Temasek buyout target SMRT Q1 profit down 23%

SINGAPORE — Transport operator SMRT Corp reported on Monday (Aug 8) a 22.9 per cent year-on-year decline in profit to S$15.5 million for its fiscal first quarter, its first decline in a year, as losses in the rail business deepened.

The group, which is the subject of a S$1.18 billion proposed privatisation buyout by main shareholder Temasek Holdings, reiterated on Monday in a media conference that it will not be paying any special dividend to shareholders from the asset sale of the new rail financing framework (NRFF).

SMRT’s president and group chief executive officer, Mr Desmond Kuek, said the group welcomes the proposed transition of the its lines to the NRFF, which is “an improvement” to the current framework.

“However, we are also cognisant that SMRT trains will continue to face significant business risks associated with an ageing and expanded network and regulatory challenges which are outside the control of the company,” Mr Kuek said.

With the NRFF, the current accounting framework will see a difference in payment of licence charge structure as well as asset form, said Mr Kuek. “We will be moving from … an asset-heavy to a new, asset-light regime,” he said.

On July 20, Temasek announced the acquisition of SMRT shares.

“The proposed privatisation will better enable Temasek to closely support the group as it retools and reinforces its core skillsets in operations, engineering and maintenance, and allow minority shareholders to monetise their holdings through this Scheme and avoid the uncertainties of the transition.

“A scheme document will be sent to shareholders in due course,” the company said on Monday. Subject to regulatory and court approvals, SMRT expects to convene a scheme meeting by September/October 2016.

The group saw a 2 per cent year-on-year decline in revenue for the first quarter ended June to S$313.9 million. Operating profit during the same period fell 20.3 per cent to S$22.1 million.

Total operating expenses for the three months rose 0.8 per cent to S$311.5 million due mainly to higher staff costs as well as repairs and maintenance costs, partially offset by lower energy expenditure and other operating expenses.

Rail operations reported a higher operating loss for the quarter compared to a year ago, primarily because of a bigger loss in train operations.

Revenue for the rail segment was hurt by lower average fares resulting from a 1.9 per cent fare reduction in December 2015 and the cannibalisation impact of Downtown Line 2 operations, higher staff costs as well as repairs and maintenance-related expenditure, SMRT said.

For the first quarter, 49 per cent of every dollar collected in rail fare revenue was channelled to rail maintenance-related costs (MRE), higher than the 45 per cent a year ago.

“Going forward, we expect the rail MRE to remain in the range of 45 to 50 per cent of rail revenue in the near term,” group CFO Manfred Seah said.