KiwiRail has posted a net deficit after taxation of $407 million for the six months to December 31, with the state-owned firm taking a big hit from the cancellation of the Interislander upgrade (iReX) project.
The result compared to $65.1m loss in the previous corresponding period.
The iReX impact included expenditure costs of $382m plus a further $60m in provision for estimated costs written off. This excludes the costs relating the termination of the vessel contacts with Hyundai Mipo Dockyard for two new ferries.
Operating surplus for the period was $40.5m, down $41.1m from HY23 reflecting “weaker than expected economic activity”.
Services business (freight, passengers, tourism and property businesses) revenue was down $20.5m to $375m due to lower freight volumes compared with the previous corresponding period.
Rail freight volumes were down by 15% on a net tonne kilometre basis largely through reduced import container volume and the flow on impact to lower domestic freight transport demand.
The six months to December 31 saw KiwiRail transport 1.8 billion net tonne kilometres of freight, resulting in 117,000 fewer tonnes of CO2 emissions than if that same freight was moved by truck.
The period saw a total $707.3m of capital expenditure across KiwiRail’s activities, split between services ($237.7m) and infrastructure ($469.6m). This included investment in new rolling stock, the completion of track replacement between Whangārei and Kauri in Northland, and the practical completion of the Integrated Rail Management Centre in Auckland, which controls rail traffic on the busiest part of the network.
Progress was also made on a new purpose-built mechanical maintenance building at Waltham yard in Christchurch and the redevelopment of the Hillside Workshop in Dunedin. Waltham is expected to be completed by the end of the year, and Hillside in mid-2024.
‘Soft domestic demand’
Board chair David McLean says the financial result reflects a challenging trading environment in the New Zealand market.
“While export volumes were in line with expectations, high inventory levels in customer warehouses and lower economic activity in China impacted import flow to New Zealand.
“The lower imports translated into very soft domestic demand for goods transported throughout the country, affecting transport operators across the sector,” McLean says.
“With the investment in asset capacity, we are seeing new opportunities to grow freight and passenger volumes with core customers.
“It was pleasing to see us secure major freight volume on rail with Kmart, who moved their national distribution centre to the Tainui Ruakura freight hub in late 2023.
“A balance of capacity, carbon and price were key reasons for rail being the preferred mode. We also signed an agreement with Coca Cola Europacific Partners to extend its current siding to enable increased use of rail and lower its carbon footprint,” McLean adds.
Speaking on the termination of the iReX project, McLean says KiwiRail is in the process of winding down the current new ship project and reviewing options for the Cook Strait connection.
It follows the Government’s decision not to provide further funding for the build of two new ferries and associated landside and port infrastructure.
A ministerial advisory group made up of transport and logistics experts, chaired by Nelson Airport chief executive Mark Thompson, has been formed to help direct the future of KiwiRail’s inter-island ferry service.
“We will work with the ministerial advisory group, our customers, ports, iwi and other stakeholders on options for maintaining a safe and reliable service across Cook Strait,” McLean says.
KiwiRail chief executive Peter Reidy says the firm is continuing to strengthen its leadership capability, and its commitment to safety and service reliability.
“That commitment was on display as we reopened the rail line to Napier just seven months after it was severely affected by Cyclone Gabrielle, particularly around Awatoto where the bridge was badly damaged.
“Re-opening the line allowed rail freight to again flow to Napier Port, a vital link in New Zealand’s supply chain.”
A similar commitment was shown by the Interislander team following the Kaitaki incident early in 2023, he says.
“The safe and reliable operation of the Interislander service is an absolute non-negotiable requirement for KiwiRail. Since this event, we have conducted a full review of all our asset management practices, using global maritime experts (Det Norske Veritas) to ensure we are operating the Interislander to world’s best practice standards, based on the age and condition of our existing fleet.
“Over the recent December-January summer peak period, the Interislander ferries have operated with 100% asset reliability and 93% on-time performance. For the six months, the reliability figure was 97%. Those are levels that exceed even the best operators in the global aviation industry and I’m proud of the significant work that our Interislander team has invested to lift service reliability for customers over the past six months,” Reidy says.
“We are taking a similar disciplined asset management approach with our rail assets. On-time performance for our premier freight services improved six per cent to 88%.
“We saw volatile market conditions the first six months – a challenging domestic economy, and international shipping constraints that increased freight costs. Most domestic sectors are reporting lower levels of demand, in particular construction, manufacturing and retail, which has impacted import container volumes and domestic freight transportation.
“Inflation-driven increases in supply chain and labour costs were experienced in the first half but these are now easing,” Reidy says.
Fonterra had a slow start to the export dairy season, however volumes are forecast to be in line with last year. Meat exports were down by 15% compared to the previous period and log export volume has increased centred on the Eastern Bay of Plenty.
Forecast subdued
Reidy says the second six months of the financial year remain challenging for many New Zealand exporters, importers and freight transport providers, and KiwiRail is no exception.
“The market is challenging for our customers with activity in many sectors – including construction, manufacturing, retail and export – forecast be subdued for the remaining six months. Tourism is flattening out, after recent growth, at 80% pre-covid levels.
“The next six months will see us take some big steps in our strategy to build a reliable, safe network as a platform for growth for customers. This includes the handover of the first two new DM class locomotives for commissioning testing, the opening of our Auckland Train Control centre where we’ll work alongside Auckland Transport, and our new maintenance centre in Christchurch for our South Island rolling stock.
“We are conducting a strategic review of our operations in partnership with external expertise to accelerate growth, support operational excellence and deliver financial sustainability,” Reidy says.
