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Company OverviewCompany Overview
Today’s discussion covers four topicsToday’s discussion covers four topics
1) Background
2) Improvements made at RailAmerica to date
3) Things we’re working on
4) Our plans going forward
2
Let’s start with some historyLet’s start with some history
Fortress Investment Group acquired –
– RailAmerica, Inc., in February 2007
– Florida East Coast Railway (“FECR”) in July 2007 (as part of the Florida East Coast Industries acquisition)
RailAmerica/FECR is the leading short-line rail portfolio in North America with unique, highly profitable, and irreplaceable assets
– RailAmerica, Inc. –
Publicly traded when acquired
Had been struggling, recording a series of disappointing quarters with operating ratios in the 89-90% range
– FECR –
Part of Florida East Coast Industries
Strong and consistent regional nameplate/performer
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Fortress sees value in railroadsFortress sees value in railroads
Favorable Macro Environment
Significant pricing power
Growing businesses, with continued growth in key commodities – coal, grain, chemicals; coming soon: Honda automobiles
Limited supply: No new North American railroads (high replacement cost)
High fuel prices and increasing highway congestion further strengthen railroads’ competitive position (RR’s are 4x more fuel-efficient than trucks)
Long-Lived, Irreplaceable Assets
Irreplaceable infrastructure
High barriers to entry with cost of constructing new railroads prohibitively expensive ($1-2mm per mile + land)
Valuable Real Estate & Right-of-Way
Revenue-growth opportunities
Substantial additional value potential
Short Lines
Greater free cash flow
Lower cost of operations and capex
Opportunities for improvements
Operational Improvement Potential
Centralize key functions
Control capital spending
Streamline corporate structure
Fortress Investment Thesis
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The company operates a portfolio of 42 individual railroads in 26 states and three Canadian provinces
Sizes range from 13 miles in total length to 604 miles
FECR is one of the 42 railroads and the largest revenue and EBITDA contributor in the RailAmerica family
– 351 miles of mainline trackbetween Miami and Jacksonville
– One of North America’s best-performing regionals
– Further diversifies the portfolio
RailAmerica (minus FECR) owns or leases approximately 7,800 track miles and serves over 2,300 customers
RailAmerica operates in 26 states and CanadaRailAmerica operates in 26 states and Canada
West Region
Southeast Region
FEC Region
Mideast Region
Northeast Region
Central Region
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7.3%
5.7%
5.4%
4.9%4.3% 3.9%
3.1%
8.6% 8.8%
9.1%
18.1%
7.5%
3.5%3.7%
6.1%
The rails serve different customers and carry different commodities
The railroads have diverse sources of revenueThe railroads have diverse sources of revenue
Well Diversified Revenue MixRailAmerica, Inc. 2007 Freight Revenue by Commodity (Total: $654 million)
Intermodal
Aggregates
CoalBridge
Chemicals
Metals
Auto
Farm Products
Food
Paper
Lumber
Ores
Petroleum
Minerals
Other
And revenues have been growingAnd revenues have been growing
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Fortress Acquisition
2/2007
Freight Revenues ($mil)
355 378 406 419 457
235238
2004 2005 2006 2007 2008F
654695
RailAmerica
FECRFECR
Each railroad now contributes to earningsEach railroad now contributes to earnings
No single property accounts for more than 10% of EBITDA
We are not a network
Portfolio diversified by commodity, by customer, by geography, and by property
% of EBITDA for Each Property
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Largest delivers <10%
Note: Excludes FECR.
The combined RailAmerica/FECR has already made significant improvementsThe combined RailAmerica/FECR has already made significant improvements
Revenues up
Expenses down
Revenue per car up
Operating ratio better by nearly 10 points
In 2008, the combined FECR/RailAmerica properties will achieve an 80% operating ratio
Through July 2008 the FRA injury-frequency ratio improved from 2.23 to 1.05
Through July 2008 the FRA train accident ratio improved from 0.63 to 0.60
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We started with several underperforming properties and have whittled the list to threeWe started with several underperforming properties and have whittled the list to three
Operating Ratio Ranges 2006 2007 2008 YTD
+90 percent 8 4 3
Below 70 percent 15 16 21
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Case Study: West Coast PropertyCase Study: West Coast Property
Written-off as unmanageable and too complicated
Operating ratio is now 17 points better
– Added strong field leadership
– Brought clarity of purpose
– Focused on safety and operating rules
– Improved service brought more business and customer growth
– Began billing and collecting for all of our services
– Judiciously applied capital
– Mastered and applied governing contracts
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Case Study: Midwest PropertyCase Study: Midwest Property
Within RailAmerica the property was believed to be a perennial “loser”
Operating ratio has improved by 13 points
– Brought in strong leadership and good, accountable management
– Focused on caring, operating practices, education and training
– Intelligently added capital in modest amounts
– Mastered and applied governing contracts
– Nurtured customers yielding growth thru service
– Controlled costs
– Established pricing excellence and hands-on marketing
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Objective: Make RailAmerica better each dayObjective: Make RailAmerica better each day
What we are working on:
Focus on people, customers, assets, and operational excellence
Create value
Strengthen relationships with Class I’s
Special attention on underperforming assets
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Goal: Become a High-Performance Organization
Our plans going forwardOur plans going forward
Primary focus will be building the value of our $1.1B investment in the railroad industry
Will consider other North American railroad acquisitions if attractive
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Two last advertisementsTwo last advertisements
1) We are an ideal place for industrial development
Tailored service – “We do it your way”
Sites located on short lines give the customers connections to multiple Class I’s.
Short lines have become the driveway to industrial development – nobody stops on the expressways!
Short lines are not capacity-constrained
2) Remember the Section 45G Railroad Track Maintenance Credit
Three-year legislation expired 12/31/07
Goal: improve rail service to 12,000 short line-served employers
Strong bi-partisan support, but extension not yet enacted
Thank you.
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