~by: Sharon Ng~
Much has been said on why the S$1.1B injection into SBS Transit is wrong. Since SBS Transit operates 75% of the bus fleet in Singapore, I will take a quick look at the financials of SBS Transit.
According to the annual report available on the SBS Transit website, it can be seen that the group has a 3.42% increase in revenue, a 4.02% increase in operating profit (year-on-year 09/10), and a 3.35% increase in operating expenses . Its EPS has actually decrease a little by 0.56%, while the net asset value has increased by 9.72%. The total dividend per ordinary share has not increased, and the return on shareholders’ equity has actually decreased by 10%.
Taking the data on a 5-year period from 2006 to 2010, it has enjoyed a 14.61% increase in revenue, 13.51% increase in operating profit, 14.72% increase in operating expenses, a decrease of 12.62% decrease in shareholders’ equity, a decrease of 4.86% in EPS, and a decrease of 62.23 of total dividend per ordinary share.
This makes me wonder if shareholders should be angry with SBS Transit, and perhaps that’s why it cannot raise money through issuing more shares. I do not know the rating of SBS Transit, but I will doubt it has difficulty borrowing, since it is backed by Temasek Holdings.
Taking a deeper look at the Group Income Statement between 2009-2010, it has an increase of 1.27% in staff costs, 3.02% decrease in repairs and maintenance, and a 10.45% increase in fuel and electricity costs. Operating profit increased by 4.04%. As a percentage of operating expense, staff costs represent 44.62%, while fuel and electricity costs represent 20.43%. Repairs and maintenance represent 13.67%. Just like an airline, most of SBS Transit’s expenses come from labour and fuel costs.
Again, for the period 2009-2010, the Bus segment information reveals that revenue has increased very little by 0.55%, while the additions of vehicles, premises and equipment has decreased a whopping 43.88%. Segment assets has increased by 10.53%. According to the financial report, segment assets include all operating assets and consist of operating receivables, inventories, vehicles, premises and equipment, net of allowances and provisions. So if additions of vehicles (etc) have decreased, this means that this asset increase is in inventories and receivables. So why is SBS Transit hogging this much inventories and receivables? Does this make good financial sense?
Taking a look at the Group Income Statement between 2006 and 2010, one statistics that jumped out is the increase in depreciation expense, at 91.38%. Another interesting number to look at is the steep decrease in net income from investments, at 93.36%. The increase in revenue is 14.69%, while the increase in staff costs is 7.16%. Repairs and maintenance have increased by 19.91%, while fuel and electricity costs increased by 10.38%. The basic EPS has actually decreased by 4.81%.
Taking a look at the Bus segment information 2006 and 2010, segment assets has increased by a whopping 137.77%, while depreciation expense also increased at 92.35%. Addition of vehicles, premises and equipment increased by 13.23% and segment liabilities increased by 9.55%. As said earlier, segment assets include addition of vehicles (etc) among other things, but yet the steep increase in segment assets is not explained by the addition of vehicles (etc), but is possibly due to the increase in operating receivables and inventories.
This can be further seen on the Cash Flow Statement of 2010, where there is a steep increase in inventories from -3.7M to 1.45M. The Trade Payable for buses has also increased from -4.55M to -26.73M. Cash generated from operations has actually decreased about 55.9%. As we know, commuters pay by ezlink and cash, and this is actually a cash-based business where SBS Transit receives cash from its operating activities. In years 2007-2010, bus ridership has increased by 8.19%, however, this did not help in the cash flow situation.
Taking a closer look at the addition of vehicles(etc) and the amount of vehicles (etc), it can be seen that for the period 2007-2010, the Bus segment has added 113% of vehicles (etc) while ridership has increased by 8.19%. Of course, there are new buses to be added to the fleet due to buses being replaced. This addition of assets has also led to high depreciation costs.
According to the website, it operates about 3000 buses. Taking a very crude way to average, the cost per bus (including premise and equipment) is $178, 616. Of course, not all buses are new and cost the same, hence this is a crude number. Now if we take the number of buses to estimate the operating expenses for these 3000 buses, it will be about 218,720 per bus. Together, with a mix of buses of different age and types, it can be estimated that a bus costs about 178,616 on book, and costs about 218,720 to operate, which gives us $397,336 per bus.
Now with a $1.1B injection, how many buses (not new buses, but just the “average bus” on the SBS transit fleet) are we talking about? The answer is 2788.43 “average SBS buses”. Wow, that’s a lot of buses, given that SBS transit operates 3000 now.
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dear writer,
the $1.1 billion includes operating costs like maintainance & salaries for hiring additional drivers, etc. its stated in papers in the past few days. also stated was no certain terms regarding delivery of any improvement in service quality.
govt should have set aside a way bigger budget to buy the public transportation back. such a move gives the impression that big players always have things easy. anyway, any cost increase just need to pass to consumers who have no choice but to pay for it. privatise profits, socialise costs… :(
People are not happy.They are not satisfied with SMRT/TIBS/SBS. The people want more transport companies and competition and better quality service. No more business as usual. All the Taxi companies should also provide bus and mini bus services. If not, they should allow foreign transport companies to enter the market.
ha. 1.1B includes covering operating costs. no government in the world will give more to a transport company that is making money.
Our our clever government will give as it goes back into their pocket. expect more bonuses to come for the top management. ha
market capitalisation as at Feb 24, 2011
Comfort Delgro $3,158.2 million
SBS Transit $533.9 million
SMRT $2,645.1 million
Total of all 3 companies $6,337.2
The government might as well use the $1.1.billion to nationalise the 3 companies.
The pros are : economy of scale, reduction in duplication e.g. 1CEO, 1CFO, 1COO etc. This will result in immediate savings of several million dollars.
Standardisation of buses will save on purchase costs, maintenance as well as inventory costs. SBS thinks that double decker is more efficient while SMRT likes the bendy.
The total earnings of the 3 companies
Comfort Delgro $433.3million
SBS Transit $36.6 million
SMRT $161 million
Total $433.3 million can be plough back to improve bus/train services instead of distributing to several thousands shareholders.
Dear mice is nice, the calculation has already taken into account the asset cost (bus) and the operating expense into account, and the average cost per bus is still $397,336 per bus. Please read the article and understand the calculations more carefully.
Richard Kong, who is a second year student at Nanyang Technological University, asked whether the S$1.1 billion spent on the purchasing of buses will result in an increase in transport fare over the next few years."
Mr Iswaran replied: "We're increasing the bus fleet by 20 per cent – ask yourself, do you think our ridership will go up by 20 per cent? If our ridership doesn't go up by 20 per cent, what it means is the buses would be less utilised, and there's a financial challenge there.
U plus one thing,many things must plus.. Why not minus one thing? A lot will minus mah.. Get wat I mean?
@ Sharon Ng (author of the article)
your effort to calculate is commendable, but the conclusion(2788.43buses) is flawed, the number $397336 per bus you have suggested is the operation cost for 1 year.
in Mr Tharman's budget:
D.4. The Government has decided to make a major commitment to improve bus service levels. We will partner the public transport operators (PTOs) to add about 800 buses over the next five years, or a 20% increase. This is a significant increase. It took the PTOs close to 20 years to grow the public bus fleet by 800 buses in the past.
D.5. The Government will provide funding for 550 buses while the public bus operators will add another 250 buses.
D.6. This is an important new commitment that will stretch beyond this term of Government. To ensure that the Government can fulfil this commitment for both the purchase of buses and the running costs for 10 years, I will set aside $1.1 billion in this Budget for a Bus Services Enhancement Fund.
;
1.1billion is for purchasing 550 buses over a period of 5 years &
operating cost for a period of 10 years.
if we take your figure of $397336, multiply by 550 (buses), multiply by 5 (years), it is already close to 1.1billion,
thats for purchasing 550 and operating for 5 years, (the original intention is purchasing 550 and operating for 10 years remember?)
so, we still have a shortfall of monies$ for another 5 years of operation.
in other words, $397336 per bus is too generous and will exceed the budget, consequentially, your conclusion of being able to purchase 2788.43buses is also flawed as we can see from the above, no money is left to go on a shopping spree like that.
sure, u can always buy 2789 buses and operate them for 1 year and then leave them to rust in the bus park since we ran out of budget to operate them the following year.
I wonder if the government has ever considered bringing in a new competitor before shelling out $1.1B just like that? If the purpose is to increase capacity by 20%, this could easily be done with a 3rd player in the market. I am sure operators in Malaysia could be very keen to compete.
We should not be side tracked or allow ourselves to be sidetracked by all these red herrings. David Orgilvy famously said "If you can't convince…confuse!"
In the first place, the government should be clear on the principle behind public transportation;
Since it is privatised and there is a need to improve efficiency and effectiveness, then strengthen regulation and oversight by government proxy LTA.
If government see the need to subsidise these trtansport companies in order to improve efficiency and effectiveness, then something must be wrong with the privatisation model, perhaps it should be reviewed and all options, including making it a truly public transport system, be explored.
David Orgilvy is a famous advertising man, here we are talking about government policy that affects the general public.
@iworkhardsometimes
the close to 400k figure includes asset additions, so you can't multiply it by 550. it's not existing net asset addition cost.
To get pure operating costs over the next ten years, the simple way will be to take operating costs, 218,720 * (3550/3000) * 10. this is about 2.6M. Accounting for inflation for 10 years (3% compounding), the effective inflation rate is 34.4%. The operating costs hence will be about 3.5M.
so that leaves the rest of the money to assets. this means that each bus will cost 1.8M.
what is the difference between this and USA govt bailing out banks and financial institutions during financial crisis using public funding.Only thing these listed companies owned by govt indirectly via temasek and other GLCs work on profitability model and this public taxpayers monies is to help them get better bonuses and profits.The rest is eyewash as ministers and MPs still sit on board or their linked members on these boards and own majority shares.Public nothing but story of more buses.
@ Happy Camper
i am responding to the author, not to your interpretation of what the author thinks.
the author and I are on the same page, while u are not.
the author deems fit to multiply $397,336 by 2788.43 to get 1.1billion
what i am doing to to apply the author's own logic to counter the author's original cost projections to prove a point.
as shown by 397,336 * 2788.43 = 1.1billion, i wonder why u did not present your disagreement to the author in the first place, but, instead wait until i made my comment?
all along u did not see why u should state your disagreement with the author's mode of calculation but suddenly u decide to disagree when someone else is using the same mode of calculation?
@ Happy Camper
on your figures, you are saying that the operating cost for 550 buses over a period of 10 years is 3.5 million.
3.5m divide by 10(years) divide by 550 (buses) = $636.36
thats $636 a YEAR, $53 a MONTH for 01 bus
if u are saying u want to use $53 a month to operate 01 bus, i don't know what you intend to use it to pay for, bus driver's wages perhaps?
and i don't know why your buses cost so much at 1.8m a piece, maybe all the passengers have massage chairs and the stainless steel railing are all gold plated?
if the author(or a proxy of the author) is reading the comments, can he/she please answer the following question:
using $1.1billion to buy 2788.43 buses is to operate them for how many years?
whatever the answer is, please provide the proper maths to back up the claim.
SBS and SMRT cannot just increase their fare prices without approval from the PTC. In that sense, they are not really private companies. It is the government that want to increase the number of buses on the road to provide better service with probably much less expected increase in riderships. So, it is perfectly reasonable that the government foot part of the cost for this service improvements while keeping fare down.
lastly, most likely the figures proposed by the author are all flawed, because the method of arriving at the figures is overly simplified.
simply taking the total Operating Expenses of $656.2m and dividing it by 3000(buses) to arrive at the figure of $218,720/bus ignores all other operations SBS has (which include trains)
the balance sheet is not an exclusive balance sheet for bus segment operations only, but a combined balance sheet for ALL operations, therefore any figure arrived at is not reflective of real cost of operations.
all the figures are contaminated by contributions from the train operations.
dear Happy Camper,
yes, yes, i made a mistake thinking the writer did not factor in the operating costs (stated near the end of the article)… thanks for highlighting it to me. :)
dear iworkhardsometimes,
i think the writer like many of us common folks do not have the exact figures in hand, & likely those who have the exact figures on running the public transport will not be writing such an article at all. i did not get the impression the writer has any "scoop" (info not privy to the public).
so figures though not accurate, which she didn't claim that they are. ought to be taken in the spirit of furthering discussion without being too fixated on numbers.
have a nice day. :)
@ mice is nice
i am actually ok with ballpark numbers, but the conclusion(or swipe?) at the end is a little far-fetched.
@ mice is nice
it’s tough figure a way to put it across to someone nicely when they do not bother to check their calculations and what they write.
if someone told u they can operate a bus with $53 a month, how would u react?
it’ll just take 3 secs to peep at the balance sheets and $656m/year operating expenses will be staring in our faces and yet,
there will be some fella how would believe in their own calculation that $35m can last 10years?
for goodness sake, i don’t know what to say. (stomps foot) :)
hi iworkardsometimes,
maybe so, but take it with a pinch of salt? since the writer isn't the one making the purchases on behalf of the operators anyway.
for me, no matter how i see it, $1.1 billion over 10 years is still too much. more so when govt often exhorts frugality, prudence, the positives of market forces, privatisation = competition = lower fares, etc. it turned out horribly wrong, i feel govt should nationalise the public transport.
i wonder when did the idea came about (before GE2011?) & how long did govt take to get the funds approved. hmmm…
dear iworkhardsometimes,
if alternative parties came up with such a huge budget, i wonder what PAP will say… :)
bankrupt the reserves? balance cheque mentality?…
@ mice is nice
i also think that it is better to nationalize the public transport.
well, i wouldn’t conclude whether $1.1b is too much or too little at the moment.
if whatever $1.1b can buy us can’t keep up with the population expansion, it would be too little.
but since the minds of higher mortals could not be changed on certain issues, i would prefer them to build infrastructure ahead of demand rather than to take reactive action after waiting for demand to overload the existing infrastructure.
the action of government injecting funds into a publicly listed company introduces a dilemma.
the cost structure of the companies does not allow for rapid expansion of bus fleet via internally generated profits, well, not quick enough to match the aggressive population expansion anyway.
so when left to their own means, the public transport companies will be chasing a moving goalpost which they will never reach.
just some random thoughts :)
dear iworkhardsometimes,
oops, typo, i mean blank cheque mentality, not balance cheque mentality, lol…
the $1.1 billion may only be the tip of the iceberg, the other tip could be the scholarship for foreigners, yet another was the one where 2 foreign siblings allowed to buy or rent HDB homes while (initially) S'porean siblings cannot, & dependants of foreigners allowed while spouse of locals are not, etc (so many)…
population expension in S'pore need to take into account the many needs a person needs, & with most things being imported for consumption, the costs of importing more will need to be paid somehow. so if public transport alone need cash injection from taxpayers, what more of medicine, energy generation, food, etc?… if the current privatisation model cannot sustain itself, quite scary if a few more essentials need similiar cash injections.
very scary thoughts how govt is so willing to pay for the buses with so much, yet never too quick to count pennies when giving citizens in cash.
-__-"
SBS should not issue new shares to raise money because this would dilute existing shareholders stake. Earnings per share (EPS) would be lower and the stock would trade lower accordingly. With operating cost rising rapidly, this is unacceptable. So the government is right to inject funds to help buy more buses. The alternative is to increase fares.
it's very contradictive. why does GLCs invest oversea when our public transport is left out? isn't this a "sure win" monopolistic biz? that means only profits and hardly any losses if the glcs were to run it. smrt should also be included which is again another business monopoly. when one monopolises a certain business such as our public transport, they call the shots. why again would GLCs wanna face the unknown, untested and possible losses abroad when there is a cash cow sitting at home?
The transport companies should be privatized. There's no merit in a pretensious cmpetition when each company actually monopolized a specfic transport segment.
Such a duopoly arrangement is a waste of resources and just a bluff!
@ mice is nice
if u look at it in another way, i would prefer that $1.1b is spent on buying buses, at least it is reinvested in our own country over the alternative,
which would be, they keep this $1.1b, mark it as surplus and off it goes into the hands of GIC/Temasek, when that happens, we can’t even be sure it is going to be reinvested in our own country.
in summary, i don’t like the idea of calibrating for large surpluses and locking them up as reserves and then lending it to GIC/Temasek,
during the early years of their formation, yes, but now, they-like children, are grown up now, they should earn their own keep and if they can, pay back to the source which nurtured them,
if they are ambitious, they need more funding, they should earn it with their own smarts, not wait for government to generate surplus and pass it to them.
dear iworkhardsometimes,
you got a point here, still i really wonder how such an amount was arrived at & approved.
Government owes Singaporeans an explanation (with complete details) on why it is using public funds to subsize the operation of a company it privatised earlier. Why not just nationalise it? This might be better (lower fares) for the commuting public in the long run.
Too many figures makes this article too mind boggling for me. What I know is someone high up is either not capable or not doing his job as he should, bearing in mind it is a public transport.
hi BK,
haa, nice to know i am not alone feeling there are too many numbers presented in a the sentences. should have been neater if presented in forms of tables like the 1 at the bottom of the article.
that was where i made my boo-boo… -.-"
SBS should pay for the fleet expansion in full. And the company must decide it is in its commercial interest to do so and present a good case to the shareholders and convince them and gain their support.
How did the Govt end up stepping in and spending public funds?! PM LHL, what do you have to say about this? Do you think it is appropriate? If so, why? Please say something.
A sleight of hand gone amiss. Somebody clearly has vested interested in the transport companies.