30th August, 2013
KiwiRail achieves forecast operating surplus result as growth continues
Due to continued growth from the freight business KiwiRail is pleased to report that it has slightly exceeded its
forecast result achieving an operating surplus of just over $108 million, compared to the expected range of $104 to $107
million. Revenue increased by $12 million to $727 million, with freight revenue of $467 million a $10 million increase
on the previous year.
“This is KiwiRail’s fifth year of revenue growth,” said Chairman John Spencer. “Since the company’s establishment,
despite the global economic downturn and the impact of the earthquakes, we have still managed to increase overall
revenue by over 25 percent since 2009, and freight revenue has grown by over $100 million in just three years.”
“Alongside this growth, investment in the business to improve performance and robustness has also continued with capital
expenditure of $337 million for 20 more new locomotives, 300 more wagons, and on-going infrastructure upgrades.”
Over the last four years capital expenditure on new rolling stock, equipment and network upgrades, excluding the
hundreds of millions spent on the metro networks, has exceeded $1.3 billion.
“While this continued growth provides a level of confidence in our ability to achieve financial sustainability by 2020,
the company still has a long way to go and we have to remain focused on achieving our strategic objectives, while
keeping a close eye on costs and further improving safety.”
Over the past year hard decisions have had to be made to ensure the focus on building a commercially viable business was
“Decisions such as the sale of Hillside Workshops, restructuring the Infrastructure and Engineering business, and
mothballing the Napier to Gisborne line are not made lightly,” said Mr Spencer.
“This has been a very challenging year for our people and the community, not just because of the impact of these
decisions, but also having to manage the huge disruptions nature has thrown at us.”
“We have estimated that the storms and flooding that damaged the network from south of Dunedin to the middle of the
North Island has cost us at least $2 million.
Most of the growth in rail freight has come from increases in the Import Export and Forestry sectors at 8.1 percent and
9.4 percent respectively. Domestic freight increased by just over two percent, but Bulk freight declined by 7.4 percent
due to the difficulties Solid Energy is facing and the drought affected milk season.
“We are continuing to work with Solid Energy on their expectations for future business and ensuring there is a
sustainable rail freight contract to meet their changed future needs,” said Mr Spencer.
“Freight growth is expected to continue this year, particularly if we get a good milk season. But we know there is still
more business out there for us, and the new rolling stock, and our on-going focus on improving our customer service, are
key to putting more freight on rail.”
The performance of other parts of the KiwiRail business have led to a feeling of quiet optimism that some of the
challenges experienced over the last few years are being overcome.
“With the introduction of new carriages and a renewed marketing approach there is some confidence that the Scenic
passenger business is slowly improving,” said Mr Spencer.
“The re-launched Northern Explorer has performed better than budget and seen a 12 percent increase in the number of
passengers per service in comparison to its predecessor the Overlander.”
“While there is still some way to go for this part of the business to be profitable again, as the Christchurch economy
recovers, we expect the TranzAlpine and Coastal Pacific to grow passenger numbers.”
The Interislander business has reported operating earnings of over $24.3 million, an increase of almost $4 million from
the previous year.
“This is primarily due to the business being able to increase market share from both the passenger and freight sectors.”
“Over the coming year they will continue to focus on growing their business, while looking very closely at areas where
they can reduce costs such as fuel consumption while also increasing utilisation levels.”
Mr Spencer said the main effort over the coming year will be on increasing productivity and further embedding a safety
“KiwiRail has made a commitment that we will improve our safety record and we have ambitious targets. But there is
nothing more important to us than ensuring the safety of our people, customers and the community in which we operate.”
“Now that a large part of the foundation work has been completed, or well underway, we are looking inward at what
further improvements need to be made to our culture and operational capability.”
KiwiRail’s financial results for the twelve months ended 30 June 2013 are released today in accordance with the
company’s continuous disclosure policy - consistent with the Government’s Continuous Disclosure Rules for State Owned
Enterprises which came into effect from 1 January 2010.
KiwiRail’s full year accounts will be published when they are tabled in Parliament.
Results for announcement to the market – 30 August, 2013
Reporting Period: 12 months to 30 June 2013
Previous Reporting Period: 12 months to 30 June 2012
This is the first full year results announcement following the restructuring of rail operations during the year, which
was reported in detail in the 2012 Annual Report of the New Zealand Railways Corporation (“NZRC”) and also in its Half
Year report at 31 December 2012. In summary, the assets and liabilities of NZRC (except for land and the Wellington
Railway Station) were transferred to a new State Owned Enterprise (SOE), KiwiRail Holdings Limited (KiwiRail) on 31
December 2012. To provide comparable performance information for KiwiRail, this announcement has been prepared on the
basis of a full year for KiwiRail with the comparative being the prior full year for NZRC.
Our operating surplus before major one-off items of $108.2m is an increase of $3.3m compared to the prior year. This is
a pleasing result given the significant challenges and disruptions we faced throughout the year and is ahead of the
upper end of the range of $104m to $107m we signalled in February this year. Challenges included weather disruptions,
threatened Interislander industrial action, an early end to the dairy milking season due to drought and shortfalls
associated with Solid Energy on top of an already depressed global market and the continuing effects of the Christchurch
earthquakes on economic recovery.
Freight revenue continues to grow with a strong performance in the Import/Export and Forestry sectors. The Interislander
has grown its commercial vehicle revenue, accommodated more rail freight volume and improved on-time performance and
customer satisfaction while facing the challenges of the weather events and threatened industrial action. The actions we
have taken with the Scenic business give us confidence this business is slowly showing signs of improvement.
We have continued to push our strategic agenda to drive the business towards becoming a self-sustaining and efficient
rail business. While we still have a long way to go, this year we have:
• Seen our new DL locomotives performing well and we are in the process of commissioning a further 20.
• Restructured the Infrastructure and Engineering business while continuing to deliver complex projects to improve
the effectiveness of our rail infrastructure.
• Continued to improve our on time performance measures in support of our customers.
• Re-chartered the Kaitaki ship to give us continuity of service for the next 7 years.
• Closed the Hillside operation with the foundry segment sold to a third party.
• Mothballed the Napier Gisborne line.
• Delivered and initiated a number of key projects in areas such as fuel cost and efficiency, work force planning,
fleet management and work standardisation to improve productivity and reduce costs across the business.
• Developed and begun implementation of an organisation-wide KiwiRail Safety Improvement Plan.
• Managed the activities in the business to remain within the funding provided by the Crown and cash generated by
For the year ended 30 June 2013 KiwiRail has increased operating revenue by $11m over the same reporting period last
The growth in our Freight business reflects a strong performance in the Import/Export and Forestry sectors (up 8.1% and
9.4% respectively) and Domestic freight up 2.3%. Bulk freight was down 7.4% due to the difficulties faced by Solid
Energy and the drought affected dairy season.
Interislander’s commercial freight revenue is up on the prior year, but passenger numbers were down. Revenue was
impacted by the threated industrial action in December and also weather impacts that resulted in a requirement to cancel
We are very pleased with the performance of the Wellington Tranz Metro business supported by the introduction of the new
electric Matangi trains. On time performance and customer satisfaction have both increased and fare box revenue is up 6%
on prior year.
The introduction of the new Scenic carriages and the re-launch of the Northern Explorer service have resulted in
improvements in this business which has been impacted by tourism declines.
Our Infrastructure revenue was up on prior year reflecting higher track access charges and projects with external
Major One-off Items
In last year’s result we highlight two major one-off cost items to better understand underlying operating performance.
They were a write-down of obsolete inventory and the restructuring provision created in relation to our infrastructure
and engineering business. No major one-off items require isolating from the operating surplus this year.
Depreciation and amortisation is materially lower due to lower asset values following the move to valuing assets on a
Net finance costs were down on the prior year, mainly due to the conversion of historic Crown debt to equity in July
2013. This was highlighted in our Annual Report last year.
KiwiRail receives grant income from the Crown and Regional Councils to completed specific rail projects on their behalf.
Work on these projects was at a similar level to the prior year and we are nearing the end of the major Wellington and
Auckland metro rail projects.
Last year’s impairment reflected the change to valuing assets on a commercial basis with a substantial reduction in
value to achieve this. Each year, in accordance with accounting standards, we review the carrying value of assets
against their market value and commercial value in the business. Their commercial value is derived from the net cash
flow attributed to the segment (technically the “Cash Generating Unit”) of the business to which they relate. Where the
cash flows do not support a higher value, the asset must be impaired to their market value which is established by an
independent valuer. Importantly, this means a large proportion of network renewals capital expenditure is impaired each
year as we spend more on capital projects than is generated from our operating surplus. This will continue to be so
until the business becomes cash self-sustaining.
The reduction in total assets is due to the company restructure. Rail land was not transferred from NZRC to KiwiRail.
Total assets last year excluding land were $988m.
Comparison with Statement of Corporate Intent
Operating revenues were slightly (1%) below the target in our 2013 Statement of Corporate Intent (SCI). Our operating
surplus was 10% below the $119.3m target. The impacts of weather plus the Solid Energy factors (both their coal volumes
and the unsustainable contract pricing) alone reduced our surplus by at least $20m. Improved performance in other parts
of the business and continued focus on productivity and costs enabled us to mitigate a large part of these negative
impacts. While we are certainly disappointed we did not reach the target, the performance in the light of the challenges
continues to confirm our strategy is working.
The business has been significantly impacted by an accumulation of events over the past 3 years. We estimate that the
combined impact of the Christchurch Earthquake, the closure of Pike River mine, reduced Solid Energy volumes and their
contract pricing, storms and industrial actions total $43m. Had these events, largely out of our control, not occurred
our operating surplus would be in excess of $150m.
Consistent with the Statement of Corporate Intent, KiwiRail will not pay a dividend in 2013.