KiwiRail this week released their annual result for FY12.
As expected, and previously indicated by the company, they missed their 2013 SCI target EBITDA by $35 Million. Whilst dissapointing for the industry and observers this result was not unexpected and had been well signalled.
Also of note was the confirmation of the $7.1 Billion asset writedown on the balance sheet which was some $400 Million higher than previously estimated.
The press release is as follows:
29 August 2012
KiwiRail’s progress towards becoming a sustainable business is well underway reporting revenue growth of 7.2% or almost $50 million. This includes strong revenue growth from the freight business of 15%, or approximately $60 million, and an increase in their EBITDA of 14%.
However, the operating surplus before major one-off items, depreciation and grant income decreased by 2.6% to just under $105 million, due to trading and operating challenges in other parts of the business.
According to Chairman, John Spencer, the positive freight result despite continuing difficult trading conditions gives a level of confidence that the objectives of the ten year strategic plan can be achieved.
“Freight growth is essential to achieving our long term plan objectives and for revenue to increase to $457 million, despite flat economic conditions, shows that our focus on this business as the foundation for the future sustainability of KiwiRail is well founded,” said Mr Spencer.
“Over the last three years freight revenue growth has increased by 25%, particularly due to the growth in the import export and bulk freight businesses.”
“We have commissioned new locomotives and wagons and without these we would not have achieved freight growth and met increasing customer demand.”
The commissioning has taken longer than planned, however new rolling stock are quickly becoming the workhorses of our freight fleet.
”But other parts of KiwiRail have continued to be affected by the on-going impact of the Christchurch earthquakes and flat domestic activity."
“The Scenic passenger business has experienced significant declines in passenger numbers due to the Christchurch earthquakes and the fall in tourism. For example the number of passengers travelling on the TranzAlpine service has declined 23%, with the overall decline across all services being 14%,” said Mr Spencer.
“The Interislander business has also been affected by lower domestic tourism and freight. Combined with the additional planned costs for the Aratere extension this has meant a reduction in their operating surplus of $4.7 million compared to last financial year.
”Impacting on the company’s operating costs were two major one off items; a $11.8 million write-down of inventory related to the balance sheet restructure announced in June and a restructuring provision of $15.6 million for the Infrastructure and Engineering (I&E) division."
“The decision to restructure the I&E division resulting in the disestablishment of 181 positions was a difficult one to make, but we have made a commitment to deliver a sustainable company by 2020 and it is essential that we keep our investment plan in line with our earnings in these challenging times.”
“While these changes will mean we spend less than originally planned upgrading the rail network nationally over the next three years we will still be investing $750 million, or four times the amount spent a decade ago.”
“The hundreds of millions spent already have led to an improvement in reliability and a reduction in transit times and network caused delays, such as maintaining a ten year low in mainline derailments."
In June this year KiwiRail also announced their Balance Sheet Restructure which will result in the establishment of a new SOE scheduled for early January 2013. As part of this process a revaluation of the company’s assets on a commercial basis was undertaken. This has resulted in a reduction of $7.1 billion in the value of the company’s fixed assets and an impairment of $2.2 billion in the financial statements.
“In addition to the fixed assets, our land assets were also revalued resulting in a reduction of $2.4 billion. This, and $4.9 billion for the other fixed assets, was covered by revaluation reserves."
Mr Spencer said while the year’s performance was positive, the overall results were below the Statement of Corporate Intent (SCI) targets.
Operating revenue was $21 million short of the $737 million SCI target, with an EBITDA shortfall of $35 million.
“The key reason for this shortfall is due to the Passenger and Interislander business results previously mentioned,” said Mr Spencer.
“But we are pleased to report that the freight business revenue result exceeded their SCI target.” Mr Spencer said some hard decisions will continue to be made over the next year if the company is to achieve its 2012-13 revenue and EBITDA targets.
“KiwiRail will continue its focus on reducing costs, lifting efficiency and better managing infrastructure spending so that the expected earnings are delivered.”
“We have publicly stated that if there are parts of the business not performing this has to be addressed.”
“No one will thank us if we can’t make this company sustainable and making a real contribution to the country’s economy. We are committed to keeping our promise to our shareholder and the taxpayers of New Zealand that KiwiRail will be able to stand on its own."
KiwiRail’s financial results for the twelve months ended 30 June 2012 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.