1994 — Page 16

Chairman's Statement

Following the completion of the sale of the Kwun Tong Property, the Company paid on 26 January 1994 a First Special Cash Bonus of HK$2.68 per share, totalling HK$1,082 million. Following the completion of the sale of the Kwai Chung Property, the Company paid on 12 August 1994 a Second Special Cash Bonus of HK$1.13 per share, totalling HK$456 million. The two Special Cash Bonuses distributed during the year amounted to HK$3.81 per share, totalling HK$1.538 million.

An application for a fare increase averaging 19.6 percent was submitted to the Government in December 1993. However, the Government eventually approved a fare increase averaging only 12.9 percent which took effect from 1 April 1994. The substantial down- scaling of the rate of increase was naturally a matter of grave concern. Fortunately, a number of unforeseeable favourable factors prevailed in 1994 including, in particular, good weather conditions which enabled our bus services to be operated without any interruption, and reduced fuel prices. These factors, coupled with the management's continued efforts to maximise cost effectiveness in the use of resources, enabled the Company to achieve a

return only marginally below the permitted return.

Nevertheless, it is clearly impractical for the Company to plan and operate its bus services on the basis of relying on good fortune. While it is not the Company's wish (nor is it in the Company's own interests) to seek unnecessary fare increases, the Company should be allowed to adjust fares periodically to a level which reflects reasonable and unavoidable increases in costs. The Company believes that annual reviews of bus fares would help keep the level of any necessary fare increases modest and thus minimise their impact on

customers.

The Company's current franchise will expire on 31 August 1997. The Company has submitted to Government four applications, each for a two-year extension, so as to bring the franchise period to 10 years as allowed under the Public Bus Services Ordinance. These applications are still awaiting Government's approval.

In approving the Company's fare increase for 1994, the Governor-in-Council considered that the Profit Control Scheme should be reviewed as the Scheme had been "perceived by critics as providing a 'guaranteed' profit for the Company regardless of its performance”. The Government stated publicly its intention to commence discussions with the Company "with a view to replacing the Scheme of Control with a more appropriate basis for the

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The Kowloon Motor Bus Company (1933) Limited