in the Mainland and

Accelerate our success

Grow and enhance our Hong Kong core businesses

corporate citizen reputation

Strengthen our Hong Kong

internationally

Sharing Our
Annual Report 2012

Growth

Sharing Our

Growth

We continue to grow and enhance our core businesses in Hong Kong, while at the same time accelerating our expansion in the Mainland of China and overseas through sharing our expertise in developing sustainable communities based on rail transport. In support of these goals, we are strengthening our Hong Kong corporate citizen reputation by listening and responding to the voices of Hong Kong people. In our Annual Report, we share our progress with stakeholders, and outline our plans for the future.

Contents

02 04 06 08 12 23 24 26 40 46 58 66 72 78 84 86 88

MTR Corporation in Numbers – 2012 Hong Kong Operating Network with Future Extensions MTR Corporation at a Glance Chairman’s Letter CEO’s Review of Operations and Outlook Key Figures Key Events in 2012 Executive Management’s Report – Hong Kong Transport Operations – Hong Kong Station Commercial Business – Hong Kong Property and Other Businesses – Hong Kong Network Expansion – Mainland and Overseas Growth – Human Resources Financial Review Ten-Year Statistics Investor Relations Risk Management

89 90 94 112 116 124 125 153 154 155 156 157 158 159 160 161 240

Sustainability Corporate Responsibility Corporate Governance Report Remuneration Report Board and Executive Directorate Key Corporate Management Report of the Members of the Board Contents of Accounts and Notes Independent Auditor’s Report Consolidated Profit and Loss Account Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Accounts Glossary

Annual Report 2012

1

MTR Corporation In Numbers – 2012

Consolidated Financials
Total Revenue

HK$

35.7

Underlying Profit

billion

HK$

9.78
%

billion

Total Assets

HK$

206.9
%

billion

10.9
HK$

Net Debt-to-Equity Ratio

Hong Kong Transport Operations
Share of Franchised Public Transport Market

46.4 99.9

Domestic Service Fare Revenue Per Passenger

7.01 km Passenger Journeys on-time

Total Route Length

%

218

1.77
Hong Kong Network Expansion

Total Patronage

billion

5
2
MTR Corporation

New Rail Projects are progressing well

which will add to our network in Hong Kong

56

km

Hong Kong Property and Other Businesses

13
HK$

Investment Property Portfolio in Hong Kong Includes

Shopping Malls

18

Floors of Two ifc

Property Development Profit

3.2

billion

Hong Kong Station Commercial Business

16.0

Station Commercial Revenue

% of Total Revenue in Hong Kong
Human Resources

Mainland of China and International Businesses

22,155
Staff Worldwide

1.17 6

billion

Passengers Carried by Our Rail Operations in

Caring for life’s journey

Cities

Outside of Hong Kong

Annual Report 2012

3

Hong Kong Operating Network with Future Extensions
Legend
Station Interchange Station Proposed Station Proposed Interchange Station Shenzhen Metro Network Racing days only

Existing Network
Airport Express Disneyland Resort Line East Rail Line Island Line Kwun Tong Line Light Rail Ma On Shan Line Tseung Kwan O Line Tsuen Wan Line Tung Chung Line West Rail Line

Projects in Progress
Guangzhou-ShenzhenHong Kong Express Rail Link Kwun Tong Line Extension South Island Line (East) West Island Line Shatin to Central Link

Potential Future Extensions
North Island Line Northern Link South Island Line (West) Extension to Central South

*

40 48
Sh ui W Ti n Ai rp or t As

Properties Owned / Developed / Managed by the Corporation
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Telford Gardens / Telford Plaza I and II World-wide House Admiralty Centre Argyle Centre Luk Yeung Sun Chuen / Luk Yeung Galleria New Kwai Fong Gardens Sun Kwai Hing Gardens Fairmont House Kornhill / Kornhill Gardens Fortress Metro Towers Hongway Garden / Infinitus Plaza Perfect Mount Gardens New Jade Garden Southorn Garden Heng Fa Chuen / Heng Fa Villa / Paradise Mall Park Towers Felicity Garden Tierra Verde / Maritime Square Tung Chung Crescent / Citygate / Novotel Citygate / Seaview Crescent / Coastal Skyline / Caribbean Coast Central Park / Island Harbourview / Park Avenue / Harbour Green / Bank of China Centre / HSBC Centre / Olympian City One / Olympian City Two The Waterfront / Sorrento / The Harbourside / The Arch / Elements / The Cullinan / The Harbourview Place / W Hong Kong / International Commerce Centre / The Ritz-Carlton, Hong Kong One International Finance Centre / Two International Finance Centre / IFC Mall / Four Seasons Hotel / Four Seasons Place Central Heights / The Grandiose / The Edge / The Wings / PopCorn / Crowne Plaza Hong Kong Kowloon East / Holiday Inn Express Hong Kong Kowloon East / Vega Suites Residence Oasis / The Lane No.8 Clear Water Bay Road / Choi Hung Park & Ride Metro Town Royal Ascot / Plaza Ascot Ocean Walk Sun Tuen Mun Centre / Sun Tuen Mun Shopping Centre Hanford Garden / Hanford Plaza Citylink Plaza MTR Hung Hom Building / Hung Hom Station Carpark Trackside Villas The Capitol / Le Prestige / Le Prime / La Splendeur The Palazzo Lake Silver Festival City The Riverpark

Property Developments Under Construction / Planning
34 39 40 41 42 52 53 LOHAS Park Package 3-10 Tai Wai Station Tin Shui Wai Light Rail Austin Station Site C Austin Station Site D Wong Chuk Hang Station Ho Man Tin Station
29 28
Ho ng

Si u

West Rail Line Property Developments (As Agent for the Relevant Subsidiaries of KCRC)
43 44 45 46 47 48 49 50 51 Nam Cheong Station Yuen Long Station Tuen Mun Station Tsuen Wan West Station Long Ping Station Tin Shui Wai Station Kam Sheung Road Station Pat Heung Maintenance Centre Kwai Fong Site

Tu

30 45

en

M

un

21

Schemes Proposed in the Stage 1 and 2 Public Engagement of the Review and Update of the Railway Development Strategy 2000*
Existing Network Northern Link Tuen Mun to Tsuen Wan Link Hong Kong - Shenzhen Western Express Line Tuen Mun South Extension Tung Chung West Extension South Island Line (West) North Island Line Siu Sai Wan Line

ia Ex Wo po rld -

ai

L Pi ong ng

47

19
T Ch ung un g
Cable Car Ngong Ping 360

22

23

Shenzhen
Lo Wu Lok Ma Chau

Lantau Island

24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

Kwu Tung

Hung Shui Kiu

Hong Kong

* Stage 1 and 2 Public Engagement Consultation Document of the Review and Update of the Railway Development Strategy 2000, undertaken by the Hong Kong SAR Government

4

MTR Corporation

Yu en Lo ng

44

49 50
K S am Ro heu ad ng Lo kM aC ha

Su nn yB ay Di sn Re ey so lan rt d Ts ue n W an W es t Ts La iK in g Ta Kw ai Fo ng ai Hi ng Kw u Ha iW o an W ue n Ts in g Yi u

Shenzhen

46

Ke To nne w dy n

18

Cy b

Kw u

er

Tu ng

Lo

W

So ut

ah

po rt

W

u

05

h

Fu

H Un on iv g K er on sit g y

Sa

iY

in g

Ho riz

on s

Sh

Pu

n

eu

ng

Sh eu ng Fa

07

06 51

Le i Ko w lo on pi c o ym Fo ei Ol M

Tu

Ce

W

ng

nt ra

an

11

Sh ui nl in Ta iW g

lS

Ab

er de

Ad

ou

Ce

21

th

nt ra

l

Ch N eo am ng

02 20 43

22

New Territories

W C on Ha hu g ng k

o

03 08

41 42

Oc Pa ean rk

52 04 53 32
Sh aT in

14
Fo

Ta

33 iP o M ar ke t

10

39 37

Beijing Line

Shanghai Line

Guangdong Line

Intercity Through Train Route Map

Kowloon

16
Ch Te e K m un pl g e

31

Ta

n

27 35

Un i

ve

rs

ity Ra Ci ty

38 ce On

Fo

Hong Kong Island
S T ha W in ai e

sh

co ur s

e* Sh

Do

an ng gu an

Zh

ao Gu

25

qi an

ng

01

09

T Ha Shu ai ng i ek M un

gz

He

ho

ng

u

17

On M aO

Beijing

12

n

HONG KONG SAR

13

15

Sh a

Shanghai

26

n

36

23

Annual Report 2012
24

W

u

K m Te ow We ira Ho rm lo st en lty ng in on us Ko Ta La m T ng Ed Prin i ar S sim Au w ce Ch Chi Ts ha ar st Ko Sh eu in d ui k W S a n Ex Ch an Sh ham Wan g Ea Ta hi Ya ui ai Jo Sh st T bi iW u K Mon M Po rd tio a T si Ca ok g K Sh ai an Te a m n ip ek us su Ca i M i Ba us Ba ew ei Ko y N ew y ay Ho Hu M To w or ay M Ho ng Ko on ng loo H th Ti an T kE g m n n in Fo Ha in as W M Ke rtr u t ha a ng es Lo m W Tau sH kF po a To No ill u i a Kw Po rth W a K W in an ai on t Ta g Qu k Ta ar iS ry in Di Ba am y on Ta d iK Ch Sa Hi oo oi ll iW Ko Hu an w ng Ng lo Sh Ho on au au Ba Ta Kw Ke y u He iW un Ko ng an La Ch To k m Fa ng ai Ti W Ch n an ue Ya u n To ng Po La m K Tiu Le eng ng Ha T Kw seu ng an ng Ha O u

Ka i

Sh a

34

LOHAS Park

5

MTR Corporation at a Glance
MTR is recognised as one of the world’s leading railway operators, with a successful track record of building sustainable communities based on an integrated approach to rail transport and property development. We opened our first railway line in Hong Kong over 30 years ago, since when our activities have increased in size, scale, geographic coverage and diversity. Our strategy for future growth is accelerating, as we significantly expand our network in Hong Kong and our portfolio of rail-related operations in the Mainland of China and overseas.

Hong Kong Transport Operations
Business Description
We operate a predominantly rail-based transportation system in Hong Kong, comprising Domestic and Cross-boundary services, a dedicated high-speed Airport Express railway and a light rail system. The entire system stretches 218.2 km and has 84 stations and 68 Light Rail stops. Our network is one of the most intensively used in the world, and its reliability, safety and efficiency are held in high regard. We also provide intercity services to and from the Mainland of China as well as a small bus operation in Hong Kong offering convenient feeder services.

2012 Highlights

• • • •

Record passenger numbers and overall market share Award winning high levels of service performance Significant service improvements as train capacity was increased Construction works for the South Island Line (East), Kwun Tong Line Extension, West Island Line and Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link all made good progress Works also now underway on the Shatin to Central Link, following the project’s approval by Government

Hong Kong Station Commercial Business
Business Description
We leverage on our Hong Kong railway assets and expertise into other businesses, including rental of station retail space, advertising in trains and stations, and telecommunications.

•

2012 Highlights

• • • •

Positive rental reversions and increase in shop areas boosted rental income New Duty Free licence at Lo Wu and Hung Hom stations concluded at significantly higher rents starting from 1 January 2013 Advertising revenue continued to increase due to economic growth and introduction of new formats Provision of more data capacity and 4G services continue to enhance mobile services for passengers

6

MTR Corporation

Turnover
(HK$ billion)

Operating Profit Before Depreciation, Amortisation and Variable Annual Payment
33.4 29.5 18.8 35.7 (HK$ billion) 14.0 15.0 13.1 17.1 16.3

Total Assets
(HK$ billion)

159.3

176.5

181.7

197.9

206.9

17.6

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

2008

2009

2010

2011

2012

Hong Kong Property and Other Businesses
Business Description
In Hong Kong, we develop for sale mainly residential properties in conjunction with property developers. We hold investment properties, principally shopping malls and offices, managing these and other properties. Our investment portfolio primarily includes 13 shopping malls and 18 office floors of the Two International Finance Centre (“Two ifc”) office tower. We also engage in cable car operations, the Octopus card payments system, consulting and project management.

2012 Highlights

•

Units at the three phases of Festival City all sold and good results were achieved from pre-sale of The Riverpark at Che Kung Temple Station and Century Gateway, the Tuen Mun Station property development Phase 1 (where we act as agent for the relevant subsidiary of Kowloon-Canton Railway Corporation) Tenders for the Tsuen Wan West Station (TW5) Cityside and Bayside, and the Long Ping Station (North) sites awarded on behalf of relevant subsidiaries of Kowloon-Canton Railway Corporation The Company’s shopping malls and its 18 floors of Two ifc were close to 100% let New lease for 19,038 square metres of office space at Two ifc signed with an existing major tenant at a higher rent, effective from mid 2014

•

Mainland of China and International Businesses
Business Description
We have invested in urban rail networks in the Mainland of China, and “asset-light” operating concessions in the UK, Sweden and Australia. We continue to pursue new railway and rail-related business opportunities in these and other markets.

• •

2012 Highlights

• • • • • •

The Daxing Line and Beijing Metro Line 4 continued to deliver very high levels of service performance Shenzhen Metro Longhua Line performance exceeded targets and official endorsement was given for the development of the Depot Site Phase 1 Hangzhou Metro Line 1 commenced operations Concession agreement was initialled for Beijing Metro Line 14 London Overground Rail Operations Limited met the challenge of the London Olympics Operating performance of the Stockholm and Melbourne franchises improved further

Annual Report 2012

7

Chairman’s Letter

“MTR’s financial results for 2012 showed further strength, as our recurrent businesses maintained their momentum and our growth strategy moved ahead.”

Dr Raymond Ch’ien Kuo-fung
Chairman

8

MTR Corporation

Dear Shareholders and other Stakeholders,
MTR’s financial results for 2012 showed further strength, as our recurrent businesses maintained their momentum and our growth strategy moved ahead. Our Hong Kong transport operations achieved record patronage and market share while our station commercial and property rental businesses saw strong revenue increases. Property development profits were lower than 2011. In 2012, we had profit bookings from The Riverpark, as well as from the sale of inventory units at Festival City, Lake Silver and The Palazzo. Our rail franchises outside of Hong Kong increased their overall contribution. Operationally, we have begun to see increasing rewards from our Listening • Responding programme in Hong Kong, which more specifically focuses on the views and needs of our passengers. As a result, we are spending HK$1 billion on targeted improvements that are already making a positive impact. The more than 1,200 train trips added per week in 2012 have helped reduce waiting time for our passengers as well as ease crowding on platforms and in trains. Even with a more frequent train service, we have not only been able to maintain our world-class on-time performance of 99.9%, but there has also been a considerable reduction in the number of delays when compared to the year before. Stations too have benefited from more lifts, ramps, and seating, as well as the addition of toilet facilities. MTR’s operating profit before property development, depreciation, amortisation and variable annual payment increased by 7.9% to HK$13,083 million, with recurrent profit after tax, being all underlying profit before property development and investment property revaluation, increasing by 13.3% to HK$7,071 million. However, as a result of the lower property development profit, underlying profit before revaluation of investment property decreased by 6.6% to HK$9,775 million. Including investment property revaluation, net profit attributable to shareholders was HK$13,532 million, representing underlying earnings per share of HK$2.34. In line with our progressive dividend policy, your Board has proposed a final dividend of HK$0.54 per share, giving a full year dividend of HK$0.79 per share, which is an increase of 3.9% compared to the previous year.

We are also pleased to note that thanks to the Company’s strong performance, Government will be entitled to over HK$5.1 billion for 2012, in the form of paid and proposed dividends as well as fixed and variable annual payments, to enter the community’s coffers.

Fare Adjustment
In June 2012, an overall fare increase of 5.4% was applied under the Fare Adjustment Mechanism (“FAM”), which was based on the annual changes in inflation as measured by the composite consumer price index as well as wage levels in the transportation sector. In putting together our fare promotion package for the year, the Company listened very closely to the views of the community regarding MTR fares and fare promotions. The package was designed to be attractive and effective, benefiting a wide range of customers with different travel patterns. These fare promotions included the popular “Ride 10 Get 1 Free”, “10% Discount for Every Same-day Second-Trip”, “Free Child Travels on Weekends and Public Holidays” and “Tung Chung – Hong Kong Monthly Pass”. These are in addition to the many existing fare promotions and concessions for children, the elderly, eligible persons with disabilities and Hong Kong students that already benefit our society to the tune of over HK$1.8 billion in 2012. Under our Operating Agreement, the FAM is subject to review once every five years and Government initiated the first such review in August 2012. We believe that the current FAM, with its transparency and objectivity, has served MTR and the travelling public well over the last five years. We continue to discuss the review with Government in order to reach a solution acceptable to all stakeholders.

Creation of Long Term Value
One of the most important tasks we accomplished during the year was a review of our Corporate Strategy, which was completed in July 2012. While re-affirming the direction we have taken in recent years, we have increased our focus on future growth. The strategy recognises that Hong Kong

Annual Report 2012

9

Chairman’s Letter

is our home base, where we will continue to improve and invest in our services and enhance our corporate citizen reputation, whilst looking to achieve further growth and maximise the value of our core businesses. Outside of Hong Kong, we will build on our achievements and accelerate expansion. During 2012, we furthered these strategic goals. In Hong Kong, construction work has commenced or continued on the five major projects that will bring the benefits of our integrated rail and property network to new parts of Hong Kong. These five projects, namely the West Island Line, the Hong Kong section of the GuangzhouShenzhen-Hong Kong Express Rail Link, South Island Line (East), Kwun Tong Line Extension and the Shatin to Central Link, are of great significance not just to the Company but also to the community, as they will generate enduring economic, social and environmental benefits. Apart from these five new lines, Government is also undertaking a Review and Update of the Railway Development Strategy 2000 (“RDS-2U”) to map out the long-term railway development blueprint of Hong Kong. Stage 1 public consultation on this study was completed in July 2012 with positive responses from the public and other stakeholders and stage 2 public consultation was launched earlier in February 2013. As Chief Executive, Mr CY Leung, highlighted in his Policy Speech, our railway network is the backbone of Hong Kong’s public transport system. Hence, we will continue to work with Government on the RDS-2U to fulfil public aspirations for a sustainable rail development that not only enhances movement across the city, but also unleashes the economic potential of areas along the railway lines. In the Mainland of China, Hangzhou Metro Line 1 commenced operation and our 49% owned joint venture company, Beijing MTR Corporation Limited, initialled the concession agreement for Beijing Metro Line 14. In the UK, we submitted a bid for the Essex Thameside franchise in 2012, as well as being shortlisted for the Thameslink franchise. However, due to an independent review of the UK’s entire franchise process, the tender process for these two franchise opportunities has been deferred until later this year.

Sustainability and Corporate Responsibility
The Company’s integrated “Rail plus Property” model enables us to be a financially sustainable urban transport system. In 2012, we continued to formalise the engagement process to understand and reflect the interests of our stakeholders better. Specifically, in a financially prudent manner, we have sought progress in areas such as asset enhancements, customer service, environmental protection and community engagement. Addressing climate change, the Company signed the World Business Council for Sustainable Development’s “Manifesto for Energy Efficiency in Buildings” during the year, joining leading global businesses in a commitment to reduce energy use and carbon emissions in the building sector. All of our shopping malls also participated in the Hong Kong Government’s “Energy Saving Charter” by setting the indoor temperature at between 24 and 26 degrees Celsius during the summer months. Our Sustainability Report 2011, which we published in June 2012, discusses our progress towards sustainability in detail. Our 2012 report will be available by May 2013.

Community Care Action
Our Community Care Action programme focuses on Youth Development, Art & Culture, Green & Healthy Living and Community Outreach. To help encourage young people to meet life’s many challenges, we run an eight-month mentoring scheme called “’Friend’ for life’s journeys” for secondary school students every year. The latest of these kicked off in November 2012, involving over 120 secondary school students in Kwun Tong. Alongside this, our 10-day “’Train’ for life’s journeys” programme has given another 100 senior secondary school students new insights into their personal and social responsibilities. Art was a particular focus during the year. In July 2012 we announced our “MTR New Railway Lines Art in Station 2012” programme, which builds upon our long-running “Art in MTR” initiative. Public art is for everyone to enjoy on a daily basis and in the context of MTR, this means millions of people seeing it each day. Through the programme, we will look for new icons and inspirational works that will light up our station environments. The art we display will thus signify our commitment to delivering a world-class environment as well as a world-class service.

10

MTR Corporation

The MTR HONG KONG Race Walking, held in October which we co-organise with the Hong Kong Amateur Athletic Association, has become one of the most significant annual events promoting healthy living in Hong Kong. The 2012 event attracted over 1,500 enthusiastic participants and raised more than HK$1.27 million for the Hospital Authority’s Health InfoWorld to support its “Ideal BMI” disease prevention project. These are just some of the most significant ways in which we reached out to communities during the year. Overall in 2012, 239 community projects were organised under our “More Time Reaching Community” banner, involving over 5,800 volunteers.

by virtue of his appointment, becomes a non-executive Director of the Company. He replaces Ms Eva Cheng whom we thank for her contribution. I also welcome Mrs Ingrid Yeung Ho Poi-yan, who was appointed to the post of Commissioner for Transport with effect from 8 October 2012, and by virtue of her appointment, also becomes a non-executive Director of the Company. We would also like to thank Mr Joseph Lai Yee-tak and Miss Susie Ho Shuk-yee for their contributions during the year. I was honoured to be re-appointed Non-Executive Chairman of MTR for a further term of three years from 1 January 2013 to 31 December 2015 and I look forward to working with the Board and all the dedicated men and women of MTR globally to deliver on our exciting strategy. As part of the process of strengthening our team, Mr Lincoln Leong, MTR’s Finance and Business Development Director, was appointed Deputy Chief Executive Officer with effect from 16 July 2012. Mr Leong will take primary responsibility for realising our growth strategy in the Mainland of China and overseas. Mr Morris Cheung was appointed Human Resources Director on 17 July 2012 upon the retirement of Mr William Chan. Ms May Wong was appointed General Manager – Corporate Relations on 10 January 2013 upon the retirement of Mrs Miranda Leung. I welcome Morris and May to the senior management team and express my deep appreciation to William and Miranda for their contributions over their many years of service.

Recognition for Sustainability and Corporate Responsibility
Recognition for our efforts towards sustainability continues to increase. We now rank as the leading Hong Kong company on the Hang Seng Corporate Sustainability Index. The Company remains listed on the Dow Jones Sustainability Indexes and the FTSE4Good Index, and is one of the 16 companies designated a “New Sustainability Champion” by the World Economic Forum. We were also awarded a “Sustainability Excellence Award” by The Chamber of Hong Kong Listed Companies and the Centre for Corporate Governance and Financial Policy of Hong Kong Baptist University. For the first time, in 2012 we scored full marks in the Corporate Social Responsibility Index launched by the Hong Kong Quality Assurance Agency and The Hong Kong and Shanghai Banking Corporation Ltd. This result marks a significant milestone in recognition of our Corporate Responsibility best practices. Our contribution towards the environment was recognised in many awards, including the "Prime Awards for ECO-Business” for the fifth consecutive year, where this year, the Company was awarded the Platinum Award in the Logistics Sector. We have again received the “5 Years Plus Caring Company Logo” from the Hong Kong Council of Social Service and gained a “Corporate Social Responsibility Award” in the Hong Kong Service Awards from East Week Magazine.

Conclusion
2012 was another year of achievement for MTR in delivering sustainable shareholder value whilst contributing to the well-being of our communities. I would like to thank my fellow directors for their work during the year, all of our staff for their commitment to excellence, and our other stakeholders for their invaluable support.

Management Transition and Board Appointments
The changes over the last 18 months in senior management and at the board level have gone smoothly with all of us focused on implementing our new strategy. I wish to take this opportunity formally to welcome Professor Anthony Cheung Bing-leung who was appointed to the post of Secretary for Transport and Housing on 1 July 2012, and

Dr Raymond Ch’ien Kuo-fung, Chairman Hong Kong, 11 March 2013

Annual Report 2012

11

CEO’s Review of Operations and Outlook

“Whilst handling more passengers than ever before, we continued to maintain world class operational and safety standards throughout our network.”

Jay H Walder
CEO

Let’s continue to strengthen our

Corporate Citizen reputation. We maintain strategic

Growth.

12

MTR Corporation

Dear Shareholders and other Stakeholders,
MTR in 2012 saw continued solid performance across all our businesses whilst achieving new milestones in our growth initiatives. In early 2012 we undertook a review of MTR’s corporate strategy which re-affirmed the overall direction pursued in recent years, but added new impetus in our drive for service excellence and growth. The strategy recognises that Hong Kong is our home base, where we will continue to improve and invest in our services and enhance our corporate citizen reputation, whilst looking to achieve further growth and maximise the value of our core businesses. Outside of Hong Kong, we intend to build on our recent achievements and accelerate our growth in the Mainland of China and overseas. Alongside our strategy review, we launched the Listening • Responding programme in Hong Kong in March 2012 to raise service levels in areas that our passengers focus on, including those to reduce waiting time for passengers as well as ease crowding on platforms and in trains. Over the year, more than 1,200 train trips per week have been added to our schedule, boosting carrying capacity by some 3 million passenger trips a week. Good progress has also been made to progressively enhance station facilities with the installation of new external lifts, platform seats and public toilets for the additional comfort and convenience of our passengers. Customer satisfaction surveys show our passengers have noticed a visible difference and welcome the enhancements.

We achieved significant milestones in our growth strategy both within and outside of Hong Kong. Growth in Hong Kong saw an important development with the signing of the Entrustment Agreement for the Shatin to Central Link, the last of the five new rail lines being built under the current expansion programme. When these five lines are completed, our network in Hong Kong will be expanded by some 25%. However, our railway extension strategy in Hong Kong now looks beyond these five new rail lines. We are working with Government on the next era of rail development in the Review and Update of the Railway Development Strategy 2000 (“RDS-2U”). Outside of Hong Kong, the opening of Hangzhou Metro Line 1 (“HZL1”) and the initialling of the concession agreement for Beijing Metro Line 14 (“BJL14”) were key milestones. In 2012, our rail and bus passenger services in Hong Kong achieved a record-breaking ridership of 1,770.6 million trips. Whilst handling more passengers than ever before, we continued to maintain world class operational and safety standards throughout our network. Even though more trains were operated in 2012, our train reliability continued to improve and was in fact the best we have had since the rail merger. The number of delays of five minutes or more dropped considerably, especially those delays related to equipment fault. Our train service delivery and passenger journeys on-time across the network were maintained at 99.9%, a standard that puts MTR among the very best railways in the world. As always, the safety of our passengers and workforce is our top priority and our railway operation continues to be the safest mode of public transport in Hong Kong and one of the best globally in terms of safety. The same detailed attention to safety is evident in our rail and property construction works, our property management business and our businesses outside of Hong Kong. Financially, 2012 was a strong year for MTR as we leveraged off continued sound economic conditions in Hong Kong. Revenue from our recurrent businesses in Hong Kong increased, benefiting from patronage growth, rental rate increases in our station retail and property rental businesses as well as strong performance in our advertising business.

Global Success.

We aim for

Annual Report 2012

13

CEO’s Review of Operations and Outlook

In our property development business, we booked profits relating to The Riverpark at Che Kung Temple Station as well as from the sale of inventory units at Festival City, Lake Silver and The Palazzo. Our businesses outside of Hong Kong also increased their contribution. Compared to the previous year, total revenue for the year 2012 was 6.9% higher at HK$35,739 million. Operating profit before property development, depreciation, amortisation and variable annual payment increased by 7.9% to HK$13,083 million. Excluding contributions from our Mainland of China and international subsidiaries, revenue rose by 9.2% and operating profit by 6.9%, with operating margin at 54.4%. Net profit after tax from our recurrent businesses before property development and investment property revaluation increased by 13.3% to HK$7,071 million. Post-tax property development profit was lower at HK$2,704 million compared to HK$4,225 million in 2011, and was derived mainly from the booking of profits at The Riverpark at Che Kung Temple Station. Due to lower property development profits, excluding investment properties revaluation, net profit from underlying businesses attributable to equity shareholders decreased by 6.6% to HK$9,775 million, representing earnings per share of HK$1.69. Gain from revaluation of investment property was HK$3,757 million as compared with HK$5,088 million in the prior year. With the change in accounting standards, deferred taxation will no longer be charged against such revaluation gains. As a result, net profit attributable to equity shareholders after such revaluation was HK$13,532 million, equivalent to earnings per share of HK$2.34. Your Board has proposed a final dividend of HK$0.54 per share, giving a full year dividend of HK$0.79 per share, which is an increase of 3.9% compared to the previous year.

Operating costs of our Hong Kong transport operations increased by 6.5% to HK$7,829 million, resulting in the operating profit for this business increasing 8.8% to HK$6,694 million, with an operating margin of 46.1%.

Patronage
Total patronage from all of our rail and bus passenger services in Hong Kong increased by 4.7% to a record 1,770.6 million in 2012. Excluding Intercity service, total patronage would have increased by 4.7% to 1,766.6 million. Solid economic growth and increased tourist arrivals continued to support our Domestic Service which comprises the Kwun Tong, Tsuen Wan, Island, Tung Chung, Tseung Kwan O, Disneyland Resort, East Rail (excluding Cross-boundary Service), West Rail and Ma On Shan lines. Total patronage for our Domestic Service reached a record 1,431.0 million, a 4.7% increase over 2011. The Cross-boundary Service to Lo Wu and Lok Ma Chau reported patronage of 109.7 million in 2012, a 5.6% increase, while passenger traffic on the Airport Express increased by 7.6% to 12.7 million, supported by an increase in air travel to and from Hong Kong as well as service frequency enhancements. Passenger volume on Light Rail and Bus in 2012 was 213.2 million, a 3.9% increase, while patronage on Intercity was 4.0 million, increasing by 6.4%. Average weekday patronage for all of our rail and bus passenger services in Hong Kong rose by 4.5% to 5.07 million trips in 2012. Excluding Intercity service, average weekday patronage would have increased by 4.5% to 5.06 million trips. The Domestic Service again accounted for the majority of this patronage, recording an increase of 4.5% to 4.15 million trips per weekday.

Market Share
The Company’s overall share of the franchised public transport market in Hong Kong increased further in 2012 to 46.4%, as compared to 45.4% in 2011. Within this total, our share of cross-harbour traffic rose to 66.7% from 66.2%. Our market share of Cross-boundary business declined slightly from 54.5% to 54.2%, with strong competition particularly from buses. The Company’s market share to and from the airport was maintained at 21.8%.

Hong Kong Transport Operations
Our transport operations in Hong Kong performed well in terms of both operational and financial results. Financially, total revenue in 2012 from our Hong Kong transport operations, comprising predominantly fare revenue but also including rail related ancillary income, was HK$14,523 million, an increase of 7.5% over 2011.

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Fare Revenue
Total Hong Kong fare revenue in 2012 was HK$14,389 million, a 7.7% increase over 2011. Of this total, Domestic Service accounted for HK$10,035 million or 69.7%. Average fare per passenger on our Domestic Service increased by 2.9% to HK$7.01. Fare revenue of the Cross-boundary Service for 2012 was HK$2,847 million, an increase of 8.1% over 2011. Fare revenue of the Airport Express was 5.9% higher at HK$795 million. Average fares per passenger on the Cross-boundary Service and the Airport Express were HK$25.95 and HK$62.59 respectively. Light Rail and Bus fare revenue in 2012 was HK$578 million, a 5.7% increase over 2011, while fare revenue from Intercity was HK$134 million, increasing by 6.3%. Under the Fare Adjustment Mechanism (“FAM”), on 17 June 2012 a weighted average increase of 5.4% was applied to applicable fares. This adjustment was accompanied by a package of fare promotions which included the popular “Ride 10 Get 1 Free”, “10% Discount for Every Same-day SecondTrip”, “Free Child Travels on Weekends and Public Holidays” as well as “Tung Chung – Hong Kong Monthly Pass”. Under our Operating Agreement, the FAM can be reviewed once every five years and Government initiated discussions on such a review in August 2012. In the review process, we recognise the importance of a fair and transparent mechanism that is acceptable to stakeholders, including shareholders and the travelling public. We continue to discuss with Government on this review in order to reach a solution acceptable to all stakeholders.

As part of our new Listening • Responding programme, we increased train frequencies significantly during the year. Over the course of the year, more than 1,200 train trips per week were added to the Domestic Service, providing capacity for 3 million extra passenger journeys each week. During December 2012, we also provided an extra 1,500 train trips on weekends and for the Winter Solstice to make it even more convenient for passengers to get around over the Christmas period. By the end of 2012, ten new trains previously committed were made available for passenger service under the Listening • Responding programme, which helped to make these service frequency enhancements possible. Train frequencies on the Airport Express were also increased in January 2012, with headway shortened from 12 minutes to ten minutes between the start of traffic and midnight. Even as more train services were added, passenger journeys on-time and train service delivery were maintained at a world-class standard of 99.9%. In addition, the number of delays of five minutes or more reduced by 23% due to improvements in preventive maintenance and faster recovery when delays did occur. Even more tellingly, delays caused by equipment fault were reduced by 31% from what were already world class standards. To improve accessibility further, most of our trains have been modified to accommodate enlarged multi-purpose areas. The installation of priority seats is underway on the East Rail, West Rail and Ma On Shan lines. Under our Listening • Responding programme, we have committed to ensuring that all of our full-time stations will have more barrier-free access, and as a result, we aim to provide external lifts, connecting station concourses to the street level, at ten stations by 2015. New passenger lifts were completed during the year at four stations, while ramps for the disabled came into service at two stations. Under our Listening • Responding programme, we also aim to provide public toilet facilities in ten interchange stations by 2020. During the year, toilet facilities were installed at Sheung Wan Station, while the programme of adding 231 more seats at 50 stations was completed. New entrances were added at three stations, while the installation of automatic platform gates at the aboveground stations

Service and Performance
In 2012, we again well exceeded the targets set out in the Operating Agreement and our own more demanding Customer Service Pledges. As in prior years, this service excellence was recognised both locally and internationally. We were honoured to receive the awards of “Best Metro AsiaPacific” as well as the “Best Customer Experience Initiative” at the 2012 Metrorail Awards in London, reflecting our world-class service standards and outstanding achievements. In Hong Kong, we also won the “Reader’s Digest Trusted Brands Platinum Award” (Public Utility Provider Category in Hong Kong) and the “Top Service Awards 2012” in the Public Transportation Category from Next Magazine.

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on our Kwun Tong, Tsuen Wan, and Island lines was completed. New mobile apps designed to deliver useful travel information to passengers directly and effectively in real time were also launched during the year. Safety is a pre-requisite at MTR and is embedded in our values and culture. Leveraging on our global operations, we engaged with a number of our franchise operations outside of Hong Kong during 2012 to learn and share safety best practices in order to seek continuous improvement. In January 2013, the Company announced its new Corporate Safety Strategy, with the aspirations of being amongst the very best in safety performance globally in all of our businesses and the safest mode of public transport in every place where we operate. This strategy will help us to foster a safety-first culture and focus on continuous enhancements to our safety systems and processes in order to meet future challenges, as well as establish strategic safety priorities and actions domestically and internationally.

re-tendered and awarded in 2012, at significantly higher rental rates than the previous licence, became effective on 1 January 2013. Advertising revenue in 2012 increased by 12.0% to HK$1,000 million. We continued to bring innovation in advertising formats to increase their appeal. These included digital panel zones, the “MTR InterActiveAds Experience Station” at Tseung Kwan O Station and a pilot in-station mobile shopping scheme. Digital advertising was also extended to the East Rail Line. Revenue from telecommunications in 2012 decreased by 20.8% to HK$396 million, mainly due to smaller one-off receivables in 2012 compared to 2011, from the termination of certain 2G contracts. Excluding such one-off receivables, revenue in 2012 would have increased by 4.3%. During 2012, we facilitated telecom operators to install their equipment for enhancing 3G data capacity and signal reception. Also by end of February 2013, 4G mobile phone services were available at 66 stations.

Hong Kong Station Commercial Business
Revenue from Hong Kong station commercial business rose by 7.5% in 2012 to HK$3,680 million, as higher station shop rental and advertising revenue offset lower revenue from telecommunications. Operating costs of our Hong Kong station commercial business increased by 10.9% to HK$397 million, resulting in the operating profit for this business increasing 7.1% to HK$3,283 million, with an operating margin of 89.2%. Excluding the one-off income in relation to the termination of 2G telecommunication contracts in both 2011 and 2012, revenue would have increased by 11.6%, and the operating margin would have been 89.1%. Station retail revenue increased by 12.4% to HK$2,142 million, due to increases in shop areas and a revised trade mix as well as higher rental rates. The number of station shops at year end increased by 37 over the previous year to 1,331 following renovations at ten stations. Total station retail space rose by 966 square metres to 55,898 square metres. Branding campaigns reinforced the “Stylish Convenience” positioning of MTR Shops, increasing their appeal. The licence on Duty Free premises at Lo Wu and Hung Hom stations, which was

Hong Kong Property and Other Businesses
Continued low interest rates and high liquidity supported sentiment in the residential property market during most of 2012. However, transactions in both the primary and secondary residential property markets fell sharply at the end of the year following Government’s announcement of new stamp duty measures in October 2012. Office leasing activities in Central remained subdued owing to reduced demand from traditional major occupiers such as global investment banks, while strong demand from international brands continued to lend support to the retail property market.

Property Development in Hong Kong
Profit from property development in 2012 was HK$3,238 million comprising mainly our share of profits from The Riverpark at Che Kung Temple Station, for which the Occupation Permit was obtained in September 2012. We also booked profits on inventory units sold at Festival City, Lake Silver and The Palazzo. During the year, we launched presales for The Riverpark, with over 83% of the 981 units sold by year end. Strong sales were also achieved at Century Gateway, the Tuen Mun Station property development Phase 1, where we only act as agent for the relevant subsidiary of Kowloon-Canton Railway Corporation (“KCRC”), with 97% of the 1,075 units sold by year end.

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In our tender activities, the property development site at Tai Wai Station was tendered in May but, following detailed analysis of the tenders received, we decided not to accept any of the tenders offered. The Tin Shui Wai Light Rail site was put out to tender in January 2013 but no bids were received by the deadline. We are examining these development packages with a view to putting these projects out to tender again over the next 12 months, subject to market conditions. The tender programme for West Rail property developments, where we only act as agent for the relevant subsidiaries of KCRC, was active in the year. We awarded the Tsuen Wan West Station (TW5) Cityside site to a member company of the Chinachem Group in January 2012. In July, we re-tendered the Tsuen Wan West Station (TW5) Bayside site, which was awarded to a subsidiary of Cheung Kong (Holdings) Limited in August. The Long Ping Station (North) site was tendered in September and was awarded to a consortium formed by K. Wah International Holdings Limited and Sino Land Company Limited in October 2012. Tender for the Tsuen Wan West Station (TW6) site was invited in December 2012 with the project awarded to a consortium formed by New World Development Company Limited and Vanke Property (Hong Kong) Company Limited in January 2013. We continue to progress property development plans at other sites. Progress was made and approval obtained in February 2013 from the Town Planning Board for the Master Layout Plan for the Wong Chuk Hang Depot site along the South Island Line (East). Along the West Rail Line, approval was granted for the revised Master Layout Plan for the Long Ping Station (South) site from the Town Planning Board in June 2012.

close to 100%. As at 31 December 2012, the Company’s attributable share of investment properties in Hong Kong comprised 212,612 square metres of lettable floor area of retail properties, 40,969 square metres of offices and 13,642 square metres of other properties. We continued to invest in our property rental portfolio. Our thirteenth shopping mall in Hong Kong, PopCorn, which is located directly above Tseung Kwan O Station, was opened in March 2012. A revamp of the trade mix at The Edge commenced in September 2012 and these works will be completed in phases in 2013. Across the portfolio, we continued our programme of planned asset replacements to enhance their appeal to shoppers and sustain energy efficiency. We entered into a new five-year lease with an existing major tenant for 19,038 square metres of office space at Two ifc at rates significantly higher than those currently paid by the same tenant. The new lease will commence in mid 2014. Hong Kong property management revenue in 2012 increased by 6.8% to HK$203 million. As at 31 December 2012, the number of residential units under our management in Hong Kong increased to 86,266. The area of managed commercial space increased by 20,000 square metres to 764,725 square metres after the opening of PopCorn at Tseung Kwan O.

Other Businesses
The Ngong Ping cable car and associated theme village posted a 7.8% decrease in revenue in 2012 to HK$249 million. This was mainly due to a nine-week suspension of cable car service for repairs and maintenance works following a service disruption in late January 2012. Visitor numbers for the year reached 1.36 million, supported by various thematic events and promotions. Revenue from consultancy business in 2012 was HK$102 million, a decrease of 2.9% over 2011. Major contracts were signed or in place in Hong Kong, Macau and Australia. Octopus made further inroads in the retail sector and the Company’s share of Octopus’ net profit for 2012 was HK$211 million, a 15.9% increase over 2011. Project management income, relating predominately to entrustment works for Government on the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express

Property Rental and Management Businesses in Hong Kong
Revenue from our Hong Kong property rental and property management businesses in 2012 increased by 10.3% to HK$3,401 million. Operating costs increased by 6.8% to HK$627 million, resulting in the operating profit for this business increasing 11.1% to HK$2,774 million, with an operating margin of 81.6%. Total property rental income in Hong Kong was 10.5% higher than 2011 at HK$3,198 million. Our shopping mall portfolio achieved an average 16% increase in rental reversion for the year. At the end of December 2012, the occupancy level of our 13 shopping malls in Hong Kong and the Company’s 18 floors at Two International Finance Centre (“Two ifc”) remained

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Rail Link (“Express Rail Link”) and Shatin to Central Link, was HK$969 million in 2012, 64.8% higher than 2011. Income from such entrustment works is currently charged to Government on a cost recovery basis only.

Mainland of China and International Businesses
Revenue in 2012 from Mainland of China and international subsidiaries was HK$12,786 million, of which our railway subsidiaries outside of Hong Kong, namely Metro Trains Melbourne Pty. Ltd. (“MTM”), MTR Stockholm AB (“MTRS”) and MTR Corporation (Shenzhen) Limited (“SZMTR”), contributed HK$12,650 million, an increase of 3.0% over 2011, mainly due to the inclusion of results for SZMTR for a full year as well as increases in receipts by MTM. Revenue from our Mainland of China property rental and management subsidiaries totalled HK$136 million. Operating costs for our railway subsidiaries outside of Hong Kong were HK$12,066 million, resulting in a 30.1% rise in operating profit to HK$584 million and an operating profit margin of 4.6%. Although MTM is performing financially to original bid expectations, both MTRS and SZMTR are currently not meeting such targets. Our associates, Beijing MTR Corporation Limited (“BJMTR”), London Overground Rail Operations Limited (“LOROL”) and Tunnelbanan Teknik Stockholm AB all improved their performance, with a noticeable enhancement in results from BJMTR aided partly by a one-off accounting adjustment after the finalisation of its accounts for the year 2011. We have also included the results of our 49% owned associate in Hangzhou, namely Hangzhou MTR Corporation Limited (“HZMTR”), with the commencement of operation of HZL1 on 24 November 2012. Total contribution from these four associates rose by HK$126 million compared with 2011 to HK$242 million. Excluding the one-off BJMTR adjustment, the total contribution would have been HK$176 million in 2012. Total passengers carried by our rail subsidiaries and associates outside of Hong Kong was approximately 1,171 million in 2012, against approximately 1,065 million in 2011.

amongst the top three metro operators in the Mainland of China by the China Communications and Transportation Association and the Urban Rail Transport Professional Committee. Combined ridership in 2012 was 427 million passenger trips, with average daily patronage of over 1.17 million. BJMTR, which currently has two lines with 35 stations and a route length of 50 km, has now carried over 1 billion passengers since BJL4 service commenced in September 2009. In its first full year of operations, Shenzhen Metro Longhua Line’s operational performance has exceeded targets and contractual commitments. Patronage for the year was 117 million, with average daily patronage reaching 320,000. This is below original expectations and is partly due to the under development of areas along the alignment. The line runs 20.5 km and has 15 stations. In November 2012, HZMTR commenced operation of HZL1, which has a route length of 48 km and 31 stations. Since its opening, HZL1’s service performance has been very reliable, with average daily patronage of 150,000.

Railway Businesses Overseas
In the UK, the final phase of the East London Line was commissioned in December 2012, completing the orbital loop around London and adding a further two stations and 12 km to the LOROL network, which now extends to 57 stations and 124 km. LOROL successfully met the considerable transport challenges presented by the 2012 London Olympics, with ontime performance of 98%, even though passenger numbers were 25% above normal levels. Compliments were received from the UK Department for Transport and Transport for London, which recognised both our excellent performance and our significant support for the Olympic events through a cooperative and effective partnership. LOROL also achieved a customer satisfaction rating of 90% or more during the year, which is among the highest of any franchise or concession in the UK, according to the survey conducted by the independent passenger watchdog, Passenger Focus. These achievements were recognised when LOROL was named London’s Public Transport Operator of the Year for the second year in a row as well as receiving the World’s Most Improved Metro at the Metrorail Awards in London in 2012. In recognition of its outstanding performance over the past five years, LOROL has secured a two-year extension of its franchise to operate and maintain the London Overground rail services to November 2016. For the year, patronage was approximately 80 million, with average weekday patronage reaching 380,000.

Railway Businesses in the Mainland of China
In the Mainland of China, BJMTR, the operator of Beijing Metro Line 4 (“BJL4”) and the Daxing Line, maintained very high levels of punctuality and delivery, and was ranked

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In Stockholm, although MTRS has been underperforming financially due to higher than expected expenses relating to station cleaning, its operating performance has continued to improve, with punctuality reaching 95.2% in 2012, which is above contractual requirements. Patronage for the year was 320 million, with average weekday patronage reaching 1.2 million. The line has 100 stations and runs 110 km. In Melbourne, MTM’s network expansion during the year has increased the number of stations from 212 to 217, with the route network expanding from 372 km to 390 km. Timetable changes and a continued focus on operational performance resulted in steadily improving punctuality to 91.1% for the year, which is the highest since the commencement of franchise in November 2009. Patronage for the year was around 221 million, with average weekday patronage remaining steady at around 790,000 journeys per day.

breakthrough between Sai Ying Pun and Sheung Wan stations, with all excavation for the line now substantially completed. Track laying works have commenced and Electrical and Mechanical (“E&M”) contractors began installation works in Kennedy Town Station and Entrance C2 of Hong Kong University Station. The 7-km South Island Line (East) will extend MTR services from Admiralty to the Southern District of Hong Kong Island, with a train depot located in Wong Chuk Hang. As at year end the project was 30% complete and it is due to open in 2015. Foundation works for the expanded Admiralty Station have been completed and excavation has commenced. Excavation works for the Nam Fung tunnel from Admiralty Station to the south side of Hong Kong Island were 14% complete at year end. The major civil works contracts, including construction of viaducts, bridges, the four new stations and the Wong Chuk Hang Depot, progressed satisfactorily. E&M contracts have been awarded and are in the detailed design stage. The 2.6-km Kwun Tong Line Extension will extend the Kwun Tong Line from its existing terminus at Yau Ma Tei Station to new stations in Ho Man Tin and Whampoa. At year end, the project was 31% complete and it is targeted to open in 2015. The scheme amendment incorporating the integrated entrances at Whampoa Station was authorised in August 2012. Excavation of Ho Man Tin Station was 68% complete by the year end and tunnel excavation between Yau Ma Tei and Ho Man Tin has now commenced. The re-provisioned Club de Recreio was handed over in September 2012. Detailed design of E&M works is underway. The 26-km Express Rail Link, which is funded by Government, will provide high speed cross-boundary rail services connecting Hong Kong to Shenzhen, Guangzhou and the Mainland of China’s high-speed intercity passenger rail network. It will be served by the West Kowloon Terminus comprising 15 platforms for short-haul and long-haul services. Tunnelling works commenced at Nam Cheong in January 2012 and six Tunnel Boring Machines are now at work. By the year end, 60% of the required excavation was complete for the project, including tunnels and the terminus. Concrete placement commenced for the track slab level at the terminus in September 2012. All major

Property Development, Rental and Management Businesses in the Mainland of China
During the year, MTR Property Development (Shenzhen) Company Limited was established to develop associated properties at Shenzhen Metro Longhua Line Depot Site Phase 1 after receiving official endorsement from the Ministry of Finance in Beijing in November 2012. Land premium of RMB1,977 million was paid on 24 January 2013 and the development is expected to cost approximately RMB4 billion. The total developable gross floor area of the development is approximately 206,167 square metres. Revenue from our property rental and property management businesses in the Mainland of China increased by 3.0% to HK$136 million in 2012. Our shopping mall in Beijing, Ginza Mall, maintained its occupancy rate of 98% at the end of 2012 and rental reversion for the year was 7.2%. The Company’s managed commercial and residential space in the Mainland of China totalled 233,000 square metres at the end of 2012.

Future Growth
During 2012, works continued on the five major projects to expand our rail service to more districts of Hong Kong, whilst we progressed with opportunities in the Mainland of China and international markets.

Growth in Hong Kong
The 3-km West Island Line, an extension of the Island Line, was 65% complete by the end of 2012 and it is targeted to open in 2014. Key developments for the year included the tunnel

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E&M contracts, including signalling and rolling stock, have been awarded. As at the year end, the project was 31% complete. Services are planned to start in 2015. On 27 March 2012, the Chief Executive-in-Council announced the authorisation of the 17-km Shatin to Central Link under the Railways Ordinance. This was followed by funding approval, receipt of the environmental permits and signing of the Entrustment Agreement in May 2012. The 17-km line consists of ten stations, including six interchange stations, and runs from Tai Wai to Admiralty. The first section from Tai Wai to Hung Hom is planned to open in 2018 and the second section from Hung Hom to Admiralty in 2020. Ground-breaking ceremony was held in June 2012. Procurement of civil and E&M contracts has progressed, including the contract for the modification of East Rail platforms to accommodate new rolling stock. By the end of the year, more than HK$20 billion of contracts for the project had been awarded. District Council and Community Liaison Group consultations continued throughout the year. Works for the new Central Mail Centre, which is being relocated from Hung Hom to Kowloon Bay, were 70% complete by year end. With construction underway involving over 7,000 workers on 125 sites across Hong Kong, the Company has worked closely with contractors to raise worker safety culture and risk awareness, and ensure high standards of health and safety are maintained on all of our sites, including the reduction of commonly occurring finger and toe injuries. A New Workers Caring Programme to improve safety awareness among new workers and a Workers Life Insurance Scheme were introduced. A new Mobile Incident Control Centre has enhanced further our ability to respond rapidly to any major incidents on our project sites. The RDS-2U Stage 1 Public Engagement by Government was completed in July 2012. It has earned positive responses from the public and other stakeholders regarding further sustainable rail development in Hong Kong. In line with our Corporate Strategy for growth in Hong Kong, the Company will continue working with Government on RDS-2U which will lead to confirmation of the implementation plan for future new lines.

Growth in the Mainland of China and Overseas
In Beijing, BJMTR signed an interim Operating and Maintenance Agreement for BJL14 in October 2012 and also initialled the Concession Agreement with the Beijing Municipal Government in November 2012. BJL14 will have a capital cost of approximately RMB50 billion. Under the 30-year Public-Private-Partnership agreement, BJMTR will be mainly responsible for the E&M and rolling stock assets estimated to cost RMB15 billion, funded by a combination of equity and debt, whilst the Beijing Municipal Government will fund the balance. MTR will contribute additional equity investment in BJMTR of approximately RMB2.2 billion. The line runs 47.3 km and has 37 stations, including ten interchange stations. Construction work started in 2010, with the line opening in phases. Phase 1 of approximately 12.7 km is expected to open in mid 2013, Phase 2 in 2014 and Phase 3 in 2016. In the UK, we submitted a bid for the Essex Thameside franchise in September 2012, but following a legal challenge from one of the failed bidders on the tendering of another franchise, the UK Government suspended all franchise competitions in October 2012 and initiated an independent review of the UK’s entire rail franchising process. This review was completed in early 2013 and the Department for Transport announced that a revised invitation to tender for the Essex Thameside franchise will be issued to bidders later in 2013. Similarly in the case of the Thameslink franchise, for which we were also shortlisted, we expect a revised timetable for the tender competition to be announced in the spring of 2013.

Financial Review
In 2012, the Group generated total revenues of HK$35,739 million, 6.9% higher than 2011. Our Hong Kong businesses, comprising railway operations, station commercial, property rental and management and other businesses, reported a 9.2% increase in revenue to HK$22,953 million while our Mainland of China and international subsidiaries recorded a 3.0% growth in revenue to HK$12,786 million. Total operating costs of the Group were HK$22,656 million, increasing by 6.4% to support our revenue growth as well as our corporate strategy on service enhancement and performance improvement in Hong Kong and new business developments outside of Hong Kong. As a result, operating profit before property developments, depreciation, amortisation and variable annual payment increased by 7.9% to HK$13,083 million, with operating margin increasing by 0.3 percentage point to 36.6%. Excluding

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contributions from Mainland of China and international subsidiaries, operating margin decreased by 1.2 percentage points to 54.4% due mainly to more costs incurred on bids for UK franchises as well as pre-operating expenses for HZL1. Property development profit decreased by HK$1,696 million to HK$3,238 million in 2012, derived mainly from the completion of The Riverpark at Che Kung Temple Station and sale of inventory units. After deducting depreciation and amortisation charges of HK$3,208 million and variable annual payment of HK$883 million, operating profit before interest and tax decreased by 7.4% to HK$12,230 million. After accounting for interest and finance charges of HK$879 million, investment property revaluation gain of HK$3,757 million, share of profits from non-controlled subsidiaries and associates of HK$456 million and income tax of HK$1,893 million, net profit attributable to equity shareholders of the Company in 2012 decreased by 13.0% to HK$13,532 million, or HK$2.34 per share. An accounting standard change effective on 1 January 2012 results in deferred tax no longer being chargeable on investment property revaluation with corresponding prior year adjustments. Excluding investment property revaluation, underlying profit decreased by 6.6% to HK$9,775 million, or HK$1.69 per share, due to the lower property development profit in 2012. As at 31 December 2012, the Group’s net assets increased by 7.3% to HK$144,480 million, with total assets increasing by 4.6% to HK$206,915 million and total liabilities decreasing by 1.2% to HK$62,435 million. The increase in total assets was mainly due to investment property revaluation gains, capitalisation of further construction costs of the South Island Line (East) and Kwun Tong Line Extension, as well as a capital injection into the associate company in Hangzhou. These asset additions were partly offset by the reduction in property development in progress upon completion of The Riverpark and a lower investment in securities upon redemption of matured medium term notes. The decrease in total liabilities was mainly due to the utilisation of Government grant received in previous years for the construction of the West Island Line and settlement of enabling works costs for the Tai Wai Station property site. The Group’s net debt-to-equity ratio improved from 11.4% at 31 December 2011 to 10.9% at 31 December 2012. During 2012, the Group generated cash inflow of HK$13,151 million from operating activities before working capital movements and tax payments, an increase of 7.8% from

last year. After accounting for these working capital movements and tax payments as well as government subsidy for the Shenzhen Metro Longhua Line operation, net cash inflow from operating activities was HK$13,539 million. Cash receipts from property developments were HK$5,677 million. Including further cash receipts of HK$645 million derived from other activities such as dividend distribution and loan repayment from affiliates and proceeds from issuing shares under the share option schemes, total cash inflow in 2012 was HK$19,861 million. Total cash outflow in the same period was HK$20,361 million, comprising mainly HK$11,125 million of capital expenditures, HK$2,734 million of equity injection into HZMTR, HK$1,397 million of fixed and variable annual payments to KCRC, HK$438 million of net interest payment and HK$4,519 million of dividend payments. As a result, the Group’s net cash outflow before financing was HK$500 million, which was covered by existing cash balances. Redemption of bank medium term notes, together with a net loan drawdown of HK$385 million, increased the Group’s cash balance at year end by HK$2,509 million to HK$18,609 million. In line with our progressive dividend policy, the Board has recommended a final dividend of HK$0.54 per share, which, when added to the interim dividend of HK$0.25 per share, gives a total dividend of HK$0.79 per share for the year, an increase of HK$0.03 per share or 3.9% from last year.

Human Resources
The number of people employed by the Company together with our controlled subsidiaries was 15,200 in Hong Kong and 6,955 outside of Hong Kong as at 31 December 2012. During the year, business growth was supported by an integrated approach to recruitment and retention in Hong Kong and our other centres of operation. Over 1,800 new hires were recruited for our Hong Kong business, with a number of engineering professionals hired from overseas for their project expertise. We also increased the intake of trainees, including Graduate Trainees and Engineers, Functional Associates and Apprentices in Hong Kong to meet future growth. At 4.2%, staff turnover remained low despite a rebound in the employment market.

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Training of staff at all levels continued throughout the year. Established schemes for executives, managers, supervisors, trainees and apprentices helped our staff to enhance their skills and identified those with the potential for leadership positions. To reinforce two-way communication between line managers and staff, over 5,000 sessions of the “Enhanced Staff Communication Programme” were organised in 2012 involving more than 60,000 participating headcount. The Staff Attitude Survey 2012 was conducted in October 2012 with a very high participation rate of 96.9%. The survey result will be released to staff in the first quarter of 2013. In September 2012, the semi-annual Management Communication Meeting communicated the re-vamped Corporate Strategy to over 1,100 managers. Webcast communication meetings on this re-vamped strategy were extended to cover over 670 supervisory staff representatives from various departments. Besides internal communications, staff have been kept engaged through various motivational schemes.

parts of Hong Kong. These meetings help ensure that from the design stage to construction and ultimately operation of the rail lines, we are addressing the needs of the communities they serve.

Outlook
Continued economic growth in Hong Kong will benefit our recurrent businesses, increasing patronage, enhancing rental reversions as well as furthering our advertising business. The 5-year review of the FAM is being conducted and is planned to be concluded by end of March, with implementation of the mechanism in June 2013 as it has been in previous years. It should be noted that the financial costs of some of the concessions and promotions given in June 2012 at the last FAM review will continue to be an expense in 2013. Our businesses outside of Hong Kong should see revenue enhancements given the growing maturity of our rail lines in the Mainland of China as well as contractual increases for our overseas franchises. In our Hong Kong property development business, based on the existing construction programme, we do not expect to book profits for any of our projects currently under development in 2013. However sale of inventory units may contribute to property development profits. In our property tender activities, subject to market conditions, we aim to tender the developments at the Tai Wai Station site, Tin Shui Wai Light Rail site and another site at LOHAS Park Package 4 over the next 12 months. For West Rail property developments where we only act as agent for the relevant subsidiaries of KCRC, we will also look to tender out the Long Ping Station (South) site. Finally I take this opportunity to thank my fellow Board Members and all my MTR colleagues for their significant contributions during the year. They are truly the heroes of MTR.

Community Engagement
Listening and responding to the views of our customers and our community was a key emphasis in 2012. To collect views, we held surveys and MTR Opinion Zones in stations and on trains throughout the year, which enabled us to speak directly with passengers about their personal experiences and to ask them where they think we can make improvements. Other initiatives designed to enhance communication and foster better understanding about our work included live phone-in radio programmes and a series of TV segments entitled “MTR Presents: We Listen • We Respond”. Furthermore, our Society Link gatherings regularly bring together senior Operations managers with representatives of different community groups to discuss our service. We held over 600 meetings with community liaison groups, residents, local committees and councils over the course of the year to collect community opinion on our five new railway projects under construction in various

Jay H Walder, Chief Executive Officer Hong Kong, 11 March 2013

22

MTR Corporation

Key Figures
2012 2011 % Increase/ (Decrease)

Financial highlights (HK$ million)
Revenue – Hong Kong transport operations – Hong Kong station commercial business – Hong Kong property rental and management businesses – Mainland of China and international subsidiaries – Other businesses Operating profit before property developments, depreciation, amortisation and variable annual payment Profit on property developments Operating profit before depreciation, amortisation and variable annual payment Profit attributable to equity shareholders arising from underlying businesses Total assets Loans, other obligations and bank overdrafts Obligations under service concession Total equity attributable to equity shareholders 14,523 3,680 3,401 12,786 1,349 13,083 3,238 16,321 9,775 206,915 23,577 10,690 144,273 36.6 54.4 10.9 7.0 13.2 2.34 1.69 0.79 30.50 176,692 13,509 3,422 3,083 12,411 998 12,124 4,934 17,058 10,468 197,870# 23,168 10,724 134,463# 36.3 55.6 11.4# 8.2# 14.5 2.69# 1.81 0.76 25.15 145,490 7.5 7.5 10.3 3.0 35.2 7.9 (34.4) (4.3) (6.6) 4.6 1.8 (0.3) 7.3 0.3% pt. (1.2%) pts. (0.5%) pt. (1.2%) pts. (1.3) times (13.0) (6.6) 3.9 21.3 21.4

Financial ratios
Operating margin (%) Operating margin (excluding Mainland of China and international subsidiaries) (%) Net debt-to-equity ratio* (%) Return on average equity attributable to equity shareholders arising from underlying businesses (%) Interest cover (times)

Share information
Basic earnings per share (HK$) Basic earnings per share arising from underlying businesses (HK$) Dividend per share (HK$) Share price at 31 December (HK$) Market capitalisation at 31 December (HK$ million)

Operations highlights
Total passenger boardings in Hong Kong (million) – Domestic Service – Cross-boundary Service – Airport Express – Light Rail and Bus Average number of passengers (thousand) – Domestic Service (weekday) – Cross-boundary Service (daily) – Airport Express (daily) – Light Rail and Bus (weekday) Fare revenue per passenger (HK$) – Domestic Service – Cross-boundary Service – Airport Express – Light Rail and Bus Proportion of franchised public transport boardings (%)
* #

1,431.0 109.7 12.7 213.2 4,148 299.7 34.7 597.3 7.01 25.95 62.59 2.71 46.4

1,366.6 103.9 11.8 205.2 3,968 284.6 32.3 576.7 6.81 25.35 63.62 2.67 45.4

4.7 5.6 7.6 3.9 4.5 5.3 7.3 3.6 2.9 2.4 (1.6) 1.5 1.0% pt.

Including obligations under service concession and loan from holders of non-controlling interests as components of debts and investments in bank medium term notes, if any, as component of cash. Restated upon the adoption of Amendments to Hong Kong Accounting Standard 12 as described in note 2A(iii) to the accounts.

Annual Report 2012

23

Key Events in 2012
January
At the start of his tenure, CEO Mr Jay Walder emphasised the Company’s continual commitment to developing stronger connections between MTR and the community while striving for continued growth in Hong Kong, the Mainland of China and overseas.

May
An Entrustment Agreement for construction of the main works and commissioning of the Shatin to Central Link was signed with Government. The Company enhanced the frequency of the Airport Express service from 12 to 10 minutes a train each day between the start of traffic and midnight. Two new external lifts at Sham Shui Po and Jordan stations opened for public use.

February
The Governor of Guangdong Province, Mr Zhu Xiaodan, together with Guangdong provincial government officials visited the Company for an update on the Hong Kong section of the Guangzhou-Shenzhen-Hong Kong Express Rail Link.

March
The Company launched the Listening • Responding programme to directly address service improvement requests from customers. The initiative focuses on reducing waiting time for our passengers as well as easing crowding on platforms and in trains, improving station access and providing more facilities for the comfort and convenience of passengers.

April
The first external lift under the MTR Corporation’s Listening • Responding programme opened for public use at Cheung Sha Wan Station. Austin Station Residential Developments achieved the BEAM (Building Environmental Assessment Method) Plus V1.1 for NB Gold Certification (Provisional Assessment). The Company was named “Best Metro Asia-Pacific” at the prestigious 2012 Metrorail Awards in London and was recognised for offering the “Best Customer Experience Initiative”.

June
A new package of fare promotions was launched at the same time that fares were adjusted according to the Fare Adjustment Mechanism. The first promotion rolled out was the “Ride 10 Get 1 Free” scheme. In addition, the Company implemented Government’s HK$2 Public Transport Fare Concession Scheme for the Elderly and Eligible Persons with Disabilities from 28 June, the first public transport operator to do so. The Company held a ground-breaking ceremony to mark the start of construction of the Shatin to Central Link Project.

The Company was shortlisted by the UK’s Department for Transport to bid for two rail operating franchises – the Essex Thameside franchise and the Thameslink franchise. The thirteenth MTR Mall, PopCorn, opened on 31 March. It is located above Tseung Kwan O Station.

Pre-sale of The Riverpark at Che Kung Temple Station was launched.

24

MTR Corporation

September
The new entrance at University Station opened in September and was awarded Precertification Silver-level in the LEED (Leadership in Energy and Environment Design) Certification Scheme (Core and Shell category) by the US Green Building Council. The Company launched two new mobile apps, “Traffic News” and “Intercity Train”. All apps are under the new “MTR Mobile” portal.

October
More than 1,500 participants took part in the MTR HONG KONG Race Walking 2012 in support of healthy living. London Olympic medalist Mr Si Tianfeng participated in the race and provided a demonstration of race walking techniques to the participants.

July
The Company organised an open competition, “MTR New Railway Lines Art in Stations 2012”, to collect proposals of original artworks to grace the new stations along the West Island Line, South Island Line (East) and the Kwun Tong Line Extension. The Company appointed Mr Lincoln Leong as Deputy Chief Executive Officer with effect from 16 July.

Dr Raymond K F Ch’ien was reappointed as Chairman of MTR for a period of three years from 1 January 2013 to 31 December 2015.

November

December
The Company won triple recognition for excellence in corporate management practices. It was ranked as having the highest risk maturity level by CoMET and was awarded the “Sustainability Excellence Award 2012” in the Hong Kong Corporate Governance Excellence Awards 2012 as well as the Gold Award (Hang Seng Index Series) in the Hong Kong Institute of Certified Public Accountants 2012 Best Corporate Governance Disclosure Awards.

August
A brand new entrance was opened at Causeway Bay Station to provide seamless connectivity between the station and Hysan Place, a new landmark in vibrant Causeway Bay. Hangzhou MTR Corporation Limited, the Company’s 49% associate joint venture with Hangzhou Metro Group Company Limited, commenced service of Hangzhou Metro Line 1 on 24 November. Beijing MTR Corporation Limited, the joint venture company comprising MTR Corporation Limited, Beijing Infrastructure Investment Corporation Limited and Beijing Capital Group Limited, initialled a Concession Agreement with the Beijing Municipal Government for the Public-PrivatePartnership project for Beijing Metro Line 14. With the new batch of enhancements implemented in November, the overall number of train trips was boosted by 62,000 a year. The first batch of train service enhancements was introduced on the Tung Chung, Kwun Tong, Tsuen Wan, Island, Tseung Kwan O and West Rail lines under the Listening • Responding programme in March. The breakthrough of the West Island Line tunnel from Sheung Wan to Kennedy Town via Sai Ying Pun and the University of Hong Kong was completed.

New public toilet facilities and two new lifts were opened for public use at Sheung Wan Station, marking the completion of two years of major renovation works under the West Island Line project. The Company was awarded an AA+ rating and ranked top among all Hong Kong companies listed on the Hang Seng Corporate Sustainability Index.

The Shatin to Central Link celebrated its first project milestone with the Topping Out Ceremony for the new Central Mail Centre in Kowloon Bay. The Company launched the “10% Discount for Every Same-day Second Trip” promotion on 31 December.

Annual Report 2012

25

Enhanced Train Services.

My schedule is more flexible with the

Shared Journeys
26
MTR Corporation

Public Toilet over there!

You will find a new

It’s convenient to take the new to the station!

Lift

Annual Report 2012

27

Executive Management’s Report

MTR’s sustainable transport system underpins the Hong Kong economy

Hong Kong Transport Operations

1,200 per week

Added

231 at 50 stations

Added

Airport Express

Train frequencies of

Train Trips

Seats

10

improved to

minutes

28

MTR Corporation

Total patronage on our Domestic Service reached a record 1,431.0 million, a 4.7% increase over 2011, supported by solid economic growth and increased tourist arrivals. Our Domestic Service comprises the Kwun Tong, Tsuen Wan, Island, Tung Chung, Tseung Kwan O, Disneyland Resort, East Rail (excluding Cross-boundary Service), West Rail and Ma On Shan lines. The Cross-boundary Service to Lo Wu and Lok Ma Chau reported patronage of 109.7 million in 2012, a 5.6% increase over 2011. Passenger traffic on the Airport Express increased by 7.6% as compared with 2011 to 12.7 million, supported by an increase in air travel to and from Hong Kong as well as service frequency enhancement. Passenger volume on Light Rail and Bus services in 2012 was 213.2 million, a 3.9% increase over 2011, while patronage on Intercity service was 4.0 million, increasing by 6.4%.

Average Weekday Patronage
Average weekday patronage for all of our rail and bus passenger services in Hong Kong rose by 4.5% to 5.07 million trips in 2012. Excluding Intercity service, average weekday patronage would have increased by 4.5% to 5.06 million trips. The Domestic Service again accounted for the majority of this patronage, recording a rise of 4.5% to 4.15 million trips per weekday.

Market Share
The Company’s overall share of the franchised public transport market in Hong Kong increased further in 2012 to 46.4%, as compared to 45.4% in 2011. Within this total, our share of cross-harbour traffic rose to 66.7% from 66.2%. Our market share of Cross-boundary business declined slightly from 54.5% to 54.2% due to strong competition, particularly from buses. The Company’s market share to and from the airport was maintained at 21.8% for 2012.

Our transport operations in Hong Kong performed well in terms of both operational and financial results. Financially, total revenue in 2012 from our Hong Kong transport operations, comprising predominately fare revenue but also including rail related ancillary income, was HK$14,523 million, a 7.5% increase over 2011. Operating costs of our Hong Kong transport business increased by 6.5% to HK$7,829 million, resulting in the operating profit for this business increasing 8.8% to HK$6,694 million, with an operating margin of 46.1%.

Patronage
Total patronage from all of our rail and bus passenger services in Hong Kong grew by 4.7% to a record 1,770.6 million in 2012. Excluding Intercity service, total patronage would have increased by 4.7% to 1,766.6 million.
The Operations Control Centre plays a key role in ensuring efficiency

Annual Report 2012

29

Executive Management’s Report • Hong Kong Transport Operations

Market Shares of Major Transport Operators in Hong Kong
The Company’s overall market share increased from 45.4% in 2011 to 46.4% in 2012.
(Percentage)

Fare Revenue
Total Hong Kong fare revenue in 2012 was HK$14,389 million, a 7.7% increase over 2011. Of this total, Domestic Service accounted for HK$10,035 million or 69.7%. Average fare per passenger on our Domestic Service increased by 2.9% to HK$7.01. Fare revenue of the Cross-boundary Service for 2012 was HK$2,847 million, an increase of 8.1% over 2011. Fare revenue of the Airport Express was 5.9% higher at HK$795 million. Average fares per passenger on the Cross-boundary Service and the Airport Express were HK$25.95 and HK$62.59 respectively. Light Rail and Bus fare revenue in 2012 was HK$578 million, a 5.7% increase over 2011, while fare revenue from Intercity was HK$134 million, increasing by 6.3%. Under the Fare Adjustment Mechanism (“FAM”), on 17 June 2012 a weighted average increase of 5.4% was made to applicable fares. This adjustment was accompanied by a package of fare promotions which included the popular “Ride 10 Get 1 Free”, “10% Discount for Every Same-day Second Trip”, “Tung Chung – Hong Kong Monthly Pass”, “Free Child Travels on Weekends and Public Holidays”, and HK$20 MTR Shops coupons for monthly pass purchasers. Under our Operating Agreement, the FAM can be reviewed once every five years and Government initiated discussions on such a review in August 2012. In the review process, we recognise the importance of a fair and transparent mechanism that is acceptable to stakeholders, including shareholders and the travelling public. We continue to discuss with Government on this review in order to reach a solution acceptable to all stakeholders.

2.8 14.6

2012

15.0
11.5

3.1 45.4

46.4

11.4 25.1

MTR KMB Other buses
2011

24.7

Green minibus Trams and ferries

Market Shares of Major Transport Operators Crossing the Harbour
The Company’s market share of cross-harbour traffic rose to 66.7% .
(Percentage)

4.2

2012

29.1

4.4 29.4

66.2

Promotions and Concessions
66.7 2011

MTR Buses Ferries

A number of other promotions were offered to attract people to use our network and support patronage and revenue growth. Several schemes were introduced to underpin the attractiveness of our cross-boundary services. A Lok Ma Chau advertising campaign was launched in December 2012 to encourage more leisure travel on the Shenzhen Metro via Lok Ma Chau Station, including advertisements and a travel e-book highlighting attractions in Shenzhen. At the same time, a similar advertising campaign was initiated in Guangdong Province to promote travel to Hong Kong via Lok Ma Chau Station. In addition, a 20% fare discount was offered between April and June 2012 for passengers travelling to Lok Ma Chau Station from catchment areas with a lower ridership including most Island Line stations. To encourage more tourists to use our services, a tourist ticket promotion was introduced during the year, encompassing discounts at major local attractions such as Ngong Ping 360, Hong Kong Disneyland, Madame Tussauds and sky100. Other tourist ticket promotions included special editions of tourist tickets for Ocean Park and special offers from MTR shopping malls.

Market Share of Airport Express
The proportion of air passengers using the Airport Express maintained at 21.8%.
(Percentage)

2012 21.8

21.8

78.2 78.2 2011

Airport Express Other

30

MTR Corporation

Passengers and Fares (Hong Kong Transport Operations excluding Intercity)
Economic growth and buoyant tourist arrivals supported the increase in fare revenue and patronage.
18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0 1,767 1,800 1,700 1,600 1,500 1,400 1,300 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0

Fare Trend
In past years, MTR fares have consistently lagged behind the growth in Hong Kong payroll but were in line with the long-term changes in consumer prices in Hong Kong.

1,200 1,000 800 600 400 200 0 1980 1985 1990 1995 2000 2005 2012

14.3

7.67

7.58

7.69

7.84

8.07

Number of passengers (million) (right scale) Hong Kong Fare Revenue (HK$ billion) (left scale) Average fare (HK$)

HK Payroll Index (avg. 8.01% growth p.a) Consumer Price Index (A) (avg. 4.59% growth p.a) MTR System Average Fare (avg. 4.22% growth p.a)

2008

2009

2010

2011

2012

To promote travel on the Airport Express, we partnered with major financial institutions and offered discounts to passengers who purchased tickets online with designated credit cards. We also successfully launched a group tickets promotion, offering instant gifts, travel packages to various destinations plus lucky draw prizes. Free rides were provided

for children during the main holidays, which helped generate incremental ridership. We now have more than 1.3 million MTR Club members. A bonus point scheme was launched between April and July 2012 to encourage our Club members to ride and shop within the MTR network and malls.

The MTR network carries about 5 million people per weekday efficiently and safely

Annual Report 2012

31

Executive Management’s Report • Hong Kong Transport Operations

To encourage passengers further to use our train service, two new fare saver machines were installed during the year, bringing the number of such machines operating in Hong Kong and Shenzhen to 33 as of 31 December 2012.

Benchmarking Comparisons
MTR Corporation maintained its strong position, particularly in service reliability, against international benchmarks.
MTR performance vs. Best Performance

Service and Performance
In 2012, we again well exceeded the targets set out in the Operating Agreement and our own more demanding Customer Service Pledges. Even though more trains operated than ever before, our train reliability continued to improve and was in fact the best we have had since the rail merger. Furthermore, train service delivery and passenger journeys on-time across the network were all at 99.9%, a standard that puts MTR among the very best railways in the world. We also performed well in the CoMET international benchmarking.

Service reliability (passenger journeys on time)
99.9 99.9

Punctuality (percentage of trains on time)
99.9 99.9

System utilisation (passenger km per capacity km)
70 62

Density (number of passengers per track km)
68 69

2011 2010

Best Performance = 100

The new entrance at University Station is one of many service improvements

32

MTR Corporation

The Airport Express is a fast and convenient option for air travellers

Our service excellence was recognised in numerous local and international awards, some of which are listed in the table below: Awards Received in Hong Kong
Sing Tao Excellent Services Brand Award 2011 – Category Award of Public Transportation Hong Kong Service Awards 2012: • Hong Kong Service Awards – Public Transportation Category • Outstanding Honours Award in Corporate Social Responsibility Category • Corporate Social Responsibility Award Top Service Awards 2012 in the Public Transportation Category

Organisation
Sing Tao Daily East Week Magazine

Next Magazine

Reader’s Digest Trusted Brands Platinum Award (Public Utility Provider Category in Hong Kong) Reader’s Digest Hong Kong Star Brands Award 2012 (Enterprise) Best App by Government/Community – Mob-Ex Silver Award 2012 Hong Kong Small and Medium Enterprises Association and Hong Kong Trade Development Council Marketing Magazine

(for MTR Mobile App)

Awards Received Outside of Hong Kong
Best Metro Asia-Pacific and Best Customer Experience Initiative Customer Service Excellence Award

Organisation
Metrorail Awards in London, UK Global AirRail Awards 2012 in Stockholm, Sweden Tourism Administration of Guangzhou Municipality, Mainland of China

(for Airport Express)
Award for Brand Excellence in Guangzhou-Hong Kong Leisure Travel Service

(for Ktt service)

Annual Report 2012

33

Executive Management’s Report • Hong Kong Transport Operations

Customer satisfaction as recorded by our regular surveys remained high during 2012. The Service Quality Index for Domestic and Cross-boundary services and for the Airport Express stayed at 74 and 84 respectively, being the same as those for 2011. The Fare Index, which measures the level of customer satisfaction with fares, changed to 63 from 64 for the Domestic and Cross-boundary services over the past year and stayed at 70 for the Airport Express.

Operating Costs Per Car-km Operated For Hong Kong Transport Operations
The increase in operating costs per car-km reflected the increase in expenditure on enhancing our service and system.
(HK$) 23.1 21.2 21.5 21.5 23.7

Service Enhancements
In response to listening to our travelling public, we launched our HK$1 billion Listening • Responding programme in March 2012 and identified enhancement opportunities in our network. Over the course of the year, we increased train frequencies significantly, adding over 1,200 train trips per week to our network, providing capacity for 3 million extra passenger journeys each week. These train trips were added to six of our lines, namely the Tung Chung, Kwun Tong, Tsuen Wan, Island, Tseung Kwan O and West Rail lines. During December 2012, we also provided an extra 1,500 train trips on weekends and for the Winter Solstice to make it even more convenient for passengers to get around over the Christmas period. To support such service enhancements, the ten new trains previously committed were brought into passenger service under the Listening • Responding programme during the year as planned. To attract more passengers to use the Airport Express, starting from January 2012, train service headway was enhanced from 12 to ten minutes between the start of traffic and midnight by adding 245 train trips per week. While more trains were operated in 2012, the number of delays of five minutes or more reduced by 23% due to improvements
2008 2009 2010 2011 2012

in preventive maintenance and faster recovery when delays did occur. Even more tellingly, delays related to equipment fault were down by 31% from what were already world class standards. In a survey of customers we conducted in November 2012, up to 80% of interviewees found our trains and platforms less crowded while up to 90% were satisfied with the waiting time for trains. Also by the year end, 29 refurbished and modernised Phase I Light Rail vehicles had re-entered passenger service, offering a fresher look and a more comfortable travelling environment. Other enhancements to trains have included installation of LED lighting and noise attenuation technology respectively to save energy and respond to public concerns on saloon noise levels. To improve bus feeder services in 2012, we put into service 18 new double-decker buses with Euro V engines that meet the latest stringent environmental standards. Six more new buses were purchased and will be delivered in 2013. To deliver useful travel information to passengers directly, effectively, and in real time, we launched new and enhanced mobile apps during 2012. The new MTR Traffic News App launched in September 2012 provides instant updates on train service arrangements during typhoons, festive holidays and serious train service disruptions. The Next Train App, which became available in June 2012, provides real time train schedules for the next four trains on the Airport Express and Tung Chung Line. MTR Tourist App assists passengers to plan their leisure trips in Hong Kong. All mobile apps were migrated to a single portal, MTR Mobile 5.0, allowing them to be seen at one glance and downloaded more conveniently. In collaboration with the Hong Kong Computer Society, the MTR App Talent Quest conducted its award ceremony in October 2012. The HK$100,000 Grand Prize was won by a role

Staff Efficiency and Cost Efficiency
New initiatives continue to be introduced to enhance operating efficiency.
MTR performance vs. Best Performance

Staff efficiency (number of passengers per staff hour) 100 93

Cost efficiency (revenue per total cost) 100 100 Best Performance = 100 2011 2010

34

MTR Corporation

play game promoting good passenger behaviour. Improving accessibility to our trains and stations remains a key task for the Company. To accommodate passengers in need better, most of our trains on the Island, Tseung Kwan O, Kwun Tong and Tsuen Wan lines have been modified to allow an enlarged multi-purpose space. The installation of priority seats was completed on the Island, Tseung Kwan O, Kwun Tong and Tsuen Wan lines, while those for the East Rail, Ma On Shan, West Rail, Tung Chung lines and Light Rail are in progress. Under our Listening • Responding programme, we have committed to ensuring that all of our full-time stations will have more barrier-free access, and as a result, we aim to provide external lifts, connecting the station concourses to the street level, at ten stations by 2015. During the year, new passenger lifts were completed at Jordan, Cheung Sha Wan, Sham Shui Po and Sheung Wan stations. In addition, a total of 52 additional wide gates have been ordered for service by 2013. The programme to add 231 more seats at 50 stations was completed on schedule in 2012, while ramps for the disabled came into service at Quarry Bay and Lok Fu stations. We also aim to provide public toilet facilities in ten interchange stations by 2020 under our Listening • Responding programme. During the year, toilet facilities were installed at Sheung Wan Station. Detailed designs for Mong Kok

and Prince Edward stations are in progress, together with a preliminary design for Admiralty Station. Convenient and modern new entrances were completed during the year at University, Tseung Kwan O and Causeway Bay stations, while the installation of automatic platform gates at aboveground stations on the Kwun Tong, Tsuen Wan and Island lines has been completed.

Safety on the Network
Safety is an absolute pre-requisite for our transport operations. We remain the safest mode of public transport in Hong Kong. We also continue to be ranked among the best operators for safety performance in international benchmarking. In October and November 2012, staff from our Hong Kong transport operations participated in joint peer review exercises with their counterparts from the Company's railway franchises outside of Hong Kong. The purpose of these reviews is to continuously enhance our safety management through sharing, learning and adopting relevant best practices. Safety training and attachments to Hong Kong transport operations were arranged for safety staff from our subsidiaries. We also supported the safety assessment of new railway franchises outside of Hong Kong.

Extensive maintenance programmes ensure continued efficiency and reliability

Annual Report 2012

35

Executive Management’s Report • Hong Kong Transport Operations

Light Rail is a vital transport network for the North-West New Territories

Initiatives to educate the public on safety included escalator safety campaigns, with prominent safety messages printed on the walls and handrails of selected escalators, deployment of Escalator Safety Ambassadors and repainting of green footmarks on 45 escalators. A safety programme targeting the elderly was also launched jointly with a local radio station in November 2012. On the Light Rail service, safety belts and backing plates for wheelchair

users were installed in 118 vehicles, 999 platform gap fillers were installed at Light Rail stops and a Light Rail Road User Safety Campaign was launched. We continue to promote workplace safety for our staff and contractors’ staff. A comprehensive 12-month programme was held, aiming at reducing incidents including the use of human factor techniques. A “Double Safety Walk” campaign saw senior managers and supervisors participate in more safety inspections and discussions with frontline staff. In December, a new mobile app for hazards and near-misses reporting was launched. Our staff and contractor staff safety efforts were recognised through various schemes including the new annual “Railway Safety OSCAR Awards”. In January 2013, the Company announced its new four-year Corporate Safety Strategy, with the aspirations of being amongst the very best in safety performance globally in all of our businesses and the safest mode of public transport in every place where we operate. This strategy fosters a safety-first culture, drives continuous improvement and engages stakeholders to meet future challenges, with strategic safety priorities and relevant actions established to achieve sustained domestic and international growth.

“Safety is an absolute pre-requisite for our transport operations. We remain the safest mode of public transport in Hong Kong.”

36

MTR Corporation

System and Market Information
Railway operation data Total route length (km) Number of rail cars Number of stations (Island Line, Tsuen Wan Line, Kwun Tong Line, Tseung Kwan O Line, Tung Chung Line, Disneyland Resort Line, West Rail Line, Airport Express, East Rail Line and Ma On Shan Line) Number of Light Rail stops Number of e-instant Bonus machines in stations Number of station kiosks and mini-banks in stations Number of advertising points in stations Number of advertising points in trains Daily hours of operation Island Line, Tsuen Wan Line, Kwun Tong Line, Tseung Kwan O Line, Tung Chung Line, Disneyland Resort Line, West Rail Line, Airport Express and Light Rail East Rail Line and Ma On Shan Line Minimum train headway (second) – Tsuen Wan Line – Kwun Tong Line – Island Line – East Rail Line Hung Hom to Sheung Shui Hung Hom to Lo Wu Hung Hom to Lok Ma Chau – Ma On Shan Line – Tseung Kwan O Line – Tung Chung Line Hong Kong to Tung Chung Hong Kong to Tsing Yi – Airport Express – West Rail Line – Disneyland Resort Line – Light Rail 360 240 600 180 270 270 360 240 600 210 270 300 360 240 720 180 270 270 480 240 720 240 270 300 212 327 600 180 150 212 327 600 240 150 212 327 600 180 150 212 327 600 240 150 Morning Peak 120 126 120 2012 218.2 2,050 2011 218.2 1,965

84 68 49 1,331 21,081 23,570

84 68 49 1,294 21,064 23,669

19.0 19.5 Evening Peak 120 144 130 Morning Peak 128 128 120

19.0 19.5 Evening Peak 130 144 150

International Performance Comparisons: the 14-member Community of Metros (CoMET)
Metro system network data (2011) Passenger journeys (million) Car kilometres (million) Route length (km) Number of stations
*

MTR *

Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro Metro A B C D E F G H I J K L M 940 1,183 1,595 188 229 132 494 439 270 354 201 147 639 2,389 1,667 1,607 204 283 247 737 306 169 561 480 424 245 216 302 483 101 115 66 642 1,284 131 104 100 328 425 249 812 129 65 58 566 94 102 89

1,470 1,040 254 175 82 229 287 143

The Lines included in the CoMET metro benchmarking programme are Kwun Tong Line, Tsuen Wan Line, Island Line, Tung Chung Line, Tseung Kwan O Line, Disneyland Resort Line, East Rail Line, Ma On Shan Line and West Rail Line. The Airport Express is excluded from the benchmarking. Note: The other metros in the comparison are London Underground Limited, New York City Transit, Sistema de Transporte Colectivo, Régie Autonome des Transports Parisiens Metro, Régie Autonome des Transports Parisiens Réseau Express Régional, Metropolitano de São Paulo, Moscow Metro, Metro de Madrid, Metro de Santiago, Shanghai Metro Operation Corporation, Beijing Mass Transit Railway Operation Corporation, Taipei Rapid Transit Corporation and Guangzhou Metro Corporation. The benchmarking agreement prohibits specifically identifying the data by metro system.

Annual Report 2012

37

Executive Management’s Report • Hong Kong Transport Operations

Operations Performance in 2012
Service performance item Train service delivery – Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O 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, 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, 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, Tung Chung Line, Disneyland Resort Line and Airport Express – East Rail Line (including Ma On Shan Line) and West Rail Line Ticket reliability: magnetic ticket transactions per ticket failure – Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O 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, Tung Chung Line, Disneyland Resort Line and Airport Express – East Rail Line (including Ma On Shan Line) – West Rail Line – Light Rail Ticket machine reliability – Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O Line, Tung Chung Line, Disneyland Resort Line and Airport Express – East Rail Line (including Ma On Shan Line) – West Rail Line – Light Rail 97.0% 97.0% 97.0% N/A 99.0% 99.0% 99.0% 99.0% 99.5% 99.6% 99.5% 99.9% 98.0% 98.0% 98.0% N/A 99.0% 99.0% 99.0% 99.0% 99.5% 99.9% 99.7% 99.6% N/A N/A 500,000 500,000 4,203,807 7,113,301 98.0% 98.0% 98.0% 98.0% 98.0% 99.0% 99.0% 99.0% 99.0% 99.0% 99.8% 99.9% 99.9% 99.9% 99.9% 98.5% 98.5% 98.5% 98.5% 99.5% 99.0% 99.0% 99.0% 99.9% 99.9% 99.9% 99.9% 98.5% 98.5% 98.5% 98.5% 99.5% 99.5% 99.5% 99.5% 99.9% 99.9% 99.9% 99.9% Performance Requirement Customer Service Pledge Target Actual Performance

N/A

8,000

18,784

38

MTR Corporation

Operations Performance in 2012 (continued)
Service performance item Ticket gate reliability – Kwun Tong Line, Tsuen Wan Line, Island Line, Tseung Kwan O 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, 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, 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 26°C – Light Rail: on-train air-conditioning failures per month – Stations: to maintain a cool, pleasant and comfortable environment generally at or below 27°C for platforms and 29°C for station concourses, except on very hot days Cleanliness – Train compartment: cleaned daily – Train exterior: washed every 2 days (on average) Northwest Transit Service Area Bus Service – Service Delivery – Cleanliness: washed daily Passenger enquiry response time within 6 working days N/A N/A N/A 99.0% 99.0% 99.0% 99.8% 100.0% 100.0% N/A N/A 98.5% 99.0% 99.9% 100.0% N/A N/A 97.0%