Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (February 2021)
55 slides from Aurizon's debt investor presentation, February 2021
Slide 1: Aurizon Operations Limited – Debt Investor Presentation
February 2021 Aurizon Operations Limited – Debt Investor Presentation George Lippiatt – CFO & Group Executive Strategy Chris Vagg – Head of Investor Relations & Group Treasurer
Slide 2: Disclaimer
Aurizon Operations Limited – Debt Investor Presentation Disclaimer NO RELIANCE ON THIS DOCUMENT NO OFFER OF SECURITIES This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to as Nothing in this presentation should be construed as a recommendation of or an offer to sell
Slide 3: Presenters
Aurizon Operations Limited – Debt Investor Presentation Presenters George Lippiatt Chris Vagg CFO & Group Executive Head of Investor Relations Strategy & Group Treasurer George was appointed Chief Financial Officer and Group Chris has more than 20 years’ experience in the finance Executive Strategy
Slide 4: Contents
Aurizon Operations Limited – Debt Investor Presentation Contents 1. Aurizon Holdings Overview 2. ESG 3. Aurizon Operations Overview 4. Credit Highlights › Solid demand for Australian coal and growth in key bulk commodities › Strong position in competitive market as Australia’s largest rail freight o
Slide 5: 1. Aurizon Holdings Overview
1. Aurizon Holdings Overview 5
Slide 6: Aurizon Holdings Overview
Aurizon Operations Limited – Debt Investor Presentation AURIZON HOLDINGS OVERVIEW Aurizon Holdings Overview Aurizon has standalone business units for Aurizon Operations and Aurizon Network with independent credit ratings › Listed on ASX (ASX:AZJ) with market capitalisation of A$7b1 Aurizon Holdings
Slide 7: Aurizon's Vision, Purpose, Values and Strategic Levers
Aurizon Operations Limited – Debt Investor Presentation AURIZON HOLDINGS OVERVIEW Aurizon’s Vision, Purpose, Values and Strategic Levers Execution against the three strategic levers is aimed at driving differentiation, competitive advantage and sustainable performance VISION PURPOSE STRATEGIC LEVERS
Slide 8: Execution of Deliverables
Aurizon Operations Limited – Debt Investor Presentation AURIZON HOLDINGS OVERVIEW Execution of Deliverables Major achievements continue to be aligned with Aurizon’s three strategic levers Achieve Execute Ongoing De-risk near fundamental Optimal legal Pursue Business Freight operational term Above re
Slide 9: COVID-19 / Coal – Market Update
Aurizon Operations Limited – Debt Investor Presentation AURIZON HOLDINGS OVERVIEW COVID-19 / Coal – Market Update Although steel production has resumed to a pre-COVID level, a challenging trade environment with China is impacting near term export volume CRUDE STEEL PRODUCTION: KEY NATIONS1 › Global
Slide 10: 2. ESG
2. ESG 10
Slide 11: Sustainability
Aurizon Operations Limited – Debt Investor Presentation ESG Sustainability 2020 was the fourth year of TCFD for Aurizon Reporting Approach › Aurizon takes a direct approach to reporting environmental, social and governance (ESG) disclosures with the publication of the annual Sustainability Report ›
Slide 12: Benefits of Rail Freight
Aurizon Operations Limited – Debt Investor Presentation ESG Benefits of Rail Freight Aurizon continues to advocate for the significant role that rail contributes in the transition to a low- carbon economy Rail Freight Policy › Our aim is to ensure that rail freight remains competitive and part of th
Slide 13: Climate Strategy and Action Plan
Aurizon Operations Limited – Debt Investor Presentation ESG Climate Strategy and Action Plan Aurizon is committed to a long-term target of net-zero operational emissions (scope 1 and 2) by 2050 through our Climate Strategy and Action Plan We will continue to assess and enhance our Achieving our oper
Slide 14: Climate Strategy and Action Plan
Aurizon Operations Limited – Debt Investor Presentation ESG Climate Strategy and Action Plan We are driving operational decarbonisation through our Tracking Towards Net-Zero Operational Emissions initiatives with 20% emissions intensity reduction achieved since 2010 2020-2030 2030-2050 Climate Strat
Slide 15: Climate Strategy and Action Plan
Aurizon Operations Limited – Debt Investor Presentation ESG Climate Strategy and Action Plan The majority of our emissions are associated with the consumption of energy (fuel and electricity) in the day-to-day operation of our locomotive fleet AURIZON’S GREENHOUSE GAS PROFILE AURIZON’S LOCOMOTIVE EM
Slide 16: 3. Aurizon Operations Overview
3. Aurizon Operations Overview 16
Slide 17: Key Operational and Financial Statistics
Aurizon Operations Limited – Debt Investor Presentation Aurizon Operations Overview Key Operational and Financial Statistics Australia’s largest rail freight operator transporting over 250 million tonnes of commodities, connecting miners, primary producers and industry with international and domesti
Slide 18: Aurizon Operations Overview
Aurizon Operations Limited – Debt Investor Presentation Aurizon Operations Overview Aurizon Operations Overview Aurizon Operations consists of Bulk, Coal and Other business units. Bulk is a growing share of revenue and EBIT $m3 1HFY20214 FY2020 FY2019 BULK SHARE OF OPERATIONS REVENUE & EBIT1 50% Imp
Slide 19: 4. Key Credit Highlights
4. Key Credit Highlights 19
Slide 20: Key Credit Highlights
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS Key Credit Highlights Solid demand for Australian coal and growth in key bulk commodities Strong position in competitive market as Australia’s largest rail freight operator High fixed-revenue, long-term contracts with strong c
Slide 21: 1. Solid Australian Export Coal Demand
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS 1. Solid Australian Export Coal Demand Australia coal export volume is driven by steel-intensive growth in India and prolonged thermal electricity generation in Asia, supporting coal export growth of ~1%pa over the next decade
Slide 22: Future of Coal | Metallurgical Coal
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS Future of Coal | Metallurgical Coal Driven by urbanisation and infrastructure development, the opportunity remains for India and Southeast Asian nations to increase steel usage INDIA: CRUDE STEEL PRODUCTION AND COKING (METALLU
Slide 23: Future of Coal | Thermal Coal
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS Future of Coal | Thermal Coal Although it is recognised that thermal coal generation will reduce as a percentage of global energy, Asia is projected to use coal-fired generation assets for an extended period PER CAPITA ELECTRI
Slide 24: Commodity Price Chart (12 months)
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS Commodity Price Chart (12 months) Commodity prices remain resilient despite impact of COVID related lockdowns 200 Iron Ore +81% 180 160 Index (Jan-20 = 100) Copper +32% 140 Nickel +32% 120 Thermal Coal +23% Zinc +15% 100 Alumi
Slide 25: Growth in Key Bulk Commodities
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS Growth in Key Bulk Commodities Australia is a significant contributor to the growth in supply of bulk commodities Global & Australia supply growth (CAGR 2019-2025) Selected commodities 12% 10% 8% 6% 4% 2% n/a n/a 0% -2% -4% Ni
Slide 26: Bulk – Australia Capital & Exploration Expenditure
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS Bulk – Australia Capital & Exploration Expenditure Aurizon Operations is well placed to service customers within growing commodity markets CAPITAL EXPENDITURE: METAL ORE MINING1 EXPLORATION EXPENDITURE: IRON ORE A$6.0b A$150m
Slide 27: 2. Strong Market Position
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS 2. Strong Market Position Aurizon is the largest independent rail freight operator within Australia Historical Total Above Rail Volume - By Business Unit Hunter Valley Coal Network - Export Haulage Volume (Only) 271mt 267mt 46
Slide 28: Bulk Is Expanding Its Product Offering Through Recent Acquisitions
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS Bulk Is Expanding Its Product Offering Through Recent Acquisitions Bulk expands product offering with Aurizon Operations’ acquisition of Townsville Bulk Storage and Handling in Newcastle and ConPorts in Newcastle Townsville Bu
Slide 29: 3. High Fixed Revenue Long-Term Contracts
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS 3. High Fixed Revenue Long-Term Contracts Contracts for both Bulk and Coal are > 50% fixed revenue, with the majority of coal contracts locked in for > 7 years COAL FIXED REVENUE3 BULK FIXED REVENUE3 COAL CONTRACT PORTFOLIO EX
Slide 30: 4. Strong Financial Performance
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS 4. Strong Financial Performance4 Aurizon Operations has stable operating cash flows and EBITDA through the cycle REVENUE1 EBITDA1 & EBITDA1 MARGIN CASH CAPEX1 29% 29% 29% 27% 27% 2,547 2,522 2,422 679 691 673 696 251 2,306 226
Slide 31: 5. Strong Balance Sheet and Commitment to Rating
Aurizon Operations Limited – Debt Investor Presentation CREDIT HIGHLIGHTS 5. Strong Balance Sheet and Commitment to Rating Aurizon Operations is currently funded entirely through bank debt, with significant additional debt capacity available within it’s rating thresholds (Baa1/BBB+) OVERVIEW KEY DEB
Slide 32: 5. Transaction Summary
5. Transaction Summary 32
Slide 33: Transaction Overview
Aurizon Operations Limited – Debt Investor Presentation TRANSACTION OVERVIEW Transaction Overview Key Transaction Parameters Summary Corporate Structure Issuer Aurizon Finance Pty Ltd Format Senior unsecured A$MTN Notes Aurizon Issue Rating Baa1/BBB+ (Moody’s / S&P) Holdings Format Fixed Tenor 7 yea
Slide 34: Glossary
Glossary Metric Description Access Revenue Amounts received by Aurizon Network for access to the Network infrastructure under all Access Agreements AFD Access Facilitation Deed Average haul length NTK/Total tonnes Contract utilisation Total volumes hauled as a percentage of total volumes contracted
Slide 35: Contact and further information
Contact and further information Chris Vagg Head of Investor Relations & Group Treasurer +61 7 3019 9030 Chris.Vagg@aurizon.com.au
Slide 36: 6. Additional Information
6. Additional Information i. Capital Allocation Hierarchy ii. Financials iii. Coal iv. Aurizon Network Update 36
Slide 37: 6 (i) Capital Allocation Hierarchy
6 (i) Capital Allocation Hierarchy 37
Slide 38: Prioritisation of Capital
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Prioritisation of Capital CAPITAL ALLOCATION HIERARCHY 1 2 3 4 DETERMINE NON GROWTH SURPLUS AVAILABLE DIVIDENDS CAPITAL CAPITAL CAPITAL › Ongoing operating › Sustaining and › Within 70-100% › Growth projects – only cashfl
Slide 39: 6 (ii) Financials
6 (ii) Financials 39
Slide 40: Balance sheet summary – Aurizon Operations Limited
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Balance sheet summary – Aurizon Operations Limited $m 1HFY20211 30 June 2020 Assets classified as held for sale 67.2 65.1 Other current assets 395.9 507.7 Total current assets 463.1 572.8 Property, plant and equipment (PP
Slide 41: Summary Statement of Cash Flows – Aurizon Operations Limited
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Summary Statement of Cash Flows1 – Aurizon Operations Limited $m 31 December 20212 30 June 2020 Cash flows from operating activities Receipts from customers 1,329.4 2,889.6 Payments to suppliers and employees (995.1) (2,1
Slide 42: 6 (iii) Coal
6 (iii) Coal 42
Slide 43: Australian Coal Summary
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Australian Coal Summary CY2020 Export CY2020 All Coal Export (By Destination) CY2020 All Coal Export (By Port) Export Revenue 104mt 158mt *Port Kembla to September 2020 only. $55b 371mt 74mt 101mt Total Production 53mt St
Slide 44: Global Metallurgical (Coking) Coal Landscape
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Global Metallurgical (Coking) Coal Landscape Around one-third of global metallurgical coal demand is met through the global traded export market with Australia commanding over half of this market 2019, million tonnes Impo
Slide 45: Metallurgical Coal Market | Australia
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Metallurgical Coal Market | Australia Driven by quality, cost-competitiveness and proximity to Asian markets, Australia holds a unique position in the seaborne market AUSTRALIA: METALLURGICAL COAL EXPORT VOLUME AND PRICE1
Slide 46: Global Thermal (Steam) Coal Landscape
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Global Thermal (Steam) Coal Landscape Over 80% of global thermal coal demand is produced and consumed within country. Australia holds around one-fifth of the global trade market that is dominated by Asian demand 2019, mil
Slide 47: Thermal Coal Market | Australia
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Thermal Coal Market | Australia Australia’s thermal coal competitiveness is driven by coal quality characteristics and geographic proximity to Asia. Around 98% of Australian exports are destined for Asia AUSTRALIA: THERMA
Slide 48: Metallurgical and Thermal Cost Curve
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Metallurgical and Thermal Cost Curve Australia is well position on the cost curve for both Metallurgical and Thermal Coal Cost Data Source: Wood Mackenzie Cost Curve 2020 (Dataset: August 2020). Note: FOB = Free On Board
Slide 49: 6 (iv) Aurizon Network Update
6 (iv) Aurizon Network Update 49
Slide 50: Aurizon Network Update
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Aurizon Network Update WIRP fees commenced during the period, with potential upside from appeal of Expert's Determination. UT5 capacity assessment expected September 2021 quarter WIGGINS ISLAND RAIL › Queensland Court of
Slide 51: Aurizon Network
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Aurizon Network EBIT growth from commencement of WIRP fees offsetting lower volumes $m 1HFY2021 1HFY2020 Variance 2HFY2020 Revenue Track access 569 565 1% 567 › Commencement of WIRP fees including retrospective amount off
Slide 52: Aurizon Network Strong Financial Performance
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Aurizon Network Strong Financial Performance Network has stable operating cash flows and EBITDA through the cycle REVENUE EBITDA & EBITDA MARGIN CAPEX 67% 69% 62 62% 65% 65% 52 57 47 24 283 281 1,200 789 798 252 251 1,167
Slide 53: Funding Update
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION Funding Update Re-financing activities to reduce interest costs over time 1HFY2021 FUNDING ACTIVITY KEY DEBT METRICS 1HFY2021 1HFY2020 › Aurizon Network – issued a 10-year, $500m A$ Medium Term Note (AMTN) in September 20
Slide 54: UT5 Undertaking
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION UT5 Undertaking Aurizon Network’s access undertaking establishes the framework for access to the coal rail infrastructure in central Queensland UT5 TIMELINE 3 May 2019 September 2021 Quarter 1 July 2023 30 June 2027 1 Jul
Slide 55: UT5 Undertaking – Revenue Protection Mechanisms
Aurizon Operations Limited – Debt Investor Presentation ADDITIONAL INFORMATION UT5 Undertaking Revenue Protection Mechanisms The Maximum Allowable Revenue (MAR) is the total INDICATIVE SYSTEM REVENUE PROTECTION MECHANISM revenue Aurizon Network is permitted to earn each year, determined in accordanc
Aurizon Holdings — Debt Investor Presentation (February 2021) on 6ix