Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — 1HFY2016 Earnings Presentation
70 slides from Aurizon's earnings presentation, Feb 15, 2016
Slide 1: ASX announcement: Half Year Results Analyst Presentation
Aurizon Holdings Limited ABN 14 146 335 622 For personal use only ASX Market Announcements ASX Limited 20 Bridge Street Sydney NSW 2000 BY ELECTRONIC LODGEMENT 15 February 2016 Half Year Results Analyst Presentation Please find attached for immediate release to the market, the Half Year Results anal
Slide 2: 1HFY2016 Results
For personal use only 1HFY2016 Results Lance Hockridge – MD & CEO Keith Neate – EVP & CFO
Slide 3: Important notice
Important notice ONLYonly 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
Slide 4: Half year in review
For personal use only Half year in review Lance Hockridge - Managing Director & CEO
Slide 5: Group highlights – 1HFY2016
Group highlights – 1HFY2016 ONLYonly Safety › ZERO LTIFR, a first for Aurizon. TRIFR increased 25% versus 2HFY2015 Results › Revenue down 11% to $1.76bn, underlying EBIT down 17% to $403m › Excluding previously announced items, revenue down 4%, underlying EBIT down 2% against 5% volume decline use ›
Slide 6: Above Rail highlights
Above Rail highlights ONLYonly EBIT decrease driven by expired revenue contracts and volume reduction Revenue › Down 12% to $1.6bn › Coal Above Rail revenue down 6%. Excluding fuel (pass through) down 4% in line with volume decline use › Freight down 22%, adjusting for expired contracts (CRT & TSC)
Slide 7: Below Rail highlights
Below Rail highlights ONLYonly EBIT uplift driven by higher revenue based on UT4 Consolidated Draft Decision Revenue › Increased 10% to $581m with revenue based on Consolidated Draft Decision (CDD) EBIT › Increased 12% ($27m) to $245m, 61% of the group result use (underlying) › Operating costs flat
Slide 8: Transformation update
Transformation update ONLYonly Headline › Transformation program since IPO has delivered significant improvements in safety, productivity and customer Benefits service › $56m in benefits realised in the period, $308m since July 2013 Operations › Enterprise Agreements (EA) implemented, facilitating t
Slide 9: Safety performance, our target is ZERO
Safety performance, our target is ZERO LTIFRs recorded in 1HFY2016, an Aurizon first ONLYonly TRIFR increase includes the impact of the Julia Creek derailment on 27 December 2015 Lost Time Injury Frequency Rate (LTIFR)1 Total Recordable Injury Frequency Rate (TRIFR)1 use PERSONAL USE 11.43 55.65 Los
Slide 10: Results analysis
For personal use only Results analysis Keith Neate – EVP & CFO
Slide 11: Group financial highlights
Group financial highlights ONLYonly $m 1HFY2016 1HFY2015 Variance › Sale of Redbank and impact of expired revenue contracts in Revenue 1,758 1,965 (11%) use FY2015 and 5% volume decline in 1HFY2016 › Includes $16m one off cost of employee shares and $18m EBIT – underlying1 403 486 (17%) PERSONAL USE
Slide 12: Earnings reconciliation and significant items
Earnings reconciliation and significant items ONLYonly Earnings reconciliation Significant items – December guidance vs actual 1H FY2015 FY2016 FY2015 Guidance Actual use $m Underlying EBIT 403 486 970 Aquila Investment PERSONAL USE Significant items - Non West Pilbara investment 60-65 62 impairment
Slide 13: EBIT bridge – Group
EBIT bridge – Group Includes: › Depreciation – ($27m) ONLYonly › QNI provision – ($18m) › Labour escalation – ($16m) 486 › Volume related costs - $17m Revenue excluding › Non cash provision - $7m access and fuel › Coal – ($25m) use 40 › Bulk – ($16m) › Iron ore – ($4m) › Intermodal – ($2m) PERSONAL
Slide 14: EBIT bridge – Above Rail
EBIT bridge – Above Rail ONLYonly Revenue excluding › Labour - $34m access and fuel › Fleet productivity - $7m Includes: › Coal – ($25m) › Rollingstock maintenance - $5m › QNI provision – ($18m) › Bulk – ($16m) › Consumables - $5m › Labour escalation – ($15m) › Iron Ore – ($4m) › Fuel consumption -
Slide 15: EBIT bridge – Below Rail
EBIT bridge – Below Rail ONLYonly Includes: Includes: › Energy & connection › WIRP – ($11m) › costs – ($12m) Access - $59m › Rail renewals – ($6m) › Other services - ($8m) › Capitalisation of rail renewals - $12m use PERSONAL USE 5 personal 19 245 51 218 For FOR 1HFY15 Revenue Operating Costs Deprec
Slide 16: Capex update
Capex update ONLYonly Capital expenditure FY2015 – FY2017 ($m)1 1,107 › Forecast capex spend reduced $150-200m over next 18 months in light of current trading conditions use ~$1,100m › Committed growth programs winding down – WIRP, 472 Whitehaven rollingstock and Hexham PERSONAL USE › Transformation
Slide 17: Cash flow summary
Cash flow summary 1H ONLYonly $m FY2016 FY2015 EBITDA - statutory 257 739 › $126m Free Cash Flow generated in Working capital & other movements (47) (48) 1HFY2016 vs $59m in 1HFY2015 use Non-cash impairments 426 - › Free cash flow generation expected to improve through further capex reduction in Cas
Slide 18: Funding Update
Funding Update ONLYonly Funding activity Above Rail $0.350bn maturity profile Drawn Debt Undrawn Debt › Bank debt facilities of $490m repriced in December 2015 $m and maturity extended to FY2022 50 › Interest cost on drawn debt 4.65%, down from 4.9% use › Liquidity at 31 December 2015 $613m (undrawn
Slide 19: Business and customer update
For personal use only Business and customer update Lance Hockridge – Managing Director & CEO
Slide 20: Aurizon's shareholder value focus remains
Aurizon’s shareholder value focus remains › Investment fundamentals have not changed ONLYonly › Stable, defensive, regulated Below Rail business › Resilient Above Rail business due to strong counterparties and revenue contract protection, but high fixed cost and sensitive to short term volume fluctu
Slide 21: Coal market update
Coal market update Metallurgical coal seaborne exports Australia’s metallurgical coal exports ONLYonly Volume and market share, calendar years by destination (CY15) › Australian volume resilient to date with EU-28 2015 export volume broadly steady on the 400 70 South Korea +5pts previous year despit
Slide 22: Coal customer update
Coal customer update Aurizon’s customer quality remains strong and Contract protection remains, delivering value for ONLYonly resilient through the cycle both parties › Volumes split by coal type › New form contracts – 80% of 1HFY2016 volumes › Total: 51% metallurgical, 49% thermal › 96% new form by
Slide 23: Coal Above Rail revenue composition
Coal Above Rail revenue1 composition ONLYonly 612 Core revenue remains stable despite volume decline 42 575 577 21 24 30 18 10 › Fixed revenue (capacity charge) has increased and variable use revenue (usage charge) has decreased reflecting increase in new 182 233 form volumes 230 PERSONAL USE › Fuel
Slide 24: Coal contract expiry
Coal contract expiry Aurizon Above Rail contract volume expiry by year (mtpa, as at January 2016) ONLYonly No material contract expiries until FY2021 45 use Duralie: FY16 ► FY17 Cameby Downs: FY16 ► FY18 40 Dawson: FY17 ► FY25 PERSONAL USE 35 personal Million tonnes per annum 30 25 20 15 For FOR 10
Slide 25: Iron Ore & Freight customer update
Iron Ore & Freight customer update ONLYonly Iron Ore Bulk Freight › Challenging trading conditions exist and Aurizon continues › Prices remain depressed for many commodities, resulting in a to work with customers in order to identify cost saving and difficult environment for customers use productivi
Slide 26: Capital management strategy
Capital management strategy Aurizon seeks to create shareholder value through capital investment, dividends and ONLYonly returning surplus funds where appropriate use Priority $8.4bn since IPO PERSONAL USE personal Sustaining capital $2.2bn ROIC increased 4.4ppts to 8.8% Transformational $3.5bn and
Slide 27: West Pilbara update
West Pilbara update ONLYonly No further work on definitive feasibility studies, focus is on retaining project optionality and relationships use › At the December CEO meeting, Aurizon and its partners decided that: › no further material work will be undertaken on definitive feasibility studies PERSON
Slide 28: Outlook & summary
For personal use only Outlook & summary Lance Hockridge – Managing Director & CEO
Slide 29: Outlook
Outlook ONLYonly › In light of recent events, underlying EBIT guidance is being provided for FY2016 at $845m - $885m, key assumptions as follows: › Above Rail – coal volumes 204-209mt, stable freight and iron ore volumes use › Below Rail – UT4: no material change from latest Consolidated Draft PERSO
Slide 30: Summary
Summary ONLYonly › Operating environment for customers is challenging, rebased earnings reflect this › Core business risks and opportunities have not materially changed use › Transformation program remains core focus of management and underpins earnings growth going forward › Cost out, efficiency an
Slide 31: Questions & Answers
For personal use only Questions & Answers
Slide 32: 1HFY2016 Results Additional information
For personal use only 1HFY2016 Results Additional information
Slide 33: Aurizon Operations Snapshot
personal For FOR PERSONAL USE useONLYonly Aurizon Operations Snapshot 32
Slide 34: North American Class 1s operating ratios and ROICs
North American Class 1s have shown Operating Ratios <70% and ROICs >12% are achievable – Aurizon is on its way ONLYonly Class 1s have driven operating ratios below 70% Class 1s ROICs are trending around 13%. Recent in recent years largely driven by revenue growth declines driven by high levels of su
Slide 35: Aurizon's Blueprint sets the vision and roadmap
Aurizon’s Blueprint sets the vision and roadmap for the future ONLYonly To be a world leading rail-based transport business that partners with customers for growth. use PERSONAL USE We are an Australian rail-based transport business with a global orientation that creates value personal sustainably f
Slide 36: How we will deliver our strategy
How we will deliver our strategy ONLYonly To develop and operate multi-customer, rail-based, integrated supply chains use PERSONAL USE Customer Focus Productivity Improvement Growth Opportunities personal Deliver great service Drive safety, efficiency & disciplined execution Bulk supply chains Innov
Slide 37: Group Financial Information
For personal use only Group Financial Information
Slide 38: Accounting Changes in 1HFY2016
Accounting Changes in 1HFY2016 ONLYonly › Rail renewal is the replacement of a section of worn track due to fatigue defects. The new accounting policy is to capitalise and componentise all costs of rail renewal as separate identifiable assets as the rail renewal restores the rail profile, reduces wh
Slide 39: Financial highlights – Underlying
Financial highlights – Underlying ONLYonly 1H $m Variance FY2016 FY2015 Revenue 1,758 1,965 (11%) use EBITDA 683 739 (8%) PERSONAL USE EBIT 403 486 (17%) personal NPAT 237 308 (23%) EPS (cps) 11.2 14.4 (22%) For FOR Interim dividend (cps) 11.3 10.1 12% ROIC 8.8% 9.4% (0.6 ppt) Gearing 35.4% 30.7% (4
Slide 40: Underlying EBIT by segment
Underlying EBIT by segment ONLYonly 1H 2H Variance $m FY2016 FY2015 FY2015 use Network (Below Rail) 245 218 12% 266 PERSONAL USE Above Rail 185 273 (32%) 279 personal - Commercial & Marketing 1,468 1,595 (8%) 1,484 - Operations (1,283) (1,322) 3% (1,205) For FOR Other (27) (5) - (61) Group 403 486 (
Slide 41: Group operating highlights
Group operating highlights ONLYonly 1H 2H Variance FY2016 FY2015 FY2015 use Revenue / NTK ($/’000 NTK) 48.2 52.7 (9%) 51.7 PERSONAL USE Labour Costs / Revenue 25.5% 26.8% 1.3 ppt 24.6% personal NTK / FTE (MNTK) 11.3 10.7 6% 10.2 EBITDA Margin – Underlying 38.9% 37.6% 1.3 ppt 41.3% Operating Ratio –
Slide 42: Operations metrics
Operations metrics ONLYonly Metric 1HFY2016 1HFY2015 Variance Net operations Opex1/NTK 35.2 35.4 1% ($/‘000 NTK) Opex Net operations Opex/NTK 20.9 22.1 5% (ex-access)2($/‘000 NTK) use Production Net tonne kilometres (bn) 36.5 37.3 (2%) PERSONAL USE Tonnes (m) 138.9 146.0 (5%) personal Full time equi
Slide 43: 1HFY2016 vs 2HFY2015 underlying EBIT bridge
1HFY2016 vs 2HFY2015 underlying EBIT bridge Includes › QNI provision - ($18m) ONLYonly › Depreciation - ($16m) › Coal - $12m › Labour escalation - ($16m) › Intermodal - $10m › Below Rail fuel and energy - ($7m) › Bulk - $10m 490 › Iron Ore – ($2m) 484 480 use 470 37 PERSONAL USE 460 450 447 34 perso
Slide 44: Balance sheet summary
Balance sheet summary ONLYonly As at ($m) 31 Dec 2015 30 Jun 2015 Total current assets 844 934 use Property, plant & equipment 9,693 9,900 Other non-current assets 395 502 PERSONAL USE Total assets 10,932 11,336 personal Other current liabilities (625) (845) Total borrowings (3,411) (2,983) Other no
Slide 45: Reconciliation of Borrowings
Reconciliation of Borrowings ONLYonly Commentary Total debt per slide 17 (cash basis) 3,276 use Add/(less): PERSONAL USE Short-term borrowings 100 › Short-term borrowing › Transaction costs directly attributable to borrowing is capitalised in personal Transaction costs capitalised (15) accordance wi
Slide 46: Dividend history
Dividend history Amount per share ONLYonly Payment Date Franking Payout Ratio (cents) FY2016 Final tbd tbd 1 FY2016 Interim 29 March 2016 11.3 70% 100% FY2016 Total dividend tbd use FY2015 Final 28 September 2015 13.9 30% 100% FY2015 Interim 23 March 2015 10.1 0% 70% PERSONAL USE FY2015 Total divide
Slide 47: Function & Segment detail
For personal use only Function & Segment detail
Slide 48: Below Rail (Network) profit & loss - Underlying
Below Rail (Network) profit & loss - Underlying ONLYonly 1H 2H Variance $m fav / (adv) FY2016 FY2015 FY2015 Tonnes (million) 114.0 114.7 (1%) 111.0 use Revenue - Access 560 501 12% 547 PERSONAL USE - Services 2 6 (67%) 7 personal - Other 19 23 (17%) 24 Total Revenue 581 530 10% 578 Operating costs (
Slide 49: Above Rail profit & loss - Underlying
Above Rail profit & loss - Underlying ONLYonly 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 Revenue 1,612 1,830 (12%) 1,653 use Track Access (519) (497) (4%) (476) PERSONAL USE Employee Benefits (399) (443) 10% (391) personal Consumables (262) (351) 25% (282) Fuel (71) (112) 37% (72) Other (23
Slide 50: Commercial & Marketing profit & loss - Underlying
Commercial & Marketing profit & loss - Underlying ONLYonly 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 Total revenue 1,510 1,654 (9%) 1,497 use Coal 950 970 (2%) 924 PERSONAL USE - Below Rail 373 358 4% 349 personal - Other 577 612 (6%) 575 Freight 397 509 (22%) 410 Iron Ore 163 175 (7%) 163
Slide 51: Operations profit & loss - Underlying
Operations profit & loss - Underlying ONLYonly 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 Revenue 102 176 (42%) 156 use Track Access (519) (497) (4%) (476) PERSONAL USE Employee Benefits (382) (413) 8% (374) personal Consumables (257) (325) 21% (279) Energy & Fuel (71) (109) 35% (74) Other (
Slide 52: Other profit & loss - Underlying
Other profit & loss - Underlying ONLYonly 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 Revenue 13 47 (72%) (1) use Employee Benefits (19) (30) 37% (24) PERSONAL USE Consumables (19) (10) (90%) (15) personal Other - (10) - (19) Total operating expenses (38) (50) 24% (58) EBITDA (25) (3) - (59)
Slide 53: Aurizon Network Overview
Aurizon Network Overview ONLYonly Central Queensland Coal Network (CQCN) › The CQCN comprises 4 major coal systems and 1 connecting system link serving Queensland’s Bowen Basin coal region: Newlands, Goonyella, Blackwater and Moura with GAPE the use connecting system link › 2,670 kilometres network
Slide 54: Below Rail (Network) volumes (mt)
1 Below Rail (Network) volumes (mt) ONLYonly 1H Variance 2H FY2016 FY2015 fav / (adv) FY2015 Newlands 6.1 8.0 (24%) 6.6 use Goonyella 59.8 60.1 (0%) 59.6 PERSONAL USE Blackwater 30.8 32.5 (5%) 30.3 personal Moura 6.5 6.5 0% 5.7 GAPE 7.9 7.6 4% 7.8 WIRP 2.9 - 0.9 For FOR Total 114.0 114.7 (1%) 110.9
Slide 55: Queensland 1HFY2016 Take-or-Pay
Queensland 1HFY2016 Take-or-Pay1 ONLYonly $m Coal Network1 Consolidated Income use Coal Customers 0.0 0.0 PERSONAL USE Network Customers 0.0 0.0 Expense personal Aurizon Network 0.0 0.0 Queensland Rail 0.0 0.0 Prior Year Adjustments 0.0 0.0 For FOR EBIT increase/(decrease) 0.0 0.0 0.0 1. Take-or-Pay
Slide 56: Network revenue cap adjustments
Network revenue cap adjustments ONLYonly AT2-4 AT5 › Revenue cap is the difference by System between Network’s Total Year (diesel tariff) (electric tariff) Total Actual Revenue (TAR) and System Allowable Revenue $m $m $m (SAR) and also includes rebates and energy cost variations. This is collected t
Slide 57: Coal haulage tonnages (mt) by system
Coal haulage tonnages (mt) by system ONLYonly 1H Variance 2H FY2016 FY2015 Fav / (adv) FY2015 use Queensland Newlands 10.5 11.3 (7%) 10.9 PERSONAL USE Goonyella 28.9 34.8 (17%) 30.4 personal Blackwater 32.3 31.2 4% 29.8 Moura 6.9 6.7 3% 5.9 West Moreton 3.4 3.7 (8%) 3.6 Total Qld 82.0 87.7 (6%) 80.6
Slide 58: Coal Take-or-Pay accrual
Coal Take-or-Pay accrual ONLYonly 1H 2H $m FY2016 FY2015 FY2015 use Take-or-Pay charge1 (Expense) 0.0 (7.2) (2.1) PERSONAL USE Take-or-Pay passed through to customers (Revenue) 0.0 0.0 1.4 personal Adjustments2 relating to earlier years 0.0 0.0 (0.7) Net EBIT impact 0.0 (7.2) (1.4) For FOR 1. Princi
Slide 59: Queensland Coal - Deficit Tonnage Charges (DTC)
Queensland Coal - Deficit Tonnage Charges (DTC) ONLYonly Full Year YoY › A form of protection for the Above Rail Coal business $m 2H 1H Charge Variance when actual tonnages are less than contracted 2016 - 2 - - › DTC refers to the period in which the income was use recognised in the P&L, not the per
Slide 60: Above Rail Coal contractual outlook
Above Rail Coal contractual outlook ONLYonly Aurizon’s Annualised Coal Above Rail revenue “Old Form” vs. “New Above Rail Coal Contracted breakdown Form” coal volumes4 Volumes (mtpa)1 use 230 225 100% 100% PERSONAL USE 217 4% 4% 41 21% 45 28% 28% 47 36% 38% 37% personal 96% 96% 189 180 79% 170 72% 72
Slide 61: Capital Expenditure
For personal use only Capital Expenditure
Slide 62: 1HFY2016 group and functional capital expenditure
1HFY2016 group and functional capital expenditure ($m) ONLYonly 341 use PERSONAL USE 199 personal 198 122 120 61 60 11 81 46 For FOR 65 15 2 8 14 4 9 1HFY2016 Network Operations Support Other1 Sustaining Transformational and productivity Growth 1. Capitalised interest 61
Slide 63: Wiggins Island Rail Project (WIRP)
Wiggins Island Rail Project (WIRP) ONLYonly › WIRP is a project designed to link mines in the Southern Bowen Basin with the new Wiggins Island Coal Export Terminal (WICET) at the Port of Gladstone and will increase the total capacity of the Moura and Blackwater systems by 27mtpa (30%). Total estimat
Slide 64: WIRP Fast Facts
WIRP Fast Facts ONLYonly › Wiggins Island Rail Project (WIRP) Stage 1 will facilitate transport of 27mtpa of coal to the new Wiggins Island Coal Export Terminal (WICET) › 33% increase in export tonnage transported in the Blackwater and Moura systems (81mtpa to 108mtpa) › $0.8bn(1) investment in new
Slide 65: Major Operations projects
Major Operations projects ONLYonly Whitehaven › Delivery of new rollingstock for the start-up of Whitehaven’s Maules Creek mine New Rollingstock › Tranche 1 – 3 new consists were commissioned and progressively introduced into service from Coal - NSW December 2014 - March 2015 › Tranche 2 – 88 new wa
Slide 66: Hexham facility operational
Hexham facility operational ONLYonly Hexham Train › The Long Term Train Support Facility (LTTSF) at Support Facility Hexham has been operational since July 2015 Hunter Valley › This new world class facility provides Aurizon existing and future fleet maintenance and provisioning capability, driving i
Slide 67: Freight transformation project
Freight transformation project ONLYonly Stuart Intermodal › $40m new intermodal facility contributes to both Aurizon’s real estate footprint consolidation and facility, Townsville investment in the Freight business › Site includes a freight distribution centre, a modern container terminal and three
Slide 68: Network Control improvement project
Network Control improvement project Paper based scheduling transferring to ONLYonly Advanced › Software solution to support faster, more responsive system based Planning & planning and scheduling of trains from two years out to ‘day Execution of operations’ (APEX) › APEX ‘day of operations’ represen
Slide 69: 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 ONLYonly CQCN Central Queensland Coal Network d
Slide 70: For personal use only
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