Smart investments by parent company Hosken Consolidated Investments (HCI) have ensured iconic public transport specialist Golden Arrow Bus Services has remained firmly on the profit high road despite some difficult trading conditions.
Last month HCI CEO Johnny Copelyn said he was really pleased that Golden Arrow –which operates exclusively in the greater Cape Town metropole - succeeded in lifting its headline earnings by 24% to R230m in the year to end March.
Golden Arrow increased total revenues to R1.68bn (previously R1.5bn) and pushed up profit before tax to R331m (R268m). This made the unsung transport segment the star performer in HCI’s sprawling investment portfolio (which includes gaming, media, industrial, property and mining investments).
In fact, Copelyn noted that transport was HCI’s second-largest contributor to headline earnings (behind gaming, which is mainly the company’s investment in casino giant Tsogo Sun). Copelyn said Golden Arrow’s 12% increase in revenue was achieved thanks mainly to a subsidy increase in excess of previous escalations and new routes having generated additional revenue.
Most impressive, however, was the marked increase in profit margins to almost 27%. Copelyn explained that savings achieved on supplies and services resulted in a lower increase in costs than that of revenue. Golden Arrow is also turning into one of HCI’s most successful investments, which is ironic since the deal to take over the ‘tired’ bus business caused many eyebrows to be raised in 2004.
Observers felt Golden Arrow was an archaic public transport operator that would offer HCI at best a short-term investment. But not even increased competition from the taxi sector and the introduction of MyCiti bus routes have managed to derail Golden Arrow from its profitable track. Revisiting the original deal – which saw HCI pay R257m for Golden Arrow – offers a completely different perspective on the transaction.
The operating profits for Golden Arrow in the past financial year of R447m suggest that HCI have made an excellent turn on the initial investment in Golden Arrow. Of course, HCI has invested heavily in Golden Arrow’s fleet in the past dozen years. One of the key investment decisions transpired last year when the handling of cash as a method of payment on buses, kiosks and at depots was deemed a high risk factor in the company’s business model.
To mitigate this operational risk, a decision was taken to procure a state of the art automatic fare collection system at a cost of R85m. The smart card based automatic fare collection system not only increases efficiencies but provides Golden Arrow with considerable detail around travel patterns of commuters.
It seems Golden Arrow is successfully harnessing this data to hone efficiencies across the company’s revenue base. Last year also saw the ongoing recapitalisation of Golden Arrow bus fleet, which saw the replacement of 74 buses at a cost of R136m.