KiwiRail operating earnings improve, despite lower freight revenues

Friday 28th August 2015

KiwiRail had a much better 12 months to June 30 than a year earlier, improving its earnings before interest, tax,depreciation and asset impairments to $91 million, 17 percent ahead of the previous financial year, which was marred by several one-off costs.

The result was achieved on total revenues of $721 million, down 3 percent for the year, with freight revenues falling 6 percent to $434 million in an environment where coal deliveries by Solid Energy fell, offset somewhat by higher levels of dairy production.

The forestry, import/export and domestic freight categories together performed slightly ahead of last year.

For the year ahead, chief executive Peter Reidy told BusinessDesk the state-owned rail business expected "volatile trading conditions', with Solid Energy recently placed into voluntary administration and a sharp downturn in dairy prices expected to lead a reduction in milk solids production in the current season.

In its favour, KiwiRail had profitable contracts with port customers and it was enjoying lower fuel costs, with diesel prices falling steeply and initiatives to save substantial amounts of fuel by operating trains more efficiently.

As expected, after depreciation and writedowns on the value of the rail network that KiwiRail also owns, the state-owned enterprise reported a net loss for the year of $167 million, a 33 percent improvement on last year's loss.

KiwiRail is locked in negotiations with the government ministers and the Treasury on initiatives to establish the national value of its operations, since it cannot be expected to make a profit in the long term because there is too little freight in New Zealand to fully cover the cost of the 4,000 kilometre national network of tracks.

"As the rail network does not generate sufficient cashflows to cover the level of required investment, a large proportion of the accounting value must be written off each year," said Reidy, who described the business as permanently hampered by having "not enough freight, too many assets".

"We will rely on Crown support for the foreseeable future."

Passenger services performed well, with inter-island ferry revenues rising 9 percent to $127 million, while KiwiRail's three "Scenic Journey" trains pulled in $25 million, an 18 percent increase reflecting strong growth in tourism numbers. Operating expenses were 5 percent lower, said Reidy. Full financial accounts for the financial year were not immediately available.

KiwiRail is also seeking better returns from its extensive holdings of land and buildings and the property segment of the business saw revenue rise 20 percent to $43 million. Planning is underway to sell non-core assets, including possibly the Wellington central railway station building, although KiwiRail might lease back as much space as it needed, said Reidy.

BusinessDesk.co.nz

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