Tranz Rail Third Quarter And Nine Month Result

9 May 2002

Third Quarter And Nine Month Result For The Period Ended 31 March 2002

Auckland, New Zealand - - Tranz Rail Holdings Limited [NZSE : TRH] [NASDAQ : TNZR] today reported its financial result for the third quarter and for the nine months to 31 March 2002.

Summary Commentary

Tranz Rail Holdings Ltd today announced a net profit of NZ$2.8 million for the latest quarter and a cumulative net profit of $46.1 million for the nine months ended 31 March 2002. This compares with a net profit of NZ$13.1 million in the same quarter last year and a net profit of $6.4 million for the nine month period ended 31 March 2001. Tranz Rail Managing Director Michael Beard said the latest quarter result had been particularly impacted by the costs of restructuring the business in accordance with its Strategic Plan.

Mr Beard said that during the quarter the company completed the handover of engineering maintenance services to its outsourced providers, and discussions have also continued on the Wellington Metro Passenger rail business sale. However, while good progress has been made to simplify the rail freight operation certain components of the programme have taken longer than initially envisaged.

The cost of the change programme is also proving to be greater than anticipated, not only in terms of direct costs but also indirect costs associated with disruptions to operational performance and service levels. Management will continue its focus on a quantum improvement in service levels to both mitigate these costs and improve its revenue line.

Also included in the year to date profit is income from the sale of the Tranz Scenic passenger rail business and the Auckland rail corridor, together totalling $x.x64.1 million.

Mr Beard said the third quarter comparative result was affected by reduced revenue from planned reductions in forestry volumes and the loss of Tranz Scenic revenues following sale of that business in December 2001.

Forestry revenue was down by NZ$7.2 million, reflecting Tranz Rail's decision to rationalise its forestry business, including exiting some unprofitable forestry related business. However many of the cost savings expected to accrue from exiting this business will only be apparent in future results as capital expenditure is eliminated and other costs are shed.

Mr Beard said the lower forestry volumes were also affected by tree cutting patterns during the quarter, where trees are being cut further away from railway lines, leaving timber to be carried on road rather than rail.

"While overall freight revenue has decreased, we are seeing encouraging upward trends in intermodal business, with containerised freight revenue increasing by eight per cent in the past three months," he said. "This uplift follows our major reconfiguring of the freight business to reduce shunting and focus on fixed-consist trains carrying containerised freight. We see this as a key component of the future of rail freight in New Zealand. It is a simpler, more effective operation that better meets the needs of our customers. Although it is early days, it is encouraging to see that these new services are winning more business."

Mr Beard said Tranz Rail was also gearing up to capture an anticipated growth in coal volumes.

"Solid Energy has forecast significant growth in coal exports and we are in discussions with them now to ensure we expand capacity on the Midland coal route. This programme is likely to include new locomotives, expanded loop runs to cater for longer trains, and track de-stressing to prevent the possibility of heat buckling in the area. Although service problems inhibited our performance in March, a record 170,000 tonnes of coal from the West Coast to Christchurch was carried in April. We expect this performance to continue to improve as the benefits of the new investment takes effect."

Passenger revenue for The Interisland Line and Tranz Metro continued to grow, although the effect of excluding Tranz Scenic long distance passenger revenue reduced overall passenger revenue by 7.7 per cent (NZ$3.7 million) in comparison to last year. A significant outcome for the period was the 9.4 per cent reduction in operating costs from $152.7 million in 2001 to $138.3 million for the third quarter in 2002. Mr Beard said the challenges ahead were to ensure a continuation of these cost savings and to ensure a reduction in the company's fixed and semi-fixed cost base associated with the elimination of some revenue sources.

Mr Beard said the company's safety performance continued to improve. "Over the past year, the number of injury accidents has reduced by 25 per cent, while we have also reduced the number of Lost Time Incidents by 10 per cent. These improvements have had an added financial benefit, with our spending on casualties and insurance reducing by 33 per cent on the same quarter last year.

"With regard to the future of Tranz Metro Wellington, Mr Beard said the company was continuing its discussions with local regional and central Government. "This is a good business and there are a range of options available to us that would meet our need to improve financial conditions, while ensuring a continued good service for passengers." Issues being discussed include: ownership of rolling stock assets; track access or ownership; and train operations. "We are confident that all parties remain committed to conclusion of these matters as quickly as practical".

Mr Beard said the company is currently analysing its position to identify the strategic initiatives and budget for financial year 2003. The company should be in a position to provide a more detailed commentary on this when it reports on the fourth quarter result. At this stage though, it is possible to anticipate the benefits of the debt reduction programme and outsourcing. Other initiatives are proving more difficult to fully implement and, therefore, the benefits of these changes will not be seen until the 2003 financial year.

The company is considering adopting the new accounting standard FRS3 (Accounting for Property Plant and Equipment). This together with completion of the outsourcing and other restructuring initiatives has given cause for the company to review its capitalisation and depreciation policy. For example, it is possible that certain assets may be identified as redundant or surplus to requirements. Any write down that may be required has not yet been determined however, it is anticipated that if required this would be processed in the fourth quarter. While the result would impact the profit and loss account, there would not be any cash flow impact for the company.

The company is also progressing a number of transactions to sell specialised rolling stock to customers. It is anticipated that some of these will settle in the next quarter and will have favourable impact on both cash flow and profit.

Ends

Shares of Tranz Rail Holdings Limited are publicly traded on the New Zealand Stock Exchange under the symbol TRH and the US American Depositary Shares (ADS) of the Company are traded on the NASDAQ National Market System under the symbol TNZR (each ADS is equivalent to three (3) shares). The Company operates the only commercial railroad in New Zealand, offering an integrated network of rail, road, air and sea distribution and logistics management services that provides customers with transport solutions in the Australasian market place and passenger transport in New Zealand. Freight and passenger services utilise 3,900 route kilometres (2,400 route miles) of track, approximately 202 locomotives, 4,600 wagons (freight cars), 68 carriages (passenger railcars), 154 self propelled passenger railcars, 3,500 shipping containers, two roll-on roll-off ferries and one fast ferry between the North and South Islands. The Company holds a 50% equity interest in Tranz Scenic 2001 Limited which operates long distance rail passenger services in New Zealand utilising approximately 24 locomotives, 92 carriages (passenger railcars) and 6 self propelled passenger railcars. The Company also holds a 27% equity interest in Australian Transport Network Limited which operates in Victoria and New South Wales and provides freight services in Tasmania, Australia, utilising 891 route kilometres (555 route miles) of track, approximately 50 locomotives and 700 wagons (freight cars). (http://www.tranzrail.co.nz)

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