KiwiRail Builds Momentum, Posts Surplus In Challenging Conditions

Performance highlights for the six months ended 31 December 2023:

• Operating surplus was $40.5m, down $41.1m from HY23 as a result of general economic conditions resulting in slightly lower revenues, and fuel adjustment factor margins. It was also impacted by higher costs especially for insurance premiums and labour inflation and change in accounting treatment of Software as a Service project costs.
• Services business (freight, passengers, tourism and property businesses) revenue $375.0m, down $20.5m, due to lower freight volumes compared with the previous corresponding period.
• The net deficit after taxation for the six months ended 31 December 2023 (HY24) was $407.0m, compared to $65.1m in the previous corresponding half-year (HY23). After adjusting for impact of iReX (new Interislander ferries and terminals) project costs of $442.0m and impairment for the periods, the net result is slightly unfavourable ($12.4m) to HY23.
• Total recordable injuries reduced by 8 per cent and high potential near-miss risk events reduced by 42 per cent.
• Interislander ship availability lifted strongly to 97 per cent, with on-time customer performance at 85 per cent.
• Interislander passenger revenue was up 8 per cent to $34.2m.
• Great Journeys New Zealand tourism train revenue was up 53 per cent to $14.2m.
• The rail line to Napier Port was reopened seven months after it was badly damaged in Cyclone Gabrielle, reconnecting customers and the local community.
• $707.3m was invested in assets and capital projects, including $253m in the Auckland and Wellington metro networks to improve customer journey time and reliability.
• KiwiRail transported 1.8 billion net tonne kilometres of freight, resulting in 117,000 fewer tonnes of CO2 emissions than if that same freight was moved by truck.[2]
• Staff diversity measures tracked above target with 20.5 per cent women (up from 19.4 per cent) and 19.5 per cent under 30 years old at half year (up from 19 per cent).

KiwiRail has achieved an operating surplus in its service operations of $40.5m[3] for the half-year ended December 2023. We had anticipated a significant drop from the prior year; however, this result reflects weaker than expected economic activity.

Rail freight volumes were down by 15 per cent on a net tonne kilometre basis largely through reduced import container volume and the flow on impact to lower domestic freight transport demand. Our Freight revenue reduction of 4.2 per cent reflects a favourable freight mix in the first half year and price management discipline.

Board Chair David McLean says that while pleased with the significant progress that was made in service reliability for customers, improved tourism operations, and strong momentum in delivering key infrastructure projects, the financial result reflects a challenging trading environment in the New Zealand market.

“While export volumes were in line with expectations, high inventory levels in customer warehouses and lower economic activity in China impacted import flow to New Zealand.

“The lower imports translated into very soft domestic demand for goods transported throughout the country, affecting transport operators across the sector.

“Our Scenic tourism business provided a highlight, with a return to 70 per cent of pre-Covid passenger levels. Forward bookings are above expectations, as we introduce additional capacity and higher value tourism packages on our three tourism rail routes.

“Revenue from Scenic tourism was up 53 per cent on HY2023, to $14.2m.

“Our TranzAlpine, Coastal Pacific and Northern Explorer train trips are widely recognised globally as ‘must-do’ experiences, and the new offering of multi-day trips has just been recognised by The New York Times which featured them in its ‘52 places to go in 2024’.

“Despite the tough environment, KiwiRail continues to build for future growth with the substantial investment in infrastructure, metro networks and rolling stock assets. This will ensure we play a vital part in the growth of commuter services, particularly in Auckland and Wellington, as well as the decarbonisation of the country’s land transport system, contributing to productivity and economic growth.”

The six months to 31 December saw $707.3m of capital expenditure across the full range of KiwiRail’s activities, split between services ($237.7m) and infrastructure ($469.6m). This included investment in new rolling stock, the completion of track replacement between Whangārei and Kauri in Northland, and the practical completion of the Integrated Rail Management Centre in Auckland, which controls rail traffic on the busiest part of our network.

“With the investment in asset capacity, we are seeing new opportunities to grow freight and passenger volumes with core customers. It was pleasing to see us secure major freight volume on rail with Kmart, who moved their national distribution centre to the Tainui Ruakura freight hub in late 2023. A balance of capacity, carbon and price were key reasons for rail being the preferred mode. We also signed an agreement with Coca Cola Europacific Partners to extend its current siding to enable increased use of rail and lower its carbon footprint.”

Solid progress was also made on a new purpose-built mechanical maintenance building at Waltham yard in Christchurch and the redevelopment of the Hillside Workshop in Dunedin. Waltham is expected to be completed by the end of the year, and Hillside in mid-2024.

“In December, the Government advised our Board it had decided not to provide further funding for the Inter-Island Resilient Connection (iReX) project to build two new ferries and associated landside and port infrastructure.

“We are in the process of winding down the current new ship project and reviewing options for the Cook Strait connection. We will work with the Ministerial Advisory Group, our customers, ports, iwi and other stakeholders on options for maintaining a safe and reliable service across Cook Strait.”

KiwiRail Chief Executive Peter Reidy says KiwiRail is continuing to strengthen its leadership capability, and its commitment to safety and service reliability for customers.

“That commitment was on display as we reopened the rail line to Napier just seven months after it was severely affected by Cyclone Gabrielle, particularly around Awatoto where the bridge was badly damaged.

“Re-opening the line allowed rail freight to again flow to Napier Port, a vital link in New Zealand’s supply chain.”

A similar commitment was shown by the Interislander team following the Kaitaki incident early in 2023.

“The safe and reliable operation of the Interislander service is an absolute non-negotiable requirement for KiwiRail. Since this event, we have conducted a full review of all our asset management practices, using global maritime experts (Det Norske Veritas) to ensure we are operating the Interislander to world’s best practice standards, based on the age and condition of our existing fleet.

“Over the recent December-January summer peak period, the Interislander ferries have operated with 100 per cent asset reliability and 93 per cent on-time performance. For the six months, the reliability figure was 97 per cent. Those are levels that exceed even the best operators in the global aviation industry and I’m proud of the significant work that our Interislander team has invested to lift service reliability for customers over the past six months.

“We are taking a similar disciplined asset management approach with our rail assets. On-time performance for our premier freight services improved six per cent to 88 per cent.

“It was pleasing to successfully complete the upgrade of Auckland’s eastern metro rail network in advance of City Rail Link opening in 2025. More than 22 million passenger journeys are made on public transport trains each year, and major advancements this decade like City Rail Link and Wellington’s new trains are going to boost this. We are partnering with Auckland Transport and Greater Wellington Regional Council to help build reliable public transport networks that provide choice for commuters, ease congestion and reduce emissions.”

“We saw volatile market conditions the first six months – a challenging domestic economy, and international shipping constraints that increased freight costs. Most domestic sectors are reporting lower levels of demand, in particular construction, manufacturing and retail, which has impacted import container volumes and domestic freight transportation. Inflation-driven increases in supply chain and labour costs were experienced in the first half but these are now easing.

“Fonterra had a slow start to the export dairy season, however volumes are forecast to be in line with last year. Meat exports were down by 15 per cent compared to the previous period and log export volume has increased centred on the Eastern Bay of Plenty.

Mr Reidy says the second six months of the financial year remain challenging for many New Zealand exporters, importers and freight transport providers, and KiwiRail is no exception.

“The market is challenging for our customers with activity in many sectors – including construction, manufacturing, retail and export – forecast be subdued for the remaining six months. Tourism is flattening out, after recent growth, at 80% pre-covid levels.

“We continue to focus on safety performance, customer service, improving asset utilisation, and controlling the total cost of operations to improve financial performance.

“The next six months will see us take some big steps in our strategy to build a reliable, safe network as a platform for growth for customers. This includes the handover of the first two new DM class locomotives for commissioning testing, the opening of our Auckland Train Control centre where we’ll work alongside Auckland Transport, and our new maintenance centre in Christchurch for our South Island rolling stock.

“We are conducting a strategic review of our operations in partnership with external expertise to accelerate growth, support operational excellence and deliver financial sustainability.

"The first six months had been challenging, but our people have fronted up to meet these challenges with significant pride and commitment to deliver for New Zealand.

“We also want to acknowledge the ongoing commitment of our customers to our rail, ferry and property services, and to the hundreds of thousands of passengers who use commuter rail. We want to assure them that we are committed to delivering reliable services and a continual focus on customer service in conjunction with our many partners across our integrated rail and ferry system.

“Our purpose drives us to build stronger connections for a better New Zealand – delivering safe, reliable and efficient services to help our customers and our country grow and succeed.”

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