KiwiRail, the unprofitable government-owned rail operator, has turned a net loss of $248 million for the year to June 30, as crippling annual writedowns on the value of its assets continued, despite total investment by the government and the company itself of more than $1.5 billion since 2010.
The annual trading surplus was also down 28.4 percent, caused by a combination of the loss from service of the Cook Strait ferry after one of its propellers dropped off last November, the removal of new locomotives from service when they were found to contain asbestos, and downturns in demand from major customers, especially the beleaguered coal industry.
In a year that chairman John Spencer described as "extremely frustrating" as the company had been trading well and making good progress on other initiatives, KiwiRail's total revenues fell only 0.5 percent to $723.6 million, but total operating expenses at $648.3 million were 4.8 percent up on the previous year and one-off expenses mainly relating to the cost of chartering a replacement ferry totalling $2.2 million were a drag on operating earnings.
The statutory loss, however, was driven largely by $338.5 million of writedowns and impairments on the rail operator's asset base - an annual cost of that size being anticipated "for the foreseeable future" as KiwiRail chooses to write off the value of its uncommercial rail assets rather than charge depreciation against them.
That approach had been agreed as part of the 10-year turnaround plan that has seen the government pump around $1 billion of investment into KiwiRail since 2010, while the company itself has funded close to another $500 million investment.
The total value of the assets on the company's balance sheet fell 8.6 percent over the year, to $922.7 million.
The company was now in talks with the Treasury about its future, said chief executive Peter Reidy. "Freight still has to move, and if there's no rail, you still have to move the frieght," he told a media briefing. "If you want rail, there's a cost involved. We need to come up with a longer term solution for rail."
Spencer told the same media briefing: "Getting the business financially stable is still a significant challenge, We need an integrated game plan with the rest of the (national transport) system."
KiwiRail had a limited number of major customers that accounted for 40 percent of total freight, including the dairy and coal industries, both of which face the impact of commodity cycle price swings, which impacted KiwiRail during market downturns, said Reidy.
"If commodity prices are down, there's not much else you can do. But it's a fixed investment. The trains are sitting there, and the people."
Coal exports have plunged in the wake of a downturn in the global market for coking coal, reducing Solid Energy's volumes and prompting miner Bathurst Resources to write off the total value of its untapped Buller Coal Project and hunker down until prices improve.
The impact of losing the Aratere was clearly visible in today's financial report, which showed a $9.2 million reduction in revenues from the source in the last financial year.