Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (2016)
43 slides from Aurizon's debt investor presentation, 2016
Slide 1: Debt Investor Update FY2016 Results
Debt Investor Update FY2016 Results Pam Bains – VP Network Finance (Network CFO) David Collins – VP Finance & Group Treasurer
Slide 2: Important notice
Important notice No Reliance on this document This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to as “Aurizon” which includes its related bodies corporate (including Aurizon Operations Limited). Whilst Aurizon has endeavoured to ensure the accuracy of the informatio
Slide 3: Agenda
Agenda Full year in review – Aurizon Group › David Collins FOR PERSONAL USE ONLY Full year in review – Aurizon Network › Pam Bains Regulation › Pam Bains Funding and Capital Management › David Collins Outlook and summary › David Collins 3
Slide 4: Full year in review: Aurizon Group
Full year in review : Aurizon Group David Collins – VP Finance & Group Treasurer
Slide 5: About Aurizon
About Aurizon Aurizon (ASX: AZJ) is Australia’s largest rail freight operator and a • Aurizon Holdings legal structure top 50 ASX company. Aurizon has four major product lines for customers: Coal, Iron Ore, Freight and Network. Above Rail FOR PERSONAL USE ONLY › Aurizon transports more than 250 mill
Slide 6: Group highlights – FY2016
Group highlights – FY2016 Safety › Zero LTIFR achieved for the year. All other safety, health and environment KPIs improved except TRIFR Results › Revenue down $322m (9%) to $3.5bn – includes impact of Redbank sale in FY2015 ($43m) and lower Freight ($180m) reflecting lower volumes and impact of CRT
Slide 7: Group financial highlights
Group financial highlights $m FY2016 FY2015 Variance FOR PERSONAL USE ONLY Revenue 3,458 3,780 (9%) › 4% above rail volume decline, lower asset sales and reduction in TSC payments EBIT – underlying1 871 970 (10%) › Operating costs decreased 12% with $131m transformation benefits and $53m reduction i
Slide 8: Coal update
Coal update Markets Customers › Australian export volumes stable in FY2016 with increased › Improved cost position for Aurizon customers, with ~10%1 seaborne market share export volume estimated to be operating at a negative cash › Metallurgical coal: margin (from ~26% in January 2016) › 65% market
Slide 9: Coal market update
Coal market update Australia Metallurgical Coal: Weighted Average Total Cash Metallurgical coal seaborne exports Costs (FOB, USD) Volume and market share, calendar years -52% 400 70% +6pts $132 300 65% Million tonnes Market Share $87 200 60% $63 100 55% 0 50% 2010 2011 2012 2013 2014 2015 2016 Rest
Slide 10: Transformation delivering sustainable value
Transformation delivering sustainable value Headline › Transformation continues to deliver sustainable benefits to customers and shareholders Benefits › $131m generated in FY2016, ahead of target, $383m over last three years Operations › Key driver is ongoing productivity and efficiency improvements
Slide 11: Full year in review: Aurizon Network
Full year in review : Aurizon Network Pam Bains – VP Network Finance
Slide 12: Below Rail highlights
Below Rail highlights Record volumes and UT4 final decision from QCA Revenue › Increased 6% to $1.2bn due to record volumes (225.9mt vs 217.4mt QCA forecast) and annual increase in UT4 tariffs Underlying EBIT › Increased $22m (5%) to $506m › $43m increase in depreciation from asset commissioning (WI
Slide 13: Below Rail (Network) profit & loss - Underlying
Below Rail (Network) profit & loss - Underlying FY2016 Variance FY2016 FY2015 $m fav / (adv) 2H 1H Tonnes (million) 225.9 111.9 114.0 225.7 - Revenue - Access 1,136 576 560 1,048 8% - Services/Other 43 22 21 60 (28%) Total Revenue 1,179 598 581 1,108 6% Operating costs (415) (204) (211) (409) (1%) E
Slide 14: Below Rail (Network) volumes (mt)
1 Below Rail (Network) volumes (mt) FY2016 Variance FY2016 FY2015 2H 1H fav / (adv) Newlands 12.1 6.0 6.1 14.7 (18%) Goonyella 121.5 61.7 59.8 119.6 2% Blackwater 56.3 25.5 30.8 62.8 (10%) Moura 11.9 5.4 6.5 12.3 (3%) GAPE 16.0 8.1 7.9 15.4 4% WIRP 8.1 5.2 2.9 0.9 Total 225.9 111.9 114.0 225.7 - Ave
Slide 15: Aurizon Network Balance Sheet
Aurizon Network Balance Sheet As at ($m) 30 June 2016 30 June 2015 Commentary Total current assets 289 376 › Decrease in total current assets primarily due to a $113m decrease in cash holdings, which were FOR PERSONAL USE ONLY higher at the FY15 year end to ensure that liquidity Property, plant & eq
Slide 16: Network RAB, capex & depreciation profile
Network RAB, capex & depreciation profile RAB roll forward Capex Accounting depreciation 87% 569 281 363 80 270 5.6 5.6 5 5.1 3.0 288 283 258 284 265 220 FY10 FY15 FY16 FY17 FY15 FY16 FY17f FY15 FY16 FY17f Regulated Asset Base (RAB) $Abn Growth $m Sustaining $m Depreciation $m › RAB Roll-forward, in
Slide 17: Aurizon Network: Capital Structure
Aurizon Network: Capital Structure Aurizon Network RAB – Gearing Structure Commentary 7,000 53.0% 55.3% 53.6% 48.4% 6,000 › All material growth projects were completed by FOR PERSONAL USE ONLY 5,600 December 2015 5,100 5,000 4,700 4,500 › Aurizon Network’s Net Debt position in the medium term is exp
Slide 18: Aurizon Network: Key Financial Metrics
Aurizon Network: Key Financial Metrics Revenue EBIT Volumes (A$m) (A$m) (mT) +38% +32% +72% 1,500 600 250 226 226 1,108 1,178 484 506 215 980 1,012 500 182 1,000 892 417 412 200 167 827 164 400 325 295 150 300 500 100 200 100 50 0 FY11 FY12 FY13 FY14 FY15 FY16 0 0 FY11 FY12 FY13 FY14 FY15 FY16 FY11
Slide 19: Regulation
Regulation Pam Bains – VP Network Finance
Slide 20: Final Decision – summary of key outcomes
Final Decision – summary of key outcomes Maximum Allowable Revenue › Overall maximum revenue of $3.925 billion over the period of the Undertaking (MAR) › Weighted Average Cost of Capital (WACC) - 7.17% True-up recovery process › The Final UT4 Decision highlights a net under recovery of Regulatory Re
Slide 21: UT4 finalisation
UT4 finalisation Process Other matters beyond finalisation › In light of the current economic climate and in order to provide › Post UT4 approval, a range of individual matters needs to be certainty for the industry and our shareholders, Aurizon will move implemented and managed under UT4. These mat
Slide 22: Below rail regulation: UT5 strategy
Below rail regulation UT5 strategy CONTEXT › Record volumes for four years in a row, with improved operational metrics › RAB value now $5.6bn1 with ~300mt capacity – as requested and endorsed by industry › Maintenance regime underpins performance, benefitting the entire supply chain › Stable regulat
Slide 23: Funding and Capital Management
Funding and Capital Management David Collins – VP Finance & Group Treasurer Pam Bains – VP Network Finance
Slide 24: Funding update
Funding update Further debt restructuring undertaken Above Rail $0.5bn maturity profile › Network bank debt facilities of $490m repriced in December $m 2015 and maturity extended to FY2022 Drawn bank debt › Group bank debt facilities of $300m repriced in April 2016, 200 Undrawn bank debt maturity ex
Slide 25: Further capex reductions forecast
Further capex reductions forecast Capital expenditure FY2016 – FY2018 ($m)1 362 703 › Further reductions in forecast capex spend over the next two years of $50-$150m, supporting Free Cash ~550-600 Flow (FCF) growth 238 ~500-550 › FY2016 spend included additional sustaining capital 437 due to acceler
Slide 26: Group – free cash flow growth
Group – free cash flow growth $m FY2016 FY2015 EBITDA - statutory 904 1,489 › FCF increased 35% to $478m › Further improvements expected in FY2017 with Working capital & other movements (85) 7 capex reductions and Moorebank sale proceeds Non-cash adjustments - impairment 528 - › Lower net cash inflo
Slide 27: Network – free cash flow growth
Network – free cash flow growth $m FY2016 FY2015 EBITDA - statutory 756 700 Working capital & other movements (21) (2) › FCF increased 139% to $287m › Further improvements expected in FY2017 as Non-cash adjustments - impairment 8 - growth capex has ceased with only sustaining Cash from operations 74
Slide 28: Outlook & summary
Outlook & summary David Collins – VP Finance & Group Treasurer
Slide 29: Outlook & guidance
Outlook & guidance Challenging markets remain, volumes expected to be stable › FY2017: Revenue $3.35 - $3.55bn, underlying EBIT $900-950m, key assumptions as follows: › Above Rail › Volumes of 255 – 275mt, including Coal 200 – 212mt › Stable pricing with exception of Iron Ore for customer Karara › B
Slide 30: Aurizon fundamentals
Aurizon fundamentals ENTERPRISE • ABOVE RAIL • BELOW RAIL Improve returns › Long life assets supported by long › Defensive, regulated asset supporting › effective allocation of capital to duration (10+ years) contracts major export industry with RAB of $5.6bn ensure optimum portfolio mix and › New f
Slide 31: Questions & Answers
Questions & Answers
Slide 32: Definitions
Definitions Metric Description Access Revenue Amount received for access to the Network infrastructure under the Access Agreement Average haul length NTK/Total tonnes Contract utilisation Total volumes hauled as a percentage of total volumes contracted CQCN Central Queensland Coal Network dGTK Diese
Slide 33: Appendix
Appendix
Slide 34: QCA Final UT4 Decision: MAR
QCA Final UT4 Decision: MAR Maximum Allowable Revenue (MAR) Total FY2014 FY2015 FY2016 FY2017 $m UT4 › This is a raw MAR, as published by Return on capital (WACC)1 346 347 415 420 1,567 the QCA and excludes Revenue FOR PERSONAL USE ONLY Cap, true-up of prior year revenue Return of capital (Depreciat
Slide 35: QCA Final UT4 Decision: Volumes
QCA Final UT4 Decision: Volumes System Volumes FY2014a FY2015a FY2016f FY2017f Total UT4 Blackwater1 65.0 63.7 66.2 67.8 262.7 › FY2014 and FY2015 represent actual FOR PERSONAL USE ONLY volumes railed Goonyella 112.5 119.6 112.1 115.6 459.8 › FY2016 and FY2017 volumes are QCA regulatory forecast vol
Slide 36: Final Decision UT4 vs. UT3 MAR
Final Decision UT4 vs. UT3 MAR UT4 UT3 Mix of UT4 Mix of UT3 Maximum Allowable Revenue (MAR) $m Variance FY14 – FY17 FY10 – FY13 MAR (%) MAR (%) Return on capital (WACC)1 1,527 1,599 (72) 38% 52% FOR PERSONAL USE ONLY Return of capital (Depreciation) 1,288 698 590 32% 23% Inflation (515) (401) (114)
Slide 37: Reconciliation of MAR to reported access revenue
Reconciliation of MAR to reported access revenue FY2014 FY2015 FY2016 FY20171 MAR to reported Access Revenue Actual Actual Actual Estimate Access Revenue (AT1 to AT5) (ex. GAPE) 794 787 924 918 FOR PERSONAL USE ONLY Approved Adjustments to MAR Transitional tariff adjustment (70) - - - Flood Claim re
Slide 38: WIRP regulatory revenue profile
WIRP regulatory revenue profile FY2014 FY2015 FY2016 FY2017 $m Actual Actual Forecast Forecast Regulatory volumes (mt) - - 10.4 14.3 Estimated WIRP Capex for pricing ($m) - forecast - - ~640 ~640 Revenue ($m) – forecast (MAR equivalent) - - ~50 ~70 **Aurizon estimate only. There is no “WIRP” revenue
Slide 39: Regulatory Revenue Protection
Regulatory Revenue Protection
Slide 40: Regulated revenues within a stable and well-established regulatory regime
Regulated revenues within a stable and well- established regulatory regime Well established regulatory Well developed building block approach to 1 regime 2 Stable regulated revenue base 3 revenue determination › The provision of transportation › Over 90% of Aurizon Network FOR PERSONAL USE ONLY serv
Slide 41: CQCN regulatory framework provides revenue protection through building blocks
The CQCN regulatory framework provides revenue protection through a building block approach Regulatory Revenue Total Actual Revenue Protection Maximum Allowable Revenue (forecasted) for each year of Tests Undertaking period RETURN ON CAPITAL AT1 Outside the revenue protection scope (Weighted Average
Slide 42: Take-or-Pay protection should revenues fall short
… with Take-or-Pay protection should revenues fall short (with a revenue cap) ToP › Primary revenue protection mechanism available to AT2 Train Paths Take-or-pay Aurizon Network Revenue cap Take or FOR PERSONAL USE ONLY mechanisms pay AT3 Net Train Kilometres (NTK) › Allows Aurizon Network to recove
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