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Challenging Half Year Impacts Financial Results

Challenging Half Year Impacts Financial Results

For the six months to end December 2013, KiwiRail is reporting an increase in revenue of nearly $3 million, but due to several factors that have disrupted our earnings growth, our operating profit is less than the same period last year.

According to Chairman, John Spencer, while he was pleased to see growth in domestic freight of over 11 percent and that the Scenic business’ profitability is improving, the impact of events such as the Aratere shaft failure, extreme weather, the Seddon earthquakes and the challenges experienced by some parts of the primary export sector, have had a negative impact on the overall results.

“While some of these issues were outside our control, we took appropriate and speedy action to try and minimise the impacts of these disruptions where we could,” he said.

“We have estimated that the impact of the Aratere’s outage this financial year will be between $20 and $30 million. This includes lost passenger, rail freight and commercial vehicle revenue, an increase in freight costs to minimise the impact on customers and the charter cost for the replacement ferry, Stena Alegra.”

“But this impact could have been much worse if staff hadn’t identified, leased and organised the delivery from the Northern Hemisphere of the replacement ship in just two months.”

“The financial impact is significant and we are doing all we can to mitigate that impact. We are also in discussions with our shareholder to ensure we have the necessary financial capacity for the remainder of the year.”

Recently KiwiRail has renewed its focus on reducing expenditure in areas such as new recruitment and major capital purchases, while not impacting on programmes to improve safety, and ongoing rolling stock and rail network maintenance.

“KiwiRail’s commitment to further improvements in health and safety will not be affected by this decision. We have made great progress in this area. For example the combination of staff requiring medical treatment or time off work because of injury has reduced by nearly 20 percent in the last year,” said Mr Spencer.

As mentioned above in the last six months the domestic sector has been the outstanding performer for the freight business.

“The forecast for rail freight is increased export and liquid milk volumes for the rest of the year and we are expecting further growth in log volumes due to strong overseas prices. Also our domestic volumes for last month were well ahead of this time last year, so we feel confident this growth will continue over the coming months.”

Interislander has been hit hard by the Aratere incident and while they have seen some reduction in passenger volumes, hard work by staff to keep freight moving throughout the busy peak season has meant that there has been no reduction in freight volumes. In fact truck traffic has increased by over eight percent.

“We are focused on finding the cause of the shaft breaking, assessing our options as a result of this and then getting the Aratere back in service so that Interislander can get back to being the profitable business it usually is,” said Mr Spencer.

Both of KiwiRail’s passenger businesses – the TranzMetro Wellington service and the long distance Scenic services have all recorded improvements over the last six months.

“TranzMetro has recorded an increase in passenger numbers of approximately 56,000, with a corresponding increase in passenger yield. They have also achieved a 94 percent on time performance and record high customer satisfaction results,” he said.

“This is a huge improvement for this business in just a couple of years and is testament to the dedication and hard work of the whole TranzMetro team.”

This work was recognised when both TranzMetro and Greater Wellington Regional Council jointly receiving a Chartered Institute of Logistics and Transport award for the work done to develop and deliver a high quality commuter rail service.

The re-invigorated Scenic services are also showing signs of growth, particularly at the start of this calendar year.

“A concerted marketing effort is starting to show positive results. For example on the 10th of February the business recorded its biggest booking day in recent years and we expect as international tourist numbers continue to recover, these services will continue to grow.”

Despite the challenges of earthquakes and severe weather events affecting the rail network and its budget, the Infrastructure and Engineering business has continued its focus on maintaining and improving the national network.

“As a result of this work there has been further reductions in speed restrictions, contributing to more reliability for customers, and continuing the downward trend in mainline derailments,” said Mr Spencer.

“A major achievement for the business was the successful completion of the major improvement and upgrade works undertaken over the summer holiday period. This work was completed on time and without a single safety incident.”

“While signs are positive for further growth, this is unlikely to bridge the revenue shortfall from the last six months. We are forecasting an operating profit of between $90 and $100 million this financial year, which is $20 to $30 million below our Statement of Corporate Intent target.”

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