Support of Major Customers Encouraging

Support of Major Customers Encouraging for Kiwirail’s Future

The customer response to KiwiRail service level improvements and an export-led recovery in the later months of the financial year combined to provide the Board with reason to be optimistic about the future, Chairman John Spencer said today.

Commenting on the business’s result for the 2009-10 financial year, he said rail freight revenue for the second half year rose by 11 percent, largely offsetting a 12 percent reduction during the first half year.

“Our result reflects the difficult trading conditions during much of the year,” said Mr Spencer. “The first half year was sluggish but an export led recovery in the later months of the year, driven by higher forestry and dairy volumes, lifted revenues to within budgeted expectations

“While the market continues to be challenging the Board is encouraged by the way major customers have responded to the good work KiwiRail staff have done to improve levels of customer service.”

KiwiRail produced an operating profit before depreciation and grant income for the year of $74.4 million.

Mr Spencer said that while this is an 11 percent decrease on the previous year, comparisons were difficult because the former Toll and United Group businesses purchased in 2008 were only included in part of that year’s reporting period. In addition to this the previous year included transactions relating to the acquisition of these businesses.

For that reason, the comparison with targets set for the year in KiwiRail’s Statement of Corporate Intent were more valid. This showed revenue just 1.3 percent below target but EBITDA 26.1 percent up on the SCI target of $59.0m.

“When we look at KiwiRail’s results we focus on freight carried on rail and Interislander ferries because these generate almost 75 percent of KiwiRail’s revenue,” said Mr Spencer.

“The biggest contributor to freight revenue is import-export (IMEX) goods. It is encouraging that IMEX revenue rose almost 8 percent during the year and volumes carried increased by more than 4 percent.

“We can expect further improvement once the measures we are introducing as part of the Turnaround Plan begin to make an impact on our freight business.”

Mr Spencer said Interislander business had been a mirror image of the previous year, but the long distance passenger business had produced a pleasing 10 percent increase in both passenger numbers and revenue.

“Our long-distance passenger services are earning an international reputation,” he said. “As we modernise our passenger fleet, we should be able to build substantially on this platform.

“While we can take satisfaction from the performance of our long-distance trains, we recognise we have work to do to improve service levels on the Wellington Metro levels. It’s been a difficult year for Metro as it has worked through the challenges of maintaining services while the network is being upgraded.”

Mr Spencer said highlights of the year included the Government’s agreement to invest $250 million in KiwiRail in the current year with further investment agreed in principle, agreement with Fonterra to move greater volumes of dairy produce by rail and the commitment to buying 20 new diesel electric locomotives.

“Our work on the Auckland and Wellington urban rail projects represents the biggest upgrades since the networks were first established. We were also mandated by the Government to manage the purchase to a budget of $500 million of Auckland’s new electric trains,” he said.

The net profit after tax figure of $185.5 million is approximately 46% below the SCI target of $348.3m. The majority of this difference ($132.0m) resulted from the timing of capital work on the Metro projects in Wellington and Auckland with a further $34m arising from tax changes in depreciation on buildings and differences from the underlying foreign exchange assumptions from the SCI.

“We expect market conditions to continue to be challenging into the new financial year. We are committed to improving service standards for our customers and from this platform we will continue to drive revenue and volume opportunities.”

Continuous Disclosure

KiwiRail’s financial results for the twelve months ended 30 June 2010 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.

ENDS

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