Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Investor Day (June 2021)
69 slides from Aurizon's investor day presentation, Jun 8, 2021
Slide 1: ASX Market Announcement: Aurizon Investor Day
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 8 June 2021 Aurizon Investor Day Please find attached an ASX announcement including a copy of the 2021 Investor Presentation slides for rele
Slide 2: ASX Announcement: Aurizon Investor Day
ASX Announcement For personal use only Date: 8 June 2021 Aurizon Investor Day Aurizon today is providing a presentation at an Investor Day in Newcastle (attached) detailing the Company’s strategy to continue to deliver sustained value for investors and customers. As part of the presentation, Aurizon
Slide 3: Aurizon Investor Day 8 June 2021
For personal use only Aurizon Investor Day 8 June 2021
Slide 4: Disclaimer
2021 INVESTOR DAY Disclaimer For personal use only NO RELIANCE ON THIS DOCUMENT SCENARIO ANALYSIS (AND ASSOCIATED CASH FLOW MODELLING) AND ESG TARGETS This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to as “Aurizon” which This document also contains scenario analysi
Slide 5: Acknowledgement of Country
For personal use only Acknowledgement of Country We acknowledge the Awabakal and Worimi People, the Traditional Custodians of the land we are on today. We pay our respects to the elders past, present and future for they hold the memories, the traditions, the culture and hopes of Aboriginal Australia
Slide 6: Executive team presenting today
2021 INVESTOR DAY Executive team presenting today For personal use only Andrew Harding George Lippiatt Managing Director & CEO Chief Financial Officer & Group Executive Strategy Pam Bains Edward McKeiver Clayton McDonald Group Executive Network Group Executive Coal Group Executive Bulk 4
Slide 7: Agenda
2021 INVESTOR DAY Agenda For personal use only 1 Strategic Objectives Andrew Harding, Managing Director & Chief Executive Officer 2 Capital Allocation and Free Cash Flow George Lippiatt, Chief Financial Officer & Group Executive Strategy [break] 3 Bulk Update Clay McDonald, Group Executive Bulk 4 Co
Slide 8: Overview
For personal use only Overview Andrew Harding Managing Director & CEO
Slide 9: Safety performance
2021 INVESTOR DAY Safety performance TRIFR results driven by low-severity strain injuries with LTIFR improving 28% For personal use only Total Recordable Injury Frequency Rail Process Safety (RPS) Lost Time Injury Frequency Rate Rate (TRIFR) (LTIFR) Incidents per million Incidents per million train
Slide 10: Overview of Aurizon's operations
2021 INVESTOR DAY Overview of Aurizon's operations Aurizon is Australia's largest rail-based transport business, with diversified, cross-commodity For personal use only exposure through above and below rail services, and port terminals Below Rail Network ▪ Critical infrastructure supporting ~90% of
Slide 11: Pride in our ESG contribution
2021 INVESTOR DAY Pride in our ESG1 contribution Aurizon continues to build a stronger and sustainable business For personal use only NET-ZERO COMMITMENT BY 2050… …WHILE WE SUPPORT OUR REGIONS …AND LEAD THROUGH AND COMMUNITIES… TRANSPARENT GOVERNANCE › Climate Strategy and Action Plan › Updated safe
Slide 12: Climate Strategy and Action Plan
2021 INVESTOR DAY Climate Strategy and Action Plan Aurizon is committed to a target of net-zero operational emissions by 2050 For personal use only Net-zero operational emissions by 2050 THREE KEY PILLARS Manage Risk and Build Deliver Create Carbon Resilience Decarbonisation Abatement Opportunities
Slide 13: Metallurgical coal market
2021 INVESTOR DAY Metallurgical coal market Steel is an integral link to economic development. The metallurgical coal-dependent method of For personal use only steel production commands almost three-quarters (1.3 billion tonnes) of global steel production Apparent Steel Use (Crude Steel Equivalent)
Slide 14: Thermal coal market
2021 INVESTOR DAY Thermal coal market From a share of just 35% in 1990, Asia currently comprises over 80% of the import market. For personal use only In 2020, 98% of Australian thermal coal export volume was destined for this region Asia: Thermal (Steam) Coal Import Volume | Share of Global Thermal
Slide 15: Bulk market
2021 INVESTOR DAY Bulk market Demand growth for bulk commodities will be led by the transition to clean energy technologies For personal use only and rising food consumption Australia supply growth forecast (CAGR 2020-2026) Selected commodities1 Australian exploration expenditure Selected base metal
Slide 16: Our value creation record
2021 INVESTOR DAY Our value creation record Despite changed external environment, Aurizon's cashflows remain stable and the focus on For personal use only transformation continues HIGHLIGHTS STRONG HISTORY OF SHAREHOLDER RETURNS1 $5.0b ✓ Negotiated and executed UT5 ✓ De-risked the Coal contract book
Slide 17: Strategic Objectives
For personal use only Strategic Objectives
Slide 18: Investor Day objective
2021 INVESTOR DAY Investor Day objective Share our confidence in Aurizon's long-term outlook For personal use only CASH FLOW Long term cash flows resilient in multiple coal volume scenarios COAL and NETWORK BULK GROUP CAPITAL LEVERS Expanded potential Flexibility to changing Detailed view of long-te
Slide 19: Focus of our businesses
2021 INVESTOR DAY Focus of our businesses Each Aurizon Business Unit has a unique focus, but all are aligned to enterprise objectives For personal use only COAL BULK NETWORK › Continue transformation and › Growing markets and new › Embed UT5 for regulatory productivity push adjacencies certainty › R
Slide 20: Coal demand scenarios
2021 INVESTOR DAY Coal demand scenarios Aurizon uses six scenarios to test fleet capacity, capital investments and haulage opportunities For personal use only OUR PROCESS OUR SIX SCENARIOS SCENARIO INFORMATION › We form a view on the future of coal Commodity Strong › Scenarios and associated free ca
Slide 21: Our strategic aim
2021 INVESTOR DAY Our strategic aim Resilient Network and Coal business supporting Bulk growth and shareholder returns For personal use only UNDER THE SCENARIOS TESTED, MODELLING INDICATES RESILIENT AVERAGE ANNUAL FREE CASH FLOW OVER 20 YEARS1 Resilient coal and Growing bulk business Evolving mix re
Slide 22: Bulk market opportunity
2021 INVESTOR DAY Bulk market opportunity Bulk accounts for 32% of above rail revenue – new bulk markets are not correlated to coal For personal use only demand and provide the potential to double Bulk’s EBIT over ten years ESTIMATED MARKET SIZE: $1.25BN in 2030 OUR ASPIRATION TO ACHIEVE 20-25% MARK
Slide 23: Capital allocation and Free Cash Flow
For personal use only Capital allocation and Free Cash Flow George Lippiatt CFO & Group Executive Strategy
Slide 24: Context
2021 INVESTOR DAY Context FY2021 has highlighted Aurizon's financial resilience For personal use only FY20211 FUTURE › Scenario outcomes applied to inform long-term › Performance inline with $870-910m guidance decision making despite coal volume softness › Resilience of free cash flow generation tes
Slide 25: Historical Free Cash Flow
2021 INVESTOR DAY Historical Free Cash Flow Recent cash flows have been stable following a post IPO investment cycle For personal use only KEY MESSAGES Free Cash Flow Coal Volume $1,500m 250mt 3 •1 Post-IPO investment $1,000m to support volume 200mt growth $500m •2 Capital discipline and $0m 2 150mt
Slide 26: Aurizon's Strategy in Uncertainty (SiU) framework
2021 INVESTOR DAY Aurizon's Strategy in Uncertainty (SiU) framework SiU uses scenarios to test market drivers and evaluate capital, fleet and haulage opportunities For personal use only OUR APPROACH STRATEGY IN UNCERTAINTY: KEY DRIVERS Metallurgical coal Thermal coal Australia coal Australia Bulk ›
Slide 27: Coal volume scenarios
2021 INVESTOR DAY Coal volume scenarios1 A broad range of potential volume outcomes over 20 years For personal use only AUSTRALIA: COAL EXPORT VOLUME (MILLION TONNES) Growth 20-30 | 20-40 600mt 500mt 400mt 300mt 200mt 100mt Legend >2% 2010 2015 2020 2025f 2030f 2035f 2040f fa
Slide 28: Coal volume scenarios (continued)
2021 INVESTOR DAY Coal volume scenarios1 (continued) The six scenarios are based on potential outcomes to drive divergent thinking, enabling the For personal use only stress-testing of the business Commodity Strong Current Economics Port Constrained Australia Mine/Reg. Constrained Aust. Carbon Const
Slide 29: Application of SiU Scenarios
2021 INVESTOR DAY Application of SiU Scenarios Aurizon draws upon six scenarios to guide decision-making in specific aspects of its business For personal use only Commodity volume scenarios Where we use SiU scenarios ✓ Free Cash Flow / Growth Capex Stay-in-business Strategic business Customer contra
Slide 30: Free Cash Flow methodology
2021 INVESTOR DAY Free Cash Flow methodology Across our key scenarios, we consider how Aurizon's businesses could be impacted and what For personal use only Free Cash Flow levers are available COMMODITY VOLUME SCENARIOS TRANSLATED INTO FREE CASH FLOW IMPLICATIONS BASED ON MODELLING OF KEY AURIZON BU
Slide 31: Carbon Constrained Asia: Illustrative example
2021 INVESTOR DAY Carbon Constrained Asia: Illustrative example LEGEND: >2% favourable Aurizon Free Cash Flow is resilient1 in response to global coal volume fluctuations For personal use only >2% adverse / increase / decrease vs. today AURIZON INDICATIVE IMPACT TO KEY METRICS (BASED ON ASSUMPTION
Slide 32: Free Cash Flow levers
2021 INVESTOR DAY Free Cash Flow levers Levers are available to seek to preserve Free Cash Flow under volume downside scenarios For personal use only without compromising safety or reliability Free Cash Flow Levers Incremental FCF via Opex Efficiency Capex Optimisation Asset Disposal Fleet Cascade ›
Slide 33: Free Cash Flow assumptions
2021 INVESTOR DAY Free Cash Flow assumptions Assumptions have been applied based on Aurizon's business model and current view of our For personal use only scenarios1 FCF DRIVER ASSUMPTION APPLIED POTENTIAL UPSIDE POTENTIAL DOWNSIDE Volume › Mines at intersection of supply-demand equilibrium • Mines
Slide 34: Fleet cascade provides asset base flexibility
2021 INVESTOR DAY Fleet cascade provides asset base flexibility Coal fleet most exposed to thermal coal is most useful for our Bulk growth ambitions For personal use only ASSET Units1 (#) WDV1 ($bn) Above Rail QLD WA NSW QLD ($2.1bn) Locomotives 600 $1.2 68% 17% 14% #1 Wagons 12,500 $1.0 62% 24% 14%
Slide 35: Free Cash Flow scenarios
2021 INVESTOR DAY Free Cash Flow scenarios1 Under the scenarios tested, modelling indicates average annual free cash flow over 20 years of For personal use only ~$500-$650m AURIZON FREE CASH FLOW ($M) COAL VOLUME SCENARIO4 $734 $704 $715 $700 $669 2 Current Economics $165 $100 3 Port Constrained 4 M
Slide 36: Shareholder returns
2021 INVESTOR DAY Shareholder returns Stable cash flows have historically provided certainty on distributions with strong balance sheet For personal use only providing optionality for capital management or growth AVERAGE PER YEAR1 DEMONSTRATED DISCIPLINE TO RETURN CAPITAL WHEN APPROPRIATE OPERATING
Slide 37: Funding update
2021 INVESTOR DAY Funding update With resilient Free Cash Flow, Aurizon’s credit profile is strong and debt markets remain For personal use only supportive EFFECTIVE RAISINGS EXTENDED MATURITY PROFILE1 IMPROVED METRICS CURRENT 1HFY20 › Network: Issued 10-year, $500m Weighted average A$ Medium Term N
Slide 38: Bulk Update
For personal use only Bulk Update Clay McDonald Group Executive Bulk
Slide 39: Growing Bulk
2021 INVESTOR DAY Growing Bulk Build off our existing Bulk base and expand across the value chain For personal use only Production-to-port capability to Aspire to double the size of the Expand across the supply chain better serve customers business Targeting a larger market1 (EBIT profit pool) EBIT
Slide 40: Well-positioned for growth
2021 INVESTOR DAY Well-positioned for growth Successfully turned the Bulk business around, and the next phase of growth is underway For personal use only Aurizon Bulk EBIT Phase 2 growth • Expanded product mix • Production-to-port capability • Services across modes (not just rail) Turnaround and Pha
Slide 41: Bulk value chain
2021 INVESTOR DAY Bulk value chain Our customers' needs drive our broader focus on Bulk logistics, which we expect to be ~$1.25bn For personal use only profit pool in ten years Drivers for expansion out from current rail Targeted methodology to estimate core profit pools across the heavy haul bulk v
Slide 42: Bulk: Australian mine projects
2021 INVESTOR DAY Bulk: Australian mine projects There are over 1,400 mine projects1 across Australia, with copper, iron ore and nickel the For personal use only dominant commodities 40 1. S&P Market Intelligence (Mine projects: Commodities – excludes precious metals, Project status – exploration to
Slide 43: Aurizon Port Services
2021 INVESTOR DAY Aurizon Port Services For personal use only Townsville Newcastle Infrastructure: Hardstand upgrade nearing completion (100% increase in Simplicity: Simple operating and labour model that is scalable (currently capacity) and development of unique direct rail access well progressed o
Slide 44: Bulk continues to demonstrate agility
2021 INVESTOR DAY Bulk continues to demonstrate agility For personal use only Iron Ore: Mineral Resources Limited Grain: South East Queensland • Short term opportunity to deploy stored QLD grain consists • Flexible labour model • Clear road to rail strategy Grain: Western Australia • Surge capacity
Slide 45: Grow in a disciplined way
2021 INVESTOR DAY Grow in a disciplined way Targeting 10% share of new segments with disciplined capital investment For personal use only We will grow Bulk from our strong geographic presence • Build on existing presence in WA and QLD • Establish offerings in new basins in a prioritised way • Target
Slide 46: Coal Update
For personal use only Coal Update Ed McKeiver Group Executive Coal
Slide 47: Coal Haulage Strategy
2021 INVESTOR DAY Coal Haulage Strategy With a strong contract book, Coal’s mission is to improve ROIC and preserve cash flows while For personal use only delivering excellent service, safely for our customers Optimise capital and fleet to ROIC and cashflow focus strengthen key contracts and Service
Slide 48: Proactive management of contract pipeline
2021 INVESTOR DAY Proactive management of contract pipeline Coal has a secure, long dated contract book, as demonstrated by contract wins announced today For personal use only CONTRACT WINS AND RATES OUTLOOK COAL CONTRACT VOLUME EXPIRY BY YEAR1 AS AT 7 JUNE 2021 75 Contract extension and market shar
Slide 49: Integrated program will transform Safety, Service & Productivity
2021 INVESTOR DAY Integrated program will transform Safety, Service & Productivity Coal’s Integrated Transformation Plan will continue to safely deliver unit cost and capital For personal use only productivity improvements to mitigate revenue pressure and lift ROIC 1. PRECISION ROIC influenced by: 3
Slide 50: Precision
2021 INVESTOR DAY Precision Releasing capacity and improving asset productivity in CQCN, Coal has focused on levers that For personal use only improve yard discipline to deliver time back to the schedule CASE STUDY: BLACKWATER CASE STUDY: GOONYELLA In Goonyella, cycles per consist have increased ~9%
Slide 51: Optimising maintenance
2021 INVESTOR DAY Optimising maintenance ARAM1 is a multi-year transformation program improving maintenance strategies, planning and For personal use only execution, driving improved asset availability and reliability HUNTER VALLEY ROLLINGSTOCK CANCELLATIONS 40 30 20 10 0 May-20 Jun-20 Jul-20 Aug-20
Slide 52: Targeted investments in technology
2021 INVESTOR DAY Targeted investments in technology TrainGuard and TrainHealth will provide a step change in safety outcomes and productivity for For personal use only Coal TRAINGUARD TRAINHEALTH CASE STUDY2: REDUCING DRIVER VARIABILITY • Transform safety outcomes > 80% of SPADs1 would have been pr
Slide 53: Hunter Valley
2021 INVESTOR DAY Hunter Valley With a flat volume outlook, the focus in the Hunter Valley is around retaining existing contracts, For personal use only service delivery, capital efficiency and cost transformation HUNTER VALLEY FOCUS AREAS NSW VOLUMES (mt) 58 52 55 47 43 44 • Reduce four operating s
Slide 54: Network Update
For personal use only Network Update Pam Bains Group Executive Network
Slide 55: Objectives for Network
2021 INVESTOR DAY Objectives for Network Provide earnings stability and enhance supply chain competitiveness through safe, reliable and For personal use only efficient operations Enhance Supply Chain Embed UT5 Customer Agreement Drive Long Term Stability Competitiveness Realise benefits for all Sa
Slide 56: UT5 Outcomes
2021 INVESTOR DAY UT5 Outcomes UT5 delivered significant regulatory reform and a range of material benefits for both customers For personal use only and Network Key Features Key Benefits Long Term Certainty 10 year undertaking term (2017-2027) Capacity Assessment Independent review and mechanisms to
Slide 57: Independent Capacity Assessment Report (ICAR)
2021 INVESTOR DAY Independent Capacity Assessment Report (ICAR) Independent Expert currently assessing Deliverable Network Capacity (DNC) of the CQCN – For personal use only decision expected Q1 FY22 ICAR PROCESS IF APPLICABLE, THERE ARE THREE METHODS OF ADDRESSING CAPACITY DEFICIT Independent Exper
Slide 58: Maintenance and Renewals Strategy and Budget (MRSB)
2021 INVESTOR DAY Maintenance and Renewals Strategy and Budget (MRSB) Constructive engagement provides benefits for both Network and Customers For personal use only Key Benefits of MRSB Engagement Annual MRSB Approvals Process Customers 30 November Network submits initial Draft MRSB for each Coal Sy
Slide 59: Capital requirements
2021 INVESTOR DAY Capital requirements Capex is determined on an annual basis in consultation with customers who have influence on For personal use only the strategy and budget KEY FEATURES OF REGULATORY ENVIRONMENT HISTORICAL NETWORK CAPEX ($M) › Network earns a fixed return each year on the approv
Slide 60: Supply chain efficiency
2021 INVESTOR DAY Supply chain efficiency Network is focused on delivering a safe, reliable and efficient supply chain through Precision For personal use only Planning and Operations and Innovative Efficiency Initiatives DISCIPLINED TRAIN OPERATIONS (DTO) ENHANCED PLANNING AND SCHEDULING DTO impleme
Slide 61: Supply chain efficiency (continued)
2021 INVESTOR DAY Supply chain efficiency (continued) Network is focused on delivering a safe, reliable and efficient supply chain through Precision For personal use only Planning and Operations and Innovative Efficiency Initiatives AUTOMATED TRACK INSPECTION SYSTEM (ATIS) VALUE-ADDED TOOLS Advanced
Slide 62: Contact and further information
Contact and further information Chris Vagg James Coe Head of Investor Relations & Group Treasurer Manager Market Intelligence & Investor Relations For personal use only +61 7 3019 9030 +61 7 3019 7526 Chris.Vagg@aurizon.com.au James.Coe@aurizon.com.au ASX: AZJ US OTC: AZNNY 60
Slide 63: Appendix
For personal use only Appendix
Slide 64: Coal volume scenarios
2021 INVESTOR DAY Coal volume scenarios Aurizon’s first two scenarios are based on current and upside Asian demand trends For personal use only 1 Commodity Strong 2 Current Economics 2020 2030 2040 2020 2030 2040 Blast Furnace-Basic Oxygen Furnace (BOF-BF) share of crude steel Higher seaborne coal d
Slide 65: Coal volume scenarios
2021 INVESTOR DAY Coal volume scenarios Aurizon’s second two scenarios test different Australian supply constraints For personal use only 3 Port Constrained 4 Mine/Regulatory Australia Constrained Australia 2020 2030 2040 2020 2030 2040 Port capacity constrained in Central Queensland New coal mines
Slide 66: Coal volume scenarios
2021 INVESTOR DAY Coal volume scenarios Aurizon’s final two scenarios assume lower Asian economic development and/or rapid For personal use only decarbonisation effort 5 Carbon Constrained Asia 6 Rapid Decarbonisation 2020 2030 2040 2020 2030 2040 Lower GDP growth. China self sufficient in thermal c
Slide 67: Australia Coal Summary
2021 INVESTOR DAY Australia Coal Summary For personal use only 2020 Export1 2020 All Coal Export (By Destination)3 2020 All Coal Export (By Port)4 Export Revenue1 104mt Asia: 94% 158mt $44b 371mt 74mt 101mt Total Production5 State Split2 53mt 71mt 28% 46mt 40mt 434mt 20% 31mt 14% 23mt 30mt 166mt 12%
Slide 68: Enterprise Agreements
2021 INVESTOR DAY Enterprise Agreements For personal use only # Staff Headline Increases Term Enterprise Agreement Covered Expiry Date Status (years) (approx.) Year 1 Year 2 Year 3 Year 4 Aurizon Port Services1 45 3 1 Nov 2021 2.5% 2.5% 2.5% Bargaining NSW Coal 320 3 10 Nov 2021 2.5% 2.5% 2.5% Plann
Slide 69: Glossary
2021 INVESTOR DAY Glossary For personal use only 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 as a