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Second Quarter and Half Year Result


Second Quarter and Half Year Result for the Period Ended 31 December 2001

Auckland, New Zealand - Tranz Rail Holdings Limited [NZSE : TRH] [NASDAQ : TNZR] today reported its financial result for the second quarter and for the six months to 31 December 2001.

Summary Commentary

Tranz Rail Holdings Limited announced today a net profit of NZ$43.3 million for the six months ended 31 December 2001 - a NZ$50 million improvement on the NZ$6.7 million net loss recorded for the same period last year.

The result includes the net profit on the sale of the Auckland corridor (NZ$58.3 million) and the Tranz Scenic business (NZ$5.8 million). Tranz Rail has recognised only half of the gain on the sale of Tranz Scenic because it has retained a 50% equity interest in the new holding and operating company, Tranz Scenic 2001 Limited.

The net profit also includes a NZ$14.1 million provision created at 31 December 2001 to cover redundancies and related costs associated with the outsourcing of some of Tranz Rail’s engineering functions which will take place in the next quarter.

The operating profit for the six month period, adjusted for abnormal items, was NZ$13.7 million compared to NZ$17.3 million in the same period last year.

Chief Financial Officer Mark Bloomer said the result reflected the impacts of Tranz Rail’s major restructuring programme, announced in October 2000.

In the past 15 months Tranz Rail had:

- Completed the sale of its long distance passenger business, Tranz Scenic;

- Concluded the sale of the Auckland corridor;

- Outsourced its call centre, and

- Signed contracts for the outsourcing of its motive power and infrastructure engineering businesses, as well as the supply of forklifts.

Tranz Rail had also taken significant steps towards its goal of improving the performance of its freight operations, introducing a year-round freight-capable fast ferry service, and re-engineering its entire rail freight business so that it is based around fixed capacity, scheduled train services. The latter change, involves a shift to containerisation of freight services so that containerised freight is lifted on and off flat-top wagons, reducing the need for shunting of wagons.

Mr Bloomer said the company had made excellent progress on its restructuring. “Most of the projects have been completed, or will be concluded in the latter half of this financial year, allowing the company to start the next financial year with a clean slate.

“Such dramatic change has involved some pain. For example, we have had to take a hard look at some of our freight business to ensure that we were operating profitable services. This has been particularly so in forestry, where we have rationalised low-margin traffic that was not providing a sufficient return. Equipment that was previously used for this marginal traffic has been reassigned to profitable business or retired from the fleet. This is in line with our intention to achieve a better utilisation of our assets.”

Total freight revenue declined by 4.2% on the corresponding six months last year. Aside from the decline in forestry revenue, lower volumes of manufactured products resulted from a weaker domestic economy. Offsetting this was a revenue gain from commercial vehicle traffic on The Interisland Line.

Mr Bloomer said the second half of the year would focus on bedding in the new containerised freight services to enable the company to capture new freight business. “These services are already leading to a big improvement in on-time running and efficiency which will be key to remaining competitive in the freight business.”

Additionally, Tranz Rail looked forward to progressing negotiations on the sale of the Wellington Tranz Metro passenger business.


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