ANNUAL REPORT 2013 KiwiRail Overview KiwiRail is a State Owned Enterprise and the backbone of New Zealand’s integrated transport network. Our vision is to be a world class mover of freight and people by rail and ships, and to be the natural choice for our customers in the markets in which we operate. Business Units Freight provides rail freight services and locomotives for passenger services Infrastructure & Engineering maintains and Whangarei improves the rail network, controls the operation Dargaville of trains on the network, and operates the heavy workshops that refurbish and maintain our rolling stock AUCKLAND Interislander operates the ferry passenger and freight services Hamilton Tauranga provides urban passenger services in Passenger Kawerau Wellington under contract to the Greater Wellington Te Kuiti Kinleith Regional Council through the Tranz Metro team, and the Scenic team operates the long distance passenger New Plymouth Taumarunui rail services. Stratford Waiouru Napier Operations Wanganui Dannevirke Each week, train control operations manage Palmerston North the movement of: Otaki ▪ 900 freight trains Masterton ▪ 44 inter-city passenger trains Featherston Picton WELLINGTON ▪ Approximately 2,200 suburban Blenheim passenger services in Wellington Westport ▪ Approximately 2,000 suburban Reefton passenger services in Auckland. Greymouth Kaikoura In a year, Interislander manages Hokitika 4,600 sailings carrying: ▪ 749,000 passengers CHRISTCHURCH ▪ 59,000 rail wagons Ashburton ▪ 68,000 trucks ▪ 217,000 cars. Timaru Assets Oamaru ▪ 4,000 kms track Port Chalmers ▪ 1,656 bridges Dunedin ▪ 198 mainline Wairio locomotives Invercargill ▪ 4,585 freight wagons Bluff ▪ 2 owned and 1 leased ferry ▪ 4,000 staff approximately. For assistance, publications or information concerning KiwiRail please visit our website at www.kiwirail.co.nz or contact KiwiRail Communications, PO Box 593, Wellington, 6140 | P 0800 801 070 | E [email protected] Contents Our Results 2 Our Progress 4 Chair and Chief Executive’s Report 6 Business Reviews 10 Freight 12 Infrastructure & Engineering 16 Interislander 20 Passenger 23 Our Commitment to Safety 26 Our People 32 Sustainability and the Community 34 Governance 38 Board 40 Executive Team 42 KPIs 44 Group Performance Statements 46 Audited Financial Statements 56 Directory 113 Our Results KiwiRail Group Revenue of $727m Revenue and EBITDA Revenue by Business Unit Operating surplus 800 of $108m 600 Capital Expenditure of $311m* 400 4,000km rail network 200 0 2010-11 2011-12 2012-13 Freight Infrastructure * Excludes Metro projects and Passenger & Engineering Metro renewals. Revenue (m) EBITDA (m) Interislander Corporate Freight Infrastructure & Revenue of $467m Engineering EBITDA of $131m Network investment of $196m* 64% of Group revenue Completion of majority of Auckland Import-Export increased revenue network upgrade works by over 8% Total assets of $428m Total assets of $345m Network Investment ($m)* Revenue and EBITDA * Includes Metro renewals, excludes Metro projects 600 Revenue ($m) EBITDA ($m) 250 200 400 150 100 200 50 0 0 2010-11 2011-12 2012-13 2010-11 2011-12 2012-13 Mainline Derailments Segment Revenue 60 Bulk Import-Export 40 Domestic Forestry 20 Other 0 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 2 OUR RESULTS | ANNUAL REPORT 2013 Interislander Passenger Revenue of $124m Revenue of $64m EBITDA of $19m Increase in Tranz Metro on-time Total assets of $124m performance to 94% Total Scenic assets of $43m Revenue and EBITDA Revenue and EBITDA 150 Revenue ($m) EBITDA ($m) 100 Revenue ($m) EBITDA ($m) 80 100 60 40 50 20 0 0 2010-11 2011-12 2012-13 -10 2010-11 2011-12 2012-13 Segment Revenue Segment Revenue Passenger Metro CV Freight TranzAlpine Rail Northern Explorer Other Coastal Pacific Other OUR RESULTS | ANNUAL REPORT 2013 3 Our Progress KiwiRail, with the support of Performance our Shareholder, has been implementing a strategy to ensure Revenue and EBITDA Growth - KiwiRail Group the business can deliver the 800 highest levels of service expected Revenue ($m) EBITDA ($m) from our customers. As a result 600 we have made great progress with both growing and improving the 400 business. Freight, the cornerstone 200 for our growth, has increased revenue and tonnage year on year. 0 2010-11 2011-12 2012-13 Major upgrades to the Auckland and Wellington metro networks, Revenue and EBITDA Growth - Freight and the national network, are 500 Revenue ($m) EBITDA ($m) enabling the provision of safer 400 and more reliable services. 300 As has the introduction of new and 200 refurbished freight and passenger rolling stock. Interislander is also 100 increasing their business, with the 0 2010-11 2011-12 2012-13 Aratere extension providing much needed extra capacity. Freight Carried (Net Tonnes m) 18 This work continues to provide the foundation needed to improve 17 our performance. Overall revenue growth of $11 million for 2012-13 16 is a commendable effort given the 15 challenges thrown at us over the past year. Freight has again been 14 2010-11 2011-12 2012-13 particularly successful, growing On-time Performance revenue by over $100 million in Tranz Metro Freight - Premium Train Interislander three years. 100% 90% That money gets reinvested 80% straight back into the business to continue our improvement 70% programme and achieve our 60% objective of financial sustainability 50% by 2020. 2010-11 2011-12 2012-13 4 OUR PROGRESS | ANNUAL REPORT 2013 Infrastructure & Rolling Stock Rail Line Improvements Network Investment ($m)* * Includes Metro renewals, excludes Metro projects 300 New rail laid (km) Line de-stressed (km) 250 New sleepers laid (000) 200 200 150 100 100 50 0 0 2010-11 2011-12 2012-13 2010-11 2011-12 2012-13 DL Locomotives new wagons 40 in operation 835 in three years Supply of more and larger new coal curtain sided wagons 100 wagons People & Safety Total Harm to People Engagement 460 100% Staff Response Rate Staff Engagement Index 440 90% 80% 420 70% 400 60% 380 50% 2012 2013 2011 2012 2013 Mainline Derailments Level Crossing Collisions 60 40 Pedestrians 50 30 Vehicles 40 30 20 20 10 10 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 OUR PROGRESS | ANNUAL REPORT 2013 5 Chair and Chief Executive’s Review Only by working together with a well- planned and common purpose will KiwiRail successfully realise its full potential. John Spencer Jim Quinn Chair Chief Executive Financial Performance by Business Unit ($m) Measure Freight I&E Interislander Passenger Corporate Group External 466.9 38.4 124.3 63.6 33.8 727.0 Revenue Operating 131.3 (60.3) 19.4 1.4 16.3 108.2 Surplus Total 344.7 428.1 124.1 41.3 71.4 1,009.6 Assets We are pleased to report that in the last financial year we delivered another year of revenue growth, while also achieving our mid-year forecast operating surplus. This is also the first full year Annual Report following our restructuring which resulted in the assets and liabilities of the New Zealand Railway Corporation (NZRC) being transferred to a new State Owned Enterprise (SOE), KiwiRail Holdings Limited on 31 December 2012. KiwiRail’s strategy continues to provide the right framework for the organisation to achieve financial sustainability. Consistent revenue growth has been delivered alongside the implementation of an extensive and long-term upgrade programme providing a stronger foundation for this growth to continue. This would not have been achieved without the dedication and persistence of our staff, and the commitment and support of our customers. We are now moving into a new period of change and improvement for the company, and are looking forward to embedding even further enhancements in customer service as we gain the benefits of improved productivity and reliability due to new equipment and a more robust network. Positive Result Despite Challenges Due to continued growth from the freight business we achieved an operating surplus of just over $108 million, compared to the mid-year forecast range of $104 to $107 million, which is an increase of $30.6 million from the previous year. Revenue increased by $11 million to $727 million, with freight revenue of $467 million a $9 million increase on the previous year. Revenue growth over the last three years has been over 25% demonstrating the resilience of our growth strategy despite the global economic slowdown and the on-going impact of the Christchurch earthquakes. Investment in the business to further improve performance and robustness has also continued with capital expenditure of $311 million for 20 more new locomotives, 300 more wagons, and further infrastructure upgrades. Over the last four years capital expenditure on new and upgraded rolling stock and track machines, upgrades to the Interislander fleet, new IT systems, and rail network upgrades and renewals, excluding the metro upgrade programmes in Auckland and Wellington, has exceeded $1.3 billion. This amount includes $750 million in Government equity, $283 million from earnings, and $337 million from other sources such as capital grants, and equipment and land sales. The business has faced significant challenges and disruptions over the past year including damage from major weather events, the drought negatively affecting the milk season, threatened industrial action against Interislander, and shortfalls in volume and revenue as a result of the challenges Solid Energy is facing. While operating revenues were only slightly (1%) below our Statement of Corporate Intent (SCI), our operating surplus was 9% below the target of $119.3 million. We have estimated that the impact of the above weather events, and the reduction in Solid Energy’s coal volumes combined with their unsustainable contract prices, reduced our surplus by at least $20 million. Not meeting this SCI target is certainly disappointing, but it is encouraging to know that these effects have been somewhat offset by improved performance in other parts of the business.