NZ Rail 2014

Peter Reidy, Chief Executive 17 June 2014

Agenda for today • Snap Shot

• Our Supply Chain

• Zero Harm

• Transformation Road Map

• Progress on Turn Around Plan

• Opportunities

• Shareholder Funding

• Challenges

• Todays Problem

• Things we need to get right

• Changing the performance conversation

• Insights after 100 Days

Snap Shot

Snap Shot Each week

• 900 freight trains

• 44 inter-city passenger trains

• 2,200 suburban passenger services in Wellington

• 2,000 suburban passenger services in Auckland

Annually Interislander manages 4,600 sailings carrying:

• 755,000 passengers

• 53,000 rail wagons

• 73,000 trucks

• 212,000 cars

Assets:

• 4,100 staff

• 4,000 kms track and1,656 bridges

• 18,000 hectares of land managed

• 198 mainline locomotives and 4,585

freight wagons

• Two owned and one leased ferry

Our Supply Chain

Network Management

Asset Management

Customer Partnering

Logistics

Zero Harm – Total injuries reduced by

44% year on year

Identify & Reduce

Critical Risk

Implement Compliant Systems Build Zero

Harm Capability

Regain unconditional

Licence to Operate from

our Board, Owner,

Customers and the

Community

Workforce engagement

Operating discipline

Act

ive

Enga

ged

Lea

der

ship

APPROACH

Hazards / Issues

Work Practices

/ Actions

Systems / Controls

Capability / Culture

Leadership

6

Transformation Road Map

2008 2014 2014-2016 2016 +

TIMELINE

Rail Investment

Case

One Group

Commercial Performance

Cost Eficient Value

Proposition

FOCUS

Road vs Rail Integrated Transport

Intermodal Shift

OU

TCO

ME

$1.4B Investment Programme

• Freight Growth • Product Investment

• Standardisation • Internal Efficiency • Leadership and Culture • Customer Partnering

• Specialise and Partner • Long Term Funding • Cost efficient service

…………………………………

Strategic Reset

(October 2014)

Progress on Turn Around Plan(TAP) • Freight revenue growth - CAGR of 8.0% since 2010

• Committed export and domestic customers.

• Asset condition improving – Funding making a difference

• Wellington Metro and Trans Scenic passenger strong customer experience and growth

• Freight forwarders (Toll/Mainfreight etc) – our business partners not competitors

• Employment engagement lifting

• Closure of uneconomical activities ( Hillside workshop, Napier – Gisborne Line)

• Partnership plan with Treasury for October 2014 strategy reset – NZTA engaged

Opportunities • Freight demand growth dominated by Diary/Forestry –

benefits Rail network

• Fonterra and major port freight consolidation – Rail

reduces cost in the supply chain

• Growth of intermodal “freight villages” – inland ports

• Passenger proposition – (Metro plus)

• Private sector investment- rolling stock/network

• Mothballing/closure of uncommercial lines – regional

authority investment

• Train asset utilisation and freight tariff improvement

Committed Shareholder Funding…$1.0B

funding over 5 years

250 250198

146122

30 76

0

50

100

150

200

250

300

FY11 FY12 FY13 FY14 FY15 FY16

Equity Funding ($m)

"TAP" Aratere Extra approved in Budget 2014

176198

?

A few challenges considering…

• Geographical comprehensive network

• Relatively high fixed cost

• Difficult terrain

• Narrow gauge

• Historical under invested network

• Concentrated bulk freight customer segment

• 1 year funding model for long life assets (50 years)

Challenges…Network Legacy

• Bridge structural timber – 25 years of replacement works

remain

• Timber sleepers – 30 year programme to catch-up

• Signalling systems – still operating one from 1928, several

from late 1950s; reliable and safe but harder to repair

• Civil asset – drains, slopes and formation essential for

long term asset stability have been ignored to deal with

the immediate renewals and upgrades

Challenges…Capital Investment

900

800

700

600

500

400

300

200

100

0

EAR

NIN

GS

$200M Gap

CA

PEX

Or another way of looking at it

900

800

700

600

500

400

300

200

100

0

$200 M Gap

CA

SH F

LOW

OU

T

CA

SH F

LOW

IN

• Safe Systems – Safe people

• Leadership and Culture – The KiwiRail Way

• Cook Strait Strategy

o Ship optimisation and configuration

o Do ships need to have rail deck ?– alternative models

• Customer and market sector penetration

• Rail hubs = Partners

• Interislander Ontime performance Recovery

Things we need to get right – 2 years

• Productivity and Asset Utilisation

• Freight Yields

• Stakeholder Engagement

o Unions

o Government agencies regional and central

o Customers

• SCI – performance framework

• A plan for Auckland

Things we need to get right – 2 years

Changing the performance

conversation… • What drives value in the KiwiRail Group?

• What elements of the Network are commercially attractive, sustainable and do not require government funding?

• What elements of the network are not commercially attractive will require government funding?

• What assets should we:

o Divest

o Mothball

• Where should Government invest to recognise NZ Transport public value benefits?

o Cost to deliver?

o Implications?

Re

set

Pro

ject

20

45

O

ct 2

01

4

Insights after 100 days • Half way through a long term infrastructure rebuild

• Strong export and domestic freight growth – customers committed to Rail rebuild

• Customer focus is encouraging

• Funding is making an impact on Asset condition

• Passenger Metro OTP/Customer Service delivery is strong

• Interislander history of OTP – now going through credibility recovery face

• Treasury and Transport agencies are engaged to evaluate alternative strategies

However…

• Cost efficiency must improve

• Freight tariffs need to increase

• Asset productivity needs to lift

• Union engagement is a key stakeholder

• Collaboration and Intermodal partnering critical

• Funding needs to match long life asset operational model

Thank you