1. Found Money with Asset Turnover and Rate of Return Criteria PRESENTATION TO UIC GLOBAL RAIL FREIGHT CONFERENCE NEW DELHI 23 MARCH 2007 BY J. CHRIS ROONEY PRESIDENT VANNESS COMPANY

2. 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

3. 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

4. Basic Indicators IR BANGLADESH THAILAND MALAYSIAMYANMARUSACHINA 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

5. Equipment Productivity Indicators

6. Track & Revenue Productivity Indicators IR BANGLADESH THAILAND MALAYSIAMYANMARUSACHINA 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) 5,991.881.6614.02,052.2126.2171,174.37,453.6 8 - 10 m ?

7. 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

8. Continuous Improvement Financial Techniques - the ROI Tree Revenue Operating Expenses Labor Fuel Equipment Depreciation Operating Profit minus divided by Revenue Operating Profit Ratio* Working Capital Rolling Stock Fixed Plant equals Investment Revenue Asset Turnover ROI divided by * This is the corollary of the Operating [Expense] Ratio times Artist: Vicky

9. Continuous Improvement - Asset Turnover Key Operating Profit Ratio Working Capital Rolling Stock, etc. Fixed Plant Investment Revenue Asset Turnover 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

10. Operations simulation to optimize assets utilization & new investment Continuous Improvement - Asset Turnover a Key Operating Profit Ratio Working Capital Rolling Stock Fixed Plant equals Investment Revenue Asset Turnover 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.

11. 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)

12. 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% 0.27 0.29 0.30 0.33 0% 5% 10% 15% 20% 25% 30% 35% 40% 20012002200320042005 0% 5% 10% 15% 20% 25% 30% 35% OPERATING PROFIT RATIORETURN ON INVESTMENT (unlevered)ASSETS TURNOVER

13. 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% 0.27 0% 5% 10% 15% 20% 25% 30% 35% 40% 20012002200320042005 0% 5% 10% 15% 20% 25% 30% OPERATING PROFIT RATIORETURN ON INVESTMENT (unlevered)ASSETS TURNOVER Artist: Moro

14. The Data behind the scene; please do try this at home... 2005 7,240 (4,616) 2,624 64% 36% 12.1% 0.33 0.35 8.66 21,750 836 20,914

15. The End Artist: Roychoudhury