Tranz Rail embarks on fresh overhaul

By DANIEL RIORDAN transport writer

Tranz Rail is beginning a radical new restructuring operation.

Managing director Michael Beard said the company's new strategic plan would take into account the Government's land transport package - which provides more financial support to rail than in the past - and examine options such as contracting out terminals and replacing its locomotives with fewer but more powerful Machines.

He said details of the new restructuring would be released in August, when it reports its fourth-quarter result, and seeing the new plan through would take about a year.

The company's third-quarter results, posted yesterday, were dominated by costs from the first restructuring phase began 18 months ago, rather than any benefits.

Beard said most of those benefits would take until the new financial year to affect the bottom line.

While good progress had been made to simplify the rail freight operation, parts of the programme had taken longer than expected, said Beard. The cost of the change programme was higher than initial forecasts, not only in terms of direct costs but also indirect costs associated with disruptions to operational performance and service levels.

In the three months to March, the company made a net profit of $2.8 million, compared with $13.1 million for the same period last year. Profit for the nine months to March was $46.1 million, compared with $6.4 million to March last year.

The year-to-date figure includes income from major asset sales, such as Tranz Scenic and the Auckland rail corridor.

The huge changes to the company's operations during the past year take much of the meaning from most of its financial comparisons.

However, interisland and suburban passenger revenues were higher, quarter on quarter, after adjusting for the sale of Tranz Scenic.

Freight revenue was down 13 per cent, largely as a result of lower volumes in forestry and the one-off effects in last year's results of the expansion of Port of Tauranga's Metroport service. Forestry revenue was down 40 per cent for several reasons, although this is expected to improve during the present quarter.

The company is considering adopting a new accounting standard which, together with the completion of its contracting out, and other restructuring issues, has prompted it to review its capitalisation and depreciation policy. It says any asset write downs would be made in the present quarter (to June).

One example might be an IT system no longer needed by one of the decentralised business units. Negotiations to sell specialised rolling stock were continuing, with the hope that some of these will be completed in the fourth quarter.

Discussions were also continuing on the Wellington Metro Passenger rail business sale, with Tranz Rail determined to extract what new chief financial officer Wayne Collins described as "fair value" for its asset.

Tranz Rail is delisting from Nasdaq, but has yet to decide if it will continue reporting quarterly. Tranz Rail shares fell 10c yesterday to $3.50.