Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — FY2014 Earnings Presentation
68 slides from Aurizon's earnings presentation, Aug 18, 2014
Slide 1: FY2014 Results Presentation
FY2014 Results Presentation Lance Hockridge – Managing Director & CEO Keith Neate – EVP & CFO Mike Franczak – EVP Operations 18 August 2014
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). Whilst Aurizon has endeavoured to ensure the accuracy of the information contained in this document at the da
Slide 3: Year in review
Year in review Lance Hockridge – Managing Director & CEO
Slide 4: Key headlines
Key headlines Safety 71% improvement in LTIFR, 0.28 now at World Class performance 49% improvement in MTIFR FOR PERSONAL USE ONLY Earnings Statutory EBIT down 32% - includes transformation related asset impairment ($190m), other asset impairments ($127m) and voluntary redundancy costs ($69m)
Slide 5: Safety performance
Safety performance, our target is Lost Time Injury Frequency Rate (LTIFR)1 Medically Treated Injury Frequency Rate (MTIFR) 1 FOR PERSONAL USE ONLY Medically treated injuries per million person-hours worked 44.21 11.43 Lost time injuries per million person-hours worked 71% 49% improvement improvement
Slide 6: Statutory earnings impacted by significant items
Statutory earnings impacted by significant items FY2014 $m FY2014 FY2013 2H 1H Total Revenue 3,832 1,867 1,965 3,766 FOR PERSONAL USE ONLY Statutory EBITDA 965 513 452 1,182 Statutory EBIT 465 264 201 685 Significant items For details of the Significant items, refer to slide 14 Transformation-rela
Slide 7: Financial highlights – Underlying
Financial highlights – Underlying $m FY2014 FY2013 Variance 13% improvement in underlying EBIT & EPS FOR PERSONAL USE ONLY Total revenue 3,832 3,766 2% Coal volume up 9% driven by higher demand in both Queensland and Hunter Valley EBITDA 1,351 1,251 8% Iron Ore volume up 21%, at full contractual
Slide 8: Operating highlights
Operating highlights FY2014 FY2014 vs. FY2014 2H 1H FY2013 FY2013 Opex / NTK improved 10% FOR PERSONAL USE ONLY Variance Revenue / NTK ($/000 NTK) 51.7 52.2 51.3 55.8 (7%) Revenue / NTK decrease driven by lower Labour Costs / Revenue 27.1% 27.2% 26.9% 29.0% 1.9ppt Network revenue due to capped tra
Slide 9: On track to deliver 75% operating ratio in FY2015
On track to deliver 75% operating ratio in FY2015 FY2014 achieved $129m in transformation benefits against a target of 2.1ppt improvement vs. FY2013 $90m Operations benefits - $96m 88.0 FOR PERSONAL USE ONLY o $42m reduction in labour o $29m in fleet productivity o $13m in fuel productivity 83.4 o
Slide 10: Results analysis
Results analysis Keith Neate - EVP & CFO
Slide 11: FY2014 vs. FY2013 underlying EBIT bridge
FY2014 vs. FY2013 underlying EBIT bridge Incremental volume related costs (ex access and fuel) for GAPE contracted tonnes ramp-up - $98m Coal, Intermodal & Iron Ore - ($39m) Volume growth: Increase in underlying fuel price - ($20m) Decrease in access revenue (ex. GAPE) - ($60m) o Intermoda
Slide 12: Underlying EBIT by segment
Underlying EBIT by segment FY2014 $m FY2014 FY20131 Variance Key drivers of Group performance: FOR PERSONAL USE ONLY 2H 1H Network - capped transitional revenue for CQCN with Network 412 195 217 417 (1%) increased network maintenance costs to support record volume throughput Coal - volumes up 9%
Slide 13: Key FY2014 segment earnings drivers
Key FY2014 segment earnings drivers Network Coal Iron Ore Freight Record volume throughput 9% QLD and 7% NSW volume 21% increase in volumes Volumes decreased by 6% FOR PERSONAL USE ONLY over the CQCN of 214.5mt, an growth hauled and 18% increase in o Bulk down 9% increase of 32mt (18%) on NT
Slide 14: Significant items for FY2014
Significant items for FY2014 Asset Class ($m) Pre-Tax Transformation-related asset impairments: Rollingstock 170 Integrated Operating Plan identified 200 locomotives and almost 2,800 wagons as surplus 76 locos and 2,387 wagons sold during the year, with further disposals to follow FOR PERSONAL U
Slide 15: Cash flow summary
Cash flow summary $m FY2014 FY2013 Free cash flow up $223m on FY2013 EBITDA - statutory 965 1,182 FOR PERSONAL USE ONLY Working Capital & Other movement 341 (133) Non-cash impairments of $317m Cash from operations 1,306 1,049 Net finance costs (114) (112) Income taxes paid (124) (31) Tax paid in
Slide 16: Strong balance sheet
Strong balance sheet As at ($m) 30 June 2014 30 June 2013 Increase in total current assets due to $210m increase Total current assets 1,336 933 in cash and cash equivalents and $88m increase in FOR PERSONAL USE ONLY assets held for sale Property, plant & equipment 9,441 9,460 Other non-current ass
Slide 17: Committed capital expenditure profile
Committed capital expenditure profile Committed growth vs. sustaining capex1 ($m) Growth Capex includes WIRP, Rolleston Electrification, Hexham and Whitehaven rollingstock FOR PERSONAL USE ONLY 1,370 FY2014 sustaining capex: 1,202 - additional spend for coal wagon and locomotive ~1,100 overhauls
Slide 18: Operations – “Drive to 75”
Operations – “Drive to 75” Mike Franczak – EVP Operations
Slide 19: Significant improvement in core operational performance
Significant improvement in core operational performance Operations delivered a 9% improvement in operating expenses (c/NTK) vs. FY2013 2 Metric Basis FY2014 FY2013 FY2014 2H FY2014 2H FY2013 2H FY2014 vs. vs. FY2013 2H FY2013 FOR PERSONAL USE ONLY Variance Variance Production Net tonne kilometres (b
Slide 20: Blackwater opportunity cost saving of $34m
Blackwater opportunity cost saving of $34m through the delivery of increased volumes on a flat cost base Operational Performance Transformation Operational FY2013 FY2014 Improvement Drivers Efficiencies Volumes (MTPA) 50.5 49.7 62.0 23% mtpa FOR PERSONAL USE ONLY increase Turn around Time (TAT) • Im
Slide 21: Transformation programs underpin operational improvements
Transformation programs underpin operational improvements Transformational THE FULL CASCADE OF THE IOP IS UNDERWAY ACROSS THE NATION programs North West corridor re-design FOR PERSONAL USE ONLY November • Integrated Operating 2013 Plan (IOP) IOP kick-off New Operating Plan developed • Longer / dense
Slide 22: Delivered $96m transformation in FY2014; target revised
Delivered $96m transformation in FY2014. Target revised from $130m+ to a range of $160m-$200m Category July 2013 FY2014 FY2015 Focus Revised target target benefits range for FOR PERSONAL USE ONLY delivered FY2014/15 Labour $50-$70m $42m Improvement in labour costs by focusing on productivity $60-$70
Slide 23: Further opportunities to improve operational performance
Further opportunities to improve operational performance • Ingraining a “continuous • Extracting more value FOR PERSONAL USE ONLY • Further rationalisation of improvement” culture across Aurizon by challenging the way the facilities footprint we work with our • Enhancing rules qualification of netwo
Slide 24: Other – business update
Other – business update Lance Hockridge – MD & CEO
Slide 25: Strategic Projects – West Pilbara Infrastructure Project
Strategic Projects – West Pilbara Infrastructure Project Aurizon and Baosteel have effected an off-market takeover of Aquila Resources (delisted on 29th July) Strategic intent of Aurizon’s investment in Aquila is to facilitate development of rail and port infrastructure for the West Pilbara FOR
Slide 26: Aquila Resources and WPIP timeline
Aquila Resources and West Pilbara Infrastructure Project timeline Subject to change depending on terms 50% shareholder agreed with AMCI(IO)3 acceptance reached Aquila InfraCo FID4 delisted 2014 2015 January 5 May 8 Aug 11 Jul July 29 Jul 3 Jul Off-market takeover First Aquila +/-25% tariff +/-15% ta
Slide 27: Strategic Projects - other
Strategic Projects - other Galilee Basin (Coal) Moorebank (Intermodal) FOR PERSONAL USE ONLY Aurizon progressing with GVK Hancock to acquire 51% interest in The Sydney Intermodal Terminal Alliance (SIMTA) consortium, Hancock Coal, which holds the Abbot Point T3 (Port Project) and comprising Qube
Slide 28: Freight development plan
Freight development plan Greater integration and collaboration across the enterprise to deliver customer service excellence, disciplined operations driving cost efficiencies and productivity gains FOR PERSONAL USE ONLY Strategy FY2014 Achievements Replicate business model successfully implemented
Slide 29: Other matters
Other matters Enterprise Agreements update Network Regulation update FOR PERSONAL USE ONLY Queensland There has been a substantial amount of engagement with key Aurizon’s main efforts have been directed toward negotiating for stakeholders on all key matters including SUFA and UT4 replacement Ent
Slide 30: Outlook & summary
Outlook & summary Lance Hockridge – MD & CEO
Slide 31: FY2015 Outlook
FY2015 Outlook Based on current market conditions, our volume outlook in respect of FY2015 is: FOR PERSONAL USE ONLY o Coal – haulage volumes in a range of 210-220mt o Iron Ore – decrease in contracted volumes from 30mt in FY2014 to ~23mt in FY2015 as previously disclosed o Freight – modest increa
Slide 32: Summary
Summary Strong underlying result driven by: FOR PERSONAL USE ONLY o Volume growth and delivering sustainable value from the transformation program Disciplined capital management continues with dividend payout ratio increasing from 65% to 70% 75% Operating Ratio for FY2015 remains the key objec
Slide 33: Questions & Answers
Questions & Answers
Slide 34: FY2014 Supporting information
FY2014 Supporting information 18 August 2014
Slide 35: 2014 Full Year Results additional information
2014 Full Year Results additional information
Slide 36: Accounting Changes
Accounting Changes Comparison to FY2013 Financial Statements Network Segment has been adjusted to reflect the internal restructure of Aurizon Network that occurred on 1 July 2013 FOR PERSONAL USE ONLY (linked to the refinancing of the syndicated debt facilities that occurred on 27 June 2013) - Two
Slide 37: Network profit & loss - Underlying
Network profit & loss - Underlying FY2014 FY14 vs. FY13 $m FY2014 2H 1H FY2013 Variance FOR PERSONAL USE ONLY Tonnes (million) 214.5 106.9 107.6 182.3 18% Revenue growth impacted by Revenue - Access 951 461 490 921 3% capped transitional tariffs ($60m) - Services 17 9 8 26 (35%) GAPE revenue gro
Slide 38: Network metrics
Network metrics FY2014 FY14 vs. Record volume throughput over the FY13 CQCN totalling 214.5mt, an increase of FY2014 2H 1H FY20132 Variance 32mt (18%) on FY2013 FOR PERSONAL USE ONLY EBIT – Underlying ($m) 412 195 217 417 (1%) Maintenance spend per NTK remained constant in nominal terms despite
Slide 39: Queensland FY2014 Take-or-Pay - Network and Coal
Queensland FY2014 Take-or-Pay - Network and Coal 1 $m Coal Network Consolidated Income Revenue Protection mechanisms exist where volumes FOR PERSONAL USE ONLY hauled are less than regulatory volumes used to set Coal Customers 13.1 13.1 reference tariffs Coal Customers - prior year Where actual N
Slide 40: Network revenue cap adjustments
Network revenue cap adjustments AT2-4 AT5 Total A further revenue protection mechanism is the revenue cap Year (diesel tariff) (electric tariff) adjustment. Actual Network revenue is compared to the regulatory $m $m $m determination, and under/over recoveries are adjusted in the FOR PERSONAL USE O
Slide 41: Central Queensland Coal Network volumes (mt)
Central Queensland Coal Network volumes (mt) FY2014 FY2014 FY2013 2H 1H FOR PERSONAL USE ONLY Newlands 12.0 5.9 6.1 14.5 Goonyella 114.4 57.1 57.3 97.6 Blackwater 63.1 31.4 31.7 54.9 Moura 12.5 6.2 6.3 10.8 GAPE 12.5 6.4 6.1 4.5 Total 214.5 106.9 107.6 182.3 Average haul length (kms) 253 253 253 245
Slide 42: Coal profit & loss - Underlying
Coal profit & loss - Underlying FY2014 FY14 vs. FY13 $m FY2014 2H 1H FY2013 Variance Above rail revenue increased $132m driven by the strong volumes FOR PERSONAL USE ONLY Revenue - Above Rail 1,211 614 597 1,079 12% Below rail access revenue (and the - Below Rail 649 289 360 776 (16%) correspond
Slide 43: Coal metrics
Coal metrics FY2014 FY14 vs. FY13 FY2014 2H 1H FY2013 Variance Total NTK growth of 13% was greater than the 9% increase in FOR PERSONAL USE ONLY EBIT – Underlying ($m) 400 213 187 320 25% volumes due to increased GAPE volumes and the commencement Tonnes hauled (m) - QLD 169.9 81.3 88.6 155.8 9% of
Slide 44: Coal metrics (continued)
Coal metrics (continued) FY2014 FY14 vs. Above Rail Revenue / NTK in line FY2014 FY2013 FY13 with prior year: 2H 1H Variance o $29m decrease in DTC - refer slide FOR PERSONAL USE ONLY 47 Above Rail Revenue / NTK 24.6 25.9 23.4 24.7 - ($/000 NTK) o Volume mix - ~50% of volume Below Rail Revenue / N
Slide 45: Coal haulage tonnages (mt) by system
Coal haulage tonnages (mt) by system FY2014 FY14 vs. FY13 FY2014 FY2013 2H 1H Variance FOR PERSONAL USE ONLY Queensland Newlands 16.4 8.2 8.2 17.0 (4%) Goonyella 70.8 32.2 38.6 68.6 3% Blackwater 62.0 31.3 30.7 50.5 23% Moura 12.6 6.1 6.5 10.9 16% West Moreton 8.1 3.5 4.6 8.8 (8%) Total Qld 169.9 81
Slide 46: Coal Take-or-Pay accrual
Coal Take-or-Pay accrual FY2014 $m FY2014 2H 1H FY2013 FOR PERSONAL USE ONLY Take-or-Pay charge1 (Expense) (25.0) (20.0) (5.0) (16.0) Take-or-Pay passed through to customers (Revenue) 15.3 9.4 5.9 13.9 Adjustments2 relating to earlier years (2.2) - (2.2) (1.8) Net EBIT impact from non-pass through
Slide 47: Queensland Coal - Deficit Tonnage Charges (DTC)
Queensland Coal - Deficit Tonnage Charges (DTC) Full Year YoY A form of protection for the above rail coal business when actual DTC ($m) 2H 1H Charge Variance tonnages are less than contracted DTC refers to the period in which the income was recognised in FOR PERSONAL USE ONLY 2014 1 7 8 (29) th
Slide 48: Above Rail Coal contractual outlook
Above Rail Coal contractual outlook Aurizon’s Annualised Above Coal above rail revenue “Old Form” vs. “New Form” Rail Coal Contracted breakdown coal volumes4 Volumes (mtpa)1 232 230 228 100% 100% 6% 3% 39 41 45 31% 30% 29% 39% 38% 46% 47% 51% 94% 97% 193 188 183 69% 70% 71% 61% 62% 49% 54% 53% FY201
Slide 49: Iron Ore profit & loss - Underlying
Iron Ore profit & loss - Underlying FY2014 FY14 vs. FY13 $m FY2014 2H 1H FY2013 Variance FOR PERSONAL USE ONLY Revenue 378 188 190 357 6% Revenue growth not as strong as volume growth due to the Operating costs (239) (119) (120) (223) (7%) impact of capacity charges arising in FY2013 for volumes E
Slide 50: Iron Ore metrics
Iron Ore metrics FY2014 FY14 vs. FY13 FY2014 2H 1H FY2013 Variance FOR PERSONAL USE ONLY EBIT – Underlying ($m) 103 53 50 97 6% Tonnes hauled (m) 29.9 14.9 15.0 24.7 21% Contract Utilisation2 100% 100% 100% 82% 18ppt NTK (bn) 12.2 6.1 6.1 10.3 18% Capacity charge income in FY2013 contributed to th
Slide 51: Freight profit & loss – Underlying
Freight profit & loss – Underlying (Freight includes Bulk and Intermodal businesses) FY2014 FY14 vs. 5% revenue decrease driven by 6% FY13 volume decline, noting: ($m) FY2014 2H 1H FY2013 Variance 1. $77m decrease in Bulk revenues FOR PERSONAL USE ONLY from 9% volume decline Revenue 1,029 479 550
Slide 52: Freight metrics
Freight metrics FY2014 FY14 vs. Freight volumes decreased 6% due to: FY13 FY2014 2H 1H FY2013 Variance o Bulk volumes down 9% - lower QLD grain volumes, unscheduled FOR PERSONAL USE ONLY EBIT – Underlying ($m) 34 14 20 23 48% customer plant shut down, impact of Indonesian Govt. Nickel export Tonne
Slide 53: 2H FY2014 vs. 1H FY2014 Underlying EBIT bridge
2H FY2014 vs. 1H FY2014 Underlying EBIT bridge Volume declines: A net decrease in operating and other expenses of $27m, FOR PERSONAL USE ONLY o Freight – ($43m) including: o Coal – ($20m) Decrease in access revenue o Bad debt recovery (Freight) - $10m o Iron Ore – ($8m) (ex. GAPE) – ($46m) o R
Slide 54: Continued improvement in Return on Invested Capital
Continued improvement in Return on Invested Capital Return on Invested Capital (ROIC)1 FOR PERSONAL USE ONLY 0.8ppt 8.8 8.0 6.7 4.4 2.0 FY2010 FY2011 FY2012 FY2013 FY2014 1. Underlying 54
Slide 55: Dividend history
Dividend history Payment Date Amount per share (cents) Franking FY2014 Final1 22 September 2014 8.5 0% FY2014 Interim 28 March 2014 8.0 80% FOR PERSONAL USE ONLY FY2014 Total dividend 16.5 FY2013 Final 23 September 2013 8.2 90% FY2013 Interim 27 March 2013 4.1 70% FY2013 Total dividend 12.3 FY2012 F
Slide 56: Debt summary
Debt summary Aurizon Group $0.325bn maturity profile as $m at 30 June 2014 Credit ratings unchanged at BBB+/Baa1 25 Drawn Debt Stable debt maturity profile with an average tenor of 3.5 Undrawn Debt years (FY2013 - 3.6 years) FOR PERSONAL USE ONLY 300 275 Liquidity at 30 June 2014 $0.94bn (undr
Slide 57: Group and segment capital expenditure
Group and segment capital expenditure ($m) FY2014 capex and segment breakdown1 FOR PERSONAL USE ONLY 932 473 595 336 459 159 259 71 97 89 10 16 26 70 55 71 4 6 FY2014 Network Coal Iron Ore Freight Other2 Growth Sustaining 1. FY2014 excludes $120m strategic projects asset impairment (growth capex) 2.
Slide 58: Major committed Network growth projects
Major committed Network growth projects Wiggins Island Rail WIRP is the staged development of new rail lines and upgrading of existing lines to service the new Project (WIRP) Wiggins Island Coal Export Terminal at the Port of Gladstone Commenced: FY2012 FOR PERSONAL USE ONLY Spend to date: $52
Slide 59: Wiggins Island Rail Project (WIRP)
Wiggins Island Rail Project (WIRP) WIRP is designed to link mines in the Southern Bowen Basin with the new Wiggins Island Coal Export Terminal (WICET) at the Port FOR PERSONAL USE ONLY of Gladstone increasing total capacity of the Blackwater and Moura systems by 27mtpa, or approx. 30% at full prod
Slide 60: Major committed Coal growth projects
Major committed Coal growth projects Hexham Train Stage one of the Hexham Train Support Facility (TSF) will service Aurizon’s growing Hunter Valley Support Facility coal freight business and alleviate capacity pressures in the coal supply chain Hunter Valley The TSF will provide for statutory an
Slide 61: Network Regulation update
Network Regulation update Transitional Tariffs In June 2014, a “Transitional Tariffs” Draft Amending Access Undertaking (DAAU) was approved by the QCA to further extend UT3 to the earlier of 30 June 2015 and the QCA’s final determination on UT4, and to apply transitional Reference Tariffs for FY20
Slide 62: Demand for seaborne thermal coal expected to grow 3.4% per annum
Demand for seaborne thermal coal is expected to grow at 3.4% per annum through to 2023 Thermal Seaborne Export Demand By Country (mt) +3.4% 1,296 1,049 1,059 Other 982 1,024 952 964 906 Taiwan In 2014, subdued demand from China’s power sector and 807 717 South Korea high inventories through the su
Slide 63: China and India will drive electricity demand
China and India will drive absolute electricity demand with thermal coal remaining the dominant fuel source +3.3% Electricity demand growth, 2011-2035, TWh, CAGR 5,000 Projected growth to 2035 in coal power generation 4,500 capacity in Non-OECD nations suggests that one new thermal power plant is re
Slide 64: Unit costs reduced in Australian coal supply
Reversing earlier cost escalation, increased volumes and cost cutting have reduced unit costs in Australian coal supply Coal price movements influence operating costs During the period 2009-2012, a high coal price environment resulted in a cost escalation of 93% driven by wage inflation 450 and lo
Slide 65: Australia dominant seaborne metallurgical coal supplier
Australia remains the dominant seaborne metallurgical coal supplier with cost position improving 140 Weighted Average cash costs US$/t US Appalachia 120 Mozambique Canada Metallurgical coal costs have shifted lower over 100 Vietnam the past two years, and Australia’s position on Australia the seab
Slide 66: Chinese domestic iron ore production expected to be displaced
Chinese domestic iron ore production is expected to be displaced Australian supply expansions Iron Ore Export Demand By Country (mt) +2.1% Rapid increase in Australia’s exports of Iron Ore exports, 1,572 1,605 1,677 including 24%/yr growth in FY14, has underpinned 1,477 1,527 Other substantial add
Slide 67: 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 68: FY2014 Results Presentation
FY2014 Results Presentation Lance Hockridge – Managing Director & CEO Keith Neate – EVP & CFO Mike Franczak – EVP Operations 18 August 2014