Reorganisation and basis of preparation of accounts
The Kowloon Motor Bus Holdings Limited ("KMB Holdings") was incorporated in Bermuda on 20 August 1997 and became the new ultimate holding company of The Kowloon Motor Bus Company (1933) Limited ("KMB") Group of companies (the "Group") pursuant to a Scheme of Arrangement (the "Scheme") which became effective on 18 November 1997. Under the Scheme, the shares of KMB were cancelled and its original shareholders were issued the same number of the KMB Holdings shares of HK$1 each. As referred to in Note 1 of the accounts on page 73 of this report, the Group has been treated as a continuing entity and accordingly the consolidated accounts have been prepared on the basis that KMB Holdings was the holding company of the Group for both financial years ended 31 December 1996 and 1997, rather than from the effective date of the Scheme. The Directors are of the opinion that the above basis of preparation would provide a more meaningful view of the results and state of affairs of the Group as a whole for the year ended 31 December 1997.
Results
The Group's profit attributable to Shareholders for the financial year ended 31 December 1997 was HK$550.8 million (1996 - HK$527.7 million), representing an increase of 4.4 per cent over the previous year. Earnings per share for the year amounted to HK$1.36 (1996 - HK$1.31).
The Group's profit was mainly derived from the franchised bus services operated by KMB and Long Win Bus Company Limited ("Long Win").
Results of The Kowloon Motor Bus Company (1933) Limited
The profit from the franchised bus operations of KMB for the year, after the transfer of HK$0.2 million from the Development Fund (1996 - HK$1.8 million), amounted to HK$556 million (1996 - HK$525.5 million), representing an increase of 5.8 per cent over the previous year.
Revenue and Operating Costs
In the year under review, revenue and operating costs related to KMB's franchised bus operations increased by 8.8 per cent and 9.2 per cent respectively as compared with the previous year. The increase in revenue was mainly due to the introduction of new bus routes, a rise in the number of passengers carried during the year and an increase in fares by an average of 7 per cent from 1 December 1997. The increase in operating costs was mainly due to a rise in salaries, wages and other staff costs. A pay increase of 6.9 per cent was granted to all daily-rated employees with effect from 1 June 1997 and to all monthly-rated employees with effect from 1 September 1997.
Passengers Carried and Kilometres Travelled
In 1997, a total of 1,051 million passengers (1996 - 1,032 million) rode on KMB buses, amounting to a daily average of 2.88 million passengers (1996 - 2.82 million). This represented an increase of 2.1 per cent in the daily average number of passengers as compared with the previous year. The actual distance travelled by KMB buses totalled 301 million kilometres (1996 - 285 million kilometres). The increase in patronage and distance travelled was primarily due to the introduction of additional routes as well as improved frequencies on certain routes.
Scheme of Control Statement
A Scheme of Control Statement relating to KMB's franchised bus operation for the period from 1 January to 31 August 1997, the date at which the previous franchise expired, is presented on pages 90 to 93 of this report. The content of the Statement indicates the method of calculation of the Permitted Return under the Profit Control Scheme which was provided for in the previous franchise.
Results of Long Win Bus Company Limited
Long Win Bus Company Limited ("Long Win") was granted a franchise by the Government in October 1996 to operate a network of 12 bus routes (subsequently increased to 13 routes) for North Lantau and the new airport at Chek Lap Kok. The first bus route, Route E31 which plies between Tung Chung Town Centre and Tsuen Wan, commenced operation on 1 June 1997. Another route, E32, which runs between Kwai Fong MTR Station and Chek Lap Kok, started operation on 30 December 1997. Both routes were well received by the public. In 1997, a total of 2.88 million passengers rode on Long Win buses, amounting to a daily average of 13,500 passengers. The actual distance travelled by Long Win buses totalled 1.43 million kilometres. Long Win's profit attributable to Shareholders for the year ended 31 December 1997 was HK$1.5 million (1996 - HK$0.9 million). Capital expenditure incurred by Long Win during the year amounted to HK$254.5 million (1996 - HK$19.2 million).
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Interests in Associated Companies
As at 31 December 1997, the Group's interest in associated companies amounted to HK$17.8 million (1996 - HK$0.04 million). The investments were in respect of the operation of 3 bus routes in Dalian and a cross boundary bus transport service between Lok Ma Chau and Huanggang, which started operations in 1997. Contributions from the above non-franchised bus operations to the Group were insignificant during the year.
Consolidated Cash Flow Statement
In 1997, the net cash inflow from bus operations of the Group was HK$1,105 million (1996 - HK$1,181 million). Total dividends paid to Shareholders during the year amounted to HK$428 million (1996 - HK$375 million). Payments for capital investment and repayment of bank loans amounted to HK$1,395 million and HK$157 million respectively.
The consolidated cash flow statement of the Group for the year ended 31 December 1997 is set out on pages 70 to 72 of this report.
Liquidity and Financial Resources
At 31 December 1997, the total borrowings of the Group amounted to HK$1,380 million, representing an increase of HK$863 million as compared with 1996. The gearing ratio, representing the ratio of long-term bank loans to the total share capital and reserves of the Group, also increased from 0.22 in 1996 to 0.65 in 1997. As a result of the increase in total borrowings, the finance charge for the year increased to HK$69.5 million as compared with HK$31.3 million in 1996. The increase in finance charge was mainly due to increased interest rates and additional financing requirements for the purchase of new buses. At 31 December 1997, cash and deposits at bank of the Group amounted to HK$563 million.
At 31 December 1997, the Group had stand-by credit facilities totalling HK$85 million and GBP 1 million. Bank loans and overdrafts at the year-end amounted to HK$1,380 million, of which HK$46 million is secured by the Group's undertakings to execute legal mortgages to certain banks in the event of default of the Group's obligations under the respective loan agreements. The maturity profile of the long-term bank loans of the Group is set out in Note 20 to the accounts on page 87 of this report.
Capital Expenditure and Commitment
Capital expenditure incurred by the Group during the year amounted to HK$1,455 million. The breakdown of the capital expenditure incurred is shown in Note 11 to the accounts on page 79 of this report.
Capital commitments outstanding and not provided for in the accounts of the Group at 31 December 1997 amounted to HK$964 million. Of these, HK$752 million was for the purchase of buses and other vehicles, HK$34 million was for the improvement of depot facilities and HK$178 million was for the purchase of other fixed assets. At 31 December 1997, the Group had 665 air-conditioned double-deck buses on order for delivery in 1998 (of which 275 were in various stages of construction). The commitments are to be financed by bank loans and the working capital of the Group.
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