COVID-19 Impacts KiwiRail’s FY20 Result
The COVID-19 pandemic had a significant impact on KiwiRail’s bottom line for the past financial year, but rigorous operational changes and cost savings measures have helped stabilise the business, KiwiRail chairman Brian Corban says.
KiwiRail Holdings Limited, New Zealand’s national rail provider, which also operates the Interislander ferry service across Cook Strait, today reported an operating surplus of $40 million1 in FY20 for the KiwiRail Group, down $15 million compared with FY192.
“With many of our customers affected by the shutdown and border closure, particularly during Levels 3 & 4, COVID-19 took a significant toll on our business,” says KiwiRail Group Chief Executive Greg Miller.
However, we are proud of how we responded as an essential service during the crisis and in the circumstances we have produced a credible result,” Mr Miller says.
“When the Level 4 lockdown began, and only essential travel was permitted, our Interislander custom dropped sharply and our long-distance scenic trains stopped running altogether. Overall, revenue was down 7 per cent for the year but most of that fall occurred in the last quarter when the COVID-19 impact was harshest on the business. In April alone, revenue was down by almost 50 per cent.
“However, against that challenging picture we are pleased to report that operating expenses were down 9 per cent in FY20 as the company introduced stronger commercial disciplines and responded to COVID-19 by implementing rigorous controls on spending, including staff travel and labour costs. I am confident that continued vigilance will help us achieve improved cost levels next year,” Mr Miller says.
In reporting the result, Mr Corban acknowledges the COVID-19 response by KiwiRail. “The Board is grateful for the way management and staff responded to the pandemic under the leadership of Group Chief Executive Greg Miller. They led from the front, made personal sacrifices and quickly adopted new ways of working to keep themselves and the public safe while keeping rail freight moving, and the ferries operating under physical distancing rules.”
FY20 was also notable for the additional $1.2 billion of Crown funding allocated in Budget 2020, including $400 million to progress the iReX project to replace the three ageing Interislander ferries with two brand new ones. When they arrive, they will be the first new purpose-built ferries in Interislander’s fleet for 25 years. The Budget 2020 allocation also allows the purchase of new locomotives.
“The allocation in Budget 2020 demonstrated in the most practical way a commitment to the future of rail, and rail’s importance to New Zealand,” Mr Corban says.
Mr Miller explains that COVID-19 interrupted progress on some significant projects including the rejuvenation of the North Auckland Line where $35.5 million of $164.5 million allocated by the Provincial Growth Fund was spent during the year. More than 400 staff, contractors and sub-contractors are at work building tracks, replacing bridges and making tunnels suitable for wagons carrying hi-cube containers in Northland.
Overall, $107 million of a total $457 million allocated to KiwiRail from the PGF was spent in FY20, with benefits to communities across New Zealand.
During the year a further $1.2 billion of funding was announced for KiwiRail through the New Zealand Upgrade Programme for significant investments in the Auckland and Wellington metro networks.
“We look forward to progress on these capital projects as we build a more resilient, modern and flexible network that can better cope with the anticipated growth in demand for commuter services,” says Mr Miller.
Other highlights during the year included the full return to service of the Main North line through Kaikōura and, in Wellington, work advanced on upgrading the metro network including construction starting on a second 2.7km track between Trentham and Upper Hutt.
Mr Miller is pleased with investment in the rail freight business. “We received 453 new wagons which we introduced to the fleet, so we had additional capacity over the peak freight season, then phased out our aged wagons that were beyond the end of their useful service,” says Mr Miller.
“Critical to our business is our core value of ‘Care and Protect’. We have seen an improvement in safety performance as a result of engagement through SHE (safety health and environment) work conversations, which grew 31 per cent to 20,505. The number of high-risk events fell 111 to 360, and the number of recordable injuries fell 30 to 234.”
“We welcome passage of the Land Transport (Rail) Legislation Act which brings the rail network under the planning and funding regime for land transport set by the Land
Transport Management Act 2003 and allows the rail network to be funded from the National Land Transport Fund.
“This approach will provide greater certainty for KiwiRail, local government and other rail participants to enable long-term planning and investment in rail. It should also enable increased customer confidence to support increased volumes on rail, providing commercial and broader benefits.”
1 Operating surplus represents earnings before depreciation & amortisation, interest, impairment, capital grants and fair value changes.
2 FY19 Operating surplus of $55m excludes impact of non-recurring items ($29m Holidays Act remediation).