Transformation delivers results despite earthquake

Transformation delivers results despite earthquake

February 24 2017

• $23 million underlying operating surplus[i] in six months to 31 December 2016

• $12 million impact from Kaikoura earthquake

• Productivity savings of $18 million by FY17

• Premium freight peak season on-time performance improved to 88% December 2016

• 33% reduction in Lost Time Injury Frequency Rate

The Kaikoura earthquake and lower bulk milk volumes have impacted KiwiRail’s half yearly result but Chief Executive Peter Reidy says he is pleased that despite these challenges, the State Owned Enterprise has still achieved its commitment to Government with an underlying operating surplus of $23 million.

“KiwiRail’s performance in the first four months of this period showed our strategies of simplifying our business, standardising our assets and investing in our people were moving us in the right direction. At the end of October we were seeing the results of our efforts and anticipating a record summer season for both our freight and passenger businesses.

“Reliability, which is key to our customers’ success, had risen significantly for rail freight to 88% by December 2016.

“Our Interislander customers’ satisfaction ratings were up 30% on the previous year with strong forward bookings for summer services. Tourism services were booming.”

Today’s half year result shows an underlying operating surplus of $23 million, in line with forecast and prior year, despite revenue falling by $48 million to $298 million due to exiting the Wellington Metro train services contract and lower bulk milk. The impact of the Kaikoura earthquake in November has resulted in lower revenue of $9 million with additional costs of $3 million, bringing reported HY17 surplus down to $11 million.

“Despite the challenges, we remain on track to deliver $18 million in productivity savings this year, building on the $27 million in FY16,” Mr Reidy says.

Partnerships with New Zealand ports are also paying off for KiwiRail: Port of Tauranga revenue grew 19% year on year and long term contracts have been completed with ports in Dunedin, Auckland, Napier and Lyttelton.

“Supporting New Zealand’s Business Growth Agenda is a critical role for KiwiRail. It is pleasing to note that while domestic freight was impacted, our exporters were not unduly affected by November’s quake. KiwiRail’s freight task also takes the equivalent of more than a million trucks off our roads each year.

“November’s earthquake and the closure of the Main North Line have clearly impacted on KiwiRail’s performance and will continue to do so through the second half of the year. This event and the fire which closed the Midland Line this month have created challenges to the business as we rebuild the networks and continue to drive efficiencies and reliability for our customers.”

Domestic freight has taken the biggest hit from the earthquake, due to the closure of the MNL. KiwiRail’s award-winning Scenic Journeys train trips are $1 million down due to the forced cancellation of the Coastal Pacific. The internationally acclaimed TranzAlpine journey is also disrupted due to the Midland Line closure.

Mr Reidy says the organisation worked quickly in the aftermath of the earthquake to open the Blenheim Freight Hub, initiate the NZ Connect coastal shipping service from Auckland to Lyttelton and boost rail services to inland hubs in the North Island.

The Government’s early commitment to the rebuilding of the MNL has meant that work began at pace, with the first section to Lake Grassmere opened in mid-January, designs for six new bridges nearing completion and crews working south from Blenheim and north from Christchurch to get the line open.

“Our people are at the heart of what we do and we are committed to working closely with our union partners on delivering performance improvements for our customers. That has culminated in the signing of a High Performance, High Engagement programme charter with pilot projects already underway.

“Throughout an eventful six month period, the safety of our staff, contractors and the public has remained paramount. We have achieved a 33% reduction in Lost Time Injury Frequency Rate thanks to an ongoing focus on Zero Harm.

“There is no doubt the organisation has challenges ahead this year but events like the Kaikoura earthquake will only have a short term impact if we continue our focus on reliability and productivity for our customers. That is ultimately what will drive KiwiRail’s transformation into a commercially-focused organisation helping to grow New Zealand,” Peter Reidy says.

[i] Underlying operating surplus excludes the impact of the Kaikoura earthquake and is a non GAAP measure used by management to assess the performance of the business

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