Chairman's Address - Toll NZ
Mon, 29 Nov 2004
Chairman's Address - Toll NZ
Financial Performance for the Year Ended 30 June 2004
For the year to 30 June 2004 the Company recorded a net after tax loss of $335.6 million compared to the previous year's loss of $2.6 million. No dividends were paid.
The result includes net unusual items of $344.8 million which reflects the impact of finalisation of the sale of assets to the New Zealand Government, a detailed review of certain asset valuations and the resultant income tax implications.
Operating Earnings before interest and tax for the year was $35.7 million compared to $40 million in the previous year, whilst operating revenue of $631.1 million was $21.4 million or 3.5% ahead of last year. Underlying trading was generally in line with plan, although impacted by severe flooding which occurred in the lower half of the North Island during February 2004. Operating cashflow for the year was $60.6 million with net debt of $248.6 million at year end compared to $243.4 million at June 2003.
Since 30 June 2004, our parent company Toll Holdings Limited has provided a 2 year $300 million loan facility in order to secure Toll NZ's cash position, repay outstanding subordinated Bonds of $100 million, and to support capital expenditure commitments. This facility, provided on an arms length commercial basis, has been approved by the New Zealand Stock Exchange.
Following the takeover by Toll Holdings Limited in October 2003, the company has commenced the restructure of operations centred around better organising our land based road and rail business, and our shipping operations. In May 2004 we rebranded the organisation involving a change of name and the establishment of the Toll Rail and Toll TranzLink brands. The Interisland Line, whilst continuing to contend with intense competition, is making a number of changes. A review of the configuration of vessels trading between the North and South Islands has commenced and in the meantime the vessel Arahura is back in service following a recent refurbishment. Following continuation of past operational efficiency issues associated with the vessel Aratere, a detailed review is underway to ensure that our vessel fleet has the best possible configuration and operating processes to meet our customers needs. During 2004, the Company acquired the outstanding 50% of passenger rail operator TranzScenic and is in the early stages of integrating and restructuring this business. In addition, during 2003, the Company disposed of its 27% interest in the non-core Australian Transport Network. The restructure is progressing steadily, however much needs to be done and many changes made to improve financial and operational performance and to increase return on capital to levels that will support sustained long term investment.
Transaction with the Crown
After months of complex negotiations, the Company and the Crown reached agreement covering the terms for the sale of the rail network back to the Crown. The terms of the sale were consistent with the Heads of Agreement negotiated with the Crown in July 2003. The transition of management of the network back to the Crown has been completed and NZRC has been established. Progress to date in relation to maintenance and capital expenditure priorities for NZRC has been generally satisfactory. The Company is confident that we have established a sound framework from which rail can grow its share of the country's freight task and greatly improve New Zealand's transport capacity and efficiency. The Crown's capital expenditure commitments for rail infrastructure, together with our own commitment to rolling stock and equipment capital are important elements of rail's future and areas where the Company and NZRC must work closely together.
Workplace Safety is a major focus for the company with solid progress being made, in the past 12 months there has been a reduction of over 20% in key workplace injury performance indicators. A range of significant safety initiatives were implemented over the year including the ACC workplace safety management programme (primary pass achieved) and a workplace drug and alcohol policy. Public Safety continues to receive priority in the business with level crossing and pedestrian rail safety issues being major concerns and focus for the organization. During the past year we have initiated a number of actions including; o enhancement of the railsafe programme to increase education and awareness of rail safety amongst children o actively working with the New Zealand Railways Corporation and government agencies to review engineering solutions and increase public awareness o also working with community groups, local authorities and the police to increase awareness and compliance with safety rules
Since June 2004 trading for the Company has been in line with expectations and the restructuring activities are continuing. Economic conditions remain solid in New Zealand, and the economy has generally absorbed interest rate increases without signs of a major slowdown.
Fuel prices continue to be at near record levels and although not currently having a material adverse impact, over time, should prices remain at these levels, growth in the Asian region may be impacted and this may in turn affect the economy and our customers.
The company has established a customer surcharging process aimed at minimising the cost impact of rising fuel prices. Recovery of these costs is vital for the Company and the industry to support investment. The Directors do not expect the Company to be in a position to pay any dividends in the foreseeable future.