2008 Annual Results 10 March 2009 Limited 2009/3/10
Forward-looking statements Certain statements contained in this presentation may be viewed as forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forwardlooking statements. Page 2
Results highlights and business overview Limited 2009/3/10
2008 - Achieving Significant Milestones Strong Recurrent Profit and Cashflow after Merger Merger delivered benefits to Stakeholders Early delivery of synergies of over HK$350m Strong Performance from Railway Operations, Station Commercial Businesses and Investment Properties EBITDA up 57.7% Property Development Successful Sales of The Capitol in LOHAS Park and Palazzo at Fo Tan Growth Initiatives Hong Kong Policy decision on 3 additional lines, including Shatin to Central Link, Kwun Tong Line Extension and Express Rail Link Kowloon Southern Link and LOHAS Park Station will commence service in 2009 Outside of Hong Kong Shenzhen Metro Line 4 approved by NDRC in Beijing Principle Agreements signed in Shenyang and Hangzhou Won Stockholm Metro Operating Concession Page 4
Financial performance (HK$m) 2008 2007 Change 2007 Pre-Merger MTR + KCRC Change Pre-Merger MTR + KCRC Total revenue 17,628 10,690 64.9% 16,176 9.0% EBITDA 9,325 5,912 57.7% 8,624 8.1% EBITDA margin 52.9% 55.3% 2.4%pt 53.3% 0.4%pt Property development profit Underlying profit (excl post-tax investment property revaluation) 4,670 8,304 8,185 8,571 43.8% 4.5% Underlying businesses EPS (HK$) 1.45 1.54 5.8% Total dividend per share (HK$) Reported net profit attributable to equity shareholders* Reported EPS (HK$) 0.48 0.45 8,284 15,180 1.47 2.72 6.7% 45.4% 46.0% * Include post-tax investment property revaluation Page 5
Business Review - Railway Limited 2009/3/10
Fare Revenue (HK$ in M) 0.3% * 11,501 11,467 7,115 61.2% MTR Pre-merger KCRC Compared to 2007 MTR Compared to Combined Fare Revenue (MTR + Pre-merger KCRC) 2007 2008 * Including impact from fare reduction introduced on 2 December 2007 Page 7
Patronage Domestic Service (1) (m) Airport Express (m) 1,159.5 (2) 4.0% 1,205.4 10.2 10.6 4.2% 915.8 31.6% 2007 2008 Cross Boundary Service (m) MTR 2007 2008 Compared to 2007 MTR 92.1 93.4 1.4% Pre-merger KCRC Compared to Comparable Combined Patronage (MTR + Pre-merger KCRC) 2007 2008 1. Domestic Service include Tsuen Wan, Island, Kwun Tong, Tung Chung, Tseung Kwan O, Disneyland Resort as well as East Rail Lines (excluding Cross Boundary), Ma On Shan Line and West Rail Line. 2. Adjustment made to reflect interchanging passengers for comparison purposes. Page 8
Average fare Average Fare Domestic Service (1) Average Fare Airport Express HK$64.34 1.4% HK$63.47 HK$6.91 (2) 4.8% * HK$6.58 HK$6.78 2007 2008 Average Fare Cross Boundary HK$24.51 0.2% HK$24.45 2007 2008 MTR Adjustment made to reflect comparable average fare after allowing for interchanging passengers * Including impact from fare reduction introduced on 2 December 2007 2007 2008 1. Domestic Service include Tsuen Wan, Island, Kwun Tong, Tung Chung, Tseung Kwan O, Disneyland Resort as well as East Rail Lines (excluding Cross Boundary), Ma On Shan Line and West Rail Line. 2. Adjustment made to reflect interchanging passengers for comparison purposes. Page 9
Market Share Hong Kong Franchised Public Transport Green minibuses 14.4% Green minibuses 14.7% Buses 39.9% Tram & ferries 3.7% Buses 39.0% Tram & ferries 3.6% KCRC 0.4% MTR 41.6% MTR 42.7% 2007 (1) 2008 (1) AEL Cross Boundary Cross Harbour 23% 24% 57.1% 55.7% 62.5% 63.6% (2) (2) (1) (1) (1) (1) 2007 2008 Source: The Transport Department / Airport Express Market Share Survey (1) For the month of December (2) Data based on Airport Express Market Share Survey as of Feb, Aug 2007 and Jan, Aug 2008 2007 2008 2007 2008 Page 10
Business Review - Station commercial and rail related businesses Limited 2009/3/10
HK$m 666 An excellent year of performance Station commercial & rail related businesses: HK$3,089m* 11% 593 2007 2008 25% 741 80.6% Pre-merger KCRC 42% 1,087 499 Compared to 2007 MTR 1,546 279 vs Combined Non-fare Revenue 356 20.9% Compared to Combined Non-fare Revenue (MTR + Pre-merger KCRC) 210% 28% 239 49% 193 18% 158 Merger created a step increase in scale, scope and profitability Advertising Strong growth from advertising market in Q1-Q3 08 Continuous upgrade of digital advertising formats Station Retail Increased rentals from Retail and Duty Free shops Total kiosks area at over 51,000 sq m Telecommunications Negative impact from 3G/2G cannibalization One-off termination payment from a telecom operator External Consultancy Reduction of consultancy revenue as the result of focused strategy Advertising Station Retail Telecom Consultancy *Excludes Services to KCRC revenue of $360m Page 12
Business Review - Property and other businesses Limited 2009/3/10
Property development Major profit contributors: Property development profit HK$4,670m Deferred income 4% Surplus Proceeds 91% Disposal of properties held for sale 5% Surplus proceeds from The Capitol (Package 1) of LOHAS Park and The Palazzo at Fo Tan Profit recognition from Palazzo was net of acquisition costs Disposal of properties held for sale mainly from The Arch and Harbour Green Deferred Income from Coastal Skyline, Caribbean Coast and Elements Che Kung Temple awarded in April Tsuen Wan West 7, a West Rail Property project, was awarded in September. MTR acts as an agent only 2008 Page 14
Property rental and management HK$m Property rental & management revenues: HK$2,556m 46.1% MTR Pre-merger KCRC vs. Combined Non-fare Revenue 27.6% 2,004 Compared to 2007 MTR Compared to Combined Non-fare Revenue (MTR + Pre-merger KCRC) 27.6% 2,556 210 Management Income Growth driven by full year impact of Elements Phase 1, the opening of Elements Phase 2, and positive rental reversion Rental reversion in 2008 saw increase of 20% Investment portfolio at Dec 08: Retail: 12 shopping centres totalling 221,661 sq m 168 Management Income 1,581 Rental revenue 46.1% 2,346 Rental revenue Office: 2 offices totalling 41,059 sq m Others: 10,402 sq m 2007 2008 Page 15
Other businesses Octopus 18.7M cards in circulation with average daily transaction value of HK$89.8M MTR s share of net profit amounted to HK$136M, up 40.2% Ngong Ping 360 Contributed revenue of HK$156M Over 1.6m guests carried in 2008 High Service Reliability and Customer Satisfaction Page 16
Growth opportunities Limited 2009/3/10
New projects in Hong Kong on track Express Rail Link Shatin to Central Link Kwun Tong Line Extension Kowloon Southern Link LOHAS Park Station West Island Line South Island Line (E) Rail + Property model Service concession Cash grant Page 18
Kowloon Southern Link Expected to commence service in 2009 Financing Model: Service Concession Model under the Merger Agreement LOHAS Park Station Expected to commence service in 2009, to coincide the opening of The Capitol in LOHAS Park West Rail Line Nam Cheong East Rail Line Tseung Kwan O LOHAS PARK Austin Kowloon Southern Link East Tsim Sha Tsui Hung Hom LOHAS Park Station Route Length (km) No. of new station 3.8 1 Route Length (km) No. of new station 3.5 1 Page 19
West Island Line Detailed design underway Project is expected to complete in early 2014 Ownership model with cash support from Government South Island Line - East Preliminary design underway Expected service commencement in 2015 Rail + Property Model Admiralty Kennedy Town University Sai Ying Pun Sheung Wan Wong Chuk Hang Ocean Park South Horizons Lei Tung Route Length (km) No. of new stations 3 3 Route Length (km) No. of new stations 7 4 Page 20
Shatin-to-Central Link Government s approval for planning and design Project is expected to complete in 2 phases, 2015 and 2019 Service Concession Model Kwun Tong Line Extension Government s approval for planning and design Completion expected in 2015 Rail + Property Model Tai Wai to Hung Hom Station Tai Wai DIH Depot Diamond Hill Yau Ma Tei Kai Tak To Kwa Wan Ho Man Tin Cross Harbour Section Admiralty Hung Hom Exhibition Ho Man Tin Ma Tau Wai Whampoa Route Length (km) 17 Route Length (km) 3 No. of new stations 5 No. of new stations 2 Page 21
Guangzhou - Shenzhen - Hong Kong Express Rail Link (HK section) Government s approval for planning and design Expected to commerce service in 2015 Service Concession Model Route Length (km) No. of new station 26 1 Page 22
Growth outside Hong Kong Limited 2009/3/10
China Achieving important milestones Beijing Beijing Metro Line 4 PPP model Construction is progressing well Expected to open for service by 4Q 2009 Daxing Metro Line Signed MOU for Operations & Maintenance Hangzhou Hangzhou Metro Line 1 PPP model Principle Agreement signed Commencement of service in 2012 Shenyang Shenyang Metro Line 1 &2 Principle Agreement signed for Operations & Maintenance Target to commence service in 2010 for Line 1 and 2012 for Line 2 Shenzhen Shenzhen Metro Line 4 NDRC approval obtained, supported with Government grant Concession Agreement to be signed Expected to be in full line operation in 2011 Page 24
Europe Another Successful Franchise Stockholm, Sweden Stockholm Metro Been selected Operations & Maintenance Contract for 108km network starting in Nov 09 Concession revenue over HK$20bn over the eight year period London, UK LOROL Successful in completion of 1 st year operations Financially and Operationally on target Page 25
Financial Results Limited 2009/3/10
Income statement (HK$m) 2008 2007 % change Fare revenue 11,467 7,115 61.2 Non-fare and rental and management income 6,161 3,575 72.3 Turnover 17,628 10,690 64.9 Operating expenses (8,303) (4,778) (73.8) EBITDA 9,325 5,912 57.7 Property development profit 4,670 8,304 (43.8) Total operating profit 13,995 14,216 (1.6) Depreciation & amortisation (2,930) (2,739) (7.0) Merger related expenses (53) (193) 72.5 Interest and finance charges (1,998) (1,316) (51.8) Investment properties revaluation (146) 8,011 (101.8) Share of profit of non-controlled subsidiaries & associates 159 99 60.6 Profit before tax 9,027 18,265 (50.6) Taxation (747) (3,083) 75.8 Reported net profit attributable to equity shareholders* 8,284 15,180 (45.4) Reported earnings per share (HK$) 1.47 2.72 (46.0) Profit from underlying businesses (excl. inv. property revaluation net of deferred tax) 8,185 8,571 (4.5) Underlying businesses EPS (HK$) 1.45 1.54 (5.8) Final dividend per share (HK$) 0.34 0.31 Total dividend per share (HK$) 0.48 0.45 6.7 * Exclude minority interest of HK$4 million Page 27
Segmental income statement of underlying businesses (HK$m) 2008 2007 Railway and related businesses Property ownership, management and other businesses Property developments 2,492 1,856 4,666 487 1,226 8,255 Tax and others (1) (2) (829) (1,397) Underlying net profit attributable to equity shareholders 8,185 8,571 Note: All segmental incomes shown are pre-tax profits. Interest cost relating to the interest-free loan to developer has been allocated to property development. 1. Excludes deferred tax on investment property revaluation 2. 2008 income tax includes effect of the decrease in Hong Kong Profits Tax rate from 17.5% to 16.5% on deferred tax balances Page 28
Balance sheet (HK$m) Assets Investment properties Other property, plant and equipment Service concession assets Property management rights Railway construction in progress Property development in progress Cash and cash equivalents Debtors, deposits and payments in advance Loan to a property developer Properties held for sale Others Liabilities Debt Obligations under service concession Deferred income Deferred tax liabilities Others Total equity 31 Dec 2008 37,737 77,804 15,463 35 658 7,895 793 7,190 3,720 2,228 5,815 159,338 31,289 10,656 156 12,220 7,195 61,516 97,822 31 Dec 2007 37,723 79,444 15,250 40 424 9,066 576 5,167 3,532 756 3,690 155,668 34,050 10,685 515 12,574 6,807 64,631 91,037 Page 29
(HK$m) Cash flow Cash from operations Receipts from property Government grant for WIL Receipts from/ (loan to) non-controlled subsidiary and associate Total inflows 2008 8,921 4,448 400 132 13,901 2007 5,974 5,824 - (62) 11,736 Capital expenditure Net payments in respect of SCL and XRL Fixed annual payment on service concession assets Investment in Beijing Line 4 Net interest paid Changes in working capital Dividends paid Total outflows (*) Net cash inflow before non-recurring merger related expenses Non-recurring merger related expenses Net cash generated / (used) Financed by: Net facilities (repaid) / drawdown Increase in cash *Cash outflows to meet financial obligations (5,807) (89) (750) (515) (1,445) (16) (1,265) (9,887) 4,014 (316) 3,698 (3,538) 160 Page 30 (2,481) (8) - (103) (1,468) (31) (1,168) (5,259) 6,477 (11,609) (5,132) 5,401 269
Financing and credit ratios >5 years 26% 2-5 years 17% 1-2 years 29% Up to 1 year 28% Debt profile (31 Dec 2008) Fixed 62% Floating 38% Unhedged US$ <1% HK$ >99% Maturity Fixed/Floating Currency Total borrowings outstanding: HK$31,289m; reduction of HK$2,761m from 31 Dec 2007 Average borrowing cost: 4.8% 0.8% point Net interest expense: HK$1,998m 51.8% Compared to FY2007 figures Net Debt/Equity ratio Dec 2008 42.1% Dec 2007 48.5% Interest coverage 2008 6.0x 2007 9.0x Page 31
2009 Outlook Limited 2009/3/10
Outlook for 2009 Economic downturn in Hong Kong will impact our businesses in 2009 Recurrent businesses Our rail business by nature is defensive, but can be affected by unemployment LOHAS Park Station and Kowloon Southern Link (Austin Station) will open later this year Rail fares will be reviewed in July in accordance with FAM Station retail and investment properties rental adjustments will be market dependent Other station commercial businesses, particularly advertising, will face challenges in 2009, although long term fundamentals remain robust Property development Given that our profit sharing for LOHAS Park Package 2 is sharing in kind (in phase 1), it will only depend on issuance of Occupation Permit (OP), expected to be in 2H09 Sales at Lake Silver at Wu Kai Sha and Tai Wai Maintenance Centre will be subject to a commercially driven decision dependent on market and other considerations Property tendering will be based on market conditions Page 33