Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (August 2020)
63 slides from Aurizon's debt investor presentation, August 2020
Slide 1: Debt Investor Update
August 2020 Debt Investor Update Locomotive artwork by Aurizon employee Laurie Anno
Slide 2: Disclaimer
DEBT INVESTOR UPDATE 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 or “Aurizon” which includes its rel
Slide 3: Contents
DEBT INVESTOR UPDATE Contents 1. Biographies 2. COVID-19 Update 3. Overview of Aurizon Holdings 4. ESG 5. Future of Coal 6. Overview of Aurizon Network 7. Aurizon Network investment highlights 8. Additional information - Future of Coal - Aurizon Network - Aurizon Operations 3
Slide 4: Biographies
DEBT INVESTOR UPDATE Biographies 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 in June 2020. Prior to this George
Slide 5: COVID-19 Update
COVID-19 Update — LP aurizon.
Slide 6: COVID-19: Aurizon Update
DEBT INVESTOR UPDATE COVID-19 UPDATE COVID-19: Aurizon Update Measures were taken to minimise impact to employees and ensure resilience of operations › Crisis Management Team stood up and led by CEO › Increased staff awareness and education on personal hygiene and cleaning protocols › Implemented wo
Slide 7: COVID-19: Market Update
DEBT INVESTOR UPDATE COVID-19 UPDATE COVID-19: Market Update Although volume impact was not significant in FY2020, recessionary conditions expected to impact steel demand in FY2021 CRUDE STEEL PRODUCTION: KEY NATIONS1 Year-on-year change › China: Crude steel production in China maintained. 25% World
Slide 8: FY2021 outlook
DEBT INVESTOR UPDATE COVID-19 UPDATE FY2021 outlook Group EBIT guidance $830m – $880m KEY ASSUMPTIONS › Coal ‒ Flat volumes of 210-220mt (compared to 214mt in FY2020) based on current view of COVID-19 impact on coal demand › Network ‒ Tariffs based on QCA approved volume forecast of 239mt – 5% highe
Slide 9: Overview of Aurizon Holdings
Overview of Aurizon Holdings
Slide 10: Aurizon is Australia's largest integrated freight rail network
DEBT INVESTOR UPDATE OVERVIEW OF AURIZON Aurizon is Australia’s largest integrated freight rail network Above Rail consists of the Coal and Bulk business units, Below Rail consists of Network ABOVE RAIL (AURIZON OPERATIONS) BELOW RAIL (NETWORK) Coal Bulk Network The coal transport operation connects
Slide 11: Aurizon's rail haulage operations
DEBT INVESTOR UPDATE OVERVIEW OF AURIZON Aurizon’s rail haulage operations KEY OPERATIONAL STATISTICS COMMODITIES Coal and bulk freight ROLLINGSTOCK ~500 active locomotives OPERATIONAL FOOTPRINT ~40 operational sites PEOPLE More than 4,600 full-time employees WAGONS 11,000+ active wagons 11
Slide 12: Aurizon's vision, purpose, values and strategic levers
DEBT INVESTOR UPDATE OVERVIEW OF AURIZON 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 Accelerate cost competitiveness of The f
Slide 13: Prioritisation of capital
DEBT INVESTOR UPDATE OVERVIEW OF AURIZON 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% › Capital management cashflows transformation payout ratio opportunit
Slide 14: Legal and capital structure
DEBT INVESTOR UPDATE OVERVIEW OF AURIZON Legal and capital structure Aurizon has standalone funding structures for Operations and Network with independent gearing levels, consistent with their different business risk profiles Holdings Operations Network › Standalone funding › Standalone funding stru
Slide 15: ESG
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Slide 16: Sustainability
DEBT INVESTOR UPDATE ESG Sustainability FY2020 will be the fourth year of TCFD disclosure for Aurizon › Aurizon takes a direct approach to reporting environmental, social and governance (ESG) disclosures with the publication of the annual Sustainability Report › In August 2019, Australian Council of
Slide 17: Environment
DEBT INVESTOR UPDATE ESG Environment Aurizon continues to focus on cutting diesel and greenhouse gas emissions as part of our efforts to maintain Australia’s excellent air quality standards and manage our carbon footprint AURIZON’S GREENHOUSE GAS PROFILE AURIZON’S LOCOMOTIVE EMISSIONS INTENSITY PERF
Slide 18: Future of Coal
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Slide 19: Australian Export Coal Demand
DEBT INVESTOR UPDATE FUTURE OF COAL Australian Export Coal Demand The fundamentals of Australian metallurgical and thermal coal remain strong, driven by steel and energy demand in Asia, supporting coal export growth of 1-2%pa over the next decade METALLURGICAL COAL THERMAL COAL › Metallurgical coal
Slide 20: Future of Coal | Metallurgical Coal
DEBT INVESTOR UPDATE FUTURE OF COAL Future of Coal | Metallurgical Coal Driven by urbanisation and infrastructure development, the opportunity remains for India and South East Asian nations to increase steel usage INDIA: CRUDE STEEL PRODUCTION AND COKING (METALLURGICAL) APPARENT STEEL USE (CRUDE STE
Slide 21: Future of Coal | Thermal Coal
DEBT INVESTOR UPDATE FUTURE OF COAL Future of Coal | Thermal Coal 99% of Australian exports are destined for Asia. It is this region (rather than global consumption) that is projected to use coal-fired generation assets for a prolonged period PER CAPITA ELECTRICITY CONSUMPTION VS. GDP PER CAPITA BY
Slide 22: Australian Coal Summary
DEBT INVESTOR UPDATE FUTURE OF COAL Australian Coal Summary FY2019 Production FY2019 Domestic Use FY2019 Export FY2020 All Coal Export (By Destination) FY2020 All Coal Export (By Port) 106mt 101mt ∑ 389mt 164mt *Port Kembla to April 2020 only 460mt 67mt 394mt 48mt 111mt 72mt 27% 26% 43mt 33mt 35mt 2
Slide 23: Aurizon Network: Overview
Aurizon Network: Overview
Slide 24: Network snapshot
DEBT INVESTOR UPDATE OVERVIEW OF NETWORK Network snapshot As at 30 June 2020 227 40+ four above rail million tonnes1 mines serviced operators $5.5b five 2,670km Regulated Asset export terminals railway track Base2 1. Estimated split (all rail operators) metallurgical coal (69%), thermal coal (31%) 2
Slide 25: Central Queensland Coal Network (CQCN)
DEBT INVESTOR UPDATE OVERVIEW OF NETWORK Central Queensland Coal Network (CQCN) CQCN comprises four major coal systems and one connecting system link (GAPE) servicing Queensland’s Bowen Basin coal region 25
Slide 26: Aurizon Network: Investment Highlights
Aurizon Network: Investment Highlights
Slide 27: Summary of key investment highlights
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS Summary of key investment highlights CQCN services well established haulage customers and high quality mines, predominately operated by investment grade miners CQCN links to significant coal resources Regulated revenues within a stable regulatory re
Slide 28: CQCN services well established haulage customers and miners
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS CQCN services well established haulage customers and miners Network services a diversified group of mining customers that are predominately large global companies with 74% investment grade1 FY20 SPLIT OF MINERS SERVICED BY CQCN2 FY20 RAILED VOLUME S
Slide 29: CQCN infrastructure links to significant coal resources
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS CQCN infrastructure links to significant coal resources Underpinned by a 99 year lease from the Queensland Government, CQCN holds a unique position given its proximity to 14 billion tonnes of coking coal resources QLD: TOTAL ESTIMATED COAL RESOURCES
Slide 30: Regulated revenues within a stable regulatory regime
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS Regulated revenues within a stable regulatory regime In December 2019 the QCA approved the UT5 Undertaking that will deliver a range of material benefits to Network and its customers and provide greater long term certainty for the industry Long Term
Slide 31: UT5 timeline
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS UT5 timeline Estimate as at August 2020 INDICATIVE UT5 TIMELINE 3 May 2019 2H FY2021 1 July 2023 30 June 2027 1 July 2017 Initial Date Report Date1 Reset Date Terminating Date WACC WACC WACC WACC 5.7% 5.9% 6.3% TBD Initial Date › The date on which t
Slide 32: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS Strong financial position and credit ratings stability Recent Network bank debt re-financing allows for upcoming bond maturity, providing options for future funding requirements FY2020 FUNDING ACTIVITY KEY DEBT METRICS FY2020 FY2019 › Network replac
Slide 33: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS Strong financial position and credit ratings stability Network has stable operating cash flows and EBITDA through the cycle, with debt levels managed in line with credit rating thresholds and regulatory assumptions NET CASHFLOW FROM OPERATIONS ($m)
Slide 34: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS Strong financial position and credit ratings stability Network financial metrics REVENUE ($m) EBIT ($m) VOLUMES (mt) 1,262 1,219 506 226 226 230 233 227 1,178 1,189 484 481 481 469 215 1,108 1,118 211 1,012 417 412 400 980 182 FY13 FY14 FY15 FY16 FY
Slide 35: Network RAB, capex and depreciation profile
DEBT INVESTOR UPDATE NETWORK INVESTMENT HIGHLIGHTS Strong financial position and credit ratings stability Network RAB, capex and depreciation profile REGULATED ASSET BASE: CAPEX ($m) ACCOUNTING DEPRECIATION ($m) ROLL FORWARD ($bn) 569 321 329 5.7 5.7 5.6 5.6 308 5.5 300 5.1 258 281 363 215 80 283 28
Slide 36: Contact and further information
Contact and further information Chris Vagg Head of Investor Relations & Group Treasurer +61 7 3019 9030 Chris.Vagg@aurizon.com.au
Slide 37: Additional Information: Future of Coal
Additional Information: Future of Coal
Slide 38: Global Metallurgical (Coking) Coal Landscape
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Global Metallurgical (Coking) Coal Landscape Almost 30% of global metallurgical coal demand is met through seaborne trade with Australia commanding around 60% of this market 2018, million tonnes Import Market: Split 1,033mt 697mt 107mt China 237mt 26% 22%
Slide 39: Metallurgical Coal Market | Australia
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Metallurgical Coal Market | Australia Driven by quality, cost-competitiveness and proximity to Asian markets, Australia holds a unique position in the seaborne market. A further 25 billion tonnes1 of resources can be drawn upon AUSTRALIA: METALLURGICAL COA
Slide 40: Global Thermal (Steam) Coal Landscape
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Global Thermal (Steam) Coal Landscape Over 80% of global thermal coal demand is produced and consumed within country. Australia holds around 20% of the seaborne market that is dominated by Asian demand 2018, million tonnes 5,977mt 4,909mt Import Market: Sp
Slide 41: Thermal Coal Market | Australia
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Thermal Coal Market | Australia Australia’s thermal coal competitiveness is driven by coal quality characteristics and geographic proximity to Asia AUSTRALIA: THERMAL COAL EXPORT VOLUME AND PRICE1 THERMAL COAL CASH COSTS (US$/t, CFR JAPAN, 2020)2 250mt $15
Slide 42: Additional Information: Network Regulation and Financial Information
Additional Information: Network Regulation and Financial Information
Slide 43: UT5 Undertaking – Building Blocks
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION UT5 Undertaking – Building Blocks BUILDING BLOCK DETAIL Return on capital (WACC) › 5.70% from 1 July 2017 to 2 May 2019 › 5.90% from 3 May 2019 to Report Date (expected mid CY2020) › 6.30% from Report Date to 30 June 2023 › WACC reset at 1 July 2023 (reset
Slide 44: UT5 Undertaking - What's included in each building block
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION UT5 Undertaking - What’s included in each building block BUILDING BLOCK DETAILS Operating expenditure › Includes all costs associated with train control, planning, infrastructure management and business development. It also includes corporate overheads for
Slide 45: UT5 Undertaking - Rebate mechanism
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION UT5 Undertaking - Rebate mechanism Rebate will be payable to customers where Network performs below target levels › A customer will be entitled to a rebate from Network where it has received less than its annual contracted capacity, as assessed by the Inde
Slide 46: UT5 Undertaking - QCA role
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION UT5 Undertaking - QCA role The QCA has an ongoing role under the UT5 Undertaking › Will pre-approve Maintenance strategies and budgets in the event agreement is not reached between Network and customers 1 › Will approve capital expenditure on a post-expend
Slide 47: The regulatory framework
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION The regulatory framework The framework provides revenue protection through a building block approach MAXIMUM ALLOWABLE REVENUE REGULATORY REVENUE PROTECTION TOTAL ACTUAL REVENUE (FORECASTED) TESTS RETURN ON CAPITAL AT1 Outside the revenue protection scope
Slide 48: Revenue protection mechanisms
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Revenue protection mechanisms Regulated revenue is protected through a combination of mechanism within the regulatory framework › Protection mechanisms come into effect when revenue shortfalls occur due to actual tonnage railed being less ToP than regulato
Slide 49: Regulated Asset Base (RAB)
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Regulated Asset Base (RAB) Network maintains a record of the value of its existing assets for regulatory pricing called the RAB ROLLFORWARD RAB › This represents the value of Network assets for regulatory purposes › Each year Network rolls forward the RAB
Slide 50: Network financial and operating metrics
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Network financial and operating metrics $m FY2020 FY2019 Variance Track Access 1,132 1,070 6% Services & Other 57 48 19% Revenue 1,189 1,118 6% Energy & Fuel (109) (109) - Other Operating Costs (282) (288) 2% Depreciation (329) (321) (2%) EBIT 469 400 17%
Slide 51: Network - Balance sheet summary
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Network - Balance sheet summary $m 30 June 2020 30 June 2019 Total current assets 254 252 Property, plant & equipment 5,301 5,348 Other non-current assets 330 305 Total assets 5,885 5,905 Total borrowings 3,253 3,300 Other current liabilities 286 336 Other
Slide 52: Network – Cash flow summary
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Network – Cash flow summary $m FY2020 FY2019 Net cash inflow from operating activities 602 724 Proceeds from sale of assets 10 - Payments for PPE and intangibles (283) (235) Interest paid on qualifying assets (2) (3) Net cash (outflow) from investing activ
Slide 53: Network adjusted MAR bridge – Approved UT5 Undertaking
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Network adjusted MAR bridge – Approved UT5 Undertaking INDICATIVE NETWORK ADJUSTED MAR* FY2018 – FY2023 ($M) ~957 ~3 ~954 ~16 13 9 ~941 936 23 13 ~914 55 ~77 869 12 60 45 23 60 18 21 45 FY18 MAR FY2018 FY2018 FY17 & FY19 FY19 FY20 FY17 FY2018 MAR FY18 & FY
Slide 54: Additional information: Operations
Additional information: Operations
Slide 55: Coal snapshot
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Coal snapshot As at 30 June 2020 214 332 234km million tonnes1 average haul 70% CQCN active locos 30% NSW/SEQ length 74 8,721 23.5km/hr average services active wagons velocity per day 1. Estimated coal type split FY2020: metallurgical coal (42%), thermal c
Slide 56: Coal
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Coal EBIT result reflects costs installed for contracted volume growth $m FY2020 FY2019 Variance Revenue Above rail 1,260 1,236 2% › Volumes flat – down 1% in CQCN impacted by customer production issues, NSW & Track access 513 488 5% SEQ up 3% with new con
Slide 57: Coal contract portfolio
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Coal contract portfolio AURIZON COAL CONTRACT VOLUME EXPIRY BY YEAR1 COAL CONTRACT PORTFOLIO EXPIRY1 AS AT 30 JUNE 2020 AS AT 30 JUNE 2020 13% 60 0-3 years 3-7 years 58% 29% 7+ years 45 Million tonnes per annum 30 FORECAST COAL CONTRACTED VOLUMES2 (MTPA) 2
Slide 58: Coal update
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Coal update Priority is the continuation of operational efficiency improvements supporting contracted volume growth. FY2021 revenue expected to be impacted by flat volumes CUSTOMER UPDATE OPERATIONAL EFFICIENCIES › Peabody – commenced railings in July acro
Slide 59: Bulk snapshot
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Bulk snapshot As at 30 June 2020 481 174 million tonnes active locos >15 3,176 products hauled active wagons 1. Top three Bulk commodities represent 73% of total volumes hauled in FY2020. Iron ore (27%), alumina (25%), Bauxite (21%). 59
Slide 60: Bulk
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Bulk Revenue growth driving strong EBIT performance $m FY2020 FY2019 Variance Revenue Revenue 609 502 21% › Revenue higher through new contract growth and improved revenue quality Access costs (111) (104) (7%) Costs Operating costs (388) (333) (17%) › High
Slide 61: Bulk update
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Bulk update Strong performance continues with new contracts and operational efficiencies. Aurizon Port Services expands product offering in North Queensland CUSTOMER UPDATE REVENUE BY COMMODITY1 › South32 Cannington – 11 year contract extension to FY17 FY2
Slide 62: Glossary
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION 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
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