Ladies and gentlemen,
Good afternoon and welcome to our 14th Annual General Meeting.
1 As this is my first AGM with you, let me take a few minutes to outline our strategic priorities and direction going forward.
2 Last year, we celebrated our 25th anniversary since our first MRT system came into service between Yio Chu Kang and Toa Payoh in 1987. Since then, we have grown in strength and stature with the merger of SMRT Corporation and TIBS Holdings in 2001, the first transit retail development of Raffles Xchange in 2005, the opening of the Circle Line in 2009, and many other achievements locally and internationally. From a local rail company in the earlier years, we have become a multi-modal corporation occupying a dominant position in the local transportation sector, and with a strong international brand today. I would like to thank the Board and Management, past and present, and all 7,500 members of our staff for their tremendous effort and dedication in building the company. We also want to express our appreciation to all of you who are our loyal shareholders for your steadfast support through the years.
3 Recent events have affected public confidence in SMRT. We are determined to put these behind us and move forward – building on our strengths, learning from the lessons of the past, and striving to excel in all areas of operational performance, customer experience and workforce engagement. We are on track on all these fronts and encouraged by the signs of progress made. We remain committed to our mission - to be the people’s choice, by delivering a world class transport service and lifestyle experience that is safe, reliable and customer-centric.
4 However, we operate in very challenging circumstances within a heavily regulated framework and heightened societal expectations in Singapore. Overall, fare revenue has not kept up with rising operating costs associated with an ageing network and increased ridership demands. We do not control fare levels, and any adjustments are approved by the Government on the recommendation of an independent Public Transport Council. The absence of meaningful adjustments in past years has led to a significant gap between the allowable fare cap and actual fare levels. Although ridership numbers continue to climb, the average fare per passenger has dropped because of distance fares and higher number of concessions. Concessionary fares cost us about $80M last year. In past years, the healthy growth in our non-fare revenue, particularly from retail, allowed us to absorb this, but it will be a challenge for the company to continue to have to do so with the current profit levels.
5 In addition to these revenue challenges and rising operating costs, we have commitments to meet in capital expenditure. Some of you may wonder whether we could have anticipated this beforehand, and smoothed the expenditures out. It would be a fair question. There is a confluence of factors that has led to the increase in capital expenditure needs at this particular juncture. Some of the costs have gone into additional trains and buses to meet peak period demands and higher service standards. The new line extensions were also not originally part of the MRT network. These new requirements are not within our control, and while they cost millions of dollars, they do not contribute significantly to revenue because they are not fully utilised off-peak. Secondly, part of the network and infrastructure is now 25 years old and entail disproportionately higher repair and maintenance costs at this point of their life cycle. And thirdly, the strain from increased ridership demands and the higher standards of reliability we have set ourselves have mandated an accelerated pace of infrastructural and asset renewal, such as with the sleeper and third rail change-outs that have been brought forward.
6 To meet these financial commitments, much will depend on the outcome of the Government’s review on a more sustainable and equitable financing framework for the public transport system. We have been very actively engaging the regulator and policy makers. I expect that it will still be a challenging year ahead, but we are looking forward to the impending positive changes and opportunities, and confident that we will emerge stronger and better positioned to sustain growth into the future. I will speak more about this later.
RECAP OF FY13 RESULTS
7 Let me first recap our results in the last Financial Year:
· REVENUE: Our Group revenue increased 5.9% to $1.12B.
· OPEX: Our operating costs however increased 12.4% from $931M to $1.05B, chiefly due to increases in Repairs & Maintenance of an ageing network to meet operational and service standards (+32.7%), wage adjustments to maintain our market competitiveness (+16.2%) and higher depreciation because of our larger asset base (+14.2%).
· PROFIT: These higher operating costs in the absence of fare adjustments, and the impairment of interest in our associate in Shenzhen, China, have led to a lower profit of $83.3M. We were obliged to make the impairment in recognition of the uncertainties surrounding new regulatory policies on subsidies for public bus operations, and competition from new developments within the local transport sector.
· DIVIDEND: In line with the lower profit last year, the total declared dividend is 2.5 cents, amounting to 45.6% of the FY2013 PATMI of $83.3M. We have had to reduce our dividend payout this year as a prudent measure to keep a healthy cash balance in view of the higher expenditures anticipated. There are understandably some concerns from shareholders about whether this signals a shift in dividend policy. The Board will be in a better position to guide on this when we have greater clarity on the outcomes of a new rail financing framework and bus operating model. We expect both these developments to improve our long term sustainability.
IMMEDIATE FOCUS AND OUTLOOK FOR THE COMPANY
8 Going forward, we are taking firm steps to focus on five strategic areas:
· First, we will continue to improve Operational Performance in safety, reliability and capacity. We have started work to renew our ageing network on the NSEW Lines. These include changing out sleepers, signalling and third rail systems, as well as the acquisition of new trains and upgrading of old ones. As you can imagine, all these projects will take time, and is a massive effort requiring detailed coordination and integrated planning with the Land Transport Authority. We are proceeding as quickly as possible in order to attain higher service standards and regain public trust and confidence in the system.
· At the same time, we will enhance our Customer Experience on the ground. Even as more trains and buses are pushed in when available to shorten the schedule headway and improve capacity, there will still be some inevitable congestion to be faced during peak periods. And even with the best of maintenance efforts, unfortunately there will sometimes be unanticipated service delays. We are doing more in preventive and predictive maintenance, investing in Service and operational staff in stations and interchanges, and improving our communication and engagement efforts with passengers so that they can have a more positive experience despite the discomfort and inconvenience.
· We will continue to strengthen our Workforce Health, anchoring each one of our staff on a clear vision and strong shared values, nurturing them to be their best. Our Train and Bus Captains bring more than 2.8 million passengers safely on their journey daily, and our technicians keep our trains running close to clockwork as they travel the cumulative distance of more than 1.5 times around the equator in travel-km every day. This is not an easy task. We will continue to recognise their hard work and efforts, build a mutually beneficial partnership with the Union and also seek the wider cooperation of the commuting public as part of a collective effort to keep the morale and motivation of our workers high so that they can continue to serve the public well.
· To entrench Organizational Excellence, we will continue to manage risks and costs, and ensure the highest level of governance, safety and security. We have embarked on a concerted drive to derive maximum productivity and efficiency gains. We are also augmenting our efforts to build engineering excellence through the appointment of a Technical Advisory Panel comprising international and local experts who can advise us on the best practices and latest systems and technologies in transport engineering.
· Finally, we are committed to ensure Sustainable Growth and deliver shareholder value. Looking ahead, I am optimistic about our longer term growth prospects:
• There are local rail opportunities that we will capitalize on. As Singapore doubles its rail network in the coming years to meet the needs for a growing population and economy, we will build on our dominant rail engineering and operations expertise to participate fully in all the opportunities that are presented.
• More immediately, we will continue with our discussion with Government on a new rail financing framework that will allow for more predictable cash flows and a more sustainable financing model. The Minister for Transport acknowledged in Parliament the “very real financial pressures faced by the PTOs”, so we believe there will be strong impetus to find a feasible solution that meets the needs of all stakeholders. There are many details that will need to be ironed out for this new framework to work well, but we will ensure that the interests of our shareholders are preserved, and will work toward a favourable and early outcome.
• The bus business has been running losses, and we are working with the authorities to resolve the structural issues and improve its viability. Judging from statements made by the authorities, and the recent tenders for the new City-Direct routes, we assess that the move towards greater contestability will see a shift towards an operating model based on cost plus margin. We welcome this, and are preparing for this eventuality. As this model will see operators paid a fixed fee for services based on defined performance metrics, we aim to turn around the bus business from our current losses in the near term.
· We intend to grow our profitable taxi business. Our taxi business has more than doubled its profit to $6.4 million from the year before. We will continue to capitalize on growth opportunities with a newer and larger hired-out taxi fleet.
· Our non-fare business is also doing well. When the Woodlands Xchange opens this year, and the Sports Hub is ready in early 2014, we will double our retail space to 76,000 sqm. We intend to continue to diversify our revenue streams by leveraging our commercial strengths in retail, media and advertising. There are some who have expressed concern that this may dilute our emphasis on our core transport operations, but I wish to assure that less than 2% of our headcount is in Commercial business, and remind that non-fare business generates more than half the total Group profits.
· And finally, we will develop our overseas strategy to diversify and increase our revenue. There are immense opportunities in international markets for growth. We have only made a modest start and hope to do more. Most recently, we joined a consortium to participate in the Jakarta Monorail project.
9 In summary, the coming year will see us working through with the regulators on critical issues related to a more sustainable model for land transport, both with rail as well as buses. I know that many of you are anxious to know more about the details of these initiatives, and justifiably so. We are doing all we can at our end to move the agenda speedily; and will share more information when we can. I want to assure you that the Board and Management will continue to place strong emphasis on seeking a timely transition to a viable and sustainable model which will be equitable to all stakeholders, including our shareholders.
10 Even as we work through these immediate challenges, we are positioning ourselves to strengthen and grow as a key player in the Singapore public transport landscape. We know that this is a key point of national emphasis for Government to aggressively grow Singapore’s public transport infrastructure in the coming years. It is an effort that we are committed to participate in. We will continue to preserve and protect shareholder interest for the long term, even as we strive for improvements in our overall operational performance for the benefit of commuters.
11 It is a privilege for me to come on board SMRT. I am grateful to have an experienced and dedicated Board who continue to provide invaluable insights and guidance; and am pleased to have a strong management team who share the same vision, mission and values. On behalf of the Board and Management, I would like to thank you, our owners and shareholders, for supporting us on this journey. With your continued support, and the commitment of all our employees, we are on track to fulfil our vision of “Moving People, Enhancing Lives.”
SMRT Corporation Ltd (SMRT) is Singapore’s premier multi-modal public transport operator. SMRT serves millions of passengers daily by offering a safe, reliable and comprehensive transport network that consists of an extensive MRT and light rail system which connects seamlessly with its island-wide bus and taxi operations. SMRT also markets and leases the commercial and media spaces within its transport network, and offers engineering consultancy and project management as well as operations and maintenance services, locally and internationally.