found money with asset turnover and rate of return criteria presentation to uic global rail freight...
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Found Money with Asset Turnover and Rate of Return Criteria
PRESENTATION TO UIC GLOBAL RAIL FREIGHT CONFERENCENEW DELHI
23 MARCH 2007
BY
J. CHRIS ROONEY
PRESIDENT
VANNESS COMPANY
Benchmarking helps form Perspective
• How are we doing with Service productivity..
• How are we doing with Resource productivity?
– Human resources
– Physical resources
• Directly assigned resources – rolling stock and working capital
• Shared assets – infrastructure
• What about Revenue productivity?
– Earning enough to replace our assets?
– Earning enough to expand?
Artist: Chander
Some of India’s Neighboring Railways
• The following are some benchmark data– Taken from
• World Bank data base 1998 to 2000• Updating for India 2006, Thailand, Malaysia• US Data 2004 are combined data of BNSF, CSX,
NS, KCS, CN and CP US Operations• China data World Bank data base 1999
Artist Lacey
Basic Indicators
IR BANGLADESH THAILAND MALAYSIA MYANMAR USA CHINA
1. KILOMETERS OF LINE 108,706 2,746 4,044 1,750 3,336 200,567 60,000 2. EMPLOYMENT IN THOUSANDS 1,540 54 20 9 28 179 1,567 3. LOCOMOTIVES 7,566 290 296 107 354 22,291 14,480 4. COACHES 37,840 1,430 1,241 220 1,070 1,211 34,535 5. WAGONS (US incl. private fleets) 222,147 15,162 8,016 4,198 7,572 1,287,920 436,236 6. PASSENGER JOURNEYS 000,000 5,803 52 61 5 53 25 997 7. FREIGHT TONS 000,000 720 3 10 5 2 1,844 1,569 8. PASSENGER KMS 000,000 551,285 5,348 10,092 1,492 3,939 9,048 404,627 9. FREIGHT TKMS 000,000 482,400 718 3,429 1,338 449 2,730,046 1,257,789 10. TRAFFIC UNITS = 8 + 9 000,000 1,033,685 6,066 13,521 2,830 4,388 2,739,094 1,662,416 11. PASSENGER REVENUES $000,000 3,865 29 91 28 11 1,433 4,013 12. FREIGHT REVENUES $000,000 8,625 33 41 25 3 40,517 10,496 13. TOTAL REVENUES $000,000 12,490 61 132 53 14 41,950 14,509 14. FREIGHT TRAIN KMS 000,000 238 3 9 4 1 878 802 15. PASSENGER TRAIN KMS 000,000 332 14 29 5 14 37 406 16. TOTAL TRAIN KMS 000,000 561 16 31 9 15 915 1,207 17. ANNUAL COMPENSATION PER EMPLOYEE ($) 2,119 1,047 5,854 3,618 379 63,699 1,806
USD
Includes Amtrak
Excludes Shortlines
China Excludes Commuter
Equipment Productivity Indicators
IR BANGLADESH THAILAND MALAYSIA MYANMAR USA CHINA
EQUIPMENT PRODUCTIVITY
24. PKM'S PER COACH (8/4) 000 14,569 3,740 8,132 6,782 3,681 7,471 11,716 25. JOURNEYS PER COACH (6/4) 000 153 37 49 24 50 21 29 26. AVERAGE KMS/YR./COACH (15*factor/4) 74,498 74,516 162,033 135,127 73,350 148,863 233,449 27. AVERAGE LENGTH OF JOURNEY (8/6) 95
102 167 278 74 359 406 28. PASSENGER KMS/TRAIN KM = PASS. PER TRAIN 1,658 377 343 317 279 243 997 29. PASSENGER REV./COACH (11/4) $'S 102,141 20,000 73,458 127,727 10,280 1,183,320 116,201
30.a WAGON AVAILABILITY 95.3% 92.0% 87.8% 92.3% 72.3% 82.0% 95.0%30. TKMS PER WAGON/ YR. (9/5) 2,278,631 51,473 487,209 345,312 82,016 2,585,040 3,035,028 31. TONS PER WAGON/ YR. (7/5) 3,401 179 1,399 1,342 329 1,746 3,786 32. AVG. LEAD PER WAGONLOAD (30/31) (000) 670 287 348 257 249 1,480 802 32.a FREIGHT REVENUE PER WAGON (11/5) $ 40,740 2,351 5,869 6,504 574 38,365 25,327
33. LOCOMOTIVE AVAILABILITY 86.0% 77.9% 79.9% 65.0% 65.0% 87.5% 82.0%34. T.U.'S PER AVAIL. LOCO. (10/3) 000 158,863 26,851 57,170 40,690 19,070 140,433 140,009 35. TRAIN KM PER AVAIL. LOCO. (16/3) 86,157 68,611 131,922 123,364 66,962 46,922 101,696 36. REVENUES PER LOCO MAINTAINED (13/3) $000 1,920 272 560 766 61 2,151 1,222
Track & Revenue Productivity Indicators
IR BANGLADESH THAILAND MALAYSIA MYANMAR USA CHINA
TRACK PRODUCTIVITY
17.a. TONS/KM (7/1) 000 6,623.4 910.4 2,434.7 2,971.4 539.6 9,195.0 26,150.0 18. PASSENGER TRIPS/KM (6/1) 53,382.5 19,044.1 14,975.3 3,068.6 15,947.2 125.7 16,616.7 19. EMPLOYEES/ KM (2/1) 14.2 19.8 5.1 5.4 8.4 0.891 26.117 20. T.U.'S /KM (10/1) 000,000 9.5 2.2 3.3 1.6 1.3 13.7 27.7 21. REVENUES/ KM (13/1) 114,897.1 22,359.8 32,757.5 30,457.1 4,239.5 209,157.6 241,816.7 22. WAGES & SALARIES/KM (19*17) 30,013.5 20,742.9 29,648.0 19,433.8 3,179.6 56,724.7 47,154.3 23. NET AFTER WAGES/KM (21-22) 84,883.6 1,616.9 3,109.5 11,023.3 1,059.9 152,432.9 194,662.4
REVENUE PRODUCTIVITY
37. PASSENGER REVENUE PER PKM (11/8) $ 0.0070 0.0053 0.0090 0.0188 0.0028 0.1584 0.0099 38. PASSENGER REVENUE PER TRAIN KM (11/15) $ 11.63 2.01 3.09 5.98 0.78 38.52 9.89 39. PASSENGER REVENUE PER JOURNEY (11/6) $ 0.6660 0.5469 1.5053 5.2328 0.2068 56.8313 4.0251 40. REV.PER 10 JOURNEYS AS % RY. AV. WAGES 0.31% 0.52% 0.26% 1.45% 0.55% 0.89% 2.23%
41. FREIGHT REVENUE PER TKM (12/9) $ 0.0179 0.0457 0.0120 0.0188 0.0070 0.0148 0.0083 42. FREIGHT REVENUE PER TON (12/7) $ 11.98 13.12 4.20 4.85 1.75 21.97 6.69 43. FREIGHT REVENUE PER TRAIN KM (12/14) $ 36.21 11.42 4.69 6.49 2.40 46.15 13.09
44. TRAFFIC UNITS/EMPLOYEE 000'S 671.2 111.5 660.2 301.1 156.7 15,335.9 1,060.9 45. REVENUES PER EMPLOYEE 8,110.4 1,128.7 6,468.0 5,670.2 504.9 234,873.2 9,259.1 46. COMPENSATION/EMPLOYEE 2,118.6 1,047.1 5,854.0 3,618.0 378.7 63,698.9 1,805.5 47. CONTRIBUTION/EMPLOYEE (45-46) 5,991.8 81.6 614.0 2,052.2 126.2 171,174.3 7,453.6
8 - 10 m ?
By many measures IR has become “World Class”
• From a global perspective North America is still the one to beat in freight but by a shrinking margin over India and China ….
– More overall tons moving longer distances
– In heavier wagons and fewer, longer trains (MU Locos)
– Concentrated in unit bulk and inter-modal trains
– Equals
• More revenue tons per train hour
• Good track productivity
• Extremely high labor productivity
• Poor wagon velocity is due to large (2/3) fleet contingent of private wagons (warehouses on wheels for such as bulk resins and liquids)
• High mechanization produces benefit in more uniform tolerance Permanent Way and Equipment, hence performance and maintenance benefits
• Some other “peers” must be found for passenger however….Artist: Chander
Continuous ImprovementFinancial Techniques - the ROI Tree
Revenue
Operating ExpensesLaborFuelEquipmentDepreciation
Operating Profit minus
divided by
Revenue
Operating Profit Ratio*
Working Capital
Rolling Stock
Fixed Plantequals
Investment
RevenueAssetTurnover
ROI
divided by
* This is the corollary of the Operating [Expense] Ratio
times
Artist: Vicky
Continuous Improvement - Asset Turnover Key
Operating Profit Ratio
Working Capital
Rolling Stock, etc.
Fixed Plant
Investment
RevenueAssetTurnover
ROI
Pull more revenue from
assets employed
With fewer delays and losses, faster client collections
reduce Receivables; and control Supplies
Inventory
Better cycle times can eliminate or
reduce use of wagon “pool
assignments” to client locations, producing more
capacity
Better operating reliability produces options for local management
Artist: Apurva
Operations simulation to
optimize assets utilization & new
investment
Continuous Improvement - Asset Turnover a Key
Operating Profit Ratio
Working Capital
Rolling Stock
Fixed Plantequals
Investment
RevenueAssetTurnover
ROI
At regional and national levels, fixed plant comes into play….
New capital sources, ex. third
parties BOT intermodal facilities on
railways’ lands
Find new capital sources, ex. Shipper owned wagons for
special and low velocity uses
New business strategy for lightly
used plant, ex. lightly used rural
branches etc.
Asset Turnover at CN• The one to beat for Operating Ratio (64%) & Assets
Utilization– Scheduled railroading leader in North America– Asset Turnover facilitated by Run to Schedule
• Sold the back-haul• Forced down equipment cycle times• Eliminated costly storage pools for paper, grain, intermodal
flats• Re-focussed fleet assets on growing businesses
– Fixed Plant followed suit• Innovative “internal shortlines” concept for rural and lightly
used lines -- changed strategy & incentives
• Throughput oriented redeployment philosophy– Conversion of certain facilities to total Intermodal– Focussed PPPJ-V’s on traffic builders (e.g. Prince Rupert)
Asset Turnover boosts ROI at CN
Artist: Apurva
CANADIAN NATIONAL RAILWAY
30%
33%
36%
30%
24%
12.1% 9.9%
8.9% 8.1% 6.9%
0.270.29
0.30 0.300.33
0%
5%
10%
15%
20%
25%
30%
35%
40%
2001 2002 2003 2004 20050%
5%
10%
15%
20%
25%
30%
35%
OPERATING PROFIT RATIO RETURN ON INVESTMENT (unlevered) ASSETS TURNOVER
ROI grows less than half without Turnover improvement...
CANADIAN NATIONAL RAILWAY (no turnover improvement)
24%
30%
36%33%
30%
6.5% 8.0% 8.2%
8.9% 9.8%
0.270.270.270.270.27
0%
5%
10%
15%
20%
25%
30%
35%
40%
2001 2002 2003 2004 20050%
5%
10%
15%
20%
25%
30%
OPERATING PROFIT RATIO RETURN ON INVESTMENT (unlevered) ASSETS TURNOVER
Artist: Moro
The Data behind the scene; please do try this at home...
2005
7,240(4,616)2,624
64%36%
12.1%
0.330.358.66
21,750836
20,914
MILLIONS OF US DOLLARS 2001 2002 2003 2004 2005
1 REVENUES 5,652 6,110 5,884 6,548 7,240 2 EXPENSES (3,970) (4,641) (4,107) (4,380) (4,616) 3 OPERATING PROFIT (1 - 2) 1,682 1,469 1,777 2,168 2,624 4 OPERATING RATIO (2 / 1) 70% 76% 70% 67% 64%5 OPERATING PROFIT RATIO (3 / 1) 30% 24% 30% 33% 36%
UNLEVERED RETURN ON INVESTMENT 8.1% 6.9% 8.9% 9.9% 12.1%
6 ASSETS TURNOVER (1 / 9) 0.27 0.29 0.30 0.30 0.337 PLANT & EQUIPMENT TURN (1 / 11) 0.28 0.30 0.31 0.32 0.358 WORKING CAPITAL TURN (1 / 10) 6.80 6.99 7.55 6.14 8.66
9 TOTAL ASSETS 20,807 21,429 19,863 21,849 21,750 10 WORKING CAPITAL 831 874 779 1,067 836 11 PLANT & EQUIPMENT 19,976 20,555 19,084 20,782 20,914
CANADIAN NATIONAL RAILWAY
The EndArtist: Roychoudhury