High-speed Rail in Taiwan - Services - Revenues and Costs

Revenues and Costs

Item 2007 2008 2009 2010 2011
Ticket revenue 13,155,221 22,441,012 22,800,753 27,025,822 31,556,782
Other operating revenue 347,567 606,571 522,959 609,529 679,723
Operating revenue 13,502,788 23,047,583 23,323,712 27,635,351 32,236,505
Cash operating expenses −9,484,615 −10,210,530 −9,441,068 ? ?
Operating cash flow 4,018,173 12,837,053 13,882,644 ? ?
Depreciation −18,589,587 −18,994,251 −8,222,634 -9,411,998 -10,647,252
Amortization −67,643 −81,355 −95,164(-152,561?) -531,312? ?
Operating income −14,909,057 −6,238,553 5,564,846 9,071,545 12,058,405
Financial revenue 315,187 644,500 639,869 230,348 248,318
Interest −14,423,091 −17,464,896 −10,778,335 −8,912,483 ?
Other financial expenses −381,733 −1,950,748 −173,828 -1,600,299 ?
Net pre-tax income −29,398,694 −25,009,697 −4,791,125 -1,210,889 5,783,743
Tax/tax refund −54 0 1,670 848 −2,597,914
Net income −29,398,748 −25,009,697 −4,789,455 −1,210,041 3,185,833

Most of THSRC's revenue comes from ticket sales; income from non-core activities like renting advertisement and shop space amounts to about a tenth of the total. Revenues grew along with ridership over the first three years, but both measurements remained below expectations. In 2008 the second year of operation, revenues fell barely short of THSRC's expectations a year earlier of a doubling of first-year results.

The cost of running the trains and infrastructure, or cash operating costs, was initially over NT$1 billion a month, but was reduced to around NT$0.85–0.9 billion a month by 2008. Revenues first exceeded this level, thus generating a positive operating cash flow, in the fourth month of operation (April 2007).

For THSRC, the delayed accounting of the fixed cost of fixed assets like rolling stock and infrastructure (depreciation) is a significant non-cash element of total operating costs. In its first two years of operation, THSRC applied straight-line depreciation, distributing costs evenly over a period of 26.5 years. As a result, the balance of operating revenues and costs (operating income) showed a high loss in the first year of operation, which was only reduced as revenues grew in the second year. The depreciation period set for THSRC reflected the length of the BOT franchise rather than the much longer lifespan of the infrastructure, and the company blamed that factor for the operating loss. After adopting an activity depreciation method which is variable in time, THSRC posted its first operating profit for 2009, the third year of operation. The company reported its first annual profit of NT$5.78 billion for 2011 after five years of operation.

While THSRC's financial earnings are insignificant, the interest cost of financing the project with loans is a major item. In the first few years of operation, interest rates were well above market rates. Interest expense stood at around NT$1.3 billion per month in April 2008, when THSRC first achieved break-even cash flow, with revenue and cash expenses (which exclude depreciation) both around NT$2.1 billion. Interest rates fell in the first half of 2009, reducing interest expenses and contributing to a reduced net loss.

Read more about this topic:  High-speed Rail In Taiwan, Services

Famous quotes containing the word costs:

    To exercise power costs effort and demands courage. That is why so many fail to assert rights to which they are perfectly entitled—because a right is a kind of power but they are too lazy or too cowardly to exercise it. The virtues which cloak these faults are called patience and forbearance.
    Friedrich Nietzsche (1844–1900)