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Profit warning from Tranz Rail amid structure shake-up

By Phil Boeyen, ShareChat Business News Editor

Tuesday 10th October 2000

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Listed transport company Tranz Rail has warned its result for the first quarter of the 2001 financial year will be negatively impacted by a huge leap in fuel prices.

The cautionary note comes amid news that the company plans to get out of the passenger and refrigerated freight business to concentrate on its core freight operations.

Tranz Rail says fuel costs in the first quarter were double that of the comparable quarter the previous financial year, and although it is trying to recover costs the continuing trend means its bottom line will be affected.

The company says the first quarter result will also be adversely affected by some one-off costs associated with the restructuring programme announced at its annual general meeting.

Under the restructuring the transport company will scale back its marginalised businesses and concentrate on expanding core profitable business.

In line with this it has announced it is seeking a buyer for its long distance passenger train business, Tranz Scenic, which operates several train services in both the North and South Islands.

The company says in recent years the Tranz Scenic network has been developed as part of the tourism business rather than for point-to-point travel, and tourism is not part of its core business.

Another business being put up for sale - Tranz Link Refrigerated - has been part of the company's freight operation since 1994, but is being sold because it is regarded as operating in as a niche market in which Tranz Rail does not need to operate directly.

Tranz Rail says by pruning such non-core services, it will be able to focus on three complementary operating groups - Rail Services, Distribution Services and Interislander Services.

It says the Rail Services Group will be a highly outsourced, lean and efficient railway that will service commodity and wholesale customers and will be a virtual railway holding minimal assets.

The Distribution Services Group will focus on retail customers and provide value-added door-to-door multi-modal domestic and international distribution services - rail will be only be used if it is the most cost effective transport solution.

The Interislander Services Group will offer freight services to the other two groups as well as outside the Company.

Meanwhile Finance Minister Michael Cullen says the Government it is seeking more information on the Tranz Rail review before it responds.

"Tranz Rail wants to run a more efficient operation and I wish it luck. What the company is planning however will have important implications for New Zealand. It will mean changes to the way that commuter operations are run in Wellington and Auckland, the loss of some services in rural areas and the transferral onto roads of a considerable amount of non-containerised goods. The plans bear on the lease under which Government gives Tranz Rail access to the rail corridors."

Dr Cullen said that he and other Ministers would be meeting with Tranz Rail this week to discuss these and other issues.

The Rail and Maritime Transport Union has condemned the review, claiming it is "the closing chapter of the privatisation of the rail system in New Zealand."

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