Reliable. Sustainable. Valuable. ANNUAL INTEGRATED REPORT 2017 F.18a Welcome – Tēnā koe For more than 150 years rail has played a vital role as an enabler of economic growth in New Zealand, evolving and adapting to meet customer needs despite significant geographical challenges and changing trends in trade. In the 1800s engineers designed a rail network that could operate in New Zealand’s uncompromising landscape, implementing wooden infrastructure that ran across swamps, rugged mountains, dense forests and wide rivers, to connect otherwise isolated communities and industries to the market. Much has changed since KiwiRail’s humble beginnings in 1863. Wooden infrastructure has been replaced by more resilient materials and today we look to advanced technological solutions to ensure the safety of the network and our people. To this day KiwiRail’s rail network continues to connect businesses, communities, importers and exporters to the world. As history shows, rail is adept at changing its services to meet the evolving needs of industry. As port flows increase and commuter demands continue to grow, KiwiRail is developing dynamic and innovative solutions to meet New Zealand’s changing transport requirements. 2 | Reliable. Sustainable. Valuable. | KiwiRail Annual Integrated Report 2017 Contents Overview of our business Capitals review Governance review At a glance 4 Main North Line case study 20 The KiwiRail Board 48 Who we are and what we do 6 Financial 22 The KiwiRail Executive Team 50 Tourism case study 25 How we are governed 52 Management review People 27 Our reporting approach 9 HPHE Hotworks case study 30 Statutory review How KiwiRail creates value 10 Assets 31 Key Performance Indicators 56 Chairman’s message 12 Rolling Stock case study 33 Vote Transport 58 Milestones 14 Skills & know-how 34 Financial statements 60 Chief Executive’s report 16 Port of Tauranga case study 35 Independent Auditor’s report 93 Relationships 36 Directory 96 Business review Stakeholder relationships 40 Tangiwai case study 42 Performance of our business units 18 Environment 43 Environment case study 45 Strategic outlook 47 Tim Eddy, Matt Thompson, Kevin Day, Paul Jones, Bob Day andReliable. Jamie Sustainable. Williams, Valuable. KiwiRail | KiwiRailstaff working Annual Integratedwith the ReportNCTIR 2017 alliance | 3 Overview of our business: At a glance At a glance Highlights from FY17 Relationships • In Budget 2017, the Government announces two year funding of $450 million and a Rail Review to investigate long-term funding options • Interislander customer satisfaction ratings reach 90% in June 2017, up from 82% June 2016 Financial • $52 million operating surplus • $92 million underlying operating surplus excluding $40 million impact from Kaikoura earthquake, exceeding FY16 underlying result • $18 million productivity and efficiency savings, building on $27 million saved from initiatives in FY16 People • Participation in the employee survey increases from 47% in FY16 to 74% • 12% of workforce complete in-house leadership programmes • 15% reduction in total injuries and a 45% reduction in Total Recordable Injuries Frequency Rate over three years Assets • $322 million is invested in renewal and upgrade of network, property and rolling stock, excluding Main North Line reinstatement • 150 new intermodal IH wagons and 15 diesel locomotives are purchased to better On-Time Performance (OTP) • On Time Performance for premium freight trains improves by 20% year-on-year to 89% • KiwiRail acquires Interislander ferry, Kaitaki, securing capacity to move freight and people between islands for years to come Skills and Know-How • KiwiRail’s operational response keeps the North Island to South Island supply chain moving after the Kaikoura earthquake • The award-winning TranzAlpine returns to service six weeks after a 300ha fire closes the Midland Line • A 24 hour, 10 day operation delivers new rail sidings at Southdown (Auckland) container terminal • An intermodal solution enables road bridging while the Aratere is in dry-dock Environment • Reduced heavy vehicle impact on New Zealand roads of 1.1 million truck trips, saving 69.5 million litres of fuel and 188,939 tonnes of CO2 emissions • KiwiRail’s award winning fuel efficiency programme Driver Advisory System saved 5.7 million litres of fuel • 93% of EECA energy saving target reached two years ahead of schedule 4 | Reliable. Sustainable. Valuable. | KiwiRail Annual Integrated Report 2017 Overview of our business: At a glance The High Performance High Engagement team wins the New Zealand Workplace Safety Awards ‘Engagement’ category, recognising the best initiative to encourage worker involvement in health and safety Achievements • KiwiRail’s work with customers in the aftermath • The Auckland Electrification Project wins the of the Kaikoura earthquake, wins the Rail Best Project Award at the Conference on Railway Excellence Award at the Australasian Rail Excellence 2016 Industry Awards 2017 • KiwiRail’s Back to Basics programme is a finalist • High Performance High Engagement initiative, in the Skills Highway category at the 2017 Hotworks, wins the Engagement category of the Diversity NZ Awards 2017 New Zealand Workplace Health and Safety • Track Occupancy is a finalist in the Work-Related Awards Safety category at the 2017 New Zealand • Locomotive Fuel Conservation project wins the Workplace Health and Safety Awards Large Energy User Initiative of the Year category • KiwiRail is a finalist for theAuckland University at the 2016 Deloitte Energy Excellence Awards of Technology Business School’s Excellence • Integrated Report 2016 wins bronze and the in Business Support Awards in two categories: Special Award for Communications at the 2017 Export Support and Government Australasian Reporting Awards • Great Journeys of New Zealand is nominated for a Tourism Industry Federation Award in the • TrackSAFE NZ and KiwiRail’s social/digital media Business Excellence category campaign for Rail Safety Week 2016, Conscious Crossings, wins eight golds at the Axis Awards • Great Journeys’ experience, the TranzAlpine, is and the overall Grand Axis Award rated one of the top 10 most scenic train journeys in the world by National Geographic. Reliable. Sustainable. Valuable. | KiwiRail Annual Integrated Report 2017 | 5 Overview of our business: Who we are and what we do Our Vision: Who we are Trusted Kiwi-owned logistics partner and what we do growing New Zealand We connect people and communities 32 million One million 17% We help commuters make We carry more than We enable passenger more than 32 million low- one million tourist growth of 17% in carbon journeys each year passengers each year Auckland (2016/17) • Manage 18,000ha of land • 3,400 employees • Own more than 1,500 buildings • 76% union members • 46 years - average employee age • 45% decrease in Total • 3 long distance Recordable Injury passenger Frequency Rate in experiences • Over $1b invested in renewal last three years between Auckland and upgrade of rail network, and Greymouth rolling stock and property over • 160,000 passengers the last five years per year • 3,090 signals • Stops at 23 towns • 3,500 km of track • 1,500 public and cities in NZ operated and maintained level crossings • 6.6m sleepers, of which 48% are concrete 6 | Reliable. Sustainable. Valuable. | KiwiRail Annual Integrated Report 2017 Overview of our business: Who we are and what we do We keep freight moving 18 million 16% 25% We move 18 million We carry around 16% We transport tonnes of freight of New Zealand’s total around 25% of each year freight task (tonnes-km) New Zealand’s exports • 3 ships • 98 tunnels • 750,000 passengers • 1,322 bridges • 4,000 sailings per year • Reduce heavy vehicle impact by • 1 million net tonnes • 4,578 wagons more than one million of freight carried per truck trips per year annum • Every tonne of freight carried by rail is a 66% emissions • 244 locomotives saving over road • Average locomotive age 30 years • 91% of all freight arrives on time Reliable. Sustainable. Valuable. | KiwiRail Annual Integrated Report 2017 | 7 Management review: Our reporting approach James Gobbe, Senior Track Maintainer, Christchurch 8 | Reliable. Sustainable. Valuable. | KiwiRail Annual Integrated Report 2017 Management review: Our reporting approach Our reporting approach This is KiwiRail’s second Integrated transport system and in the health of invest and demonstrates how it creates Report, which uses the International the economy, our communities and value through reliable, sustainable and Integrated Reporting Council’s (IIRC) people. Reliability is about meeting our cost-effective services. framework to explain KiwiRail’s customer promise and empowering This year there is a strong focus on business performance. our people to succeed. Sustainability the reporting capital areas of People explains how rail can create enduring, It sets out to provide in-depth and Environment, to reflect the long-term value and explores more information about our relationship growing importance and influence than just KiwiRail’s environmental with stakeholders, what we do in our of these activities on our day-to-day credentials, encompassing the safety business and our role as an enabler of operations. These areas are growing and Zero Harm of our people and the growth in New Zealand for the year to and changing in line with evolving public. KiwiRail’s value lies in our role 30 June 2017. business and customer needs and are in growing our customers and the at different stages of development and Within the report we demonstrate how economy, in working closely with our implementation. we create value for our stakeholders, agency partners on New Zealand’s our customers, and our business in future transport needs and in our In People, we discuss the successful the short, medium and long term. The long-term ability to deliver for all New application of a Zero Harm culture report also covers key material issues, Zealanders. across all levels of KiwiRail and the the issues that are most important development of visible health and This report is also designed to provide to KiwiRail and its stakeholders: safety leadership and ownership.