KiwiRail: Flickers of hope amid tough calls

KiwiRail's financial report for the year ended June showed glimmers of hope for an eventual turnaround in the rail network operator's fortunes, but chief executive Jim Quinn realises there is still a way to go.

The highlight for Mr Quinn in the period was a nearly 15% increase in freight carried, with revenue rising to $457.6 million from $389.5 million in the previous corresponding period.

Total revenue increased 7.2% to $715.8 million in the period but expenses rose 9.1% to $610.8 million.

The operating profit, before any major one-off items, fell 2.6% to $104.9 million from $107.7 million in the pcp.

From there, the balance sheet deteriorates substantially.

Major one-off items wiped $27.4 million from the operating profit to give a before-tax profit of $77.6 million, down 24.4%.

The most damaging item to the balance sheet was the $2.2 billion write-down of the assets after a revaluation to put them on a commercial basis was undertaken.

That took the state-owned company to a reported loss of $2.3 billion for the year compared with a $34 million profit in the pcp.

Mr Quinn said in an interview the write-down was part of the company's "ambitious plan" to become self-sustaining.

"Are we there yet? Hell no. We are miles away. This is a 30-year job and the next 10 years will be focused on getting us self-sustaining.

"We have to make massive investment to take the business back to being in the state it should rightly be in."

Mr Quinn maintained he was committed to staying with KiwiRail and seeing through the plan that would include: restructuring the infrastructure and engineering business unit; the potential sale of Hillside Workshops; seeking a partner for the Scenic business; and the review of units that were not providing positive economic returns.

Asked whether closing lines, services or workshops was the best way ahead if freight revenue was growing and customer numbers were increasing, Mr Quinn said KiwiRail wanted to be sustainable and generate enough cash to reinvest to expand without begging for more.

"We are not rushing into it. We are carefully evaluating our operations. If it is sustainable, we sit with it. If not, we move on."

KiwiRail planned to spend about $1 billion during the next three years but everything, including generating more operating cash flow, had to be geared to adding profit to the bottom line, he said.

Customers were responding well to the services provided by KiwiRail and the company was confident it would continue to increase its freight-carrying operations.

Mr Quinn agreed with the suggestion that for New Zealand to have a sustainable rail network, people had to use it to move their freight.

Notes to the financial statements said the flat global economy had hurt the company.

"Despite continued strong growth in our core rail freight business, with freight volumes 11% up on prior year, this has been offset by trading and operating challenges in the balance of our business."

Mr Quinn said the ongoing reduction in tourism because of the Christchurch earthquakes continued to affect the Scenic and Interisland passenger business.

Looking ahead, Mr Quinn said his immediate goals for the current financial year were making the hard decisions previously indicated and growing the freight-carrying side of the business.

- dene.mackenzie@odt.co.nz