Asciano Deals With A Train Wreck

DalyWaters · Posted: Wed Jan 23, 2008 6:09 pm

Asciano deals with a train wreck

By Adele Ferguson

January 14, 2008 12:00am
Article from: The Australian

IN the next two weeks, KPMG will complete a study into rail and port operator Asciano's non-performing assets, which will verify the dire financial distress the assets are in, and confirm the need to sell them -- if it can find a buyer -- or close them down if it can't secure massive subsidies from the state governments.

The businesses in question include the New South Wales and Victorian grain rail freight services, the Victorian Patrick PortLink rural container business and the Tasmanian Pacific National intermodal operations.

It is understood that Asciano is in discussions with the NSW, Tasmanian and Victorian governments about the future of these assets, and will use the KPMG report as ammunition for a quick resolution.

For Asciano, the decision to put the blowtorch on the governments to do something about these dud businesses, which are estimated to lose more than $60 million a year, will help the group's earnings profile and allow it to redeploy some rail assets.

Right now it has about $210 million of rail assets employed in the affected rural sectors. These businesses are not commercially viable and are dragging down earnings.

Indeed, Asciano loses $40 million a year, or more than $3 million a month, from its Victorian and NSW grain rail freight services.

The closure of export grain rail services in NSW and Victoria would have a big impact on the social and economic wellbeing of the farmers in the region. It would also have a major environmental impact if these freight services were moved on to road transport.

Given that the business loses money, it is hard to envisage a white knight buying them out.

But to close them down would be something the Victorian and NSW governments couldn't stomach politically, so the most likely scenario is government subsidies to Asciano to the tune of $60 million-plus.

Negotiations with the NSW Government follow the cessation of an obligation by Asciano to provide grain services in NSW.

That obligation lapsed last year and was part of a deal struck to form PN when the company bought the NSW government-owned Freight Corp a few years ago. Another business causing grief is its Victorian rural container business - estimated to lose more than $10 million a year.

In 2005, PN won a $120 million subsidy over 10 years from the federal Government and the Tasmanian Government after threatening to close its Tasmanian intermodal freight operations because they were not commercially viable. It did this a year after buying the Tasmanian operation from the Government in 2004.

However, the 10-year rescue package is only valid on the basis that volumes remain at a certain level. Once they drop below a certain point, the rail operator is believed to have a legal right to invalidate the memorandum of understanding.

It is currently in talks with the Tasmanian Government, which is saying it is committed to keeping the rail running and is therefore open to other parties stepping in.

As a company that has been bludgeoned on the share market since it was spun out of Toll Holdings last June, it needs to do something to move forward. (The business is a collection of the previously listed Patrick assets, excluding the aviation assets and transport and logistics assets. PN accounts for 52 per cent of earnings, container ports 37 per cent and car handling/bulk ports the rest.)

In its short life, its shares have gone from $10.76 to $6.25.

From news.com.au

Does this explain some of the posturing going on now?

bingley hall · Posted: Wed Jan 23, 2008 7:21 pm

There is nothing in Ferguson's article that hasn't already appeared elsewhere.

None of the figures quoted have come under independent scrutiny and probably reflect what the losses and cost are if you apply gold plated standards and a 20% return to everything.

It is unlikely that the KPMG report will come up with anything different.

Ferguson would more than likley have been briefed by Asciano before writing this story. she has a habit these days of writing stuff without attribution or seeking follow up from those who might have an opposing view.

Pretty poor journalism really.

Bing

Life is just a bowl of All Bran...you wake up every morning and it's there

574M · Posted: Wed Jan 23, 2008 7:48 pm

tjrailway · Posted: Wed Jan 23, 2008 9:12 pm

I bet the KPMG report doesn't mention the fact that PN treats customers in the Grain and Intermodal sectors like crap. I also bet it doesn't mention the total ineptitude of the managers responsible for running these businesses.

Fact is when FA ran the business they made money running grain trains in Victoria. FA took grain and intermodal business off PN in NSW and made money from them as well. PN were not happy about FA's growth so they bought them out. Big egos with a big cheque book. PN NSW managers then came down to Vic, did not even bother finding out how FA could make a buck and promptly got rid of the people who had any idea on how to run the business properly to save their own jobs.

Whats even more laughable is that they totally sucked in Toll, Patrick and now Asciano executives into thinking they are doing a good job.

The best thing Asciano can do is sell the assets to the industry and let someone have a crack who actually knows how to negotiate a contract with a customer, knows how to provide a reliable service to the customer and knows how to make a dollar.

I hope the state governments don't get sucked in by Asciano's snake oil executives into handing taxpayers money to support PN management failures. Walk away from the business and sack the duds who put PN in this position in the first place before they wreck other profitable parts of PN's business!

nutbagg · Posted: Thu Jan 24, 2008 12:53 am

What makes me laugh is Toll fought tooth and nail to buy Patrick on the plan of creating an integrated seamless transport company from port to rail to truck. Creating the ideal transport business. Then it got to hard so they split the assets and created Asciano which was saddled with most of the debt and Toll ran off into the sunset with piles of equity to make more takeovers (which seems that is all Paul Little can do). Talk going around is intermodal is suffering badly from lack of investment and is going down the tube. Nothing like managers with vision only for their bonus KPI's.

Mate, if that loco pulls as hard as you do, it'd move anything.
I'd still rather have an ALCo.

DalyWaters · Posted: Thu Jan 24, 2008 6:13 am

Controller · Posted: Thu Jan 24, 2008 2:22 pm

There is no way I would appreciate my taxpayers money been used to prop up private enterprise like this mob.

This is what happens when government sells their businesses off to private enterprise.......private enterprise is in business to make profits for shareholders and whenever they get into financial trouble, they go running to the government for handouts. The governments should never had sold out their railways, water, electricity, telecommunications etc.

Thank goodness Queensland Rail have managed to be retained in government hands.

All gave some, Some gave all

fabricator · Posted: Thu Jan 24, 2008 2:45 pm

Its probably difficult to run a rail company if your only transporting grain, too seasonally variable. So you'd go after other customers in the areas fed by your lines, are Asciano even trying to do this ?

Lets face it, today's managers are so weak they couldn't fight their way out of a wet paper bag. You have to know the industry FIRST, management is secondary.

ZC11 · Posted: Sat Jan 26, 2008 7:03 pm

The way Little carries on ; I realy think he will fall over one day.

Toll are just bludgers ; They want every thing for nothing and the hate competition and when they loose money they want the tax payer to bail them out. They are trying the same stuff in New Zealand with the New Zealand goverment over rail track access. The NZ Government are holding fast and want them out of NZ. Toll perchased Tranz Rail and made alot of promises about buying new locos and rolling stock ; They have done nothing. All they have done is create a very top heavy management outfit that is very quickly going the same way Tranz Rail did and thats down the toilet ! What type of outfit would buy a company that was stuffed and keep employing all the managers ? All Toll did is get rid of the CEO and board and keep the rest on. It was middle management of Tranz Rail that made it fail. They had no idea on how to run a railway operation and they are all still employed !
Toll Rail in New Zealand is starting to burn one hell of a hole is Littles pocket and the sooner he gets out of NZ the better off we will all be here in NZ

nutbagg · Posted: Sun Jan 27, 2008 1:51 am

ParkesHub · Posted: Sun Jan 27, 2008 8:16 am

Wallip · Posted: Sun Jan 27, 2008 10:43 pm

ParkesHub · Posted: Mon Jan 28, 2008 4:19 pm

luznug · Posted: Mon Jan 28, 2008 5:32 pm

The Australian Railways will be a dominant force once our missing links are solved. When Victoria build the double stack tunnel out of Dynon and link the 3 freight Ports of Dandenong, Laverton and Somerton together and with Standard Gauge. But its easier to give Toll Shareholder 50 million per annum over 20 years that’s only $1 Billion all up.
Defence budget last 10 years was around $100 Billion. The Road budget was Mega Billions too no doubt and railways a handful of Billion.
Wars kill people and cost ridiculous Billions. USA have spent $500 Billion and all that happens is people die. People killed in Australia by road vehicle last 10 years around 10,000 injured maybe 100,000. Australians killed in Rail only related death with no Road vehicle involved don’t know but can’t be that many. I feel Australia need a war against roads. Pump Billions of dollars into rail and I am sure the casualty toll for roads will decrease and a zero goal where rail meets road.
Australia’s mission possible!

Just a friendly rant gentle rail folk”

a6et · Posted: Tue Feb 19, 2008 7:52 am