MTR Corp Ltd

HKEX:66

Earnings Call Transcript 2018-Q2

[Chui-lok Ng, executive]

Good afternoon, ladies and gentlemen. Welcome to the MTR Interim Results Announcement 2018. It's my pleasure to introduce our senior management here with us today.

So at the center of the stage is Mr. Lincoln Leong, our CEO; and at the far end of your right-hand side is Mr. David Tang, Property Director. Sitting next to Mr. Tang is Dr. Jacob Kam, Managing Director, Operations and Mainland business; and sitting on the right-hand side of Mr. Leong is Mr. Herbert Hui, our Finance Director; right next to me is Lisa Seto, General Manager, Financial Control. And my name is Candy Ng, Head of IR and Retirement Benefits. So very soon, we're going to have Mr. Leong talk about our results highlights and business overview. And after that, Mr. Herbert Hui will give you more about our financial results. And there will be time for Q&A before end of the session.

Without further ado, I would like to hand over to Lincoln. If you, please.

[Kwok-Kuen Leong, executive]

Okay. No. Thank you, Candy, and good afternoon, ladies and gentlemen. Thank you very much for joining our 2018 interim results.

MTR delivered solid financial results in the first half of this year with stable recurrent profits. Underlying profits, however, decreased by 20.5%, mainly due to nonrecurrent profit recognized from the Tiara development in Shenzhen last year, which was, as you know, not repeated this year.

In Hong Kong, our transport operations continued to maintain world-leading safety performance with 6% fewer reportable events during the period. Our train service delivery and passenger journeys on time in our heavy rail network remained at a world-class level of 99.9%. The first half of 2018 also saw our best first half service performance in terms of passenger journeys on time since the merger of KCRC in 2007. During the period, we operated over 1 million train trips in our heavy rail network and more than 500,000 train trips on our light rail network with only 2 delays that lasted 31 minutes or more which were attributable to factors within MTR's control.

Our Hong Kong station commercial and property rental businesses achieved reasonable revenue and profit growth, benefiting from the recovery of the retail sector. Rental growth was also supported by the opening of new retail space at Telford Plaza II and Maritime Square 2 in the second half of last year.

In our property development business, we launched presales for MALIBU LOHAS Park Package 5 in March this year and continued the presales for Wings at Sea and Wings at Sea II in LOHAS Park Package 4. We have last week received the presale consent for LOHAS Park Package 6, comprising 2,392 residential units, and sales will commence shortly. Acting as agent for KCRC, presales were launched for several West Rail development projects.

In our property tendering activities, we awarded the Yau Tong Ventilation Building site in May, and we have today awarded the third development package at Wong Chuk Hang Station. Our businesses outside of Hong Kong delivered mixed result with challenges encountered by the Stockholm commuter rail business, Pendeltågen and MTR Express businesses in Sweden and South Western Trains franchise in the U.K. Our business -- other businesses outside of Hong Kong performed in line with or, in most cases, above our expectations. In delivering our growth strategy in Hong Kong and as part of Rail Gen 2.0, both rail projects, which are project managed by us, being the Express Rail Link and the Shatin to Central Link, continued to progress.

At the end of June this year, the Express Rail Link was close to 100% complete, and we look forward to the opening of the high-speed rail service in September 2018. The other project, the Shatin-Central Link, was 86% complete by end June. We faced allegations concerning workmanship and timely reporting on certain construction matters relating to 3 stations of the Shatin to Central Link. Although we have a well-tested project management system, which has successfully delivered many rail projects in the past, nevertheless, to seek improvement, we are undertaking internal reviews to strengthen our project reporting and processes.

To give additional assurance to the public, we have also engaged an independent expert to conduct a safety test on the platform slab at the Hong Kong station extension works. We will also fully cooperate with government's investigations relating to these matters. On 7th August, we announced that the report submitted to the government on 15th June of this year in relation to the platform at the Hong Kong station extension unfortunately contained inaccuracies in respect of the construction methodology of the top side of that slab. We are investigating this issue and provide updated information to government in due course.

To advance our strategy of growing in Hong Kong, 7 new rail projects are proposed under government's rail development strategy 2014. In response to government's request, we have submitted proposals for 5 of these projects. To support the demand for housing in Hong Kong through our development partners, we currently have over 20,000 residential units under construction, which will be delivered into the market over the next 6 years or so. Furthermore, we're looking at ways to leverage our existing rail facilities into more residential developments, including the possible redevelopment of the Siu Ho Wan depot. In our property investment business, we've just completed tender for Wong Chuk Hang Station. We now have 3 new shopping centers to add to our portfolio over the next few years, enlarging the existent portfolio by 49% in terms of GFA.

The second prong of our growth strategy is to further develop businesses outside Hong Kong. In Macau, we were awarded the operation and maintenance contract for the Macau Light Rail Rapid Transit Line. In the Mainland China, we signed a memorandum of understanding to conduct joint studies on the integrated development of stations along Chengdu's metro lines. We've also submitted a bid for the West Coast Partnership franchise in the U.K.

Let me now highlight our financial results for the first half of this year. In our recurrent businesses, which excludes our property development activities in Hong Kong and elsewhere, total revenue increased by 13.9% to $26.4 billion in the first half of this year. In Hong Kong, revenue increased by 5.1% to $15.9 billion, while recurrent profit was virtually the same as last year at $4.1 billion. The reason for this is the steady growth of our station commercial and property rental businesses were partly offset by higher interest expenses, payments to KCRC and increased staff cost due to an accounting provision made in the first half of this year.

Outside of Hong Kong, revenue increased by 30.4% to just under $10.5 billion. Recurrent profit, however, decreased by 5.8% to $342 million, mainly due to the challenges encountered by the Pendeltågen and MTR Express businesses in Sweden as well as our associate company South Western Rail in the U.K. As a result, total recurrent profit was also virtually the same as last year at $4.5 billion. However, if the cash flow requirement, in relation to the payment of the second tranche of the special dividend, which as you recall was paid in July of last year, i.e., the second half of last year, and that cash flow requirement resulted in a significant increase in interest and finance cost, and secondly, if the increased staff cost due to the accounting provision I've just mentioned made in the first half of this year were excluded for comparison on a like-for-like basis, recurrent profits in the first half of this year attributable to shareholders would have increased by 8.7%. So there were 2 unusual items, which were different from what we had last year. Our property development profit after tax was $165 million, mainly from sales of inventory units and car parking spaces as well as agency fee income from restaurant property development, which was significantly less than the same period last year when we booked profits relating to Tiara in Shenzhen. Therefore, profits from our underlying businesses decreased by 20.5% to $4.7 billion, and our underlying earnings per share was $0.77, a 22.2% decrease. The MTR board has declared an interim dividend of $0.25 a share, same as last year. Now turning to our transport operations here in Hong Kong. Total acreage from all of our Hong Kong transport services increased by 2.3% in the first half of this year. Today, approximately 5.8 million passenger trips are made each weekday across all of our services. Our Hong Kong transport revenue increased by 4.1% to $9.3 billion, mainly due to patronage growth of 2.3% and the prior year fare increase for the Airport Express. Operating costs increased by 9.3% to $5.2 billion primarily due to increase in staff costs relating to the accounting provision which I had just mentioned. Obviously, in the prior year, such provision was not made in the same period.

Depreciation, amortization and variable annual payment to KCRC also increased by 3.5% to just under $3 billion. As a result, EBITDA and EBIT margin reduced by 2.6% and 2.4 percentage points to 44% and 12.3%, respectively. Looking at our individual transport services. For the domestic service, fare revenue increased by 2.9% to $6.5 billion with patronage growth of 2.2%. Our patronage benefited from continued growth in the Hong Kong economy. Average fares increased marginally by 0.6%, mainly due to changes in trip mix and fare concessions. You'll recall that there was no fare adjustment last year as the adjustment percentage was below the 1.5% trigger point and, hence, last year's fare adjustment rate was rolled over to be implemented this year. For our cross-boundary service, fare revenue increased by 7.2% to $1.7 billion. Patronage rose 5.9%, which is a rebound from the declines we've seen in patronage for the service in the past 2 consecutive years, and this was driven by a rebound in Mainland visitors.

For our Airport Express service, fare revenue increased by 11.1% to $559 million with patronage up 6.1%, supported by an increase in air passenger traffic. Average fare rose 4.6%, mainly due to fare increases averaging 9.6% effective from 18th of June last year.

In our Hong Kong transport services, we continued to provide a variety of concessions to our passengers. In 2018/2019, in addition to our usual concessions, which totaled $2.6 billion annually, we will be giving concessions and promotions of a further $500 million under the revised Fare Adjustment Mechanism, resulting in total concessions of over HKD 3 billion for our passengers here in Hong Kong.

MTR's share of the total franchise public transport market in Hong Kong increased by 0.4 percentage points to 49.2% in the first 5 months of 2018. For the first time, since 2016, we saw an increase in our share of cross-boundary business, which rose from 50.2% to 51.8% due to the rebound in Mainland visitors. Our market share of journeys to and from the airport increased marginally from 21.3% to 21.7%.

Turning to our station commercial businesses. Revenue increased by 10.3% to $3 billion. Advertising revenue increased by 9.2%, mainly due to positive market sentiment, driven by retail spend and growth in tourism. Station retail revenue rose by 11.3% to $2.2 billion, mainly due to higher rental revenue at Duty Free Shops, positive rental reversions at other station shops and a small increase in total retail space. Revenue from telecom increased by 7.3% to $338 million, mainly due to new service contracts and capacity enhancement projects. Overall, operating expenses of our station commercial businesses increased by 12.1% to $268 million, mainly due to higher government rent and rate and higher advertising agency commission in line with business growth. After depreciation and increased variable annual payment to KCRC, earnings before interest and taxes increased by 9.6% to $2.4 billion with EBIT margin slightly declining to 78.5%. Revenue from our Hong Kong property rental and management businesses increased by 3.5% to $2.5 billion, mainly due to rental increases in accordance with existing lease arrangements and the opening of new retail space in the second half of last year. However, our shopping malls in Hong Kong recorded a 2.2% fall in rental reversion, reflecting market adjustments from peak rents achieved 3 years ago.

Operating cost increased by 10.8%, mainly due to the opening of new retail space at Telford Plaza II and Maritime Square 2. After depreciation and variable annual payment to KCRC, earnings before interest and taxes increased by 2.3% to $2.1 billion.

Hong Kong property development, a nonrecurrent part of our business, saw profit before tax of $158 million coming from sundry sources, such as sale of inventory units and car parking spaces as well as agency fee income from West Rail property development. In our property tendering activities, we awarded the Yau Tong Ventilation Building site to a consortium comprising Sino Land and CSI properties in May of this year.

We have just now awarded Wong Chuk Hang Package 3 to a subsidiary of CK Asset Holdings Limited. As part of this Wong Chuk Hang Package 3 tender, we would take ownership of the 47,000 square meters GFA shopping center when that shopping center is completed.

Presales were launched for MALIBU LOHAS Park Package 5 in March of this year, while presales continued for Wings at Sea and Wings at Sea II in LOHAS Park Package 4. Acting as agents for KCRC, presales continued for a number of West Rail property development projects during the period, all of which were well received by the market.

Turning to our growth initiatives in Hong Kong. Our Hong Kong rail network now covers 230.9 kilometers. The 2 remaining rail projects under construction and project managed by us, nicknamed the Express Rail Link and the Shatin to Central Link, will add a further 43 kilometers to the Hong Kong rail network upon their completion in the next few years. Projects under RDS 2014 would potentially further increase the Hong Kong rail network by an additional 35 kilometers.

For the Express Rail Link, which is owned by government and project managed by MTR, the project was close to 100% complete at the end of June this year. Structural works at the Hong Kong West Kowloon Station are complete. Trial operations commenced on 1st April this year. Works in the Customs, Immigration & Quarantine, CIQ and maintenance CIQ areas, under the purview of the corporation are substantially complete and in line with program. But the timing completion of all the CIQ facilities remains on the critical path. We've welcome the passage of the Co-location Bill by LegCo on 14th of June this year, which marks the completion of the 3-step process for the colocation arrangements, and the ordinance was gazetted on 22nd of June. The target opening date of the high-speed rail service is September 2018, and the project process remains at $84.42 billion. We're in the final stage of discussion with Hong Kong government on the arrangements for the future operation of the service.

For the other project owned by government and project-managed by MTR, reasonable progress has been made on the Shatin to Central Link with the whole project comprising the Tai Wai to Hung Hom Section and the Hung Hom to Admiralty Section being 86% complete at the end of June this year. The Tai Wai to Hung Hom Section was close to 98% complete at the end of June this year. Structural works for all stations are substantially complete, and test running between Hin Keng and Hung Hom stations commenced in June.

As previously reported, the discovery of archaeological relics in the Sung Wong Toi area has led to an 11-month delay on this corridor. With the hard work of the contractors and our project team meant successful implementation of a number of delay recovery measures, the length of this delay has been partially recovered. However, the commissioning date of the Tai Wai to Hung Hom Section will depend on the verification of and safety test on the Hung Hom Station platform.

The Hung Hom to Admiralty Section was close to 71% complete at the end of June this year. For the cross-harbor segment, all 11 immersed tube cross-harbor tunnel units have been installed in Victoria Harbour as of April. Exhibition station was about 64% complete. The major challenge for the section remains the timely completion of works at Exhibition Centre Station. As announced previously, there's currently a 9-month delay on this section due to a number of issues caused by third parties relating to site possession at the new Exhibition Centre Station. However, completion of the Hung Hom to Admiralty Section is still targeted in 2021. The quality and safety of railway projects have always been our top priority. We understand the public concern relating to recently reported issues relating to this project and take these matters very seriously. We have taken immediate steps to investigate the issues, report our findings to the government, identify any rectification work with [ why ] and reserve our position against our contractors and consultants.

To address the allegations relating to the platform at the Hung Hom Station extension, we have engaged an external third party to conduct the safety test of this platform. We'll also cooperate fully with the Commission of Inquiry appointed by the Hong Kong SAR Chief Executive in Council to investigate matters relating to the platform wall and the platform slab at the Hung Hom Station extension as well as the adequacy of our project management and supervision systems. The Capital Works Committee of the board will review the processes and procedures for the Shatin to Central Link within our project management system assisted by an external consultant. On 7th August, we announced that the report to -- submitted to government on 15th of June this year in relation to the platform at Hung Hom Station extension, unfortunately, contained inaccuracies in respect of the construction methodology of the top side of the platform slab. We're investigating this issue, and we'll provide updated information to the government and the Commissioner of Inquiry in due course. Government is responsible for funding this link, and the funding arrangement is set out in the XRL entrustment agreements. A detailed review of the latest estimated cost to complete for the main construction works was submitted to government on 5th December, 2017. In this latest estimate, the cost to complete has been increased by $16.5 billion from $70.8 billion to $87.3 billion, representing an increase of 23%. As announced previously, the majority of this increase is due to external factors such as the delayed cost by archaeological finds as well as increased scope of the project.

However, any significant adverse result from the verification of or safety test on the Hung Hom Station platform may impact this latest estimated cost to complete. We've been liaising with the government to facilitate their review and verification processes.

Beyond the 2 remaining new rail lines under construction, government has identified 7 new rail projects under RDS 2014 to be implemented in phases. We have submitted project proposals for 5 of these rail projects, being the Tuen Mun South Extension, the Northern Link, the East Kowloon Line, the Tung Chung West Extension and the North Island Line.

We're making good progress in the expansion of our shopping center portfolio, including the Wong Chuk Hang Station shopping center, the tender for which was just awarded. We will add over 150,000 square meters GFA to our retail portfolio, increasing attributable GFA by approximately 49%. The construction works for the new LOHAS Park and Tai Wai shopping centers are in progress, and target opening dates at the end -- and we'll target opening dates at the end of 2020 and 2022, respectively. In our Hong Kong residential property development, over the past 4 years or so, we attended our 14 MTR development packages. All together, these packages will provide over 20,000 residential units with total gross floor area of over 1.28 million square meters. These developments are expected to be completed over the next 6 years or so and are now in various stages of development. We continue to examine opportunities to develop more properties along our Hong Kong rail lines. About the depot in Siu Ho Wan in Lantau, around 14,000 residential units could be built, subject to necessary zoning and other statutory approvals. The environmental impact assessment report was approved by government in November of last year. The draft Siu Ho Wan Outline Zoning Plan was gazetted on 29th of March this year. Outside of Hong Kong, our businesses in Mainland China and international markets continued to progress with our subsidiaries and associates carrying about 6.8 million passengers every weekday using networks currently totaling nearly 2,000 kilometers of route length. For our Mainland of China and international businesses, total net recurrent profits, excluding property development, decreased 5.8% to $342 million. Net profit -- net property development profit was down 96.1% to $33 million, mainly due to the profit booking from Tiara last year, which as you all know, was not repeated this year. Recurrent profit from the Mainland of China and Macau increased by 78.8% to $329 million, mainly due to the good financial performance of rail operations in Beijing and Shenzhen as well as profitability being now achieved by our Hangzhou associate.

Loss from Europe was $150 million, mainly due to the material loss from MTR Pendeltågen, losses of MTR Express and the South Western Rail franchise. Profit from Australia increased 123.3% to $163 million, mainly due to higher profits from the Melbourne metropolitan rail service and profit booking from Sydney Metro Northwest, which started in the second half of last year.

Our businesses in Mainland China continue to progress. In Beijing, our 49% associate, Beijing MTR, operates 4 lines, namely Beijing Metro Line 4, the Daxing Line, Line 14 and Line 16 with good operational and financial performances. These lines now carry over 2 million passenger trips every weekday, a 3.8% increase from last year. Profit contribution to MTR increased to $211 million.

In Shenzhen, patronage at our Shenzhen Metro Line 4 increased by 10.2% to 109 million with average weekday patronage reaching 605,000 passenger trips. Profit contribution to MTR increased by 56.5% to $97 million due to patronage growth. As previously forewarned, if there's no fair income to Shenzhen in the near future, the financial viability of our Shenzhen subsidiary will be impacted. In Hangzhou, patronage at Hangzhou Metro Line 1 increased by 19.3% to 128 million. Our 49% associate, Hangzhou MTR, for the first time reported a share of profits of $13 million, mainly due to increased patronage. For Hangzhou Metro Line 5, the tendering and construction works are now in full swing. In Shenzhen, we take ownership of the approximately 90,000 square meters GFA shopping center at the Beiyunhe site when that center is completed. Moving to our overseas businesses. In Sweden, although MTR Express continued to report losses, the patronage has continued to increase, and we continue to rank as the most punctual operator between Stockholm and Gothenburg. We're making every effort to improve the financial results of this business through enhanced promotion and marketing of this service. MTR Pendeltågen reported material losses of $130 million due to increase in operating cost and significant penalties relating to punctuality and customer satisfaction.

Our service performance was impacted by a lack of drivers and inadequate train availability and made worse by a more complex timetable introduced early this year as well as poor performing-infrastructure, which is under third party's control. We have taken immediate actions to strengthen the local management team and provide support from Hong Kong. We're implementing a turnaround plan to improve service levels and the financial position of the franchise, but it will remain in a loss-making position for a number of years.

In the U.K., for our Crossrail franchise, services between Paddington Station and Heathrow Airport, commenced in May this year. South Western Rail franchise operated by our 30% owned associate commenced operations in August last year. The franchise reported a share of loss of $21 million with revenue below expectation, mainly due to industry-wide slowdown and patronage growth and major infrastructure incidents under a third party.

An independent review was commissioned in April this year by the U.K. government, governed both South Western Railway and the related rail infrastructure owner. We have been and we'll be providing our support to the local operations by sharing our expertise to expedite the service improvement to which we have committed. In Melbourne, Australia, we renewed our concession to operate the Melbourne Metro Network commenced in November last year. And in the early stages of this new franchise, performance was better than expected. In Sydney, for Sydney Metro Northwest, all the track laying works are completed, and construction works for the depot and stations as well as preoperational planning are progressing. Train testing is underway.

Lastly, turning to our growth initiatives outside Hong Kong. In the Mainland of China, in Beijing, we have conducted preliminary studies on property development along Beijing Metro Line 4 and the Daxing Line, including the Nanzhaolu Depot on the Daxing Line. In November last year, we proceeded to sign a letter of intent with the Daxing District People's Government of Beijing municipality and our partner, BIIC, relating to further studies on the southward extension of the Beijing Daxing Line, the Nanzhaolu Depot capacity expansion and the integrated property development above the depot. Separately our associate, Beijing MTR, is exploring bidding for a number of other Beijing rail franchises to be put out for tender by the Beijing government.

In Hangzhou, we are pursuing another potential rail project as well as a rail-related property development. In Chengdu, our strategic cooperation with Chengdu Rail Transit have this Metro PPP Transit Oriented Development, TOD, and metro operations and management training. In May, we also signed a memorandum of understanding to conduct joint TOD studies for the potential integrated development of stations along Chengdu's metro lines.

In the Guangdong-Hong Kong-Macau Greater Bay Area. In Macau, we've been providing project management and technical assistance on the Macau Light Rapid Transit line for the Macau government. We have been awarded a MOP 5.88 million O&M contract for the Macau Light Rail Transit line in April this year. The contract covers 18 months service period.

In Shunde Guangdong province in partnership with Country Garden and Shunde Metro, we're providing TOD technical assistance to a mixed-use property development adjacent to Shunde-Chencun station with total GFA of approximately 390,000 square meters. We'll continue to explore similar opportunities in other cities in the Mainland of China.

Moving to our overseas businesses. In the U.K., together with an associated company of China Rail Corporation, we submitted a bid for the West Coast Partnership franchise in July of this year. In Australia, we continue to pursue potential opportunity to participate in Sydney Metro City and Southwest, an extension of Sydney Metro Northwest. And as part of the consortium, we entered into a commitment deed with transport for New South Wales in December last year. Our final proposal will be submitted in late 2018. Finally, in Canada, relating to the Toronto Regional Express Rail project, we are preparing a prequalification bid together with our partner for a design-build-finance-operate-maintain project. The shortlist of bidders are expected to be announced by the end of 2018.

Now, before I pass the presentation to Herbert, as you know, I will be retiring early from MTR. As this may be my last time presenting MTR's results to you, I'd like to take this opportunity to thank you all for the support which you've shown, not just myself but, importantly, MTR over these many years.

So I now pass it over to Herbert.

[Leung-Wah Hui, executive]

Thank you, Lincoln. I would propose just to cover the top line and the bottom line on this slide, as Lincoln has already taken us through the key movements in the table.

Total revenue was down 12.1% from last year to $26.4 billion, mainly due to the significant revenue from property development in Shenzhen in the first half of 2017, which was not repeated this year. The reported net profit attributable to the shareholders of the company was $7.1 billion, including an investment property revaluation gain of $2.4 billion. This year, the property -- investment property evaluation gain is a result of the slight EU compression in certain of our shopping malls and the higher reversionary rentals in offices.

Let's turn to the profit contributions from our different business segments. In Hong Kong, EBIT of our transport operations was down 30% to $1.1 billion, mainly due to an increase in staff costs relating to an accounting provision not made in the same period last year. Our station commercial was up 9.6% to $2.4 billion mainly as a result of rental increases in Duty Free Shops and station kiosks. Property rental and management business increased by 2.3% to $2.1 billion, mainly due to the GFA increase in Telford Plaza and also Maritime Square despite a 2.2% drop in rental reversions in shopping malls. Outside of Hong Kong, our Mainland of China International recurrent businesses contributed $697 million, up 5.1% from last year, mainly due to higher contribution from Beijing railway operations and Melbourne Metro. Our posttax recurrent profit was virtually the same as last year at $4.5 billion. With lower posttax property development profit at $165 million, profit from underlying businesses was $4.6 billion, 20.5% lower than last year. Moving on to our consolidated statement of financial position. Total assets amounted to $263 billion, approximately $1 billion lower than December last year, mainly due to the decrease in cash balance after payment of land premium relating to the Wong Chuk Hang Package 2, partly offset by the revaluation gain in our investment properties.

Interest in associates and joint ventures increased by $856 million, mainly due to equity contribution to our Hangzhou joint venture, Hangzhou Line 5. Total liabilities decreased by $3 billion to $94.4 billion, mainly due to decrease in creditors and other payables after the payment of the land premium mentioned above and the net repayment of borrowings, partly offset by the accrual of the 2017 final ordinary dividend. As such, total equity increased by $2 billion to $168 billion.

Turning to our cash flow. Our operating activities generated $4.8 billion inflow. Receipts from property development were $1.1 billion, mainly from Hong Kong. The maintenance CapEx for existing assets, including railway and property assets in Hong Kong and overseas, was $3 billion. Variable annual payment to KCRC was $1.9 billion. Therefore, net cash inflow before investment in associate and joint venture as well as CapEx for Hong Kong railway extension projects and new property projects was $512 million. Investments in associate and joint venture companies were $669 million, mainly the Hangzhou Line 5 just mentioned. The CapEx for Hong Kong railway extension project and new property projects was $531 million. After the net repayment of borrowings of $3.6 billion, net cash outflow was $4.3 billion. On our financing and credit ratios. With the repayment of loans, as mentioned before, our total group borrowings decreased to $38 billion with an average maturity of 10 years. Average borrowing cost increased to 2.7% from 2.5%, mainly due to high interest rates on the floating rate borrowings and also a higher proportion of fixed rate borrowings, which carry higher interest rate.

Net debt to equity ratio decreased to 20.8% from a pro forma 23.7% at the end of last year. And our interest cover was reduced to 11.6x.

On our 3-year CapEx plan, total CapEx from 2018 to 2020, inclusive, is $44.8 billion, for which 51% for the maintenance of existing Hong Kong railway assets, including those for advanced railway works related to Shatin Central Link; 12% on new Hong Kong railway projects; 16% for Mainland of China and overseas; and the remaining 21% for Hong Kong property. On yearly basis, CapEx is expected to be $12.6 billion in 2018; $16.4 billion, 2019; and $15.8 billion in 2020. Global economic growth remains solid in 2018, and Hong Kong's economy has strengthened, especially in the retail and tourism sectors. However, concerns with pricing with U.S. interest rates, global trade and geopolitical uncertainties remain.

In the second half of this year, we are finalizing the operating agreement with the Hong Kong government on the high-speed rail service and expect the line to open in September this year. The strong economic growth and rebound in tourist arrivals should underpin a further increase in passenger volume in our Hong Kong transport business. Our station retail and property rental businesses are expected to continue to improve in line with market conditions. Outside Hong Kong, we expect continued challenges in Pendeltågen rail concession and MTR Express in Sweden as well as South Western Rail franchise in the U.K., whereas, our other businesses should see performance in line with expectations.

Hong Kong property development, the booking of profits for Wings at Sea and Wings at Sea II at LOHAS Park Package 5, will be subject to the receipt of occupation permit, which is currently expected at the end of the year.

Over the next 6 months or so, subject to market conditions, we aim to tender up 2 more property development packages, being Ho Man Tin Station Package 2 and LOHAS Park Package 11. This completes our presentation. Thank you.