By NZPA
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Wednesday 24th July 2002 |
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S&P said it has placed its triple-B/A-2 corporate credit ratings on Tranz Rail on creditwatch with negative implications following the company's release of its earnings expectations for fiscal 2002 and 2003.
"The rating action reflects weaker operating performance and cash flow protection measures in the short term, relative to previous expectations, and concern about the company's financial flexibility as a result of planned asset write-downs of more than $150 million in fiscal 2002," the ratings agency said.
"Despite completing most of its extensive business restructuring initiatives in the past 12-18 months, the company has fallen short of its target cost savings, and has been unable to contain the adverse impact on its revenues."
Tranz Rail said yesterday it expected to achieve an operating profit of $55.8 million for the year ending June 30. Earnings before interest and tax are forecast to rise from $26 million this year to $94.2 million in the 2004/2005 year.
But it warned that its 2002 result, set for release next month, will include writedowns of up to $170 million.
S&P said Tranz Rail would face intense competition from road transport as rolls out more services in a bid to recoup its market share and boost revenue.
"The negative outlook on the company's ratings in recent times largely reflected these risks and the vulnerability of the company's financial measures," it said.
S&P said it will review Tranz Rail's credit rating in the next few weeks after meeting with the company.
The ratings could go down by one notch, reflecting the dwindling confidence in the company's financial performance despite its monopoly position in New Zealand's rail freight industry, S&P said.
Tranz Rail's share price has been derailed in recent weeks after the rail operator warned that its fourth quarter result would be hit by substantial writedowns and its operating profit this year would be below expectations at between $24 million and $26 million.
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