Tranz Rail dented by higher fuel costs

By DANIEL RIORDAN transport reporter

Higher fuel costs have trimmed Tranz Rail's second-quarter performance, with the company reporting a net profit of $9.8 million for the three months to December, down from $15.5 million for the previous year's quarter.

The result, slightly below market expectations, contributed to a net loss for the December half-year of $6.7 million, compared with a $21 million profit for the year before.

Chief financial officer Mark Bloomer said he was pleased with revenue but disappointed with costs.

Price rises leading to a revenue increase of 3 per cent over the quarter failed to compensate for an $8.4 million increase in fuel and electricity costs. Total operating costs were up 13 per cent.

Mr Bloomer also updated the market on the company's restructuring plans. Several companies are doing due diligence on long-distance passenger service Tranz Scenic and the refrigerated road freight business. The company expects to announce a sale of both businesses in April.

Mr Bloomer said there was plenty of interest and he was confident they would be sold for reasonable prices.

Addressing the rationalisation of rail freight operations, Mr Bloomer said discussions were continuing with key commercial organisations and local and central Government bodies using or likely to use lines identified as non-core. If financial agreements could not be reached, some of the lines would be closed or sold.

The line most likely to close is considered to be Napier-Gisborne. The Rotorua line is also uneconomic, although that is likely to be sold to the buyer of Tranz Scenic.

Tranz Rail has negotiated a heads of agreement to sell the Auckland rail corridor to the Auckland Regional Council for $112 million with the company paying $2 million a year towards maintenance.

Mr Bloomer said negotiating teams representing the Auckland Regional Council and the company were stalled until the Government declared its position on the issue.

Discussions have begun with the Wellington Regional Council to sell its commuter business.

A dividend announcement will be made after this month's board meeting.

The result was issued as the market closed. Shares fell 15c yesterday to $3.60, reacting in part to Wednesday's news that Canadian National Railway was buying Wisconsin Central and with it Wisconsin's 24 per cent stake in Tranz Rail. The Canadian company says it supports Tranz Rail's restructuring programme and, like Wisconsin, is looking to sell the Tranz Rail stake.

The first-quarter result was affected by a $16.5 million one-off charge for restructuring. The second quarter was affected by a $3 million cost for restructuring of the interisland ferry business.

Overall freight tonnage and revenue tonne kilometres were at similar levels to the corresponding quarter last year. Export commodities and passenger revenues continued to be strong but domestic businesses were flat.