Rail Users Ireland Forum - Annual Reporting EBITA vs Actual profit

Quote:

RPA not directed by state to recover Luas costs
25 June 2006 By Richard Curran

The €238,000 surplus for the Luas reported by the Railway Procurement Agency (RPA) last week did not include a €24 million depreciation charge for the fall in the value of the network or €35 million in exchequer funding towards the cost of building it.

When depreciation is included as an operating cost, as it is in most businesses, the state’s subvention helped to bring about a modest operating surplus. However, the government has not directed the RPA to recover from Luas’s operations any of the €775 million it cost to build it.

Frank Allen, the RPA chief executive, said it was instructed to ensure the Luas broke even and did not require an operating subvention from the state in the future.

This enabled the agency to report that LUAS made a €238,000 surplus last year, which excluded the depreciation or the state’s capital grants towards the cost of construction. Neither did the surplus figure trumpeted by the RPA include any administration expenses incurred by the agency in relation to Luas.

If depreciation is included, as it would for most typical businesses, Luas made a loss of €24 million before exchequer funding. Based on these figures the state’s total subvention was equal to €1.09 for every passenger journey.

Allen acknowledged that the €238,000 described as a surplus by the RPA last week was equivalent to Luas’s earnings before interest, depreciation and tax (EBIT).

However, he rejected the suggestion that describing it as a surplus was in any way misleading because of the specific nature of the business. Typically businesses include their depreciation charges as part of their operating costs.

The RPA did this, but highlighted the more positive figure at its press conference last week on the basis that it doesn’t have to try and recoup those building costs. He said infrastructure firms are different.

‘‘No toll road in the world for example has recovered its capital costs. We do not recover capital costs,” he said. Allen said the goal set by the Department of Finance was to ensure that an operating subvention was not needed, and that means ensuring a break even. He said the Luas had achieved this ahead of schedule.

‘‘Our accounting approach is approved by our auditors and we are not doing anything unusual,” he said. He cited several international toll road companies that tried to recover their capital costs and they went bust. ‘‘Toll bridges recover capital costs, toll roads don’t,” he said.

The annual report shows the LUAS with an operating surplus of €957,000 when depreciation is included, but that also includes €34 million in grants and administrative expenses for the RPA.

Allen said the RPA head office operations were doing less and less work on Luas and there was nothing wrong in not attributing any of its €9.4 million administration costs in reporting a €238,000 surplus.

http://www.thepost.ie/post/pages/p/s...268-qqqx=1.asp

How does this compare against DART in terms of stripping out both capital expenditure and subvention?