KiwiRail have today confirmed their asset writedown as previosuly foreshadowed in their half year report for 2012.
The press releases from the Crown followed by KiwiRails are as below:
Wednesday, 27 June 2012
Press Release: New Zealand Government
Hon Bill English, Minister of Finance
Hon Tony Ryall, Minister for State Owned Enterprises
Next steps in KiwiRail’s Turnaround Plan
The Government has today announced that KiwiRail’s balance sheet will be restructured in another step towards putting the company on a more commercial footing under its challenging Turnaround Plan.
“Under the plan, the Government is committed to ensuring KiwiRail can fund its business on a commercial basis,” Finance Minister Bill English and State Owned Enterprises Minister Tony Ryall say.
There are two main parts of the restructure:
• New Zealand Railways Corporation will continue to hold the 18,000 hectares of rail network land, from which no financial return will be expected.
• From 1 January 2013, KiwiRail’s freight, passenger, infrastructure and ferry businesses, together with rolling stock, rail infrastructure and plant and equipment, will be transferred to a new state-owned enterprise.
KiwiRail’s land and network net assets will be written down from about $13.4 billion to about $6.7 billion. The Government has also confirmed it will convert $322.5 million of KiwiRail debt to equity.
“This will leave KiwiRail with a balance sheet that better reflects commercial reality and gives the company an opportunity to earn a return over time.
“After the previous government bought back the rail network infrastructure for $1 in 2004, the company’s assets – excluding land - were revalued upwards in 2007 by around $5 billion to reflect replacement cost.
“The changes we’re announcing today will allow the company to account and report in a way that more fairly reflects its commercially-focused rail and ferry business,” the ministers say.
Of the $6.7 billion net asset write down, about $4.9 billion will be covered by reversing an existing asset revaluation reserve. The remaining $1.8 billion will be written off.
The Government’s preferred position is that this is reflected in both the Crown’s and KiwiRail’s financial statements for the year ending 30 June 2012.
“Under that approach, the $1.8 billion write off would be added to the Government’s operating deficit for the current financial year. The final position will be confirmed over the next few months before the annual accounts are published,” the ministers say.
“However, because it is a non-cash write down, it will not affect the level of core Crown net debt and the Government’s borrowing programme will not change.”
The ministers stress that KiwiRail’s Turnaround Plan remains a difficult task.
“While good progress has been made in lifting freight volumes, there is no doubt KiwiRail has a long way to go before it achieves the Government’s objective of supporting itself.
“We remain focused on giving it the opportunity to do this within clear fiscal parameters, so we can recover value from the cost we inherited from the previous government.”
The Kiwi Rail press release is here
KiwiRail Confirms Balance Sheet Restructure 27 June 2012
At KiwiRail’s Annual Public Meeting in November 2011, we outlined our intention to make a change to the Balance Sheet that would reflect a standard commercial valuation approach.
We are pleased to confirm our shareholder (the Crown) has supported this change and are now putting in place the needed technical and legal process for it to proceed.
“Consistent with our indicative outline last year, the commercial arm of KiwiRail will carry assets valued at approximately $1.1 to $1.3 billion, reflecting the revenue they generate, rather than the current value of approximately $7.8 billion,” said KiwiRail Chairman John Spencer.
“This is a much more realistic valuation of the company’s assets which will greatly assist KiwiRail in meeting its commercial objectives and provide more discipline in driving improved performance. We are amending our accounting methods to align to those objectives."
”To enable this change a new State Owned Enterprise (SOE) will be created which will own and operate the rail and Interislander businesses under the existing KiwiRail brand. Crown land held for rail purposes will be retained by New Zealand Railways Corporation (NZRC) and made available for use by KiwiRail.
According to Chief Executive, Jim Quinn, staff and customers won’t experience any change to their current situations.“It will be business as usual for our relationships with customers and stakeholders, and our staff will simply be transferred with all their current entitlements to the new SOE,” said KiwiRail Chief Executive, Jim Quinn.
The revaluation of the assets to be vested in the new KiwiRail SOE is expected to result in a write-down in the net value of those assets, estimated to be approximately $6.7 billion. NZRC has revaluation reserves of approximately $5 billion, which would be written off first as a result of a write-down in the assets’ value. Any write down in excess of $5 billion would affect NZRC’s bottom line.
As the KiwiRail Board now consider the assets to be held primarily to generate profits, and are managing them on that basis, the write-down of assets will occur in the accounts for the year ended 30 June 2012. The final amount of the write-down will be determined after independent valuations are completed, approved by the Board and disclosed in the year end accounts.
The company will work with the Government to use a statutory process under existing legislation to vest the new KiwiRail SOE with all the rail and ferry operating assets and liabilities of NZRC (other than Crown land).
The composition of the Boards of the new KiwiRail SOE and NZRC has not yet been determined but they are expected to include a majority of common directors.