KiwiRail –driving NZ’seconomicgrowthPeter Reidy, KiwiRail Chief Executive

4 June 2015

2

Agenda

Who we are What we do Commercial Review

Transforming

• Progress to date

• Next two years

KiwiRail – driving NZ’s economic growth | JUNE 2015

Who we are

Rolling stock Infrastructure

Public TransportationTourism ExperiencesFreight

Property

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A trusted Kiwi owned logistics partner growing New Zealand

KiwiRail Freight

Interislander

Scenic – Alpine, Coastal

& Northern Explorer

Interislander

Maintenance

Construction

Maintenance

Refurbishment

Leasing

Development

Auckland’s Metro Network

Tranz Metro Wellington

KiwiRail – driving NZ’s economic growth | JUNE 2015

What we do

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We keep New Zealand moving.

Diverting

1.4 million truck

movements

from our roads

Helping commuters

make 24 million

low-carbon journeys

each year

Diverting

470,000 tonnes

of carbon emissions

Avoiding 185 litres

of diesel

consumption

Reducing

congestion, making

our roads safer

Contributing

$692 million to

our economy

Helping community

groups, schools and

sports groups to

travel and move

freight

Creating long-

lasting two-way

relationships

with customers,

suppliers and other

stakeholders

KiwiRail – driving NZ’s economic growth | JUNE 2015

The benefits of rail are far reaching

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We make ports work

We connect the North and South Islands

We lead the bulk transport agenda

We reduce NZ supply chain costs

We take congestion out of urban

centres

We reduce NZ’s Carbon footprint

KiwiRail – driving NZ’s economic growth | JUNE 2015

Investment in KiwiRail

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$M

0

50

100

150

200

250

300

350

400

FY11 FY12 FY13 FY14 FY15 Forecast

Logistics

Infrastructure

316

348

249

304

270

Total investment (FY11-15) $m

KiwiRail 420

Aratere 25

Government 1042

Total $1,487 bn

0

5

10

15

20

25

30

35

40

FY08 FY09 FY10 FY11 FY12 FY13 FY14

ECMT NIMT

Average Track Quality Index

Average Track Quality Index is a weighted sum of geometry exceedences. Notethat a lower index level indicates a higher track quality

Investment is delivering results

KiwiRail – driving NZ’s economic growth | JUNE 2015 7

Safety is improving

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Lost Time Injury Frequency Rate has improved by 25%

Total Recordable Injury Frequency Rate has improved by 46%

Underlying trend has flattened

2014 Commercial Review

What drives value?

Where are we commercial?

Where are we not commercial?

Where should we divest/mothball/further

invest?

What are we doing to improve productivity

and efficiency?

9KiwiRail – driving NZ’s economic growth | JUNE 2015

Rail network economics– what drives value

Cost or Revenue ($)

Fixed Costs

Variable Costs

Break even sales

volume

Infrastructure

Sales volume

Plant ownership

Revenue

Current

KiwiRail – driving NZ’s economic growth | JUNE 2015 10

Rail corridor analysis - example

$0m

$5m

$10m

$15m

$20m

$25m

$30m

$35m

$40m

$45m

$50m

FY1

5

FY2

0

FY2

5

FY3

0

FY3

5

FY4

0

FY4

5

An

nu

al A

mo

un

t

Below Rail Capex Below Rail Opex Facilities Mgmt Average Below Rail Spend Freight Net Cashflow

Note: Excludes all unallocated costs

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Commercial Review Insights

Very high fixed cost model (65% total fixed cost to revenue)

Total cost of operations (90% of revenue – other benchmarks 75% & 80% of revenue)

Insufficient freight density to fully fund track investment

Very concentrated customer base (4 markets with high exposure to commodity sectors)

Volatile revenue headwinds and lower growth forecast, the next 3 years

Cook strait excess capacity – 30%

Limited revenue diversification

Truck volumes

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Highest Volume Points on Rail Network (FY13)

Tonnage: 000’s p.a.Trains: Avg trains p.a. TTE: Truck Trip

Equivalents p.a.

Trains 1,558

Tonnage 244

TTE 21,030

Trains 10,301

Tonnage 3,741

TTE 279,984

Trains 9,298

Tonnage 2,818

TTE 191,186

Trains 4,931

Tonnage 2,347

TTE 167,313

Trains 5,287

Tonnage 1,514

TTE 97,504

Trains 8,598

Tonnage 3,124

TTE 247,796

Trains 3,436

Tonnage 860

TTE 71,727

Trains 3,628

Tonnage 1,017

TTE 80,548

Trains 11,972

Tonnage 4,390

TTE 307,663

Whangarei

Pukekohe

Hamilton / Waharoa

PalmerstonNorth

Woodville

Blenheim

Otira

Christchurch

Dunedin

Big issues

Market Volatility

Cook Strait excess capacity

High fixed cost model

Short term funding

KiwiRail Silo leadership

Union Engagement to solve problems

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The short term challenge

KiwiRail – driving NZ’s economic growth | JUNE 2015 15

KiwiRail Transformation

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2009-2013:

Phase 1

2014:

Engagement

& integration

2015 - 2017

Simplify and standardise

Requires longer

term funding

model with

a NZ Inc.

performance

framework

Rail renaissance Consolidation & Recovery Building competitiveness

Productivity focus

$20m p.a. by 2018

KiwiRail – driving NZ’s economic growth | JUNE 2015

Back to Basics approachFY15 – FY17

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Engaging

our customers

& stakeholders

Empowering

our People

Delivering

operational

performance

Sustaining

a Zero Harm

environment

Meeting

our

financial

targets

“The KiwiRail Values”

KiwiRail – driving NZ’s economic growth | JUNE 2015

Our future operating framework

Intermodal Full Container Load (FCL) business

Main Trunk Line growth

Regional feeder lines – if commercial

We offer capacity to customers’ baseload

Our North Island service is next day

Our South Island service is 2 days, economy is 5 days

Union high engagement with front line

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Future operating model

KiwiRail – driving NZ’s economic growth | JUNE 2015 19

2015 Budget

20

FY 16/17

68%

32%

60%

40%

CrownKiwiRail

FY 15/16

$190m Crown$129m KiwiRail

$210m Crown$97m KiwiRail

KiwiRail – driving NZ’s economic growth | JUNE 2015

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Reducing CrownFunding is critical

“KiwiRail must continue to drive

significant efficiency and productivity

improvements to reduce the ongoing

level of Crown funding required”.Minister of Transport, Budget announcements May 2015

KiwiRail – driving NZ’s economic growth | JUNE 2015

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Optimising rail to enable bettertransport investment decisions for NZ

Longer term stakeholder commitment required

Customers moving to base load and take-or-pay agreements

High performance, high engagement strategy with NZ unions

KiwiRail commitment to longer term procurement packages

Working with stakeholders to integrate NZ’s land transport system

KiwiRail – driving NZ’s economic growth | JUNE 2015

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Metro Growth

KiwiRail – driving NZ’s economic growth | JUNE 2015

Committed to delivering world class

integrated transport solutions to our

customers

Partnering with world-leaders Keolis Downer

to deliver international expertise in

Wellington

Strong service offering, with 91% customer

satisfaction

Partnership enables us to draw on significant

global experience, expertise, people and

innovation to meet the evolving needs of our

customers

Summary

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Taking advantage of NZ Supply Chain consolidation

Selling into latent capacity

Growing freight volumes – internationally, NZ

Metro growth

Culture and Operating Model Transformation 2015-17

Customer and stakeholder support is critical

Changing conversation about rail’s role in enabling NZ’s economic growth

KiwiRail – driving NZ’s economic growth | JUNE 2015

Questionswelcome

25KiwiRail – driving NZ’s economic growth | JUNE 2015