Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — H1 2016 Earnings Presentation
69 slides from Aurizon's earnings presentation, 2016
Slide 1: 1HFY2016 Results
1HFY2016 Results Lance Hockridge – MD & CEO Keith Neate – EVP & CFO
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: Half year in review
Half year in review Lance Hockridge - Managing Director & CEO
Slide 4: Group highlights – 1HFY2016
Group highlights – 1HFY2016 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 FOR PERSONAL USE ONLY
Slide 5: Above Rail highlights
Above Rail highlights EBIT decrease driven by expired revenue contracts and volume reduction Revenue › Down 12% to $1.6bn FOR PERSONAL USE ONLY › Coal Above Rail revenue down 6%. Excluding fuel (pass through) down 4% in line with volume decline › Freight down 22%, adjusting for expired contracts (CR
Slide 6: Below Rail highlights
Below Rail highlights 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) FOR PERSONAL USE ONLY EBIT › Increased 12% ($27m) to $245m, 61% of the group result (underlying) › Operating co
Slide 7: Transformation update
Transformation update 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 FOR PERSONAL USE ONLY Operations › Enterprise Agreements (EA) implemented, f
Slide 8: Safety performance, our target is zero
Safety performance, our target is ZERO LTIFRs recorded in 1HFY2016, an Aurizon first TRIFR increase includes the impact of the Julia Creek derailment on 27 December 2015 FOR PERSONAL USE ONLY Lost Time Injury Frequency Rate (LTIFR)1 Total Recordable Injury Frequency Rate (TRIFR)1 11.43 55.65 Lost ti
Slide 9: Results analysis
Results analysis Keith Neate – EVP & CFO
Slide 10: Group financial highlights
Group financial highlights $m 1HFY2016 1HFY2015 Variance FOR PERSONAL USE ONLY › Sale of Redbank and impact of expired revenue contracts in Revenue 1,758 1,965 (11%) FY2015 and 5% volume decline in 1HFY2016 › Includes $16m one off cost of employee shares and $18m EBIT – underlying1 403 486 (17%) QNI
Slide 11: Earnings reconciliation and significant items
Earnings reconciliation and significant items Earnings reconciliation Significant items – December guidance vs actual 1H FY2015 FOR PERSONAL USE ONLY $m FY2016 FY2015 Guidance Actual Underlying EBIT 403 486 970 Aquila Investment Significant items - Non West Pilbara investment 60-65 62 impairment Wes
Slide 12: EBIT bridge – Group
EBIT bridge – Group Includes: › Depreciation – ($27m) › QNI provision – ($18m) › Labour escalation – ($16m) 486 › Volume related costs - $17m Revenue excluding › Non cash provision - $7m access and fuel FOR PERSONAL USE ONLY › Coal – ($25m) 40 › Bulk – ($16m) › Iron ore – ($4m) › Intermodal – ($2m)
Slide 13: EBIT bridge – Above Rail
EBIT bridge – Above Rail 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 - $2m › Dep
Slide 14: EBIT bridge – Below Rail
EBIT bridge – Below Rail Includes: Includes: › Energy & connection › WIRP – ($11m) › costs – ($12m) Access - $59m › Rail renewals – ($6m) › Other services - ($8m) › Capitalisation of rail renewals - $12m FOR PERSONAL USE ONLY 5 19 245 51 218 1HFY15 Revenue Operating Costs Depreciation 1HFY16 14
Slide 15: Capex update
Capex update Capital expenditure FY2015 – FY2017 ($m)1 1,107 › Forecast capex spend reduced $150-200m over next 18 months in light of current trading conditions FOR PERSONAL USE ONLY ~$1,100m › Committed growth programs winding down – WIRP, 472 Whitehaven rollingstock and Hexham › Transformation and
Slide 16: Cash flow summary
Cash flow summary 1H $m FY2016 FY2015 EBITDA - statutory 257 739 › $126m Free Cash Flow generated in FOR PERSONAL USE ONLY Working capital & other movements (47) (48) 1HFY2016 vs $59m in 1HFY2015 Non-cash impairments 426 - › Free cash flow generation expected to improve through further capex reducti
Slide 17: Funding Update
Funding Update 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 FOR PERSONAL USE ONLY 50 › Interest cost on drawn debt 4.65%, down from 4.9% › Liquidity at 31 December 2015 $613m
Slide 18: Business and customer update
Business and customer update Lance Hockridge – Managing Director & CEO
Slide 19: Aurizon's shareholder value focus remains
Aurizon’s shareholder value focus remains › Investment fundamentals have not changed › 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 fluctuations FO
Slide 20: Coal market update
Coal market update Metallurgical coal seaborne exports Australia’s metallurgical coal exports 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 despite weaker
Slide 21: Coal customer update
Coal customer update Aurizon’s customer quality remains strong and Contract protection remains, delivering value for 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 FY2018 F
Slide 22: Coal Above Rail revenue composition
Coal Above Rail revenue1 composition 612 Core revenue remains stable despite volume decline 42 575 577 21 24 30 18 10 FOR PERSONAL USE ONLY › Fixed revenue (capacity charge) has increased and variable revenue (usage charge) has decreased reflecting increase in new 182 233 form volumes 230 › Fuel rev
Slide 23: Coal contract expiry
Coal contract expiry Aurizon Above Rail contract volume expiry by year (mtpa, as at January 2016) No material contract expiries until FY2021 FOR PERSONAL USE ONLY 45 Duralie: FY16 ► FY17 Cameby Downs: FY16 ► FY18 40 Dawson: FY17 ► FY25 35 Million tonnes per annum 30 25 20 15 10 5 0 FY16 FY17 FY18 FY
Slide 24: Iron Ore & Freight customer update
Iron Ore & Freight customer update Iron Ore Bulk Freight › Challenging trading conditions exist and Aurizon continues › Prices remain depressed for many commodities, resulting in a FOR PERSONAL USE ONLY to work with customers in order to identify cost saving and difficult environment for customers p
Slide 25: Capital management strategy
Capital management strategy Aurizon seeks to create shareholder value through capital investment, dividends and returning surplus funds where appropriate FOR PERSONAL USE ONLY Priority $8.4bn since IPO Sustaining capital $2.2bn ROIC increased 4.4ppts to 8.8% Transformational $3.5bn and growth capita
Slide 26: West Pilbara update
West Pilbara update No further work on definitive feasibility studies, focus is on retaining project optionality and relationships FOR PERSONAL USE ONLY › At the December CEO meeting, Aurizon and its partners decided that: › no further material work will be undertaken on definitive feasibility studi
Slide 27: Outlook & summary
Outlook & summary Lance Hockridge – Managing Director & CEO
Slide 28: Outlook
Outlook › In light of recent events, underlying EBIT guidance is being provided for FY2016 at $845m - $885m, key assumptions as follows: FOR PERSONAL USE ONLY › Above Rail – coal volumes 204-209mt, stable freight and iron ore volumes › Below Rail – UT4: no material change from latest Consolidated Dr
Slide 29: Summary
Summary › Operating environment for customers is challenging, rebased earnings reflect this › Core business risks and opportunities have not materially changed FOR PERSONAL USE ONLY › Transformation program remains core focus of management and underpins earnings growth going forward › Cost out, effi
Slide 30: Questions & Answers
Questions & Answers
Slide 31: 1HFY2016 Results Additional information
1HFY2016 Results Additional information
Slide 32: Aurizon Operations Snapshot
Aurizon Operations Snapshot FOR PERSONAL USE ONLY 32
Slide 33: 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 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 sustaining
Slide 34: Aurizon's Blueprint sets the vision and roadmap
Aurizon’s Blueprint sets the vision and roadmap for the future To be a world leading rail-based transport business FOR PERSONAL USE ONLY that partners with customers for growth. We are an Australian rail-based transport business with a global orientation that creates value sustainably for our custom
Slide 35: How we will deliver our strategy
How we will deliver our strategy To develop and operate multi-customer, rail-based, integrated supply chains FOR PERSONAL USE ONLY Customer Focus Productivity Improvement Growth Opportunities Deliver great service Drive safety, efficiency & disciplined execution Bulk supply chains Innovate commercia
Slide 36: Group Financial Information
Group Financial Information
Slide 37: Accounting Changes in 1HFY2016
Accounting Changes in 1HFY2016 › 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 wheel wear
Slide 38: Financial highlights – Underlying
Financial highlights – Underlying 1H $m Variance FY2016 FY2015 FOR PERSONAL USE ONLY Revenue 1,758 1,965 (11%) EBITDA 683 739 (8%) EBIT 403 486 (17%) NPAT 237 308 (23%) EPS (cps) 11.2 14.4 (22%) Interim dividend (cps) 11.3 10.1 12% ROIC 8.8% 9.4% (0.6 ppt) Gearing 35.4% 30.7% (4.7 ppt) 38
Slide 39: Underlying EBIT by segment
Underlying EBIT by segment 1H 2H Variance $m FY2016 FY2015 FY2015 FOR PERSONAL USE ONLY Network (Below Rail) 245 218 12% 266 Above Rail 185 273 (32%) 279 - Commercial & Marketing 1,468 1,595 (8%) 1,484 - Operations (1,283) (1,322) 3% (1,205) Other (27) (5) - (61) Group 403 486 (17%) 484 39
Slide 40: Group operating highlights
Group operating highlights 1H 2H Variance FY2016 FY2015 FOR PERSONAL USE ONLY FY2015 Revenue / NTK ($/’000 NTK) 48.2 52.7 (9%) 51.7 Labour Costs / Revenue 25.5% 26.8% 1.3 ppt 24.6% NTK / FTE (MNTK) 11.3 10.7 6% 10.2 EBITDA Margin – Underlying 38.9% 37.6% 1.3 ppt 41.3% Operating Ratio – Underlying 77
Slide 41: Operations metrics
Operations metrics Metric 1HFY2016 1HFY2015 Variance Net operations Opex1/NTK 35.2 35.4 1% ($/‘000 NTK) Opex Net operations Opex/NTK FOR PERSONAL USE ONLY 20.9 22.1 5% (ex-access)2($/‘000 NTK) Production Net tonne kilometres (bn) 36.5 37.3 (2%) Tonnes (m) 138.9 146.0 (5%) Full time equivalents (FTE)
Slide 42: 1HFY2016 vs 2HFY2015 underlying EBIT bridge
1HFY2016 vs 2HFY2015 underlying EBIT bridge Includes › QNI provision - ($18m) › Depreciation - ($16m) › Coal - $12m › Labour escalation - ($16m) › Intermodal - $10m › Below Rail fuel and energy - ($7m) › Bulk - $10m 490 › Iron Ore – ($2m) 484 FOR PERSONAL USE ONLY 480 470 37 460 450 447 34 30 29 440
Slide 43: Balance sheet summary
Balance sheet summary As at ($m) 31 Dec 2015 30 Jun 2015 Total current assets 844 934 FOR PERSONAL USE ONLY Property, plant & equipment 9,693 9,900 Other non-current assets 395 502 Total assets 10,932 11,336 Other current liabilities (625) (845) Total borrowings (3,411) (2,983) Other non-current lia
Slide 44: Reconciliation of Borrowings
Reconciliation of Borrowings Commentary Total debt per slide 17 (cash basis) 3,276 FOR PERSONAL USE ONLY Add/(less): Short-term borrowings 100 › Short-term borrowing › Transaction costs directly attributable to borrowing is capitalised in Transaction costs capitalised (15) accordance with AASB 9 Dis
Slide 45: Dividend history
Dividend history Amount per share Payment Date Franking Payout Ratio (cents) FY2016 Final tbd tbd 1 FY2016 Interim 29 March 2016 11.3 70% 100% FY2016 Total dividend tbd FOR PERSONAL USE ONLY FY2015 Final 28 September 2015 13.9 30% 100% FY2015 Interim 23 March 2015 10.1 0% 70% FY2015 Total dividend 2
Slide 46: Function & Segment detail
Function & Segment detail
Slide 47: Below Rail (Network) profit & loss - Underlying
Below Rail (Network) profit & loss - Underlying 1H 2H Variance $m fav / (adv) FY2016 FY2015 FY2015 FOR PERSONAL USE ONLY Tonnes (million) 114.0 114.7 (1%) 111.0 Revenue - Access 560 501 12% 547 - Services 2 6 (67%) 7 - Other 19 23 (17%) 24 Total Revenue 581 530 10% 578 Operating costs (211) (206) (2
Slide 48: Above Rail profit & loss - Underlying
Above Rail profit & loss - Underlying 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 FOR PERSONAL USE ONLY Revenue 1,612 1,830 (12%) 1,653 Track Access (519) (497) (4%) (476) Employee Benefits (399) (443) 10% (391) Consumables (262) (351) 25% (282) Fuel (71) (112) 37% (72) Other (23) (9) - 2 Tot
Slide 49: Commercial & Marketing profit & loss - Underlying
Commercial & Marketing profit & loss - Underlying 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 FOR PERSONAL USE ONLY Total revenue 1,510 1,654 (9%) 1,497 Coal 950 970 (2%) 924 - Below Rail 373 358 4% 349 - Other 577 612 (6%) 575 Freight 397 509 (22%) 410 Iron Ore 163 175 (7%) 163 Operating cos
Slide 50: Operations profit & loss - Underlying
Operations profit & loss - Underlying 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 FOR PERSONAL USE ONLY Revenue 102 176 (42%) 156 Track Access (519) (497) (4%) (476) Employee Benefits (382) (413) 8% (374) Consumables (257) (325) 21% (279) Energy & Fuel (71) (109) 35% (74) Other (6) (10) 40% (
Slide 51: Other profit & loss - Underlying
Other profit & loss - Underlying 1H 2H $m Variance fav / (adv) FY2016 FY2015 FY2015 FOR PERSONAL USE ONLY Revenue 13 47 (72%) (1) Employee Benefits (19) (30) 37% (24) Consumables (19) (10) (90%) (15) Other - (10) - (19) Total operating expenses (38) (50) 24% (58) EBITDA (25) (3) - (59) Depreciation
Slide 52: Aurizon Network Overview
Aurizon Network Overview Central Queensland Coal Network (CQCN) › The CQCN comprises 4 major coal systems and 1 connecting system link serving Queensland’s Bowen Basin coal region: FOR PERSONAL USE ONLY Newlands, Goonyella, Blackwater and Moura with GAPE the connecting system link › 2,670 kilometres
Slide 53: Below Rail (Network) volumes (mt)
1 Below Rail (Network) volumes (mt) 1H Variance 2H FY2016 FY2015 fav / (adv) FY2015 FOR PERSONAL USE ONLY Newlands 6.1 8.0 (24%) 6.6 Goonyella 59.8 60.1 (0%) 59.6 Blackwater 30.8 32.5 (5%) 30.3 Moura 6.5 6.5 0% 5.7 GAPE 7.9 7.6 4% 7.8 WIRP 2.9 - 0.9 Total 114.0 114.7 (1%) 110.9 Average haul length2
Slide 54: Queensland 1HFY2016 Take-or-Pay
Queensland 1HFY2016 Take-or-Pay1 $m Coal Network1 Consolidated Income FOR PERSONAL USE ONLY Coal Customers 0.0 0.0 Network Customers 0.0 0.0 Expense Aurizon Network 0.0 0.0 Queensland Rail 0.0 0.0 Prior Year Adjustments 0.0 0.0 EBIT increase/(decrease) 0.0 0.0 0.0 1. Take-or-Pay charge may be levied
Slide 55: Network revenue cap adjustments
Network revenue cap adjustments 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. FOR PERSONAL USE ONLY This i
Slide 56: Coal haulage tonnages (mt) by system
Coal haulage tonnages (mt) by system 1H Variance 2H FY2016 FY2015 Fav / (adv) FY2015 FOR PERSONAL USE ONLY Queensland Newlands 10.5 11.3 (7%) 10.9 Goonyella 28.9 34.8 (17%) 30.4 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 New South Wa
Slide 57: Coal Take-or-Pay accrual
Coal Take-or-Pay accrual 1H 2H $m FY2016 FY2015 FY2015 FOR PERSONAL USE ONLY Take-or-Pay charge1 (Expense) 0.0 (7.2) (2.1) Take-or-Pay passed through to customers (Revenue) 0.0 0.0 1.4 Adjustments2 relating to earlier years 0.0 0.0 (0.7) Net EBIT impact 0.0 (7.2) (1.4) 1. Principally from Queensland
Slide 58: 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 $m 2H 1H Charge Variance when actual tonnages are less than contracted FOR PERSONAL USE ONLY 2016 - 2 - - › DTC refers to the period in which the income was recognised in the P&L, no
Slide 59: Above Rail Coal contractual outlook
Above Rail Coal contractual outlook Aurizon’s Annualised Coal Above Rail revenue “Old Form” vs. “New Above Rail Coal Contracted breakdown Form” coal volumes4 Volumes (mtpa)1 FOR PERSONAL USE ONLY 230 225 217 100% 100% 4% 4% 41 21% 45 28% 28% 47 36% 38% 37% 96% 96% 189 180 79% 170 72% 72% 62% 63% 64%
Slide 60: Capital Expenditure
Capital Expenditure
Slide 61: 1HFY2016 group and functional capital expenditure
1HFY2016 group and functional capital expenditure ($m) FOR PERSONAL USE ONLY 341 199 198 122 120 61 60 11 81 65 46 15 2 8 14 4 9 1HFY2016 Network Operations Support Other1 Sustaining Transformational and productivity Growth 1. Capitalised interest 61
Slide 62: Wiggins Island Rail Project (WIRP)
Wiggins Island Rail Project (WIRP) › 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 estimated spend
Slide 63: WIRP Fast Facts
WIRP Fast Facts › 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 and upgra
Slide 64: Major Operations projects
Major Operations projects 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 wagons have
Slide 65: Hexham facility operational
Hexham facility operational 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 FOR PERSONAL USE ONLY and future fleet maintenance and provisioning capabili
Slide 66: Freight transformation project
Freight transformation project 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 new rail
Slide 67: Network Control improvement project
Network Control improvement project Paper based scheduling transferring to 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’ represents a step
Slide 68: 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 69: s AURIZON.
s 2 AURIZON.