1995 — Page 81

CHAIRMAN'S STATEMENT

In 1996, the fares on the Company's cross harbour routes, which had remained unchanged since April

1994, were increased by an average of 10 per cent from 3 March 1996 in line with the increase granted

by the Government to the other franchised public bus operators who operate cross harbour services jointly with KMB. In respect of the Company's other routes, an application for an average 7.8 per cent increase in fares was made in early 1996 to offset the expected increase in operating costs due to inflation and to meet the costs of further service improvements envisaged in the Company's Five Year Plan.

Unfortunately, the application was drastically slashed by the Government to a mere 2.7 per cent, which is well below the inflation rate forecast for 1996. The fare increase took effect from 4 April 1996. Whilst

deeply disappointed by the Government's refusal to grant the Company a level of fare increase which bears a realistic relationship to anticipated cost increases and to the permitted return, the Company determines to face the challenge positively by endeavouring through continued service improvements to

attract more customers to compensate for the sharp reduction in anticipated fare revenue.

Franchise Extension

The Company's current franchise will expire on 31 August 1997. Discussions with the Government for the

extension of KMB's franchise commenced during the year. We hope that these discussions will be

successfully concluded by the summer of 1996 and that they will lead to a new or extended franchise which would provide a sound basis upon which the Company can plan for the future.

China Business Development

In June 1995, KMB was selected by the Hong Kong Government following normal tender procedures to

form a joint venture company with a Shenzhen based operator to run a cross-border shuttle bus service

between Lok Ma Chau and Huanggang. This service will be introduced as soon as the border crossing

procedures are finalised between the Hong Kong and Shenzhen Authorities.

During the year, Dragon Pioneer International Ltd, a joint venture company formed by a wholly owned subsidiary of KMB and a reputable United Kingdom bus body manufacturer, executed an Agreement of

Intent with a long-established bus manufacturer in Guangdong to set up facilities for the assembly of bus bodies in the People's Republic of China (“PRC”). In the longer term, it is envisaged that this joint venture will develop bus body manufacturing capabilities in the PRC. Discussions on the formation of this joint venture are still continuing.

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KMB

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