’s railway operations globally.
Mr Lau is the president of the China Hong Kong Railway
Institution, vice president of the International Association
of Public Transport (UITP) Asia-Pacific Committee and the
former chairman of the UITP Asia-Pacific Urban Rail Platform.
Mr Lau is a Chartered Engineer, a Corporate Member of the
Institution of Civil Engineers in the United Kingdom and a
Fellow of The Hong Kong Institution of Engineers.
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Ms Cheng is serving as the vice chairman of the Cross-
Industry Training Advisory Committee for the Human
Resource Management Sector under the Qualifications
Framework of Education Bureau of the HKSAR Government, a
member of The Standing Committee on Disciplined Services
Salaries and Conditions of Service of the HKSAR Government
and the chairman of its Police Sub-Committee, and a member
of the Labour Advisory Board Committee on Employment
Services of Labour Department of the HKSAR Government.
She is also a council member of The Hong Kong Management
Association and the Hong Kong Council for Accreditation of
Academic and Vocational Qualifications, and an honorary
advisor of the ERB Manpower Developer Award Scheme of
the Employees Retraining Board.
Ms Cheng is currently the President and a Fellow Member of
the Hong Kong Institute of Human Resource Management.
Linda Choy Siu-min
Age 49
Corporate Affairs Director (since 2 March 2020)
Corporate Responsibility Committee (Member)
Ms Choy is responsible for overseeing the Company’s
stakeholder engagement activities, external communications
and its corporate responsibility function.
Ms Choy has extensive experience in public affairs and
communications, public engagement and journalism.
She started her career in 1992 as a reporter for the South
China Morning Post (‘SCMP’) and later joined the HKSAR
Government as an Administrative Officer, holding a number
of positions in various policy bureaux between 1998 and
2004. Ms Choy rejoined SCMP as its China News Editor in
2004 and was later promoted to News Editor before she took
on the position of Director, Government Relations of Hong
Kong Disneyland Management Limited (‘HKDML’) in 2007.
In 2008, she left this role and was appointed by the HKSAR
Government as the Political Assistant to the Secretary for the
Environment until 2012, after which she rejoined HKDML as
its Vice President, Communications & Public Affairs, a position
which she held from 2013 to January 2020.
Ms Choy is currently the Chairperson of Make-A-Wish
Foundation of Hong Kong Limited and was formerly the
President of Hong Kong Association of Amusement Parks
and Attractions Limited and the Vice-chairwoman of Lantau
Development Alliance Limited.
Dr Peter Ronald Ewen*
Age 60
Engineering Director (since 22 February 2016)
Dr Ewen is responsible for driving excellence in the
Company’s engineering functions and strengthening its
control and check and balance processes, and overseeing the
procurement and contract administration function.
Dr Ewen started his career in the Royal Air Force of the United
Kingdom in 1976 and attained the rank of Air Vice-Marshal.
He served in different capacities, including Chief of Staff
Support, Executive Officer and Chief Engineer (Air). In his
last role as Director Air Support, Dr Ewen was responsible
for the procurement, in-service support and airworthiness
of the fleets of large aircraft of the Royal Air Force, including
Strategic and Tactical Airlift, Air-to-Air Refuelling, Maritime
Patrol, and Air Intelligence Surveillance Target Acquisition
and Reconnaissance capabilities. Before joining the
Company, he was a Procurement Advisor for Rail Franchising
in the Department for Transport – Rail, United Kingdom
and the Head of Air for Airbus Defence and Space, United
Kingdom respectively.
Dr Ewen is a Chartered Engineer.
Herbert Hui Leung-wah*
Age 57
Finance Director (since 2 July 2016)
Mr Hui joined the Company in June 2016. He is responsible
for the financial management of all of the Company’s
affairs, including financial planning and control, budgeting,
accounting and reporting, corporate finance, and the treasury
function. Mr Hui also leads the Company’s investor relations
as well as materials and stores functions.
140
BOARD AND EXECUTIVE DIRECTORATEMTR Corporation Gillian Elizabeth Meller*
Age 47
Legal and European Business Director
(since 1 July 2016)
Ms Meller joined the Company in August 2004 as Legal
Adviser. She has been the Legal and European Business
Director since 1 July 2016. Prior to her current position, Ms
Meller was appointed as Deputy Legal Director in December
2010 and was the Legal Director & Secretary between
September 2011 and June 2016.
Ms Meller is responsible for the provision of commercial legal
support and advice to all aspects of the Company’s business.
She is also responsible for managing and overseeing the
growth of the Company’s European Business, in addition
to her responsibility for the strategic management of the
Company’s insurance programmes and its governance and
risk management function.
Before joining the Company, Ms Meller was Director of
Legal Services for Metronet Rail SSL Limited in London, the
United Kingdom, and a solicitor at CMS Cameron McKenna in
London, the United Kingdom.
Ms Meller is a vice chairman of the Legal Committee of The
Hong Kong General Chamber of Commerce, and a member
of the Standing Committee on Company Law Reform.
Ms Meller is qualified to practise as a solicitor in Hong Kong
and England and Wales. She is the President of The Hong
Kong Institute of Chartered Secretaries.
Mr Hui has extensive corporate finance and investment
banking experience. He began his career at Morgan Stanley
Asia Limited in 1988. Mr Hui left in 1990 to pursue a career
in corporate finance with Wardley Corporate Finance
Limited (later known as Corporate, Investment Banking and
Markets Division of The Hongkong and Shanghai Banking
Corporation Limited) and was the Chief Operating Officer,
Investment Banking, Asia Pacific and Co-Head, Corporate
Finance Execution when he left in 2004. He was General
Manager – Corporate Finance of the Company from 2004 to
2011, and the Chief Financial Officer of Digital China Holdings
Limited from 2011 to 2012. Mr Hui was the Chief Financial
Officer of K. Wah International Holdings Limited before
re-joining the Company in 2016.
Mr Hui is a Chartered Financial Analyst.
Dr Tony Lee Kar-yun*
Age 59
Operations Director (since 1 January 2020)
Dr Lee joined the Company in 1991 and has held various
management positions related to the design, construction,
operations and maintenance of the Company’s railway
system in Hong Kong.
Dr Lee is responsible for managing the Company’s railway
related operations in Hong Kong.
Dr Lee is a Chartered Engineer and is a Member of both
The Hong Kong Institution of Engineers and The Institution
of Engineering and Technology. He is also a Member of
the Electrical Discipline Advisory Panel of The Hong Kong
Institution of Engineers, a Member of the Engineering
Discipline Advisory Board of the Hong Kong Institute of
Vocational Education and an Honorary Advisory Board
Member of the Theme-based Research Scheme Project on
“Safety, Reliability, and Disruption Management of High
Speed Rail and Metro Systems” of the City University of
Hong Kong.
141
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis David Tang Chi-fai*
Age 55
Jeny Yeung Mei-chun*
Age 55
Property Director (since 1 October 2011)
Commercial Director (since 1 September 2011)
Mr Tang joined the Company in August 2004 as Contracts
& Commercial Manager – China Business. Before his
appointment as Property Director, Mr Tang held senior
management positions in the Legal and Procurement
Division, and the China and International Business Division
before he was transferred to Property Division in 2009, and
was appointed as Deputy Property Director in July 2011.
Mr Tang is responsible for all of the property development
projects of the Company in Hong Kong from layout planning,
scheme design through to project construction completion,
as well as asset and leasing management of investment
properties (including shopping malls and offices) and
property management of office buildings and residential
units. He is also a Director and an Alternate Director of
Octopus Holdings Limited and two members of its group.
Before joining the Company, Mr Tang was Commercial
Manager – Hong Kong & China Region, and Deputy General
Manager – Hong Kong & China Region for Acciona, S.A.
He had almost 20 years’ working experience in contract
administration, project management and quantity surveying
in the United Kingdom and Hong Kong after starting his
career as a Group Trainee of George Wimpey Plc.
Mr Tang is a co-opted member of the Public Private
Partnership Projects Committee under the Board of the
West Kowloon Cultural District Authority and a former
non-executive director of the Urban Renewal Authority, of the
HKSAR Government.
Mr Tang is a Chartered Surveyor.
Ms Yeung joined the Company in November 1999. She is
responsible for the marketing of the Company’s railway
services as well as managing and enhancing the MTR
Brand. Ms Yeung is also responsible for customer service
development and the management of station shops rental,
advertising media and other non-fare businesses. In addition,
she oversees the Company’s business in Macau and is the
Chairlady of Ngong Ping 360 Limited.
Before joining the Company, Ms Yeung held various
marketing and business development positions in Standard
Chartered Bank (Hong Kong) Limited and Citibank in
Hong Kong.
Ms Yeung is a member of the Advisory Committee on
Enhancing Self-Reliance Through District Partnership
Programme, the Advisory Committee on Enhancing
Employment of People with Disabilities, the Marketing
Management Committee of The Hong Kong Management
Association, the Hong Kong Trade Development Council
Infrastructure Development Advisory Committee and
the Cyberport Advisory Panel of Hong Kong Cyberport
Management Company Limited (‘Hong Kong Cyberport’),
and a non-official member of the Immigration Department
Users’ Committee. She is also an independent non-executive
director of SC Digital Solutions Limited. Ms Yeung was a
director of Hong Kong Cyberport and a member of the
Hong Kong Tourism Board.
Ms Yeung is a Fellow of The Chartered Institute of Marketing.
* Also a director of the Company’s subsidiary(ies).
142
BOARD AND EXECUTIVE DIRECTORATEMTR Corporation CHANGES IN INFORMATION
Changes in information of Directors during 2019 and up to the date of this Report which are required to be disclosed pursuant to
the Listing Rules are set out below:
(i) Changes in Biographical Details
Name
Changes
Rex Auyeung Pak-kuen
Investor and Financial Education Council (Hong Kong)
• Member of the Board of Directors (formerly Executive Committee)
Athenex Inc.
• Senior Strategy and Business Advisor
HSBC Provident Fund Trustee (Hong Kong) Limited
• Independent Non-executive Director
Standard Life (Asia) Limited
• Independent Non-executive Director
Sompo Insurance China Co., Ltd.
• Independent Non-executive Director
Lingnan University
• Chairman of the Council
Harbourfront Commission (Hong Kong)
• Member
The Community Chest of Hong Kong
• Member of the Board of Directors
Walter Chan Kar-lok
Dr Pamela Chan Wong Shui
Dr Dorothy Chan Yuen Tak-fai
The Chartered Institute of Logistics and Transport
• Global Chairperson for Women in Logistics and Transport
Cheng Yan-kee
Advisory Committee on Post-service Employment of Civil Servants (Hong Kong)
• Member
Nature and
Effective Date of
Change
Change of name of
the governance body
(29 March 2019)
Cessation
(6 May 2019)
Appointment
(14 June 2019)
Cessation
(30 June 2019)
Cessation
(31 July 2019)
Cessation
(8 October 2019)
Cessation
(1 July 2019)
Appointment
(27 June 2019)
Appointment
(16 June 2019)
Appointment
(14 July 2019)
Conferment
(18 November 2019)
Appointment
(1 January 2020)
Appointment
(26 April 2019)
Hong Kong Baptist University
• Honorary Doctor of Business Administration
The Hong Kong Academy for Performing Arts
• Deputy Chairman of the Council
SC Digital Solutions Limited
• Independent Non-executive Director
Dr Anthony Chow Wing-kin
Dr Eddy Fong Ching
Rose Lee Wai-mun
Mandatory Provident Fund Schemes Authority (Hong Kong)
• Chairman of the Process Review Panel in relation to the Regulation of Mandatory
Cessation
(1 November 2019)
Provident Fund Intermediaries
The Community Chest of Hong Kong
• Vice Patron
• Member of the Board of Directors
• Deputy Chairman of the Executive Committee
Appointment
(27 June 2019)
Cessation
(27 June 2019)
Cessation
(27 June 2019)
Lucia Li Li Ka-lai
Innovation and Technology Commission of the Government of the HKSAR
• Task Force Member (to follow up the Director of Audit’s Report No. 61 with regard to
Cessation
(30 June 2019)
the Small Entrepreneur Research Assistance Programme)
143
Annual Report 2019Corporate GovernanceFinancials and Other InformationOverviewBusiness Review and Analysis Nature and
Effective Date of
Change
Appointment
(8 June 2019)
Appointment
(1 July 2019)
Cessation
(30 December 2019)
Appointment
(29 April 2019)
Cessation
(29 April 2019)
Cessation
(31 July 2019)
Appointment
(1 April 2019)
Cessation
(22 March 2019)
Appointment
(1 January 2019)
Cessation
(1 July 2019)
Appointment
(1 January 2020)
Cessation
(1 January 2020)
Appointment
(4 November 2019)
(i) Changes in Biographical Details (continued)
Name
Jimmy Ng Wing-ka
Abraham Shek Lai-him
Changes
Glorious Sun Enterprises Limited
• Independent Non-executive Director
Security Bureau (Hong Kong)
• Chairman of HKSAR Passports Appeal Board
China Weaving Materials Holdings Limited
• Independent Non-executive Director
Chuang’s China Investments Limited
• Honorary Chairman
• Chairman of the Board
Benjamin Tang Kwok-bun
Croucher Foundation
• Member of the Audit Committee
Dr Jacob Kam Chak-pui
Adi Lau Tin-shing
The Hong Kong General Chamber of Commerce
• Member of the General Committee
International Association of Public Transport (UITP)
• Chairman of the Asia-Pacific Urban Rail Platform
Margaret Cheng Wai-ching
Labour Department (Hong Kong)
• Member of the Labour Advisory Board Committee on Employment Services
Education Bureau (Hong Kong)
• Member of the Standing Committee on Language Education and Research
Gillian Elizabeth Meller
Linda So Ka-pik
David Tang Chi-fai
Jeny Yeung Mei-chun
The Hong Kong Institute of Chartered Secretaries
• President
• Vice-president
The Community Chest of Hong Kong
• Member of the Public Relations Committee
West Kowloon Cultural District Authority (Hong Kong)
• Co-opted Member of the Public Private Partnership Projects Committee under
Appointment
(6 March 2019)
the board
Urban Renewal Authority (Hong Kong)
• Non-executive Director
Immigration Department (Hong Kong)
• Non-official Member of Users’ Committee
Social Welfare Department (Hong Kong)
• Member of the Advisory Committee on Enhancing Employment of People
with Disabilities
SC Digital Solutions Limited
• Independent Non-executive Director
Hong Kong Tourism Board
• Member
Cessation
(1 May 2019)
Appointment
(1 January 2019)
Appointment
(1 January 2019)
Appointment
(2 May 2019)
Cessation
(1 April 2019)
(ii) Changes in Directors’ Remuneration
For details of the changes in Directors’ remuneration, please refer to pages 207 to 211 of the Annual Report.
144
BOARD AND EXECUTIVE DIRECTORATEMTR Corporation KEY CORPORATE MANAGEMENT
Jacob Kam Chak-pui
Chief Executive Officer
Adi Lau Tin-shing
Managing Director – Operations and Mainland Business
(w.e.f. 1 January 2020)
Commercial & Marketing
Jeny Yeung Mei-chun
Commercial Director
Karen Woo Kit-sum
General Manager – Branding and Marketing
Annie Leung Ching-man
General Manager – Customer Experience Development
Raymond Yuen Lap-hang
General Manager – Marketing & Planning
Margaret Chu Fung-kuen
General Manager – Station Retail
Andy Lau Wai-ming
Managing Director of Ngong Ping 360
Corporate Affairs
Linda So Ka-pik
Corporate Affairs Director (up to 15 January 2020)
Linda Choy Siu-min
Corporate Affairs Director (w.e.f. 2 March 2020)
Osbert Kwan Wing-cheung
Deputy General Manager – Media & Corporate Communications
Lam Chan Lam-sang
Deputy General Manager – Projects & Property Communications
Eric Lee Ka-chun
General Manager – Public Affairs
Engineering
Peter Ewen
Engineering Director
Andrew Mead
Chief Architect (ARBUK)
Lawrence Chung Kwok-leung
General Manager – Planning & Civil Engineering
Scott Mackenzie
General Manager – Procurement & Contracts
Vincent Simon Ho
Head of Corporate Safety
Wong Sha
Head of E&M Engineering
Stephen Hamill
Head of Technical Strategy & Assurance
Timothy Edmonds
Principal Contracts Administration Manager – HSR
Raymond Au Koon-shan
Principal Contracts Administration Manager – SCL
Nicholas Zhang Xiaolong
Procurement & Contracts Manager – Operations & General
Finance
Herbert Hui Leung-wah
Finance Director
Sammy Jim Kwok-wah
General Manager – Corporate Finance
Dennis Tam Lup-kwan
General Manager – Financial Control
Candy Ng Chui-lok
Head of Investor Relations and Retirement Benefits
David Pang Hoi-hing
Treasurer
Human Resources &
Administration
Margaret Cheng Wai-ching
Human Resources Director
Ray Ng Shan-ho
General Manager – Corporate Security
Alison Wong Yuen-fan
General Manager – Human Resources
Vinnie Chi Man-yan
General Manager – Human Resources (International & Talent
Management)
Denise Ng Kee Wing-man
General Manager – Learning & Organisation Development
Doreen Siu Wai-man
General Manager – Reward Management
Internal Audit
Paul Chow Yuen-ming
Head of Internal Audit
Legal & Secretarial
Gillian Meller
Legal and European Business Director
Cecilia Cheng Yuet-fong
General Manager – Governance & Risk Management
Brian Downie
General Manager – Legal (Operations & Growth Business)
Linda Li Sau-lin
General Manager – Legal (Property)
Mainland China &
International Business
Australia
Terry Wong Ping-sau
Deputy Director – Australian Business
Leah Waymark
Chief Executive Officer – Metro Trains Australia
Raymond O’Flaherty
Chief Executive Officer – Metro Trains Melbourne
Nigel Holness
Chief Executive Officer – Metro Trains Sydney
Tommy Lam Choi-fung
Design & Delivery Director – SMC&SW
David Yam Pak-nin
General Manager – Business Development
Ivan Lai Ching-kai
Head of Operations – Mainland China & International Business
Europe
Jeremy Long
Chief Executive Officer – European Business
Mats Johannesson
Chief Executive Officer – MTR Express
Mark Jensen
Chief Executive Officer – MTR Nordic
Henrik Dahlin
Chief Executive Officer – MTR Pendeltågen
Erika Enestad
Chief Executive Officer – MTR Tech / Emtrain
Johan Oscarsson
Chief Executive Officer – MTR Tunnelbanan (up to 31 January 2020)
Steve Murphy
Managing Director – MTR Elizabeth Line
Headquarters
Choi Tak-tsan
General Manager – Global Operations Standards
(up to 31 December 2019)
Edmund Wong Wai-ming
General Manager – Special Duties
Macau
Jeff Chan Yue-chiu
General Manager – Macau Light Rapid Transit (w.e.f. 1 February
2020)
Mainland China
Jeremy Xu Muhan
Deputy Director – Mainland China Business
Yi Min
Chief Advisor – Mainland China Business
Paul Wong Kah-ming
Chief of Engineering (Beijing)
Ronnie Tong Chai-ming
Deputy General Manager – Operations (Beijing)
Ben Lui Gon-yee
Deputy General Manager – Operations (Hangzhou)
Charles Lau Kam-keung
Deputy General Manager – Projects (Beijing)
Charles Fok Chi-cheong
Deputy General Manager – Projects (Hangzhou Line 5)
Wilson Shao Shing-ming
General Manager – Jing-Jin-Ji
Jia Jun
General Manager – Business Development (Mainland China)
Frank Liu Zhui-ming
General Manager – Hangzhou
Nelson Ng Wai-hung
General Manager – Hangzhou Line 5
Oscar Ho Ka-wa
General Manager – Mainland China Property
Terry Wong Wing-kin
General Manager – Shenzhen Line 4
Tse Che-ming
Head of Engineering (Hangzhou)
MTR Academy
Margaret Cheng Wai-ching
President of MTR Academy (Acting)
Operations
Tony Lee Kar-yun
Operations Director (w.e.f. 1 January 2020)
Cheris Lee Yuen-ling
Chief of HSR & Intercity (w.e.f. 1 January 2020)
Sammy Wong Kwan-wai
Chief of Operating (w.e.f. 1 January 2020)
Richard Keefe
Chief of Operations Engineering (Acting)
Gordon Lam Bik-shun
Chief Signal Engineer (Operations)
Joseph Sin Chi-man
Chief Signalling Design Manager
Lu Wong Ho-leung
Deputy Chief of Operations Engineering
Michael Leung Yu-hing
Deputy General Manager – Technical & Asset Engineering
Chan Hing-keung
Deputy General Manager – Train Services & Systems Engineering
Carmen Li Wai-ching
General Manager – HSR & Intercity
Manho John-william
General Manager – Infrastructure Maintenance
Ronald Cheng Kin-wai
General Manager – Planning & Development
Alex Lau Hing-hon
General Manager – Safety & Quality (w.e.f. 1 January 2020)
Alan Cheng Kwan-hing
General Manager – Special Duties
John Woo Shui-wah
General Manager – Special Duties
Weller Chan Kwok-wai
General Manager – Works Management
Rick Wong Hoi-wah
Head of Infrastructure Works
Allen Ding Ka-chun
Head of Operating – South Region
Cheung Chi-keung
Head of Operating – West Region
Siman Tang
Head of Operations Strategic Business Management
Lee Kim-hung
Head of Workshops
Projects
Roger Bayliss
Projects Director
Thomas Lau Ming-yu
Chief Design Manager
Barry Sum Pang-tuen
Divisional General Manager – Projects
James Chow So-hung
Divisional General Manager – Projects Construction
Peter Leung Man-fat
General Manager – Operations Projects
Ken Wong Kin-wai
General Manager – Projects
Henry Young
General Manager – Projects Management Office
Leung Chi-lap
Head of E&M Construction
Clement Ngai Yum-keung
Head of Project Engineering
Neil Ng Wai-hang
Lead Project Manager – SCL Civil – NSL
Chan Chun-sing
Project Manager – Rolling Stock
Lesly Leung Po-po
Project Manager – SCL Civil - EWL
Walter Lam Wai-tak
Project Manager – SCL Civil – Exhibition Station
Nelson Yeung Kin-wa
Project Manager – SCL Civil – HUH
Tim Leung Chi-tim
Project Manager – SCL E&M
Terence Law Che-chung
Project Manager – Signalling
Property
David Tang Chi-fai
Property Director
Angus Lee Chun-ming#
Chief Growth Officer (w.e.f. 1 January 2020)
Edward Wong Koon-pong
Deputy General Manager – Property Project (w.e.f. 1 March 2020)
Debbie Chan Yuen-ping
General Manager – Investment Property
Kenneth Lung Tze-ho
General Manager – Investment Property
Melissa Pang Mee-yuk
General Manager – Property Development
Kenny Chow Chun-ling
General Manager – Property Management
Wilfred Yeung Sze-wai
General Manager – Property Project
Strategy, Innovation & Technology
Jerry Li Zhe
Deputy Director – Strategy, Innovation and Technology
Ted Suen Yiu-tat
Chief Information Officer
Daniel Wong
General Manager – Global Innovation
# With effect from 1 January 2020, Mr. Angus Lee was seconded to Octopus Holdings Limited and Octopus Cards Limited to take up the role of Chief Growth Officer.
145
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 REPORT OF THE MEMBERS
OF THE BOARD
The Members of the Board have pleasure in submitting their Report and the audited statement of Consolidated Accounts for the
financial year ended 31 December 2019.
PRINCIPAL ACTIVITIES OF THE GROUP
The Group is principally engaged in the following core businesses – railway design, construction, operation, maintenance and
investment in Hong Kong, Macau, the Mainland of China and a number of overseas cities; project management in relation to
railway and property development businesses in Hong Kong and the Mainland of China; station commercial business including
leasing of station retail space, leasing of advertising space inside trains and stations and enabling of telecommunication services
on the railway system in Hong Kong; property business including property development and investment, management and
leasing management of investment properties (including shopping malls and offices) in Hong Kong and the Mainland of China;
investment in Octopus Holdings Limited; and provision of railway management, engineering and technology training.
The principal businesses of the Company’s principal subsidiaries and associates as at 31 December 2019 are set out in notes 24
and 25 to the Consolidated Accounts.
BUSINESS REVIEW
The Company has always been committed to providing comprehensive reviews of the Group’s business and performance in
different sections of its Annual Reports. A summary of the relevant sections in the Company’s Annual Report 2019 covering the
required disclosures under the Companies Ordinance is set out below for ease of reference.
Required Disclosures
Relevant Sections
(1) A fair review of the Group’s business and a discussion and an analysis
of the Group’s performance during the year ended 31 December 2019
(2) Particulars of important events affecting the Group that have occurred
since the end of the financial year 2019
(3) Description of the significant risks and uncertainties facing the Group
(4) Outlook for the Group’s business
• Chairman’s Letter (pages 10 to 13)
• CEO’s Review of Operations and Outlook (pages 14 to 33)
• Business Review (pages 34 to 69)
• Financial Review (pages 70 to 79)
• Chairman’s Letter (pages 10 to 13)
• CEO’s Review of Operations and Outlook (pages 14 to 33)
• Business Review (pages 34 to 69)
• CEO’s Review of Operations and Outlook (pages 14 to 33)
• Business Review (pages 34 to 69)
• Risk Management (pages 118 to 121)
• Financial Risks – note 28B to the Consolidated Accounts (pages 231 to 232)
• Chairman’s Letter (pages 10 to 13)
• CEO’s Review of Operations and Outlook (pages 14 to 33)
• Business Review (pages 34 to 69)
(5) Details regarding the Group’s compliance with relevant laws and
• Corporate Governance Report (pages 94 to 114)
regulations which have a significant impact on the Group
(6) Description of the Group’s relationships with its key stakeholders
(7) Description of the Group’s environmental policies and performance
Investor Relations (pages 82 to 83)
• Chairman’s Letter (pages 10 to 13)
• CEO’s Review of Operations and Outlook (pages 14 to 33)
• Business Review (pages 34 to 69)
•
• Corporate Responsibility (pages 84 to 89)
• Human Resources (pages 90 to 92)
• Corporate Governance Report (pages 94 to 114)
• Company’s 2019 Sustainability Report to be published at the same
time as this Report in April 2020
• Chairman’s Letter (pages 10 to 13)
• CEO’s Review of Operations and Outlook (pages 14 to 33)
• Corporate Responsibility (pages 84 to 89)
• Company’s 2019 Sustainability Report to be published at the same
time as this Report in April 2020
146
MTR Corporation DIVIDENDS
The Board has recommended to pay a final dividend of HK$0.98 per share (2018: HK$0.95 per share) and proposes that a scrip
dividend option will be offered to all shareholders of the Company (except for those with registered addresses in New Zealand or
the United States of America or any of its territories or possessions). Subject to the approval of the shareholders at the Company’s
forthcoming annual general meeting (“AGM”), the proposed 2019 final dividend, with a scrip dividend option, is expected to be
distributed on 16 July 2020 to shareholders whose names appear on the Register of Members of the Company as at the close of
business on 29 May 2020.
ACCOUNTS
The financial position of the Group as at 31 December 2019 and the Group’s financial performance and cash flows for the year are
set out in the Consolidated Accounts on pages 182 to 262.
TEN-YEAR STATISTICS
A summary of the results and of the assets and liabilities of the Group together with some major operational statistics for the last
ten years are set out on pages 80 to 81.
DIRECTORS
Members of the Board (including Alternate Directors) and the Executive Directorate as at the date of this Report are stated below:
James Kwan Yuk-choi
Members of the Board
• Rex Auyeung Pak-kuen (Chairman)
• Dr Jacob Kam Chak-pui (Chief Executive Officer)
• Andrew Clifford Winawer Brandler
• Walter Chan Kar-lok
• Dr Pamela Chan Wong Shui
• Dr Dorothy Chan Yuen Tak-fai
• Cheng Yan-kee
• Dr Anthony Chow Wing-kin
• Dr Eddy Fong Ching
•
• Rose Lee Wai-mun
Lucia Li Li Ka-lai
•
•
Jimmy Ng Wing-ka
• Benjamin Tang Kwok-bun
• Dr Allan Wong Chi-yun
Johannes Zhou Yuan
•
James Henry Lau Jr
•
(Secretary for Financial Services and the Treasury)
Alternate Directors:
– Andrew Lai Chi-wah
Joseph Chan Ho-lim
–
– Alice Lau Yim
•
Secretary for Transport and Housing
(Frank Chan Fan)
Alternate Directors:
– Under Secretary for Transport and Housing
(Dr Raymond So Wai-man)
– Permanent Secretary for Transport and Housing (Transport)
(Joseph Lai Yee-tak)
– Deputy Secretaries for Transport and Housing (Transport)
(Kevin Choi and Sharon Yip Lee Hang-yee*)
• Permanent Secretary for Development (Works)
(Lam Sai-hung)
Alternate Director:
– Deputy Secretary for Development (Works)2
(Mak Shing-cheung)
• Commissioner for Transport
(Mable Chan)
Alternate Director:
– Deputy Commissioner for Transport /
Transport Services and Management
(Macella Lee Sui-chun)
* Change of holder of the post from Rebecca Pun Ting-ting to Sharon Yip Lee Hang-yee with effect from 15 July 2019.
Members of the Executive Directorate
• Dr Jacob Kam Chak-pui (Chief Executive Officer)
• Adi Lau Tin-shing (Managing Director –
Operations and Mainland Business)
• Roger Francis Bayliss (Projects Director)
• Margaret Cheng Wai-ching (Human Resources Director)
•
Linda Choy Siu-min (Corporate Affairs Director)
• Dr Peter Ronald Ewen (Engineering Director)
• Herbert Hui Leung-wah (Finance Director)
• Dr Tony Lee Kar-yun (Operations Director)
• Gillian Elizabeth Meller (Legal and European Business Director)
• David Tang Chi-fai (Property Director)
•
Jeny Yeung Mei-chun (Commercial Director)
Biographical details of each Member of the Board and the Executive Directorate as at the date of this Report are set out on pages
130 to 142.
147
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 In addition, a resolution for electing Dr Bunny Chan Chung-bun as a new Director will be proposed at the 2020 AGM. Please refer
to the Company’s circular containing the Notice of the 2020 AGM sent together with this Report.
Members of the Board and the Executive Directorate who were directors during the course of 2019 but have since retired / resigned
from the Company are stated below:
• Professor Frederick Ma Si-hang (retired on 1 July 2019)
•
Lincoln Leong Kwok-kuen (retired on 1 April 2019)
• Vincent Cheng Hoi-chuen (retired on 22 May 2019)
Lau Ping-cheung, Kaizer (retired on 22 May 2019)
•
• Abraham Shek Lai-him (retired on 22 May 2019)
Linda So Ka-pik (resigned on 16 January 2020)
•
DIRECTORS OF SUBSIDIARY UNDERTAKINGS
The directors of the subsidiary undertakings of the Company during the year and up to the date of this Report (unless otherwise
stated) are listed on page 176.
DIRECTORS’ SERVICE CONTRACTS
No Director proposed for election or re-election at the forthcoming AGM has a service contract which is not determinable by the
Company or any of its subsidiaries within one year without payment of compensation, other than statutory compensation.
DIRECTORS’ MATERIAL INTERESTS IN TRANSACTIONS,
ARRANGEMENTS OR CONTRACTS
Except for, in respect of Mr James Henry Lau Jr (Secretary for Financial Services and the Treasury), Secretary for Transport
and Housing (Mr Frank Chan Fan), Permanent Secretary for Development (Works) (Mr Lam Sai-hung), and Commissioner for
Transport (Ms Mable Chan), all of whom were officials of Government, those connected transactions and continuing connected
transactions between the Company and Government (and/or its associates) which are described on pages 154 to 174, there was
no transaction, arrangement or contract of significance in relation to the Group’s business, to which the Company or any of its
subsidiary undertakings was a party and in which a Member of the Board or a Member of the Executive Directorate or an entity
connected with him/her had a material interest (whether direct or indirect), which was entered into during the year or subsisted
at any time during the year.
DIRECTORS’ INTERESTS IN SHARES AND UNDERLYING SHARES
OF THE COMPANY
As at 31 December 2019, the interests or short positions of the Members of the Board and the Executive Directorate in the shares,
underlying shares and debentures of the Company (within the meaning of Part XV of the Securities and Futures Ordinance
(Cap. 571 of 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 the Company and the HKSE pursuant to the Model Code set out in Appendix 10 of the Listing Rules (the
“Model Code”), were as follows:
Members of the Board/
Alternate Directors/
Members of the
Executive Directorate
Dr Jacob Kam Chak-pui
Dr Pamela Chan Wong Shui
Cheng Yan-kee
Rose Lee Wai-mun
No. of Ordinary Shares held
No. of share
options#
No. of award
shares#
Personal
interests*
Family
interests†
Other
interests
Personal
interests*
281,171
9,072
–
3,350
–
1,675
(Note 1)
2,000
(Note 2)
–
–
–
–
–
–
–
–
–
Personal
interests*
333,984
–
Total
interests
615,155
10,747
–
–
2,000
3,350
Percentage
of aggregate
interests to
total no. of
voting shares
in issueD
0.00999
0.00017
0.00003
0.00005
148
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation DIRECTORS’ INTERESTS IN SHARES AND UNDERLYING SHARES
OF THE COMPANY (continued)
Members of the Board/
Alternate Directors/
Members of the
Executive Directorate
Lucia Li Li Ka-lai
Alice Lau Yim
Mak Shing-cheung
Dr Raymond So Wai-man
Adi Lau Tin-shing
Roger Francis Bayliss
Margaret Cheng Wai-ching
Dr Peter Ronald Ewen
Herbert Hui Leung-wah
Gillian Elizabeth Meller
Linda So Ka-pik
David Tang Chi-fai
Jeny Yeung Mei-chun
No. of Ordinary Shares held
No. of share
options#
No. of award
shares#
Personal
interests*
Family
interests†
–
1,116
558
–
91,495
–
116,339
46,698
42,707
108,141
71,536
193,985
664,753
1,614
(Note 3)
–
8,058
(Note 4)
1,675
(Note 5)
–
–
–
–
2,233
(Note 6)
–
–
–
–
Other
interests
2,215
(Note 3)
–
–
–
–
–
–
–
–
–
–
–
–
Personal
interests*
Personal
interests*
Total
interests
–
–
–
–
26,000
–
–
–
–
–
–
–
–
–
–
–
–
83,567
30,150
84,384
76,135
78,785
79,950
79,817
84,634
84,267
3,829
1,116
8,616
1,675
201,062
30,150
200,723
122,833
123,725
188,091
151,353
278,619
749,020
Percentage
of aggregate
interests to
total no. of
voting shares
in issueD
0.00006
0.00002
0.00014
0.00003
0.00327
0.00049
0.00326
0.00199
0.00201
0.00305
0.00246
0.00452
0.01216
Notes
As at 31 December 2019,
1 The 1,675 shares were held by Dr Pamela Chan Wong Shui’s spouse.
2 The 2,000 shares were held by Mr Cheng Yan-kee’s spouse.
3 The 1,614 shares were held by Mrs Lucia Li Li Ka-lai’s spouse and the 2,215 shares were jointly held by Mrs Li and her spouse.
4 The 8,058 shares were held by Mr Mak Shing-cheung’s spouse.
5 The 1,675 shares were held by Dr Raymond So Wai-man’s spouse.
6 The 2,233 shares were held by Mr Herbert Hui Leung-wah’s spouse.
# Details of the share options and award shares are set out in the sections headed “2007 Share Option Scheme” and “Executive Share Incentive Scheme” respectively on
pages 150 to 152
Interests as beneficial owner
Interests of spouse or child under 18 as beneficial owner
*
†
D The Company’s total number of voting shares in issue as at 31 December 2019 was 6,157,948,911
Save as disclosed above and in the sections headed “2007 Share Option Scheme” and “Executive Share Incentive Scheme”:
A as at 31 December 2019, no Member of the Board or the Executive Directorate of the Company had any interest or short
position in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the
meaning of Part XV of the SFO); and
B during the year ended 31 December 2019, no Member of the Board or the Executive Directorate of the Company nor any of
their spouses or children under 18 years of age held any rights to subscribe for equity or debt securities of the Company nor
had there been any exercises of any such rights by any of them,
as recorded in the register kept by the Company under section 352 of the SFO or otherwise notified to the Company and the
HKSE pursuant to the Model Code.
149
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 SUBSTANTIAL SHAREHOLDERS’ INTERESTS
Set out below is the name of the party which was interested in 5% or more of all the Company’s voting shares in issue and the
number of shares in which it was interested as at 31 December 2019 as recorded in the register kept by the Company under
section 336 of the SFO:
Name
The Financial Secretary Incorporated (“FSI”)
(in trust on behalf of Government)
No. of
Ordinary Shares held
Percentage of Ordinary Shares to all
the voting shares in issueD
4,634,173,932
75.26%
D The Company’s total number of voting shares in issue as at 31 December 2019 was 6,157,948,911
The Company has been informed by the Hong Kong Monetary Authority that, as at 31 December 2019, approximately 0.33%
of the Ordinary Shares in issue (not included in the FSI shareholding set out in the above table) were held for the account of the
Exchange Fund. The Exchange Fund is a fund established under the Exchange Fund Ordinance (Cap. 66 of the Laws of Hong
Kong) under the control of the Financial Secretary.
OTHER PERSONS’ INTERESTS
Pursuant to section 337 of the SFO, the Company has maintained a register recording the shareholding information provided by
persons in response to the Company’s requests pursuant to section 329 of the SFO.
Save as disclosed above and in the sections headed “Directors’ Interests in Shares and Underlying Shares of the Company” and
“Substantial Shareholders’ Interests”, as at 31 December 2019, the Company has not been notified of any other persons who had
any interests or short positions in the shares or underlying shares of the Company which would be required to be recorded in the
register kept by the Company pursuant to section 336 of the SFO.
2007 SHARE OPTION SCHEME
Movements in the outstanding share options to subscribe for Ordinary Shares granted under the 2007 Share Option Scheme
during the year ended 31 December 2019 are set out below:
Member of the
Executive
Directorate and
eligible employees
Date
granted
Options
granted
(Notes
1 to 3)
Period during which
rights exercisable
(day/month/year)
Adi Lau Tin-shing
30/5/2014
80,000
23/5/2015 – 23/5/2021
Other eligible
employees
30/3/2012
15,868,500
23/3/2013 – 23/3/2019
6/5/2013
20,331,500
26/4/2014 – 26/4/2020
30/5/2014
19,812,500
23/5/2015 – 23/5/2021
Options
outstanding
as at
1 January
2019
26,000
840,000
2,709,000
4,595,500
Options
vested
during the
year
Options
lapsed
during the
year
Options
exercised
during the
year
–
–
–
–
–
–
–
–
–
840,000
1,323,500
1,098,000
Exercise
price per
share of
options
(HK$)
Options
outstanding
as at
31 December
2019
28.65
27.48
31.40
28.65
26,000
–
1,385,500
3,497,500
Weighted
average
closing price
of shares
immediately
before the
date(s) on
which options
were exercised
(HK$)
–
46.40
47.67
48.26
Notes
1 No option may be exercised later than seven years after its date of offer and no option may be offered to be granted more than seven years after the adoption of the 2007
Share Option Scheme on 7 June 2007. The 2007 Share Option Scheme expired at 5.00 p.m. on 6 June 2014, with no further option granted since then.
2 Unless approved by shareholders in the manner as required by the Listing Rules, the total number of shares issued and issuable upon exercise of the options granted to
any eligible employee under the 2007 Share Option Scheme together with the total number of shares issued and issuable upon the exercise of any option granted to such
eligible 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 0.2% of the shares of the Company in issue at the date of offer in respect of such option under the 2007 Share Option Scheme.
3 The share options granted were subject to a vesting schedule in tranches of one-third each per annum starting from the first anniversary of the date of offer of the options
(the “Offer Anniversary”) and became fully vested on the third Offer Anniversary.
4 Pursuant to the terms of the 2007 Share Option Scheme, each grantee undertakes to pay HK$1.00, on demand, to the Company, in consideration for the grant of the options.
5 Other details of the 2007 Share Option Scheme are set out in notes 11B and 42(i) to the Consolidated Accounts.
150
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation EQUITY-LINKED AGREEMENT
Save as disclosed in the section headed “2007 Share Option Scheme” above, no equity-linked agreements were entered into
during the year ended 31 December 2019 or subsisted at the end of the year.
EXECUTIVE SHARE INCENTIVE SCHEME
The Company adopted the Executive Share Incentive Scheme (formerly the “2014 Share Incentive Scheme”) on 15 August 2014.
The purposes of the Executive Share Incentive Scheme are to retain management and key employees, to align participants’
interests with the long-term success of the Company and to drive the achievement of strategic objectives of the Company.
The Remuneration Committee may, from time to time, at its absolute discretion, determine the criteria for any eligible employee
to participate in the Executive Share Incentive Scheme as award holders in accordance with the rules of the Executive Share
Incentive Scheme. An award holder may be granted an award of Restricted Shares and/or Performance Shares (together, the
“Award Shares”).
Restricted Shares are awarded to selective eligible employees and vested ratably over three years in equal tranches (unless
otherwise determined by the Remuneration Committee). Performance Shares are awarded to eligible employees generally on a
three-year performance cycle (“Performance Period”), subject to review and approval by the Remuneration Committee from time
to time. The vesting of the Performance Shares is subject to the performance of the Company, assessed by reference to certain
pre-determined performance metrics approved by the Board for the relevant Performance Period and such other performance
conditions as determined by the Remuneration Committee from time to time.
The Award Shares to be granted under the Executive Share Incentive Scheme are issued Ordinary Shares. In general, the
Company will pay to the third party trustee (the “Trustee”) monies and may give directions or a recommendation to the Trustee
to apply such amount of monies and/or such other net amount of cash derived from Ordinary Shares held as part of the funds
of the trust to acquire existing Ordinary Shares from the market. Such Ordinary Shares will be held on trust by the Trustee for the
relevant award holders. The Trustee shall not exercise any voting rights in respect of any Ordinary Shares held in the trust and no
award holder is entitled to instruct the Trustee to exercise the voting rights in respect of any unvested Award Shares.
As part of the overall governance of the Executive Share Incentive Scheme, the Company reviews scheme features on a regular
basis to ensure continued relevance and effectiveness.
The maximum number of Award Shares that may at any time be the subject of an outstanding award granted under the
Executive Share Incentive Scheme shall not exceed 2.5% of the number of issued Ordinary Shares as at 1 January 2015, the
effective date of the Executive Share Incentive Scheme (the “Effective Date”).
For the year ended 31 December 2019, a total of 2,306,800 Award Shares (2018: 4,061,850 Award Shares, including a new cycle
of Performance Shares) were awarded under the Executive Share Incentive Scheme. As at 31 December 2019, a total of 5,659,978
Award Shares (2018: 5,758,295 Award Shares) were neither vested, lapsed nor had been forfeited, representing 0.10% of the
issued Ordinary Shares (2018: 0.10%) as at the Effective Date.
Further details of the Executive Share Incentive Scheme are set out in the section headed “Long-Term Incentives” under the
Remuneration Committee Report (pages 127 to 128) and notes 11C and 42(ii) to the Consolidated Accounts.
151
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 The particulars of the Award Shares granted are as follows:
Types of Award
Shares granted
Date of
award
Restricted
Shares
Performance
Shares
Award Shares
outstanding
as at
1 January
2019
Award Shares
lapsed and/or
forfeited
during
the year
Award Shares
outstanding
as at
31 December
2019
Award Shares
vested during
the year
Members of the
Executive Directorate and
eligible employees
Dr Jacob Kam Chak-pui
Lincoln Leong Kwok-kuen
(Note 1)
Adi Lau Tin–shing
Roger Francis Bayliss (Note 2)
Margaret Cheng Wai-ching
Dr Peter Ronald Ewen
Herbert Hui Leung-wah
Gillian Elizabeth Meller
Linda So Ka-pik
David Tang Chi-fai
Jeny Yeung Mei-chun
Other eligible employees
8/4/2016
10/4/2017
10/4/2018
1/4/2019
8/4/2019
8/4/2016
10/4/2017
16/3/2018
10/4/2018
8/4/2016
10/4/2017
10/4/2018
8/4/2019
8/4/2019
19/8/2016
10/4/2017
10/4/2018
8/4/2019
8/4/2016
10/4/2017
10/4/2018
8/4/2019
10/4/2017
10/4/2018
8/4/2019
8/4/2016
10/4/2017
10/4/2018
8/4/2019
8/4/2016
10/4/2017
10/4/2018
8/4/2019
8/4/2016
10/4/2017
10/4/2018
8/4/2019
8/4/2016
10/4/2017
10/4/2018
8/4/2019
8/4/2016
10/4/2017
10/4/2018
8/4/2019
21,550
22,050
25,550
120,000
47,400
64,850
63,900
80,000
73,300
8,400
17,700
16,450
16,250
–
71,428
16,950
17,600
16,550
–
15,050
12,250
12,500
15,200
14,200
13,800
17,300
16,200
16,050
13,400
16,400
15,300
14,200
14,800
17,950
17,250
16,850
17,200
18,850
17,700
17,350
16,350
2,235,850
2,027,900
1,985,150
1,773,900
–
–
50,450
–
91,750
–
–
–
7,184
14,700
76,000
–
–
21,618
42,600
80,000
239,950
313,250
2,800
11,800
66,900
–
–
23,810
11,300
68,050
–
–
10,034
62,700
–
10,134
64,650
–
5,768
10,800
66,500
–
5,468
10,200
64,650
–
5,984
11,500
67,300
–
6,284
11,800
67,800
–
–
25,050
50,450
–
30,150
–
30,400
50,450
–
35,700
–
50,450
–
30,400
50,450
–
–
–
50,450
–
44,050
–
50,450
–
–
–
50,450
–
–
–
50,450
–
107,450
26,350
1,078,900
122,750
7,184
7,350
8,516
–
–
21,618
42,600
80,000
73,300
2,800
5,900
5,483
–
–
23,810
5,650
5,866
–
–
5,016
4,083
–
5,066
4,733
–
5,768
5,400
5,350
–
5,468
5,100
4,733
–
5,984
5,750
5,616
–
6,284
5,900
5,783
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,350
67,484
120,000
139,150
–
–
–
239,950
–
5,900
61,417
16,250
30,150
–
5,650
62,184
16,550
–
5,018
58,617
12,500
5,068
59,917
13,800
–
5,400
61,150
13,400
–
5,100
59,917
14,800
–
5,750
61,684
17,200
–
5,900
62,017
16,350
–
544,850
2,030,705
1,828,800
589,668
1,162,593
2,784,450
–
585,532
598,320
641,457
29,000
4,136
19,423
112,288
38,850
Notes
1 Mr Lincoln Leong Kwok-kuen retired as the Chief Executive Officer, and as a Member of the Board, the Corporate Responsibility Committee and the Executive Directorate
of the Company, all with effect from 1 April 2019.
2 Mr Roger Francis Bayliss was appointed as the Projects Director and became a Member of the Executive Directorate of the Company, with effect from 18 March 2019.
152
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation SHARES ISSUED
As at 31 December 2018
Shares issued under the 2007 Share Option Scheme
(Further details can be found in note 42(i) to the Consolidated Accounts)
Scrip shares issued in respect of 2018 final dividend
Scrip shares issued in respect of 2019 interim dividend
As at 31 December 2019
No. of Ordinary Shares issued
6,139,485,589
3,261,500
13,707,539
1,494,283
6,157,948,911
Consideration/Value
(HK$)
N/A
96 million
(received by the Company)
654 million
71 million
N/A
Details of the movements in share capital of the Company during the year are set out in note 39 to the Consolidated Accounts.
PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES
The Group did not purchase, sell or redeem any of the Group’s listed securities during the year ended 31 December 2019.
However, the Trustee of the Executive Share Incentive Scheme, pursuant to the terms of the rules and the trust deed of the
Executive Share Incentive Scheme, purchased on the HKSE a total of 1,870,000 Ordinary Shares for a total consideration of
approximately HK$88 million during the year ended 31 December 2019 (2018: HK$239 million).
PUBLIC FLOAT
The HKSE granted to the Company, at the time of its listing on the Main Board of the HKSE in 2000, a waiver from strict compliance
with Rule 8.08(1) of the Listing Rules (“Public Float Waiver”). Pursuant to the Public Float Waiver, the Company’s prescribed
minimum percentage of shares which must be in the hands of the public must not be less than 10% of the total number of issued
shares of the Company. Based on the information that is publicly available to the Company and within the knowledge of the
Directors, the Company has maintained the prescribed amount of public float during the year and up to the date of this Report as
required by the Public Float Waiver.
MAJOR SUPPLIERS AND CUSTOMERS
Information in respect of the Group’s major suppliers and major customers for the year ended 31 December 2019 is as follows:
Total value of supplies (not of a capital nature) attributable to the Group’s five largest suppliers
Total revenue attributable to the Group’s five largest customers
Total revenue attributable to the Group’s largest customer
As a percentage of
the Group’s total supplies
17.60%
As a percentage of
the Group’s total revenue
34.85%
14.47%
As at 31 December 2019, no Members of the Board or the Executive Directorate or any of their respective close associates or any
Shareholder including the FSI, the substantial shareholder of the Company, (which to the knowledge of the Members of the
Board or the Executive Directorate, owned more than 5% of all the Company’s voting shares in issue) had any beneficial interests
in the Group’s five largest customers.
DONATIONS
During the year, the Group donated and sponsored approximately HK$12.7 million (2018: approximately HK$12.2 million) to
charitable and other organisations.
153
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019
BANK OVERDRAFTS,
BANK LOANS AND
OTHER BORROWINGS
The total borrowings of the Group as at 31 December 2019
amounted to HK$39,456 million (2018: HK$40,205 million).
Particulars of the borrowings are set out in note 33 to the
Consolidated Accounts.
BONDS AND NOTES ISSUED
The Group issued notes with total face value amounting
to HK$1,183 million equivalent during the year ended
31 December 2019 (2018: HK$1,491 million equivalent),
details of which are set out in note 33C to the Consolidated
Accounts. Such notes were issued in order to meet the
Group’s general corporate funding requirements, including
financing of capital expenditure and refinancing of debts.
LOAN AGREEMENTS WITH
COVENANT RELATING TO
SPECIFIC PERFORMANCE OF THE
CONTROLLING SHAREHOLDER
As at 31 December 2019, the Group had borrowings of
HK$32,183 million (2018: HK$32,446 million) with maturities
ranging from 2020 to 2055 and undrawn committed banking
facilities of HK$5,568 million (2018: HK$9,775 million), which
were subject to the condition that Government, being
the Company’s controlling shareholder, owns more than
half of all the Company’s voting shares in issue. Failure to
satisfy such condition may result in immediate repayment
of the borrowings being demanded and cancellation of the
undrawn committed banking facilities.
PROPERTIES
Particulars of the principal investment properties and
properties held for sale of the Company are shown on pages
51 to 52.
CONNECTED TRANSACTIONS
During the year under review, the transactions described
below were entered into with Government (which is a
substantial shareholder of the Company as defined in the
Listing Rules). Government is therefore a “connected person”
of the Company for the purposes of the Listing Rules, and
each transaction described below is a connected transaction
for the Company under the Listing Rules.
As disclosed in the announcement of the Company dated
13 January 2005, the Stock Exchange has granted a waiver to
the Company from strict compliance with the requirements
of Chapter 14A of the Listing Rules which would otherwise
apply to connected transactions and continuing connected
transactions between the Company and Government,
subject to certain conditions (the “Waiver”).
Consequently, the Company makes the disclosures below
in accordance with Rule 14A.71 of the Listing Rules and in
accordance with the conditions of the Waiver.
Land Agreements
A On 7 May 2019, the Company accepted an offer dated
27 March 2019 from Government to proceed with the proposed
LOHAS Park Package Eleven Property Development
at Site C2 of The Remaining Portion of Tseung Kwan O
Town Lot No. 70 subject to payment of a land premium of
HK$3,054,900,000 and on the terms and conditions of the
relevant modification to New Grant No. 9689.
B On 5 November 2019, the Company accepted an offer
dated 25 September 2019 from Government to proceed
with the proposed Wong Chuk Hang Station Package
Four Property Development at Site D of Aberdeen Inland
Lot No. 467 subject to payment of a land premium of
HK$6,757,740,000 and on the terms and conditions of the
relevant Conditions of Exchange No. 20304.
C On 14 February 2020, the Company accepted an offer
dated 30 December 2019 from Government to proceed
with the proposed LOHAS Park Package Twelve Property
Development at Site D of The Remaining Portion of
Tseung Kwan O Town Lot No. 70 subject to payment
of a land premium of HK$2,725,000,000 and on the terms
and conditions of the relevant modification to New Grant
No. 9689.
154
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation CONTINUING CONNECTED
TRANSACTIONS
During the year under review, the following transactions
and arrangements described below involved the provision
of goods or services carried out on an ongoing or recurring
basis and are expected to extend over a period of time
with Government and/or KCRC, the Airport Authority (the
“AA”), UGL Rail Services Pty Limited (“UGL”) and Leighton
Contractors (Asia) Limited (“LCAL”).
As noted above under the section headed “Connected
Transactions”, Government is a substantial shareholder of
the Company for the purposes of the Listing Rules. KCRC
and the AA are both associates of Government and they
are also connected persons of the Company as defined in
the Listing Rules.
Metro Trains Melbourne Pty. Ltd. is a company incorporated
in Australia, which is wholly-owned by Metro Trains Australia
Pty Ltd (“MTA”). The Company, UGL and John Holland MTA
Pty Ltd (“JHMTA”) own 60%, 20% and 20% respectively of
MTA and are, therefore, substantial shareholders of MTA.
Accordingly, UGL and JHMTA are connected persons of
the Company.
Since both UGL and LCAL are indirect wholly-owned
subsidiaries of CIMIC Group Limited, LCAL is an associate of
UGL and is also a connected person of the Company.
Therefore, each of Government, KCRC, the AA, UGL and
LCAL is a “connected person” of the Company for the
purposes of the Listing Rules and, during 2019, each
transaction set out at paragraphs I, II III, IV and V below
constituted a continuing connected transaction for the
Company under the Listing Rules.
In accordance with the Guidance Letter GL 73-14 issued
by the Stock Exchange and taking into account the Stock
Exchange’s recommendation, the Company’s Internal Audit
Department (“IAD”) has reviewed the Company’s continuing
connected transactions set out below and the related internal
control procedures. IAD found that the internal control
procedures put in place by the Company were adequate
and effective and reported the same to the Audit Committee
of the Company to assist the Company’s Independent
Non-executive Directors in their annual review and
confirmation required to be given pursuant to the
Merger-related Waiver (as defined below), the Waiver and
the Listing Rules (as appropriate).
I
Merger-related Continuing
Connected Transactions
Each of the transactions listed in paragraphs A to C below
(together, the “Merger-related Continuing Connected
Transactions”) and which formed part of the Rail Merger, was
approved by the independent shareholders of the Company
at an Extraordinary General Meeting held on 9 October
2007. These paragraphs should be read in conjunction with
the paragraphs contained in the section below headed
“Additional Information in respect of the Rail Merger”.
As disclosed in the circular issued by the Company on
3 September 2007 in connection with the Rail Merger,
the Stock Exchange granted a waiver to the Company
from strict compliance with the requirements under
Chapter 14A of the Listing Rules which would otherwise
apply to continuing connected transactions between the
Company, Government and/or KCRC arising as a result
of the Rail Merger, subject to certain conditions (the
“Merger-related Waiver”).
A Merger Framework Agreement
The Merger Framework Agreement was entered into on
9 August 2007 between the Company, KCRC and the Secretary
for Transport and Housing and the Secretary for Financial
Services and the Treasury for and on behalf of Government.
The Merger Framework Agreement contains provisions for
the overall structure and certain specific aspects of the Rail
Merger, including in relation to:
•
•
a seamless interchange programme;
corporate governance of the Company Post-Rail Merger;
• payments relating to property enabling works;
•
•
•
arrangements relating to the establishment of a rolling
programme on the level of flat production arising from
tenders for railway property development;
arrangements in relation to the assessment of land
premium amounts;
arrangements in relation to the employees of the
Company and KCRC, including provisions preventing the
Company from terminating the employment of relevant
frontline staff for any reason that relates to the process of
integrating the operations of the Company and KCRC;
155
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 the implementation of certain fare reductions;
C Property Package Agreements
Category 2A Properties
On 9 August 2007, Government entered into an undertaking
that it would issue to KCRC an offer for the grant at nil
premium of Government leases in respect of the land upon
which certain properties (the “Category 2A Properties”)
are situated (the “said Government Leases”). The Category
2A Properties were held by KCRC as vested land under the
Kowloon-Canton Railway Corporation Ordinance (Cap.
372 of the Laws of Hong Kong). On 9 August 2007, KCRC
entered into an undertaking that it would, immediately
after the grant of the said Government Leases referred to in
the preceding sentence, enter into agreements for sale and
purchase to sell the Category 2A Properties to the Company
(the “said Agreements for Sale and Purchase”). Assignments
of the Category 2A Properties to the Company shall then
take place pursuant to the said Agreements for Sale and
Purchase (the “said Assignments”).
The said Government Leases were issued to KCRC
respectively on 27 March 2009 and 31 March 2009. The
said Agreements for Sale and Purchase were entered into
between KCRC and the Company on 27 March 2009 and 31
March 2009 respectively and the said Assignments to the
Company were executed on 27 March 2009 and
31 March 2009 respectively. Deeds of Mutual Grant were
also entered into between the Company and KCRC on
27 March 2009 and 31 March 2009 respectively setting
out the easements, rights, entitlements, privileges and
liberties of the Company and KCRC in the land on which
the Category 2A Properties are situated.
Category 2B Property
On 9 August 2007, Government entered into an undertaking
that it would issue to the Company an offer for the grant of
a Government Lease of a certain property (the “Category 2B
Property”) on terms to be agreed.
The basic terms offer for the Category 2B Property (i.e.
Trackside Villas) was issued and accepted by the Company on
31 December 2009 and Government Lease in respect of Tai
Po Town Lot No. 199 dated 29 March 2010 was issued for a
term of 50 years from 2 December 2007.
•
•
arrangements in relation to the proposed Shatin to
Central Link;
• KCRC’s continuing responsibility for its existing
financial arrangements;
•
•
•
•
treatment of KCRC’s cross border leases;
the payment of HK$7.79 billion in respect of the Property
Package (as described on pages 156 to 157 and in
paragraph C below);
the allocation of liability for any Pre-Rail Merger and Post-
Rail Merger claims by third parties; and
the Company’s retention of its English name and
(pursuant to the Rail Merger Ordinance) the change of its
Chinese name to “香港鐵路有限公司”.
B West Rail Agency Agreement
The West Rail Agency Agreement and related agreements
were entered into on 9 August 2007 between the Company,
KCRC and certain KCRC subsidiary companies (the “West Rail
Subsidiaries”). Pursuant to the terms of the West Rail Agency
Agreement, the Company was appointed:
•
•
to act as KCRC’s agent, and donee under powers of
attorney, to exercise certain rights and perform certain
obligations relating to specified development sites along
West Rail; and
to act as agent for, and donee under powers of attorney
from, each of the West Rail Subsidiaries to exercise certain
rights and perform certain obligations relating to specified
development sites along West Rail.
The Company will receive an agency fee of 0.75% of the
gross sale proceeds in respect of the unawarded West Rail
development sites and 10% of the net profits accrued to the
West Rail Subsidiaries under the development agreements
in respect of the awarded West Rail development sites. The
Company will also recover from the West Rail Subsidiaries its
costs (including internal costs) incurred in respect of the West
Rail development sites plus 16.5% on-cost, together with
interest accrued thereon.
156
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation Category 3 Properties
On 9 August 2007, the Company entered into three
agreements (the “Category 3 Agreements”) and related
powers of attorney with KCRC. Each Category 3 Agreement
relates to a certain property (each a “Category 3 Property”).
KCRC has previously entered into a development agreement
in respect of each Category 3 Property. None of the rights
and obligations granted to or undertaken by the Company
under the Category 3 Agreements may be exercised or
performed by the Company if they relate exclusively to
concession property situate on any Category 3 Property.
Matters affecting the concession property situate on any
Category 3 Property are dealt with under the terms of the
Service Concession Agreement (as defined and summarised
on pages 172 to 173).
Pursuant to the terms of each Category 3 Agreement, the
Company has been appointed to act as KCRC’s agent, and
donee under powers of attorney, to exercise rights and to
perform obligations of KCRC which relate to the Category 3
Property (but excluding the right or obligation to dispose of
the relevant Category 3 Property).
The Company is required at all times to comply with statutory
restrictions and obligations binding on KCRC which relate to
the Category 3 Properties, and shall pay all amounts due and
payable from KCRC which have been incurred by KCRC as a
result of the Company’s actions.
In acting as KCRC’s agent, the Company is required to act
according to prudent commercial principles, and aim to
maximise gross profits under the Category 3 Properties
and to run a safe and efficient railway. In order to assist the
Company in performing its agency functions, KCRC has
granted powers of attorney to the Company. The Company
may only use the powers of attorney to exercise rights and
perform obligations conferred or undertaken by it under the
relevant Category 3 Agreement. As well as acting as KCRC’s
agent, the Company has the right to give KCRC instructions
in respect of any action or matter relating to each Category
3 Property (including its related development agreement)
which the Company is unable to take by reason of the
limitation of the scope of its agency powers. KCRC is required
to comply promptly with those instructions provided that it
is permitted under law, and under the relevant Government
grant, to carry out those instructions.
KCRC is required to account for revenue received in respect
of a Category 3 Property by way of balance sheet movement
(rather under its profit and loss account), provided that such
treatment is permitted under law and accounting principles
and practices.
KCRC shall not take any action in respect of a Category
3 Property which is not carried out by the Company
(acting as KCRC’s agent), or according to the Company’s
instructions, or otherwise in accordance with the terms of
the Category 3 Agreement.
As consideration for acting as KCRC’s agent, the Company
shall be paid a fee which is expected to be similar in quantum
to the profits made by KCRC in respect of the relevant
Category 3 Property (after deducting certain initial and
upfront payments and consultant contribution costs, in each
case paid or to be paid by the relevant developer to KCRC).
Generally, the Company’s fee shall be payable in instalments
promptly following receipt of relevant funds by KCRC (but
subject to specified deductions of amounts due from KCRC to
the relevant Category 3 Property developer).
The Company has agreed to give certain indemnities to KCRC
in respect of each Category 3 Property.
The Company shall be the first manager, or shall ensure that a
manager is appointed in respect of, each Category 3 Property
(once developed).
The Company’s appointment as agent shall terminate when
KCRC ceases to have any undivided share in the relevant
Category 3 Property, other than concession property, and
neither KCRC nor the developer nor the guarantors have
any further rights to exercise, or obligations to perform,
under the development agreement relating to the relevant
Category 3 Property.
II
Non Merger-related Continuing
Connected Transactions
The following disclosures, in paragraphs A1 to D below
together with the Third XRL Agreement (as defined below)
(together, the “Non Merger-related Continuing Connected
Transactions”), are made in accordance with the conditions of
the Waiver and Rule 14A.71 of the Listing Rules.
157
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 A1 Entrustment Agreement for Design and
Site Investigation in relation to the Shatin to
Central Link
The Entrustment Agreement for Design and Site Investigation
in relation to the Shatin to Central Link (the “First SCL
Agreement”) was entered into on 24 November 2008
between the Company and the Secretary for Transport and
Housing for and on behalf of Government.
The First SCL Agreement contains provisions for the design of
and site investigation and procurement activities in relation to
the proposed Shatin to Central Link, including in relation to:
• Government’s obligation to pay the Company up to
a maximum aggregate amount of HK$1,500 million
in respect of certain costs incurred by the Company
pursuant to the First SCL Agreement, including the
Company’s in-house design costs and certain on-costs
and preliminary costs;
• Government’s obligation to bear and finance the total
cost of the design and site investigation activities under
the First SCL Agreement (subject to the limit noted
above in respect of payments to the Company) and
arrangements for the payment of these costs directly
by Government;
•
•
•
the Company’s obligation to carry out or procure the
carrying out of the design and site investigation activities
in relation to the proposed Shatin to Central Link;
the limitation of the Company’s liability to Government
under the First SCL Agreement, except in respect of
death or personal injury caused by the negligence of the
Company, to HK$600 million; and
should the railway scheme for the Shatin to Central Link
be authorised under the Railways Ordinance (Cap. 519
of the Laws of Hong Kong), the execution of a further
agreement by Government and the Company setting
out each of their rights, obligations, duties and powers
with respect to the financing, construction, completion,
testing, commissioning and putting into service the
works necessary for the construction and operation of the
Shatin to Central Link.
A2 Entrustment Agreement for Advance Works
relating to the Shatin to Central Link
The Entrustment Agreement for Advance Works relating
to the Shatin to Central Link (the “Second SCL Agreement”)
was entered into on 17 May 2011 between the Company
and the Secretary for Transport and Housing for and on
behalf of Government.
The Second SCL Agreement contains the following
provisions:
•
•
in consideration of the Company executing or procuring
the execution of certain entrustment activities as set
out in the Second SCL Agreement and carrying out its
other obligations under the Second SCL Agreement,
Government shall pay to the Company the Company’s
project management cost. The amount of such project
management cost is to be agreed between the Company
and Government and prior to such agreement, the
project management cost shall be paid by Government
to the Company on a provisional basis calculated in
accordance with the Second SCL Agreement;
the Company and Government may agree that the
Company will carry out (or procure the carrying out
of) certain additional works for Government (such
agreed additional works being “miscellaneous works”).
Miscellaneous works (if any) are to be carried out by the
Company in the same manner as if they had formed
part of the activities specified to be carried out under
the Second SCL Agreement and in consideration of the
Company executing or procuring the execution of such
miscellaneous works (if any) and carrying out its other
obligations under the Second SCL Agreement in relation
to such miscellaneous works (if any), Government shall
pay to the Company an amount to be agreed between
the Company and Government as being the project
management fee payable to the Company for designing
and constructing such miscellaneous works;
• Government shall bear all of the “Works Cost” (as defined
in the Second SCL Agreement). In this connection,
Government will make payments to the Company in
respect of the Works Cost on a provisional basis, subject
to adjustments when the final outturn cost of the Works
Cost is determined;
158
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation • Government shall bear land acquisition, clearance and
related costs and those costs which are incurred by the
Lands Department in connection with the Shatin to
Central Link project;
•
•
•
•
•
the maximum aggregate amount payable by
Government to the Company under the Second SCL
Agreement is limited to approximately HK$3,000 million
per annum and a total in aggregate of approximately
HK$15,000 million;
the Company shall carry out or procure the carrying out
of certain enabling works on the expanded Admiralty
Station and the to be constructed Ho Man Tin Station,
the reprovisioning of the International Mail Centre from
Hung Hom to Kowloon Bay and other works as described
under the Second SCL Agreement;
the Company’s total liability to Government under the
First SCL Agreement and the Second SCL Agreement,
except in respect of death or personal injury caused
by the negligence of the Company, is limited to the
aggregate fees that have been and will be received by
the Company from Government under the First SCL
Agreement and the Second SCL Agreement;
the Company will provide to Government by the end of
each calendar month, a progress report on the activities
under the Second SCL Agreement that were carried out
in the immediately preceding calendar month and, within
three months following the completion of the relevant
works, a final report on the activities required to be
carried out under the Second SCL Agreement;
the Company shall be responsible for the care of all
works constructed under the Shatin to Central Link
project from the commencement of construction until
the date of handover of those works to Government
and for completing or procuring the completion of any
outstanding works and/or defective works identified prior
to the handover of the works;
• during the period of twelve years following the issue of
a certificate of completion by the Company in respect of
work carried out under any contract with any third party,
the Company shall be responsible for the repair of any
defects in such work that are identified following the expiry
of any defects liability period under the relevant contract;
•
the Company warrants that:
–
–
–
in the case of those activities under the Second SCL
Agreement that relate to the provision of project
management services, such activities shall be carried
out with the skill and care reasonably to be expected
of a professional and competent project manager;
in the case of those activities under the Second SCL
Agreement that relate to the provision of design
services, such activities shall be carried out with
the skill and care reasonably to be expected of a
professional and competent design engineer; and
in the case of those activities under the Second
SCL Agreement that relate to the carrying out of
construction activities, such activities shall be carried
out with the skill and care reasonably to be expected
of, and by utilising such plant, goods and materials
reasonably to be expected from, a competent and
workmanlike construction contractor; and
• Government further undertakes to use reasonable
endeavours to provide the Company with assistance of
a non-financial nature, including taking all reasonable
steps to procure that all necessary licences and
consents, required in connection with the design,
construction and operation of the Shatin to Central Link
are given or granted.
A3 Entrustment Agreement for Construction and
Commissioning of the Shatin to Central Link
The Entrustment Agreement for Construction and
Commissioning of the Shatin to Central Link (the “Third SCL
Agreement”) was entered into on 29 May 2012 between the
Company and the Secretary for Transport and Housing for
and on behalf of Government.
The Third SCL Agreement contains the following provisions:
•
in consideration of the Company executing or procuring
the execution of certain entrustment activities as set out
in the Third SCL Agreement and carrying out its other
obligations under the First SCL Agreement and the
Second SCL Agreement, Government shall pay to the
Company the Company’s project management cost. The
amount of the project management cost is HK$7,893
million and will be paid by Government to the Company
on a quarterly basis;
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 •
the Company and Government may agree that the
Company will carry out (or procure the carrying out
of) certain additional works for Government (such
agreed additional works being “miscellaneous works”).
Miscellaneous works (if any) are to be carried out by the
Company in the same manner as if they had formed
part of the activities specified to be carried out under
the Third SCL Agreement and in consideration of the
Company executing or procuring the execution of such
miscellaneous works (if any) and carrying out its other
obligations under the Third SCL Agreement in relation
to such miscellaneous works (if any), Government shall
pay to the Company an amount to be agreed between
the Company and Government as being the project
management fee payable to the Company for designing
and constructing such miscellaneous works;
• Government shall bear certain “Third Party Costs”, any
“Interface Works Costs” and any “Direct Costs” (each as
defined in the Third SCL Agreement);
• Government shall bear land acquisition, clearance and
related costs and those costs which are incurred by the
Lands Department in connection with the Shatin to
Central Link project;
•
•
•
the maximum aggregate amount payable by
Government to the Company under the Third SCL
Agreement is limited to HK$3,000 million per annum and
a total in aggregate of HK$15,000 million;
the maximum aggregate amount payable by the
Company to Government under the Third SCL
Agreement in relation to its contribution to certain
railway works under the Third SCL Agreement is limited
to HK$4,000 million per annum and a total in aggregate
of HK$15,000 million;
the Company’s total liability to Government under the
First SCL Agreement, the Second SCL Agreement and
the Third SCL Agreement, except in respect of death
or personal injury caused by the negligence of the
Company, is limited to the aggregate fees that have been
and will be received by the Company from Government
under the First SCL Agreement, the Second SCL
Agreement and the Third SCL Agreement;
•
the Company will provide to Government by the end of
each calendar month, a progress report on the activities
under the Third SCL Agreement that were carried out in
the immediately preceding calendar month and, within
three months following the handover of the Shatin to
Central Link project to Government, a final report on
the activities required to be carried out under the Third
SCL Agreement;
•
the Company shall be responsible for the care of all
works constructed under the Shatin to Central Link
project from the commencement of construction until
the date of handover of those works to Government
and for completing or procuring the completion of any
outstanding works and/or defective works identified prior
to the handover of the works;
• during the period of twelve years following the issue of
a certificate of completion by the Company in respect
of work carried out under any contract with any third
party, the Company shall be responsible for the repair
of any defects in such work that are identified following
the expiry of any defects liability period under the
relevant contract;
•
the Company warrants that:
–
–
–
in the case of those activities under the Third SCL
Agreement that relate to the provision of project
management services, such activities shall be carried
out with the skill and care reasonably to be expected
of a professional and competent project manager;
in the case of those activities under the Third SCL
Agreement that relate to the provision of design
services, such activities shall be carried out with
the skill and care reasonably to be expected of a
professional and competent design engineer; and
in the case of those activities under the Third
SCL Agreement that relate to the carrying out of
construction activities, such activities shall be carried
out with the skill and care reasonably to be expected
of, and by utilising such plant, goods and materials
reasonably to be expected from, a competent and
workmanlike construction contractor; and
• Government further undertakes to use reasonable
endeavours to provide the Company with assistance of
a non-financial nature, including taking all reasonable
steps to procure that all necessary licences and
consents, required in connection with the design,
construction and operation of the Shatin to Central Link
are given or granted.
160
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation B1 Entrustment Agreement for Design and Site
Investigation in relation to the Express Rail Link
B2 Entrustment Agreement for Construction,
Testing and Commissioning of the Express Rail Link
The Entrustment Agreement for Design and Site Investigation
in relation to the Express Rail Link (the “First XRL Agreement”)
was entered into on 24 November 2008 between the
Company and the Secretary for Transport and Housing for
and on behalf of Government.
The Entrustment Agreement for the Construction and
Commissioning of the Express Rail Link was entered
into on 26 January 2010 between the Company and the
Secretary for Transport and Housing for and on behalf of
Government (the “Second XRL Agreement”).
The First XRL Agreement contains provisions for the design of
and site investigation and procurement activities in relation
to the proposed Express Rail Link, including in relation to:
• Government’s obligation to pay the Company, up to
a maximum aggregate amount of HK$1,500 million,
in respect of certain costs incurred by the Company
pursuant to the First XRL Agreement, including the
Company’s in-house design costs and certain on-costs,
preliminary costs and recruited staff costs;
The scheme in respect of the Express Rail Link was first
gazetted under the Railways Ordinance (Cap. 519 of the Laws
of Hong Kong) on 28 November 2008, with amendments
and corrections gazetted on 30 April 2009. The scheme,
as amended with such minor modifications as deemed
necessary, was authorised by the Chief Executive in Council
on 20 October 2009 and funding support approved by the
Finance Committee on 16 January 2010.
The Second XRL Agreement contains the following provisions:
• Government’s obligation to bear and finance the total
•
•
•
•
cost of the design and site investigation activities under
the First XRL Agreement (subject to the limit noted
above in respect of payments to the Company) and
arrangements for the payment of these costs directly
by Government;
the Company’s obligation to carry out or procure the
carrying out of the design and site investigation activities
in relation to the proposed Express Rail Link;
the limitation of the Company’s liability to Government
under the First XRL Agreement, except in respect of
death or personal injury caused by the negligence of the
Company, to HK$700 million; and
should the railway scheme for the Express Rail Link be
authorised under the Railways Ordinance (Cap. 519
of the Laws of Hong Kong), the execution of a further
agreement by Government and the Company setting
out each of their rights, obligations, duties and powers
with respect to the financing, construction, completion,
testing, commissioning and putting into service the
works necessary for the construction and operation of the
Express Rail Link.
in consideration of the Company executing or
procuring the execution of certain entrustment
activities as set out in the Second XRL Agreement and
carrying out its other obligations under the Second XRL
Agreement and the First XRL Agreement, Government
shall pay to the Company HK$4,590 million (further
details relating to the amendments to this provision
are set out in the section below headed “The Third
Agreement in Relation to the Express Rail Link”), to
be paid in cash quarterly in advance on a scheduled
basis as such sum may be varied in accordance with
the Second XRL Agreement, subject to the maximum
payment limits stated in the Second XRL Agreement
(being HK$2,000 million annually and HK$10,000
million in total) (the “Maximum Payment Limits”);
•
the Company and Government may agree that the
Company will carry out (or procure the carrying out
of) certain additional works for Government (such
agreed additional works being “miscellaneous works”).
Miscellaneous works (if any) are to be carried out by the
Company in the same manner as if they had formed
part of the activities specified to be carried out under
the Second XRL Agreement and in consideration of the
Company executing or procuring the execution of the
miscellaneous works (if any) and carrying out its other
obligations under the Second XRL Agreement in relation
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 •
•
to the miscellaneous works (if any), Government shall
pay to the Company an amount equal to an agreed
fixed percentage of third party costs attributable to the
miscellaneous works from time to time subject to the
Maximum Payment Limits;
the Company will provide to Government by the end of
each calendar month, a progress report on the activities
under the Second XRL Agreement that were carried
out in the immediately preceding calendar month and,
within three months following the earlier of handover
of the Express Rail Link project to Government or
termination of the Second XRL Agreement, a final
report on the activities required to be carried out under
the Second XRL Agreement;
the Company shall be responsible for the care of all
works constructed under the Express Rail Link project
from the commencement of construction until the
date of handover of those works to Government
(or to a third party directed by Government) and
for completing or procuring the completion of any
outstanding works and/or defective works identified
prior to the handover of the works;
• during the period of twelve years following the issue of
a certificate of completion by the Company in respect
of work carried out under any contract with any third
party, the Company shall be responsible for the repair
of any defects in such work that are identified following
the expiry of any defects liability period under the
relevant contract;
•
the Company warrants that:
–
–
–
in the case of those activities under the Second XRL
Agreement that relate to the provision of project
management services, such activities shall be carried
out with the skill and care reasonably to be expected
of a professional and competent project manager;
in the case of those activities under the Second XRL
Agreement that relate to the provision of design
services, such activities shall be carried out with
the skill and care reasonably to be expected of a
professional and competent design engineer; and
in the case of those activities under the Second
XRL Agreement that relate to the carrying out of
construction activities, such activities shall be carried
out with the skill and care reasonably to be expected
of, and by utilising such plant, goods and materials
reasonably to be expected from, a competent and
workmanlike construction contractor;
• Government is required to bear (i) any costs payable to
third parties, (ii) any charges, costs or amounts payable
to any Government department, bureau, agency or body
in relation to the activities to be carried out under the
Second XRL Agreement, (iii) any and all amounts payable
to KCRC as compensation for damage arising as a result of
the Company and/or a third party contractor carrying out
activities under the Second XRL Agreement; and (iv) all
land acquisition, clearance and related costs (including all
amounts arising as a result of any claim for compensation
by any third party) and those costs which are incurred by
the Lands Department in connection with the Express Rail
Link project (further details relating to the amendments
to this provision are set out in the section below headed
“The Third Agreement in Relation to the Express Rail
Link”); and
• Government further undertakes to use reasonable
endeavours to provide the Company with assistance of
a non-financial nature, including taking all reasonable
steps to procure that all necessary licences and consents,
required in connection with the design, construction and
operation of the Express Rail Link are given or granted.
Government had agreed that the Company would proceed
with the construction, testing and commissioning of the
Express Rail Link (pursuant to and on the terms of the Second
XRL Agreement) on the understanding that the Company
would be invited to undertake the operation of the Express
Rail Link under the concession approach.
The Third Agreement in Relation to the Express
Rail Link
On 30 November 2015, Government and the Company
entered into the deed of agreement relating to the further
funding and completion of the Express Rail Link project (the
“Third XRL Agreement”). The Third XRL Agreement contains
an integrated package of terms and provides that:
(i) Government will bear and finance the project cost up to
HK$84.42 billion;
(ii) if the project cost exceeds HK$84.42 billion, the Company
will bear and finance the portion which exceeds that sum
(if any), except for certain agreed excluded costs;
162
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation (iii) the Company will pay a special dividend of HK$4.40 in
aggregate per share in two equal tranches (of HK$2.20
per share, in cash in each tranche);
(iv) certain amendments will be made to the existing
entrustment arrangements entered into in 2010 relating
to the Express Rail Link, including an increase in the
project management fee payable to the Company to
HK$6.34 billion;
(v) Government reserves the right to refer to arbitration, after
commencement of operations on the Express Rail Link,
the question of the Company’s liability for the current
cost overrun (if any); and
(vi) the Third XRL Agreement was subject to (a) the obtaining
of approval of the Company’s independent shareholders
(which was obtained on 1 February 2016) and (b) the
obtaining of approval of the Legislative Council for
Government’s additional funding obligations (which was
obtained on 11 March 2016).
The first tranche of the special dividend of HK$2.20 per share
was distributed on 13 July 2016 and the second tranche, also
of HK$2.20 per share, was distributed on 12 July 2017.
Pursuant to the Third XRL Agreement, certain amendments
have been made to the Second XRL Agreement to reflect
the arrangements contained in the Third XRL Agreement,
including (i) amendments to the arrangements for the
bearing and financing of the project cost; and (ii) an increase
in the project management cost payable to the Company to
an aggregate of HK$6.34 billion (which reflects the estimate
of the Company’s expected internal costs in performing its
obligations in relation to the Express Rail Link project).
C1 Maintenance Agreement for the Automated
People Mover System at the Hong Kong
International Airport
On 5 July 2013, the Company entered into a Maintenance
Contract with the AA for the renewal of the then expired
maintenance agreement for the maintenance of the
Automated People Mover system at the Hong Kong
International Airport (the “System”) for a seven year period
(the “Maintenance Contract”), effective from 6 July 2013. It is
expected that the highest amount per year receivable from
the AA under the Maintenance Contract will be no more than
HK$85 million.
The Maintenance Contract contains provisions relating to the
operation and maintenance by the Company of the System
and the carrying out by the Company of certain specified
services in respect of the System, they include the following:
• provisions stating that the duration of the Maintenance
Contract shall be seven years from 6 July 2013 up to and
including 5 July 2020;
• provisions relating to the performance of scheduled
maintenance works and overhaul of the System by
the Company;
• provisions relating to monitoring the System for any
breakdown and the Company providing repair services
where necessary;
• provisions relating to the standards to which the
Company must operate the System;
• provisions relating to the carrying out by the Company
(as additional services), in certain circumstances, of
upgrade work on the System; and
• provisions relating to the operations of and
maintenance for the extension of the System to the
Midfield Concourse.
C2 Subcontractor Warranty to the AA
On 18 May 2018, the Company provided a sub-contractor
warranty to the AA as a result of obtaining a subcontract from
Niigata Transys Co., Ltd. (“NTS”) for the modification works of
the existing System for a seven year period, effective from
25 September 2017 (the “Subcontract”). It is expected that
the highest amount per year receivable from NTS will be no
more than HK$60 million.
The Subcontract contains provisions covering the provision
and modification of the power distribution, communication
and control subsystems in respect of the System, which
includes the following:
• modification of the existing System for its extension to
the new Automated People Mover Interchange Station;
• provision of related electrical and mechanical systems,
including power distribution system, telecommunication
systems, platform screen door and maintenance
equipment; and
•
relocation of existing maintenance equipment to the new
Automated People Mover depot.
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 D Project Agreement for the Financing, Design,
Construction and Operation of the West Island Line
The Project Agreement for the Financing, Design,
Construction and Operation of the West Island Line (the
“WIL Project Agreement”) was entered into on 13 July 2009
between the Company and the Secretary for Transport and
Housing for and on behalf of Government.
The WIL Project Agreement contains provisions for the
financing of and the carrying out, or procuring the carrying
out, of the design, construction, completion, testing and
commissioning by the Company of the railway works
required in order to bring the West Island Line into operation
in accordance with the MTR Ordinance, the Operating
Agreement between the Company and the Secretary for
Transport and Housing for and on behalf of Government
dated 9 August 2007 and the WIL Project Agreement. The
West Island Line will be owned, operated and maintained
by the Company for its own account for the period of the
Company’s railway franchise. The final payment certificate
was issued on 28 June 2019.
The WIL Project Agreement includes provisions in relation to:
• payment by Government of HK$12,252 million to the
Company in consideration of the Company’s obligations
under the WIL Project Agreement, such sum constituting
funding support from Government for the Company to
implement the West Island Line project;
• within 24 months of commercial operations commencing
on the West Island Line on a revenue earning basis and
providing scheduled transport for the public (which
period was extended to no later than 30 June 2018 by
a supplemental agreement between the Company
and Government dated 23 December 2016, further
extended for a period ended on or before 31 March
2019 by a second supplemental agreement between
the Company and Government dated 29 June 2018, and
further extended for a period ended on 30 June 2019 by
a third supplemental agreement between the Company
and Government dated 29 March 2019), payment
by the Company to Government of any “Repayment
Amounts” for any over-estimation of certain capital
expenditure, price escalation costs, land costs and the
amount of contingency in relation to the railway works
and reprovisioning, remedial and improvement works
(together with interest);
•
•
•
the design, construction and completion of the
associated reprovisioning, remedial and improvement
works (the cost of which shall be the responsibility
of the Company) and the associated essential public
infrastructure works (the cost of which shall be the
responsibility of Government);
the Company’s responsibility for costs relating to land
acquisition, clearance and related costs arising from the
implementation of the West Island Line project (save
for costs arising from certain claims for compensation
by third parties) and all costs, expenses and other
amounts incurred or paid by the Lands Department
pursuant to the involvement of the Lands Department
in connection with the implementation of the West
Island Line project; and
the Company carrying out measures specified in the
environmental impact assessment and the environmental
permit issued by Government to the Company in relation
to the West Island Line on 12 January 2009.
III
Continuing Connected Transactions
relating to the Operation of the High
Speed Rail (formerly known as the
Express Rail Link)
The following disclosures, in paragraphs A and B below
(together, the “Continuing Connected Transactions relating
to the Operation of the High Speed Rail”), are made in
accordance with the conditions of the Waiver, the Merger-
related Waiver and Rule 14A.71 of the Listing Rules.
A Amendment Operating Agreement
On 23 August 2018, the Company and the Secretary for
Transport and Housing, for and on behalf of Government,
entered into the Amendment Operating Agreement (the
“AOA”) to amend and supplement the Integrated Operating
Agreement dated 9 August 2007 (as described in paragraph
D of the section headed “Additional Information in respect of
the Rail Merger” on pages 173 to 174), as amended (“Existing
Integrated Operating Agreement”), in order to prescribe the
operational requirements that will apply to the High Speed
Rail. The intent and effect of the AOA is that the operational
requirements that are applicable to the existing railway
network will apply in substantially the same manner to the
High Speed Rail, save where any amendments are necessary
to reflect the particular characteristics of, and arrangements
for, the High Speed Rail.
164
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation The AOA is an “operating agreement” for the purposes of the
MTR Ordinance, forms part of the legal and regulatory regime
for the operation of railways in Hong Kong and is required for
the purposes of the MTR Ordinance so that the High Speed
Rail is properly regulated under the MTR Ordinance.
•
•
facilitating the carrying out of inspections by the railway
inspector, including liaising with the Mainland operator
for this purpose, where necessary;
security obligations in relation to maintaining the
integrity and security of the boundaries of the Mainland
Port Area and the Cross-Boundary Restricted Area; and
Principal Terms of the AOA are as follows:
The terms of the AOA are based substantially on the terms
of the Existing Integrated Operating Agreement. The AOA
has taken effect on 23 September 2018 (the “Commercial
Operation Date (High Speed Rail)”) and will expire at the same
time as the Supplemental Service Concession Agreement
(the “SSCA”) entered into between the Company and KCRC
on 23 August 2018.
Certain principal terms of the AOA that are specific to the
High Speed Rail include:
• obligations on the Company to maintain specific
performance requirements in relation to train service
delivery, ticket machine reliability, ticket-gate reliability
and escalators and passenger lifts reliability;
• obligations on the Company to publish specific
customer services pledges in relation to train service
delivery, ticket machine reliability, ticket-gate reliability,
escalators and passenger lifts reliability, temperature
and ventilation levels, railway cleanliness (relating only
to the Company’s High Speed Rail trains) and passenger
enquiry response time;
• obligations in relation to the carrying out of the
maintenance of the Company’s High Speed Rail trains
outside Hong Kong;
• obligations on the Company to carry out design checks
and tests to verify that the Mainland operator’s High
Speed Rail trains are compatible with the Company’s
infrastructure and can run on the High Speed Rail safely;
• establishing procedures with the Mainland operator for
approving the Mainland operator’s trains to run on the
High Speed Rail safely and for informing Government of
the modification of any such trains;
• developing and maintaining a training qualification
system for drivers of High Speed Rail trains;
• mechanisms and Government approval procedures
for setting fares for High Speed Rail train journeys,
including that:
(i) prior to the Commercial Operation Date (High Speed
Rail), the Company will seek prior written consent
from Government before setting the fares for the
various available High Speed Rail ticket types; and
(ii) thereafter, fares cannot be adjusted, introduced or
withdrawn without the prior consent of Government.
B
Supplemental Service Concession Agreement
On 23 August 2018, the Company and KCRC entered into
the SSCA to supplement the Service Concession Agreement
dated 9 August 2007 (as described in paragraph B of the
section headed “Additional Information in respect of the
Rail Merger” on pages 172 to 173) (the “Existing Service
Concession Agreement”) in order for KCRC to grant a
concession to the Company in respect of the High Speed Rail
and to prescribe the operational and financial requirements
that will apply to the High Speed Rail. The intent and effect
of the SSCA is that the operational requirements that are
applicable to the Company’s operation of the existing KCRC
railway system will apply in substantially the same manner
to the High Speed Rail, save where any amendments
are necessary to reflect the particular characteristics of,
and arrangements for, the High Speed Rail. The financial
provisions in the SSCA have been designed to reflect the
provisions of the Existing Integrated Operating Agreement
that relate to new concession projects, such as the High
Speed Rail subject as set out below.
The SSCA is a “service concession agreement” for the
purposes of the MTR Ordinance, forms part of the legal
and regulatory regime for the operation of railways in
Hong Kong and is required for the purposes of the MTR
Ordinance so that the High Speed Rail is properly regulated
under the MTR Ordinance.
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 Principal Terms of the SSCA
(ii) Variable annual payments
The terms of the SSCA are based substantially on the terms
of the Existing Service Concession Agreement. The operating
period with respect to the High Speed Rail has commenced
on the Commercial Operation Date (High Speed Rail) and will
terminate automatically on the earlier of:
(i) a revocation of the Company’s franchise under the
MTR Ordinance in whole or in respect of the High
Speed Rail; and
(ii) the date falling immediately before the tenth
anniversary of the Commercial Operation Date (High
Speed Rail), but may be extended subject to further
negotiation between the Company and KCRC in
accordance with the mechanism set out in the SSCA,
in which case it shall terminate on such other date
as is agreed between the Company and KCRC (the
“Concession Period (High Speed Rail)”).
Certain principal terms of the SSCA that are specific to the
High Speed Rail include:
• Additional concession payments for the High Speed Rail
(i) General
The additional concession payments to be made by
the Company to KCRC and by KCRC to the Company
in respect of the High Speed Rail (described below)
have been designed to reflect the requirements
under the Existing Integrated Operating Agreement,
inter alia, for the Company to retain 10% of the
currently expected positive discounted net cash flow
from the operation of the High Speed Rail (being
discounted at a discount rate which reflects the
Company’s commercial rate of return in relation to
the High Speed Rail).
The SSCA provides for the fixed annual payments
and variable annual payments structure for the
additional concession payments, to reflect the
current concession payments structure for the
existing KCRC system under the Existing Service
Concession Agreement.
The additional concession payments for the
High Speed Rail are in addition to, and do not
replace, the payments made in respect of the
existing KCRC system under the Existing Service
Concession Agreement.
The variable annual payments (being payments
by the Company to KCRC) will be calculated in the
same manner prescribed under the Existing Service
Concession Agreement whereby the Company pays
to KCRC, for each financial year, a certain percentage
of the revenue generated from the KCRC system
(being 35% for revenues generated from the KCRC
system that are beyond the first HK$7.5 billion).
For the purposes of calculating the variable annual
payments, the revenue generated from the KCRC
system shall include the actual revenue from the High
Speed Rail fares received or retained by the Company
and revenue derived from businesses related to
the High Speed Rail which may include, without
limitation, advertising, telecommunications, duty free
and kiosk rental.
(iii) Fixed annual payments for the High Speed Rail
In light of the variable annual payments described in
paragraph (ii) above and in order for the Company
to be able to retain 10% of the currently expected
positive discounted net cash flow from the operation
of the High Speed Rail as described above, the fixed
annual payments shall comprise payments from
KCRC to the Company which, in aggregate, over the
Concession Period (High Speed Rail), will be equal to
HK$7,965 million.
These fixed annual payments shall be without
prejudice to the Company’s obligation to pay the
fixed annual payments of HK$750 million each
financial year to KCRC under the Existing Service
Concession Agreement.
• Revenue-related arrangements
In addition, the SSCA contains the following revenue-
related arrangements:
(i) Patronage adjustment
In respect of actual deviations from the current
patronage projections for the High Speed Rail:
(a) any excess or shortfall in actual patronage of
up to 15% in relation to the currently projected
patronage for the High Speed Rail will be borne
by the Company; and
166
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation (b) any excess or shortfall in actual patronage
• Pre-operating costs reimbursements
greater than 15% in relation to the currently
projected patronage for the High Speed Rail
will be borne between the Company and KCRC
in the proportions of 30% by the Company and
70% by KCRC.
(ii) Incremental revenue adjustment
In respect of actual deviations from the currently
projected patronage for the Company’s existing cross-
boundary services to and from Lo Wu and Lok Ma
Chau, and the existing intercity service, the Company
may receive two payments from KCRC (in respect
of the period from and including the Commercial
Operation Date (High Speed Rail) up to and including
31 December 2023 and in respect of the period from
and including 1 January 2024 up to and including the
day falling immediately before the tenth anniversary
of the Commercial Operation Date (High Speed Rail),
respectively) and which will be capped at HK$500
million and HK$1,000 million, respectively.
(iii) Mainland discount programme loss
In respect of revenue loss resulting from the
Mainland Student Ticket Discount and the
Mainland Disabled Military/Police Officer Discount
programmes adopted by the Mainland operator, the
Company will receive reimbursement payments from
KCRC on an annual basis.
KCRC and the Company will also discuss in good
faith similar reimbursement arrangements should
the Mainland operator introduce any other discount
programmes in future.
(iv) Service fees subsidy
In respect of the proportion of the service fee charged
in respect of tickets sold at West Kowloon Station
for journeys originating from and terminating at any
railway station in the Mainland which Government
has directed should be borne by the Company, the
Company will receive reimbursement payments from
KCRC on an annual basis.
In addition, KCRC shall reimburse the Company for
the pre-operating costs that are agreed between
the Company and KCRC, being costs and expenses
reasonably incurred by the Company prior to the
Commercial Operation Date (High Speed Rail) that satisfy
all of the following criteria:
(i) that directly resulted from the planning and
commencement of the operation of the relevant High
Speed Rail assets;
(ii) that have not already been paid, and will not be paid
or payable, by Government to the Company under
any relevant agreement or which the Company and
Government otherwise agree in writing should be
treated as a pre-operating cost;
(iii) that are not covered in any of the payments to be
made by KCRC to the Company under the SSCA; and
(iv) that fall within certain other types of agreed costs
and expenses in connection with the operation of
the High Speed Rail (including, mobilisation activities
in preparation for the opening of the High Speed
Rail and trial operations prior to the opening of the
High Speed Rail, and other items as may be agreed
between KCRC and the Company).
•
Equalisation payment
If the franchise is revoked by Government prior to
31 December 2023, KCRC is required to make a payment
to the Company of an amount that is equivalent to the
aggregate fixed annual payment payable by KCRC over
the ten year life of the concession, reduced pro rata to
take account of the time at which termination occurs,
and less any amounts of the fixed annual payment
already paid to the Company. The intention of this
equalisation payment is to ensure that the Company is
partly protected in the event of early termination of the
concession in respect of the High Speed Rail.
• High Speed Rail services
The Company is obliged to operate the High Speed Rail
during the Concession Period (High Speed Rail) to the
standards prescribed in the MTR Ordinance and the
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 Existing Operating Agreement (subject as otherwise
stated herein). The Company is not regarded as having
failed to meet a requirement under the MTR Ordinance
or the Existing Integrated Operating Agreement if the
failure has resulted from anything done or omitted to be
done by the Mainland operator, any Mainland authority
or persons directly under their control.
• Return requirements
If the Concession Period (High Speed Rail) expires
or is terminated, the Company shall, at no cost to
KCRC, redeliver possession of the High Speed Rail
concession property.
IV
Continuing Connected Transactions
relating to the Operation of the First
Phase of the Tuen Ma Line
The following disclosures, in paragraphs A and B below
(together, the “Continuing Connected Transactions relating
to the Operation of the first phase of the Tuen Ma Line”), are
made in accordance with the conditions of the Waiver, the
Merger-related Waiver and Rule 14A.71 of the Listing Rules.
A Amendment Operating Agreement and
Supplemental Operating Agreement
On 11 February 2020, the Company and the Secretary for
Transport and Housing, for and on behalf of Government,
entered into the Amendment Operating Agreement
(“TML1 AOA”) and the Company and the Commissioner for
Transport, for and on behalf of Government, entered into
the Supplemental Operating Agreement (“TML1 SOA”) to
amend and supplement, respectively, the Existing Integrated
Operating Agreement in order to prescribe the operational
requirements, such as service standards, that will apply to the
first phase of the Tuen Ma Line (“TML1”) which shall extend
the existing Ma On Shan Railway from Tai Wai to Kai Tak with
two new stations at Hin Keng and Kai Tak, and an interchange
station at Diamond Hill. The intent and effect of the TML1
AOA and the TML1 SOA together is that the operational
requirements that are applicable to the existing railway
network will apply in substantially the same manner to TML1.
The TML1 AOA and TML1 SOA are each an “operating
agreement” for the purposes of the MTR Ordinance, form
part of the legal and regulatory regime for the operation of
railways in Hong Kong and are required for the purposes of
the MTR Ordinance so that TML1 is properly regulated under
the MTR Ordinance.
The principal terms of the TML1 AOA and the TML1 SOA have
the effect of bringing TML1 within the legal and regulatory
regime for the operation of railways in Hong Kong contained
in the Existing Integrated Operating Agreement, as explained
above. The amendments under the TML1 AOA and the TML1
SOA took effect on 14 February 2020.
B
Supplemental Service Concession Agreement
On 11 February 2020, the Company and KCRC entered into
the Supplemental Service Concession Agreement No. 2
(“TML1 SSCA”) relating to TML1, to supplement the Existing
Service Concession Agreement in order for KCRC to grant
a concession to the Company in respect of TML1 and to
prescribe the operational and financial requirements that
will apply to TML1. The intent and effect of the TML1 SSCA is
that the operational requirements that are applicable to the
Company’s operation of the existing KCRC railway system
will apply in substantially the same manner to TML1, save
where any amendments are necessary to reflect the particular
characteristics of, and arrangements for, TML1. The financial
provisions in the TML1 SSCA have been designed to reflect
the principles contained in the Existing Integrated Operating
Agreement that relate to new concession projects, such as
TML1 (as referred to in paragraph A above of this section)
other than as set out below.
The TML1 SSCA is a “service concession agreement” for the
purposes of the MTR Ordinance, forming part of the legal and
regulatory regime for the operation of railways in Hong Kong,
and is required for the purposes of the MTR Ordinance so that
TML1 is properly regulated under the MTR Ordinance.
Principal Terms of the TML1 SSCA
The terms of the TML1 SSCA are based substantially on the
terms of the Existing Service Concession Agreement, as
explained above. The TML1 SSCA was made on 11 February
2020 and the term of the service concession and licence
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REPORT OF THE MEMBERS OF THE BOARDMTR Corporation granted by KCRC to the Company pursuant to the terms
of the TML1 SSCA and the commercial operation of TML1
commenced on 14 February 2020 (the “New Project Effective
Date (TML1)”), which will terminate automatically on and
from the earlier of (being the “Termination Date (TML1)”):
(i) the effective date of the revocation of the franchise
pursuant to the MTR Ordinance as it relates to the
KCRC railway;
(ii) the effective date of the withdrawal or revocation of
the permission by the Director of Lands pursuant to
the vesting deed entered into between KCRC and
Government as well as the revocation of the franchise
pursuant to the MTR Ordinance as it relates to TML1;
(iii) the first date of commissioning and commercial
operation of the entire Tuen Ma Line (“TML2”) to be
designated by Government under a new supplemental
service concession agreement for TML2 (which shall
supersede and replace the TML1 SSCA); and
(iv) the day falling immediately before the second
anniversary of the New Project Effective Date (TML1),
or such later date as each of the Company, KCRC and
Government may agree in a written agreement by no
later than the date falling one month prior to the second
anniversary of the New Project Effective Date (TML1)
or prior to the last extended date (where applicable)
(“Natural Expiry Date (TML1)”).
Certain principal terms of the TML1 SSCA that are specific to
TML1 include:
• Concession payments
(i) Variable annual payments
The variable annual payments (being payments
by the Company to KCRC) will be calculated in the
same manner prescribed under the Existing Service
Concession Agreement whereby the Company pays
to KCRC, for each financial year, a certain percentage
of the revenue generated from the KCRC system
(being 35% for revenues generated from the KCRC
system that are beyond the first HK$7.5 billion).
For the purposes of calculating the variable annual
payments, the revenue generated from the KCRC
system shall include the actual revenue from the
TML1 fares received or retained by the Company
and revenue derived from businesses related
to TML1 which may include, without limitation,
telecommunications and kiosk rental.
(ii) Fixed annual payments for TML1
In light of the variable annual payments described
above and in order for the Company to be able to
earn a commercial return as described above, the
fixed annual payments for TML1 shall comprise
payments from KCRC to the Company which, in
aggregate over the period commencing on the
New Project Effective Date (TML1) and ending
on the day prior to the Termination Date (TML1)
(“Concession Period (TML1)”) and assuming that
the Concession Period (TML1) terminates on the
Natural Expiry Date (TML1), will be equal to HK$465
million. These fixed annual payments shall be without
prejudice to the Company’s obligation to pay the
fixed annual payments of HK$750 million each
financial year to KCRC under the Existing Service
Concession Agreement.
• A new supplemental service concession agreement
for TML2
On and from the date of the TML1 SSCA, to and including
the date that is four months before the Natural Expiry
Date (TML1) (prior to any extension or otherwise after
such extension(s) as agreed in writing by the Company,
KCRC and Government for the purposes of this end date),
Government, the Company and KCRC shall commence
exclusive negotiations in good faith with a view to
agreeing the terms of a supplemental service concession
agreement for TML2 which shall, in accordance with the
Existing Integrated Operating Agreement, enable the
Company to earn a commercial rate of return from its
operation of TML2 (and that new supplemental service
concession agreement for TML2 is intended to replace
the TML1 SSCA).
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019
• Return requirements
If the Concession Period (TML1) expires or is terminated,
and no supplemental service concession agreement
is entered into for TML2, the Company shall, at
no cost to KCRC, redeliver possession of the TML1
concession property.
V
Non-Governmental Continuing
Connected Transaction
The following disclosure (the “Non-Governmental Continuing
Connected Transaction”) is made in accordance with Rule
14A.71 of the Listing Rules.
Contract 903 between the Company and LCAL
relating to certain works on the South Island
Line (East)
As explained above, LCAL is a “connected person” of
the Company within the meaning of Chapter 14A of the
Listing Rules. Contract 903 (as defined below) is therefore a
“continuing connected transaction” within the meaning of
Rule 14A.31 of the Listing Rules.
On 17 May 2011, the Company and LCAL entered into
Contract 903 (as amended by a supplemental agreement on
14 November 2014) (the “Contract 903”) for the construction
of certain works relating to the Aberdeen Channel Bridge,
Wong Chuk Hang Station and Ocean Park Station in respect
of the South Island Line (East) (the “Contract 903 Works”).
Contract 903 is in substantially the same form as the
Company’s standard conditions of contract for target cost
construction and contains the following provisions:
•
•
the principal obligation of LCAL under Contract 903 is the
construction of the Contract 903 Works;
LCAL shall indemnify the Company against any loss or
expense sustained by the Company and against all losses
and claims in respect of death or injuries or damage to
any person or property whatsoever which may arise out
of or in consequence of the execution of the Contract
903 Works and against all claims, proceedings, damages,
costs, charges and expenses whatsoever in respect of or
in relation thereto, except for compensation or damages
related to the permanent use or occupation of land by
the Contract 903 Works, or the right of the Company
to execute the Contract 903 Works on any part of the
•
•
•
•
•
•
land, or on account of any negligence by the Company,
its agents, servants or other contractors, not being
employed by LCAL;
LCAL shall indemnify the Company against all damages
and compensation and against all claims, demands,
proceedings, costs, charges and expenses whatsoever
in respect of any damages or compensation payable
at law in respect of or in consequence of any accident,
injury or illness to any workman or other person in the
employment of LCAL or its sub-contractors or suppliers
arising out of and in the course of such employment;
LCAL shall effect and maintain insurance with a limit
of not less than HK$200 million in relation to certain of
its liabilities;
a bond issued by Chartis Insurance Hong Kong Limited
has been provided to the Company in respect of the
obligations of LCAL under Contract 903;
LCAL’s liability to indemnify the Company is reduced
proportionally to the extent that any act or neglect of the
Company, the Engineer or any other person employed by
the Company in connection with the Contract 903 Works,
their respective agents, employees or representatives,
may have contributed to the relevant death, illness, or
damage. The total liability of LCAL to the Company for all
damages (liquidated damages and general) for delay shall
not exceed 10% of the target cost plus fees as calculated
under Contract 903;
the total amount payable by the Company to LCAL under
Contract 903 includes costs for the Contract 903 Works
and fees to LCAL. From time to time the scope of the
Contract 903 Works may vary and the Company will be
obliged to revise the fees payable to LCAL in accordance
with the terms of the Contract;
the Company is obliged to pay the costs for the Contract
903 Works to LCAL on a scheduled basis set out in
Contract 903. If the final total cost of the Contract 903
Works exceeds or is less than the target cost for the
Works, the deficit or, as the case may be, the excess will
be borne by or, as the case may be, distributed to the
Company and LCAL on a basis calculated in accordance
with Contract 903;
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REPORT OF THE MEMBERS OF THE BOARDMTR Corporation •
•
•
the maximum aggregate amount payable annually
by the Company under Contract 903 is approximately
HK$1,400 million. As payments by the Company to LCAL
are paid on a scheduled basis as set out in Contract
903, the maximum aggregate annual amount is set
by reference to the highest amount payable by the
Company in any given year under such schedule;
the Company is obliged to effect “Contractor’s All Risks”
and “Third Party Liability” insurance with a third party
liability limit of not less than HK$700 million. In addition,
LCAL has agreed to separately purchase additional cover
for “Third Party Liability” insurance in the amount of
HK$3,638 million; and
the Company may at any time, by giving 30 days’ notice
in writing to LCAL, terminate Contract 903 but without
prejudice to any claims by the Company for breach
of contract.
In relation to the Merger-related Continuing Connected
Transactions, the Non Merger-related Continuing
Connected Transactions, the Continuing Connected
Transactions relating to the Operation of the High Speed
Rail, the Continuing Connected Transactions relating to
the Operation of the first phase of the Tuen Ma Line and
the Non-Governmental Continuing Connected Transaction
(collectively “Transactions”) and in accordance with (i) in
the case of the Merger-related Continuing Connected
Transactions, paragraph B(I)(i) of the Merger-related Waiver;
(ii) in the case of the Non Merger-related Continuing
Connected Transactions, paragraph B(I)(iii)(a) of the Waiver;
(iii) in the case of the Continuing Connected Transactions
relating to the Operation of the High Speed Rail, paragraph
B(I)(i) of the Merger-related Waiver and paragraph B(I)(iii)(a)
of the Waiver; (iv) in the case of the Continuing Connected
Transactions relating to the Operation of the first phase of the
Tuen Ma Line, paragraph B(I)(i) of the Merger-related Waiver
and paragraph B(I)(iii)(a) of the Waiver; and (v) in the case of
the Non-Governmental Continuing Connected Transaction,
Rule 14A.55 of the Listing Rules, the Company confirms that
the Independent Non-executive Directors of the Company
have reviewed and confirmed that each of the Transactions
was entered into:
(1) in the ordinary and usual course of business (within the
meaning of the Listing Rules) of the Group;
(2) on normal commercial terms or better (within the
meaning of the Listing Rules); and
(3) according to the agreement governing them on terms
that are fair and reasonable and in the interests of the
Company’s shareholders as a whole.
The Company has engaged the auditors of the Company
to report on the Transactions in accordance with Hong
Kong Standard on Assurance Engagements 3000 (Revised)
“Assurance Engagements Other Than Audits or Reviews
of Historical Financial Information” and with reference to
Practice Note 740 “Auditor’s Letter on Continuing Connected
Transactions under the Hong Kong Listing Rules” issued by
the Hong Kong Institute of Certified Public Accountants.
In accordance with (i) in the case of the Merger-related
Continuing Connected Transactions, paragraph B(I)(ii) of the
Merger-related Waiver; (ii) in the case of the Non
Merger-related Continuing Connected Transactions,
paragraph B(I)(iii)(b) of the Waiver; (iii) in the case of the
Continuing Connected Transactions relating to the Operation
of the High Speed Rail, paragraph B(I)(ii) of the Merger-related
Waiver and paragraph B(I)(iii)(b) of the Waiver; (iv) in the case
of the Continuing Connected Transactions relating to the
Operation of the first phase of the Tuen Ma Line, paragraph
B(I)(ii) of the Merger-related Waiver and paragraph B(I)(iii)(b)
of the Waiver; and (v) in the case of the Non-Governmental
Continuing Connected Transaction, Rule 14A.56 of the
Listing Rules, the auditors have provided a letter to the Board
confirming that:
(a) nothing has come to their attention that causes them
to believe that any of the Transactions has not been
approved by the Board;
(b) nothing has come to their attention that causes them to
believe that any of the Transactions was not entered into,
in all material respects, in accordance with the relevant
agreements governing such transactions; and
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 in the case of the Non-Governmental Continuing
Connected Transaction, in addition, that:
(c) for transactions involving the provision of goods or
services by the Group, nothing has come to their
attention that causes them to believe that such
transactions were not, in all material respects, in
accordance with the pricing policies of the Group; and
(d) with respect to the aggregate amount of each of such
transactions, nothing has come to their attention
that causes them to believe that such transactions
have exceeded the relevant annual caps as set by the
Company in respect of each of such transactions.
Additional Information in respect of the
Rail Merger
The Rail Merger consisted of a number of separate
agreements, each of which was detailed in the circular
issued by the Company on 3 September 2007 in
connection with the Rail Merger, and which together
formed a complete package deal which was approved
by the independent shareholders of the Company at an
Extraordinary General Meeting held on 9 October 2007.
The information set out at paragraph A below describes
the payment framework adopted in respect of the Rail
Merger and paragraphs B to E below set out, summaries
of the various agreements entered into by the Company
in respect of the Rail Merger in addition to those
agreements disclosed above under the heading “Merger-
related Continuing Connected Transactions”.
A Payments in connection with Merger-related
Agreements
In connection with the Rail Merger, the following initial
payments were made by the Company to KCRC on
2 December 2007 (being the Merger Date):
•
•
an upfront payment of HK$4.25 billion, payable under
the Service Concession Agreement (as described in
paragraph B below), being the upfront fee for the
right to operate the Service Concession (as defined
in paragraph B below) and the consideration for the
purchased rail assets; and
an upfront payment of HK$7.79 billion payable under
the Merger Framework Agreement (as described on
pages 155 to 156) in consideration for the execution
of the Property Package Agreements (as described on
pages 156 to 157 and in paragraph E below) and the
sale of the shares in the subsidiaries of KCRC
(the “KCRC Subsidiaries”) that were transferred to the
Company under the Sale and Purchase Agreement
which was entered into on 9 August 2007 between the
Company and KCRC.
In addition to the initial payments above, the Company
is also required to make the following payments to KCRC
going forward:
•
•
fixed annual payments of HK$750 million payable
under the Service Concession Agreement, for the right
to use and operate the concession property for the
operation of the service concession, in arrears on the
day immediately preceding each anniversary of the
Merger Date which falls during the concession period in
respect of the 12-month period up to and including the
date on which such payment falls due; and
variable annual payments payable under the Service
Concession Agreement, for the right to use and
operate the concession property for the operation of
the service concession, in each case, calculated on a
tiered basis by reference to the amount of revenue
from the KCRC system (as determined in accordance
with the Service Concession Agreement) for each
financial year of the Company. No variable annual
payment is payable in respect of the first 36 months
following the Merger Date.
As a complete package deal, other than the payment
elements described above and unless stated otherwise in
the relevant paragraph below, no specific allocation was
made between the various elements of the Rail Merger.
B
Service Concession Agreement
The Service Concession Agreement was entered into on
9 August 2007 between the Company and KCRC.
The Service Concession Agreement contains provisions in
relation to the grant and operation of a service concession
and licence granted by KCRC to the Company (the
“Service Concession”), including in relation to:
•
•
the grant of the Service Concession to the Company
to access, use and operate the concession property
(other than KCRC railway land referred to immediately
below) to certain specified standards;
the grant of a licence to access and use certain KCRC
railway land;
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REPORT OF THE MEMBERS OF THE BOARDMTR Corporation •
•
the term (being an initial period of 50 years from the
Merger Date) of the Service Concession and redelivery
of the KCRC system upon expiry or termination of the
concession period. The Service Concession will end if
the Company’s franchise relating to the KCRC railway
is revoked;
the payments of an upfront payment of HK$4.25
billion and fixed annual payments and variable annual
payments (as described in paragraph A above);
• KCRC remaining the legal and beneficial owner of
the concession property as at the Merger Date and
the Company being the legal and beneficial owner of
certain future concession property (the “Additional
Concession Property”);
•
•
•
the regime for compensation payable by KCRC to
the Company if Additional Concession Property is
returned to KCRC at the end of the concession period;
the rights and restrictions of the Company and KCRC
in relation to the concession property; and
subject to certain conditions, the Company bearing
all risks, liabilities and/or costs whatsoever associated
with or arising from the concession property and
the land on which any of the concession property is
located during the concession period.
On 23 August 2018, the Company and KCRC entered
into the SSCA in order for KCRC to grant a concession
to the Company in respect of the High Speed Rail and
to prescribe the operational and financial requirements
that will apply to the High Speed Rail. Further details
are set out in the section above headed “III Continuing
Connected Transactions relating to the Operation of
the High Speed Rail (formerly known as the
Express Rail Link)” in the section headed “Continuing
Connected Transactions”.
On 11 February 2020, the Company and KCRC entered
into the TML1 SSCA in order for KCRC to grant a
concession to the Company in respect of the first phase
of the Tuen Ma Line of the Shatin to Central Link and to
prescribe the operational and financial requirements
that will apply to TML1. Further details are set out in
the section above headed “IV Continuing Connected
Transactions relating to the Operation of the First Phase
of the Tuen Ma Line” in the section headed “Continuing
Connected Transactions”.
C
Sale and Purchase Agreement
The Sale and Purchase Agreement was entered into on
9 August 2007 between the Company and KCRC.
The Sale and Purchase Agreement provides the terms
pursuant to which the Company acquired certain assets
and contracts (the “Purchased Rail Assets”) from KCRC.
The consideration for the sale of the Purchased Rail
Assets (excluding the shares in the KCRC Subsidiaries)
formed part of the upfront payment of HK$4.25 billion.
The consideration for the sale of the shares in the KCRC
Subsidiaries (which own the Category 1A Properties
referred to at paragraph E below and act as property
managers) formed part of the payment of HK$7.79 billion
for the property package (as described in paragraph A
above and in paragraph E below).
D Operating Agreement
The Operating Agreement was entered into on 9 August
2007 between the Company and the Secretary for
Transport and Housing for and on behalf of Government
as contemplated in the MTR Ordinance.
The Operating Agreement is based on the previous
Operating Agreement which was signed on 30 June
2000. The Operating Agreement differs from the previous
Operating Agreement to provide for, amongst other
things, the nature of the combined MTRC railway and
KCRC railway.
The Operating Agreement includes terms relating to:
•
•
the extension of the Company’s franchise under the
MTR Ordinance;
the design, construction and maintenance of
the railway;
• passenger services;
•
•
•
a framework for the award of new projects and the
operation and ownership structure of new railways;
the adjustment mechanism to be applied to certain of
the Company’s fares; and
compensation which may be payable under the MTR
Ordinance to the Company in relation to a suspension,
expiry or termination of the franchise.
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Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 Under the Operating Agreement, the fare adjustment
mechanism is subject to review periodically. The first of
such reviews was undertaken in 2013 and the second was
conducted in 2017. The Company and Government agreed
on 16 April 2013 to amend the fare adjustment mechanism.
On 21 March 2017, the Company announced that it and
Government had agreed to maintain the fare adjustment
mechanism formula and direct-drive nature of such formula,
save for certain consequential changes as a result of the
review of the formula having been advanced by one year.
In addition, the wider terms of the Operating Agreement
are subject to review every five years and such a review
was also undertaken in 2013. As a result of such review, the
Company and Government agreed measures in enhancing
communication and liaison on operational arrangements.
On 23 August 2018, the Company and the Secretary for
Transport and Housing, for and on behalf of Government,
entered into the AOA to amend and supplement the
Integrated Operating Agreement dated 9 August 2007,
as amended, in order to prescribe the operational
requirements that will apply to the High Speed Rail.
Further details are set out in the section above headed
“III Continuing Connected Transactions relating to the
Operation of the High Speed Rail (formerly known as the
Express Rail Link)” in the section headed “Continuing
Connected Transactions”.
On 11 February 2020, the Company and the Secretary
for Transport and Housing, for and on behalf of
Government, entered into the TML1 AOA and the
Company and the Commissioner for Transport, for and
on behalf of Government, entered into the TML1 SOA
to amend and supplement, respectively, the Existing
Integrated Operating Agreement, in order to prescribe
the operational requirements that will apply to the first
phase of the Tuen Ma Line of the Shatin to Central Link.
Further details are set out in the section above headed
“IV Continuing Connected Transactions relating to the
Operation of the First Phase of the Tuen Ma Line” in the
section headed “Continuing Connected Transactions”.
E Additional Property Package Agreements
Category 1A Properties
The Category 1A Properties are held by the KCRC
Subsidiaries. Under the terms of the Sale and Purchase
Agreement, the Company acquired from KCRC the shares
in the KCRC Subsidiaries (and thereby indirectly acquired
the “Category1A Properties”).
Category 1B Properties
On 9 August 2007, KCRC and the Company entered into
an agreement for sale and purchase under which KCRC
agreed to assign certain properties (the “Category 1B
Properties”) to the Company on the Merger Date. The
relevant assignment was executed between KCRC and the
Company on 2 December 2007.
Category 4 Properties
On 9 August 2007, Government entered into an
undertaking that it would, within periods to be agreed
between the Company and Government, offer to the
Company a private treaty grant in respect of certain
development sites (the “Category 4 Properties”). The
terms of each private treaty grant shall generally be
determined by Government, and the premium for each
private treaty grant shall be assessed on a full market
value basis ignoring the presence of the railway other
than the Tin Shui Wai Terminus, Light Rail, Yuen Long,
New Territories.
On 9 August 2007, the Company issued a letter to KCRC
confirming that, if there should be any railway premises
on the Category 4 Properties, the Company would assign
the railway premises to KCRC.
Metropolis Equity Sub-participation Agreement
The Metropolis Equity Sub-participation Agreement
was entered into on 9 August 2007 between KCRC and
the Company. KCRC is obliged to act on the Company’s
instructions, and pay to the Company any distributions,
or proceeds of sale, relating to its shareholding in
the property management company The Metropolis
Management Company Limited (“Metropolis”). The issued
share capital of Metropolis is 25,500 A shares (which are
held by KCRC) and 24,500 B shares (which are held by
Cheung Kong Property Management Limited). Metropolis’
business is property management.
F Application of Merger-related Waiver
In relation to the Operating Agreement and the Service
Concession Agreement, pursuant to paragraph A of the
Merger-related Waiver, the Stock Exchange granted a
waiver to the Company from strict compliance with all
the continuing connected transaction requirements of
Chapter 14A of the Listing Rules.
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REPORT OF THE MEMBERS OF THE BOARDMTR Corporation CAPITAL AND
REVENUE EXPENDITURE
There are defined procedures for the appraisal, review and
approval of major capital and revenue expenditures. All project
expenditures over 0.2% of the net assets of the Company and
the employment of consultancy services over 0.1% of the net
assets of the Company require the approval of the Board.
REPORTING AND MONITORING
There is a comprehensive budgeting system for all operational
and business activities, with an annual budget approved by the
Board. Monthly results of the Company’s operations, businesses
and projects are reported against the budget to the Board and
updated forecasts for the year are prepared regularly.
TREASURY MANAGEMENT
The Company’s Treasury Department operates within
approved guidelines from the Board. It manages the
Company’s debt portfolio with reference to the Preferred
Financing Model which defines the preferred mix of financing
instruments, fixed and floating rate debt, maturities, interest
rate risks, currency exposure and financing horizon. The
model is reviewed and refined periodically to reflect changes
in the Company’s financing requirements and the market
environment. Derivative financial instruments such as
interest rate swaps and cross currency swaps are used only
as hedging tools to manage the Group’s exposure to interest
rate and currency risks. Prudent guidelines and procedures
are in place to control the Company’s derivatives activities,
including a comprehensive credit risk management system
for monitoring counterparty credit exposure using the Value-
at-Risk approach. There is also appropriate segregation of
duties within the Company’s Treasury Department.
Major financing transactions and guidelines for derivatives
transactions, including the credit risk management
framework, are approved at the Board level.
COMPUTER PROCESSING
There are defined procedures, controls and regular quality
reviews on the operation of computer systems to ensure the
accuracy and completeness of financial records and efficiency
of data processing. The Company’s computer centre
operation and support, help desk operation and support
services, and also software development and maintenance,
have been certified under ISO 9001:2015. Disaster recovery
rehearsal on critical applications is conducted annually.
For cyber security, the Company has been certified with
ISO 27001:2013 on the Information Security Management
System that complies with the required standard for the
comprehensive scope of IT services operation. The Corporate
Cyber Security Committee sets the direction, strategy, and
policies related to cyber security for the Company. It steers
and oversees the management and performance of all
matters relating to cyber security. Various security controls
have been implemented and are reviewed regularly to
protect the Company from cyber-attacks.
PERMITTED INDEMNITY
PROVISION
Pursuant to the Articles of Association, subject to the statutes,
the Company will indemnify every Director of the Company
out of its own assets against any liability incurred by him/her in
the execution of his/her office in defending any civil or criminal
proceedings. The relevant Article was in force during the year
ended 31 December 2019 and on 5 March 2020 when this
Report was approved. To ensure sufficient coverage is provided,
the Company undertakes an annual review of the Directors’
and Officers’ liability insurance policy of the Company (the
“D&O Insurance Policy”) in light of recent trends in the insurance
market and other relevant factors. The D&O Insurance Policy
also indemnifies the other directors within the Group.
GOING CONCERN
The Consolidated Accounts on pages 182 to 262 have been
prepared on a going concern basis. The Board has reviewed
the Group’s budget for 2020, together with the longer-term
forecast for the following five years and is satisfied that the
Group has sufficient resources to continue as a going concern
for the foreseeable future.
AUDITORS
The retiring auditors, KPMG, have signified their willingness
to continue in office. A resolution will be proposed at the
forthcoming AGM to reappoint them and to authorise the
Directors to fix their remuneration.
For and on behalf of the Board
Gillian Elizabeth Meller
Company Secretary
Hong Kong, 5 March 2020
175
Financials and Other InformationBusiness Review and AnalysisOverviewCorporate GovernanceAnnual Report 2019 DIRECTORS OF SUBSIDIARY UNDERTAKINGS
The directors of the subsidiary undertakings of the Company during the year and up to the date of this Report (unless otherwise
stated) are listed below:
Name
Director
Alternate Director
Name
Director
Alternate Director
Altamirano Celis, Sandra Elena
Arrowsmith, Stephen
Auyeung Pak-kuen, Rex
Bailie, William Paul
Butcher, Stephen Anthony*
Chan Chi-kun
Chan Wai-man, Raymond*
Chan Yuen-ping*
Dr Chan Yuen Tak-fai, Dorothy
Cheng Wai-ching, Margaret*
Choi Tak-tsan*
Chow Chiu-wai*
Chow Chun-ling*
Chu Fung-kuen, Margaret
Collis, Charles G.
Dalin, Bengt Carl Harald Henrik*
Damm, Bo Fredrik
Downie, Brian Francis*
Edlund, Lars Anders
Elfving, Hans-Åke Börje
Espinoza Ceballos, Natalia
Dr Ewen, Peter Ronald
Dr Fong Ching, Eddy
Fu Oi-yu*
Fung Wai-yee*
Hellners, Karl Erik Hjalmar*
Ho Ka-wa*
Holness, Nigel Graham
Hor Wai-hong
Hui Leung-wah, Herbert*
Jensen, Frederik Mark*
Jia Jun
Jim Kwok-wah*
Jones, Niel L.
Jubian, Albert
Dr Kam Chak-pui, Jacob*
Kwok Lai-kay, Lena*
Kwong Chung-hing*
Lai Ching-kai*
Lau Ping-cheung, Kaizer
Lau Tin-shing, Adi*
Lau Wai-ming*
Dr Lee Kar-yun, Tony*
Lee Wai-ying
Lee Yuen-ling*
Leong Kwok-kuen, Lincoln*
Leung Yiu-fai, David
Li Sau-lin, Linda*
Li Zhe*
√
√
√
√
√
√(Resigned)
√
√
√
√
√
√
√
√
√
√(Resigned)
√
√
√
√
√
√
√
√(Resigned)
√
√
√
√
√
√
√
√(Resigned)
√(Resigned)
√
√
√
√(Resigned)
√
√(Resigned)
√
√
√
√
√(Resigned)
√
√
√
√(Resigned)
√(Resigned)
√
√
√
√
√
Liu Chung-gay
Lo Yiu-cho
Long, Jeremy Paul Warwick*
Lung Tze-ho*
Luo Jiancheng
Professor Ma Si-hang, Frederick
McCusker, Andrew*
McKenzie, Andrew Charles*
Meller, Gillian Elizabeth*
Meyer, Peter*
Moros, Tony Antonio
Murphy, Stephen John
Mylvaganam, Deva Rajan*
Nelson, Michael John*
Ng Yuen-fan, Hannah
Nilsson, Per Håkan Lennart*
Norris, Mark Frederick*
O’Flaherty, Raymond Anthony
Oscarsson, Karl Johan*
Pang Hoi-hing*
Pira, Tomas*
Qian Yu-hong
Schelin, David
Seto Siu-wah, Lisa*
Shao Jianming
Shen Linchong
Sin Pik-kwan*
Söderström, Tim Rafael
Suen Yiu-tat
Tam Lup-kwan*
Tang Chi-fai, David*
Waymark, Leah Nicole
Wennerberg, Matti Sigfrid Hasse
Wikman, Jens
Dr Wong Chi-yun, Allan
Wong Ho-leung*
Wong Kin-wai
Wong Kwan-wai, Sammy*
Wong Ping-sau*
Wong Wing-kin*
Xia Jing
Xu Muhan*
Yam Pak-nin*
Yeung Mei-chun, Jeny*
Young Ka-fan, Glen
Yuen Lai-ki*
Yuen Lap-hang
Zhu Chunlei
√
√
√
√
√(Resigned)
√
√
√
√
√
√
√
√
√
√
√(Resigned)
√
√(Resigned)
√
√(Resigned)
√(Resigned)
√
√
√
√
√
√
√
√
√(Resigned)
√
√
√
√(Ceased)
√
√
√
√
√
√
√
√
√
√(Resigned)
√
√
√
√(Resigned)
√
√(Resigned)
√
√
*
Person who serves as a director and/or an alternate director in more than one subsidiary.
176
REPORT OF THE MEMBERS OF THE BOARDMTR Corporation CONTENTS OF CONSOLIDATED ACCOUNTS AND NOTES
178 Independent Auditor’s Report
Consolidated Accounts
182 Consolidated Profit and Loss Account
183 Consolidated Statement of Comprehensive Income
184 Consolidated Statement of Financial Position
185 Consolidated Statement of Changes in Equity
186 Consolidated Cash Flow Statement
Notes to the Consolidated Accounts
Statement of Compliance
Principal Accounting Policies
Rail Merger with Kowloon-Canton Railway Corporation
and Operating Arrangements for High Speed Rail and
Tuen Ma Line Phase 1
Revenue from Hong Kong Transport Operations
234 31
235 32
235 33
237 34
239 35
239 36
239 37
240 38
241 39
244 40
246 41
247 42
Amounts Due from Related Parties
Cash, Bank Balances and Deposits
Loans and Other Obligations
Creditors, Other Payables and Provisions
Amounts Due to Related Parties
Obligations under Service Concession
Loans from Holders of Non-controlling Interests
Income Tax in the Statement of Financial Position
Share Capital, Shares Held for Executive Share Incentive
Scheme, Company-level Movements in Components of
Equity and Capital Management
Other Cash Flow Information
Fair Value Measurement
Share-based Payments
Revenue from Hong Kong Station Commercial Businesses
250 43
Retirement Schemes
Revenue from Hong Kong Property Rental and
Management Businesses
251 44
Defined Benefit Retirement Scheme
254 45 Material Related Party Transactions
Revenue and Expenses Relating to Mainland of China and
International Subsidiaries
257 46
Commitments
187 1
187 2
199 3
200 4
200 5
201 6
201 7
202 8
202 9
Revenue from Other Businesses
Segmental Information
206 10
Operating Expenses
207 11
211 12
211 13
212 14
213 15
Remuneration of Members of the Board and the
Executive Directorate
Profit on Hong Kong Property Development
Depreciation and Amortisation
Interest and Finance Charges
Income Tax in the Profit and Loss Account
214 16
Dividends
214 17
Earnings Per Share
215 18
215 19
219 20
220 21
Other Comprehensive Income
Investment Properties and Other Property, Plant and
Equipment
Service Concession Assets
Railway Construction Projects under Entrustment by the
HKSAR Government
225 22
Property Development in Progress
225 23
Deferred Expenditure
226 24
227 25
228 26
228 27
229 28
Investments in Subsidiaries
Interests in Associates and Joint Venture
Investments in Securities
Properties Held for Sale
Derivative Financial Assets and Liabilities
233 29
Stores and Spares
233 30
Debtors and Other Receivables
259 47
260 48
261 49
262 50
Non-adjusting Events After the Reporting Period
Company-level Statement of Financial Position
Accounting Estimates and Judgements
Possible Impact of Amendments, New Standards and
Interpretations Issued but Not Yet Effective for the
Annual Accounting Year Ended 31 December 2019
262 51
Approval of the Consolidated Accounts
177
Annual Report 2019Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other Information INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report to the Members of MTR Corporation Limited
(incorporated in Hong Kong with limited liability)
Opinion
We have audited the consolidated accounts of MTR Corporation Limited (“the Company”) and its subsidiaries (“the Group”) set out on pages 182
to 262, which comprise the consolidated statement of financial position as at 31 December 2019, the consolidated profit and loss account, the
consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for
the year then ended and notes to the consolidated accounts, including a summary of significant accounting policies.
In our opinion, the consolidated accounts give a true and fair view of the consolidated financial position of the Group as at 31 December 2019 and
of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting
Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance
with the Hong Kong Companies Ordinance.
Basis for opinion
We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated accounts section of our report. We are independent
of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”) and we have fulfilled our other ethical
responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated accounts of
the current period. These matters were addressed in the context of our audit of the consolidated accounts as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Railway construction in progress under entrustment by the HKSAR Government (Continued)
Refer to note 21 to the consolidated accounts and the accounting policies in note 2AA
The key audit matter
How the matter was addressed in our audit
The Group and the Government of the Hong Kong Special Administrative
Region (“HKSAR Government”) have entered into certain entrustment
arrangements whereby the Group has been entrusted by the HKSAR
Government to proceed with the planning, design, construction, testing
and commissioning of the Hong Kong Section of the Guangzhou-Shenzhen-
Hong Kong Express Rail Link (“the HSR”) and the Shatin to Central Link (“the
SCL”). As the HKSAR Government is the owner of both the HSR and the SCL,
the financing of the development of these two railway lines is borne by the
HKSAR Government, with the Group receiving project management fees.
HSR
Pursuant to an agreement entered into with the HKSAR Government on
30 November 2015, the Group will bear and finance project costs for the HSR
(including the Group’s project management fees) which exceed HK$84.42
billion and the HKSAR Government reserves the right to refer to arbitration
the question of the Group’s liability, if any, in respect of the project costs
borne and financed by the HKSAR Government which exceed HK$65 billion
up to HK$84.42 billion. In the event that the Group is found to be liable under
the relevant HSR entrustment agreements, the Group’s liability for such
costs is currently limited to the amount of the project management fees and
certain other additional fees received by the Group under the agreements.
In September 2018, construction of the HSR was completed following
which commercial operations commenced. However, the total project
costs can only be ascertained upon finalisation of all construction contracts
which may take several years to reach agreement and settlement.
Management has engaged an independent expert to provide an
independent assessment of management’s estimate of cost to complete
the HSR project.
As at 31 December 2019, the Group has made a provision for project
management costs as it estimated that the total costs to complete its
performance obligations under the HSR entrustments are likely to exceed
the project management fees from the HKSAR Government. No other
provision for project costs has been made.
Our audit procedures in relation to railway construction in progress under
entrustment by the HKSAR Government included the following:
• inspecting the minutes of the relevant committees of the Group and
discussing with management the current status of the HSR and SCL
projects, including:
(a) For the HSR, the forecast total project costs, assessment of contract
claims, estimate of further internal costs to be incurred and
assessment of the financial implications of the project for the Group;
(b) For the SCL, the costs incurred to date, remaining critical milestones
and estimated costs to complete including contract claims, latest
status of the COI and its findings to date and the assessment of the
financial implications of the project for the Group;
• assessing the design and implementation of management's key internal
controls over the determination of the project costs for the HSR and SCL
and the allocation of costs to each of these projects;
• evaluating the qualifications, experience, expertise, independence and
objectivity of the independent expert engaged by management for
the HSR;
• discussing with the independent expert the forecast total project costs
for the HSR project and the risk of these exceeding HK$84.42 billion;
• comparing, on a sample basis, the project costs for the HSR/SCL
as assessed by management and, for the HSR, as assessed by the
independent expert, with relevant underlying documentation;
• comparing, on a sample basis, costs incurred during the current year in
respect of the HSR and SCL with underlying contracts and interim or final
payment certificates;
178
MTR Corporation Railway construction in progress under entrustment by the HKSAR Government (Continued)
Refer to note 21 to the consolidated accounts and the accounting policies in note 2AA
The key audit matter
How the matter was addressed in our audit
• assessing the provision made for costs arising from the Hung Hom
incidents and Phased Opening in relation to the SCL, which are funded
by the Group, by inspecting, on a sample basis, the relevant underlying
documentation and, where applicable, the actual amounts incurred
during the year;
• holding discussions with management and the Group’s external legal
advisors to assess the Company’s legal obligations and financial exposure
in connection with the HSR and SCL projects;
• inspecting the relevant entrustment agreements to ascertain project
management fees receivable and comparing the receipt of such project
management fees for the year with bank statements and other relevant
documentation; and
• assessing the disclosures in the consolidated accounts in relation to
the HSR and SCL projects with reference to the requirements of the
prevailing accounting standards.
SCL
Towards the end of the first half of 2018, there were allegations
concerning workmanship in relation to the Hung Hom Station extension.
A commission of enquiry (“COI”) was set up by the HKSAR Government to
investigate, inter-alia, certain construction works at the Hung Hom station
extension. Subsequently, the Company advised the HKSAR Government
of an insufficiency of construction records and certain construction issues
at the Hung Hom North Approach Tunnel, the South Approach Tunnel
and the Hung Hom Stabling Sidings. The terms of the COI were expanded
in February 2019. A redacted interim report from the COI was published
in March 2019, in which the COI found that although the Hung Hom
Station extension diaphragm wall and platform slab construction works
are safe, they were not executed in accordance with the relevant contract
in material aspects. The time for the COI to submit its final report has been
extended to 31 March 2020.
In July 2019, the Group completed and submitted to the HKSAR Government
two separate final reports containing, inter alia, proposals for suitable
measures required at certain locations of the Hung Hom station extension to
achieve code compliance. These suitable measures are being implemented.
In July 2019, the HKSAR Government accepted the Group’s recommendation
that the Tuen Ma Line should open in phases (“Phased Opening”). The Group
has announced that it would fund, on an interim and without prejudice
basis, certain costs arising from the Hung Hom incidents and certain costs
associated with the Phased Opening, which was estimated to be around
HK$2 billion in aggregate, and has charged the full amount of such estimate
in its consolidated profit and loss account for the year.
The Group has also notified the HKSAR Government of the latest estimate
of the cost to complete the SCL Project of HK$82,999 million, which
increased from the original estimate of HK$70,827 million. The Group has
been liaising with the HKSAR Government to facilitate their review and
verification process as regards the cost to complete the SCL Project.
The above matters are ongoing and the timing of their ultimate resolution and
any further financial impact to the Group are highly uncertain at this stage.
In the event that the Group is found to be liable under the entrustment
agreements, the Group’s liability is currently limited to a cap equal to the
aggregate fees received by the Group under the relevant SCL agreements.
However, such cap could not be relied upon if the Group were, in
accordance with general principles of law, found to be liable for any loss
that had been caused by the fraudulent or other dishonest conduct of its
employees or agents.
We identified railway construction in progress under entrustment by the
HKSAR Government as a key audit matter because the arrangements in
respect of these railway projects are highly complex and convey rights and
obligations on the Group which could potentially have significant financial
implications for the Group.
Valuation of investment properties (“IP”)
Refer to note 19A to the consolidated accounts and the accounting policies in note 2E(i)
The key audit matter
How the matter was addressed in our audit
The fair value of the Group’s IP as at 31 December 2019 was HK$91,712
million, with a revaluation gain for the year ended 31 December 2019
recorded in the consolidated profit and loss account of HK$1,372 million.
The Group’s IP, which are mainly located in Hong Kong, principally
comprise shopping malls and office premises.
The fair values of the Group’s IP were assessed by external property valuers
based on independent valuations.
We identified valuation of the Group’s IP as a key audit matter because
of the significance of IP to the consolidated accounts and because
the determination of the fair values involves significant judgement
and estimation, particularly in selecting the appropriate valuation
methodology, market yields and market rents.
Our audit procedures to assess the valuation of the Group’s IP included the
following:
• obtaining and inspecting the IP valuation reports prepared by the
external property valuers;
• evaluating the independence, qualifications, expertise and objectivity of
the external property valuers;
• evaluating the valuation methodologies adopted with reference to those
applied by other external property valuers for similar property types;
• holding discussions with management and the external property
valuers and challenging the key assumptions and estimates adopted
in the valuations, including prevailing market rents and market yields
applied by comparing, on a sample basis, the key estimates adopted with
comparable available market data and government produced market
statistics; and
• comparing the tenancy information, including occupancy rates and
market rents, provided by the Group to the external property valuers with
underlying contracts and documentation, on a sample basis.
179
Annual Report 2019Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other Information INDEPENDENT AUDITOR’S REPORT
Assessing potential impairment of fixed assets other than assets carried at revalued amounts
Refer to notes 19B and 20 to the consolidated accounts and the accounting policies in note 2I(ii)
The key audit matter
How the matter was addressed in our audit
The carrying value of the Group’s fixed assets other than assets carried at
revalued amounts as at 31 December 2019 totalled HK$129,666 million and
the related depreciation and amortisation charge for the year ended 31
December 2019 amounted to HK$5,479 million.
The carrying values of these assets are reviewed annually by management
for potential indicators of impairment. For assets where such indicators exist,
management performs detailed impairment reviews, taking into account,
inter alia, the impact of revenue assumptions and technical factors which may
affect the expected remaining useful lives and carrying value of the assets.
We identified the potential impairment of fixed assets other than assets
carried at revalued amounts as a key audit matter because the assessment can
involve a significant degree of management judgement in determining the
key assumptions such as expected revenue levels.
Our audit procedures to assess the potential impairment of fixed assets
other than assets carried at revalued amounts included the following:
• obtaining, discussing with management and evaluating the key
assumptions underlying management's assessment of potential
impairment of these assets;
• where potential indicators of impairment were identified, evaluating
management’s impairment assessments and the assumptions adopted
therein, including revenue assumptions, with reference to the actual
revenue levels achieved in the current year, future operating plans and
broader city specific developments;
• assessing the discount rates adopted by management in the impairment
assessments by comparison with available financial information of other
similar companies taking into account regional and industry specific risk
premiums;
• comparing the assumptions adopted in the prior year’s impairment
assessments with actual results for the current year, investigating
significant variances identified and considering the impact on the current
year’s impairment assessments; and
• performing sensitivity analyses for the discount rates applied and the
assumptions for revenue levels adopted and considering the information
used to derive the most sensitive assumptions and whether there were
any indicators of management bias in their selection.
Information other than the consolidated accounts and auditor’s report thereon
The directors are responsible for the other information. The other information comprises all the information included in the annual report, other
than the consolidated accounts and our auditor’s report thereon.
Our opinion on the consolidated accounts does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated accounts, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the consolidated accounts or our knowledge obtained in the audit or otherwise appears to be
materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that
fact. We have nothing to report in this regard.
Responsibilities of the directors for the consolidated accounts
The directors are responsible for the preparation of the consolidated accounts that give a true and fair view in accordance with HKFRSs issued by the
HKICPA and the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of
consolidated accounts that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated accounts, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but to do so.
The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group’s financial reporting process.
180
MTR Corporation Auditor’s responsibilities for the audit of the consolidated accounts
Our objectives are to obtain reasonable assurance about whether the consolidated accounts as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. This report is made solely to you, as a body, in accordance
with section 405 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.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated accounts.
As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
•
•
•
•
•
•
Identify and assess the risks of material misstatement of the consolidated accounts, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as
a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the consolidated accounts or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the consolidated accounts, including the disclosures, and whether the consolidated
accounts represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to
express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence, and
communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the
consolidated accounts of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law
or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Leung Sze Kit Roy.
KPMG
Certified Public Accountants
8th Floor, Prince’s Building
10 Chater Road
Central, Hong Kong
5 March 2020
181
Annual Report 2019Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other Information CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December in HK$ million
Revenue from Hong Kong transport operations
Revenue from Hong Kong station commercial businesses
Revenue from Hong Kong property rental and management businesses
Revenue from Mainland of China and international railway,
property rental and management subsidiaries
Revenue from other businesses
Revenue from Mainland of China property development
Total revenue
Expenses relating to Hong Kong transport operations
– Staff costs and related expenses
– Maintenance and related works
– Energy and utilities
– General and administration expenses
– Railway support services
– Stores and spares consumed
– Government rent and rates
– Other expenses
Expenses relating to Hong Kong station commercial businesses
Expenses relating to Hong Kong property rental and management businesses
Expenses relating to Mainland of China and international railway,
property rental and management subsidiaries
Expenses relating to other businesses
Project study and business development expenses
Expenses relating to Mainland of China property development
Operating expenses before depreciation, amortisation and
variable annual payment
Operating profit before Hong Kong property development,
depreciation, amortisation and variable annual payment
– Arising from recurrent businesses
– Arising from Mainland of China property development
Profit on Hong Kong property development
Operating profit before depreciation, amortisation and
variable annual payment
Depreciation and amortisation
Variable annual payment
Share of profit or loss of associates and joint venture
Profit before interest, finance charges and taxation
Interest and finance charges
Investment property revaluation
Profit before taxation
Income tax
Profit for the year
Attributable to:
– Shareholders of the Company
– Non-controlling interests
Profit for the year
Profit for the year attributable to shareholders of the Company:
– Arising from recurrent businesses
– Arising from property development
– Arising from underlying businesses
– Arising from investment property revaluation
Earnings per share:
– Basic
– Diluted
Note
4
5
6
7
8
7
10A
7
21B(c)(ii)
7
2019
19,938
6,799
5,137
21,085
1,545
54,504
–
54,504
(6,489)
(2,662)
(1,841)
(1,209)
(630)
(613)
(256)
(329)
(14,029)
(680)
(851)
(19,760)
(3,557)
(276)
(39,153)
(25)
2018
19,490
6,458
5,055
20,877
1,990
53,870
60
53,930
(5,847)
(1,638)
(1,670)
(769)
(380)
(559)
(117)
(339)
(11,319)
(567)
(813)
(20,001)
(2,004)
(323)
(35,027)
(35)
10B&C
(39,178)
(35,062)
12
13
25
14
19A
15A
17
15,351
(25)
15,326
5,707
21,033
(5,237)
(2,583)
288
13,501
(859)
1,372
14,014
(1,922)
12,092
11,932
160
12,092
4,980
5,580
10,560
1,372
11,932
18,843
25
18,868
2,574
21,442
(4,985)
(2,305)
658
14,810
(1,074)
4,745
18,481
(2,325)
16,156
16,008
148
16,156
9,020
2,243
11,263
4,745
16,008
HK$1.94
HK$1.94
HK$2.64
HK$2.64
The notes on pages 187 to 262 form part of the accounts.
182
MTR Corporation CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 31 December in HK$ million
Profit for the year
Other comprehensive income for the year
(after taxation and reclassification adjustments):
Items that will not be reclassified to profit or loss:
– Surplus on revaluation of self-occupied land and buildings
– Remeasurement of net liability of defined benefit schemes
Items that may be reclassified subsequently to profit or loss:
– Exchange differences on translation of:
– financial statements of subsidiaries, associates and joint venture outside Hong Kong
– non-controlling interests
– Cash flow hedges: net movement in hedging reserve
Total comprehensive income for the year
Attributable to:
– Shareholders of the Company
– Non-controlling interests
Total comprehensive income for the year
2019
12,092
2018
16,156
Note
18
121
730
851
(344)
(15)
244
(115)
736
519
(348)
171
(761)
(22)
(27)
(810)
(639)
12,828
15,517
12,683
145
12,828
15,391
126
15,517
The notes on pages 187 to 262 form part of the accounts.
183
Annual Report 2019Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other Information
CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
Note
At 31 December
2019
At 31 December
2018
in HK$ million
Assets
Fixed assets
– Investment properties
– Other property, plant and equipment
– Service concession assets
Goodwill and property management rights
Property development in progress
Deferred expenditure
Interests in associates and joint venture
Deferred tax assets
Investments in securities
Properties held for sale
Derivative financial assets
Stores and spares
Debtors and other receivables
Amounts due from related parties
Cash, bank balances and deposits
Liabilities
Short-term loans
Creditors, other payables and provisions
Current taxation
Amounts due to related parties
Loans and other obligations
Obligations under service concession
Derivative financial liabilities
Loans from holders of non-controlling interests
Deferred tax liabilities
Net assets
Capital and reserves
Share capital
19A
19B
20
22A
23
25
38B
26
27
28
29
30
31
32
33A
34
38A
35
33A
36
28
37
38B
39
91,712
102,632
31,261
225,605
77
12,022
1,948
10,359
134
386
1,245
198
1,844
11,169
3,041
21,186
289,214
3,371
33,315
2,024
2,990
36,085
10,350
408
144
13,729
102,416
186,798
58,804
(263)
128,065
186,606
192
186,798
82,676
102,776
30,473
215,925
84
14,840
1,878
8,756
121
294
1,369
61
1,673
9,576
2,088
18,022
274,687
4,424
25,947
1,161
2,676
35,781
10,409
545
146
12,979
94,068
180,619
57,970
(265)
122,742
180,447
172
180,619
Shares held for Executive Share Incentive Scheme
Other reserves
Total equity attributable to shareholders of the Company
Non-controlling interests
Total equity
Approved and authorised for issue by the Members of the Board on 5 March 2020
Rex P K Auyeung
Chairman
Jacob C P Kam
Chief Executive Officer
Herbert L W Hui
Finance Director
The notes on pages 187 to 262 form part of the accounts.
184
MTR Corporation CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
Other reserves
for the year ended 31 December
in HK$ million
Note
Share
capital
Shares
held for
Executive
Share
Incentive
Scheme
Fixed assets
revaluation
reserve
Hedging
reserve
Employee
share-based
capital
reserve
Exchange
reserve
Retained
profits
Total equity
attributable to
shareholders of
the Company
Non-
controlling
interests
Total
equity
2019
Balance as at 1 January 2019,
as previously reported
Effect of adoption of HKFRS 16
(net of tax)
Balance as at 1 January 2019,
as restated
57,970
(265)
3,815
(26)
142
(788)
119,599
180,447
172 180,619
2A
–
–
–
–
–
–
(8)
(8)
–
(8)
57,970
(265)
3,815
(26)
142
(788)
119,591
180,439
172
180,611
Changes in equity for the year ended
31 December 2019:
– Profit for the year
– Other comprehensive income
for the year
18
– Total comprehensive income
for the year
– Amounts transferred from
hedging reserve to initial
carrying amount of
hedged items
– 2018 final ordinary dividend
16
39A
16
39A
39B
39B
– Shares issued in respect of scrip
dividend of 2018 final
ordinary dividend
– 2019 interim ordinary dividend
– Shares issued in respect of scrip
dividend of 2019 interim
ordinary dividend
– Shares purchased for Executive
Share Incentive Scheme
– Vesting and forfeiture of
award shares of Executive
Share Incentive Scheme
– Ordinary dividends paid to
holders of non-controlling
interests
– Employee share-based payments
– Employee share options
exercised
Balance as at 31 December 2019
2018
Balance as at 1 January 2018
–
–
–
–
–
654
–
71
–
5
–
–
–
–
–
–
–
(2)
–
(1)
(88)
93
–
–
–
–
–
121
244
121
244
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(96)
–
122
(8)
–
11,932
11,932
160
12,092
(344)
730
751
(15)
736
(344)
12,662
12,683
145
12,828
–
–
–
–
–
–
–
–
–
–
–
(5,835)
2
(1,539)
1
–
(2)
–
–
–
3
(5,835)
654
(1,539)
71
(88)
–
–
122
96
–
–
–
–
–
–
–
3
(5,835)
654
(1,539)
71
(88)
–
(125)
(125)
–
–
122
96
39A
104
58,804
(263)
3,936
221
160
(1,132)
124,880
186,606
192
186,798
52,307
(173)
3,296
Changes in equity for the year ended
31 December 2018:
– Profit for the year
– Other comprehensive income
for the year
18
– Total comprehensive income
for the year
– 2017 final ordinary dividend
16
– Shares issued in respect of scrip
dividend of 2017 final
ordinary dividend
– 2018 interim ordinary dividend
– Shares issued in respect of scrip
dividend of 2018 interim
ordinary dividend
– Shares purchased for Executive
Share Incentive Scheme
39A
16
39A
39B
–
–
–
–
4,175
–
1,298
–
–
–
–
(4)
–
(1)
–
(239)
– Vesting and forfeiture of
award shares of Executive
Share Incentive Scheme
– Ordinary dividends paid to
holders of non-controlling
interests
– Employee share-based payments
39B
15
152
–
–
–
–
–
1
–
–
519
(27)
519
–
(27)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– Employee share options
exercised
39A
175
Balance as at 31 December 2018
57,970
(265)
3,815
(26)
The notes on pages 187 to 262 form part of the accounts.
203
(27)
110,697
166,304
122
166,426
–
–
–
–
–
–
–
–
(158)
–
110
(13)
142
–
16,008
16,008
148
16,156
(761)
(348)
(617)
(22)
(639)
(761)
15,660
–
(5,224)
15,391
(5,224)
126
15,517
–
(5,224)
–
–
–
–
–
–
–
–
–
(1,525)
–
–
(9)
–
–
–
4,171
(1,525)
1,297
(239)
–
–
110
162
–
–
–
–
–
(76)
–
–
4,171
(1,525)
1,297
(239)
–
(76)
110
162
(788)
119,599
180,447
172
180,619
185
Annual Report 2019Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other Information
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 December in HK$ million
Note
2019
2018
Cash flows from operating activities
Cash generated from operations
Receipt of government subsidy for Shenzhen Metro Longhua Line operation
Purchase of tax reserve certificates
Current tax paid
– Hong Kong Profits Tax paid
– Tax paid outside Hong Kong
40
17,120
608
(54)
(308)
(323)
12,929
645
(462)
(1,621)
(541)
Net cash generated from operating activities
17,043
10,950
Cash flows from investing activities
Capital expenditure
– Purchase of assets for Hong Kong transport and related operations
– Shenzhen Metro Longhua Line Project and related operations
– Hong Kong railway extension projects
– Investment property projects and fitting out work
– Other capital projects
Fixed and variable annual payments
Receipts in respect of property development
Payments in respect of property development
Increase in bank deposits with more than three months to maturity
when placed or pledged
Investments in associate and joint venture
Others
Net cash used in investing activities
Cash flows from financing activities
Proceeds from shares issued under share option scheme
Purchase of shares for Executive Share Incentive Scheme
Proceeds from loans and capital market instruments
Repayment of loans and capital market instruments
Interest and finance charges paid
Interest received
Capital element of lease rentals paid
Dividends paid to shareholders of the Company
Dividends paid to holders of non-controlling interests
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 January
Effect of exchange rate changes
Cash and cash equivalents at 31 December
32
(5,291)
(99)
(292)
(308)
(82)
(3,055)
9,175
(3,259)
(3,683)
(1,416)
(2)
96
(88)
11,659
(13,172)
(1,054)
370
(165)
(6,649)
(125)
(5,441)
(70)
(416)
(450)
(70)
(2,683)
4,235
(515)
(4,746)
(1,840)
331
(8,312)
(11,665)
162
(239)
36,964
(38,507)
(1,147)
305
(5)
(1,281)
(76)
(9,128)
(397)
8,865
(122)
8,346
(3,824)
(4,539)
13,939
(535)
8,865
The notes on pages 187 to 262 form part of the accounts.
186
MTR Corporation
NOTES TO THE CONSOLIDATED ACCOUNTS
1 Statement of Compliance
These accounts have been prepared in compliance with the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules
Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”). These accounts have also been prepared in
accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong
Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified
Public Accountants (“HKICPA”), and accounting principles generally accepted in Hong Kong. The HKFRSs are fully converged with International
Financial Reporting Standards in all material respects. A summary of the principal accounting policies adopted by the Group is set out in note 2.
The HKICPA has issued certain new and revised HKFRSs that are first effective or available for early adoption for accounting periods beginning on or
after 1 January 2019. Changes in accounting policies resulting from the initial application of these developments to the extent that they are relevant
to the Group for the current and prior accounting periods reflected in these accounts are disclosed in note 2A(iii).
2 Principal Accounting Policies
A Basis of Preparation of the Accounts
(i)
stated at their fair value as explained in the accounting policies set out below:
The measurement basis used in the preparation of the accounts is the historical cost basis except that the following assets and liabilities are
•
•
•
•
investment properties (note 2E(i));
self-occupied buildings (note 2E(ii));
investments in securities (note 2O); and
derivative financial instruments (note 2V).
(ii)
The preparation of the accounts in conformity with HKFRSs requires management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets, liabilities, income and expenditure. The estimates and associated assumptions
are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form
the basis of making the judgements and estimations about carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which 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 future periods.
Judgements made by management in the application of HKFRSs that have significant effect on the accounts and estimates are discussed in note 49.
The HKICPA has issued a new HKFRS, HKFRS 16, Leases, and a number of amendments to HKFRSs that are first effective for the current
(iii)
accounting period of the Group.
Except for HKFRS 16, none of the developments have had a material effect on how the Group’s results and financial position for the current or prior
periods have been prepared or presented in this annual report.
HKFRS 16 replaces HKAS 17, Leases, and the related interpretations, HK(IFRIC) 4, Determining whether an arrangement contains a lease, HK(SIC) 15,
Operating leases – incentives, and HK(SIC) 27, Evaluating the substance of transactions involving the legal form of a lease.
The accounting policies in respect of leases prior to and after 1 January 2019 are detailed in Note 2F. The lessor accounting requirements are brought
forward from HKAS 17 and are substantially unchanged.
The Group has applied HKFRS 16 as from 1 January 2019. At initial application, the Group has elected (a) to use the modified retrospective approach;
(b) to apply the recognition exemption for operating leases with a remaining lease term of less than 12 months from 1 January 2019; and (c) to apply
a single discount rate to a portfolio of leases with reasonably similar characteristics. The Group applies the new definition of a lease in HKFRS 16
to contracts that were effective as at 1 January 2019. For lease liabilities, at the date of transition to HKFRS 16 (i.e. 1 January 2019), the Group
determined the length of the remaining lease terms and measured the lease liabilities for the leases at the present value of the remaining lease
payments, discounted using its incremental borrowing rates at 1 January 2019. The weighted average rate applied was 4.5%. For contracts entered
into before 1 January 2019 which are or contain leases, the Group recognised right-of-use assets as if HKFRS 16 had always been applied since the
commencement date of the leases, other than discounting using the relevant borrowing rate at 1 January 2019. As a result, any difference between
the right-of-use asset recognised, the lease liability and related net deferred tax, is recognised as an adjustment to the opening balance of equity at
1 January 2019.
Comparative information has not been restated and continue to be reported under HKAS 17. The difference between the amount of operating lease
commitments as at 31 December 2018 as disclosed in the Group’s 2018 consolidated accounts and the amount of lease liabilities initially recognised
at 1 January 2019 mainly related to the commitments of those arrangements which are not leases under HKFRS 16, as well as the discounting effect
of lease payments.
187
Annual Report 2019Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other Information 2 Principal Accounting Policies (continued)
A Basis of Preparation of the Accounts (continued)
Upon adoption of HKFRS 16 on 1 January 2019, the Group recognised right-of-use assets under “other property, plant and equipment” and
“investment properties” of HK$491 million and HK$361 million respectively, lease liabilities under “loans and other obligations” of HK$865 million
and related net deferred tax assets of HK$5 million, with the net difference of HK$8 million being recognised as a decrease in the opening balance of
“retained profits”, on leases previously classified as operating leases.
After the initial recognition of right-of-use assets and lease liabilities as at 1 January 2019, the Group as a lessee is required to recognise interest
expense accrued on the outstanding balance of the lease liability, and the depreciation of the right-of-use asset, instead of the previous policy of
recognising rental expenses incurred under operating leases on a straight-line basis over the lease term.
So far as the impact of the adoption of HKFRS 16 on leases previously classified as finance leases is concerned, the Group is not required to make
any adjustments at the date of initial application of HKFRS 16, other than changing the classification for the lease liability. Accordingly, instead
of “finance leases” under “loans and other obligations”, the amount of HK$450 million is included within “lease liabilities” under “loans and other
obligations”. There is no impact on the classification and balance for the related leased asset and equity.
(iv)
The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period (note 50).
B Basis of Consolidation
The consolidated accounts include the accounts of the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest
in associates and joint venture (note 2D) made up to 31 December each year. The results of subsidiaries acquired or disposed of during the year are
included in the consolidated profit and loss account from or to the date of their acquisition or disposal, as appropriate.
Subsidiaries and Non-controlling Interests
C
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has
power, only substantive rights (held by the Group or other parties) are considered.
An investment in a subsidiary is consolidated into the consolidated accounts from the date that control commences until the date that control
ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in
preparing the consolidated accounts. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment.
Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated profit and loss account, statement of
comprehensive income, statement of changes in equity and statement of financial position respectively.
When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss
being recognised in the profit and loss account. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair
value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an
investment in an associate or a joint venture (note 2D).
Investments in subsidiaries are carried in the Company’s statement of financial position at cost less any impairment losses (note 2I(ii)).
D Associates and Joint Ventures
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 participation in the financial and operating policy decisions.
A joint venture is an arrangement whereby the Group or the Company and other parties contractually agree to share control of the arrangement,
and have rights to the net assets of the arrangement.
An investment in an associate or a joint venture is accounted for in the consolidated accounts of the Group using the equity method and is initially
recorded at cost and adjusted thereafter for the post acquisition change in the Group’s share of the investees’ net assets. The Group’s share of the
post-acquisition results of the investees for the year is recognised in the consolidated profit and loss account, whereas the Group’s share of the post-
acquisition items of the investees’ other comprehensive income is recognised in the consolidated statement of comprehensive income.
When the Group’s share of losses equals or exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil and
recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments
on behalf of the investee. For this purpose, the Group’s interest in the investee is the carrying amount of the investment under the equity method
together with any other long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture (after
applying the expected credit losses (“ECL”) model to such other long-term interests where applicable (see note 2I(i)).
Unrealised profits and losses resulting from transactions between the Group and its associates and joint venture are eliminated to the extent of the
Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are
recognised immediately in the profit and loss account.
188
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 2 Principal Accounting Policies (continued)
D Associates and Joint Ventures (continued)
If an investment in an associate becomes an investment in a joint venture or vice versa, retained interest is not remeasured. Instead, the investment
continues to be accounted for under the equity method.
In all other cases, when the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a
disposal of the entire interest in that investee, with a resulting gain or loss being recognised in the profit and loss account. Any interest retained in
that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair
value on initial recognition of a financial asset.
In the Company’s statement of financial position, investments in associates and joint venture are stated at cost less impairment losses (note 2I(ii)).
E
(i)
Fixed Assets
Investment Properties
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. These include properties that are being constructed or developed for future use as investment properties.
Investment properties are stated on the statement of financial position at fair value as measured semi-annually by independent professionally
qualified valuers. Gains or losses arising from changes in the fair value are recognised in the consolidated profit and loss account in the period in
which they arise.
(ii)
Other Property, Plant and Equipment
Leasehold land registered and located in the Hong Kong Special Administrative Region is stated at cost less accumulated depreciation and
impairment losses (note 2I(ii)). Self-occupied leasehold buildings where the Group is the registered owner of the property interest are stated on
the statement of financial position at their fair value at the date of revaluation less any subsequent accumulated depreciation. Revaluations are
performed by independent qualified valuers semi-annually, with changes in the fair value arising on revaluations recorded as movements in the
fixed assets revaluation reserve, except:
where the balance of the fixed assets revaluation reserve relating to a self-occupied leasehold building is insufficient to cover a revaluation
(a)
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
(b)
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 thereafter
taken to the fixed assets revaluation reserve.
Civil works and plant and equipment, including right-of-use assets arising from freehold or leasehold properties where the Group is not the
registered owner of the property interest, and right-of-use assets arising from leases of underlying plant and equipment are stated at cost less
accumulated depreciation and impairment losses (note 2I(ii)).
Assets under construction include capital works on operating railway and are stated at cost less impairment losses (note 2I(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.
(iii)
Service Concession Assets
Where the Group enters into service concession arrangements under which the Group acquires the right to access, use and operate certain assets
for the provision of public services, upfront payments and expenditure directly attributable to the acquisition of the service concession up to
inception of the service concession are capitalised as service concession assets and amortised on a straight-line basis over the period of the service
concession. Annual payments over the period of the service concession with the amounts fixed at inception are capitalised at their present value,
calculated using the incremental long term borrowing rate determined at inception as the discount rate, as service concession assets and amortised
on a straight-line basis over the period of the service concession, with a corresponding liability recognised as obligations under service concession.
Annual payments for the service concession which are not fixed or determinable at inception and are contingent on future revenue are charged to
the profit and loss account in the period when incurred.
Where the Group enters into service concession arrangements under which the Group constructs, uses and operates certain assets for the provision
of public services, construction revenue and costs are recognised in the profit and loss account by reference to the stage of completion at the end of
reporting period while the fair value of construction service is capitalised initially as service concession assets in the statement of financial position
and amortised on a straight-line basis over the shorter of the assets’ useful lives and the period in which the service concession assets are expected
to be available for use by the Group.
Expenditure for assets subject to service concession is capitalised and amortised on a straight-line basis at rates sufficient to write off their cost less
their estimated residual value, if any, over the shorter of the assets’ useful lives and the remaining period of the service concession.
Service concession assets are carried on the statement of financial position at cost less accumulated amortisation and impairment losses, if any
(note 2I(ii)).
189
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E
(iv)
Fixed Assets (continued)
Subsequent Expenditure and Gains or Losses on Retirement or Disposal
Subsequent expenditure relating to the replacement and/or upgrade of certain parts of an existing asset is recognised in the carrying amount of the
asset if it is probable that future economic benefit will flow to the Group and the cost of the item can be measured reliably. The carrying amount of
those parts that are replaced is derecognised, with any gain or loss arising therefrom being dealt with in the profit and loss account.
Expenditure on repairs or maintenance of an existing asset to restore or maintain the originally assessed standard of performance of that asset is
charged as an expense in the profit and loss account when incurred.
Gains or losses arising from the retirement or disposal of an asset are determined as the difference between the net disposal proceeds and the
carrying amount of the asset. Such gains or losses are recognised as income or expense in the profit and loss account on the date of retirement or
disposal. Any related revaluation surplus is transferred from the fixed assets revaluation reserve to retained profits and is not re-classified to profit
and loss account.
Leased Assets
F
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys
the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the customer has
both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.
(i)
(a)
As a Lessee
Policy applicable from 1 January 2019
At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term
of 12 months or less and leases of low-value assets. When the Group enters into a lease in respect of a low-value asset, the Group decides whether
to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an
expense on a systematic basis over the lease term.
Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate.
After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method.
The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus
any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use
assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is
located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated
depreciation and impairment losses (see notes 2J and 2I(ii)), except for the following types of right-of-use asset:
–
–
–
right-of-use assets that meet the definition of investment property are carried at fair value in accordance with note 2E(i);
right-of-use assets related to leasehold self-occupied buildings where the Group is the registered owner of the leasehold interest are carried at
fair value in accordance with note 2E(ii); and
right-of-use assets related to interests in leasehold land where the interest in the land is held as inventory are carried at the lower of cost and net
realisable value in accordance with note 2N.
The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in
the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of
whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this
way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of
the right-of-use asset has been reduced to zero.
(b)
Policy applicable prior to 1 January 2019
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 policies as set out in notes 2J and 2I(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.
Leases of assets under which the lessor has not transferred substantially all the risks and rewards of ownership are classified as operating leases.
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.
190
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 2 Principal Accounting Policies (continued)
F
(ii)
Leased Assets (continued)
As a Lessor
When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. A lease is classified as
a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying assets to the lessee. If this is not the
case, the lease is classified as an operating lease.
When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative
stand-alone selling price basis. The rental income from operating leases is recognised in accordance with note 2AA(ii).
G Goodwill
Goodwill represents the excess of:
the aggregate of the fair value of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value
(i)
of the Group’s previously held equity interest in the acquiree; over
(ii)
the net fair value of the acquiree’s identifiable assets and liabilities measured as at the acquisition date.
When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.
Goodwill is stated at cost less accumulated impairment losses. Goodwill arising on a business combination is allocated to each cash-generating unit, or
groups of cash-generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (note 2I(ii)).
On disposal of a cash-generating unit during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or
loss on disposal.
H Property Management Rights
Where the Group makes payments for the acquisition of property management rights, the amounts paid are capitalised as intangible assets and
stated on the statement of financial position at cost less accumulated amortisation and impairment losses (note 2I(ii)). Property management rights
are amortised to the profit and loss account on a straight-line basis over the terms of the management rights.
I
(i)
Impairment of Assets
Credit Losses from Financial Instruments, Contract Assets and Lease Receivables
For the Group’s trade receivables, contract assets and lease receivables, the Group recognises a loss allowance for expected credit losses (“ECL”)
which is measured at an amount equal to “lifetime ECLs” (which are the losses that are expected to result from all possible default events over the
expected lives of the items to which the ECL model applies). For the Group’s other financial assets measured at amortised cost, the loss allowance is
measured at an amount equal to “12-month ECLs” (which are losses that are expected to result from possible default events within the 12 months
after the reporting date) unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case
the loss allowance is measured at an amount equal to “lifetime ECLs”. Financial assets measured at fair value are not subject to the ECL assessment.
ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the
difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).
In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group compares the risk of
default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. The Group considers
both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information
that is available without undue cost or effort.
ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL
amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments
with a corresponding adjustment to their carrying amount through a loss allowance account.
(ii)
Impairment of Other Assets
Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be
impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:
•
•
•
•
•
•
•
fixed assets (including right-of-use assets and service concession assets but other than assets carried at revalued amounts);
property management rights;
goodwill;
railway construction in progress;
property development in progress;
deferred expenditure; and
investments in subsidiaries, associates and joint ventures.
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I
If any such indication exists, the asset’s recoverable amount is estimated. In addition, the recoverable amount for goodwill is estimated annually
whether or not there is any indication of impairment.
Impairment of Assets (continued)
The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the
recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).
An impairment loss is recognised in the profit and loss account whenever the carrying amount of an asset, or the cash-generating unit to which it
belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the
unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of
disposal (if measurable) or value in use (if determinable).
In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the
recoverable amount of the asset. An impairment loss in respect of goodwill is not reversed.
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 prior years. Reversals of impairment losses are credited to the profit and loss account in the year in which the reversals are recognised.
J Depreciation and Amortisation
Investment properties are not depreciated.
(i)
Fixed assets other than investment properties, assets under construction and service concession assets which are amortised over the entire or
(ii)
remaining period of the service concession (note 2E(iii)) are depreciated or amortised 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:
Land and Buildings
Self-occupied buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . the shorter of 50 years and the unexpired term of the lease
Leasehold land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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
Kiosk structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 – 30 years
Cableway station tower and theme village structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 – 30 years
Plant and Equipment
Rolling stock and components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 – 42 years
Platform screen doors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 – 35 years
Rail track . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . 15 – 50 years
Environmental control systems, lifts and escalators, fire protection and drainage system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 – 45 years
Power supply systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 – 45 years
Aerial ropeway and cabin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 – 27 years
Automatic fare collection systems, metal station kiosks, and other mechanical equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 – 25 years
Train control and signalling equipment, station announcement systems, telecommunication systems and advertising panels . . . . . . . . . . . . 5 – 35 years
Station architectural finishes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 – 30 years
Fixtures and fittings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 – 25 years
Maintenance equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 – 40 years
Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 – 15 years
Computer software licences and applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 – 10 years
Computer equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 – 5 years
Cleaning equipment and tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years
Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 – 12 years
Where parts of an item of property, plant and equipment have different useful lives, each part is depreciated or amortised 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.
No depreciation or amortisation is provided on assets under construction until the construction is completed and the assets are ready for
(iii)
their intended use.
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NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 2 Principal Accounting Policies (continued)
K Construction Costs
(i)
in-house staff costs and overheads) are dealt with as follows:
Costs incurred by the Group in respect of feasibility studies on proposed railway related construction projects (including consultancy fees,
•
•
where the proposed projects are at a preliminary review stage with no certainty of materialising, the costs concerned are charged to the profit
and loss account; and
where the proposed projects are at a detailed study stage, having been agreed based on a feasible financial plan, the costs concerned
are recorded as deferred expenditure until such time as a project agreement is reached, whereupon the costs are transferred to railway
construction in progress.
After entering into a project agreement, all costs incurred in the construction of the railway are dealt with as railway construction in progress
(ii)
until commissioning of the railway line, whereupon the relevant construction costs are transferred to fixed assets.
Joint Operations
L
A joint operation is an arrangement whereby the Group and other parties contractually agree to share control of the arrangement, and have rights
to the assets, and obligations for the liabilities, relating to the arrangement. The Group recognises its interest in the joint operation by combining the
assets, liabilities, revenues and expenses relating to its interest with similar items on a line by line basis. Consistent accounting policies are applied for
like transactions and events in similar circumstances.
The arrangements entered into by the Group with developers for Hong Kong property development without establishing separate entities are
considered to be joint operations in accordance with HKFRS 11, Joint Arrangements. Under the development arrangements, the Group is normally
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 project costs such as land premium (or such remaining portion as not already paid by the Group), construction costs, professional fees, etc.
In respect of its interests in such operations, the Group accounts for the purchase consideration of development rights, costs of enabling works
(including any interest accrued) and land costs (including any land premiums) paid net of payments received as property development in progress.
In cases where payments received from developers exceed the related expenditures incurred by the Group, such excess is recorded as deferred
income. Expenses incurred by the Group on staff, overhead and consultancy fees in respect of these developments are also capitalised as property
development in progress. The Group’s share of income earned from such operations is recognised in the profit and loss account on the basis of note
2M(iii) after netting off any related balance in property development in progress at that time.
M Property Development
(i)
borrowing costs capitalised, provisions and other direct expenses are dealt with as property development in progress.
Costs incurred by the Group in respect of site preparation, land costs, acquisition of development rights, aggregate cost of development,
Payments received from developers in respect of property developments are offset against the amounts in property development in progress
(ii)
attributable to that development. Payments received from developers in excess of the balance in property development in progress are transferred
to deferred income which is included in creditors and other payables. In these cases, further costs subsequently incurred by the Group in respect of
that development are charged against deferred income.
Profits arising from the development of properties in Hong Kong undertaken in conjunction with property developers are recognised in the
(iii)
profit and loss account as follows:
•
•
•
where the Group receives payments from developers, profits arising from such payments are recognised when the foundation and site
enabling works are complete and acceptable for development, and after taking into account the outstanding risks and obligations, if any,
retained by the Group in connection with the development;
where the Group receives a right to a share of the net surplus from the development, the Group’s share of the profit is initially recognised once
the amounts of revenue (including the fair value of any unsold properties) and costs for the development as a whole can be estimated reliably.
The Group’s interest in any unsold properties is subsequently remeasured on a basis consistent with the policy set out in note 2N and included
within properties held for sale; and
where the Group receives a distribution of the assets of the development, profit is recognised based on the fair value of such assets at the time
of receipt and after taking into account any outstanding risks and obligations retained by the Group in connection with the development.
Upon recognition of profit, the balance of deferred income or property development in progress relating to that development is credited or charged
to the profit and loss account, as the case may be.
Revenue arising from sales of properties in Mainland of China is recognised when the legal assignment is completed, which is the point in
(iv)
time when the purchaser has the ability to direct the use of the properties and obtain substantially all of the remaining benefits of the properties.
Deposits and instalments received on properties sold prior to the date of revenue recognition are included in the consolidated statement of financial
position under “Creditors and other payables”.
(v) Where properties under construction are received from a development for investment purpose, these properties are recognised as
investment properties at fair value. Further costs incurred in the construction of those assets and the related fitting out costs are capitalised in
investment properties.
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Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 2 Principal Accounting Policies (continued)
N Properties Held for Sale
Where properties are held for sale, those properties are stated initially at their cost and subsequently carried at the lower of cost and net realisable value.
For those properties in Hong Kong, cost represents the fair value, as determined by reference to an independent open market valuation, upon the
recognition of profits arising from the development as set out in note 2M(iii).
For those properties in Mainland of China, cost is determined by the apportionment of the development costs attributable to the unsold properties.
Net realisable value represents the estimated selling price less costs to be incurred in selling the properties.
The amount of any write-down of properties to net realisable value is recognised as an expense in the period the write-down occurs. The amount of
any reversal of any write-down of properties arising from an increase in net realisable value is recognised as a reduction in the cost of properties sold
in the period in which the reversal occurs.
When properties held for sale are sold, the carrying amount of those properties is recognised in the profit and loss account.
Investments in Securities
O
Investments in securities (other than investments in subsidiaries, associates and joint venture) are classified as at fair value through profit or loss
(“FVPL”). Changes in the fair value of the investments (including interest) are recognised in profit or loss.
Investments in securities are recognised/derecognised on the date the Group commits to purchase/sell the investments. Profit or loss on disposal of
investments in securities are determined as the difference between the net disposal proceeds and the carrying amount of the investments and are
accounted for in the profit and loss account as they arise.
Stores and Spares
P
Stores and spares used for business operation are categorised as either revenue or capital. Revenue spares are stated in the statement of financial
position at cost, using the weighted average cost method and are recognised as expenses in the period in which the consumption occurs. Provision
is made for obsolescence where appropriate. Capital spares are included in fixed assets and stated at cost less accumulated depreciation and
impairment losses (note 2I(ii)). Depreciation is charged at the rates applicable to the relevant fixed assets against which the capital spares are held
in reserve.
Q Contract Assets and Contract Liabilities
A contract asset is recognised when the Group recognises revenue (see note 2AA) before being unconditionally entitled to the consideration under
the payment terms set out in the contract. Contract assets are assessed for ECL in accordance with the policy set out in note 2I(i) and are reclassified
to receivables when the right to the consideration has become unconditional (see note 2S).
A contract liability is recognised when the customer pays consideration before the Group recognises the related revenue (see note 2AA). A contract
liability would also be recognised if the Group has an unconditional right to receive consideration before the Group recognises the related revenue.
In such cases, a corresponding receivable would also be recognised (see note 2S).
For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and
contract liabilities of unrelated contracts are not presented on a net basis.
When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method
(see note 2AB).
R 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 subject to an insignificant risk of changes in value with a maturity at
acquisition within three months. 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.
S Debtors and Other Receivables
A receivable is recognised when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional
if only the passage of time is required before payment of that consideration is due. If revenue has been recognised before the Group has an
unconditional right to receive consideration, the amount is presented as a contract asset (see note 2Q). Receivables are stated at amortised cost
using the effective interest method less allowance for credit losses (see note 2I(i)).
194
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation Interest-bearing Borrowings
2 Principal Accounting Policies (continued)
T
Interest-bearing borrowings are measured initially at fair value net of transaction costs incurred. The interest-bearing borrowings not subject to fair
value hedges are subsequently stated at amortised costs using effective interest method. Interest expense is recognised in accordance with the
Group’s accounting policy for interest and finance charges (see note 2AB).
Subsequent to initial recognition, the carrying amount of interest-bearing borrowings subject to fair value hedges 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.
U Creditors and Other Payables
Creditors and other payables are stated at amortised cost if the effect of discounting would be material, otherwise they are stated at cost.
V Derivative Financial Instruments and Hedging Activities
The Group uses derivative financial instruments such as interest rate swaps and currency swaps to manage its interest rate and foreign exchange
exposure. Based on the Group’s policies, these instruments are used solely for reducing or eliminating financial risks associated with the Group’s
investments and liabilities and not for trading or speculation purposes.
Derivatives are recognised at fair value and are remeasured at their fair value at the end of each reporting period. The method of recognising the
resulting gain or loss depends on whether the derivative is designated as a hedging instrument and the nature of the item being hedged.
Where hedge accounting applies, the Group designates derivatives employed as either: (1) a fair value hedge: to hedge the fair value of recognised
liabilities; (2) a cash flow hedge: to hedge the variability in cash flows of a recognised liability or the foreign currency risk of a firm commitment; or (3)
a hedge of a net investment: to hedge the variability in cash flows of a monetary item that is receivable from or payable to a foreign operation where
the settlement for the monetary item is neither planned nor likely to occur in foreseeable future.
(i)
Fair Value Hedge
Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recorded in the profit and loss account, together
with any changes in the fair value of the hedged assets or liabilities that are attributable to the hedged risk.
(ii)
Cash Flow Hedge
The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognised in other
comprehensive income which is accumulated separately in equity in the hedging reserve. The gain or loss relating to the ineffective portion is
recognised immediately in the profit and loss account.
Amounts previously recognised in other comprehensive income and accumulated in equity are transferred to the profit and loss account in the
periods when the hedged item is recognised in the profit and loss account. However, when the transaction in respect of the hedged item results in
the recognition of a non-financial asset or liability, the associated gains and losses that were previously recognised in other comprehensive income
and accumulated in equity are transferred from equity and included in the initial cost or carrying amount of the non-financial asset or liability.
When a hedging instrument expires or is sold, terminated or exercised, or the Group revokes designation of the hedge relationship but the
transaction in respect of the hedged item is still expected to occur, the cumulative gain or loss existing in equity at that time remains in equity until
the transaction occurs and it is recognised in accordance with the above policy. However, if the transaction in respect of the hedged item is no
longer expected to occur, the gain or loss accumulated in equity is immediately transferred to the profit and loss account.
(iii)
Hedge of a Net Investment
The effective portion of changes in the fair value of derivatives that are designated and qualified as hedges of net investments in foreign operations
is recognised in other comprehensive income which is accumulated separately in equity in the exchange reserve. The gain or loss relating to the
ineffective portion is recognised immediately in the profit and loss account.
Amounts previously recognised in other comprehensive income and accumulated in equity are transferred to the profit and loss account as a
reclassification adjustment on the disposal or partial disposal of the foreign operation.
(iv)
Derivatives That Do Not Qualify for Hedge Accounting
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.
195
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 2 Principal Accounting Policies (continued)
W Employee Benefits
(i)
Provident Funds (“MPF”) as required under the Hong Kong Mandatory Provident Fund Schemes Ordinance, and other costs of non-monetary
benefits are accrued in the period in which the associated services are rendered by employees of the Group. Where these benefits are incurred for
staff relating to construction projects, capital works and property developments, they are capitalised as part of the cost of the qualifying assets. In
other cases, they are recognised as expenses in the profit and loss account as incurred.
Salaries, annual leave, other allowances, contributions to defined contribution retirement schemes, including contributions to Mandatory
The Group’s net obligation in respect of defined benefit retirement schemes is calculated separately for each scheme by estimating
(ii)
the amount of future benefit that employees have earned in return for their service in the current and prior years; that benefit is discounted to
determine the present value, and the fair value of any scheme assets is deducted. The calculation is performed by a qualified actuary using the
Projected Unit Credit Method. When the calculation results in a benefit to the Group, the recognised asset is limited to the present value of economic
benefits available in the form of any future refunds from the scheme or reductions in future contributions to the scheme. Service cost and net
interest expense/income on the net defined benefit liability/asset are recognised either as an expense in the profit and loss account, or capitalised as
part of the cost of the relevant construction projects, capital works or property developments, as the case may be. Current service cost is measured
as the increase in the present value of the defined benefit obligation resulting from employee service in the current period. Net interest expense/
income for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the reporting
period to the net defined benefit liability/asset. The discount rate is the yield at the end of the reporting period on high quality corporate bonds that
have maturity dates approximating the weighted average duration of the scheme’s obligations.
When the benefits of a scheme are changed, or when a scheme is curtailed, current service cost for the portion of the changed benefit related to past
service by employees, or the gain or loss on curtailment, is recognised as an expense in the profit or loss account or capitalised at the earlier of when
the scheme amendment or curtailment occurs and when related restructuring costs or termination benefits are recognised.
Remeasurements arising from defined benefit retirement schemes are recognised in other comprehensive income and reflected immediately in
retained earnings. Remeasurements comprise of actuarial gains and losses, the return on scheme assets (excluding amounts included in net interest
on the net defined benefit liability/asset) and any change in the effect of the asset ceiling (excluding amounts included in net interest on the net
defined benefit liability/asset).
(iii)
•
•
Equity-settled share-based payments are measured at fair value at the date of grant.
For share options, the fair value determined at the grant date is recognised as staff costs, unless the relevant 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 the Black-Scholes model,
taking into account the terms and conditions upon which the options are granted. The expected life used in the model is 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 in the year of the review, unless the original employee expenses
qualify for recognition as an asset, with a corresponding adjustment to the employee share-based 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
employee share-based capital reserve). The equity amount is recognised in the employee share-based capital reserve until either the option is
exercised which is transferred to the share capital account or the option is lapsed (on expiry of the share options) which is released directly to
retained profits.
For award shares under the Executive Share Incentive Scheme, the amounts to be expensed as staff costs are determined by reference to
the fair value of the award shares granted, taking into account all non-vesting conditions associated with the grants. The total expense is
recognised over the relevant vesting periods, with a corresponding credit to the employee share-based capital reserve under equity.
For those award shares which are amortised over the vesting periods, the Group reviews its estimates of the number of award shares that are
expected to ultimately vest based on the vesting conditions at the end of each reporting period. Any resulting adjustment to the cumulative
fair value recognised in prior years is charged/credited to profit and loss account in the year of the review, with a corresponding adjustment
to the employee share-based capital reserve. Upon vesting of award shares, the related costs of the vested award shares purchased from the
market (the “purchased shares”) and shares received in relation to scrip dividend and shares purchased from the proceeds of cash ordinary
dividends received (the “ordinary dividend shares”) are credited to Shares held for Executive Share Incentive Scheme, with a corresponding
decrease in employee share-based compensation reserve for the purchased shares, and decrease in retained earnings for the ordinary
dividend shares.
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 the end of each reporting period.
Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those benefits and when it
(iv)
recognises restructuring costs involving the payment of termination benefits.
196
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
2 Principal Accounting Policies (continued)
Income Tax
X
Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Income tax is recognised in the profit
(i)
and loss account except to the extent that it relates to items recognised in other comprehensive income or directly in equity, in which case it is
recognised in other comprehensive income or directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of
(ii)
reporting period, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial
(iii)
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets also arise from unused tax losses and
unused tax credits. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally
recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such
assets and liabilities are not recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit (provided they are not part of a business combination).
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and an associate, and interests
in a joint venture, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and
interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the
temporary differences and they are expected to reverse in the foreseeable future.
Where investment properties are carried at their fair value in accordance with the accounting policy set out in note 2E(i), the amount of deferred tax
recognised is measured using the tax rates that would apply on sale of those assets at their carrying value at the end of the reporting period unless
the property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied
in the property over time, rather than through sale. In all other cases, the amount of deferred tax recognised is measured based on the expected
manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of
the reporting period. Deferred tax assets and liabilities are not discounted.
The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it
becomes probable that sufficient taxable profits will be available.
Financial Guarantee Contracts
Y
Financial guarantees are contracts that require the issuer to make specified payments to reimburse the holder of the guarantee for a loss it incurs
because a specified debtor fails to make payment to the holder when due in accordance with the original or modified terms of a debt instrument.
When the Group issues a financial guarantee, where the effect is material, the fair value of the guarantee, after netting off any consideration received
or receivable at inception, is initially debited to the profit and loss account and recognised as deferred income within creditors and other payables.
The fair value of financial guarantees issued at the time of issuance is determined by reference to fees charged in an arm’s length transaction for
similar services, when such information is obtainable, or is otherwise estimated by reference to interest rate differentials, by comparing the actual
rates charged by lenders when the guarantee is made available with the estimated rates that lenders would have charged, had the guarantees not
been available, where reliable estimates of such information can be made.
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 from financial guarantees issued.
The Group monitors the risk that the specified debtor will default on the contract and recognises a provision when ECLs on the financial guarantees
are determined to be higher than the amount carried in creditors and other payables in respect of the guarantees (i.e. the amount initially
recognised, less accumulated amortisation). To determine ECLs, the Group considers changes in the risk of default of the specified debtor since the
issuance of the guarantee. A 12-month ECL is measured unless the risk that the specified debtor will default has increased significantly since the
guarantee is issued, in which case a lifetime ECL is measured. The same definition of default and the same assessment of significant increase in credit
risk as described in note 2I(i) apply.
As the Group is required to make payments only in the event of a default by the specified debtor in accordance with the terms of the instrument that
is guaranteed, an ECL is estimated based on the expected payments to reimburse the holder for a credit loss that it incurs less any amount that the
Group expects to receive from the holder of the guarantee, the specified debtor or any other party. The amount is then discounted using the current
risk-free rate adjusted for risks specific to the cash flows.
197
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 2 Principal Accounting Policies (continued)
Z Provisions, Contingent Liabilities and Onerous Contracts
(i)
Provisions and Contingent Liabilities
Provisions are recognised when the Group has a legal or constructive obligation arising as a result 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 time value of money is material,
provisions are stated at the present value of the expenditure expected to settle the obligation.
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 contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only
be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of
outflow of economic benefits is remote.
(ii)
Onerous Contracts
An onerous contract exists when the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received from the contract. Provisions for onerous contracts are measured at the present value of the lower of
the expected cost of terminating the contract and the net cost of continuing with the contract.
AA Revenue Recognition
Revenue is recognised when control over a product or service is transferred to the customer, or the lessee has the right to use the asset, at the
amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties.
Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts. Further details of the Group’s revenue and other
income recognition policies are as follows:
(i)
Fare revenue is recognised when the journey is provided.
Rental income from investment properties, station kiosks and other railway premises under operating leases is recognised in profit or loss
(ii)
in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits
to be derived from the use of the leased assets. Lease incentives granted are recognised in the profit and loss account as an integral part of the
aggregate net lease payments receivable. Variable lease payments that do not depend on an index or a rate are recognised as income in the
accounting period in which they are earned.
Contract revenue is recognised when the outcome of a consultancy, construction or service contract can be estimated reliably. Contract
(iii)
revenue is recognised progressively over-time using the cost-to-cost method, i.e. based on the proportion of the actual costs incurred relative to the
estimated total costs. When the outcome of a consultancy, construction or service contract cannot be estimated reliably, revenue is recognised only
to the extent of contract costs incurred that are expected to be recovered.
Incomes from other railway and station commercial businesses, property management, railway franchises and service concessions are
(iv)
recognised when the services are provided.
AB Interest and Finance Charges
Interest income and expense directly attributable to the financing of capital projects prior to their completion or commissioning are capitalised.
Exchange differences arising from foreign currency borrowings relating 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 on lease liabilities 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.
AC 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 end of the reporting period.
Exchange gains and losses are recognised in the profit and loss account.
The results of foreign enterprises are translated into Hong Kong dollars at the average exchange rates for the year. Statement of financial position
items are translated into Hong Kong dollars at the closing exchange rates at the end of reporting period. The resulting exchange differences are
recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.
198
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 2 Principal Accounting Policies (continued)
AD Segment Reporting
Operating segments, and the amounts of each segment item reported in the accounts, are identified from the financial information provided
regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the
Group’s various lines of businesses and operations in different geographical locations.
Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic
characteristics and are similar in respect of the nature of services and products, the type or class of customers, the methods used to provide the
services or distribute the products, and the nature of the regulatory environment. Operating segments which are not individually material may be
aggregated if they share a majority of these criteria.
AE Related Parties
For the purposes of these accounts, a person, or a close member of that person’s family, is related to the Group if that person has control, joint
control or significant influence over the Group, or is a member of the key management personnel of the Group.
An entity is related to the Group if (i) the entity and the Group are members of the same group; (ii) the entity is an associate or joint venture of the
Group; (iii) the entity is a post-employment benefit scheme for the benefit of employees of the Group or of any entity that is a related party of the
Group; (iv) an individual who is a related party of the Group has control or joint control over that entity; (v) a person, or a close member of that
person’s family, who has control or joint control over the Group has significant influence over the entity or is a member of the key management
personnel of that entity; or (vi) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group
or to the Group’s parent.
AF Government Grants
Government grants are assistance by governments in the form of transfer of resources in return for the Group’s compliance with the conditions
attached thereto. Government grants which represent compensation for the cost of an asset are 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 statement of financial position. Government grants which
represent compensation for expenses or losses are deducted from the related expenses. Any excess of the amount of grant received or receivable
over the cost of the asset or the expenses or losses at the end of reporting period are carried forward as advance receipts or deferred income to set
off against the future cost of the asset or future expenses or losses.
3 Rail Merger with Kowloon-Canton Railway Corporation and Operating
Arrangements for High Speed Rail and Tuen Ma Line Phase 1
Rail Merger
On 2 December 2007 (the “Appointed Day”), the Company’s operations merged with those of Kowloon-Canton Railway Corporation (“KCRC”) (the
“Rail Merger”). The structure and key terms of the Rail Merger were set out in a series of transaction agreements entered into between, inter alia, the
Government of the Hong Kong Special Administrative Region (the “HKSAR Government”), KCRC and the Company including the Service Concession
Agreement, Property Package Agreements and Merger Framework Agreement.
Pursuant to the Service Concession Agreement (“SCA”), KCRC granted the Company the right to access, use and operate the KCRC system for an
initial term of 50 years (the “Concession Period”), which will be extended if the franchise period (as it relates to the KCRC railway) is extended. In
accordance with the terms of the SCA, the Company paid an upfront lump sum to KCRC on the Appointed Day and is obliged to pay to KCRC fixed
annual payments and variable annual payments (calculated on a tiered basis by reference to the revenue generated from the KCRC system above
certain thresholds).
Under the SCA, the Company is responsible for the expenditure incurred in relation to the maintenance, repair, replacement and upgrade of the
KCRC system (with any new assets acquired being classified as “additional concession property”). To the extent that such expenditure exceeds an
agreed threshold (“Capex Threshold”), the Company will be reimbursed for any above-threshold expenditure at the end of the Concession Period
with such reimbursement to be on the basis of depreciated book value.
Details of the Rail Merger are disclosed in the Company’s circular dated 3 September 2007.
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Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 3 Rail Merger with Kowloon-Canton Railway Corporation and Operating
Arrangements for High Speed Rail and Tuen Ma Line Phase 1 (continued)
Operating Arrangements for High Speed Rail
On 23 August 2018, the Company entered into relevant agreements with the HKSAR Government and KCRC to supplement and amend the then
current agreements to enable the Company to operate the Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link (“High
Speed Rail” or “HSR”) in substantially the same manner as the existing railway network. Under the supplemental service concession agreement that
was executed on 23 August 2018 (“SSCA-HSR”), the operating period with respect to the HSR is for an initial term of 10 years from 23 September
2018 (“Concession Period (High Speed Rail)”), which may be extended subject to further negotiation between the Company and KCRC in accordance
with the mechanism set out in the SSCA-HSR. Under the SSCA-HSR, the Company is responsible for the expenditure incurred in relation to the
maintenance, repair, replacement and upgrade of the concession property of the High Speed Rail (with any new assets acquired being classified
as “additional concession property (High Speed Rail)”). To the extent that such expenditure exceeds an agreed threshold (“Capex Threshold (High
Speed Rail)”), the Company will be reimbursed for any above-threshold expenditure at the end of the concession period with such reimbursement
to be on the basis of depreciated book value.
Details of the SSCA-HSR are disclosed in the Company’s announcement dated 23 August 2018.
Operating Arrangements for Tuen Ma Line Phase 1
On 11 February 2020, the Company entered into relevant agreements with the HKSAR Government and KCRC to supplement and amend the
then current agreements to enable the Company to operate Tuen Ma Line Phase 1 (which extends the Ma On Shan Line from Tai Wai to Kai Tak) in
substantially the same manner as the existing railway network for a period of two years from 14 February 2020. Prior to the full opening of the Tuen
Ma Line, the parties are obliged to commence exclusive negotiations in good faith with a view to agreeing the terms of a supplemental service
concession agreement for the entire Tuen Ma Line (which is intended to replace the supplemental service concession agreement that was executed
on 11 February 2020 (“SSCA-SCL”)). Under the SSCA-SCL, the Company is responsible for the expenditure incurred in relation to the maintenance,
repair, replacement and upgrade of the concession property of the Tuen Ma Line Phase 1.
Details of the SSCA-SCL are disclosed in the Company’s announcement dated 11 February 2020.
4 Revenue from Hong Kong Transport Operations
Revenue from Hong Kong transport operations comprises:
in HK$ million
Domestic Service
Cross-boundary Service
High Speed Rail
Airport Express
Light Rail and Bus
Intercity Service
Others
2019
12,714
3,164
2,098
1,011
677
175
99
2018
13,232
3,472
600
1,156
723
214
93
19,938
19,490
Domestic Service comprises the Kwun Tong, Tsuen Wan, Island, South Island, Tung Chung, Tseung Kwan O, Disneyland Resort, East Rail (excluding
Cross-boundary Service), West Rail and Ma On Shan Lines. Others include mainly by-law infringement surcharge and Octopus load agent fees.
5 Revenue from Hong Kong Station Commercial Businesses
Revenue from Hong Kong station commercial businesses comprises:
in HK$ million
Duty free shops and kiosks
Advertising
Telecommunication income
Other station commercial income
200
2019
4,800
1,130
743
126
6,799
2018
4,424
1,212
696
126
6,458
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 6 Revenue from Hong Kong Property Rental and
Management Businesses
Revenue from Hong Kong property rental and management businesses comprises:
in HK$ million
Property rental income
Property management income
2019
4,833
304
5,137
2018
4,748
307
5,055
7 Revenue and Expenses Relating to Mainland of China and
International Subsidiaries
Revenue and expenses relating to Mainland of China and international subsidiaries comprise:
in HK$ million
Revenue
Expenses
Revenue
Expenses
2019
2018
Railway-related businesses outside of Hong Kong
– Melbourne Train
– Sydney Metro Northwest
– Sydney Metro City & Southwest
– MTR Nordic*
– TfL Rail/Elizabeth Line (formerly known as
London Crossrail)
– Shenzhen Metro Longhua Line
– Macao Light Rapid Transit Taipa Line
Property rental and management businesses in
Mainland of China
Property development in Mainland of China
10,680
1,110
515
4,862
2,037
761
949
20,914
171
21,085
–
21,085
10,154
1,073
450
4,832
1,899
599
687
19,694
66
19,760
25
19,785
10,994
1,752
–
4,891
1,782
776
529
20,724
153
20,877
60
20,937
10,500
1,658
–
5,050
1,723
600
349
19,880
121
20,001
35
20,036
* MTR Nordic comprises the Stockholm Metro, MTR Tech, MTR Express, Stockholm Commuter Rail (“Stockholms pendeltåg”) and Emtrain (being the Group’s subsidiary
since September 2019 following the Group’s acquisition of the remaining 50% interests) operations in Sweden.
The Group’s 60% owned subsidiary, Metro Trains Sydney Pty Ltd, commenced the train services of Sydney Metro North West on 26 May 2019.
The Group’s wholly owned subsidiary, MTR Operações Ferroviárias (Macau) Sociedade Unipessoal Lda., commenced the train services of Macao Light
Rapid Transit Taipa Line on 10 December 2019.
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Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
8 Revenue from Other Businesses
Revenue from other businesses comprises income from:
in HK$ million
Ngong Ping 360
Consultancy business
Project management for HKSAR Government
Miscellaneous businesses
2019
392
184
935
34
1,545
2018
476
188
1,293
33
1,990
9 Segmental Information
The Group’s businesses consist of (i) recurrent businesses (comprising Hong Kong transport operations, Hong Kong station commercial businesses,
Hong Kong property rental and management businesses, Mainland of China and international railway, property rental and management businesses
and other businesses) and (ii) property development businesses (together with recurrent businesses referred to as underlying businesses).
The Group manages its businesses by the various business executive committees. In a manner consistent with the way in which information is
reported internally to the Group’s most senior executive management for the purposes of resource allocation and performance assessment, the
Group has identified the following reportable segments:
Hong Kong transport operations: The provision of passenger operation and related services on the urban mass transit railway system in
(i)
Hong Kong, the Airport Express serving both the Hong Kong International Airport and the AsiaWorld-Expo at Chek Lap Kok, cross-boundary railway
connection with the border of Mainland of China at Lo Wu and Lok Ma Chau, the Guangzhou-Shenzhen-Hong Kong Express Rail Link (Hong Kong
Section) (“High Speed Rail”), light rail and bus feeder with railway system in the north-west New Territories and intercity railway transport with
certain cities in the Mainland of China.
Hong Kong station commercial businesses: Commercial activities including the letting of advertising, retail and car parking space at railway
(ii)
stations, the provision of telecommunication and bandwidth services in railway premises and other commercial activities within the Hong Kong
transport operations network.
Hong Kong property rental and management businesses: The letting of retail, office and car parking space and the provision of estate
(iii)
management services in Hong Kong.
(iv)
Hong Kong property development: Property development activities at locations near the railway systems in Hong Kong.
(v) Mainland of China and international railway, property rental and management businesses: The construction, operation and maintenance of
mass transit railway systems including station commercial activities outside of Hong Kong and the letting of retail spaces and provision of estate
management services in the Mainland of China.
(vi) Mainland of China property development: Property development activities in the Mainland of China.
(vii) Other businesses: Businesses not directly relating to transport operations or properties such as Ngong Ping 360, which comprises cable
car operation in Tung Chung and related businesses at the Ngong Ping Theme Village, railway consultancy business and the provision of project
management services to the HKSAR Government.
202
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 9 Segmental Information (continued)
The results of the reportable segments and reconciliation to the corresponding consolidated totals in the accounts are shown below:
Hong Kong
transport
operations
Hong Kong
station
commercial
businesses
Hong Kong
property
rental and
management
businesses
Hong Kong
property
development
Mainland of China and
international affiliates
Mainland of
China and
international
railway,
property
rental and
management
businesses
Mainland
of China
property
development
Other
businesses
Un-allocated
amount
Total
19,938
2,026
304
19,174
764
–
49
1,977
4,773
–
304
4,833
–
–
4,511
4,702
262
131
19,938
(14,029)
6,799
(680)
5,137
(851)
–
–
–
–
–
–
–
–
–
–
–
–
20,902
2,701
18,201
183
182
1
21,085
(19,760)
(201)
–
–
–
–
–
–
–
(25)
–
1,529
387
1,142
16
14
2
1,545
(3,557)
–
–
–
–
–
–
–
–
44,699
22,311
22,388
9,805
9,409
396
54,504
(38,902)
–
(75)
(276)
5,909
6,119
4,286
–
1,124
(25)
(2,012)
(75)
15,326
–
–
–
5,707
–
–
–
–
5,707
5,909
(4,728)
(1,772)
–
(591)
–
–
–
6,119
(192)
(805)
4,286
(16)
(6)
5,707
–
–
–
–
–
5,122
–
–
–
4,264
–
1,449
–
5,707
–
–
(176)
(591)
5,122
5,713
5,531
1,124
(236)
–
54
942
(57)
(77)
(200)
608
(25)
–
–
–
(25)
80
–
(6)
49
123,669
3,552
2,598
310
91,110
459
–
–
140
–
–
–
–
–
–
2
–
–
21
–
7
–
–
–
–
127,361
–
2,910
–
91,597
–
2,850
–
12,022
–
–
–
1,034
–
15,906
7,544
8,549
58
4,500
56
–
–
131
–
–
–
–
–
1
–
211
9,335
25,615
–
4,770
11,694
2,126
2,379
10,434
9,449
10,177
21,871
–
2,126
–
2,379
–
10,434
173
9,622
5,085
449
311
–
–
29
–
1
–
–
3,819
204
–
–
19
864
–
864
–
–
–
(2,012)
(65)
–
234
(1,843)
–
–
–
(75)
–
–
–
(75)
(882)
–
(1,540)
21,033
(5,237)
(2,583)
288
13,501
(859)
1,372
(1,922)
(1,843)
(2,497)
12,092
626
1,665
–
–
1,801
–
386
–
1,024
5,502
–
15,553
225,605
37,438
–
–
–
–
–
–
77
12,022
1,948
134
386
1,245
–
15,553
10,359
289,214
3,162
51,958
92,066
–
3,162
–
51,958
10,350
102,416
28
–
2
–
–
–
6,077
3,819
51
in HK$ million
2019
Revenue from contracts with
customers within the scope
of HKFRS 15
– Recognised at a point
in time
– Recognised over time
Revenue from other sources
– Lease payments that are
fixed or depend on
an index or a rate
– Variable lease payments
that do not depend on
an index or a rate
Total revenue
Operating expenses
Project study and business
development expenses
Operating profit/(loss)
before Hong Kong property
development, depreciation,
amortisation and variable
annual payment
Profit on Hong Kong property
development
Operating profit/(loss) before
depreciation, amortisation
and variable annual
payment
Depreciation and amortisation
Variable annual payment
Share of profit or loss of
associates and joint venture
Profit/(loss) before interest,
finance charges and taxation
Interest and finance charges
Investment property
revaluation
Income tax
Profit/(loss) for the year ended
31 December 2019
Assets
Fixed assets
Other segment assets *
Goodwill and property
management rights
Property development
in progress
Deferred expenditure
Deferred tax assets
Investments in securities
Properties held for sale
Interests in associates and
joint venture
Total assets
Liabilities
Segment liabilities
Obligations under service
concession
Total liabilities
Other information
Capital expenditure on:
Fixed assets
Property development
in progress
Non-cash expenses other
than depreciation and
amortisation
* Other segment assets mainly include debtors, stores and spares, cash and cash equivalents and other assets employed in the operations of individual business segments.
203
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
9 Segmental Information (continued)
Hong Kong
transport
operations
Hong Kong
station
commercial
businesses
Hong Kong
property
rental and
management
businesses
Hong Kong
property
development
Mainland of China and
international affiliates
Mainland of
China and
international
railway,
property
rental and
management
businesses
Mainland
of China
property
development
Other
businesses
Un-allocated
amount
Total
in HK$ million
2018
Revenue from contracts with
customers within the scope
of HKFRS 15
– Recognised at a point
in time
– Recognised over time
Revenue from other sources
Total revenue
Operating expenses
Project study and business
development expenses
Operating profit/(loss)
before Hong Kong property
development, depreciation,
amortisation and variable
annual payment
Profit on Hong Kong property
development
Operating profit/(loss) before
depreciation, amortisation
and variable annual
payment
Depreciation and amortisation
Variable annual payment
Share of profit or loss of
associates and joint venture
Profit/(loss) before interest,
finance charges and taxation
Interest and finance charges
Investment property
revaluation
Income tax
Profit/(loss) for the year ended
31 December 2018
Assets
Fixed assets
Other segment assets *
Goodwill and property
management rights
Property development
in progress
Deferred expenditure
Deferred tax assets
Investments in securities
Properties held for sale
Interests in associates and
joint venture
Total assets
Liabilities
Segment liabilities
Obligations under service
concession
Total liabilities
Other information
Capital expenditure on:
Fixed assets
Property development in
progress
Non-cash expenses other
than depreciation and
amortisation
19,490
1,909
19,258
232
–
19,490
(11,319)
52
1,857
4,549
6,458
(567)
307
–
307
4,748
5,055
(813)
–
–
–
8,171
5,891
4,242
–
–
–
–
–
–
–
–
–
–
–
2,574
8,171
(4,578)
(1,608)
5,891
(174)
(692)
–
–
1,985
5,025
–
–
–
–
–
–
4,242
2,574
(12)
(5)
–
4,225
–
4,745
–
–
–
–
2,574
–
–
(421)
1,985
5,025
8,970
2,153
123,185
2,572
2,361
271
82,349
428
–
–
77
–
–
–
–
–
–
–
2
–
–
–
26
–
41
–
–
–
–
1
1,985
–
14,840
–
–
–
1,156
–
125,834
2,634
82,844
17,982
11,132
2,270
2,278
5,498
7,645
10,236
21,368
–
2,270
–
2,278
–
5,498
173
7,818
5,302
379
462
–
139
–
40
–
2
–
–
1,121
–
–
1
20,640
2,801
17,839
237
20,877
(20,001)
(263)
613
–
613
(154)
–
437
896
2
–
(190)
708
–
–
–
60
60
(35)
–
25
–
25
–
–
–
25
134
–
(69)
90
7,300
6,810
63
4,543
58
–
–
117
–
–
7,779
22,064
–
–
–
2
–
213
–
4,821
920
–
920
–
–
–
1,974
469
1,505
16
1,990
(2,004)
–
–
–
–
–
–
44,320
22,580
21,740
9,610
53,930
(34,739)
–
(60)
(323)
(14)
–
(14)
(67)
–
221
140
–
–
–
(60)
18,868
–
2,574
(60)
–
–
–
(60)
(1,210)
–
(1,645)
21,442
(4,985)
(2,305)
658
14,810
(1,074)
4,745
(2,325)
140
(2,915)
16,156
666
1,617
–
–
1,760
–
294
–
977
5,314
–
13,194
215,925
31,420
–
–
–
–
–
–
–
84
14,840
1,878
121
294
1,369
8,756
13,194
274,687
2,117
51,799
83,659
–
2,117
–
51,799
10,409
94,068
15
–
1
–
–
–
6,297
1,121
44
* Other segment assets mainly include debtors, stores and spares, cash and cash equivalents and other assets employed in the operations of individual business segments.
204
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
9 Segmental Information (continued)
Unallocated assets and liabilities mainly comprise cash, bank balances and deposits, tax reserve certificates, derivative financial assets and liabilities,
interest-bearing loans and borrowings, current taxation as well as deferred tax liabilities.
For the year ended 31 December 2019, revenue from one (2018: one) customer of the Mainland of China and international affiliates segment has
exceeded 10% of the Group’s revenue. Approximately 14.47% (2018: 13.76%) of the Group’s total revenue was attributable to this customer.
The following table sets out information about the geographical location of the Group’s revenue from external customers and the Group’s fixed
assets, goodwill and property management rights, property development in progress, deferred expenditure and interests in associates and joint
venture (“specified non-current assets”). The geographical location of customers is based on the location at which the services were provided
or goods were delivered. The geographical location of the specified non-current assets is based on the physical location of the asset in the case
of property, plant and equipment and property development in progress, the location of the proposed capital project in the case of deferred
expenditure, the location of the operation to which they are related in the case of service concession assets, goodwill and property management
rights and the location of operation in the case of interests in associates and joint venture.
in HK$ million
Hong Kong SAR (place of domicile)
Australia
Mainland of China and Macao SAR
Sweden
United Kingdom
Revenue from external customers
Specified non-current assets
2019
33,357
12,305
1,934
4,862
2,046
21,147
54,504
2018
32,935
12,746
1,568
4,891
1,790
20,995
53,930
2019
233,019
941
15,155
786
110
16,992
250,011
2018
226,282
446
13,965
699
91
15,201
241,483
As at 31 December 2019, the aggregated amount of the transaction price allocated to the remaining performance obligation under the Group’s
existing contracts is HK$42,183 million (as at 31 December 2018: HK$13,053). This amount represents revenue expected to be recognised in the
future mainly from the fixed annual payments in relation to High Speed Rail under the SSCA–HSR, as well as the construction, consultancy and
project management contracts entered into with the Group’s customers. The Group will recognise the expected revenue in future when or as the
work is completed which is expected to occur over the next one to fifteen years.
The Group has applied the practical expedients in paragraph 121 of HKFRS 15 to exempt the disclosure of revenue expected to be recognised in the
future arising from certain contracts with customers in existence at the reporting date that are billed based on the performance completed to date
or have an original expected duration of one year or less.
205
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
10 Operating Expenses
A
Total staff costs include:
in HK$ million
Amounts charged to consolidated profit and loss account under:
– staff costs and related expenses for Hong Kong transport operations
– maintenance and related works for Hong Kong transport operations
– other expense line items for Hong Kong transport operations
– expenses relating to Hong Kong station commercial businesses
– expenses relating to Hong Kong property rental and management businesses
– expenses relating to Mainland of China and international subsidiaries
– expenses relating to other businesses
– project study and business development expenses
– profit on Hong Kong property development
Amounts capitalised under:
– property development in progress
– assets under construction and other projects
– service concession assets
Amounts recoverable
Total staff costs
Amounts recoverable relate to property management, entrustment works and other agreements.
The following expenditures are included in total staff costs:
in HK$ million
Share-based payments
Contributions to defined contribution retirement schemes and Mandatory Provident Fund
Amounts recognised in respect of defined benefit retirement schemes
B
Auditors’ remuneration charged to the consolidated profit and loss account include:
in HK$ million
Audit services
Tax services
Other audit related services
C
Loss on disposal of fixed assets of HK$57 million (2018: HK$45 million) is included in operating expenses.
2019
2018
6,489
117
304
117
149
9,006
1,384
271
24
194
733
359
602
5,847
131
115
97
137
8,219
1,797
358
26
157
634
387
566
19,749
18,471
2019
122
907
469
1,498
2018
110
849
431
1,390
2019
2018
19
2
6
27
18
2
6
26
206
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 11 Remuneration of Members of the Board and the Executive
Directorate
A Remuneration of Members of the Board and the Executive Directorate
The emoluments of Members of the Board and the Executive Directorate of the Company were as follows:
(i)
in HK$ million
2019
Members of the Board
– Frederick Ma Si-hang (retired on 1 July 2019)*
– Rex Auyeung Pak-kuen (appointed on 7 March 2019)**
– Andrew Clifford Winawer Brandler
– Walter Chan Kar-lok (appointed on 22 May 2019)**
– Pamela Chan Wong Shui
– Dorothy Chan Yuen Tak-fai
– Cheng Yan-kee (appointed on 22 May 2019)**
– Vincent Cheng Hoi-chuen (retired on 22 May 2019)*
– Anthony Chow Wing-kin
– Eddy Fong Ching
– James Kwan Yuk-choi
– Kaizer Lau Ping-cheung (retired on 22 May 2019)*
– Rose Lee Wai-mun
– Lucia Li Li Ka-lai
– Jimmy Ng Wing-ka (appointed on 22 May 2019)**
– Abraham Shek Lai-him (retired on 22 May 2019)*
– Benjamin Tang Kwok-bun
– Allan Wong Chi-yun
– Johannes Zhou Yuan
– James Henry Lau Jr
– Secretary for Transport and Housing
– Permanent Secretary for Development (Works)
– Commissioner for Transport
Members of the Executive Directorate
– Lincoln Leong Kwok-kuen (retired on 1 April 2019)***
– Jacob Kam Chak-pui
– Roger Francis Bayliss (appointed on 18 March 2019)****
– Margaret Cheng Wai-ching
– Peter Ronald Ewen
– Herbert Hui Leung-wah
– Adi Lau Tin-shing
– Gillian Elizabeth Meller
– Linda So Ka-pik
– David Tang Chi-fai
– Jeny Yeung Mei-chun
Base pay,
allowances and
benefits in kind
Retirement
scheme
contribution
Fees
Variable
remuneration
related to
performance
Total
0.9
0.9
0.5
0.2
0.4
0.5
0.3
0.2
0.5
0.5
0.5
0.2
0.4
0.5
0.3
0.2
0.4
0.5
0.5
0.4
0.4
0.4
0.4
–
–
–
–
–
–
–
–
–
–
–
10.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.4
8.1
4.0
5.0
4.5
5.0
5.1
4.5
4.5
5.1
4.9
55.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
1.2
–~
0.7
0.6
0.7
–~~
0.7
0.6
0.7
0.7
6.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.4
0.6
0.8
0.7
0.7
0.9
0.7
0.7
0.8
0.8
8.1
0.9
0.9
0.5
0.2
0.4
0.5
0.3
0.2
0.5
0.5
0.5
0.2
0.4
0.5
0.3
0.2
0.4
0.5
0.5
0.4
0.4
0.4
0.4
4.7
10.7
4.6
6.5
5.8
6.4
6.0
5.9
5.8
6.6
6.4
79.4
*
Frederick S H Ma, Vincent H C Cheng, Kaizer P C Lau and Abraham L H Shek retired as Members of the Board on the date shown in the above table. The amounts of
their emolument shown in the above table cover the period from 1 January 2019 to the respective dates of retirement.
** Rex P K Auyeung, Walter K L Chan, Cheng Y K and Jimmy W K Ng were appointed as Members of the Board on the date shown in the above table. The amounts of
their emolument shown in the above table covers the period from the date of their respective dates of appointment to 31 December 2019.
*** Lincoln K K Leong retired as a Member of the Executive Directorate on the date shown in the above table. The amount of his emolument shown in the above
table covers the period from 1 January 2019 to his retirement date. Lincoln K K Leong agreed to waive his variable remuneration related to performance in 2019 of
approximately HK$6,613,020.
**** Roger F Bayliss was appointed as a Member of the Executive Directorate on the date shown in the above table. The amount of his emolument shown in the above
table covers the period from the date of his appointment to 31 December 2019.
~
The total contributions paid by the Company attributable to the financial year ended 31 December 2019 for Roger F Bayliss, who participated in Mandatory Provident
Fund Scheme was HK$15,000.
~ ~ The total contributions paid by the Company attributable to the financial year ended 31 December 2019 for Adi T S Lau, who participated in MTR Retirement Scheme
was nil, pursuant to the requirement of the scheme.
207
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 11 Remuneration of Members of the Board and the Executive
Directorate (continued)
A Remuneration of Members of the Board and the Executive Directorate (continued)
in HK$ million
2018
Members of the Board
– Frederick Ma Si-hang
– Andrew Clifford Winawer Brandler
– Pamela Chan Wong Shui
– Dorothy Chan Yuen Tak-fai
– Vincent Cheng Hoi-chuen
– Anthony Chow Wing-kin
– Eddy Fong Ching
– James Kwan Yuk-choi
– Kaizer Lau Ping-cheung
– Rose Lee Wai-mun (appointed on 16 May 2018)#
– Lucia Li Li Ka-lai
– Alasdair George Morrison (retired on 16 May 2018)##
– Abraham Shek Lai-him
– Benjamin Tang Kwok-bun
– Allan Wong Chi-yun
– Johannes Zhou Yuan
– James Henry Lau Jr
– Secretary for Transport and Housing
– Permanent Secretary for Development (Works)
– Commissioner for Transport
Members of the Executive Directorate
– Lincoln Leong Kwok-kuen
– Jacob Kam Chak-pui
– Margaret Cheng Wai-ching
– Morris Cheung Siu-wa
(retired with effect from 17 July 2018)###
– Peter Ronald Ewen
– Herbert Hui Leung-wah
– Adi Lau Tin-shing
– Gillian Elizabeth Meller
– Linda So Ka-pik
– David Tang Chi-fai
– Philco Wong Nai-keung
(resigned with effect from 7 August 2018)###
– Jeny Yeung Mei-chun
Base pay,
allowances and
benefits in kind
Retirement
scheme
contribution
Fees
Variable
remuneration
related to
performance
Total
1.7
0.5
0.4
0.5
0.4
0.5
0.5
0.5
0.5
0.3
0.5
0.2
0.5
0.4
0.5
0.5
0.4
0.4
0.4
0.4
–
–
–
–
–
–
–
–
–
–
–
–
10.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.6
6.9
4.8
3.1
4.1
4.8
4.9
4.3
4.0
4.9
5.3
4.7
61.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.5
1.1
0.7
0.1
0.6
0.7
–^
0.6
0.5
0.7
0.5
0.7
7.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
3.4
2.3
1.1
1.9
2.1
2.3
2.1
2.1
2.4
0.4
2.3
23.1
1.7
0.5
0.4
0.5
0.4
0.5
0.5
0.5
0.5
0.3
0.5
0.2
0.5
0.4
0.5
0.5
0.4
0.4
0.4
0.4
11.8
11.4
7.8
4.3
6.6
7.6
7.2
7.0
6.6
8.0
6.2
7.7
102.2
# Rose W M Lee was appointed as a Member of the Board on the date shown in the above table. The amount of her emolument shown in the above table covers the
period from the date of her appointment to 31 December 2018.
## Alasdair G Morrison retired as a Member of the Board on the date shown in the above table. The amount of his emolument shown in the above table covers the
period from 1 January 2018 to his retirement date.
### Morris S W Cheung retired and Philco N K Wong resigned as Members of the Executive Directorate on the respective dates shown in the above table. The amount of
their emoluments shown in the above table cover the period from 1 January 2018 to the respective dates of retirement or resignation.
^
The total contributions paid by the Company attributable to the financial year ended 31 December 2018 for Adi T S Lau, who participated in MTR Retirement Scheme,
was HK$58,901.77.
208
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
11 Remuneration of Members of the Board and the Executive
Directorate (continued)
A Remuneration of Members of the Board and the Executive Directorate (continued)
The above emoluments do not include the fair value of Award Shares granted under the Executive Share Incentive Scheme.
The director’s fees in respect of the office of the Secretary for Transport and Housing (Frank Chan Fan), the office of the Permanent Secretary for
Development (Works) (Hon Chi-keung for the period from 1 January 2018 to 12 October 2018 and Lam Sai-hung for the period from 13 October
2018 to 31 December 2019) and the office of the Commissioner for Transport (Mable Chan), each of whom was appointed Director by the Chief
Executive of the HKSAR pursuant to Section 8 of the Mass Transit Railway Ordinance (“MTR Ordinance”), were received by Government rather than
by the individuals concerned.
The director’s fee in respect of James Henry Lau Jr, being the Secretary for Financial Services and the Treasury of Government, was received by
Government rather than by the individual personally.
Alternate Directors were not entitled to director’s fees.
Restricted Shares and Performance Shares were granted to Members of the Executive Directorate under the Company’s Executive Share
(ii)
Incentive Scheme on 27 April 2015, 8 April 2016, 19 August 2016, 10 April 2017, 16 March 2018, 10 April 2018, 1 April 2019 and 8 April 2019.
Performance Shares offered to Members of the Executive Directorate under such grants, in general, covered a period of three years from the date of
grant. The entitlements of each of the Members of the Executive Directorate are as follows:
•
•
•
•
•
•
•
•
Lincoln K K Leong was granted 60,200 Restricted Shares and 255,000 Performance Shares on 27 April 2015, 64,850 Restricted Shares on 8 April
2016, 63,900 Restricted Shares on 10 April 2017, 80,000 Contract–end Restricted Shares on 16 March 2018 and 73,300 Restricted Shares and
239,950 Performance Shares on 10 April 2018, of which a total of 217,518 Restricted Shares were vested in 2019 (2018: 62,984 Restricted Shares
and 232,735 Performance Shares), and the respective fair value of the share–based payments recognised for the year ended 31 December
2019 was HK$6.5 million (2018: HK$8.3 million). No award shares were lapsed/forfeited in 2019 (2018: 22,265 Performance Shares);
Jacob C P Kam was granted 22,050 Restricted Shares and 57,600 Performance Shares on 27 April 2015, 21,550 Restricted Shares on 8 April
2016, 22,050 Restricted Shares on 10 April 2017, 25,550 Restricted Shares and 50,450 Performance Shares on 10 April 2018, 120,000 Contract–
end Restricted Shares on 1 April 2019 and 47,400 Restricted Shares and 91,750 Performance Shares on 8 April 2019, of which a total of 23,050
Restricted Shares were vested in 2019 (2018: 21,883 Restricted Shares and 52,570 Performance Shares), and the respective fair value of the
share–based payments recognised for the year ended 31 December 2019 was HK$5.5 million (2018: HK$1.6 million). No award shares were
lapsed/forfeited in 2019 (2018: 5,030 Performance Shares);
Margaret W C Cheng was granted 71,428 Restricted Shares on 19 August 2016 and 16,950 Restricted Shares, 30,400 Performance Shares on
10 April 2017,17,600 Restricted Shares and 50,450 Performance Shares on 10 April 2018 and 16,550 Restricted Shares on 8 April 2019, of which
a total of 35,326 Restricted Shares were vested in 2019 (2018: 29,459 Restricted Shares and 27,745 Performance Shares), and the respective fair
value of the share–based payments recognised for the year ended 31 December 2019 was HK$1.7 million (2018: HK$2.1 million). No award
shares were lapsed/forfeited in 2019 (2018: 2,655 Performance Shares);
Peter Ronald Ewen was granted 35,700 Performance Shares on 8 April 2016, 15,050 Restricted Shares on 10 April 2017, 12,250 Restricted
Shares and 50,450 Performance Shares on 10 April 2018 and 12,500 Restricted Shares on 8 April 2019, of which 9,099 Restricted Shares were
vested in 2019 (2018: 5,016 Restricted Shares and 32,583 Performance Shares), and the respective fair value of the share–based payments
recognised for the year ended 31 December 2019 was HK$1.3 million (2018: HK$1.1 million). No award shares were lapsed/forfeited in 2019
(2018: 3,117 Performance Shares);
Herbert L W Hui was granted 15,200 Restricted Shares and 30,400 Performance Shares on 10 April 2017, 14,200 Restricted Shares and 50,450
Performance Shares on 10 April 2018 and 13,800 Restricted Shares on 8 April 2019, of which 9,799 Restricted Shares were vested in 2019 (2018:
5,066 Restricted Shares and 27,745 Performance Shares), and the respective fair value of the share–based payments recognised for the year
ended 31 December 2019 was HK$1.3 million (2018: HK$1.3 million). No award shares were lapsed/forfeited in 2019 (2018: 2,655 Performance
Shares);
Adi T S Lau was granted 8,600 Restricted Shares and 12,550 Performance Shares on 27 April 2015, 8,400 Restricted Shares on 8 April 2016,
17,700 Restricted Shares and 25,050 Performance Shares on 10 April 2017, 16,450 Restricted Shares and 50,450 Performance Shares on 10 April
2018 and 16,250 Restricted Shares on 8 April 2019, of which a total of 14,183 Restricted Shares were vested in 2019 (2018: 11,568 Restricted
Shares and 34,316 Performance Shares), and the respective fair value of the share–based payments recognised for the year ended
31 December 2019 was HK$1.5 million (2018: HK$1.4 million). No award shares were lapsed/forfeited in 2019 (2018: 3,284 Performance Shares);
Gillian E Meller was granted 16,950 Restricted Shares and 57,600 Performance Shares on 27 April 2015, 17,300 Restricted Shares on 8 April
2016, 16,200 Restricted Shares on 10 April 2017, 16,050 Restricted Shares and 50,450 Performance Shares on 10 April 2018 and 13,400
Restricted Shares on 8 April 2019, of which a total of 16,518 Restricted Shares were vested in 2019 (2018: 16,816 Restricted Shares and 52,570
Performance Shares), and the respective fair value of the share–based payments recognised for the year ended 31 December 2019 was
HK$1.4 million (2018: HK$1.3 million). No award shares were lapsed/forfeited in 2019 (2018: 5,030 Performance Shares);
Linda K P So was granted 16,400 Restricted Shares and 44,050 Performance Shares on 8 April 2016, 15,300 Restricted Shares on 10 April 2017,
14,200 Restricted Shares and 50,450 Performance Shares on 10 April 2018 and 14,800 Restricted Shares on 8 April 2019, of which a total of
15,301 Restricted Shares were vested in 2019 (2018: 10,566 Restricted Shares and 40,203 Performance Shares), and the respective fair value of
the share–based payments recognised for the year ended 31 December 2019 was HK$1.4 million (2018: HK$1.3 million). No award shares were
lapsed/forfeited in 2019 (2018: 3,847 Performance Shares);
209
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 11 Remuneration of Members of the Board and the Executive
Directorate (continued)
A Remuneration of Members of the Board and the Executive Directorate (continued)
•
David C F Tang was granted 18,450 Restricted Shares and 57,600 Performance Shares on 27 April 2015, 17,950 Restricted Shares on 8 April
2016, 17,250 Restricted Shares on 10 April 2017, 16,850 Restricted Shares and 50,450 Performance Shares on 10 April 2018 and 17,200
Restricted Shares on 8 April 2019, of which a total of 17,350 Restricted Shares were vested in 2019 (2018: 17,883 Restricted Shares and 52,570
Performance Shares), and the respective fair value of the share–based payments recognised for the year ended 31 December 2019 was
HK$1.5 million (2018: HK$1.3 million). No award shares were lapsed/forfeited in 2019 (2018: 5,030 Performance Shares);
•
•
Jeny M C Yeung was granted 19,350 Restricted Shares and 57,600 Performance Shares on 27 April 2015, 18,850 Restricted Shares on 8 April
2016, 17,700 Restricted Shares on 10 April 2017, 17,350 Restricted Shares and 50,450 Performance Shares on 10 April 2018 and 16,350
Restricted Shares on 8 April 2019, of which a total of 17,967 Restricted Shares were vested in 2019 (2018: 18,633 Restricted Shares and 52,570
Performance Shares), and the respective fair value of the share–based payments recognised for the year ended 31 December 2019 was
HK$1.5 million (2018: HK$1.3 million). No award shares were lapsed/forfeited in 2019 (2018: 5,030 Performance Shares); and
Roger Francis Bayliss was granted 30,150 Performance Shares on 8 April 2019, of which nil was vested in 2019 (2018: nil), and the respective fair
value of the share–based payments recognised for the year ended 31 December 2019 was HK$0.5 million (2018:HK$nil). No award shares were
lapsed/forfeited in 2019 (2018: nil).
None of the Performance Shares awarded to the Members of the Executive Directorate were vested in 2019.
The details of Board Members’ and Members of the Executive Directorate’s interest in the Company’s shares are disclosed in the Report of the
Members of the Board and note 42.
For the year ended 31 December 2019, three (2018: four) Members of the Executive Directorate of the Company, whose emoluments are
(iii)
shown above, were among the five individuals whose emoluments were the highest. The total remuneration of the five highest paid individuals for
the year is shown below:
in HK$ million
Base pay, allowances and benefits in kind
Variable remuneration related to performance
Retirement scheme contributions
The emoluments of the top 5 highest paid individuals for the year are within the following bands:
HK$6,000,001 – HK$6,500,000
HK$6,500,001 – HK$7,000,000
HK$7,500,001 – HK$8,000,000
HK$8,000,001 – HK$8,500,000
HK$10,500,001 – HK$11,000,000
HK$11,000,001 – HK$11,500,000
HK$11,500,001 – HK$12,000,000
2019
30.1
6.2
2.6
38.9
2018
31.1
11.6
4.0
46.7
2019
2018
1
2
–
1
1
–
–
5
–
–
3
–
–
1
1
5
The aggregate emoluments and share–based payments of Members of the Board and the Executive Directorate for the year was
(iv)
HK$103.5 million (2018: HK$124.2 million).
The Company has a service contract with each of the independent non-executive Directors (“INED”)/non-executive Directors (“NED”)
(v)
(excluding three additional directors appointed pursuant to Section 8 of the MTR Ordinance) specifying the terms of his/her continuous
appointments as an INED/a NED and a Member of the relevant Board Committees, for a period not exceeding three years. He/she is also subject to
retirement by rotation and re-election at the Company’s annual general meetings in accordance with the Articles of Association where applicable.
Professor Frederick S H Ma was re-appointed by the Financial Secretary Incorporated (“FSI”) on 19 November 2018 as non-executive Chairman of the
Company for a term commencing from 1 January 2019 to 30 June 2019 (both dates inclusive). Mr Rex P K Auyeung was appointed by the FSI as non-
executive Chairman of the Company for a term commencing from 1 July 2019 until 31 December 2021 (both dates inclusive).
210
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 11 Remuneration of Members of the Board and the Executive
Directorate (continued)
Share Options
B
Options exercised and outstanding in respect of each Member of the Executive Directorate as at 31 December 2019 are set out in the Report of the
Members of the Board.
Under the 2007 Share Option Scheme (the “2007 Option Scheme”) as described in note 42(i), all Members of the Executive Directorate were granted
options to acquire shares between 2007 and 2014.
Under the vesting terms of the options, options granted will be evenly vested in respect of their underlying shares over a period of three years from
the date of offer to grant such options. As all the share options granted to each Member of the Executive Directorate were vested prior to 2018, the
respective fair value of the share based payments recognised for the year ended 31 December 2019 was HK$nil (2018: HK$nil).
C Award Shares
Award Shares outstanding in respect of each Member of the Executive Directorate as at 31 December 2019 are set out in the Report of the Members
of the Board.
Under the Executive Share Incentive Scheme as described in note 42(ii), all Members of the Executive Directorate may be granted an award of
Restricted Shares and/or Performance Shares (collectively known as “Award Shares”). Restricted Shares are awarded on the basis of individual
performance. Performance Shares are awarded which vest subject to the performance of the Company over a pre-determined performance
period, assessed by reference to such Board-approved performance metric and in respect of such performance period and any other performance
conditions, as determined by the Remuneration Committee from time to time.
An award of Restricted Shares will vest ratably over three years in equal tranches (unless otherwise determined by the Remuneration Committee). An
award of Performance Shares will vest upon certification by the Remuneration Committee that the relevant performance metric and performance
conditions have been achieved.
12 Profit on Hong Kong Property Development
Profit on Hong Kong property development comprises:
in HK$ million
Share of surplus and interest in unsold properties from property development
Income from receipt of properties for investment purpose
Agency fee and other income from West Rail property development (note 22C)
Overheads and miscellaneous studies
2019
4,376
1,211
182
(62)
5,707
2018
2,480
–
139
(45)
2,574
During the year ended 31 December 2019, profits attributable to joint operations of HK$5,587 million (2018: HK$2,480 million) were recognised.
13 Depreciation and Amortisation
Depreciation and amortisation comprise:
in HK$ million
Depreciation charge relating to:
– Owned property, plant and equipment
– Right-of-use assets
Amortisation charge:
– Amortisation charge relating to service concession assets and other intangible assets
– Utilisation of government subsidy for Shenzhen Metro Longhua Line operation
2019
2018
3,865
332
4,197
1,439
(399)
1,040
5,237
3,837
189
4,026
1,392
(433)
959
4,985
211
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 14 Interest and Finance Charges
in HK$ million
Interest expenses in respect of:
– Bank loans, overdrafts and capital market instruments
– Obligations under service concession
– Lease liabilities
– Others
Finance charges
Exchange gain
Utilisation of government subsidy for Shenzhen Metro Longhua Line operation
Derivative financial instruments:
– Fair value hedges
– Cash flow hedges:
– transferred from hedging reserve to interest expenses
– transferred from hedging reserve to offset exchange gain
– Hedge of net investments:
– ineffective portion
Interest expenses capitalised
Interest income in respect of:
– Deposits with banks
– Others
2019
2018
1,053
700
58
23
42
(53)
1
(32)
69
(1)
(466)
(16)
1,823
(70)
37
(449)
1,341
(482)
859
1,042
704
25
22
71
(159)
27
18
211
(1)
(382)
(2)
1,705
(96)
255
(406)
1,458
(384)
1,074
During the year ended 31 December 2019, interest expenses capitalised were calculated on a monthly basis at the pre–determined cost of
borrowings and/or the relevant group companies’ borrowing cost which varied from 2.5% to 2.9% per annum (2018: 2.4% to 3.2% per annum).
During the year ended 31 December 2019, interest and finance charges net of interest expenses capitalised in relation to the Shenzhen Metro
Longhua Line were HK$70 million (2018: HK$96 million), which was fully offset by the subsidy received from the Shenzhen Municipal Government.
During the year ended 31 December 2019, the loss resulting from fair value changes of the underlying financial assets and liabilities being hedged
under fair value hedge was HK$45 million (2018: HK$11 million) while the gain resulting from fair value changes of hedging instruments comprising
interest rate and cross currency swaps was HK$44 million (2018: HK$16 million of loss), thus resulting in a net loss of HK$1 million (2018: HK$27
million of net loss).
212
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
15 Income Tax in the Profit and Loss Account
A
Income tax in the consolidated profit and loss account represents:
in HK$ million
Current tax
– Hong Kong Profits Tax
– Tax outside Hong Kong
Less: Utilisation of government subsidy for Shenzhen Metro Longhua Line operation
Deferred tax
– Origination and reversal of temporary differences on:
– tax losses
– depreciation allowances in excess of related depreciation
– revaluation of properties
– provisions and others
2019
2018
1,191
264
1,455
(71)
1,384
(1)
620
(5)
(76)
538
1,922
1,933
325
2,258
(69)
2,189
(102)
228
–
10
136
2,325
The provision for Hong Kong Profits Tax for the year ended 31 December 2019 is calculated at 16.5% (2018: 16.5%) on the estimated assessable
profits for the year after deducting accumulated tax losses brought forward, if any. Current taxes for subsidiaries outside Hong Kong are charged at
the appropriate current rates of taxation ruling in the relevant tax jurisdictions.
The Company is a qualifying corporation under the two-tiered Profits Tax rate regime in Hong Kong. Under the two-tiered Profits Tax rate regime,
the first HK$2 million of assessable profits are taxed at 8.25% and the remaining assessable profits are taxed at 16.5%. The provision for Hong Kong
Profits Tax for the Company was calculated on the same basis in 2019 and 2018.
The provision of Land Appreciation Tax is estimated according to the requirements set forth in the relevant Mainland of China tax laws and
regulations. Land Appreciation Tax has been provided at ranges of progressive rates of the appreciation value, with certain allowable deductions.
During the year ended 31 December 2019, Land Appreciation Tax of HK$nil (2018: HK$30 million) was charged to profit or loss.
Provision for deferred tax on temporary differences arising in Hong Kong is calculated at the Hong Kong Profits Tax rate at 16.5% (2018: 16.5%), while
that arising outside Hong Kong is calculated at the appropriate current rates of taxation ruling in the relevant tax jurisdictions.
The Company purchased tax reserve certificates in connection with the tax deductibility of certain payments relating to the Rail Merger. Please refer
to note 30 to the consolidated accounts for details.
B
Reconciliation between tax expense and accounting profit at applicable tax rates:
Profit before taxation
Notional tax on profit before taxation, calculated at the rates applicable to
profits in the tax jurisdictions concerned
Land Appreciation Tax (net of tax effect on deduction of Enterprise Income Tax)
Tax effect of non-deductible expenses
Tax effect of non-taxable revenue
Tax effect of unused tax losses not recognised
Utilisation of government subsidy for Shenzhen Metro Longhua Line operation
Actual tax expenses
2019
2018
HK$ million
%
HK$ million
%
14,014
2,330
–
1,241
(1,562)
(16)
(71)
1,922
18,481
3,153
30
464
16.6
–
8.8
(11.1)
(1,253)
(0.1)
(0.5)
13.7
–
(69)
2,325
17.1
0.2
2.5
(6.8)
–
(0.4)
12.6
213
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
16 Dividends
During the year, ordinary dividends paid and proposed to shareholders of the Company comprise:
in HK$ million
Ordinary dividends attributable to the year
– Interim ordinary dividend declared of HK$0.25 (2018: HK$0.25) per share
– Final ordinary dividend proposed after the end of reporting period of HK$0.98 (2018: HK$0.95)
per share
2019
2018
1,539
6,035
7,574
1,526
5,833
7,359
Ordinary dividends attributable to the previous year
– Final ordinary dividend of HK$0.95 (2018: HK$0.87 per share attributable to year 2017)
per share approved and payable/paid during the year
5,835
5,228
The final ordinary dividend proposed after the end of reporting period has not been recognised as a liability at the end of reporting period.
For 2019 final ordinary dividend, the Board proposed that a scrip dividend option will be offered to all shareholders of the Company whose names
appeared on the register of members of the Company as at the close of business on 29 May 2020 (except for those with registered addresses in New
Zealand or the United States of America or any of its territories or possessions).
Details of ordinary dividends paid to the Financial Secretary Incorporated are disclosed in note 45O.
17 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 shareholders of HK$11,932 million (2018: HK$16,008 million)
and the weighted average number of ordinary shares in issue less shares held for Executive Share Incentive Scheme, which is calculated as follows:
Issued ordinary shares at 1 January
Effect of scrip dividend issued
Effect of share options exercised
Less: Shares held for Executive Share Incentive Scheme
2019
2018
6,139,485,589
6,007,777,302
6,682,480
2,130,711
(5,752,047)
51,890,075
2,253,653
(5,330,351)
Weighted average number of ordinary shares less shares held for Executive Share Incentive Scheme
at 31 December
6,142,546,733
6,056,590,679
B Diluted Earnings Per Share
The calculation of diluted earnings per share is based on the profit for the year attributable to shareholders of HK$11,932 million (2018: HK$16,008
million) and the weighted average number of ordinary shares in issue less shares held for Executive Share Incentive Scheme after adjusting for the
dilutive effect of the Company’s share option scheme and Executive Share Incentive Scheme, which is calculated as follows:
Weighted average number of ordinary shares less shares held for Executive Share Incentive Scheme
at 31 December
Effect of dilutive potential shares under the share option scheme
Effect of shares awarded under Executive Share Incentive Scheme
Weighted average number of shares (diluted) at 31 December
2019
2018
6,142,546,733
6,056,590,679
2,218,657
5,759,306
3,490,644
5,820,496
6,150,524,696
6,065,901,819
C
shareholders of the Company arising from underlying businesses of HK$10,560 million (2018: HK$11,263 million).
Both basic and diluted earnings per share would have been HK$1.72 (2018: HK$1.86), if the calculation is based on profit attributable to
214
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
18 Other Comprehensive Income
A
Tax effects relating to each component of other comprehensive income of the Group are shown below:
2019
Before-tax
amount
Tax
expense
Net-of-tax
amount
Before-tax
amount
2018
Tax
(expense)/
benefit
Net-of-tax
amount
in HK$ million
Exchange differences on translation of:
– Financial statements of overseas subsidiaries,
associates and joint venture
– Non-controlling interests
Surplus on revaluation of self-occupied land and
buildings
Remeasurement of net liability of defined benefit
schemes
Cash flow hedges: net movement in hedging
reserve (note 18B)
Other comprehensive income
(344)
(15)
(359)
145
869
292
947
–
–
–
(24)
(139)
(48)
(211)
(344)
(15)
(359)
121
730
244
736
(761)
(22)
(783)
622
(422)
(32)
(615)
–
–
–
(103)
74
5
(24)
B
The components of other comprehensive income of the Group relating to cash flow hedges are as follows:
in HK$ million
Cash flow hedges:
Effective portion of changes in fair value of hedging instruments recognised during the year
Amounts charged to profit or loss:
– Interest and finance charges (note 14)
– Other expenses
Tax effect resulting from:
– Changes in fair value of hedging instruments recognised during the year
– Amounts charged to profit or loss
2019
255
37
–
292
(42)
(6)
244
(761)
(22)
(783)
519
(348)
(27)
(639)
2018
(260)
229
(1)
(32)
43
(38)
(27)
19 Investment Properties and Other Property, Plant and Equipment
A
Movements and analysis of the Group’s investment properties, all of which being held in Hong Kong and Mainland of China and carried at fair value,
are as follows:
Investment Properties
in HK$ million
At 1 January, as previously reported
Effect of adoption of HKFRS 16
At 1 January, as restated
Additions
Transfer from property held for sale
Change in fair value
Exchange loss
At 31 December
2019
82,676
361
83,037
7,316
–
1,372
(13)
91,712
2018
77,086
–
77,086
450
395
4,745
–
82,676
All investment properties of the Group were revalued at 31 December 2019 and 2018. Details of the fair value measurement are disclosed in note 41.
The net increase in fair value of HK$1,372 million (2018: HK$4,745 million) arising from the revaluation has been credited to the consolidated profit
and loss account. Investment properties in Hong Kong and Mainland of China are revalued semi–annually by Jones Lang LaSalle Limited and
Cushman & Wakefield Limited respectively. Future market condition changes may result in further gains or losses to be recognised through profit
and loss account in subsequent periods.
Included in the Group’s investment properties as at 31 December 2019, was HK$670 million (2018: HK$395 million) relating to a property in Mainland
of China.
215
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
19 Investment Properties and Other Property, Plant and Equipment
(continued)
B Other Property, Plant and Equipment
The Group
in HK$ million
2019
Cost or Valuation
At 1 January 2019, as previously reported
Effect of adoption of HKFRS 16
At 1 January 2019, as restated
Additions
Disposals/write-offs
Surplus on revaluation
Transfer to stores and spares
Transfer to additional concession property
(note 20)
Other assets commissioned
Exchange differences
At 31 December 2019
At Cost
At 31 December 2019 Valuation
Aggregate depreciation
At 1 January 2019
Charge for the year
Written back on disposals
Written back on revaluation
Exchange differences
At 31 December 2019
Net book value at 31 December 2019
2018
Cost or Valuation
At 1 January 2018
Additions
Disposals/write-offs
Surplus on revaluation
Reclassification within other property,
plant and equipment
Transfer to additional concession property
(note 20)
Other assets commissioned
Exchange differences
At 31 December 2018
At Cost
At 31 December 2018 Valuation
Aggregate depreciation
At 1 January 2018
Charge for the year
Written back on disposals
Written back on revaluation
Exchange differences
At 31 December 2018
Net book value at 31 December 2018
Leasehold
land
Self-
occupied
buildings
Civil works
Plant and
equipment
Assets
under
construction
1,757
–
1,757
–
–
–
–
–
8
–
1,765
1,765
–
340
34
–
–
–
374
1,391
1,757
–
–
–
4,234
363
4,597
60
–
(7)
–
–
–
–
4,650
423
4,227
–
226
–
(152)
–
74
4,576
3,748
–
–
486
62,385
–
62,385
–
(2)
–
–
–
(5)
–
62,378
62,378
–
8,865
523
–
–
–
9,388
52,990
61,981
–
(5)
–
86,696
128
86,824
292
(315)
–
(12)
(4)
1,441
(51)
88,175
88,175
–
48,206
3,414
(270)
–
(15)
51,335
36,840
85,717
229
(572)
–
5,115
–
5,115
3,173
(6)
–
–
(2)
(1,444)
(1)
6,835
6,835
–
–
–
–
–
–
–
6,835
3,786
3,201
(3)
–
Total
160,187
491
160,678
3,525
(323)
(7)
(12)
(6)
–
(52)
163,803
159,576
4,227
57,411
4,197
(270)
(152)
(15)
61,171
102,632
156,989
3,430
(580)
486
–
–
2
(2)
–
–
–
–
–
1,757
1,757
–
306
34
–
–
–
340
1,417
–
–
–
4,234
–
4,234
–
136
–
(136)
–
–
4,234
–
407
–
62,385
62,385
–
8,346
520
(1)
–
–
8,865
53,520
(2)
1,449
(123)
86,696
86,696
–
45,448
3,336
(529)
–
(49)
48,206
38,490
(12)
(1,856)
(1)
5,115
5,115
–
–
–
–
–
–
–
5,115
(14)
–
(124)
160,187
155,953
4,234
54,100
4,026
(530)
(136)
(49)
57,411
102,776
216
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
19 Investment Properties and Other Property, Plant and Equipment
(continued)
C Right-of-use Assets
The analysis of the net book value of right-of-use assets by class of underlying asset is as follows:
in HK$ million
Note
31 December 2019
1 January 2019
Ownership interests in leasehold land held for own use, with remaining lease term of:
– less than 50 years
Ownership interests in self-occupied buildings held for own use, with remaining lease
term of:
– less than 50 years
Other self-occupied buildings leased for own use, with remaining lease term of:
– less than 10 years
Plant and equipment, with remaining lease term of:
– less than 10 years
(i)
(i)
(ii)
(iii)
Ownership interests in leasehold investment property, with remaining lease term of:
– 50 years or more
– less than 50 years
Other leasehold investment property, with remaining lease term of:
– less than 10 years
1,391
1,417
4,227
349
503
6,470
15
91,412
91,427
285
91,712
98,182
4,234
363
523
6,537
16
82,660
82,676
361
83,037
89,574
The analysis of expense items in relation to leases recognised in profit or loss is as follows:
in HK$ million
2019
2018
Depreciation charge of right-of-use assets by class of underlying asset:
Ownership interests in leasehold land held for own use
Ownership interests in self-occupied buildings held for own use
Other self-occupied buildings leased for own use
Plant and equipment
Interest on lease liabilities
Expense relating to short-term leases and other leases with remaining lease term ending on or
before 31 December 2019
Expense relating to leases of low-value assets, excluding short-term leases of low-value assets
Total minimum lease payments for leases previously classified as operating leases under HKAS 17
34
152
74
72
332
58
37
22
–
34
136
–
19
189
25
–
–
1,760
During the year, additions to right–of–use assets were HK$7,438 million. This amount primarily related to additions of investment properties.
Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in notes 40C and 33D, respectively.
Ownership Interests in Leasehold Land and Buildings Held for Own Use
(i)
The lease of the land on which civil works as well as plant and equipment are situated for Hong Kong transport operations was granted to the
Company under a running line lease which is coterminous with the Company’s franchise to operate the mass transit railway under the Operating
Agreement (notes 45A, 45B and 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 expenses relating to Hong Kong transport operations in the consolidated profit and loss account.
All self–occupied buildings of the Group in Hong Kong are held under medium–term leases and carried at fair value. The details of the fair value
measurement are disclosed in note 41. The revaluation surplus of HK$145 million (2018: HK$622 million) and the related deferred tax expenses of
HK$24 million (2018: HK$103 million) has been recognised in other comprehensive income and accumulated in the fixed assets revaluation reserve
(note 39D). The carrying amount of the self–occupied buildings at 31 December 2019 would have been HK$692 million (2018: HK$718 million) had
the buildings been stated at cost less accumulated depreciation.
217
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
19 Investment Properties and Other Property, Plant and Equipment
(continued)
C Right-of-use Assets (continued)
(ii)
Other Self-occupied Buildings Leased for Own Use
The Group has obtained the right to use other properties as its offices through tenancy agreements. The leases typically run for an initial period of
4 to 7 years.
(iii)
Other Leases
The Group leases plant and equipment under leases expiring from 2 to 20 years. Some leases include an option to renew the lease when all terms
are renegotiated, while some include an option to purchase the leased equipment at the end of the lease term at a price deemed to be a bargain
purchase option. None of the leases includes variable lease payments.
D Properties Leased Out under Operating Leases
The Group leases out investment properties and station kiosks, including duty free shops, 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 adjusted periodically to reflect market rentals. Certain leases carry additional rental based on turnover, some of which are with reference
to thresholds. Lease incentives granted are amortised in the consolidated profit and loss account as an integral part of the net lease payment
receivable.
The gross carrying amount of investment properties of the Group held for use in operating leases were HK$84,624 million (2018: HK$82,676 million).
The costs of station kiosks of the Group held for use in operating leases were HK$775 million (2018: HK$751 million) and the related accumulated
depreciation charges were HK$493 million (2018: HK$452 million).
Total future minimum lease receipts under non-cancellable operating leases are receivable as follows:
in HK$ million
Within 1 year
After 1 year but within 2 years
After 2 year but within 3 years
After 3 year but within 4 years
After 4 year but within 5 years
After 5 years
2019
8,466
6,629
4,234
985
305
341
2018
8,388
6,364
4,638
2,971
651
481
20,960
23,493
E
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 based on terms ranging
from 21 to 29 years 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 the expiry of the lease term 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. The Group has an obligation to replace these debt securities with other debt securities in the event those securities
do not meet certain credit ratings requirements. In addition, the Group has provided standby letters of credit to the Investors to cover additional
amounts payable by the Group in the event the transactions are terminated prior to the expiry of the lease terms.
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, an amount of approximately HK$3,688 million was received in an investment account and was used to purchase
debt securities (“Defeasance Securities”) to be used to settle the long-term lease payments with an estimated net present value of approximately
HK$3,533 million in March 2003. This resulted in the Group having received in 2003 an amount of HK$141 million net of costs. As the Group is not
able to control the investment account in pursuit of its own objectives and its obligations to pay the lease payments are funded by the proceeds of
the above investments, those obligations and investments in the Defeasance Securities were not recognised in March 2003 as liabilities and assets of
the Group. The net amount of cash received was accounted for as deferred income by the Group and amortised to the consolidated profit and loss
account over the lease period until 2008, when credit ratings of some of these Defeasance Securities were downgraded and subsequently replaced
by standby letters of credit, the charge on which had fully offset the remaining balance of the deferred income.
218
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 20 Service Concession Assets
Movements and analysis of the Group’s service concession assets are as follows:
The Group
in HK$ million
2019
Cost
KCRC Rail Merger
Initial
concession
property
Additional
concession
property
Additional
concession
property
(High Speed Rail)
Shenzhen
Metro
Longhua Line
TfL Rail/
Elizabeth
Line
Total
MTR Nordic
At 1 January 2019
15,226
15,397
Net additions during the year
Disposals
Transfer from other property,
plant and equipment (note 19)
Exchange differences
At 31 December 2019
Accumulated amortisation
At 1 January 2019
Charge for the year
Written-off on disposals
Exchange differences
At 31 December 2019
Net book value at
31 December 2019
2018
Cost
Net additions during the year
Disposals
Transfer from other property,
plant and equipment (note 19)
Exchange differences
At 31 December 2018
Accumulated amortisation
At 1 January 2018
Charge for the year
Written-off on disposals
Exchange differences
At 31 December 2018
Net book value at
31 December 2018
–
–
–
–
2,232
(53)
6
–
15,226
17,582
3,375
305
–
–
2,825
719
(35)
–
3,680
3,509
13,114
2,353
(84)
14
–
–
–
–
–
15,226
15,397
3,070
305
–
–
2,242
641
(58)
–
3,375
2,825
11,851
12,572
At 1 January 2018
15,226
1
50
–
–
–
51
–
–
–
–
–
8,587
75
(45)
–
(157)
8,460
2,584
401
(27)
(55)
2,903
–
1
–
–
–
1
–
–
–
–
–
1
9,000
63
(19)
–
(457)
8,587
2,290
435
(6)
(135)
2,584
6,003
84
–
(4)
–
(4)
76
65
2
(1)
(3)
63
13
84
–
–
–
–
84
62
3
–
–
65
19
56
39,351
–
–
–
2
2,357
(102)
6
(159)
58
41,453
29
7
–
1
8,878
1,434
(63)
(57)
37
10,192
21
31,261
59
–
–
–
(3)
56
22
8
–
(1)
29
37,483
2,417
(103)
14
(460)
39,351
7,686
1,392
(64)
(136)
8,878
27
30,473
11,546
14,073
51
5,557
Shenzhen Metro Longhua Line (“SZL4”) forms part of the Shenzhen Metro, which is operated by a wholly-owned subsidiary, MTR Corporation
(Shenzhen) Limited (“MTRSZ”). There has been no increase in fare since MTRSZ started operating the line in 2010. Currently, the Shenzhen Municipal
Government is in the planning process to implement a fare adjustment mechanism in the Shenzhen Metro Network. Based on progress of the fare
adjustment made to date, no impairment loss is recognised at 31 December 2019. If a suitable fare adjustment mechanism is not put in place, the
long-term financial viability of SZL4 is expected to be impacted.
Initial concession property relates to the payments recognised at inception of the Rail Merger with KCRC while additional concession property
relates to the expenditures for the upgrade of the initial concession property after inception of the Rail Merger. Additional concession property (High
Speed Rail) relates to the expenditures for the upgrade of the concession property of High Speed Rail.
219
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
21 Railway Construction Projects under Entrustment by the HKSAR
Government
A Hong Kong Section of the Guangzhou–Shenzhen–Hong Kong Express Rail Link (“High Speed
Rail” or “HSR”) Project
HSR Preliminary Entrustment Agreement
(a)
On 24 November 2008, the HKSAR Government and the Company entered into an entrustment agreement for the design of and site investigation
and procurement activities in relation to the HSR (the “HSR Preliminary Entrustment Agreement”). Pursuant to the HSR Preliminary Entrustment
Agreement, the HKSAR Government is obligated to pay the Company the Company’s in-house design costs and certain on-costs, preliminary costs
and staff costs.
(b)
HSR Entrustment Agreement
In 2009, the HKSAR Government decided that the Company should be asked to proceed with the construction, testing and commissioning of the
HSR on the understanding that the Company would subsequently be invited to undertake the operation of the HSR under the service concession
approach. On 26 January 2010, the HKSAR Government and the Company entered into another entrustment agreement for the construction,
and commissioning of the HSR (the “HSR Entrustment Agreement”). Pursuant to the HSR Entrustment Agreement, the Company is responsible
for carrying out or procuring the carrying out of the agreed activities for the planning, design, construction, testing and commissioning of the
HSR and the HKSAR Government, as owner of HSR, is responsible for bearing and financing the full amount of the total cost of such activities (the
“Entrustment Cost”) and for paying to the Company a fee in accordance with an agreed payment schedule (the “HSR Project Management Fee”)
(subsequent amendments to these arrangements are described below). As at 31 December 2019 and up to the date of this annual report, the
Company has received payments from the HKSAR Government in accordance with the originally agreed payment schedule.
The HKSAR Government has the right to claim against the Company if the Company breaches the HSR Entrustment Agreement (including, if
the Company breaches the warranties it gave in respect of its project management services) and, under the HSR Entrustment Agreement, to be
indemnified by the Company in relation to losses suffered by the HKSAR Government as a result of any negligence of the Company in performing its
obligations under the HSR Entrustment Agreement or any breach of the HSR Entrustment Agreement by the Company. Under the HSR Entrustment
Agreement, the Company’s total aggregate liability to the HKSAR Government arising out of or in connection with the HSR Preliminary Entrustment
Agreement and the HSR Entrustment Agreement (other than for death or personal injury) is subject to a cap equal to the HSR Project Management
Fee and any other fees that the Company receives under the HSR Entrustment Agreement and certain fees received by the Company under the HSR
Preliminary Entrustment Agreement (the “Liability Cap”). In accordance with general principles of law, such Liability Cap could not be relied upon
if the Company were found to be liable for the fraudulent or other dishonest conduct of its employees or agents, to the extent that the relevant loss
had been caused by such fraudulent or other dishonest conduct. Although the HKSAR Government has reserved the right to refer to arbitration the
question of the Company’s liability for the Current Cost Overrun (as defined hereunder) (if any) under the HSR Preliminary Entrustment Agreement
and HSR Entrustment Agreement (as more particularly described in note 21A(c)(iv) below), up to the date of this annual report, no claim has been
received from the HKSAR Government.
In April 2014, the Company announced that the construction period for the HSR project needed to be extended, with the target opening of the line
for passenger service revised to the end of 2017.
On 30 June 2015, the Company reported to the HKSAR Government that the Company estimated:
•
•
the HSR being completed in the third quarter of 2018 (including programme contingency of six months) (the “HSR Revised Programme”); and
the total project cost of HK$85.3 billion (including contingency), based on the HSR Revised Programme.
As a result of adjustments being made to certain elements of the Company’s estimated project cost of 30 June 2015, the HKSAR Government and
the Company reached agreement that the estimated project cost be reduced to HK$84.42 billion (the “Revised Cost Estimate”). Further particulars
relating to the Revised Cost Estimate are set out in notes 21A(c) and (e) below.
(c)
HSR Agreement
On 30 November 2015, the HKSAR Government and the Company entered into an agreement (the “HSR Agreement”) relating to the further
funding and completion of the HSR. The HSR Agreement contains an integrated package of terms (subject to conditions as set out in note 21A(c)(vi)
below) and provides that:
The HKSAR Government will bear and finance the project cost up to HK$84.42 billion (which includes the original budgeted cost of
(i)
HK$65 billion plus the agreed increase in the estimated project cost of HK$19.42 billion (the portion of the entrustment cost (up to HK$84.42 billion)
that exceeds HK$65 billion being the “Current Cost Overrun”));
The Company will, if the project exceeds HK$84.42 billion, bear and finance the portion of the project cost which exceeds that sum (if any)
(ii)
(the “Further Cost Overrun”) except for certain agreed excluded costs (namely, additional costs arising from changes in law, force majeure events or
any suspension of construction contracts specified in the HSR Agreement);
The Company will pay a special dividend in cash of HK$4.40 in aggregate per share in two equal tranches (of HK$2.20 per share in cash in
(iii)
each tranche) (“Special Dividend”). The first tranche was paid on 13 July 2016 and the second tranche was paid on 12 July 2017;
220
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 21 Railway Construction Projects under Entrustment by the HKSAR
Government (continued)
A Hong Kong Section of the Guangzhou–Shenzhen–Hong Kong Express Rail Link (“High Speed
Rail” or “HSR”) Project (continued)
The HKSAR Government reserves the right to refer to arbitration the question of the Company’s liability for the Current Cost Overrun (if any)
(iv)
under the HSR Preliminary Entrustment Agreement and HSR Entrustment Agreement (“Entrustment Agreements”) (including any question the
HKSAR Government may have regarding the validity of the Liability Cap). The Entrustment Agreements contain dispute resolution mechanisms
which include the right to refer a dispute to arbitration. Under the HSR Entrustment Agreement, the Liability Cap is equal to the HSR Project
Management Fee and any other fees that the Company receives under HSR Entrustment Agreement and certain fees received by the Company
under the Preliminary Entrustment Agreement. Accordingly, the Liability Cap increases from up to HK$4.94 billion to up to HK$6.69 billion as the
HSR Project Management Fee is increased in accordance with the HSR Agreement (as it will be equal to the increased HSR Project Management Fee
under the HSR Entrustment Agreement of HK$6.34 billion plus the additional fees referred to above). If the arbitrator does not determine that the
Liability Cap is invalid and determines that, but for the Liability Cap, the Company’s liability under the Entrustment Agreements for the Current Cost
Overrun would exceed the Liability Cap, the Company shall:
•
•
•
bear such amount as is awarded to the HKSAR Government up to the Liability Cap;
seek the approval of its independent shareholders, at another General Meeting (at which the FSI, the HKSAR Government and their Close
Associates and Associates and the Exchange Fund will be required to abstain from voting), for the Company to bear the excess liability; and
if the approval of the independent shareholders (referred to immediately above) is obtained, pay the excess liability to the HKSAR
Government. If such approval is not obtained, the Company will not make such payment to the HKSAR Government;
Certain amendments are made to the HSR Entrustment Agreement to reflect the arrangements contained in the HSR Agreement, including
(v)
an increase in HSR Project Management Fee payable to the Company under HSR Entrustment Agreement to an aggregate of HK$6.34 billion (which
reflects the estimate of the Company’s expected internal costs in performing its obligations under HSR Entrustment Agreement in relation to HSR
project) and to reflect the HSR Revised Programme;
(vi)
The arrangements under the HSR Agreement (including the payment of the Special Dividend) were conditional on:
•
•
independent shareholder approval (which was sought at the General Meeting held on 1 February 2016); and
HKSAR Legislative Council approval in respect of the HKSAR Government’s additional funding obligations.
The HSR Agreement (and the Special Dividend) was approved by the Company’s independent shareholders at the General Meeting held on 1 February
2016 and became unconditional upon approval by the Legislative Council on 11 March 2016 of the HKSAR Government’s additional funding obligations.
(d)
Operations of HSR
On 23 August 2018, the Company and KCRC entered into the SSCA–HSR to supplement the SCA dated 9 August 2007 in order for KCRC to grant
a concession to the Company in respect of the HSR and to prescribe the operational and financial requirements that will apply to the HSR. The
commercial operation of HSR began on 23 September 2018.
(e)
Based on the Company’s latest review of the Revised Cost Estimate for the agreed scope of the project and having taken account of the
opinion of independent experts including one on the review of the Revised Cost Estimate, the Company believes that, although the latest final
project cost is likely to come close to the Revised Cost Estimate, the Revised Cost Estimate is still achievable and there is no current need to revise
further such estimate. However, the final project cost can only be ascertained upon finalisation of all contracts, some of which will involve the
resolution of commercial issues and may take several years to reach settlement based on past experience.
Having considered the number of contracts yet to be finalised and the contingency allowance currently available, there can be no absolute
assurance that the final project cost will not exceed the Revised Cost Estimate, particularly if unforeseen difficulties arise in the resolution of
commercial issues during the process of negotiating the final accounts. In such case, under the terms of the HSR Agreement, the Company will be
required to bear and finance the portion of the project cost that exceeds the Revised Cost Estimate (if any) except for certain agreed excluded costs
(as more particularly described in note 21A(c)(ii) above).
(f)
The Company has not made any provision in its accounts in respect of:
(i)
any possible liability of the Company for any Further Cost Overrun (if any), given the Company does not currently believe based on
information available to date there is any need to revise further the Revised Cost Estimate. However, the final project cost can only be ascertained
upon finalisation of all contracts, some of which will involve the resolution of commercial issues and may take several years to reach settlement;
(ii)
any possible liability of the Company that may be determined in accordance with any arbitration that may take place, (as more particularly
described in note 21A(c)(iv) above), given that (a) the Company has not received any notification from the HKSAR Government of any claim by the
HKSAR Government against the Company or of any referral by the HKSAR Government to arbitration (which, as a result of the HSR Agreement, cannot
take place until after commencement of commercial operations on the HSR) (as of 31 December 2019 and up to the date of this annual report); (b)
the Company has the benefit of the Liability Cap; and (c) as a result of the HSR Agreement, the Company will not make any payment to the HKSAR
Government in excess of the Liability Cap pursuant to a determination of the arbitrator without the approval of its independent shareholders; and
(iii) where applicable, because the Company is not able to measure with sufficient reliability the amount of the Company’s obligation or liability
(if any).
221
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 21 Railway Construction Projects under Entrustment by the HKSAR
Government (continued)
A Hong Kong Section of the Guangzhou–Shenzhen–Hong Kong Express Rail Link (“High Speed
Rail” or “HSR”) Project (continued)
(g)
During the year ended 31 December 2019, HSR Project Management Fee of HK$78 million (2018: HK$402 million) was recognised in the
consolidated profit and loss account. As at 31 December 2019, the total HSR Project Management Fee and the additional fees referred to above
recognised to date in the consolidated profit and loss account amounted to HK$6,548 million (as at 31 December 2018: HK$6,470 million).
In relation to the sufficiency of the HSR Project Management Fee, the Company estimated that the total costs to complete performance of its
obligations in relation to the HSR project are likely to exceed the HSR Project Management Fee. Accordingly, an appropriate amount of provision
was recognised in the profit and loss account.
B
(a)
Shatin to Central Link (“SCL”) Project
SCL Agreements
The Company and the HKSAR Government entered into the SCL Preliminary Entrustment Agreement (“SCL EA1”) in 2008, the SCL Advance Works
Entrustment Agreement (“SCL EA2”) in 2011, and the SCL Entrustment Agreement (“SCL EA3”) in 2012 (together, the “SCL Agreements”), in relation
to the SCL.
Pursuant to the SCL EA1, the Company is responsible for carrying out or procuring the carrying out of the design, site investigation and procurement
activities while the HKSAR Government is responsible for funding directly the total cost of such activities.
Pursuant to the SCL EA2, the Company is responsible for carrying out or procuring the carrying out of the agreed works while the HKSAR
Government is responsible for bearing and paying to the Company all the work costs (“EA2 Advance Works Costs”).
The funding for both SCL EA1 and SCL EA2 has been obtained by the HKSAR Government.
The SCL EA3 was entered into in 2012 for the construction and commissioning of the SCL. The HKSAR Government is responsible for bearing all
the work costs specified in the SCL EA3 including costs to contractors and costs to the Company (“Interface Works Costs”) (which the Company
would pay upfront and recover from the HKSAR Government) except for certain costs of modification, upgrade or expansions of certain assets
(including rolling stock, signalling, radio and main control systems) for which the Company is responsible under the existing service concession
agreement with KCRC. The Company will contribute an amount in respect of the costs relating to such modifications, upgrades or expansions. This
will predominantly be covered by the reduction in future maintenance capital expenditure which the Company would have otherwise incurred. The
total sum entrusted to the Company by the HKSAR Government for the main construction works under the SCL EA3, including project management
fee, is HK$70,827 million (“Original Entrusted Amount”).
The Company is responsible for carrying out or procuring the carrying out of the works specified in the SCL Agreements for a SCL Project
Management Fee of HK$7,893 million (the “Original PMC”). As at 31 December 2019 and up to the date of this annual report, the Company has
received payments of the Original PMC from the HKSAR Government in accordance with the original agreed payment schedule. During the year
ended 31 December 2019, Original PMC of HK$857 million (2018: HK$891 million) was recognised in the consolidated profit and loss account. As at
31 December 2019, the total Original PMC recognised to date in the consolidated profit and loss account amounted to HK$7,328 million (as at
31 December 2018: HK$6,471 million).
As mentioned above, the EA2 Advance Works Costs and the Interface Works Costs are payable by the HKSAR Government to the Company. During
the year ended 31 December 2019, the total of these costs payable by the HKSAR Government to the Company were HK$343 million (2018: HK$401
million). As at 31 December 2019, the amount of such costs which remained outstanding from the HKSAR Government was HK$1,219 million (as at
31 December 2018: HK$1,107 million).
(b)
(i)
SCL EA3 Cost Overrun
Cost to Complete
The Company has previously announced that, due to the continuing challenges posed by external factors, the Original Entrusted Amount under
SCL EA3 would not be sufficient to cover the total estimated cost to complete (“CTC”) and would need to be revised upwards significantly. The
Company carried out a detailed review of the estimated CTC for the main construction works in 2017 and submitted a revised estimated total CTC of
HK$87,328 million (“2017 CTC Estimate”) to the HKSAR Government on 5 December 2017, taking into account a number of factors, including issues
such as archaeological relics, the HKSAR Government’s requests for additional scope and late or incomplete handover of construction sites. The 2017
CTC Estimate represented an increase to the CTC of HK$16,501 million, including an increase in the SCL Project Management Fee payable to the
Company. Since submission of the 2017 CTC Estimate to the HKSAR Government, the Company has been liaising with the HKSAR Government to
facilitate their review and verification process.
The Company then carried out and completed a further review and revalidation of the CTC and, on 10 February 2020, notified the HKSAR
Government, in accordance with the terms of the SCL EA3, of the latest estimate of the CTC, being HK$82,999 million (“2020 CTC Estimate”),
including additional project management fee payable to the Company of HK$1,371 million (“Additional PMC”), being the additional cost to the
Company of carrying out its remaining project management responsibilities under the SCL EA3, as detailed in note 21B(b)(ii) below but excluding
the Hung Hom Incidents Related Costs in respect of which the Company has already made a provision of HK$2 billion in its consolidated profit and
loss account for the year ended 31 December 2019 (as detailed in note 21B(c) below). The 2020 CTC Estimate represents an increase of HK$12,172
million from the Original Entrusted Amount of HK$70,827 million, which is less than the increase in the 2017 CTC Estimate of HK$16,501 million.
222
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 21 Railway Construction Projects under Entrustment by the HKSAR
Government (continued)
Shatin to Central Link (“SCL”) Project (continued)
B
In accordance with the terms of SCL EA3, the HKSAR Government will now seek the approval of Legislative Council for additional funding required for the SCL
Project so that the SCL can be completed. For the avoidance of doubt, the amount sought by the HKSAR Government will exclude the Hung Hom Incidents
Related Costs (as detailed in note 21B(c)(ii) below) and (as notified by the HKSAR Government and reflected its paper for the first stage of the Legislative
Council process for the approval of additional funding for the SCL Project) any Additional PMC for the Company as further detailed in note 21B(b)(ii) below.
(ii)
Additional PMC
As mentioned above, the Company is responsible for carrying out or procuring the execution of the works specified in the existing entrustment
agreements relating to the SCL Project and the HKSAR Government, as the owner of the SCL, is responsible for bearing and financing the full amount of
the total cost of such activities and for paying to the Company the Original PMC of HK$7,893 million in accordance with an agreed payment schedule.
As detailed in note 21B(b)(i) above and as previously disclosed by the Company, the programme for the delivery of the SCL Project has been significantly
impacted by certain key external events, including the discovery of archaeological relics in the Sung Wong Toi Station area, requests for additional
scope and the late or incomplete handover by third parties of construction sites to the Company. Not only do these matters increase the cost of works
they also increase the cost to the Company of carrying out its project management responsibilities under the relevant SCL entrustment agreement,
this increase estimated to be around HK$1,371 million. Regular updates have been provided to, and discussions have been held with, the HKSAR
Government on the delays to the programme for the delivery of the SCL Project and the associated impacts on the CTC including the Additional PMC.
Given such significant modifications to the project programme and the associated increase in the project management costs of the Company and
following the Company’s receipt of independent expert advice, the Company believes that it is entitled (in accordance with the terms of the SCL EA3)
to an increase in the project management fee, to be agreed by way of good faith negotiations or otherwise determined in accordance with the
provisions of the SCL EA3. Accordingly, as stated above, the Company has included the Additional PMC of HK$1,371 million in the 2020 CTC Estimate
notified to the HKSAR Government, reflecting the additional scope of work and programme extension.
The HKSAR Government has advised the Company that: (i) the HKSAR Government considers there has been no material modification in respect
of the SCL Project and, therefore, the HKSAR Government disagrees to the inclusion of any Additional PMC in the CTC; and (ii) in the HKSAR
Government’s applications to the Legislative Council for additional funding for the SCL Project, the HKSAR Government will not make any provision
for any Additional PMC for the Company.
The Company notes that the HKSAR Government has issued its paper for the first stage of the Legislative Council process for the approval of
additional funding for the SCL Project and that the HKSAR Government’s paper does not include any provision by the HKSAR Government for any
Additional PMC for the Company.
The Board is of the view that the Company’s entitlement to any Additional PMC should be resolved with the HKSAR Government in accordance with
the terms of the SCL EA3.
Despite the fact that this matter needs to be resolved, the Company will, in the interim, continue to comply with its project management obligations
under the SCL EA3 and meet the costs thereof, to allow (subject to the availability of additional funding for the cost of the project works) the SCL
Project to progress in accordance with the latest programme.
Given the uncertainty and potential financial impact to the Company in connection with the Additional PMC, at the appropriate time following
further developments relating to this matter, the Company will recognise a provision in its consolidated profit and loss account for an amount of up
to HK$1,371 million to reflect the additional cost to the Company of completing its remaining project management responsibilities.
(c)
Hung Hom Incidents
As stated in the Company’s announcement dated 18 July 2019, towards the end of the first half of 2018, there were allegations concerning
workmanship in relation to the Hung Hom Station extension (“First Hung Hom Incident”). The Company took immediate steps to investigate
the issues, report the Company’s findings to the HKSAR Government and reserve the Company’s position against relevant contractors. To address
the First Hung Hom Incident, the Company submitted to the HKSAR Government a holistic proposal for the verification and assurance of the
as-constructed conditions and workmanship quality of the Hung Hom Station extension.
In late-2018 and early 2019, the Company advised the HKSAR Government of an insufficiency of construction records and certain construction issues
at the Hung Hom North Approach Tunnel, the South Approach Tunnel and the Hung Hom Stabling Sidings, forming an addition to the First Hung
Hom Incident (“Second Hung Hom Incident”). To address the Second Hung Hom Incident, the Company submitted to the HKSAR Government a
verification proposal for verification of the as-constructed condition and workmanship quality of these areas.
(i)
Commission of Inquiry (“COI”)
On 10 July 2018, the COI was set up by the HKSAR Chief Executive in Council pursuant to the Commissions of Inquiry Ordinance (Chapter 86 of the
Laws of Hong Kong). The Company has cooperated fully with the COI. The COI process included hearing of evidence from factual witnesses and
reviewing evidence from experts on project management and structural engineering issues. On 29 January 2019, the HKSAR Government made
its closing submission to the first phase of the COI in which it stated its view that the Company ought to have provided the required skills and care
reasonably expected of a professional and competent project manager but that the Company had failed to do so. On 19 February 2019, the HKSAR
Government announced that the terms of reference of the COI had been expanded and approved a further extension of time for the COI to submit
its report to the Chief Executive by 30 August 2019, or such time as the Chief Executive in Council may allow. Subsequently, the Chief Executive in
Council extended the time for the COI to submit its final report to the Chief Executive to 31 March 2020.
223
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 21 Railway Construction Projects under Entrustment by the HKSAR
Government (continued)
Shatin to Central Link (“SCL”) Project (continued)
Commission of Inquiry (“COI”) (continued)
B
(i)
On 25 February 2019, the COI submitted an interim report to the Chief Executive on its findings and recommendations on matters covered by the
original terms of reference. On 26 March 2019, the HKSAR Government published the redacted interim report in which the COI, while recognising it
to be an interim report, found that although the Hung Hom Station extension diaphragm wall and platform slab construction works are safe, they
were not executed in accordance with the relevant contract in material aspects. The COI also made a number of comments regarding the Company’s
performance and systems as well as a number of recommendations for the future.
On 18 July 2019, the Company completed and submitted to the HKSAR Government two separate final reports, one in respect of the First Hung Hom
Incident and one in respect of the Second Hung Hom Incident, containing, inter alia, proposals for suitable measures required at certain locations to
achieve code compliance. These suitable measures are being implemented to enable the SCL Project to be completed for public use in accordance
with the latest project programme.
On 22 January 2020, the HKSAR Government reiterated, in its closing submissions on factual evidence for the extended inquiry submitted to the COI,
that there was failure on the part of both the Company and the contractor Leighton Contractors Asia Limited to perform the obligations which the two
parties undertook for the SCL project and that the Company, which was entrusted by the HKSAR Government as the project manager of the SCL project,
ought to have provided the requisite degree of skill and care reasonably expected of a professional and competent project manager. Up to the date of
this annual report, no claim has been received from the HKSAR Government in relation to any SCL Agreement (as detailed in note 21B(c)(iii) below).
(ii)
Hung Hom Incidents Related Costs
In July 2019, the HKSAR Government accepted the Company’s recommendation that the Tuen Ma Line (Tai Wai to Hung Hom Section of the SCL)
should open in phases, with the first phase involving the opening of commercial service on the Tuen Ma Line from Tai Wai Station to Kai Tak Station
(“Phased Opening”) which occurred on 14 February 2020.
In order to progress the SCL Project and to facilitate the Phased Opening in the first quarter of 2020, the Company announced in July 2019 that it would
fund, on an interim and without prejudice basis, certain costs arising from the Hung Hom Incidents and certain costs associated with Phased Opening
(being costs for alteration works, trial operations and other costs associated with the preparation activities for the Phased Opening) (“Hung Hom
Incidents Related Costs”), whilst reserving the Company’s position as to the ultimate liability for such costs. Currently, the Company’s best estimate of
such costs is around HK$2 billion in aggregate. However, there is no certainty that, ultimately, the entirety of this amount will need to be funded.
The Company and the HKSAR Government will continue discussions with a view to reaching an overall settlement in relation to the Hung Hom Incidents
and their respective funding obligations relating to the CTC and the Hung Hom Incidents Related Costs. If no overall settlement is reached between the
Company and the HKSAR Government within a reasonable period, the provisions of the SCL EA3 shall continue to apply (as they currently do) including
in relation to such costs, and the responsibility for the funding of such costs shall be determined in accordance with the SCL EA3.
After taking into account the above and in light of the Company’s decision to fund, on an interim and without prejudice basis, the Hung Hom
Incidents Related Costs, the Company recognised a provision of HK$2,000 million in its consolidated profit and loss account for the year ended
31 December 2019. Up to 31 December 2019, the Company has committed and/or paid Hung Hom Incidents Related Costs totaling HK$915 million,
and no provision was written back during the year. The provision is included in “Expenses relating to other businesses” in the consolidated profit
and loss account and in “Creditors, other payables and provisions” in the consolidated statement of financial position.
This amount does not take into account any potential recovery from any other party (whether in the circumstances that no overall settlement is
reached and/or as a result of an award, settlement or otherwise). Accordingly, if any such potential recovery becomes virtually certain, the amount of
any such recovery will be recognised and credited to the Company’s consolidated profit and loss account in that financial period.
(iii)
Potential Claims from and Indemnification to the HKSAR Government
The HKSAR Government has the right to claim against the Company if the Company breaches the SCL Agreements (including, if the Company
breaches the warranties it gave in respect of its project management services) and, under each SCL Agreement, to be indemnified by the Company
in relation to losses incurred by the HKSAR Government as a result of the negligence of the Company in performing its obligations under the
relevant SCL Agreement or breach thereof by the Company. Under the SCL EA3, the Company’s total aggregate liability to the HKSAR Government
arising out of or in connection with the SCL Agreements (other than for death or personal injury) is subject to a cap equal to the fees that the
Company receives under the SCL Agreements. In accordance with general principles of law, such cap could not be relied upon if the Company were
found to be liable for the fraudulent or other dishonest conduct of its employees or agents, to the extent that the relevant loss had been caused by
such fraudulent or other dishonest conduct. Although the HKSAR Government has stated that it reserves all rights to pursue further actions against
the Company and related contractors and has made the statements in its closing submission to the COI (as stated in note 21B(b) above), up to the
date of this annual report, no claim has been received from the HKSAR Government in relation to any SCL Agreement. It is uncertain as to whether
such claim will be made against the Company in the future and, if made, the nature and amount of such claim.
The eventual outcome of the discussions between the Company and the HKSAR Government on various matters including the timing of any overall
(iv)
settlement in relation to the Hung Hom Incidents and their respective funding obligations relating to the Hung Hom Incidents Related Costs, the level of
recovery from relevant parties and the development and eventual outcome relating to the Additional PMC (as detailed in note 21B(b)(ii) above) remain
highly uncertain at the current stage. As a result, no additional provision other than the HK$2,000 million referred to above has been made as the Company
is currently not able to measure with sufficient reliability the ultimate amount of the Company’s obligation or liability arising from the SCL Project as a
whole in light of the significant uncertainties involved. While no other provision on the SCL Project related matters was recognised at 31 December 2019,
the Company will reassess on an ongoing basis the need to recognise a further provision in future years in light of any further developments.
224
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 21 Railway Construction Projects under Entrustment by the HKSAR
Government (continued)
Shatin to Central Link (“SCL”) Project (continued)
Phased Opening of SCL
B
(d)
On 11 February 2020, the Company entered into relevant agreements with the HKSAR Government and KCRC to supplement and amend the current
agreements to enable the Company to operate Tuen Ma Line Phase 1 in substantially the same manner as the existing railway network for a period
of two years from 14 February 2020. Prior to the full opening of the Tuen Ma Line, the parties are obliged to commence exclusive negotiations in
good faith with a view to agreeing the terms of a supplemental service concession agreement for the entire Tuen Ma Line (which is intended to
replace the Supplemental Service Concession Agreement that was executed on 11 February 2020).
22 Property Development in Progress
Pursuant to the project agreements in respect of the construction of railway extensions and the Property Package Agreements in respect of the Rail
Merger, the HKSAR Government has granted the Company with development rights on the land over the stations along railway lines.
As at 31 December 2019, the outstanding Hong Kong Property Development Projects of the Company include the Tseung Kwan O Extension
Property Projects at the depot sites in Tseung Kwan O Area 86 (LOHAS Park) and at the ventilation building in Yau Tong, South Island Line Property
Project at sites in Wong Chuk Hang, Kwun Tong Line Extension Property Project at sites in Ho Man Tin and the East Rail Line/Light Rail Property
Projects at sites along the related railway lines.
A Property Development in Progress
The Group
in HK$ million
2019
Balance at
1 January
Expenditure
Offset against
payments
received from
developers
Transfer out to
profit or loss
Balance at
31 December
Hong Kong Property Development Projects
14,840
3,819
(662)
(5,975)
12,022
2018
Hong Kong Property Development Projects
14,810
1,121
(912)
(179)
14,840
Leasehold land in Hong Kong included under property development in progress are held under medium-term leases.
Stakeholding Funds
B
Being the stakeholder under certain Airport Railway, Tseung Kwan O Extension and East Rail Line 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, are to be released to the developers for the reimbursement of costs of the
respective developments in accordance with the terms and conditions of the HKSAR Government Consent Schemes and development agreements.
Any balance remaining is to be released for distribution only 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 statement of
financial position. As at 31 December 2019, the balance of the stakeholding funds was HK$21,283 million (2018: HK$12,075 million).
C West Rail Property Development
As part of the Rail Merger, the Company was appointed to act as the agent of KCRC and certain KCRC subsidiary companies (“West Rail Subsidiaries”)
in the development of specified development sites along the West Rail. The Company can receive an agency fee of 0.75% of the gross sale proceeds
in respect of the developments except for the Tuen Mun development on which the Company can receive 10% of the net profits accrued under
the development agreement. The Company can also recover from the West Rail Subsidiaries all the costs incurred in respect of the West Rail
development sites plus 16.5% on-cost, together with interest accrued thereon. During the year ended 31 December 2019, HK$182 million (2018:
HK$139 million) agency fee and other income in respect of West Rail property development was recognised (note 12). During the year ended
31 December 2019, the reimbursable costs incurred by the Company including on-cost and interest accrued were HK$81 million (2018: HK$94 million).
23 Deferred Expenditure
The Group
in HK$ million
Balance at 1 January
Expenditure during the year
Balance at 31 December
2019
1,878
70
1,948
2018
710
1,168
1,878
225
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 24 Investments in Subsidiaries
The following list contains the particulars of principal subsidiaries which contribute materially to the Group’s results, assets or liabilities:
Name of company
Proportion of ownership interest
Issued and
paid up ordinary
share capital/
registered capital
Group’s
effective
interest
Held
by the
Company
Held by
subsidiary
Place of
incorporation/
establishment
and operation
MTR Academy (HK) Company Limited
HK$10,000
100%
–
100%
Hong Kong
MTR Telecommunication Company
Limited
HK$100,000,000
100%
100%
Ngong Ping 360 Limited
HK$2
100%
100%
Pierhead Garden Management
Company Limited
HK$50,000
100%
100%
TraxComm Limited
HK$15,000,000
100%
100%
–
–
–
–
Metro Trains Melbourne Pty. Ltd.*
AUD39,999,900
AUD100
60% on
ordinary
shares;
30% on
Class A
shares
Metro Trains Sydney Pty Ltd*
AUD100
60%
MTR Corporation (Sydney) NRT Pty
Limited
AUD2
100%
–
–
–
–
100% on
ordinary
shares;
100% on
Class A
shares
60%
100%
MTR Corporation (C.I.) Limited
US$1,000
100%
100%
–
Hong Kong
Hong Kong
Principal activities
Administering
the operation of
MTR Academy
Mobile
telecommunication
services
Operating the Tung
Chung to Ngong Ping
cable car system and
theme village
in Ngong Ping
Hong Kong
Property investment
Hong Kong
Australia
Fixed
telecommunication
network and
related services
Railway operations
and maintenance
Australia
Australia
Railway operations
and maintenance
Design and delivery of
railway related systems
Cayman Islands/
Hong Kong
Financing
MTR Consultadoria (Macau) Sociedade
MOP25,000
100%
Unipessoal Lda.
MTR Operações Ferroviárias (Macau)
Sociedade Unipessoal Lda.
(also known as MTR Railway
Operations (Macau) Company
Limited)
MOP25,000
100%
MTR Express (Sweden) AB
SEK10,050,000
100%
MTR Pendeltågen AB
SEK10,050,000
100%
MTR Tech AB
MTR Tunnelbanan AB
SEK30,000,000
SEK40,000,000
100%
100%
MTR (Beijing) Commercial Facilities
Management Co., Ltd.^
HK$93,000,000
100%
MTR Corporation (Shenzhen)
Limited^
HK$2,636,000,000
100%
MTR Property Development
(Shenzhen) Company Limited#
HK$2,180,000,000
100%
MTR Corporation (Crossrail) Limited
GBP1,000,000
100%
–
–
–
–
–
–
–
–
–
–
Subsidiaries not audited by KPMG
*
^ Wholly foreign owned enterprise registered under PRC Law
#
Sino-foreign equity joint venture registered under PRC Law
226
100%
100%
Macao
Macao
100%
Sweden
100%
Sweden
Railway consultancy
services
Railway operations,
management and
technical support
services
Railway operations
and maintenance,
property investment
and management
Railway operations,
maintenance and
station management
Sweden
Railway maintenance
100%
100%
100%
100%
Sweden
The People’s
Republic of China
The People’s
Republic of China
100%
The People’s
Republic of China
Railway operations
and maintenance
Property leasing
and management
Railway construction,
operations and
management
Property development,
operation, leasing,
management and
consultancy services
100%
United
Kingdom
Railway operations
and maintenance
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
25 Interests in Associates and Joint Venture
The following list contains the particulars of material associates and joint ventures, all of which are unlisted corporate entities whose quoted market
price is not available:
Proportion of ownership interest
Issued and
paid up ordinary
share capital/
registered capital
Group’s
effective
interest
Held
by the
Company
Held by
subsidiary
Place of
incorporation/
establishment
and operation
Name of company
Associates
Octopus Holdings Limited
HK$42,000,000
57.4%
57.4%
–
Hong Kong
Principal activities
Holding company of
a group of companies
which engage in the
operation of a contactless
smartcard common
payment system in
Hong Kong and
consultancy services
Metro investment,
construction, operations
and passenger services
Metro investment,
construction and
operations
Railway operations
and management
Railway operations
and management
49%
The People’s
Republic of China
49%
The People’s
Republic of China
49%
The People’s
Republic of China
30%
United Kingdom
60%
The People’s
Republic of China
Railway electrical and
mechanical construction,
operations and
management
Beijing MTR Corporation Limited ~
RMB6,380,000,000
49%
Beijing MTR L16 Corporation
Limited α
RMB5,000,000,000
49%
Hangzhou MTR Corporation
Limited *~
First MTR South Western Trains
Limited *
Joint venture
RMB4,540,000,000
GBP100
49%
30%
Hangzhou MTR Line 5 Corporation
Limited ~
RMB4,360,000,000
60%
–
–
–
–
–
* Companies not audited by KPMG
~
α
Sino-foreign co-operative joint venture registered under PRC Law
Limited liability company (wholly owned by a legal person) under PRC Law
All the associates and joint venture are accounted for using the equity method in the consolidated accounts and considered to be not individually
material.
227
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 25 Interests in Associates and Joint Venture (continued)
The summary financial information of the Group’s effective interests in associates and joint venture is as follows:
in HK$ million
Assets
Liabilities
Net assets
Income
Expenses and others
Profit before taxation
Income tax
Net profit
Other comprehensive income
Total comprehensive income
Group‘s share of net assets of the associates and JV
Goodwill
Carrying amount in the consolidated statement of financial position
2019
28,085
(17,765)
10,320
8,424
(7,794)
630
(342)
288
(185)
103
10,320
39
10,359
2018
26,061
(17,305)
8,756
9,340
(8,412)
928
(270)
658
(393)
265
8,756
–
8,756
In March 2017, the Department for Transport of the United Kingdom (“DfT”) awarded the South Western Railway franchise (“Franchise”) to First
MTR South Western Trains Limited (“SWR”), an associate of the Company which the Company holds a 30% shareholding and FirstGroup plc in the
United Kingdom holds a 70% shareholding. Pursuant to a franchise agreement (“Franchise Agreement”) with DfT, the period of the Franchise runs
from 20 August 2017 for seven years, with an option for an eleven-month extension at the discretion of the DfT. As noted in the Company’s 2018
annual accounts, the financial performance of SWR has been impacted by a number of adverse factors (and this has continued since March 2019).
SWR continues to be engaged in discussions with the DfT and relevant third parties to agree potential commercial and contractual remedies but, at
the current time, there is a range of potential outcomes. Given the level of uncertainty in these outcomes and the potential financial impact of some
of the possible scenarios, the Franchise Agreement is considered as an onerous contract. As such, a provision of GBP43 million (HK$436 million) has
been made under “share of profit or loss of associates and joint venture” in the consolidated profit and loss account for the year ended 31 December
2019 which represents the Company’s 30% share of the maximum potential loss under the Franchise Agreement.
26 Investments in Securities
Investments in securities represented debt securities held by the overseas insurance underwriting subsidiary measured at FVPL. As at 31 December
2019, all debt securities were expected to mature within one year except for HK$332 million (2018: HK$240 million) which were expected to mature
after one year.
27 Properties Held for Sale
The Group
in HK$ million
Properties held for sale
– at cost
– at net realisable value
Representing:
Hong Kong property development
Mainland of China property development
2019
1,125
120
1,245
1,034
211
1,245
2018
1,179
190
1,369
1,156
213
1,369
Properties held for sale of the Group at 31 December 2019 comprise properties from property developments in Hong Kong and Mainland of China.
For Hong Kong property development, the net realisable values as at 31 December 2019 and 2018 were determined by reference to an open market
valuation of the properties as at those dates, undertaken by an independent firm of surveyors, Jones Lang LaSalle Limited, who have among their
staff Members of the Hong Kong Institute of Surveyors.
Properties held for sale at net realisable value of the Group are stated net of provision of HK$12 million (2018: HK$18 million) made in order to state
these properties at the lower of their cost and estimated net realisable value. Leasehold land in Hong Kong included under properties held for sale
are held under medium-term leases.
228
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 28 Derivative Financial Assets and Liabilities
A
The contracted notional amounts, fair values and maturities based on contractual undiscounted cash flows of derivative financial instruments
outstanding are as follows:
Fair Value
The Group
in HK$ million
2019
Derivative Financial Assets
Gross settled:
Foreign exchange forwards
– cash flow hedges:
– inflow
– outflow
Notional
amount
Fair value
Contractual undiscounted cash flows maturing in
Less than
1 year
1-2 years
2-5 years
Over
5 years
Total
51
1
– not qualified for hedge accounting:
721
19
– inflow
– outflow
Cross currency swaps
– fair value hedges:
– inflow
– outflow
698
9
– cash flow hedges:
8,430
139
– inflow
– outflow
– hedges of net investments:
64
1
– inflow
– outflow
Net settled:
Interest rate swaps
– fair value hedges
– cash flow hedges
– not qualified for hedge accounting
Derivative Financial Liabilities
Gross settled:
Foreign exchange forwards
– cash flow hedges:
– inflow
– outflow
8,841
1,250
1,913
21,968
12
14
3
198
321
11
– hedges of net investments:
1,984
16
– inflow
– outflow
– not qualified for hedge accounting:
783
15
– inflow
– outflow
Cross currency swaps
– cash flow hedges:
– inflow
– outflow
Net settled:
42
(41)
640
(622)
1
–
244
(218)
67
(66)
14
11
2
74
150
(154)
1,984
(2,000)
650
(663)
10
(10)
84
(82)
1
–
–
–
–
–
5
–
–
–
–
–
52
(51)
724
(704)
700
(698)
707
(698)
245
(218)
737
(657)
9,276
(9,214)
10,502
(10,307)
–
–
2
4
2
38
135
(142)
–
–
118
(120)
–
–
2
–
2
89
22
(23)
–
–
–
–
–
–
–
–
–
64
2
(2)
–
–
–
–
67
(66)
18
15
6
265
309
(321)
1,984
(2,000)
768
(783)
5,446
350
78
(101)
79
(100)
504
(633)
8,136
(8,343)
8,797
(9,177)
Interest rate swaps
– fair value hedges
– cash flow hedges
– not qualified for hedge accounting
Total
3,785
100
783
13,202
35,170
11
3
2
408
(14)
–
–
(70)
(3)
–
–
(33)
(2)
(1)
–
(133)
–
(1)
–
(208)
(19)
(2)
–
(444)
229
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
28 Derivative Financial Assets and Liabilities (continued)
A
The Group
Fair Value (continued)
Notional
amount
Fair value
Contractual undiscounted cash flows maturing in
Less than
1 year
1-2 years
2-5 years
Over
5 years
Total
in HK$ million
2018
Derivative Financial Assets
Gross settled:
Foreign exchange forwards
– cash flow hedges:
– inflow
– outflow
– not qualified for hedge accounting:
– inflow
– outflow
Cross currency swaps
– cash flow hedges:
– inflow
– outflow
Net settled:
Interest rate swaps
– fair value hedges
– cash flow hedges
Derivative Financial Liabilities
Gross settled:
Foreign exchange forwards
– cash flow hedges:
– inflow
– outflow
– hedges of net investments:
– inflow
– outflow
– not qualified for hedge accounting:
202
– inflow
– outflow
Cross currency swaps
– fair value hedges:
– inflow
– outflow
698
– cash flow hedges:
10,935
469
– inflow
– outflow
– hedges of net investments:
64
3
– inflow
– outflow
Net settled:
Interest rate swaps
– fair value hedges
Total
1,550
16,657
19,455
31
545
137
73
1
–
277
25
961
1,350
2,798
1,169
2,039
5
30
61
13
14
6
9
20
(19)
37
(37)
12
(8)
5
11
21
546
(554)
2,022
(2,036)
196
(202)
1
–
311
(312)
3
(2)
(6)
(33)
19
(19)
36
(36)
12
(8)
7
12
23
99
(99)
–
–
36
(22)
(1)
7
20
520
(524)
87
(88)
–
–
–
–
5
–
–
–
–
–
1
–
310
(312)
67
(71)
(8)
(17)
–
–
–
–
332
(329)
–
2
5
3
(3)
–
–
–
–
138
(137)
73
(73)
392
(367)
11
32
69
1,156
(1,169)
2,022
(2,036)
196
(202)
675
(698)
682
(698)
1,203
(1,278)
11,534
(11,948)
13,358
(13,850)
–
–
(16)
(87)
–
–
(2)
(439)
70
(73)
(32)
(576)
The Group’s derivative financial instruments consist predominantly of interest rate and cross currency swaps entered into exclusively by the Company,
and the relevant interest rate swap curves as of 31 December 2019 and 2018 were used to discount the cash flows of financial instruments. Interest rates
used ranged from 1.760% to 2.666% (2018: 2.110% to 2.485%) for Hong Kong dollars, 1.630% to 2.010% (2018: 2.411% to 3.005%) for US dollars, 0.809%
to 1.768% (2018: 1.868% to 2.735%) for Australian dollars and 0.012% to 0.124% (2018: 0.008% to 0.380%) for Japanese yen.
The table above details the remaining contractual maturities at the end of reporting period of the Group’s derivative financial assets and liabilities, which
are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current
at the end of reporting period) and the earliest date the Group can be required to pay. The details of the fair value measurement are disclosed in note 41.
230
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
Financial Risks
28 Derivative Financial Assets and Liabilities (continued)
B
The Group’s operating activities and financing activities expose it to four main types of financial risks, namely liquidity risk, interest rate risk, foreign
exchange risk and credit risk. The Group’s overall risk management policy focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects of these financial risks on the Group’s financial performance.
The Board of Directors provides principles for overall risk management and approves 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
investment of excess liquidity. The Group’s Preferred Financing Model (the “Model”) for the Company is an integral part of its risk management
policies. The Model specifies, amongst other things, the preferred mix of fixed and floating rate debts, the permitted level of foreign currency debts
and an adequate length of financing horizon for coverage of forward funding requirements, against which the Company’s financing related liquidity,
interest rate and currency risk exposures are measured, monitored and controlled. The Board regularly reviews its risk management policies and
authorises changes if necessary based on operating and market conditions and other relevant factors. The Board also reviews on an annual basis
as part of the budgeting process and authorises changes if necessary to the Model in accordance with changes in market conditions and practical
requirements.
The use of derivative financial instruments to control and hedge against interest rate and foreign exchange risk exposures is an integral part of the
Group’s risk management strategy. In accordance with Board policy, these instruments shall only be used for controlling or hedging risk exposures,
and cannot be used for speculation purposes. All of the derivative instruments used by the Company are over-the-counter derivatives comprising
principally interest rate swaps, cross currency swaps and foreign exchange forward contracts.
(i)
Liquidity Risk
Liquidity risk refers to the risk that funds are not available to meet liabilities as they fall due, and it may result from timing and amount mismatches of
cash inflow and outflow.
The Group employs projected cash flow analysis to manage liquidity risk by forecasting the amount of cash required, including working capital, debt
repayments, dividend payments, capital expenditures and new investments, and by maintaining sufficient cash balance and/or undrawn committed
banking facilities to ensure these requirements are met. It adopts a prudent approach and will maintain sufficient cash balance and committed
banking facilities to provide forward coverage of at least 12 to 24 months of projected cash requirements at the parent company level as specified
in the Model. The Company also conducts stress testing of its projected cash flow to analyse liquidity risk, and would arrange additional banking
facilities or debt issuance or otherwise take appropriate actions if such stress tests reveal significant risk of material cash flow shortfall.
The following table details the remaining contractual maturities at the end of the reporting period of the Group’s loans and other obligations other
than lease liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if
floating, based on rates current at the end of reporting period) and the earliest date the Group can be required to pay:
The Group
in HK$ million
Loans and other obligations
2019
2018
Capital
market
instruments
Bank
loans and
overdrafts
Others
Total
Capital
market
instruments
Bank
loans and
overdrafts
Others
Total
Amounts repayable beyond 5 years
25,138
887
–
26,025
25,830
1,225
610
27,665
Amounts repayable within a period
of between 2 and 5 years
Amounts repayable within a period
of between 1 and 2 years
Amounts repayable within 1 year
4,517
3,001
624
8,142
4,470
6,583
–
11,053
1,029
3,513
254
9,489
–
–
1,283
13,002
2,310
1,199
371
8,345
–
–
2,681
9,544
34,197
13,631
624
48,452
33,809
16,524
610
50,943
Others represent obligations under lease out/lease back transaction (note 19E).
231
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 28 Derivative Financial Assets and Liabilities (continued)
B
(ii)
Financial Risks (continued)
Interest Rate Risk
The Group’s interest rate risk arises principally from its borrowing activities at the parent company level (including its financing vehicles). Borrowings
based on fixed and floating rates expose the Group to fair value and cash flow interest rate risk respectively due to fluctuations in market interest
rates. The Group manages and controls its interest rate risk exposure at the parent company level by maintaining a level of fixed rate debt between
45% and 75% (2018: 45% and 75%) of total debt outstanding as specified by the Model. Should the actual fixed rate debt level deviate substantially
from the Model, derivative financial instruments such as interest rate swaps would be procured to align the fixed and floating mix with the Model.
As at 31 December 2019, 63% (2018: 61%) of the Company’s (including financing vehicles) total debt outstanding was denominated either in or
converted to fixed interest rate after taking into account outstanding cross currency and interest rate swaps. Interest rate risk at subsidiary, associate
and joint venture companies are managed separately based on their own borrowing requirement, circumstances and market practice.
As at 31 December 2019, it is estimated that a 100 basis points increase/100 basis points decrease in interest rates, with all other variables
held constant, would decrease/increase the Group’s profit after tax and retained profits by approximately HK$46 million/HK$51 million. Other
components of consolidated equity would increase/decrease by approximately HK$30 million/HK$30 million.
The sensitivity analysis above has been determined assuming that the change in interest rates had occurred at the end of the reporting period
and had been applied to the exposure to interest rate risk for both derivative and non-derivative financial instruments in existence at that date.
The interest rate assumptions represent management’s assessment of a reasonable possible change in interest rates over the period until the next
annual financial period.
In 2018, a similar analysis was performed based on the assumption of a 100 basis points increase/100 basis points decrease in interest rates, which
would increase/decrease the Group’s profit after tax and retained profits by approximately HK$117 million/HK$109 million. Other components of
consolidated equity would increase/decrease by approximately HK$89 million/HK$97 million.
(iii)
Foreign Exchange Risk
Foreign exchange risk arises when recognised assets and liabilities are denominated in a currency other than the functional currency of the Group’s
companies to which they relate. For the Group, it arises principally from its borrowing as well as overseas investment and procurement activities.
The Group manages and controls its foreign exchange risk exposure by maintaining a modest level of unhedged non-Hong Kong dollar debt at
the parent company level as specified by the Model, and minimal foreign exchange open positions created by its investments and procurements
overseas. Where the currency of a borrowing is not matched with that of the expected cash flows for servicing the debt, the Company would convert
its foreign currency exposure resulting from the borrowing to Hong Kong dollar exposure through cross currency swaps. For investment and
procurement in foreign currencies, the Group would purchase the foreign currencies in advance or enter into foreign exchange forward contracts to
secure the necessary foreign currencies at pre-determined exchange rates for settlement.
The Company’s exposure to US dollars due to its foreign currency borrowings is also offset by the amount of US dollar cash balances, bank deposits
and investments that it maintains.
As most of the Group’s receivables and payables are denominated in the respective Group companies’ functional currencies (Hong Kong dollars,
Renminbi, Australian dollars, British Pound or Swedish Krona) or United States dollars (with which Hong Kong dollars are pegged) and most of its
payment commitments denominated in foreign currencies are covered by foreign exchange forward contracts, management does not expect that
there will be any significant currency risk associated with them.
(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 as well as from the Defeasance
Securities it procured under the lease out/lease back transaction (note 19E). The Group limits its exposure to credit risk by placing deposits and
transacting derivative financial instruments only with financial institutions with acceptable investment grade credit ratings or guarantee, and
diversifying its exposure to various counterparties.
All derivative financial instruments are subject to a maximum counterparty limit based on the respective counterparty’s credit ratings in accordance
with policy approved by the Board. Credit exposure in terms of estimated fair market value of and largest potential loss arising from these
instruments based on the “value-at-risk” concept is measured, monitored and controlled against their respective counterparty limits. To further
reduce counterparty risk exposure, the Group also applies set-off and netting arrangements across all derivative financial instruments and other
financial transactions with the same counterparty.
All deposits and investments are similarly subject to a separate maximum counterparty/issuer limit based on the respective counterparty/issuer’s
credit ratings and/or status as Hong Kong’s note-issuing banks. There is also a limit on the length of time that the Group can maintain a deposit with
a counterparty or investment from an issuer based upon the counterparty/issuer’s credit ratings. Deposit/investment outstanding and maturity
profile are monitored regularly to ensure they are within the limits established for the counterparties/issuers. In addition, the Group actively
monitors the credit default swap levels of counterparties/issuers and their daily changes, and may on the basis of the observed levels and other
considerations adjust its exposure and/or maximum counterparty/issuer limit to the relevant counterparty.
As at the end of the reporting period, the maximum exposure to credit risk of the Group with respect to derivative financial assets and bank deposits
is represented respectively by the carrying amount of the derivative financial assets and the aggregate amount of deposits on its statement of
financial position. As at the end of the reporting period, there was no significant concentration risk to a single counterparty.
In addition, the Company also manages and controls its exposure to credit risks in respect of receivables as stated in note 30.
232
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 29 Stores and Spares
As at 31 December 2019, stores and spares net of provision for obsolete stock of HK$21 million (2018: HK$14 million) amounted to HK$1,844 million
(2018: HK$1,673 million), of which HK$1,310 million (2018: HK$1,134 million) is expected to be consumed within 1 year and HK$534 million (2018:
HK$539 million) is expected to be consumed after 1 year. Stores and spares expected to be consumed after 1 year comprise mainly contingency
spares and stocks kept to meet cyclical maintenance requirements.
30 Debtors and Other Receivables
The Group’s credit policies in respect of receivables arising from its principal activities are as follows:
The majority of fare revenue from Hong Kong transport operation (except for that from the High Speed Rail as described in note 30(ii) below)
(i)
is collected either through Octopus Cards with daily settlement on the next working day or in cash for other ticket types. A small portion of it is
collected through pre-sale agents which settle the amounts due within 21 days.
(ii)
In respect of the High Speed Rail, tickets are sold by the Company and other mainland train operators. The clearance centre of China Railway
Corporation administers the revenue allocation and settlement system of the Guangzhou-Shenzhen-Hong Kong Express Rail Link and allocates the
revenue of the High Speed Rail to the Company under a “section-based” approach with settlement in the following month.
Fare revenue from Shenzhen Metro Longhua Line is collected either through Shenzhen Tong Cards with daily settlement on the next working
(iii)
day or in cash for other ticket types. Fare revenue from MTR Express is collected through a third party financial institution with settlement within 14
days and sales through pre-sale agents are settled in the following month.
(iv)
Franchise revenue in Melbourne is collected either daily or monthly depending on the revenue nature. The majority of the franchise revenue
from operations in Stockholm is collected in the transaction month with the remainder being collected in the following month. Concession revenue
for MTR Crossrail is collected once every 4 weeks. Service fees from Macao Light Rapid Transit Taipa Line are billed monthly with due dates in
accordance with the terms of the service agreement.
Rentals, advertising and telecommunication service fees are billed monthly with due dates ranging from immediately due to 50 days. Tenants
(v)
of the Group’s investment properties and station kiosks are required to pay three months’ rental deposit upon the signing of lease agreements.
Amounts receivable under interest rate and currency swap agreements with financial institutions are due in accordance with the terms of the
(vi)
respective agreements.
(vii) Consultancy service incomes are billed monthly for settlement within 30 days upon work completion or on other basis stipulated in the
consultancy contracts.
(viii) Debtors in relation to contracts and capital works entrusted to the Group, subject to any agreed retentions, are due within 30 days upon the
certification of work in progress.
Amounts receivable in respect of property development are due in accordance with the terms of relevant development agreements or sale
(ix)
and purchase agreements.
The ageing of debtors is analysed as follows:
in HK$ million
Amounts not yet due
Overdue by 30 days
Overdue by 60 days
Overdue by 90 days
Overdue by more than 90 days
Total debtors
Other receivables and contract assets
2019
2,775
153
59
41
192
3,220
7,949
11,169
2018
2,807
275
34
10
91
3,217
6,359
9,576
Included in other receivables as at 31 December 2019 was HK$2,813 million (2018: HK$1,959 million) in respect of property development profit in
Hong Kong distributable from stakeholding funds based on the terms of the development agreements and sales and purchase agreements.
During the years ended 31 December 2017 and 2018, the Inland Revenue Department of Hong Kong (“IRD”) issued notices of assessment/additional
assessment for the years of assessment 2010/2011 to 2017/2018 following queries in connection with the tax deductibility of certain payments
relating to the Rail Merger.
233
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 30 Debtors and Other Receivables (continued)
Based on the strength of advice from external senior counsels and tax advisor, the directors of the Company have determined to strongly contest
the assessments raised by the IRD. The Company has lodged objections against these tax assessments and has applied to hold over the additional
tax demanded. The IRD has agreed to the holdover of the additional tax demanded subject to the purchases of tax reserve certificates (“TRCs”)
amounting to HK$1,816 million and HK$462 million in 2017 and 2018 respectively. The purchases of TRCs do not prejudice the Company’s tax
position and the purchased TRCs were included in debtors and other receivables in the Group’s consolidated statement of financial position.
No additional tax provision has been made during the years ended 31 December 2018 and 2019 in respect of the above notices of assessment/
additional assessment.
On 23 March 2017, MTR Property (Tianjin) No.1 Company Limited (“MTR TJ No.1”) entered into a Framework Agreement comprising, inter alia, a
Share Transfer Agreement, with Tianjin Xingtai Jihong Real Estate Co., Ltd. (“TJXJRE”), a wholly-owned subsidiary of Beijing Capital Land Ltd., for the
disposal of MTR TJ No.1’s 49% equity interest in Tianjin TJ – Metro MTR Construction Company Limited (“Tianjin TJ – Metro MTR”) at a consideration
of RMB1.3 billion; and MTR TJ No.1’s conditional future acquisition of a shopping centre to be developed on the same site at a consideration of
RMB1.3 billion subject to the agreement of Tianjin TJ – Metro MTR. The disposal was completed on 10 July 2017 and consequently a prepayment
is recognised on the consolidated statement of financial position. A performance bond in the amount of RMB1.6 billion issued by a Hong Kong
licensed bank has been provided by TJXJRE to MTR TJ No.1 to guarantee its obligations under the Framework Agreement.
The Group’s exposure to credit risk on debtors and other receivables mainly relates to debtors relating to rental receivables in Hong Kong and
franchise fee/project fee receivables outside of Hong Kong. Given the Group’s policy is to receive rental deposits from tenants in Hong Kong and the
debtors in relation to the franchise fee/project fee receivables outside of Hong Kong are government related entities, the Group considers the credit
risk is low and the expected credit loss is immaterial.
As at 31 December 2019, all debtors and other receivables were expected to be recovered within one year except for amounts relating to deposits
and other receivables of HK$2,548 million (2018: HK$2,429 million) in the Group which were expected to be recovered after more than one year.
The nominal values less credit losses are not discounted as it is considered that the effect of discounting would not be significant.
Included in debtors and other receivables are the following amounts denominated in a currency other than the functional currency of the entity to
which they relate:
in million
Australian dollars
Renminbi
Macau pataca
United States dollars
31 Amounts Due from Related Parties
in HK$ million
Amounts due from:
– HKSAR Government
– KCRC
– associates
2019
2018
8
66
–
8
8
–
63
8
2019
2018
1,783
1,159
99
3,041
1,713
215
160
2,088
As at 31 December 2019, the amount due from the HKSAR Government mainly related to the recoverable cost for the advanced works in relation to
the Shatin to Central Link, reimbursable costs for the essential public infrastructure works in respect of the South Island Line and Kwun Tong Line
Extension projects, reimbursement of the fare revenue difference in relation to the Public Transport Fare Concession Scheme for the Elderly and
Eligible Persons with Disabilities, agency fee receivables and reimbursable costs in respect of West Rail property development (note 22C), as well as
receivables and retention for other entrustment and maintenance works.
The amount due from KCRC mainly related to the recoverable cost for certain capital works in accordance with the agreements in relation to the Rail
Merger, as well as amounts in relation to the High Speed Rail.
The amounts due from associates as at 31 December 2019 included a loan to First MTR South Western Trains Limited of amount GBP nil (HK$nil)
(2018: GBP9 million (HK$90 million)) net of impairment loss, with repayment due by 31 March 2023.
Given the amounts due from related parties mainly related to HKSAR Government and government related entity, the Group considers the credit
risk is low and the expected credit loss is immaterial.
As at 31 December 2019, all amounts due from related parties were expected to be recovered within one year except for HK$1,156 million
(2018: HK$333 million) which were expected to be recovered after more than one year. The carrying amounts of amounts due from the HKSAR
Government and other related parties are considered not significantly different from their fair values.
234
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 32 Cash, Bank Balances and Deposits
in HK$ million
Deposits with banks and other financial institutions
Cash at banks and on hand
Cash, bank balances and deposits
Less: Bank deposits with more than three months to maturity when placed or pledged deposits
(note 33E)
Cash and cash equivalents in the cash flow statement
2019
13,892
7,294
21,186
(12,840)
8,346
2018
11,229
6,793
18,022
(9,157)
8,865
Included in cash, bank balance and deposits in the consolidated statement of financial position are the following amounts denominated in a
currency other than the functional currency of the entity to which they relate:
in million
Australian dollars
Euros
Japanese yen
Pound sterling
Renminbi
33 Loans and Other Obligations
A By Type
The Group
2019
16
8
893
8
1
2018
49
11
109
6
160
2019
2018
Carrying
amount
Fair value
Repayable
amount
Carrying
amount
Fair value
Repayable
amount
in HK$ million
Capital market instruments
Listed or publicly traded:
Debt issuance programme notes due during
2026 to 2047 (2018: due during 2026 to 2047)
8,712
10,110
8,852
8,738
9,367
8,853
Unlisted:
Debt issuance programme notes due during
2020 to 2055 (2018: due during 2019 to 2055)
Total capital market instruments
Bank loans
Lease liabilities
Others
Loans and other obligations
Short-term loans
Total
15,492
24,204
10,141
1,241
499
17,418
27,528
10,142
1,311
573
15,973
24,825
10,147
1,241
499
36,085
39,554
36,712
3,371
3,371
3,371
39,456
42,925
40,083
14,803
23,541
11,312
450
478
35,781
4,424
40,205
16,269
25,636
11,312
553
540
38,041
4,424
42,465
15,293
24,146
11,331
450
478
36,405
4,424
40,829
Others include non-defeased obligations under lease out/lease back transaction (note 19E).
The fair values are based on the discounted cash flows method which discounts the future contractual cash flows at the current market interest and
foreign exchange rates that is available to the Group for similar financial instruments. The carrying amounts of short-term loans and bank overdrafts
approximated their fair values. Details of the fair value measurement are disclosed in note 41.
235
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
33 Loans and Other Obligations (continued)
A By Type (continued)
The amounts of borrowings, denominated in a currency other than the functional currency of the entity to which they relate, before and after
currency hedging activities are as follows:
The Group
in million
Australian dollars
Japanese yen
United States dollars
B By Repayment Terms
The Group
in HK$ million
Loans and other obligations
Before hedging activities
After hedging activities
2019
431
15,000
1,130
2018
431
15,000
1,030
2019
2019
2018
–
–
–
–
–
–
2018
Capital
market
instruments
Bank
loans and
overdrafts
Lease
liabilities Others
Total
Capital
market
instruments
Bank
loans and
overdrafts
Lease
liabilities Others
Total
Amounts repayable beyond 5 years
18,738
978
27
– 19,743
19,238
1,218
–
478 20,934
2,847
2,952
788
499
7,086
2,760
6,164
404
–
9,328
Amounts repayable within a period
of between 2 and 5 years
Amounts repayable within a period
of between 1 and 2 years
Amounts repayable within 1 year
2,827
6,000
413
217
194
232
–
–
824
9,059
1,648
221
500
3,728
46
–
–
–
1,915
4,228
Short-term loans
–
3,371
–
–
3,371
–
4,424
–
–
4,424
24,825
13,518
1,241
499 40,083
24,146
15,755
450
478 40,829
24,825
10,147
1,241
499 36,712
24,146
11,331
450
478 36,405
Less: Unamortised discount/
premium/finance
charges outstanding
Adjustment due to fair value
change of financial instruments
(148)
(473)
(6)
–
–
–
–
(154)
(155)
(19)
–
(473)
(450)
–
–
–
–
(174)
–
(450)
Total carrying amount of debt
24,204
13,512
1,241
499 39,456
23,541
15,736
450
478 40,205
The amounts repayable within 1 year in respect of capital market instruments and bank loans are included in long-term loans as these amounts are
intended to be refinanced on a long-term basis.
C Bonds and Notes Issued and Redeemed
Notes issued during the years ended 31 December 2019 and 2018 comprise:
The Group
in HK$ million
2019
2018
Principal
amount
Net consideration
received
Principal
amount
Net consideration
received
Debt issuance programme notes
1,183
1,183
1,491
1,488
During the year ended 31 December 2019, MTR Corporation (C.I.) Limited did not issue any of its notes (2018: HK$1,491 million), while the Company
issued HK$400 million and USD100 million (or HK$783 million) of its unlisted debt securities (2018: nil). The obligations of the notes issued by the
subsidiary are direct, unsecured and unsubordinated to the other unsecured obligations of the subsidiary which are unconditionally and irrevocably
guaranteed by the Company. The obligations of the Company under the guarantee are direct, unsecured, unconditional, and unsubordinated to
other unsecured and unsubordinated obligations of the Company.
During the year ended 31 December 2019, the Group redeemed HK$500 million of its unlisted debt securities (2018: HK$750 million and
USD60 million (or HK$465 million)) and did not redeem any of its listed debt securities (2018: HK$ nil).
236
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
33 Loans and Other Obligations (continued)
D
At 31 December 2019 and 2018, the Group had lease liabilities as follows:
Lease Liabilities
in HK$ million
Within 1 year
After 1 year but within 2 years
After 2 years but within 5 years
After 5 years
Less: Total future interest expenses
Present value of lease obligations
2019
2018
Present value of
the minimum
lease payments
Total minimum
lease payments
Present value of
the minimum
lease payments
Total minimum
lease payments
232
194
788
27
1,009
1,241
276
235
876
28
1,139
1,415
(174)
1,241
–
46
404
–
450
450
22
89
451
–
540
562
(112)
450
E Guarantees and Pledges
(i)
There were no guarantees given by the HKSAR Government in respect of the loan facilities of the Group as at 31 December 2019 and 2018.
(ii)
As at 31 December 2019, MTR Corporation (Shenzhen) Limited, an indirect wholly owned subsidiary of the Company in the Mainland of
China, has pledged the fare and non–fare revenue and the benefits of insurance contracts in relation to Phase 2 of Shenzhen Metro Longhua Line as
security for the RMB1,847 million (2018: RMB2,041 million) bank loan facility granted to it.
Save as disclosed above and those disclosed elsewhere in the accounts, none of the other assets of the Group was charged or subject to any
encumbrance as at 31 December 2019.
34 Creditors, Other Payables and Provisions
in HK$ million
Creditors and accrued charges
Other payables and provisions (note 21B(c)(ii))
Contract liabilities
A Creditors and Accrued Charges
The analysis of creditors by due dates is as follows:
in HK$ million
Due within 30 days or on demand
Due after 30 days but within 60 days
Due after 60 days but within 90 days
Due after 90 days
Rental and other refundable deposits
Accrued employee benefits
The Group’s general payment terms are one to two months from the invoice date.
2019
19,315
11,787
2,213
33,315
2019
7,157
1,559
774
4,978
14,468
2,857
1,990
19,315
2018
18,525
5,306
2,116
25,947
2018
6,152
1,142
911
4,398
12,603
3,209
2,713
18,525
237
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 34 Creditors, Other Payables and Provisions (continued)
A Creditors and Accrued Charges (continued)
Movements in contract liabilities of the Group during the year ended 31 December 2019 are as follows:
in HK$ million
Balance as at 1 January
Increase in contract liabilities as a result of billing in advance
Decrease in contract liabilities as a result of revenue recognised during the year that was included
in the contract liabilities at the beginning of the period
Exchange differences
Balance as at 31 December
2019
2,116
1,520
(1,410)
(13)
2,213
2018
2,525
1,582
(1,943)
(48)
2,116
Contract liabilities mainly arise from construction contracts and other project arrangements, when the Group receives a deposit before the activity
commences and until the revenue recognised on the project exceeds the amount of the deposit received. The payment terms are negotiated on a
case by case basis with customers.
The nominal values of creditors and accrued charges are not significantly different from their fair values.
Included in creditors and accrued charges are the following amounts denominated in a currency other than the functional currency of the entity to
which they relate:
in million
Australian dollars
Euros
Pound sterling
Renminbi
United States dollars
2019
9
9
3
8
12
2018
11
14
3
140
17
B Other Payables
Other payables comprised contract retentions and deferred income. Deferred income related to the surplus amounts of payments received from
property developers in excess of the balance in property development in progress, the residual balance of deferred income on transfer of assets
from customers, as well as the unutilised government subsidy for Shenzhen Metro Longhua Line operation.
As at 31 December 2019, all of the creditors and other payables were expected to be settled or recognised as income within one year except for
HK$16,204 million (2018: HK$11,381 million), including contract liabilities of HK$801 million (2018: HK$502 million), of the Group which were
expected to be settled or recognised as income after one year. The amounts due after one year for the Group as at 31 December 2019 mainly relate
to rental deposits received from investment property and station kiosk tenants and advance income received, majority of which are due to be repaid
within three years. The Group considers the effect of discounting would be immaterial.
238
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
35 Amounts Due to Related Parties
in HK$ million
Amounts due to:
– HKSAR Government
– KCRC
– associates
2019
117
2,873
–
2,990
2018
70
2,475
131
2,676
The amount due to the HKSAR Government as at 31 December 2019 relates to land administrative fees in relation to railway extensions.
The amount due to KCRC as at 31 December 2019 mainly relates to the accrued portion of the fixed annual payment and variable annual payment
that is expected to be settled within 12 months.
The amount due to associates as at 31 December 2018 mainly related to the amount payable for the equity contribution to NRT Holdings 2 Pty Ltd
which had been settled during the year ended 31 December 2019.
36 Obligations under Service Concession
Movements of the Group’s obligations under service concessions are as follows:
in HK$ million
Balance as at 1 January
Add: Net increase in interest payable
Less: Amount repaid during the year
Exchange differences
Balance as at 31 December
The outstanding balances as at 31 December 2019 and 2018 are repayable as follows:
2019
10,409
3
(59)
(3)
2018
10,470
3
(56)
(8)
10,350
10,409
The Group
in HK$ million
2019
Interest
expense
relating to
future
periods
Present
value of
payment
obligations
Total
payment
obligations
Present
value of
payment
obligations
2018
Interest
expense
relating to
future
periods
Total
payment
obligations
Amounts repayable beyond 5 years
9,978
15,013
24,991
10,064
15,637
25,701
Amounts repayable within a period of
between 2 and 5 years
Amounts repayable within a period of
between 1 and 2 years
Amounts repayable within 1 year
238
1,990
2,228
223
2,061
2,284
69
65
692
696
761
761
63
59
698
697
761
756
10,350
18,391
28,741
10,409
19,093
29,502
37 Loans from Holders of Non-controlling Interests
Loans from holders of non–controlling interests as at 31 December 2019 mainly represents the portion of total shareholder loan of AUD60 million
(HK$328 million) granted to Metro Trains Australia Pty. Ltd. (“MTA”) by the holders of its non–controlling interests. The loan carries an interest rate of
6.2% per annum and is repayable at the discretion of MTA or on 1 December 2024, whichever is earlier.
239
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 38 Income Tax in the Statement of Financial Position
A
Current taxation in the consolidated statement of financial position comprises provision for Hong Kong Profits Tax for the Company and
certain subsidiaries, chargeable at Hong Kong Profits Tax Rate at 16.5% (2018: 16.5%) and after netting off provisional tax paid, as well as tax outside
Hong Kong chargeable at the appropriate current rates of taxation ruling in the relevant countries.
in HK$ million
Balance relating to Hong Kong Profits Tax
Balance relating to tax outside Hong Kong
Representing:
Current Taxation
2019
1,904
120
2,024
2,024
2018
1,021
140
1,161
1,161
B Deferred Tax Assets and Liabilities Recognised
The components of deferred tax assets and liabilities recognised in the consolidated statement of financial position and the movements during the
year are as follows:
The Group
in HK$ million
2019
Deferred tax arising from
Depreciation
allowances
in excess
of related
depreciation
Revaluation
of properties
Provision
and other
temporary
differences
Cash flow
hedges
Tax losses
Total
Balance as at 1 January 2019, as previously reported
12,385
Effect of adoption of HKFRS 16
Balance as at 1 January 2019, as restated
Charged/(credited) to consolidated profit and
loss account
Charged to reserves
Acquisition of subsidiary
Exchange differences
–
12,385
620
–
–
2
751
8
759
(5)
24
–
–
Balance as at 31 December 2019
13,007
778
2018
Balance as at 1 January 2018
Charged/(credited) to consolidated profit and
loss account
Charged/(credited) to reserves
Exchange differences
Balance as at 31 December 2018
12,158
228
–
(1)
12,385
648
–
103
–
751
(170)
(13)
(183)
(76)
139
–
(3)
(123)
(107)
10
(74)
1
(170)
in HK$ million
Net deferred tax assets
Net deferred tax liabilities
(5)
–
(5)
–
48
–
–
43
–
–
(5)
–
(5)
(103)
12,858
–
(5)
(103)
12,853
(1)
–
(12)
6
538
211
(12)
5
(110)
13,595
(8)
12,691
(102)
–
7
136
24
7
(103)
12,858
2019
(134)
13,729
13,595
2018
(121)
12,979
12,858
The Group has not recognised deferred tax assets in respect of some of its subsidiaries’ cumulative tax losses of HK$326 million (2018:
C
HK$158 million) as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant tax
jurisdictions and entities.
240
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
39 Share Capital, Shares Held for Executive Share Incentive Scheme,
Company-level Movements in Components of Equity and Capital
Management
Share Capital
A
2019
2018
Number of shares
HK$ million
Number of shares
HK$ million
Ordinary shares, issued and fully paid:
At 1 January
6,139,485,589
57,970
6,007,777,302
52,307
Shares issued in respect of scrip dividend of
2018/2017 final ordinary dividend
Shares issued in respect of scrip dividend of
2019/2018 interim ordinary dividend
Vesting of shares of Executive Share
Incentive Scheme
13,707,539
1,494,283
–
Shares issued under the share option scheme
3,261,500
654
71
5
104
93,790,912
32,348,875
–
5,568,500
At 31 December
6,157,948,911
58,804
6,139,485,589
In accordance with section 135 of the Companies Ordinance, the ordinary shares of the Company do not have a par value.
4,175
1,298
15
175
57,970
Shares Held for Executive Share Incentive Scheme
B
During the year ended 31 December 2019, the Company awarded Performance Shares and Restricted Shares under the Company’s Executive
Share Incentive Scheme to certain eligible employees of the Company (note 42(ii)). In this regard, a total of 244,650 Performance Shares (2018:
1,772,900) and 2,062,150 Restricted Shares (2018: 2,288,950) were awarded and accepted by the grantees on 1 April 2019 and 8 April 2019 (2018:
16 March 2018, 10 April 2018). The fair values of these Award Shares were HK$48.90 per share on 1 April 2019 and HK$48.40 per share on 8 April
2019 (2018: HK$43.70 per share on 16 March 2018, HK$42.80 per share on 10 April 2018).
During the year ended 31 December 2019, the Trustee of the Executive Share Incentive Scheme, pursuant to the terms of the rules and the trust
deed of the Executive Share Incentive Scheme, purchased on the Hong Kong Stock Exchange a total of 1,870,000 Ordinary Shares (2018: 5,351,600
Ordinary Shares) of the Company for a total consideration of approximately HK$88 million (2018: HK$239 million). During the year ended
31 December 2019, 64,088 Ordinary Shares of the Company (2018: 102,904 Ordinary Shares) were issued to the Executive Share Incentive Scheme
in relation to scrip dividend issued amounting to HK$3 million (2018: HK$5 million).
During the year ended 31 December 2019, 2,230,420 shares (2018: 3,866,255 shares) were transferred to the awardees under the Executive Share
Incentive Scheme upon vesting. The total cost of the vested shares was HK$93 million (2018: HK$152 million). During the year ended 31 December 2019,
HK$5 million (2018: HK$15 million) was credited to share capital in respect of vesting of shares whose fair values at the grant date were higher than the
costs of the vested shares. During the year ended 31 December 2019, 174,697 award shares (2018: 579,488 award shares) were lapsed/forfeited.
As at 31 December 2019, taking into account the shares acquired out of the dividends from the shares held under the trust, there were 5,853,726
shares held in trust under the Executive Share Incentive Scheme (excluding shares vested but not yet transferred to awardees).
C New Shares Issued and Fully Paid Up During the Year
Employee share options exercised:
– 2007 Share Option Scheme
An analysis of the Company’s outstanding share options as at 31 December 2019 is disclosed in note 42.
Number of shares
Weighted average
exercise price
HK$
3,261,500
29.465
241
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
39 Share Capital, Shares Held for Executive Share Incentive Scheme,
Company-level Movements in Components of Equity and Capital
Management (continued)
The fixed assets revaluation reserve is used to deal with the surpluses or deficits arising from the revaluation of self-occupied buildings
D
(note 2E(ii)).
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of hedging instruments used in cash flow hedges
pending subsequent recognition of the hedged cash flow in accordance with the accounting policy adopted for cash flow hedges as explained in
note 2V(ii).
The employee share-based capital reserve comprises the share-based payment expenses recognised in respect of share options under the share
option scheme which are yet to be exercised, and in respect of award shares under the Executive Share Incentive Scheme granted which are yet
to be vested, as explained in the accounting policy under note 2W(iii). The amount will either be transferred to the share capital account when the
option is exercised, or be released directly to retained profits if the option is lapsed.
The exchange reserve comprises all foreign exchange differences arising from the translation of the accounts of foreign enterprises. The reserve is
dealt with in accordance with the accounting policy set out in note 2AC.
Apart from retained profits, the other reserves are not available for distribution to shareholders because they do not constitute realised profits. In
addition, the Company considers the cumulative surpluses on revaluation of investment properties of HK$60,964 million (2018: HK$59,551 million)
included in retained profits are non–distributable as they do not constitute realised profits. As at 31 December 2019, the Company considers that the
total amount of reserves available for distribution to shareholders amounted to HK$56,546 million (2018: HK$53,726 million).
Included in the Group’s retained profits as at 31 December 2019 is an amount of HK$2,431 million (2018: HK$2,029 million), being the retained
profits attributable to the associates and joint venture.
E Capital Management
The Group’s primary objectives in managing capital are to safeguard its ability to continue as a going concern, and to generate sufficient profit to
maintain growth and provide an adequate return to its shareholders.
The Group manages the amount of capital in proportion to risk, and makes adjustments to its capital structure through the amount of dividend
payment to shareholders, issuance of scrip and new shares, and managing its debt portfolio in conjunction with projected financing requirement.
The Financial Secretary Incorporated of the HKSAR Government is the majority shareholder of the Company holding 4,634,173,932 shares as at
31 December 2019, representing 75.26% of total equity interest in the Company.
The Group monitors capital on the basis of the net debt–to–equity ratio, which is calculated on net borrowings as a percentage of the total equity,
where net borrowings are represented by the aggregate of loans and other obligations, bank overdrafts, obligations under service concession and
loans from holders of non–controlling interests net of cash and cash equivalents and bank medium term notes. The Group’s net debt-to-equity
ratios over the past years had been trending downward since the Rail Merger from 46.5% at 31 December 2007 to 18.1% at 31 December 2018 and
15.4% at 31 December 2019.
Fasttrack Insurance Ltd. is required to maintain a minimum level of shareholders’ fund based on the Bermuda Insurance Act. MTR Corporation
(Shenzhen) Limited is required to maintain a registered capital at or above 40% of the total investment for the Shenzhen Metro Longhua Line project
in accordance with the concession agreement. MTR Property Development (Shenzhen) Company Limited is required to maintain a registered
capital at or above 33% of the total investment based on Jianfang [2015] No. 122. Metro Trains Melbourne Pty. Ltd. is required to maintain total
shareholders’ funds at a specified amount in accordance with the franchise agreement. All the Group’s subsidiaries in Sweden are required to
maintain total shareholders’ fund at or above 50% of their respective registered share capital based on the Swedish Companies Act. MTR Travel
Limited is required to maintain a certain level of paid-up capital in order to maintain membership of the Travel Industry Council of Hong Kong. As at
31 December 2019, all these capital requirements were met. Apart from these, neither the Company nor any of its other subsidiaries are subject to
externally imposed capital requirements.
242
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 39 Share Capital, Shares Held for Executive Share Incentive Scheme,
Company-level Movements in Components of Equity and Capital
Management (continued)
F Company-level Movements in Components of Equity
The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated
statement of changes in equity. Details of the changes in the Company’s individual components of equity between the beginning and the end of the
year are set out below:
Other reserves
Shares
held for
Executive
Share
Incentive
Scheme
Note
Share
capital
Fixed
assets
revaluation
reserve
Employee
share-based
capital
reserve
Hedging
reserve
Retained
profits
Total
equity
in HK$ million
2019
Balance as at 1 January 2019
48
57,970
(265)
3,815
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
Amounts transferred from hedging
reserve to initial carrying amount of
hedged items
2018 final ordinary dividend
Shares issued in respect of scrip dividend of
2018 final ordinary dividend
2019 interim ordinary dividend
Shares issued in respect of scrip dividend of
2019 interim ordinary dividend
Shares purchased for Executive Share
Incentive Scheme
Vesting and forfeiture of award shares of
Executive Share Incentive Scheme
Employee share-based payments
Employee share options exercised
Balance as at 31 December 2019
2018
Balance as at 1 January 2018
Profit for the year
Other comprehensive income for the year
Total comprehensive income for the year
2017 final ordinary dividend
Shares issued in respect of scrip dividend of
2017 final ordinary dividend
2018 interim ordinary dividend
Shares issued in respect of scrip dividend of
2018 interim ordinary dividend
Shares purchased for Executive Share
Incentive Scheme
Vesting and forfeiture of award shares of
Executive Share Incentive Scheme
Employee share-based payments
Employee share options exercised
–
–
–
–
–
654
–
71
–
5
–
104
–
–
–
–
–
(2)
–
(1)
(88)
93
–
–
–
121
121
–
–
–
–
–
–
–
–
–
(99)
–
271
271
3
–
–
–
–
–
–
–
–
142
113,376
174,939
–
–
–
–
–
–
–
–
–
(96)
122
(8)
10,805
10,805
702
1,094
11,507
11,899
–
3
(5,835)
(5,835)
2
654
(1,539)
(1,539)
1
–
(2)
–
–
71
(88)
–
122
96
48
58,804
(263)
3,936
175
160
117,510
180,322
52,307
(173)
3,296
(143)
203
105,458
160,948
–
–
–
–
4,175
–
1,298
–
–
–
–
(4)
–
(1)
–
(239)
15
–
175
152
–
–
–
519
519
–
–
–
–
–
–
–
–
–
44
44
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(158)
110
(13)
142
15,052
15,052
(376)
187
14,676
15,239
(5,224)
(5,224)
–
4,171
(1,525)
(1,525)
–
–
(9)
–
–
1,297
(239)
–
110
162
113,376
174,939
243
Balance as at 31 December 2018
48
57,970
(265)
3,815
(99)
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
40 Other Cash Flow Information
A
payment from recurrent businesses to cash generated from operations is as follows:
Reconciliation of the Group’s operating profit before Hong Kong property development, depreciation, amortisation and variable annual
in HK$ million
2019
2018
Operating profit before Hong Kong property development, depreciation, amortisation and
variable annual payment from recurrent businesses
Adjustments for non-cash items
Operating profit before working capital changes
Increase in debtors and other receivables
Increase in stores and spares
Increase/(decrease) in creditors and other payables
Cash generated from operations
15,351
1,836
17,187
(1,372)
(188)
1,493
17,120
18,843
102
18,945
(1,183)
(169)
(4,664)
12,929
B
Reconciliation of the Group’s liabilities arising from financing activities is as follows:
in HK$ million
2019
Loans and other obligations
Capital market
instruments
Bank
loans
Lease
liabilities
Others
Short-term
loans
Interest and
finance
charges
payables
Total
At 1 January 2019, as previously reported
23,541
11,312
Effect of adoption of HKFRS 16
–
–
450
865
At 1 January 2019, as restated
23,541
11,312
1,315
478
–
478
4,424
113
40,318
–
–
865
4,424
113
41,183
Changes from financing cash flows:
– Proceeds from loans and capital
market instruments
– Repayment of loans and capital
market instruments
– Capital element of lease rentals paid
– Interest and finance charges
Exchange differences
Other changes:
– Adjustment due to fair value change
of financial instruments
– Recognition of lease liabilities
– Interest and finance charges
1,182
10,477
(500)
(11,619)
–
–
–
–
682
(1,142)
–
–
(165)
–
(165)
–
–
–
–
–
–
(1,053)
–
–
(1,053)
–
–
–
(1,054)
(1,054)
11,659
(13,172)
(165)
(1,054)
(2,732)
(3)
(42)
(54)
(2)
(16)
–
–
(16)
13
–
–
13
–
145
–
145
–
–
23
23
–
–
–
–
–
(8)
(109)
–
–
1,094
1,094
(3)
145
1,117
1,259
At 31 December 2019
24,204
10,141
1,241
499
3,371
145
39,601
244
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
40 Other Cash Flow Information (continued)
Loans and other obligations
Capital
market
instruments
Bank
loans
Lease
liabilities
Others
Short-term
loans
Interest and
finance
charges
payables
Total
23,451
17,313
492
458
325
123
42,162
in HK$ million
2018
At 1 January 2018
Changes from financing cash flows:
– Proceeds from loans and capital
market instruments
– Repayment of loans and capital
market instruments
– Interest and finance charges
Exchange differences
Other changes:
– Unamortised discount/premium/
finance charges outstanding
– Adjustment due to fair value change
of financial instruments
– Interest and finance charges
– Discount on issurance of capital
market instruments
1,488
31,377
(1,215)
(37,292)
–
273
–
(5,915)
–
(5)
–
(5)
–
4
(190)
–
3
(183)
(128)
(37)
42
–
–
–
42
–
–
–
–
–
–
–
–
–
2
–
–
18
–
18
4,099
–
–
4,099
–
–
–
–
–
–
At 31 December 2018
23,541
11,312
450
478
4,424
Total Cash Outflow for Leases
C
Amounts included in the cash flow statement for leases comprise the following:
in HK$ million
Within operating cash flows
Within financing cash flows
These amounts relate to the leases of the following:
in HK$ million
Buildings
Plant and equipment
–
–
(1,147)
(1,147)
2
–
–
1,138
(3)
1,135
113
2019
50
213
263
2019
189
74
263
36,964
(38,512)
(1,147)
(2,695)
(161)
46
(190)
1,156
–
1,012
40,318
2018
1,760
30
1,790
2018
424
1,366
1,790
245
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
41 Fair Value Measurement
In accordance with HKFRS 13, Fair Value Measurement, the level into which a fair value measurement is classified is determined with reference to the
observability and significance of the inputs used in the valuation technique as follows:
Level 1: Fair value measured using only Level 1 inputs, i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the
measurement date
Level 2: Fair value measured using Level 2 inputs, i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs.
Unobservable inputs are inputs for which market data are not available
Level 3: Fair value measured using significant unobservable inputs
Fair Value Measurements of Fixed Assets
A
All of the Group’s investment properties and self-occupied buildings measured at fair value on a recurring basis are categorised as Level 3 of the fair
value hierarchy.
During the year ended 31 December 2019, there were no transfers between Level 1 and Level 2, or transfers into or out of Level 3 in respect of the
Group’s investment properties and self-occupied buildings. The Group’s policy is to recognise transfers between levels of fair value hierarchy as at
the end of the reporting period in which they occur.
All the Group’s investment properties and self-occupied buildings were revalued as at 31 December 2019 and 2018 by independent qualified
surveyors. The Group’s senior management have discussion with the surveyors on the valuation assumptions and valuation results when the
valuation is performed at each interim and annual reporting date.
The fair value of all the Group’s self-occupied buildings is determined on a recurring basis using primarily the direct comparison approach assuming
sale of properties in their existing state with vacant possession.
The property interests of all the shopping malls and office accommodation held by the Group as investment properties have been valued using the
income capitalisation approach. Under this approach, the market value is derived from the capitalisation of the rental revenue to be received under
existing tenancies and the estimated full market rental value to be received upon expiry of the existing tenancies with reference to the market rental
levels prevailing as at the date of valuation by an appropriate single market yield rate. The range of market yield rate adopted for the valuation of
major investment properties as at 31 December 2019 was 3.5% – 5.75% (2018: 3.5% – 5.75%) with a weighted average of 4.8% (2018: 4.8%). The fair
value measurement is negatively correlated to the market yield rate.
The movements of investment properties during the year ended 31 December 2019 are shown in note 19A. All the fair value adjustment related
to investment properties held as at 31 December 2019 was recognised under investment property revaluation in the consolidated profit and loss
account.
B
(i)
Fair Value Measurements of Financial Instruments
Financial Assets and Liabilities Carried at Fair Value
All of the Group’s investments in securities were carried at fair value using Level 1 measurements, the fair value of financial assets as at 31 December
2019 was HK$386 million (2018: HK$294 million). The Group’s derivative financial instruments were carried at fair value using Level 2 measurements,
as at 31 December 2019, the fair values of derivative financial assets and financial liabilities were HK$198 million (2018: HK$61 million) and
HK$408 million (2018: HK$545 million) respectively.
There are no Level 3 measurements of financial instruments. During the years ended 31 December 2019 and 2018, there were no transfers between
Level 1 and Level 2, or transfers into or out of Level 3. The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end
of the reporting period in which they occur.
The discounted cash flow method, which discounts the future contractual cash flows at the current market interest rates, is the main valuation
technique used to determine the fair value of the Group’s borrowings and derivative financial instruments. For interest rate swaps, cross currency
swaps and foreign exchange forward contracts, the discount rates used were derived from the swap curves of the respective currencies and the
cross currency basis curves of the respective currency pairs at the end of reporting period. Closing exchange rates at the end of reporting period
were used to convert value in foreign currency to local currency.
246
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 41 Fair Value Measurement (continued)
B
(ii)
Fair Value Measurements of Financial Instruments (continued)
Financial Assets and Liabilities Not Carried at Fair Value
The carrying amounts of the Group’s financial assets and liabilities not carried at fair value are not materially different from their fair values as at
31 December 2019 and 2018 except for capital market instruments and other obligations, for which their carrying amounts and fair values are
disclosed below:
The Group
in HK$ million
Capital market instruments
Other obligations
At 31 December 2019
At 31 December 2018
Carrying amount
Fair value
Carrying amount
Fair value
24,204
1,740
27,528
1,884
23,541
928
25,636
1,093
The above fair value measurement is categorised as Level 2. The discounted cash flow method, which discounts the future contractual cash flows
at the current market interest rates, is the main valuation technique used to determine the fair value of the Group’s capital market instruments and
other obligations. The discount rates used were derived from the swap curves of the respective currencies at the end of reporting period. Closing
exchange rates at the end of the reporting period were used to convert value in foreign currency to local currency.
42 Share-based Payments
Equity-settled Share-based Payments
The Group granted share options under share option scheme and share awards under Executive Share Incentive Scheme to its Members of the
Executive Directorate and certain employees. As at 31 December 2019, the Company maintained the 2007 Share Option Scheme and the Executive
Share Incentive Scheme. Details of the schemes are as follows:
(i)
2007 Share Option Scheme
Following the expiry of the New Joiners Share Option Scheme (the “New Option Scheme”) in May 2007, the 2007 Share Option Scheme (the “2007
Option Scheme”) was submitted and approved at the 2007 Annual General Meeting to enhance the Company’s ability to attract the best available
personnel, to retain and motivate critical and key employees, to align their interest to the long-term success of the Company and to provide them
with fair and market competitive remuneration. Under the Rules of the 2007 Option Scheme, a maximum of 277,461,072 shares, may be issued
pursuant to the exercise of options granted after 7 June 2007 under all share option schemes of the Company including the 2007 Option Scheme.
Options granted will be vested in respect of their underlying shares not less than 1 year from the date on which the relevant option is offered. The
exercise price of any option granted under the 2007 Option Scheme is to be determined by the Company upon the offer of grant of the option
and the exercise price 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.
Subject to the rules of the 2007 Option Scheme, the Company may, from time to time during the scheme period, offer to grant share options to any
eligible employees at its absolute discretion. Under the 2007 Option Scheme, the date of grant is defined as the date of acceptance of the offer to
grant the option. The 2007 Option Scheme expired in June 2014. All the share options granted were vested prior to 2018.
The following table summarises the outstanding share options as at 31 December 2019 granted under the 2007 Option Scheme since inception:
Date of grant
Number of share options
2013 Award
6 May 2013
2014 Award
30 May 2014
1,385,500
3,523,500
Exercise price
HK$
31.40
28.65
Exercisable period
on or prior to 26 April 2020
on or prior to 23 May 2021
247
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 42 Share-based Payments (continued)
Equity-settled Share-based Payments (continued)
Movements in the number of share options outstanding and their related weighted average exercise prices were as follows:
Outstanding as at 1 January
Exercised during the year
Forfeited during the year
Outstanding as at 31 December
Exercisable as at 31 December
2019
2018
Number of
share options
Weighted average
exercise price
HK$
Number of
share options
Weighted average
exercise price
HK$
8,170,500
(3,261,500)
–
4,909,000
4,909,000
29.441
29.465
–
29.426
29.426
13,794,000
(5,568,500)
(55,000)
8,170,500
8,170,500
29.298
29.094
28.650
29.441
29.441
The weighted average closing price in respect of the share options exercised during the year was HK$47.750 (2018: HK$41.700).
Share options outstanding at 31 December 2019 had the following exercise prices and remaining contractual lives:
Exercise price
HK$27.48
HK$31.40
HK$28.65
2019
2018
Number of
share options
Remaining
contractual life
years
Number of
share options
Remaining
contractual life
years
–
1,385,500
3,523,500
4,909,000
–
–
1
840,000
2,709,000
4,621,500
8,170,500
–
1
2
During the year ended 31 December 2019, no expense was recognised for the equity-settled share-based payments relating to the 2007 Share
Option Scheme (2018: HK$nil).
(ii)
Executive Share Incentive Scheme
On 15 August 2014, the Board of the Company approved the adoption of the Executive Share Incentive Scheme, following the expiry of the
2007 Option Scheme on 6 June 2014. The purposes of the Executive Share Incentive Scheme are to retain management and key employees, to
align participants’ interest with the long-term success of the Company and to drive the achievement of strategic objectives of the Company. The
Executive Share Incentive Scheme took effect on 1 January 2015 for a term of 10 years, under which an award holder may be granted an award of
Restricted Shares and/or Performance Shares (collectively known as “Award Shares”). Restricted Shares are awarded to selective eligible employees.
Performance Shares are awarded to eligible employees which vest subject to the performance of the Company over a pre-determined performance
period, assessed by reference to such Board-approved performance metric and in respect of such performance period and any other performance
conditions as determined by the Remuneration Committee from time to time.
Subject to the Scheme Rules, the Remuneration Committee shall determine the vesting criteria and conditions or periods for the Award Shares to
be vested, subject to review from time to time. An award of Restricted Shares will vest ratably over three years in equal tranches (unless otherwise
determined by the Remuneration Committee). An award of Performance Shares will vest upon certification by the Remuneration Committee that
the relevant performance metric and performance conditions have been achieved. The Executive Share Incentive Scheme will be administered
by the Company in accordance with the Scheme Rules and the Company has entered into a Trust Deed with the Trustee for the purpose of
implementing the Scheme. The number of Award Shares will be acquired in the market at the cost of the Company by the Trustee. Award Shares will
be held on trust by the Trustee until the end of each vesting period.
248
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation
42 Share-based Payments (continued)
Equity-settled Share-based Payments (continued)
As at 31 December 2019, the following awards of shares were offered to Members of the Executive Directorate and selected employees of the
Company under the Executive Share Incentive Scheme:
Number of
Award Shares granted
Average fair
value per share
Vesting period
Date of award
27 April 2015
Restricted
Shares
Performance
Shares
2,348,150
1,681,050
8 April 2016
2,401,150
187,200
19 August 2016
10 April 2017
16 March 2018
10 April 2018
1 April 2019
8 April 2019
71,428
–
2,245,200
112,200
80,000
–
2,208,950
1,772,900
120,000
–
1,942,150
244,650
HK$
38.60
38.65
42.50
44.45
43.70
42.80
48.90
48.40
Movement in the number of Award Shares outstanding was as follows:
Outstanding as at 1 January
Awarded during the year
Vested during the year
Forfeited during the year
Outstanding as at 31 December
From
20 April 2015
To
20 April 2018 (Restricted Shares)
20 April 2018 (Performance Shares)
1 April 2016
1 April 2019 (Restricted Shares)
20 April 2018 (Performance Shares)
15 August 2016
3 April 2017
16 March 2018
3 April 2018
1 April 2019
1 April 2019
15 August 2019
3 April 2020 (Restricted Shares)
20 April 2018 (Performance Shares)
31 March 2019
3 April 2021 (Restricted Shares)
3 April 2021 (Performance Shares)
31 March 2022
1 April 2022 (Restricted Shares)
3 April 2021 (Performance Shares)
2019
2018
Number of Award Shares
Number of Award Shares
5,758,295
2,306,800
(2,230,420)
(174,697)
5,659,978
6,142,188
4,061,850
(3,866,255)
(579,488)
5,758,295
Award Shares outstanding at 31 December 2019 had the following remaining vesting periods:
Award Shares
Restricted Shares
10 April 2017
10 April 2018
1 April 2019
8 April 2019
Performance Shares
10 April 2018
8 April 2019
Remaining vesting period
years
Number of Award Shares
0.26
1.26
2.25
2.25
1.26
1.26
595,986
1,239,092
120,000
1,884,800
1,585,950
234,150
The details of the Executive Share Incentive Scheme are also disclosed in the Remuneration Report.
During the year ended 31 December 2019, the equity-settled share-based payments relating to the Executive Share Incentive Scheme recognised as
an expense amounted to HK$122 million (2018: HK$110 million).
249
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019
43 Retirement Schemes
The Group operates a number of retirement schemes in Hong Kong, the Mainland of China, United Kingdom, Sweden and Australia. The assets of
these schemes are held under the terms of separate trust arrangements so that the assets are kept separate from those of the Group. The majority of
the Group’s employees are covered by the retirement schemes operated by the Company.
A Retirement Schemes Operated by the Company in Hong Kong
The Company operated four retirement schemes under trust in Hong Kong during the year ended 31 December 2019, including the MTR
Corporation Limited Retirement Scheme (the “MTR Retirement Scheme”), the MTR Corporation Limited Provident Fund Scheme (the “MTR Provident
Fund Scheme”) and two Mandatory Provident Fund (“MPF”) Schemes, the “MTR MPF Scheme” and the “KCRC MPF Scheme”.
Currently, new eligible employees can choose between the MTR Provident Fund Scheme and the MTR MPF Scheme while the MTR MPF Scheme
covers employees who did not opt for or who are not eligible to join the MTR Provident Fund Scheme.
(i)
MTR Retirement Scheme
The MTR Retirement Scheme is a defined benefit scheme registered under the Occupational Retirement Schemes Ordinance (Cap. 426) (the “ORSO”)
and has been granted with an MPF Exemption Certificate by the Mandatory Provident Fund Schemes Authority (the “MPFA”).
The MTR Retirement Scheme has been closed to new employees from 1 April 1999 onwards. It is administrated in accordance with the Trust Deed
and Rules by the Board of Trustees, comprising management and employee representatives, and independent non–employer trustees. It provides
benefits based on the greater of a multiple of final salary times service and a factor times the accumulated member contributions with investment
returns. Members’ contributions are based on fixed percentages of base salary. The Company’s contributions are determined by reference to an
annual actuarial valuation carried out by an independent actuarial consulting firm. As at 31 December 2019, the total number of member was
3,356 (2018: 3,600). In 2019, members contributed HK$69 million (2018: HK$72 million) and the Company contributed HK$351 million (2018:
HK$183 million) to the MTR Retirement Scheme. The net asset value of the MTR Retirement Scheme excluding the portion attributable to members’
voluntary contributions as at 31 December 2019 was HK$9,417 million (2018: HK$8,662 million).
The actuarial valuations as at 31 December 2018 and 2019 to determine the accounting obligations in accordance with HKAS 19, Employee benefits,
were carried out by an independent actuarial consulting firm, Willis Towers Watson, using the Projected Unit Credit Method. The results of the
valuation are shown in note 44.
The actuarial valuations as at 31 December 2018 and 2019 to determine the cash funding requirements were also carried out by Willis Towers
Watson using the Attained Age Method. The principal actuarial assumptions used for the valuation as at 31 December 2019 included a long–term
rate of investment return net of salary increases of –0.25% (2018: 1.17%) per annum, together with appropriate allowances for expected rates of
mortality, turnover and retirement. Willis Towers Watson confirmed that, as at the valuation date of 31 December 2019:
the MTR Retirement Scheme was solvent, covering 105.8% (2018: 98.6%) of the aggregate vested liability had all members left service with
(a)
their leaving service benefits secured, resulting in a solvency surplus of HK$529 million; and
on the assumption that the MTR Retirement Scheme would continue in force, its value of assets was more than sufficient to cover the
(b)
aggregate past service liability, with a funding level of 101.3% (2018: 98.0%), representing a past service surplus of HK$127 million.
(ii)
MTR Provident Fund Scheme
The MTR Provident Fund Scheme is a defined contribution scheme registered under the ORSO and has been granted an MPF Exemption Certificate
by the MPFA. All benefits payable under the MTR Provident Fund Scheme are calculated by reference to members’ own contributions and the
Company’s contributions, together with investment returns on these contributions. Both members’ and the Company’s contributions are based on
fixed percentages of members’ base salary.
As at 31 December 2019, the total number of employees participating in the MTR Provident Fund Scheme was 10,571 (2018: 10,177). In 2019, total
members’ contributions were HK$153 million (2018: HK$138 million) and total contributions from the Company were HK$362 million (2018: HK$335
million). The net asset value as at 31 December 2019 was HK$6,843 million (2018: HK$5,992 million).
(iii) MTR MPF Scheme
The MTR MPF Scheme is a defined contribution scheme covered under an MPF master trust registered with the MPFA. It covers those employees
who did not opt for or who are not eligible to join the MTR Retirement Scheme or the MTR Provident Fund Scheme. Both members and the
Company each contribute to the MTR MPF Scheme at the mandatory levels as required by the Mandatory Provident Fund Schemes Ordinance
(Cap. 485) (the “MPFSO”). The Company makes additional contributions above the mandatory level for eligible members who joined the MTR MPF
Scheme before 1 April 2008, subject to individual terms of employment.
As at 31 December 2019, the total number of employees participating in the MTR MPF Scheme was 5,747 (2018: 5,809). In 2019, total members’
contributions were HK$50 million (2018: HK$50 million) and total contribution from the Company were HK$56 million (2018: HK$55 million).
(iv)
KCRC MPF Scheme
The KCRC MPF Scheme is a defined contribution scheme covered under an MPF master trust registered with the MPFA. It covers those former KCRC
employees who were previously members of the KCRC MPF Scheme and are eligible to join the MTR Provident Fund Scheme but opt to re-join the
KCRC MPF Scheme. Both members and the Company each contribute to the KCRC MPF Scheme at the mandatory levels as required by the MPFSO.
As at 31 December 2019, the total number of employees participating in the KCRC MPF Scheme was 372 (2018: 429). In 2019, total members’
contributions were HK$5 million (2018: HK$5 million) and total contribution from the Company were HK$5 million (2018: HK$5 million).
250
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 43 Retirement Schemes (continued)
B Retirement Schemes for Employees of Mainland of China and Overseas Offices and Subsidiaries
Employees not eligible for joining the retirement schemes operated by the Company in Hong Kong are covered by the retirement schemes
established by their respective subsidiary companies or in accordance with respective applicable labour regulations.
Certain employees of the Group’s Australian subsidiary are entitled to receive retirement benefits from the Emergency Services Superannuation
Scheme operated in Australia. The benefit amounts are calculated based on the member’s years of service and final average salary. The Group
does not recognise any defined benefit liability in respect of this scheme because the Group has no legal or constructive obligation to pay future
benefits relating to its employees; its only obligation is to pay contributions as they fall due. As at 31 December 2019, total number of the Group’s
employees participating in this scheme was 546 (2018: 575). In 2019, total members’ contributions were HK$23 million (2018: HK$26 million) and
total contribution from the Group was HK$59 million (2018: HK$54 million).
Certain employees of the Group’s Swedish subsidiaries are entitled to receive retirement benefits from the ITP 2 Retirement Scheme operated in
Sweden. The benefit amounts are calculated based on the member’s years of service and annual salary. The Group does not recognise any defined
benefit liability in respect of this scheme because the Group has no legal or constructive obligation to pay future benefits relating to its employees;
its only obligation is to pay contributions as they fall due. As at 31 December 2019, total number of the Group’s employees participating in this
scheme was 741 (2018: 607). In 2019, total contribution from the Group was HK$23 million (2018: HK$23 million).
Certain employees of the Group’s MTR Crossrail subsidiary are entitled to join the MTR Corporation (Crossrail) section of the Railway Pension Scheme
in the United Kingdom. The scheme is a shared cost arrangement whereby the Group is only responsible for a share of the cost. The benefit amounts
are calculated based on the member’s years of service and final average salary. The Group does not recognise any net defined benefit liability in
respect of this scheme because the Group has no legal or constructive obligation for any deficit in the value of the scheme. Its only obligation is to
pay contributions as they fall due. As at 31 December 2019, total number of the Group’s employees participating in this scheme was 621 (2018: 535).
In 2019, total members’ contributions were HK$22 million (2018: HK$17 million) and total contribution from the Group was HK$32 million (2018:
HK$26 million). Pension expense of HK$67 million (2018: HK$53 million) was recognised in profit and loss and actuarial gain of HK$28 million (2018:
HK$28 million) was recognised in the statement of other comprehensive income.
Except for the retirement schemes described above, all other retirement schemes to cover employees in overseas offices or in subsidiaries in Hong
Kong, the Mainland of China, Macao or overseas are defined contribution schemes. For Hong Kong employees, these schemes are registered under
the MPFSO in Hong Kong. For the Mainland of China, Macao or overseas employees, these schemes are operated in accordance with the respective
local laws and regulations. As at 31 December 2019, the total number of employees of the Group participating in these schemes was 14,015 (2018:
12,875). In 2019, total members’ contributions were HK$95 million (2018: HK$95 million) and total contribution from the Group was HK$484 million
(2018: HK$454 million).
44 Defined Benefit Retirement Scheme
During the year ended 31 December 2019, the Company makes contributions to and recognises defined benefit liabilities in respect of MTR
Retirement Scheme which provides employees with benefits upon retirement or termination of services for other reasons (note 43). This defined
benefit scheme exposes the Group to actuarial risks, such as interest rate, salary increase and investment risks. The information about the MTR
Retirement Scheme is summarised as below:
A Amounts Recognised in the Consolidated Statement of Financial Position
The Group
in HK$ million
Present value of defined benefit obligations
Fair value of scheme assets
Net liabilities
2019
(9,905)
9,417
(488)
2018
(10,022)
8,662
(1,360)
The net liabilities are recognised under “Creditors, other payables and provisions” in the consolidated statement of financial position. A portion of
the above liabilities is expected to be paid after more than one year. However, it is not practicable to segregate this amount from the amounts to be
paid in the next twelve months, as future contributions will also relate to future services rendered and future changes in actuarial assumptions and
market conditions. The Company expects to pay HK$263 million in contribution to the MTR Retirement Scheme in 2020.
251
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 44 Defined Benefit Retirement Scheme (continued)
B
The Group
Scheme Assets
in HK$ million
Equity securities
– Financial institutions
– Non-financial institutions
Bonds
– Government
– Non-government
Cash
Voluntary units
2019
2018
482
4,046
4,528
2,173
2,614
4,787
297
9,612
(195)
9,417
638
3,697
4,335
2,229
1,851
4,080
415
8,830
(168)
8,662
The scheme assets include no amount invested in the ordinary shares of the Company as at 31 December 2019 (2018: HK$nil). Also, there were no
investment in other shares and debt securities of the Company as at 31 December 2019 and 2018. All of the equity securities and bonds have quoted
prices in active markets.
An asset–liability modelling review is performed periodically to analyse the strategic investment policies of the MTR Retirement Scheme. Based on
the latest study, the long–term strategic asset allocation of the MTR Retirement Scheme is set at 42.5% in equities and 57.5% in bonds and cash as at
31 December 2019 (2018: 52.5% in equities and 47.5% in bonds and cash).
C Movements in the Present Value of the Defined Benefit Obligations
The Group
in HK$ million
At 1 January
Remeasurements:
– Actuarial losses/(gains) arising from changes in liability experience
– Actuarial losses arising from changes in demographic assumptions
– Actuarial gains arising from changes in financial assumptions
Members’ contributions paid to the scheme
Benefits paid by the scheme
Current service cost
Interest cost
At 31 December
2019
10,022
252
–
(96)
156
69
(876)
285
249
9,905
2018
10,672
(97)
13
(172)
(256)
72
(1,002)
303
233
10,022
The weighted average duration of the present value of the defined benefit obligations was 6.0 years as at 31 December 2019 (2018: 6.3 years).
252
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 44 Defined Benefit Retirement Scheme (continued)
D Movements in Scheme Assets
The Group
in HK$ million
At 1 January
Company’s contributions paid to the scheme
Members’ contributions paid to the scheme
Benefits paid by the scheme
Administrative expenses paid from scheme assets
Interest income
Return on scheme assets, excluding interest income
At 31 December
2019
8,662
351
69
(876)
(5)
219
997
9,417
E
Expenses Recognised in the Profit and Loss and Other Comprehensive Income
in HK$ million
Current service cost
Net interest on net defined benefit liability
Administrative expenses paid from scheme assets
Less: Amount capitalised
Net amount recognised in profit or loss
Actuarial losses/(gains)
Return on scheme assets, excluding interest income
Amount recognised in other comprehensive income
2019
285
30
5
320
(41)
279
156
(997)
(841)
2018
9,903
183
72
(1,002)
(6)
218
(706)
8,662
2018
303
15
6
324
(40)
284
(256)
706
450
The retirement scheme expense is recognised under staff costs and related expenses in the consolidated profit and loss account.
F
Significant Actuarial Assumptions (Expressed as Weighted Average) and Sensitivity Analysis
Discount rate
Future salary increase
Unit value increase
2019
2.61%
4.00%
3.75%
2018
2.65%
4.08%
5.25%
The below analysis shows how the present value of the defined benefit obligations as at 31 December 2019 would have increased/(decreased) as a
result of 0.25% change in the significant actuarial assumptions:
Discount rate
Future salary increases
Unit value increase
2019
2018
Increase in 0.25%
HK$ million
Decrease in 0.25%
HK$ million
Increase in 0.25%
HK$ million
Decrease in 0.25%
HK$ million
(142)
127
13
146
(122)
(11)
(153)
131
22
157
(124)
(18)
The above sensitivity analysis is based on the assumption that changes in actuarial assumptions are not correlated and therefore it does not take
into account the correlations between the actuarial assumptions.
253
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 45 Material Related Party Transactions
The Financial Secretary Incorporated, which holds approximately 75.26% of the Company’s issued share capital on trust for the HKSAR Government,
is the majority shareholder of the Company. Transactions between the Group and the HKSAR Government departments or agencies, or entities
controlled by the HKSAR Government, other than those transactions such as the payment of fees, taxes, leases and rates, etc. that arise in the normal
dealings between the HKSAR Government and the Group, are considered to be related party transactions pursuant to HKAS 24 (revised), Related
party disclosures, and are identified separately in these accounts.
Major related party transactions entered into by the Group which are relevant for the current year include:
A
On 30 June 2000, the Company was granted by the HKSAR Government a franchise, for an initial period of 50 years, to operate the then
existing mass transit railway, and to operate and construct any extension to the railway. On the same day, the Company and the HKSAR Government
entered into an operating agreement which laid down the detailed provisions for the design, construction, maintenance and operation of the
railway under the franchise. With the Rail Merger, the operating agreement was replaced with effect from 2 December 2007 by a new operating
agreement, details of which are set out in note 45C below.
B
On 14 July 2000, the Company received a comfort letter from the HKSAR Government pursuant to which the HKSAR Government agreed
to extend the period of certain of the Company’s land interests so that they are coterminous with the Company’s franchise period. To prepare for
the Rail Merger, on 3 August 2007, the HKSAR Government wrote to KCRC confirming that, subject to all necessary approvals being obtained, the
period of certain of KCRC’s land interests (which are the subject of the service concession under the Rail Merger) will be extended so that they are
coterminous with the concession period of the Rail Merger.
In connection with the Rail Merger (note 3), on 9 August 2007, the Company and the HKSAR Government entered into a new operating
C
agreement (“OA”), which is based on the then existing operating agreement referred to in note 45A above. On the Appointed Day, the Company’s
then existing franchise under the Mass Transit Railway Ordinance was expanded to cover railways other than the then existing MTR railway for an
initial period of 50 years from the Appointed Day (“expanded franchise”). A detailed description of the OA is contained in the circular to shareholders
in respect of the Extraordinary General Meeting convened to approve the Rail Merger. Such transaction is considered to be a related party
transaction and also constitute continuing connected transaction as defined under the Listing Rules.
Other than the OA described in note 45C above, the Company also entered into principal agreements with KCRC and the HKSAR Government
D
in connection with the Rail Merger. These principal agreements are: (i) Merger Framework Agreement, (ii) Service Concession Agreement,
(iii) Sale and Purchase Agreement, (iv) West Rail Agency Agreement, and (v) Property Package Agreements. For the year ended 31 December
2019, amounts recoverable or invoiced by the Company under West Rail Agency Agreement and Property Package Agreement are HK$84 million
(2018: HK$105 million) and HK$3 million (2018: HK$5 million) respectively and amount payable or paid by the Company under Service Concession
Agreement is HK$3,333 million (2018: HK$3,055 million).
The above transactions under the West Rail Agency Agreement and Property Package Agreement are considered to be related party transactions
and also constitute continuing connected transactions as defined under the Listing Rules. A detailed description of each of the agreements is
contained under the paragraph “Continuing Connected Transactions” in the Report of the Members of the Board.
E
the High Speed Rail:
The Company entered into the following principal agreements with KCRC and the HKSAR Government in connection with the operation of
An amendment operating agreement, which was entered into with the HKSAR Government on 23 August 2018, to amend and supplement
(i)
the OA, in order to prescribe the operational requirements that will apply to the High Speed Rail.
(ii)
A supplemental service concession agreement, which was entered into with KCRC on 23 August 2018, to supplement the SCA, in order for
KCRC to grant a concession to the Company in respect of the High Speed Rail and to prescribe the operational and financial requirements that will
apply to the High Speed Rail. During the year ended 31 December 2019, net revenue received or receivable from KCRC in respect of High Speed Rail
amounted to HK$717 million (2018: HK$104 million).
The above transactions are considered to be related party transactions and also constitute continuing connected transactions as defined under the
Listing Rules. A detailed description of each of the above agreements is contained under the paragraph “Continuing Connected Transactions” in the
Report of the Members of the Board.
254
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 45 Material Related Party Transactions (continued)
F
the Tuen Ma Line Phase 1:
The Company entered into the following principal agreements with KCRC and the HKSAR Government in connection with the operation of
An amendment operating agreement and a supplemental operating agreement, which were entered into with the HKSAR Government on
(i)
11 February 2020, to amend and supplement, respectively, the OA, in order to prescribe the operational requirements that will apply to the Tuen Ma
Line Phase 1.
A supplemental service concession agreement, which was entered into with KCRC on 11 February 2020, to supplement the SCA, in order for
(ii)
KCRC to grant a concession to the Company in respect of the Tuen Ma Line Phase 1 and to prescribe the operational and financial requirements that
will apply to the Tuen Ma Line Phase 1.
The above transactions are considered to be related party transactions and also constitute continuing connected transactions as defined under the
Listing Rules. A detailed description of each of the above agreements is contained under the paragraph “Continuing Connected Transactions” in the
Report of the Members of the Board.
The Company and the HKSAR Government entered into Preliminary Project Agreement, which was signed on 6 February 2008, and Project
G
Agreement, which was signed on 13 July 2009 in respect of the Island Line Extension to the Western District. Pursuant to the agreements, the
Company has received from the HKSAR Government a total of HK$12,652 million of government grant as funding support subject to a repayment
mechanism. The timeframe for the repayment mechanism was extended for a period ended on or before 30 June 2019 pursuant to various
supplementary agreements between the Company and the HKSAR Government. During the year ended 31 December 2019, the Company has made
a final repayment to the HKSAR Government with a principal of HK$114 million and interest of HK$59 million under the repayment mechanism
(2018: HK$nil). Such transactions are considered to be related party transactions and also constitute continuing connected transactions as defined
under the Listing Rules. A detailed description of the Project Agreement is contained under the paragraph “Continuing Connected Transactions” in
the Report of the Members of the Board.
The Company entered into entrustment agreements with the HKSAR Government for the design, site investigation, procurement activities,
H
construction, testing and commissioning of HSR and SCL. Detailed description of the agreements and the amount of project management fees
recognised for the year ended 31 December 2019 are provided in notes 21A and 21B. In addition, an amount of HK$891 million was paid/payable
to the HKSAR Government in 2019 (2018: HK$1,221 million) under SCL EA3’s payment arrangement with the HKSAR Government and relevant
contractors.
The above transactions are considered to be related party transactions and also constitute continuing connected transactions as defined under the
Listing Rules. A detailed description of each of the above agreements is contained under the paragraph “Continuing Connected Transactions” in the
Report of the Members of the Board.
I
Government or allowed to proceed with the development at the following sites during the year:
In connection with certain property developments along the railway system, the Company has been granted land lots by the HKSAR
Property development site
Site C2 of the Remaining Portion of
Tseung Kwan O Town Lot No. 70
Site D of Aberdeen Inland Lot No. 467
Land grant/land premium
offer acceptance date
Total
land premium
in HK$ million
Land premium
settlement date
7 May 2019
5 November 2019
3,055
6,758
21 June 2019
11 December 2019
On 14 February 2020, the Company accepted an offer from the HKSAR Government to proceed with the proposed LOHAS Park Package
J
Twelve Property Development at Site D of the Remaining Portion of Tseung Kwan O Town Lot No.70 at a land premium of HK$2,725 million and on
the terms and conditions of the relevant New Grant No.9689. The land premium and the modification are expected to be paid and executed on or
before 31 March 2020.
255
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 On 5 July 2013, the Company renewed the maintenance contract with the Hong Kong Airport Authority (“HKAA”) in respect of the automated
45 Material Related Party Transactions (continued)
K
people mover system (“System”) serving the Hong Kong International Airport upon the expiry of the previous five–year contract. The renewed
contract covers a period of seven years effective from 6 July 2013. In respect of the services provided, HK$82 million was recognised as consultancy
income during the year ended 31 December 2019 (2018: HK$97 million).
On 18 May 2018, the Company provided a sub-contractor warranty to the HKAA as a result of obtaining a subcontract from a third party for the
modification works of the existing System for a seven year period, effective from 25 September 2017 (the “Subcontract”). The Subcontract contains
provisions covering the provision and modification of the power distribution, communication and control subsystems in respect of the System.
The above transactions are considered to be related party transactions and also constitute continuing connected transactions as defined under the
Listing Rules. A detailed description of each of the above agreements is contained under the paragraph “Continuing Connected Transactions” in the
Report of the Members of the Board.
During the year ended 31 December 2019, the Group incurred HK$148 million (2018: HK$156 million) of expenses for the central clearing services
L
provided by Octopus Cards Limited (“OCL”), a wholly owned subsidiary of Octopus Holdings Limited (“OHL”). OCL incurred HK$42 million (2018:
HK$56 million) of expenses for the load agent and Octopus card issuance and refund services, computer equipment and relating services as well as
warehouse storage space provided by the Group. During the year, OHL distributed HK$187 million (2018: HK$155 million) of dividends to the Group.
During the year ended 31 December 2019, MTR Corporation (Sydney) NRT Pty. Limited, through its joint operation, provided services in respect of
the design and delivery of electrical and mechanical systems and rolling stock to NRT Pty. Limited at a total amount of AUD106 million
(HK$587 million) (2018: AUD275 million or HK$1,608 million). Metro Trains Sydney Pty. Limited also provided mobilisation and operations and
maintenance services in respect of Sydney Metro Northwest to NRT Pty. Limited at a total amount of AUD96 million (HK$523 million) (2018: AUD25
million or HK$144 million).
Other than those stated in notes 45A to 45L, the Company has business transactions with the HKSAR Government, entities related to the
M
HKSAR Government and the Company’s associates in the normal course of business operations. Details of the transactions and the amounts
involved for the reporting period are disclosed in notes 31 and 35.
The Group has paid remuneration to Members of the Board and the Executive Directorate. Details of these transactions are described in note
N
11A. In addition, Members of the Executive Directorate were granted share options under the Company’s 2007 Share Option Scheme and award
shares under the Executive Share Incentive Scheme. Details of the terms of these options and award shares are disclosed in note 11B, note 11C and
the Report of the Members of the Board. Their gross remuneration charged to the profit and loss account is summarised as follows:
in HK$ million
Short-term employee benefits
Post-employment benefits
Equity compensation benefits
2019
73.2
6.2
24.1
103.5
2018
94.5
7.7
22.0
124.2
The above remuneration is included in staff costs and related expenses disclosed in note 10A.
O
During the year, the following dividends were paid to the Financial Secretary Incorporated of the HKSAR Government:
in HK$ million
Ordinary dividends
– Cash dividends paid
– Shares allotted in respect of scrip dividends
2019
2018
5,561
–
5,561
–
5,081
5,081
256
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 46 Commitments
A Capital Commitments
(i)
Outstanding capital commitments as at 31 December 2019 not provided for in the accounts were as follows:
The Group
in HK$ million
At 31 December 2019
Authorised but not yet contracted for
Authorised and contracted for
At 31 December 2018
Authorised but not yet contracted for
Authorised and contracted for
Hong Kong
transport
operations,
station
commercial
and other
businesses
8,476
13,558
22,034
8,444
14,109
22,553
Hong Kong
railway
extension
projects
Hong Kong
property
rental and
development
Mainland of
China and
overseas
operations
–
170
170
–
194
194
2,442
1,183
3,625
2,560
4,756
7,316
9
20
29
19
16
35
Total
10,927
14,931
25,858
11,023
19,075
30,098
In addition to the above, the Group has the following capital commitments in respect of its investments in associates and joint venture:
In respect of Beijing Metro Line 14, the Group’s equity contribution is RMB2.45 billion. Up to the end of December 2019, the Group has contributed
equity of RMB2,332 million to Beijing MTR in respect of Beijing Metro Line 14.
In respect of Sydney Metro City & Southwest, the Group’s share of investment is expected to represent equity contribution of approximately
AUD12.7 million and loans of approximately AUD47.5 million. Up to 31 December 2019, the Group has not contributed equity or loan to the project.
(ii)
The commitments under Hong Kong transport operations, station commercial and other businesses comprise the following:
The Group
in HK$ million
At 31 December 2019
Authorised but not yet contracted for
Authorised and contracted for
At 31 December 2018
Authorised but not yet contracted for
Authorised and contracted for
Improvement,
enhancement and
replacement works
Acquisition of
property, plant
and equipment
Additional
concession
property
4,090
10,267
14,357
4,577
10,113
14,690
746
246
992
573
250
823
3,640
3,045
6,685
3,294
3,746
7,040
Total
8,476
13,558
22,034
8,444
14,109
22,553
B Operating Lease Commitments
The Group had operating leases on office buildings, staff quarters, bus depot as well as a shopping centre in Beijing as at 31 December 2018. The
Group’s total future minimum lease payments under non-cancellable operating leases amounted to HK$137 million, of which HK$132 million was
payable within one year and HK$5 million was payable after one but within five years.
As at 31 December 2018, the Group also had future operating lease commitments of HK$8,698 million in respect of railway-related subsidiaries
outside of Hong Kong over the respective franchise periods, of which HK$1,534 million is payable within one year, HK$5,518 million is payable after
one but within five years and HK$1,646 million is payable over five years. These railway-related subsidiaries generate franchise revenue to the Group.
257
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 Liabilities and Commitments in respect of Property Management Contracts
46 Commitments (continued)
C
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 service 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 2019, the Group had total outstanding liabilities and contractual commitments of HK$3,101 million (2018: HK$2,767 million)
in respect of these works and services. Cash funds totalling HK$2,820 million (2018: HK$2,496 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 and Performance Guarantees
In respect of the debt securities issued by MTR Corporation (C.I.) Limited (note 33C), the Company has provided guarantees to the investors of
approximately HK$19,763 million (in notional amount) as at 31 December 2019. The proceeds from the debts issued are on lent to the Company.
As such, the primary liabilities have been recorded in the Company’s statement of financial position.
In respect of the lease out/lease back transaction (“Lease Transaction”) (note 19E), the Group has provided standby letters of credit (“standby LC’s”)
to the Investors to cover additional amounts payable by the Group in the event the transactions are terminated prior to the expiry of the lease terms,
and such standby LC’s amounted to US$89.2 million (HK$694 million) as at 31 December 2019. The Group has also provided standby LC’s to certain
of the Investors under the Lease Transaction to replace some of the Defeasance Securities previously used to support the corresponding long-term
lease payments as a result of credit rating downgrades of these securities, and such standby LC’s amounted to US$59.2 million (HK$461 million) as at
31 December 2019.
In respect of the lease on the shopping centre in Beijing, the Group provided a bank guarantee of RMB12.5 million (HK$14 million) and a parent
company guarantee of RMB52.5 million (HK$59 million) in respect of the quarterly rental payments to the landlord.
In respect of the Shenzhen Metro Longhua Line concession, the Group has provided to the Shenzhen Municipal Government a parent company
guarantee in respect of MTR Corporation (Shenzhen) Limited’s performance and other obligations under the concession agreement, which can be
called if the performance and other obligations are not met. The Group also issued a performance guarantee of RMB15.3 million (HK$17 million) to
the Shenzhen Municipal Government in respect of a consultancy agreement.
In respect of the lease for premises in Sydney, the Group provided a rental guarantee of AUD0.1 million (HK$0.5 million) to the landlord.
In respect of the Melbourne train system franchise, the Group and the other shareholders of the Group’s 60% owned subsidiary, Metro Trains
Melbourne Pty. Ltd. (“MTM”), have provided to the Public Transport Victoria a joint and several parent company guarantee of AUD147.3 million
(HK$804 million) and a performance bond of AUD57.0 million (HK$311 million) for MTM’s performance and other obligations under the franchise
agreement, with each shareholder bearing its share of liability based on its shareholdings in MTM. In respect of the lease of the office premises, MTM
has provided bank guarantees of AUD2.4 million (HK$13 million) for the monthly rental payments to the landlords.
In respect of the Stockholm metro franchise, the Group has provided to the Stockholm transport authority a guarantee of SEK1,000 million
(HK$833 million), which can be called if the franchise is terminated early as a result of default by MTR Tunnelbanan AB, the wholly owned subsidiary
of the Group to undertake the franchise.
In respect of the Stockholms pendeltåg franchise, the Group has provided to the Stockholm transport authorities a guarantee of SEK1,000 million
(HK$833 million), which can be called if the franchise is terminated early as a result of default by MTR Pendeltågen AB, the wholly owned subsidiary
of the Group to undertake the franchise.
In respect of the London Crossrail Franchise, the Group has provided to the Rail for London Limited a parent company guarantee of GBP80 million
(HK$819 million) and a performance bond of GBP25 million (HK$256 million) for MTR Corporation (Crossrail) Limited’s performance and other
obligations under the franchise agreement.
In respect of the Sydney Metro Northwest Franchise, the Group has provided to NRT Pty. Limited, an associate of the Group, a parent company
guarantee with a liability cap of AUD1,526 million (HK$8,330 million) for the design and construction contract as well as the mobilisation phase of the
operations and maintenance contract (the cap being subject to the usual exclusions of losses arising from wilful misconduct, fraudulent and criminal
actions and, in addition, losses arising from abandonment of the contracts). The Group has also provided a performance bond of AUD17.8 million
(HK$97 million) for the performance and other obligations under the design and construction sub–contract. The Group has also provided a parent
company guarantee with a liability cap of AUD147.6 million (HK$806 million) for the operation and maintenance of Sydney Metro North West, which
can be called if the franchise is terminated early as a result of default by Metro Trains Sydney Pty Limited. The Group has also provided bank guarantee
amounting to AUD25.3 million (HK$138 million) as at 31 December 2019 for the operation and maintenance of Sydney Metro North West.
258
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 46 Commitments (continued)
D Material Financial and Performance Guarantees (continued)
In respect of the Sydney Metro City & Southwest Franchise, the Group has provided to NRT CSW Pty. Limited, an associate of the Group, a parent
company guarantee with a liability cap of approximately AUD602 million (HK$3,286 million) for the integrator works under the integrator contract
(the cap being subject to the usual exclusions of losses arising from wilful misconduct, fraudulent and criminal actions and, in addition, losses arising
from abandonment of the contracts). The Group has also provided a parent company guarantee with a liability cap of approximately AUD27.5 million
(HK$150 million) for the mobilisation phase of the operation and maintenance of Sydney Metro City & Southwest. The Group has also provided a
parent company guarantee to Metro Trains Sydney Pty Ltd with a liability cap of approximately AUD221 million (HK$1,206 million) and a parent
company guarantee to MTR Corporation (Sydney) SMCSW Pty Limited with a liability cap of approximately AUD221 million (HK$1,206 million) for the
interface works under Sydney Metro Northwest and Sydney Metro City & Southwest.
In respect of the South Western Trains Franchise, the Group has provided to the Secretary of State for Transport a parent company guarantee of
GBP13.1 million (HK$134 million), a parent company support facility of GBP1.1 million (HK$11 million), a performance bond of GBP4.8 million
(HK$49 million) and a season ticket bond amounting to GBP22.5 million (HK$230 million) as at 31 December 2019 for the performance and other
obligations under the franchise agreement.
In respect of the Macao Light Rapid Transit Taipa Line, the Group has provided to Macao Light Rapid Transit Corporation, Limited a number of bank
guarantees amounting to MOP247.4 million (HK$241 million) as at 31 December 2019 for the performance and other obligations under the project.
In respect of the Hangzhou Metro Line 1 and Line 5 concessions, the Group is required to provide handover bank bonds to the Hangzhou Municipal
Government before the end of the concessions for a period of three years to cover any non–compliance of handover requirements under the
concession agreements.
Except for the provision of SWR as discussed in note 25, no other provision was recognised in respect of the above financial and performance
guarantees as at 31 December 2019.
Service Concession in respect of the Rail Merger
E
Pursuant to the Rail Merger, the Company is obliged under the SCA to pay an annual fixed payment of HK$750 million to KCRC over the period of the
service concession. Additionally, commencing after three years from the Appointed Day, the Company is obliged to pay a variable annual payment
to KCRC based on the revenue generated from the KCRC system above certain thresholds. Furthermore, under the SCA, the Company is obliged
to maintain, repair, replace and/or upgrade the KCRC system over the period of the service concession which is to be returned at the expiry of the
service concession.
47 Non-adjusting Events after the Reporting Period
A
With the outbreak of the COVID-19 in 2020, the Group’s Hong Kong transport operations, Hong Kong station commercial and property rental
businesses, and its Mainland China businesses, are being significantly affected as a result of the COVID-19.
Effect on the Group of Novel Coronavirus (“COVID-19”)
(i)
Cross Boundary Services and Related Business
As a result of the HKSAR Government’s announcement of the closure of the boundary between Hong Kong and Mainland China in phases, the
Company has had to close: (a) Lo Wu and Lok Ma Chau stations of the East Rail Line; (b) the High Speed Rail service; (c) the intercity rail service from
Hong Kong to Guangdong, Shanghai and Beijing; and (d) station shops at Lo Wu, Lok Ma Chau and West Kowloon stations. These closures have, in
turn, resulted in there being no cross boundary patronage and loss of rental income from shops in these stations during the period of such closures.
(ii)
Domestic Services
As a result of: (a) the implementation by the HKSAR Government and certain commercial organisations of measures to permit their employees to
work from home; (b) the delayed resumption of school classes, following the Chinese New Year holiday, until 20 April 2020 the earliest (pending
further assessment); and (c) a significant reduction in tourism to Hong Kong and local leisure travel within Hong Kong, there has been a significant
negative impact on the patronage of the Group’s domestic services.
When taking into account the rail and property businesses as a whole, the directors of the Company is of the view that the overall financial position
of the Group remains sound. The Company will continue to monitor the effect of COVID-19 on the financial position and business prospects of
the Group.
B
The Company’s Purchase of the Remaining Economic Interests in Two Commercial
Accommodations (Now Known as “Telford Plaza II” and “PopCorn 2”) in Hong Kong
On 26 February 2020, the Company entered into a supplemental deed with Joint Profit Limited and New World Development Company Limited
(“NWDCL”) and purchased their economic interests in the commercial accommodation (now known as Telford Plaza II) in New Kowloon Inland Lot
No.6201 and a further supplemental deed with Jade Gain Enterprises Limited, Chow Tai Fook Enterprises Limited and NWDCL and purchased their
economic interests in the commercial accommodation (now known as PopCorn 2) in Tseung Kwan O Town Lot No.75 for a total consideration of
HK$3 billion. After completion of the said purchases which is to take place on or before 31 March 2020, 100% of the economic interests of the said
Telford Plaza II and PopCorn 2 shall belong to the Company absolutely.
259
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 48 Company-level Statement of Financial Position
in HK$ million
Assets
Fixed assets
– Investment properties
– Other property, plant and equipment
– Service concession assets
Property management rights
Property development in progress
Deferred expenditure
Investments in subsidiaries
Interests in associates
Properties held for sale
Derivative financial assets
Stores and spares
Debtors and other receivables
Amounts due from related parties
Cash, bank balances and deposits
Liabilities
Short-term loans
Creditors, other payables and provisions
Current taxation
Amounts due to related parties
Loans and other obligations
Obligations under service concession
Derivative financial liabilities
Deferred tax liabilities
Net assets
Capital and reserves
Share capital
Shares held for Executive Share Incentive Scheme
Other reserves
Total equity
At 31 December
2019
At 31 December
2018
89,105
100,681
25,638
215,424
21
12,022
1,948
1,955
24
1,034
198
1,200
6,727
18,413
12,934
271,900
3,342
25,829
1,842
23,322
13,117
10,177
408
13,541
91,578
80,396
101,319
24,392
206,107
26
14,840
1,878
1,784
24
1,156
61
1,166
5,743
16,236
10,757
259,778
4,395
19,776
1,006
23,268
12,810
10,236
545
12,803
84,839
180,322
174,939
58,804
(263)
121,781
180,322
57,970
(265)
117,234
174,939
Approved and authorised for issue by the Members of the Board on 5 March 2020
Rex P K Auyeung
Chairman
Jacob C P Kam
Chief Executive Officer
Herbert L W Hui
Finance Director
260
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation 49 Accounting Estimates and Judgements
A
Key sources of accounting estimates and estimation uncertainty include the following:
(i)
Estimated Useful Life and Depreciation and Amortisation of Property, Plant and Equipment and Service Concession Assets
The Group estimates the useful lives of the various categories of property, plant and equipment and service concession assets 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 2J).
(ii)
Impairment of Long-lived Assets
The Group reviews its long-lived assets for indications of impairment at the end of each reporting period according to accounting policies set out
in note 2I(ii). Long-lived assets are reviewed for impairment at each reporting date or whenever events or changes in circumstances indicate that
the carrying amount of the assets exceeds its recoverable amount. The recoverable amount of an asset is the greater of the fair value less costs of
disposal and value in use. In estimating the value in use, 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 MTR Retirement Scheme.
The determination of the Group’s obligation and expense for the defined benefit element of the scheme is dependent on certain assumptions and
factors provided by the Company, which are disclosed in notes 43A(i) and 44E.
(iv)
Profit Recognition on Hong Kong Property Development
Recognition of Hong Kong property development profits requires management’s estimation of the final project costs upon completion, assessment
of outstanding transactions and market values of unsold units and, in the case of sharing-in-kind properties, the properties’ fair value upon
recognition. The Group takes into account independent qualified surveyors’ reports, past experience on sales and marketing costs when estimating
final project costs on completion and makes reference to professionally qualified valuers’ reports in determining the estimated fair value of sharing-
in-kind properties.
(v)
Properties Held for Sale
The Group values unsold properties at the lower of their costs and net realisable values (note 27) at the end of each reporting period. 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)
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 semi-annual revaluation of its investment properties by independent professionally qualified valuers based on these assumptions agreed
with the valuers prior to adoption.
(vii)
Franchise in Hong Kong
The current franchise under which the Group is operating in Hong Kong allows the Group to run the mass transit railway system in Hong Kong
until 1 December 2057. Pursuant to the terms of the OA and the MTR Ordinance, the Company may apply for extensions of the franchise and the
Secretary for Transport and Housing shall, subject to certain provisions, recommend to the Chief Executive in Council that the franchise should
be extended for a further period of 50 years (from a date relating to certain capital expenditure requirements) if the Company has satisfied such
capital expenditure requirements, at no additional payment for any such extension. If the franchise is not extended, it will expire on 1 December
2057. Following such expiry, the HKSAR Government has the right to take possession of railway property (and, where the HKSAR Government has
taken possession of any such property which is not concession property, the Company may require the HKSAR Government to take possession of
any other property which the HKSAR Government was entitled to take possession of, but did not take possession of), but must compensate the
Company: (i) in the case of such property which is not concession property, at the higher of fair value and depreciated book value, and (ii) in the case
of such property which is concession property and to the extent that the capital expenditure exceeds an agreed threshold (“Capex Threshold”), in an
amount equal to any above-threshold expenditure at the end of the Concession Period with such reimbursement to be on the basis of depreciated
book value. The Group’s depreciation policies (note 2J) for such property which is not concession property with assets’ lives which extend beyond
2057 reflect the above.
(viii)
Income Tax
Certain treatments adopted by the Group in its Hong Kong Profits Tax returns in the past years are yet to be finalised with the Hong Kong Inland
Revenue Department. In assessing the Group’s income tax and deferred taxation in the 2019 accounts, the Company has predominantly followed
the tax treatments it has adopted in these tax returns, which may be different from the final outcome in due course.
As detailed in note 30, there are tax queries from the IRD with the Company on tax deductibility of certain expenses and payments for which the
ultimate tax determination is uncertain up to the date of this annual report. The Group recognises tax provision for these tax matters based on
estimates of whether additional taxes will eventually be due. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such difference will impact the income tax expenses in the period when such determination is made.
261
Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other InformationAnnual Report 2019 49 Accounting Estimates and Judgements (continued)
A
Key sources of accounting estimates and estimation uncertainty include the following: (continued)
Project Provisions
(ix)
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.
Deferred Expenditure
(x)
As disclosed in note 2K(i), the Group capitalises proposed railway and property development project costs in deferred expenditure when the
projects are at a detailed study stage and having been agreed based on a feasible financial plan. Such decision involves the Board’s judgement on
the outcome of the proposed project.
Fair Value of Derivatives and Other Financial Instruments
(xi)
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 the end of each reporting period. For financial instruments that are not traded in active markets, the
fair values were derived using 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.
(xii) Obligations under Service Concession
In determining the present value of the obligations under service concession, the discount rate adopted was the relevant Group company’s
estimated long-term incremental cost of borrowing at inception after due consideration of the relevant Group company’s existing fixed rate
borrowing cost, future interest rate and inflation trends.
(xiii) Determining the Lease Term
In determining the lease term at the commencement date for leases that include renewal or termination options exercisable by the Group, the
Group evaluates the likelihood of exercising the renewal or termination options taking into account all relevant facts and circumstances that create
an economic incentive for the Group to exercise the option, including favourable terms, leasehold improvements undertaken and the importance of
that underlying asset to the Group’s operation. The lease term is reassessed when there is a significant event or significant change in circumstance
that is within the Group’s control. Any increase or decrease in the lease term would affect the amount of lease liabilities and right-of-use assets
recognised in future years.
B
Critical accounting judgements in applying the Group’s accounting policies include the following:
Provisions and Contingent Liabilities
The Group recognises provisions for liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result
of a past event (including in relation to those under entrustment arrangements), and it is probable that an outflow of economic benefits will be
required to settle the obligation and a reliable estimate can be made. 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 contingent liability. Other than set out in note 21, as at 31 December 2019,
the Group considered that it had no disclosable contingent liabilities as there were neither pending litigations nor events with potential obligation
which were probable to result in material outflow of economic benefits from the Group.
50 Possible Impact of Amendments, New Standards and Interpretations
Issued but Not Yet Effective for the Annual Accounting Year Ended
31 December 2019
Up to the date of issue of these accounts, the HKICPA has issued a number of amendments and a new standard, HKFRS 17, Insurance contracts, which
are not yet effective for the year ended 31 December 2019 and which have not been adopted in these accounts. These developments include the
following which may be relevant to the Group:
HKFRS 17, Insurance contracts
Amendments to HKFRS 3, Definition of a business
Amendments to HKAS 1 and HKAS 8, Definition of material
Effective for accounting periods
beginning on or after
1 January 2020
1 January 2020
1 January 2020
The Group is in the process of making an assessment of what the impact of these new issues or amendments is expected to be in the period of initial
application. So far, the Group considers that the adoption of them is unlikely to have a significant impact on the Group’s accounts.
51 Approval of the Consolidated Accounts
The consolidated accounts were approved by the Board on 5 March 2020.
262
NOTES TO THE CONSOLIDATED ACCOUNTSMTR Corporation GLOSSARY
Airport Express
Train service provided between AsiaWorld-Expo Station and Hong Kong Station
Appointed Day or Merger Date
2 December 2007 when the Rail Merger was completed
Articles of Association
The articles of association of the Company
Board
The board of directors of the Company
Bus
Feeder bus services operated in support of West Rail Line, East Rail Line and Light Rail
Company or MTR Corporation MTR Corporation Limited, a company which was incorporated in Hong Kong under the Companies
Ordinance on 26 April 2000
Companies Ordinance
The Companies Ordinance (Chapter 622 of the Laws of Hong Kong or the predecessor Companies
Ordinance Chapter 32 of the Laws of Hong Kong (as the case may be))
Computershare
Computershare Hong Kong Investor Services Limited, the share registrar of the Company
Cross-boundary Service or
Cross-boundary
Journeys with the destination to/commencing from Lo Wu and Lok Ma Chau stations
Customer Service Pledge
Annually published performance targets in accordance with the Operating Agreement
Director or Member of the Board
A member of the Board
Domestic Service
Collective name for Kwun Tong, Tsuen Wan, Island, South Island, Tung Chung, Tseung Kwan O, Disneyland
Resort, East Rail (excluding Cross-boundary Service), West Rail and Ma On Shan lines
EBITDA
Operating profit before depreciation, amortisation, variable annual payment and share of profit or loss of
associates and joint venture
EBITDA Margin
EBITDA as a percentage of revenue
EBIT
Profit before interest, finance charges and taxation and after variable annual payment
EBIT Margin
EBIT as a percentage of revenue
Express Rail Link or
High Speed Rail or HSR
Hong Kong Section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link, also known as Guangzhou-
Shenzhen-Hong Kong High Speed Rail (Hong Kong Section) after the commencement of passenger
service on 23 September 2018
Fare Index
A measure of customer satisfaction for the fares charged for Domestic and Cross-boundary services, HSR,
Airport Express, Light Rail and Bus based on satisfaction scores for different fare attributes weighted by the
corresponding importance rating from the customer research
FSI
The Financial Secretary Incorporated, a corporation solely established under the Financial Secretary
Incorporation Ordinance (Chapter 1015 of the Laws of Hong Kong)
Government
The Government of the Hong Kong SAR
Group
The Company and its subsidiaries
HKSE or Stock Exchange
The Stock Exchange of Hong Kong Limited
Heavy Rail
Collective name for Domestic Service, Cross-boundary Service and Airport Express
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Annual Report 2019Business Review and AnalysisOverviewCorporate GovernanceFinancials and Other Information Hong Kong or
Hong Kong SAR or HKSAR
The Hong Kong Special Administrative Region of the People’s Republic of China
Intercity Service or Intercity
Intercity through train services operated between Hong Kong and major cities in the Mainland of China
such as Beijing, Shanghai and Guangzhou
Interest Cover
Operating profit before depreciation, amortisation, variable annual payment and share of profit or loss of
associates and joint venture divided by gross interest and finance charges before capitalisation, utilisation
of government subsidy for Shenzhen Metro Longhua Line operation and accreted interest on loan to a
property developer
KCRC
Kowloon-Canton Railway Corporation
KPMG
KPMG, Certified Public Accountants, the independent auditor of the Company. KPMG is a Public Interest
Entity Auditor registered in accordance with the Financial Reporting Council Ordinance
Light Rail
Light rail system serving North West New Territories
Listing Rules
The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
MTR Ordinance
The Mass Transit Railway Ordinance (Chapter 556 of the Laws of Hong Kong)
Net Debt-to-equity Ratio
Loans and other obligations, bank overdrafts, short-term loans, obligations under service concession and
loan from holders of non-controlling interests net of cash, bank balances and deposits, and investment in
bank medium term notes in the consolidated statement of financial position as a percentage of the total
equity
Operating Agreement
The agreement entered into by the Company and the Government on 30 June 2000 for the operation of
our rail services before the Rail Merger and a new agreement entered on 9 August 2007 for the operation
of all of our rail and bus passenger services after the Rail Merger
Ordinary Shares
Ordinary shares in the capital of the Company
Rail Merger or Merger
The merger of the rail operations of MTR Corporation and KCRC and the acquisition of certain property
interests by MTR Corporation from KCRC, full details of which are set out in the Rail Merger Circular. The
Rail Merger was completed on 2 December 2007
Rail Merger Ordinance
The Rail Merger Ordinance (Ordinance No.11 of 2007)
Return on Average Equity
Attributable to Shareholders of
the Company
Service Concession
Profit attributable to shareholders of the Company as a percentage of the average of the beginning and
closing total equity attributable to shareholders of the Company of the period
A contract to provide services for a particular period which is awarded by a public sector entity to an
operator; in the context of concession projects in Hong Kong, service concession refers to the concession
granted or to be granted by KCRC and/or Government to the Company to operate, maintain and renew
certain railway lines under the Service Concession Agreement or a Supplemental Service Concession
Agreement, as more particularly described in the Rail Merger Circular; in the context of concession
projects in the Mainland of China and Overseas, service concession refers to the concession granted by the
government or relevant public sector entity to a subsidiary or associate of the Company to provide certain
specified services for a specified period under a negotiated concession agreement
Service Quality Index
A measure of customer satisfaction for the services provided by Domestic and Cross-boundary services,
HSR, Airport Express, Light Rail and Bus based on satisfaction scores for different service attributes
(excluding fares) weighted by the corresponding importance rating from the customer research
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MTR Corporation
GLOSSARYMTR Corporation .
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SHAREHOLDER SERVICES
Any matters relating to your shareholding, such as transfer of shares,
change of name or address, and loss of share certificates should be
addressed in writing to the Registrar:
Computershare Hong Kong Investor Services Limited
17M Floor, Hopewell Centre,
183 Queen’s Road East, Wan Chai, Hong Kong
Telephone: (852) 2862 8628 Facsimile: (852) 2529 6087
KEEP MOVING
Annual Report 2019
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MTR Corporation Limited
MTR Headquarters Building, Telford Plaza
Kowloon Bay, Kowloon, Hong Kong
GPO Box 9916, Hong Kong
Telephone : (852) 2993 2111
: (852) 2798 8822
Facsimile
www.mtr.com.hk