The Directors have pleasure in submitting their Annual Report together with the audited accounts for the year ended 31 December 1998.
Principal activities
The principal activity of the Company is investment holding and the principal activities of the subsidiaries are the operation of both franchised and non-franchised public buses in Hong Kong. Particulars of the Company's subsidiaries are set out in note 11 on the accounts.
The Group's turnover and profit are almost entirely attributable to bus operations. Accordingly, no analysis by activity is provided. Turnover and contribution to the Group's profit from non-Hong Kong activities are insignificant.
Accounts
The profit of the Group for the year ended 31 December 1998 and the state of the Company's and the Group's affairs as at that date are set out in the accounts on pages 59 to 80 of this Annual Report.
An analysis of the results and financial position of the Group is set out on pages 38 to 42 of this Annual Report.
Dividends
An interim dividend of 27 cents per share was paid to the shareholders on 9 October 1998. The Directors now recommend that a final dividend of 88 cents per share in respect of the year ended 31 December 1998 be paid to the shareholders on 11 June 1999.
Charitable donations
Donations made by the Group during the year amounted to HK$2,955,000 (1997: HK$2,199,000).
Fixed assets
During the year, major additions of the Group were buses under construction with a total cost of HK$728,259,000. During the year, buses under construction with a total cost of HK$1,097,806,000 were licensed and transferred to buses.
Details of other movements in fixed assets during the year are set out in note 10 on the accounts.
Directors
The Directors during the financial year and up to the date of this report were:
| Dr the Hon Woo Pak Chuen, JP | (Chairman) |
| Raymond Kwok Ping Luen | (Deputy Chairman) |
| Yu Shu Chuen | |
| Walter Kwok Ping Sheung, JP | |
| Ng Siu Chan | |
| William Louey Lai Kuen | |
| John Chan Cho Chak, JP | |
| Charles Lui Chung Yuen | |
| Winnie J Ng | |
| (Appointed on 16 July 1998) | |
| George Chien Yuan Hwei | (Appointed as Director on 16 July 1998 and resigned as Alternate Director to Walter Kwok Ping Sheung, JP on 14 October 1998) |
| The Hon Eric Li Ka Cheung, JP | (Appointed on 10 December 1998) |
| Tsim Tak Po | (Alternate Director to Mr Raymond Kwok Ping Luen) |
| Lana Woo | (Alternate Director to Dr the Hon Woo Pak Chuen, JP) |
| Patrick Chan Kai Lung | (Alternate Director to Mr Walter Kwok Ping Sheung, JP, appointed on 14 October 1998) |
| Dr Lee Quo Wei, GBM, JP | (Resigned on 16 July 1998) |
In accordance with Bye-Law 87, Messrs Walter Kwok Ping Sheung, Ng Siu Chan and William Louey Lai Kuen retire from the Board by rotation and, being eligible, offer themselves for re-election.
Brief biographical details of the Directors of the Company are set out on pages 44 to 48 of this Annual Report.
Directors' interests in shares
At 31 December 1998, the Directors had the following interests in the issued share capital of the Company as recorded in the register of Directors interests in shares:
Shares of HK$1 each
-------------------------------------------
Personal Family Corporate Other
interests interests interests interests
==========================================================================
Dr the Hon Woo Pak Chuen, JP 210,047 - - -
Raymond Kwok Ping Luen 393,350 - - -
Yu Shu Chuen 2,943 70,803 - 5,768,281
(note 1)
Walter Kwok Ping Sheung, JP 61,522 - - -
Ng Siu Chan - 11,196,877 - -
William Louey Lai Kuen 1,058,465 - - -
John Chan Cho Chak, JP 2,000 - - -
Charles Lui Chung Yuen 1,088,604 - - 1,299,965
(note 2)
Winnie J Ng 25,200 - - 11,196,877
(note 3)
Dr James Kung Ziang Mien, OBE - - - -
George Chien Yuan Hwei 2,000 - - -
The Hon Eric Li Ka Cheung, JP - - - -
Tsim Tak Po (Alternate
Director to Mr Raymond
Kwok Ping Luen) 10,000 - - -
Lana Woo (Alternate
Director to Dr the Hon
Woo Pak Chuen, JP) 9,475 - - -
Patrick Chan Kai Lung
(Alternate Director to
Mr Walter Kwok Ping Sheung, JP) - - - -
==========================================================================
| Notes: | |
| 1 | HSBC International Trustee Limited held 5,768,281 shares in the Company as trustee of a discretionary trust. Mr Yu Shu Chuen is deemed to have interest in the discretionary trust. |
| 2 | Mr Charles Lui Chung Yuen and members of his family together have interests in certain private trusts which beneficially held 1,299,965 shares in the Company. |
| 3 | Miss Winnie J Ng has interest in certain private trusts which beneficially held 11,196,877 shares in the Company. |
As at 31 December 1998, none of the Directors had any non-beneficial interest in the share capital of the Company.
Directors service contracts
No Director proposed for re-election at the forthcoming Annual General Meeting has an unexpired service contract which is not determinable by the Company or any of its subsidiaries within one year without payment of compensation, other than normal statutory obligations.
Directors' interests in contracts
No contract of significance to which the Company or any of its subsidiaries was a party and in which a Director of the Company had a material interest subsisted at the end of the year or at any time during the year.
Arrangements to purchase shares or debentures
At no time during the year was the Company or any of its subsidiaries a party to any arrangement to enable the Directors of the Company to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.
Substantial interests in the share capital of the Company
The Company has been notified of the following interests in the Company's issued shares at 31 December 1998 amounting to 10% or more of the shares in issue:
Percentage of
Shares held total issued shares
========================================================================
Sun Hung Kai Properties Limited 133,502,612 33.08%
Arklake Limited 65,707,791 16.28%
Kowloon Development Company Limited 45,213,369 11.20%
========================================================================
The register of substantial shareholders indicates that the interest disclosed by Sun Hung Kai Properties Limited includes the 65,707,791 shares disclosed by Arklake Limited.
Purchase, sale or redemption of the Company's shares
During the year, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's own shares.
Senior management profiles
Brief biographical details of the members of senior management of the Company are set out on page 49 of this Annual Report.
Staff retirement schemes
The Group operates two separate non-contributory defined benefit retirement schemes, namely "The Kowloon Motor Bus Company (1933) Limited Monthly Rated Employees Provident Fund Scheme" and "The Kowloon Motor Bus Company (1933) Limited Daily Rated Employees Retirement Fund Scheme" for its monthly-rated and daily-rated employees respectively. The assets of these schemes are held separately from those of the Group. Both schemes are formally established under trust and are registered under the Occupational Retirement Schemes Ordinance. The members' benefits are determined based on the employees' final remuneration and length of service. Contributions to the defined benefit schemes are made in accordance with the recommendations of independent actuaries who value the retirement schemes at regular intervals, usually triennially, and are charged to the profit and loss account.
The most recent actuarial valuations of the two schemes were at 31 December 1997 which showed that there were sufficient assets in the schemes to cover both the solvency and ongoing liabilities of the schemes. Other relevant information extracted from the valuation pertaining to the two schemes is set out below:
The KMB Monthly Rated Employees Provident Fund Scheme
| i) | The scheme was established with effect from 15 February 1978. |
| ii) | The actuary of the scheme is Mr Aaron Wong, Fellow of the Canadian Institute of Actuaries and Fellow of the Society of Actuaries. In the actuarial valuation, the attained age valuation method was used. Other major assumptions used in the valuation were: Investment Return and Salary Escalation at 8% per annum; Mortality Rates 1991 Hong Kong Life Tables; Normal Retirement Age 65; and Service Related Withdrawal Rates. |
| iii) | The market value of the scheme assets at 31 December 1997 was HK$602.8 million. |
| iv) | The minimum level of funding as recommended by the actuary was 11% of pay. |
| v) | The ongoing funding surplus in the scheme was HK$105.2 million and the solvency basis funding surplus was HK$168.6 million as at 31 December 1997. |
The KMB Daily Rated Employees Retirement Fund Scheme
| i) | The scheme was established with effect from 1 July 1983. |
| ii) | The actuary of the scheme is Mr Aaron Wong, Fellow of the Canadian Institute of Actuaries and Fellow of the Society of Actuaries. In the actuarial valuation, the attained age valuation method was used. Other major assumptions used in the valuation were: Investment Return and Salary Escalation at 8% per annum; Mortality Rates 1991 Hong Kong Life Tables; Normal Retirement Age 60; and Service Related Withdrawal Rates. |
| iii) | The market value of the scheme assets at 31 December 1997 was HK$1,401.5 million. |
| iv) | The minimum level of funding as recommended by the actuary was 7.2% of pay. |
| v) | The ongoing funding surplus in the scheme was HK$108.3 million and the solvency basis funding surplus was HK$455.3 million as at 31 December 1997. |
Bank loans and overdrafts
Particulars of bank loans and overdrafts of the Group as at 31 December 1998 are set out in note 20 on the accounts.
Major customers and suppliers
Income attributable to the five largest customers of the Group accounted for less than 30% of the total income of the Group for the year.
Purchases attributable to the five largest suppliers of the Group accounted for less than 30% of the value of the Group's total purchases for the year.
Financial summary
A summary of the results and of the assets and liabilities of the Group for the five years ended 31 December 1998 is set out on page 43 of this Annual Report.
Audit Committee
An Audit Committee was established on 10 December 1998. The members of the Committee are Messrs George Chien Yuan Hwei (Chairman), Dr James Kung Ziang Mien, OBE and the Hon Eric Li Ka Cheung, JP, all of whom are non-executive Directors. Mr John C Y Choy, Company Secretary, acts as the Secretary to the Committee. The scope of authority and responsibilities of the Committee is defined according to the guidance issued by the Hong Kong Society of Accountants. Its principal duties are to assist the Board in providing an independent review of the effectiveness of the financial reporting process and internal controls of the Company. A meeting was held by the Committee since the date of its establishment up to the date of this report.
Compliance with the Code of Best Practice
The Company has complied throughout the year with paragraphs 1 to 13 of the Code of Best Practice as set out by the Stock Exchange of Hong Kong Limited in Appendix 14 to the Listing Rules. From 10 December 1998, the Company has also complied with paragraph 14 of Appendix 14 to the Listing Rules.
Auditors
On 19 November 1998 our auditors changed the name under which they practise to KPMG and accordingly, have signed their report in their new name. A resolution for the reappointment of KPMG as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.
By Order of the Board
P C Woo
Chairman
Hong Kong, 15 April 1999
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