Tranz Rail strikes back

By CHRIS DANIELS

Tranz Rail yesterday faced up to a sceptical financial community and insisted its transformation into a long-distance freight operation will soon deliver results.

The ailing rail company has been savaged on the sharemarket in recent months amid widespread criticism of its performance and accounting practices.

It went on the offensive yesterday, hosting a briefing in Auckland for the financial community and the media, saying it expected to achieve an operating profit of $55.8 million for the year ending June 30.

Earnings before interest and tax are forecast to rise from $26 million this year to $94.2 million in the 2004/2005 year.

Managing director Michael Beard said the company was not looking for a Government rescue package or a handout of any kind.

Analysts have been disappointed at Tranz Rail's poor third-quarter profit of $2.8 million, and this, coupled with its warnings for the fourth quarter, were signs that the company was not performing as well as hoped.

Other analysts have criticised Tranz Rail's methods of communicating information to the market, saying statements from the company have been confusing.

Among other announcements, Tranz Rail said it would write off between $148 million and $170 million from its $933 million asset base, following "a comprehensive review of its balance sheet" as part of restructuring.

Management stressed that the write-downs were "accounting, not economic".

Chief financial officer Wayne Collins said Tranz Rail would also move the lease of the interisland ferry Awatere (worth $92 million) on to the company's balance sheet, leading to a $30 million one-off charge in this year's financial results.

Collins said that despite recent publicity about the way Tranz Rail accounted for investment in its tracks, the process had been reviewed and would not change.

"We weren't afraid of making the tough calls to do the right thing but in the case of track investment we are completely satisfied that our practices are appropriate."

The replacement cost of the rail network was $4.6 billion, yet it was only valued on the Tranz Rail books at $219 million, hardly an overvaluation, he said.

Beard was asked why he thought investor confidence in Tranz Rail had declined this year.

Recent profit warnings had clearly shaken confidence and that had not been helped by the loss of some big customers, he said.

Other points from the briefing:

* Tranz Rail will complete its exit from all passenger services with the sale of its remaining 50 per cent stake in Tranz Scenic and the sale of the Wellington Tranz Metro network.

* Wayne Waldren, former group managing director of Farmers Deka and a current director of Mighty River Power and Meat New Zealand, and Jon Cimino, former director and deputy chairman of the New Zealand Stock Exchange and current member of the NZSE Market Surveillance Panel, will join the Tranz Rail board.

They replace David Richwhite and Carl Ferenbach.

The size of the board will shrink from 10 to seven.

* The company will launch a new overnight freight service between Auckland and Wellington in the next few months.

* The Interisland line is again considering shifting from Picton to a new port at Clifford Bay.

Construction of any new port would be part of a joint venture.

* The company's rail services group will charge its big bulk rail customers enough to achieve the "weighted average cost of capital", while general freight rates will be "priced to maximise return on investment".