Rail freight on a roll as profits leap 46pc

By YOKE HAR LEE

A 17 per cent jump in freight tonnage from a recovering economy lifted Tranz Rail's second-quarter net profit 46 per cent to $15.5 million.

Analysts say the strong volume growth, coupled with stable rates in the last quarter, will keep Tranz Rail's recovery on track for this financial year.

Tranz Rail said the 12-month freight volume was a record 14.2 million tonnes.

But fuel and electricity costs rose 37.8 per cent in the quarter, prompting the rail operator to signal an increase in charges.

Announcing its quarterly result, Tranz Rail said: "The company will be seeking to recoup the increased cost of fuel through its pricing arrangements. The benefits of these initiatives are not yet fully impacting the results being reported."

Reuters quoted a company official as saying average freight rates would rise 5 per cent.

But chief financial officer Mark Bloomer said it would be misleading to say the company was looking for an average 5 per cent rise.

"What we have said is we are looking to offset the fuel price increase through a price adjustment.

"We will be looking at it on a customer-by-customer basis. In some cases, the adjustment might not be 5 per cent; in others, it might be more. It is not an across-the-board adjustment."

For the six months to December, Tranz Rail's net profit was $21 million, up 60 per cent from the same period the year before.

Earnings a share for the six months were 17c, against 11c previously.

Operating costs rose 2 per cent in the quarter just ended. Cost before redundancy was up 6 per cent from the comparative period.

Freight revenue rose 6 per cent to $118.4 million, while tonnage rose 17 per cent and revenue-tonne-kilometre (a measure of the freight business' volume) rose 14 per cent.

Asked if he was happy with the company's efforts to cut costs, Mr Bloomer said: "No, that's not quite the word I would use.

"There are actions in progress to improve the profitability, to reduce cost. There is still some more work to be done before we start seeing the full benefit of the initiatives.

"Our productivity in terms of managing the business has increased significantly if you look at the volumes we have been handling compared with staff numbers," he said.

"However, that is not translated into a significant increase in the bottom line because of a number of other cost we have to carry - depreciation and lease cost [associated with investment programmes]. We are looking to offset that with efficiency and reduced cost in other areas."

Analysts said the results were generally within expectations.

Tranz Rail analysts forecast a full-year profit of between $27.1 million and $48.3 million this year and $34 million and $61 million next year.

Coal was the only commodity where quarterly revenue fell, to $7.3 million from $7.9 million previously.

Reuters quoted the company spokesman as saying it had signed a long-term freight agreement with state-owned coalminer Solid Energy.

The two have been wrangling over an agreement and analysts had expected Tranz Rail to bow under pressure to cut rates.

Tranz Rail managing director Dr Francis Small said the pricing was not very different from the interim deal now in place.