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Tranz Rail Targets Growth

For Immediate Release
23 July 2002

Tranz Rail Targets Growth

Tranz Rail today announced that it expects to achieve an operating profit of $55.8 million for the year ending 30 June 2003.

The company told a briefing of analysts, fund managers and financial media that it had put in place significant foundation work in the past 12 to 18 months, the results of which would begin to flow through to its bottom line in the next financial year. These benefits would continue into the 2004 and 2005 financial years.

Managing Director Michael Beard said Tranz Rail’s financial targets were within reach given the solid foundation that had been built: “We have taken some very hard decisions, undertaking a massive restructure, outsourcing engineering functions and divesting non-core business to concentrate on freight.

“We have also taken the opportunity – as signalled at out last quarterly briefing - to tidy up the balance sheet, writing down a number of assets.

“Those changes have been under consideration for some time and with the recent appointment of a new Chief Financial Officer, we have taken a fresh look at our policies and taken this opportunity to start the 2003 financial year with a clean sheet.”

The changes amount to writedowns of NZ$148-$170 million on Tranz Rail’s total asset base of NZ$933 million.

With the restructuring of the balance sheet and operational changes largely completed, Tranz Rail was well-placed to capture the benefits of its change programme, gather momentum, and go forward to build freight volumes and revenues.

“The structural changes to the business have taken longer than expected to bed in and we have already confirmed that this has impacted on our revenues in the current year, leading to a lower year-end result,” Mr Beard said.

However, improvements to bulk freight services and a shift to containerised freight were now leading to a dramatic improvement in service: “On-time performance is now around 80% and hitting the 90% mark on a regular basis compared to 46% a year ago.

“Growth in rail freight revenue is the key to our success in reaching revenue targets. In the new financial year we have budgeted significant increases in revenue for intermodal and bulk freight as we bring more freight to rail from road. We expect incremental growth in these areas in the following two years.”

Tranz Rail’s recently introduced Intermodal system is an area that will be targeted for aggressive growth particularly in picking up business with shipping lines, domestic forwarders, domestic LCL/FCL and finished milk products.

“The intermodal system of containerised freight running on fixed capacity, fixed timetable, point-to-point services is already giving us marked improvements in on-time performance while providing customers certainty about availability of space. That means we are a viable option for shipping companies who may be dropping port calls as rail can be relied on to ensure export containers meet ship departures,” Mr Beard said.

Other key points in the Tranz Rail growth strategy were:

- Continued cost reductions
- Further reductions in head count
- Pricing to fill unused capacity
- Expand South Island Metroport
- Re-investigate Clifford Bay for use by the Interisland Line
- Sale of Wellington Tranz Metro
- Sales of remaining 50% of Tranz Scenic
- Re-examination of the ATN holding in Australia

Mr Beard emphasised that Tranz Rail’s growth plans were not reliant on any Government decision. Any previous discussions with the Government had been held in the context of commenting on future land transport policy options and the part rail could play in assisting that policy.

Mr Beard said the future of marginal regional lines would be addressed through aggressive pricing to attract both new and former customers and private/public sector partnerships.

NOTE: This document contains certain statements that are "forward-looking," within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, including statements regarding, among other matters, the beliefs, expectations, plans and estimates of the Company with respect to certain future events, including without limitation assumptions related to market valuation and future performance and similar expressions concerning matters that are not historical facts. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in the projections. For additional information concerning such risk factors, see the Company’s Form 20-F for the fiscal year ended June 30, 2001 filed with the U.S. Securities and Exchange Commission. A copy of the Form 20-F is available from the Company upon written request.

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