KiwiRail operating earnings improve

KiwiRail had a much better 12 months to June 30 than a year earlier, improving its earnings before interest, tax, depreciation and asset impairments to $91 million, 17% ahead of the previous financial year, which was marred by several one-off costs.

The result was achieved on total revenues of $721 million, down 3% for the year. Freight revenues fell 6% to $434 million in an environment where coal deliveries by Solid Energy fell, but were offset somewhat by higher levels of dairy production.

The forestry, import/export and domestic freight categories together performed slightly ahead of last year.

For the year ahead, chief executive Peter Reidy says the state-owned rail business expects "volatile trading conditions', with Solid Energy recently placed into voluntary administration and a sharp downturn in dairy prices, expected to lead a reduction in milk solids production in the current season.

In its favour, KiwiRail has profitable contracts with port customers and it is enjoying lower fuel costs, with diesel prices falling steeply. There are initiatives to save substantial amounts of fuel by operating trains more efficiently.

As expected, after depreciation and writedowns on the value of the KiwiRail-owned rail network, the state-owned enterprise reported a net loss for the year of $167 million, a 33% improvement on last year's loss.

KiwiRail is locked in negotiations with the government ministers and the Treasury on initiatives to establish the national value of its operations. It cannot make a profit in the long term because there is too little freight in New Zealand to fully cover the cost of the 4000 kilometre national network of tracks.

"As the rail network does not generate sufficient cashflows to cover the level of required investment, a large proportion of the accounting value must be written off each year," Mr Reidy says. He describes the business as permanently hampered by having "not enough freight and too many assets".

"We will rely on Crown support for the foreseeable future."

Passenger services performed well, with inter-island ferry revenues rising 9% to $127 million, while KiwiRail's three "Scenic Journey" trains pulled in $25 million, an 18% increase reflecting strong growth in tourism numbers.

Operating expenses were 5% lower, Mr Reidy says. Full financial accounts for the financial year were not immediately available.

KiwiRail is also seeking better returns from its extensive holdings of land and buildings and the property segment of the business saw revenue rise 20% to $43 million.

Planning is underway to sell non-core assets, including possibly the Wellington central railway station building, although KiwiRail might lease back as much space as it needed, Mr Reidy says.

(BusinessDesk)