The news is out at last. The Mass Transit Railway (MTR) posted a loss for last year and will have trouble getting itself back into profit. Let us make it clear immediately that we are not talking about the full Mass Transit Railway Corp (MTRC) here. In this structure as a property/railway company it actually reported a net profit of $2.38 billion for the year, down from $2.819 billion the previous year because of higher depreciation and interest charges, but a profit nonetheless. It is a railway we ought to be considering, however. This is what our Government says it is privatising and what it intends to sell just under 50 per cent of to private investors for a hoped-for $30 billion later this year. Property is meant to be an adjunct only. We call that railway the MTR and to determine how profitable it is we have to break down the profit and loss account that the MTRC published yesterday to see what we have for the MTR itself. We start by deducting $790 million in property ownership and management income from total turnover of $7.252 billion. This property income represents rents from buildings the MTRC owns but excludes rentals from station kiosks, which we shall treat as an integral part of the MTR. Then, to balance things out, we deduct $155 million in property ownership and management expenses from operating expenses of $3.759 billion. If we are to exclude rental income from turnover we must exclude the costs of generating that income from expenses. We now have an operating profit before depreciation and interest charges of $2.858 billion. Next we look at those depreciation and net interest charges, both of them were way up last year because it was the first full year of operation for the hideously expensive airport railway and the full burden now has to go into the books. Together these charges amount to $3.143 billion, up from $1.901 billion in 1998. We subtract this $3.143 billion, from the $2.858 billion operating profit and the figure that pops out is an MTR net loss for last year of $285 million. There was a profit of $822 million on this basis the previous year. In other words, the MTRC's announced net profit of $2.38 billion was made on property development alone and there is not much it can do to fudge the difference. The property development expenses are already built into the property development profits. All of those depreciation and interest costs that the corporation announced apply to the railway alone. So there you have it, Mr Tsang. You are looking at privatising a loser and you must now cross your fingers that the market won't realise this before you pull it off. You can float a property company if you wish but this railway is not fit to float on the market and your financial advisers cannot make it so even with a bag of tricks as big as Santa Claus carries. They will try, of course. They will say we should look at it on the basis of discounted cash flows (DCF) rather than published profits. Watch for it. They will pretend first that depreciation charges do not matter. They will then ignore them and use an artificially low discount rate to get a high price on their cash flow figures. Don't be fooled. Your correspondent will not go into it all right now but when they try the DCF trick this column will show you what they have done and why it's a fudge. Let us leave it to the future, however. We know what we need to know immediately. The MTR is losing money.