SKYLINE Technologies -- News Update ( 25 February 2004 )

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1. Should this proposal be kept on the rails?
Karen Chan, The Standard 25 February 2004

With the growing probability that the MTR Corp and the Kowloon-Canton Railway Corporation (KCRC) will merge into the largest transport carrier in Asia, outside Japan, questions arise over the resulting rail giant and its burgeoning power.

These questions concern its property development, which has and will continue to determine the geographical development of Hong Kong; whether the merger will benefit skittish minority shareholders; whether the rail operators' additional power will affect its ability to increase fares; and whether the leadership of the combined entity faces conflict of interest issues.

As it continues to build new rail lines, it not only shapes where Hong Kong will go geographically but becomes an even bigger landlord. The market estimates that 60,000 units can be built on the land banks owned by the combined entity, compared with 20,000 provided by all developers last year.

Property development, which the MTRC described as an integral part of its business model in 2000 during its initial public offering, has been criticised for contributing to excess supply.

Property income has always accounted for more than 50 per cent of the MTRC's net profit. Even during the recent downturn, property development profit was HK$3.76 billion, or 89.15 per cent, of its HK$4.21 billion net profit in 2002.

MTRC chairman Raymond Chien blames the current oversupply of homes on the economic downturn, deflation, low consumer confidence, unemployment and the relatively high level of construction starts in the late 1990s.

``It is more a demand-side problem, for which the solution will come eventually from demand recovery, given new land supply is held constant for the time being,'' he said in a letter to shareholders.

Chien said the company's record demonstrates that the business model of rail plus property development has been successful and in fact is being emulated elsewhere.

``This model has provided Hong Kong with a first-class metro system which has not required any subsidy from government - almost unique in the world.

``The government has enjoyed reasonable financial returns from the equity investments it has made in the company and benefited from the significant land premiums paid by the company and our development partners.

While the company's earnings may suffer from falling contributions from property, the potential merger remains a concern because it could dilute earnings and return on equity (ROE), given the KCRC's much lower ROE.

Unlike the MTRC, which is heavily funded by property income, the KCRC is purely an urban railway operator with more than 85 per cent of its net earnings generated from railway operations. Given the high fixed cost involved, the KCRC's ROE ratios have always been lower than those of the MTRC.

Combined with the KCRC, earnings growth would likely be dragged down by the depreciation, interest and other start-up costs of the HK$46 billion West Rail project and the imminent completion of the HK$26 billion East Rail extension.

Although the MTRC is financially stronger and better managed as a listed company, KCRC chairman Michael Tien is tipped to head the new railway giant because of his strong connections with Chief Executive Tung Chee-hwa.

Apart from political connections, Tien is also a close friend of the Kwok brothers at Sun Hung Kai Properties (SHKP).

He was a schoolmate of SHKP vice-chairman Raymond Kwok at Harvard. Members of the Kwok family are shareholders in Tien's family business, the clothing chain G2000, with two representatives sitting on board.

If Tien becomes chairman of the new company, which has the development rights for 60,000 units, his close connection with the Kwok family may raise questions of conflict of interest.

Although the MTRC has fare autonomy, the government has called for a comprehensive review of the structure.

With a merger, other modes of public transport can be expected to face stiffer competition.

As a publicly listed company with many international and domestic institutional shareholders as well as 400,000 domestic retail ones, the MTRC has a clear duty to deliver financial value to shareholders, which is inseparable from its profit performance.

The MTRC has been in talks with the government over fares - with the two sides somewhere between charging what the market will bear and a free ride. But not much progress has been made.

Rooms at the Mandarin Oriental could get a makeover after next year as part of efforts to spruce up the 41-year-old hotel, which faces competition from new market entrant Four Seasons.

Four Seasons is expected to open in Central next year and Mandarin Oriental International, under the Jardines Group, has been considering three options to answer the challenge: do nothing, refurbish or redevelop.

"We will look at components of the renovation [option]," the luxury hotel operator's chief financial officer John Witt said yesterday. "We've been continuing investment in the hotel's public area, meeting rooms and restaurants.

Mr Witt declined to give details of the renovation plan but ruled out demolishing the luxury hotel, the group's flagship property.

He added there was no immediate need to renovate as the hotel's competitive position remained strong, with occupancy rates rebounding sharply in the final months of last year.

Furthermore, the number of luxury hotel rooms in Central dropped after the Furama Hotel was turned into an office project.

Mandarin Oriental would also benefit from the additional supply of office space in Central, giving it a solid base of business customers to draw on, Mr Witt said.

At the same time, the 114-room Landmark Mandarin Oriental, due to open late next year, would not create direct competition as the two hotels were targeted at different parts of the market.

Mr Witt said Landmark Mandarin Oriental would target leisure travellers, while the Mandarin Oriental was aimed at corporate travellers.

The hotel operator's net profit for last year dived 80.25 per cent to US$3.1 million, largely due to Sars. Turnover dropped 1.15 per cent to $541.2 million.

The recovery from Sars put occupancy rates in the second half at 2002 levels. The average rate for the year was 53 per cent, compared with 69 per cent in 2002.

Mr Witt said the group's Excelsior hotel in Causeway Bay had benefited from an increase in mainland tourist arrivals after travel restrictions were relaxed.

Mainland tourists accounted for 20 per cent of the Excelsior's turnover, compared with 15 per cent before restrictions were eased.

The Singapore-listed hotel operator plans to increase the number of rooms under operation to 10,000 from 6,400 now.

With almost 700 separate organisations subscribing to one or more of CIRIA’s categories of membership, CIRIA is recognised as the foremost independent and authoritative broker of construction research and innovation in the UK.

CIRIA’s activities span the market sectors
Buildings and facilities
Transport
Water and utilities

Working both within and across these market sectors, the themes of work have a broad coverage topical to construction.

Membership includes all construction stakeholder groups and covers both the supply and demand sides of the industry, as well as the majority of relevant public sector champions and regulators. All our work is member-driven, and the ensuing dialogue between the various interest groups, coupled with the rigorous and proven processes employed, ensures that the results are soundly based. They are also auditably taken up and implemented throughout the industry.

CIRIA has a global reach and is engaged in dialogue with the majority of leading construction research organisations and universities, both in the UK and overseas.

64 Core Members shared in CIRIA’s ownership
Revenues increased to £3.33m
More than 38,000 copies of CIRIA publications were purchased, of which 20% were sold overseas, with 12% of the total being bought directly from

24 new publications were balanced by the same number of new project starts
Nearly 4000 individuals attended 100 separate events
CIRIA News was mailed to over 32,000 individuals quarterly
CIRIA Highlights was emailed to over 11,000 people every fortnight
www.ciria.org received more than 90,000 monthly visits, up from 50,000 per month in 2001

While much of the work benefits from competitively-won public sector funding, CIRIA maintains a provision of ‘club-funded’ projects aimed at building understanding between contributors in key areas of concern, such as Knowledge Management and Performance Indicators of Design. In addition to publications and electronic materials, CIRIA also provides training seminars and workshops based on the results of its project work.

The 2002 Fairclough review of construction research reported a high industry regard for CIRIA, ranking it highest of all research providers on polls of both industry users and public sector funders of construction research. Further confirmation of CIRIA’s worth was provided by the results of the 2002/3 Partners in Innovation competition of the DTI, in which CIRIA was awarded more than 25% of the entire funding available – sufficient to enable a forward research workload of around £5.5m.

CIRIA has many years’ experience of professionally managing a number of Learning Networks.

The Construction Productivity Network (CPN) and Construction Industry Environmental Forum (CIEF) are both over 10 years old and each have around 200 corporate members. They are events-based, and between them provide around 70 workshops and seminars per year held in different parts of the UK. Key features include the involvement of industry-practitioner speakers, the opportunity for detailed discussions both between speakers and ‘the floor’ and also between attendees themselves, and the transmission of event summaries to all registered members of the networks.

SAFEGROUNDS – for the consideration of issues relating to the management and rehabilitation of nuclear contaminated sites

EMSAGG (European Marine Sands and Gravel Group) – to provide the marine aggregate industry with the opportunity to discuss the issues affecting this sector

LACL (Local Authority Contaminated Land Network) – to provide planning officers of Local Authorities with a forum for the discussion of contaminated land issues

prOSPa (Promoting OffSite Production Applications) – a new multi-year programme of work that will include a national forum for those concerned with improving the uptake of offsite production techniques and applications.

4. International Collaboration between BEC, CIRIA & HKPU that Benefits Construction Industry in Hong Kong
Business Environment Council Press Release, 24 February 2004

In order to visualize the mission of harnessing the building and infrastructure industries’ efforts towards sustainability and performance improvement, Business Environment Council (BEC) is proud to announce today (24 Feb 04) the development of the tri-partite collaboration between BEC, the UK’s Construction Industry Research and Information Association (CIRIA), and the Hong Kong Polytechnic University, Faculty of Construction & Land Use/Department of Building & Real Estate (HKPU).

The key areas of collaboration between the three parties will include the sales and promotion of CIRIA publications and training packages; joint development and execution of research projects, workshop, training events, conferences and discussion groups; provision of proactive advice to relevant government and industry initiatives; promotion of best practice amongst respective member organizations in the fields of construction productivity and innovation, construction economics, construction IT, environmental management and sustainability.

CIRIA regularly publishes books with themes such as Environmental Management, Risk and Value Management, Waste Management and Sustainability. According to CIRIA, more than 38,000 copies of CIRIA publications were purchased in 2002, of which 20% were sold overseas. In the partnership, BEC will be responsible for the sales and promotion of CIRIA publications.

Dr Andrew Thomson, Chief Executive Officer of BEC, said, “BEC targets to provide a central and open-to-all resource for Hong Kong’s building community, providing new and identifying existing sources of information for Hong Kong construction professionals and the broader community public. Through the partnership, we again strengthen the delivery of mission to the Hong Kong community achieve sustainable development.”

Besides, BEC will be responsible for the recruitment of CIRIA members in Hong Kong, including Construction Industry Environmental Forum (CIEF) Members, Construction Productivity Network (CPN) Members and New Books Club (NBC) Members.

In the UK, CPN and CIEF are both over 10 years old and each have around 200 corporate members. They are events-based, and between them provide around 70 workshops and seminars per year held in different parts of the country.

Professor Tim Broyd, Chief Executive of CIRIA said, “CIRIA was established over 40 years ago to provide a means for leading organizations in industry, government and academics to work together to improve the performance of the broad construction industry. Since then it has delivered more than 600 separate reports and training packs covering wide ranges of topics in technology, management and environmental issues. These reports are increasingly being bought by organizations in Hong Kong. I am delighted to sign these agreements today, and look forward to working with our new partners to cement and increase our presence in Hong Kong.”

Professor Andrew Baldwin, Associate Dean of the Faculty of Construction and Land Use, the Hong Kong Polytechnic University said, “Sustainability, Environmental Engineering, Water and Waste Management, Building Facilities and Construction Management practices are all high on the Faculty’s Research Agenda. This collaborative initiative will help ensure that we continue to work with industry and leading research organizations not only locally but internationally to the benefit of the Hong Kong Community.”

簽訂國際合作協議讓本地建築業受惠
商界環保協會新聞稿, 二零零四年二月二十四日

為了鼓勵及協助本地業界改善建築物的環保表現及有效地落實可持續發展建築的概念，商界環保協會今日(04年2月24日)宣佈與英國著名的建築協會CIRIA (Construction Industry Research and Information Association)，及香港理工大學建設及地政學院建築及房地產學系，簽訂國際合作協議，讓本地建築業受惠。

該協議主要包括銷售及推廣CIRIA刊物及培訓教材、共同發展及執行研究項目、舉辦工作坊、訓練課程、國際會議及研討會等、積極向政府及業界提供建議、並鼓勵會員機構在建築業生產力及創意、經濟效益、資訊科技、環境管理及可持續發展等方面，交流心得及分享成功經驗。

CIRIA定期出版各類業界刊物，當中包括環境管理、風險及資產管理、廢物處理及可持續發展。根據CIRIA資料顯示，於2002年CIRIA售賣超過38,000本刊物，當中兩成為海外讀者。而在今次簽訂的合作協議中，商界環保協會便負責銷售及推廣CIRIA刊物。

商界環保協會行政總裁譚安德博士表示：「透過是次的合作，協會將為本地建築專才，以及為普羅大眾提供全面及集中的建築業資訊。協會更希望透過今次的合作，進一步促進建築業的可持續發展，從而履行協會承諾。」

此外，商界環保協會亦負責在香港招募CIRIA會員，當中包括CIEF (Construction Industry Environmental Forum)會員、CPN (Construction Productivity Network)會員及NBC (New Books Club)會員。在英國，CPN及CIEF已成立超過10年，會員數目超過200多間。每年他們均在英國各地舉辦70多個工作坊及講座，讓會員交流及分享業界經驗。

CIRIA行政總裁Tim Broyd教授稱：「CIRIA成立四十年，並致力匯聚英國業界、政府及學術機構的力量，協助當地建築界改善建築技術及環保表現。自成立以來，我們已撰寫超過600個報告及訓練教材，當中包括建築科技、管理及環境問題等，這些刊物近年更深受香港業界歡迎。我很高興今天能與商界環保協會及香港理工大學簽訂合作協議，並期望透過今次合作，貢獻香港業界，加強與他們的關係。」

香港理工大學建設及地政學院副院長布爾文教授表示：「可持續發展、環境工程、污水及廢物處理、樓宇設備及建築業管理守則等均為學系的重要研究課題。今次與CIRIA及商界環保協會合作，不但讓我們與本地業界及研究機構加強合作，更將網絡擴展至國際，讓香港建築界得以受惠。」
-完-

Business Environment Council 商界環保協會
Rm 201, 2/F, Jockey Club Environmental Bldg, 77 Tat Chee Ave, Kln
九龍達之路77號賽馬會環保樓2樓201室

Tel電話: 2784 3912
Fax傳真: 2784 6699
Email電郵: rose@bec.org.hk
BEC Website 協會網址: www.bec.org.hk

5. Rail operators given six months to arrange merger
DENISE TSANG, SCMP 25 February 2004

The government confirmed yesterday it wants Hong Kong's rail companies to merge. But it is leaving it to the two operators to arrange the union - with a deadline of August.

The combined rail giant would be a listed company with assets of nearly $120 billion.

Announcing the conclusions of a 20-month study, the transport and finance ministers said the government wanted to see lower train fares through elimination of duplication of resources and better integration of the train systems. They said the two companies should aim to form a transparent fare-setting mechanism, resolve interchange arrangements - especially on the proposed $35.5 billion Sha Tin-Central rail link - and ensure job security for frontline staff.

They called on the MTR Corporation (MTRC) and the Kowloon-Canton Railway Corporation (KCRC) to conclude their merger talks by the end of August to allow the tabling of the merger plan to lawmakers in the <121>2004/05 legislative year.

Sarah Liao Sau-tung, the Secretary for Environment, Transport and Works, said the planned merger would eliminate duplication of resources and bring economies of scale, which would result in lower fares and more convenience at interchanges.

"There is room to reduce fares as we can see synergies from the merger," Dr Liao said.

Both the MTRC and KCRC welcomed the merger talks and concurred with the government, for the first time, that a merger would help bring down fares.

KCRC chairman Michael Tien Puk-sun said limited savings could be achieved through combining the two rail systems. Greater savings would come from consolidating the companies' administrative and support divisions, he said.

Secretary for Financial Services and the Treasury Frederick Ma Si-hang said: "A merged company will create a bigger value and a stronger financial position for the two companies. We believe one plus one is greater than two." Raymond Chien Kuo-fung, the MTRC chairman, went further, saying: "I will say one plus one equals four. A merger will result in a larger company, which will help us further expand into overseas markets."

Mr Ma promised to strike a balance between the interests of the MTRC and KCRC, their passengers, shareholders and staff.

Despite his words, and the instruction to secure jobs, the move prompted fears of job losses at two of Hong Kong's biggest employers.

The MTRC and KCRC unions worried about the fate of some of the corporations' 12,400 staff.

But with a number of new rail projects in the pipeline, Dr Chien said he did not see any negative impact on frontline staff.

The merger would create a potential fund-raising alternative for the government, which is battling to reduce its budget deficit. It could sell the KCRC, which is wholly government-owned, to the MTRC, in which investors have a 24 per cent share. However, the administration's plan to sell a second tranche of MTRC shares would remain on hold until the merger talks were concluded, Mr Ma said.