apr-11.pdf (2.07 MB) - Crown Ownership Monitoring Unit

OperationsKiwiRail Group’s (KRG) core business is providing services for commercialfreight customers, in terms of bulk freight, import/export and domestic pointto-pointtransport. A 10-year Turnaround Plan is underway to fundamentallyreconfigure the organisation as a financially self-sustaining commercialentity. The plan involves major procurement and project work, and a shift tobecoming a customer service and customer relationship-focused organisation.Since the start of this plan in 2011, substantial investment has been made innew rolling stock (locomotives and wagons), increasing ferry capacity andreducing transit times on key parts of the network. Freight volumes haveincreased in all categories, and major customers have demonstrated theirsupport for the new strategy by committing to co-investment in warehousingand other facilities.KRG also provides metropolitan passenger services on behalf of Auckland andWellington regional authorities.Financial performanceKRG reported a reduction in EBITDAF of $88 million from 2009/10 which wasmainly owing to a reduction in grant income from the Crown of $110.5 million.NPAT was also impacted by a one-off write-down of the book value ofassets relating to the Wellington Metro business of $107.6 million when theywere transferred to the Greater Wellington Regional Council for nominalconsideration. Excluding these items, underlying performance improved in2010/11 from the previous year.KRG’s Turnaround Plan envisages about $4.6 billion of capital expenditure over10 years on renewal of the rail network and on rolling stock. The majority of theinvestment is to come from operating cash flows, but significant governmentsupport is also assumed. The Government agreed to provide KRG with supportof $250 million in each of the 2010/11 and 2011/12 financial years, with a further$250 million in the following year, subject to satisfactory performance.The negative commercial value attributed to KRG in its SCI reflects thesignificant capital expenditure required to address several decades of underinvestmentin rail infrastructure and equipment, and the significant Crowninvestment required to do so. Delivery of the Turnaround Plan should result incontinued improvement in the enterprise value of KRG.Performance against plan2010/11 was the first year of the Turnaround Plan. Whilst freight volumesand revenues have increased in 2010/11 over previous years, total revenueand EBITDAF are behind SCI targets. This was attributable to the effects ofunanticipated external events (the Canterbury earthquakes, Pike River mineexplosion and various weather events). Under the circumstances, KRG’sperformance has been creditable. However, its ability in future to produceEBITDAF results in line with targets will be crucial for funding its portion of thecapital investment associated with the Turnaround Plan.Major investmentsThe rail network continues to besubject to significant investment,particularly along the Auckland toChristchurch corridor. Investmentin completed infrastructure projectstotalled $402 million in 2010/11,from total capital expenditure of$653 million. Substantial numbersof new locomotives and wagonsentered service, improving bothreliability and running costs($62 million capital expenditure onrolling stock). The ferry Aratere hasbeen lengthened to increase CookStrait capacity.Non-financial performanceKey safety metrics for KRG are LostTime Injury Frequency Rate (target3) and the Medical TreatmentInjury Frequency Rate (target 30).Actual results were 6.1 and 49.1respectively. These are areas KRGis focused on improving.Corporate social responsibilityKRG has a number of safety,sustainability and beautificationobjectives.KRG has been an ongoingsupporter of the Chris CairnsFoundation, the Rail Heritage Trustand the Ferrymead Rail Museum.A wide range of other communityactivities are also supported fromtime to time.DividendsKRG has not paid dividends since its return to government ownership and noreturn to the owners is expected for some time.page | 91