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KiwiRail delivers strong result


August 24 2018

* $49 million operating surplus[1] in the year to 30 June 2018

* $94 million underlying operating surplus[2] excluding $45 million impact from Kaikoura earthquake

* $261 million Capital Expenditure, including $57 million on locomotives and wagons

* Tourism revenue up 22% on FY17; Forestry up 12%; Bulk freight 6%

* 10% improvement in Total Recordable Injury Frequency Rate

* On-time Performance of all services at 91%

* $7 million saved through productivity initiatives

* Enabled 34 million commuter journeys on our rail network

* Commitment to Shareholder met for third year running

KiwiRail has posted another strong financial result despite the on-going impact of the Kaikoura earthquake on its freight and tourism businesses, Acting Chair Brian Corban says.

For the third year running KiwiRail has achieved its commitment to Government with an underlying operating surplus of $94 million which excludes earthquake impacts of $45 million and is 2% above the previous year. The recorded surplus of $49 million is within the $30 - $50 million EBITDA commitment to Government.

"KiwiRail has really put in the hard yards to re-energise the business over the past four years and despite the challenges nature has thrown at it, it is now primed for growth and ready to deliver for New Zealand.

"The year to June has seen strong revenue growth in both KiwiRail's rail and ferry tourism services (tourism revenue up 22%), and freight volumes in forestry (12%), coal and milk.



"These gains are despite the on-going challenge of the Main North Line railway between Picton and Christchurch still closed for daytime freight services while the recovery work from the 2016 Kaikoura earthquake continues.

"The rebuild work has contributed to an impairment charge of $249 million as an accounting requirement means that capital expenditure is written off each year, valuing assets considerably below replacement cost.

"This month we announced the return of the award-winning Coastal Pacific Great Journey of New Zealand from December 1, leading to a flood of bookings from New Zealanders and international visitors keen to see the remarkable restoration work first hand.

"Even through this difficult period, KiwiRail has achieved productivity initiatives to the tune of $7 million and invested $9 million more in Capital Expenditure than the prior year (excluding Kaitaki ferry purchase), primarily in rolling stock replacement as we seek to renew our ageing locomotives and wagons.

"In November KiwiRail released the EY report The Value of Rail in New Zealand which highlighted how rail delivers $1.5 billion in often unseen benefits each year including reduced congestion in our cities, safer roads, carbon emission reductions and less taxpayer money spent on road maintenance.

"That value far exceeds the Government investment into rail and it is pleasing for the Board that the Government has signalled its intention through the Government Policy Statement on land transport and their Rail Review to find long-term funding solutions for the organisation.

"This is critical to the long-term success of the organisation after many years of underfunding."

Mr Corban said health and safety remained a key focus for the Board, management and KiwiRail's 3400 people. "While there is always more to do to achieve the vision of being New Zealand's leading health and safety organisation, this year's result of a 16% reduction in Lost Time Injuries (LTIs) is another step in the right direction. Overall, LTIs have reduced by 55% over the past four years."

Chief Executive Peter Reidy, who will leave the business later this year, said KiwiRail has set a strong platform for the growth the Government has signalled.
"We have spent the past few years building a strong platform for the future - improving operational performance, setting new health and safety standards and ensuring we are an efficient organisation driven by engaged and committed people.

"That work can be seen in the 91% on-time performance achieved by our rail freight services again this year, despite the challenges of a fleet with an average age of 35 years. Our Interislander ferries achieved their highest recorded passenger revenue with a year on year increase of 6% at the same time driving customer satisfaction 2% higher to 90%.

"Our people have united behind the challenges we have faced, and our purpose of 'Stronger connections. Better New Zealand.' Over the past three years we have recorded ever-improving staff engagement rates, this year reaching +1, up from -21 in 2016 with 81% of our people participating in the survey.

"KiwiRail's High Performance, High Engagement programme of work with our union partners has played a large role in this significant shift, as our frontline teams have been empowered to find solutions to business issues. We are evolving a 'bottom-up' leadership culture and working hard on diversity and inclusiveness in the workplace.

"Environmental stewardship has been another focus of the year - rail is a naturally carbon efficient mode of transport with 66% fewer emissions than heavy road freight. But we are also working hard on our own fuel efficiency programmes - Interislander ferries have reduced their fuel usage by 5% per sailing since 2016 and our locomotives have reduced their fuel burn by 6% over the same period.

"We are working closely with the Government's Energy Efficiency and Conservation Agency on new initiatives to assist our ferry masters and locomotive engineers to save fuel on every journey.

"All of these activities have helped to set the platform for our next stage of growth. Over the past six months we have undertaken deep research into the disruption and challenges facing our customers and we have developed a new growth strategy leveraging off our work to date. We have reorganised our operations, network, rolling stock and terminal teams under a new structure led by a Chief Operations Officer so that we are aligned around our customer promise. Our next stage is to design the network needed for New Zealand's future, with the smart assets, partnerships and workforce of the future that will deliver on this ambition.

"We have the strong support of the Government for this, as evidenced by the funding from the Provincial Growth Fund to reopen the Napier to Wairoa line this year, taking logging trucks off the road, improving safety and reducing carbon emissions. We have a number of projects and studies underway in regional New Zealand designed to bring more tourists to our towns, take our exports to ports, get more commuters on rail in our cities and create safer, cleaner communities."

Mr Reidy said he was pleased to be leaving the organisation in such strong heart and believes that KiwiRail is embarking on a once in a generation renewal.
"KiwiRail is an integral part of the multi-modal future of transport in New Zealand. We have worked hard to get ourselves ready for this rejuvenation of the way we all plan and deliver connections in New Zealand, linking communities, taking our goods to the world and showcasing our country to visitors.

"Those stronger connections we create now will deliver a better New Zealand for us all, and for the generations to come."

Contact Communications and External Relations Manager Sarah Stuart: 021 684 564

1 Operating surplus represents earnings before depreciation & amortisation, interest, impairment, capital grants and fair value changes.
2 Underlying operating surplus is a non-GAAP measure used by management to assess the performance of the business. It is derived from KiwiRail's group financial statements for the year ended 30 June 2018 and excludes Kaikoura impact.


________________________________

[1] Operating surplus represents earnings before depreciation & amortisation, interest, impairment, capital grants and fair value changes.

[2] Underlying operating surplus is a non-GAAP measure used by management to assess the performance of the business. It is derived from KiwiRail's group financial statements for the year ended 30 June 2018 and excludes Kaikoura impact.

ends

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