Derail board, investors urged

By FRAN O'SULLIVAN assistant editor

Former Tranz Rail chairman Ed Burkhardt has urged a shareholder revolt to change the board at the troubled rail operator.

Burkhardt - who was ousted in a boardroom coup three years ago - said the directors representing Fay Richwhite and Wisconsin Central interests should have been immediately replaced when the companies sold their controlling stake in February.

"After provoking the management change and adopting the policies that have led to ruination, they managed to get out before the numbers became apparent," said Burkhardt. "If the market's correct, that board ought to be forced out. If it takes a shareholder revolt to do it, well, that's the way it works."

Tranz Rail has confirmed it is looking for New Zealand-based directors and expects to make an announcement soon.

Lloyd Morrison of Tranz Rail's 7per cent owner Infratil said Burkhardt's comments were "slightly rich" given that under his stewardship meagre progress had been made.

Infratil's policy was to stand off from involvement but it was "quite appropriate to have a change of governance."

Yesterday, the company disclosed that its operating profit for the year to June would be $24 million to $26 million - about $10 million below analysts' forecasts.

The Tranz Rail announcement came four working days after the Stock Exchange slapped it with a "please explain" notice over its dramatic share-price slide.

The market marked the stock down savagely to new lows after Tranz Rail said late on Friday that its fourth-quarter earnings would be significantly below expectations. Yesterday, the shares firmed 10c to close at $2.50.

Institutional holders, many of whom bought in when Fay Richwhite and Wisconsin Central sold, indicated that they would let the company know they were "disappointed" at its lack of prompt disclosure.

While they were concerned by the big drop in operating profit, they were heartened at the company's statement yesterday that its cash position had been improved by around $85 million, allowing it to significantly reduce debt.

Tranz Rail's largest shareholder - Australia's Colonial First State, which has a 13 per cent holding - has delayed plans to increase its stake. Colonial First State and other institutional holders have been discussing the appointment of new directors with Tranz Rail management.

Fay Richwhite and Wisconsin were part of a consortium which bought NZ Rail from the Government for $400 million in mid-1993.

Tranz Rail is chaired by former Wisconsin Central chairman Robert Wheeler.

Wisconsin Central's 23.7 per cent stake was sold at $3.70 a share by its new owner, Canadian Central, on February 21. Other Wisconsin-associated directors on the Tranz Rail board are former Wisconsin president Thomas Power and former director Thomas Rissman.

Fay Richwhite founder David Richwhite and former associate Leigh Davis remain as directors. Fay Richwhite sold its 14.5 per cent stake for $3.60 a share on February 9.

Tranz Rail spokesman Alan McDonald said yesterday that the company was in the process of changing its board to reflect the recent changes in ownership.

But Burkhardt said he was amazed that the current board stayed on when the people they were representing all sold their shares.

Shares in Tranz Rail began tumbling in late May. On Tuesday the shares fell to $2.35 - their lowest since privatisation.

The company's chief financial officer, Wayne Collins, said yesterday that the market had been picking an operating profit before reorganisation costs of $36 million, but the actual result would be between $24 million and $26 million.

Tranz Rail had consistently indicated that the benefits of the changes would not become apparent until the 2003 financial year.

He said claims reported in yesterday's Herald that the company had capitalised routine maintenance expenditure and used it to inflate the book value of its network by more than $300 million were incorrect.

Since 1993 the company has invested $169 million on track renewals and $17 million more on track de-stressing.

"Over the same period a depreciation charge of $45 million on track has been applied to Tranz Rail's accounts. This treatment is entirely consistent with New Zealand and United States accounting standards and with the treatment applied by comparable railroad companies."