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Business Operations
Corporate Structure
Change in Corporate Footprint
MTR Corporation is in the business of planning, building and managing mass transit railway systems and providing related rail services. Through convergence of the business streams within our business model of rail+property, we extend our corporate vision to a strategy of building modern communities around transport hubs connected by a mass transit rail network.
Rail and Related Services
In Hong Kong, our largest market, the MTR rail network operates seven railway lines including the dedicated Airport Express. The network, from its single-line beginning in 1979, now provides an extensive mass transit system connecting major regional centres to core business and cultural hubs of Hong Kong.
Our business strategy in recent years has developed new avenues to leverage our rail core competencies into the tourism industry. In 2005, we commenced services on the Disneyland Resort Line and extended the Airport Express to include the AsiaWorld-Expo, Hong Kong's largest exhibition and convention centre. In 2006, we completed construction of Ngong Ping 360 (NP360), a religious-themed tourist attraction .
With the knowledge and skills accumulated through application of sustainable best practice in these recent projects, the Corporation is moving forward with a focus on extended community inclusion and the use of sustainable methodologies in the design, planning and delivery of the proposed rail projects currently in various stages of government approval. These include the West Island Line, South Island Lines (East and West) and the Kwun Tong Line Extension, all of which will serve growing regional centres around the territory.
Our rail-related services are sourced from the increasing opportunities for business arising from our network and passenger-management expertise. These include in-station retail and telecommunication services. For end-user convenience, the Octopus Card system, developed by the Corporation, provides seamless ticketing in transport and now leverages its capabilities to retail services and public transport fares payment outside our immediate system.
The most recent applications of the card technology are in secure access systems for our developed and managed residential estates and for several commercial offices and properties throughout Hong Kong.
Business in mainland China continues to expand with the approved Public-Private Partnership project for Beijing Metro Line 4 and the Build-Operate-Transfer project for Shenzhen Line 4, which is pending project approval. We are also acting as a project manager in Shanghai (Shanghai Line 9) and conducting several consultancy contracts for the metro industry in major commercial centres across mainland China.
On the international front, the rail consultancy business spearheads our expansion into the Asia region, Europe and the Middle East. Consultancy for rail network building and management has increased substantially in the last four years in these regions. Our footprint now includes Taiwan, Thailand, South Korea, Vietnam, Australia, India and Dubai. In Europe, specifically in the UK and Scandinavia, we are seeking operating franchise opportunities and consortium business from rail privatisation and Public-Private Partnership schemes. From our established London base we are able to monitor closely such developments for future potential.
Property Development and Management
Sustainability underpins the rail+property business model. The model grants us the negotiated rights to develop, own and manage properties adjacent to and along our rail lines. As a long-term financial strategy it provides a viable future for sustained profitability while we invest in and build new rail projects and keep fares at competitive market prices. Our current portfolio of properties includes mainly shopping centres, residential, office and hotel developments, with a land bank for future development of 2.22 million square metres, mainly located along
the Tseung Kwan O Line and Tung Chung Line. In 2006, we added one shopping mall to our asset portfolio and successfully tendered one property development package.
It is the corporate practice to tender publicly under joint-venture arrangement the construction and delivery of properties from our land bank. This strategy allows us maximum opportunity for low risk/high return on our assets. By design, when preparing tender packages, we integrate sustainable best practice by developing high- quality master planning schemes and setting the environmental criteria and quality standards for development and construction of the properties by our partners. To extend best practice in the lifecycle management of our properties, we employ the three-phased 'through train' strategy of planning, developing and managing properties, meaning that at all points in a property's lifecycle we can influence and promote best practice in sustainable development.
MTR Corporation Limited is a public company listed in Hong Kong. At year-end 2006, 76.58% of our shares were held by The Financial Secretary Incorporated in trust on behalf of the Hong Kong SAR Government. The Company has been informed by the Government that, as of 31 December 2006, approximately 1.46% of the shares of the Company 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. The balance free float is held by retail investors and international institutional investors. We operate under The Mass Transit Railway Ordinance, which oversees the framework for our business and operations. The Operating Agreement with the Government grants our licence to operate under stringent terms and conditions that require us to meet annual targets and performance standards influencing the structure of our internal management systems and governance practices.
Since listing on the Hong Kong Stock Exchange in 2000, we have outperformed the Hang Seng Index and returned to shareholders an average of 14.6% per annum on investment. For the comprehensive review of our organisational structure, scope of business and our 2006 operational and financial performance, refer to our 2006 Annual Report .
Wider economic benefit from our business model spreads to the immediate communities in which we operate, as well serving as a regional and global model in economic sustainability. Our business model of rail+property gives rise to fair-priced public transport while allowing viability as a commercial entity. Accordingly, we derive our revenue streams from rail services augmented by the financial opportunity of certain property development rights on top of or adjacent to the railway. We are a well capitalised company and we continue to leverage opportunity in our business based on these traditionally solidly performing industries.
In broader economic/social terms, we are a community asset. Our modern transport infrastructure is recognised as a contributing factor to Hong Kong's status as an international business and financial centre. In addition to supplying world-class commuter transport services, we support Hong Kong's services-based industries and are a contributor to tourism, with operations of the Disneyland Resort Line and the construction of the NP360 cable car and tourist village. Our dedicated Airport Express, urban transport network and commercial and residential property developments facilitate modern urban lifestyle expectations and enhance the quality of life for our customers and society as a whole.
Regional interest in our business model and the economic and social benefits it brings has brought new business interest from mainland China. Ongoing dialogue with the municipalities supported by educational sessions on best business practices introduces an alternative and more sustainable solution to building modern communities in mainland China linked through a mass transit rail system.
For further statistics and a succinct summary of our sustainable economic performance, refer to the financial charts included in this Report.
As discussed in our previous sustainability reports and on our website, The Hong Kong SAR Government in 2004 proposed a merger between MTR Corporation and the territory's other major mass transit rail operator, the Kowloon-Canton Railway Corporation (KCRC). In April 2006, MTR Corporation signed a non-binding Memorandum of Understanding (MOU) with the Government, setting out the terms of the proposed merger of the operations of MTR Corporation and KCRC, together with the acquisition of a property package. The MOU meets the five parameters set down by the Government while creating value for the shareholders of MTR Corporation. The rail merger, if implemented in accordance with the MOU, will offer benefits to the travelling public, to shareholders and to staff.
Since the signing of the MOU, a joint effort between the two companies has set in motion integrated planning covering various business and corporate functions. Management teams have also begun formulation of a strategy for seamless convergence and leveraging of synergies for the merged entity, once established.
As at the end of 2006, legislative process for the proposed rail merger remained in progress.