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Loss-making Tranz Rail may shunt its transtasman stake

By Ray Lilley

Friday 27th October 2000

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OUT OF STEAM: Tranz Rail is reviewing its Australian investment strategy
Tranz Rail is considering quitting its 27% stake in the Australian Transport Network consortium and is unlikely to make a bid for New South Wales rail assets currently for sale.

The company is reviewing its ATN stake and its strategy for investing in Australia.

ATN owns Tasmanian Rail.

Chief financial officer Mark Bloomer also confirmed Tranz Rail had made no bid for the freight business of Westrail, owned by the Western Australia state government.

"At this stage, there's no formal decision to exit it," Mr Bloomer said. "Tranz Rail will be influenced by the other members of the consortium, and we are likely to defer a decision until all the parties agree not to continue with the investment."

Tranz Rail shareholders Wisconsin Central, Fay Richwhite and Berkshire also hold stakes in ATN.

His comments follow confirmation Tranz Rail's US-based stakeholder Wisconsin Central may review all its foreign investments as a takeover is launched by former chairman Ed Burkhardt.

Tranz Rail's loss-making first-quarter result is not expected to be repeated, Mr Bloomer said on Wednesday as a triple whammy left it with a $16.4 million net loss for the three months to September 30.

Fuel prices at nearly twice last year's level, a domestic economy continuing to slow down and a one-off $16.5 million restructuring costs provision combined to push the rail operator into its first-quarter net loss.

The loss was a $21.9 million turnaround from the company's $5.5 million net profit in the first quarter last year.

Excluding the restructuring, the company recorded an operating profit of $100,000, against $10 million for the same quarter last year.

Total revenue for the quarter was $143.2 million, up $1.6 million (1.1%) on the first quarter 1999.

Mr Bloomer said apart from fuel prices, second-quarter trading was satisfactory but more price increases could be expected. Some 60% of forward fuel prices were hedged but higher fuel prices would continue their influence.

Higher freight rates and passenger fares, and an 8% rise in commuter passenger numbers in the first quarter, were not enough to offset increased fuel costs, with diesel up 81% and light fuel 63% higher.

The slow economy cut freight volumes 4.4% for the quarter, with freight revenue down $2.3 million (2.1%) to $109.3 million ($111.6 million).

While agriculture freight revenue fell 8%, revenue from manufactured goods rose slightly because of higher freight rates. Manufactured goods volumes were lower than for any other quarter in the past four years. Forestry revenue fell slightly (4.4%) as the Mataura paper plant was mothballed, volumes reduced because of a weaker export market and coastal shipping competition bit into turnover.

Overall operating costs rose 4.4% as fuel and electricity costs lifted $5.3 million for the three months to $16.1 million.

Labour costs also rose slightly to $51.3 million as staff numbers fell to 4065, from 4243 at September 30 last year.

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