KiwiRail: full steam ahead

ROSS GIBLIN

REAL DEAL: Operating profit is down on the previous year, but KiwiRail is optimistic.

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State-owned enterprise KiwiRail has started its turnaround journey with an 11 per cent fall in operating profit on the previous year, but new chairman John Spencer says there is reason to be optimistic.

Operating profit before depreciation and grant income for the 2009-2010 financial year was $74.4 million, 11 per cent down on the previous year.

But Mr Spencer says true comparisons are difficult because the former Toll and United Group businesses, bought by KiwiRail in 2008, were only included in part of the year's reporting period. The previous year also included transactions relating to these acquisitions.

It was more valid to compare the result with targets set for the year in KiwiRail's statement of corporate intent (SCI), which showed revenue just 1.3 per cent below target, but earnings before interest, tax, depreciation and amortisation 26.1 per cent up on the SCI target of $59m, Mr Spencer said.

Net profit after tax at $185.5m is about 46 per cent below the SCI target of $348.3m.

Most of the difference of $132m resulted from the timing of capital work on Metro passenger projects in Wellington and Auckland, with a further $34m arising from tax changes in deprecation on buildings and differences from the underlying foreign exchange assumptions from the SCI, Mr Spencer said.

Freight revenue for the second half year rose 11 per cent, largely offsetting a 12 per cent reduction during the first half year.

Mr Spencer said freight carried on rail and the Interisland ferries generated nearly 75 per cent of KiwiRail's revenue. The biggest contributor to freight revenue was import-export goods, where revenue rose almost 8 per cent during the year, with volumes carried increasing by more than 4 per cent, he said.

"We can expect further improvement once the measures we are introducing as part of the turnaround plan begin to make an impact on our freight business."

The ferries' business performance was flat on last year but the long distance passenger business produced a 10 per cent increase in passenger numbers and revenue.

Service levels need to be improved on the Wellington Metro business, he said.

During the year the Government had committed to investing $250m in KiwiRail in the 2010-2011 year, with further investment up to $750m approved in principle. This would depend on the merits of KiwiRail leaders' business case, now being finalised.

Other highlights of the year had been Fonterra agreeing to shift more dairy product by rail and the decision to buy 20 new diesel electric locomotives.

None of KiwiRail's locomotives is under 30 years old. "Our work on the Auckland and Wellington urban rail projects represents the biggest upgrades since the networks were first established."

The Government has also given KiwiRail the responsibility of managing the purchase of Auckland's new electric trains to a budget of $500m.

- © Fairfax NZ News