Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — FY2016 Earnings Presentation
69 slides from Aurizon's earnings presentation, Aug 15, 2016
Slide 1: Full year results presentation (ASX cover letter)
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 August 2016 Full year results presentation Please find attached the Company’s full year results presentation for immediate release to the
Slide 2: FY2016 Results
For personal use only FY2016 Results Lance Hockridge – MD & CEO Keith Neate – EVP & CFO
Slide 3: Important notice
Important notice For personal use only 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 accu
Slide 4: Year in review
For personal use only Year in review Lance Hockridge - Managing Director & CEO
Slide 5: Group highlights – FY2016
Group highlights – FY2016 For personal use only 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 vol
Slide 6: Above Rail highlights
Above Rail highlights For personal use only 2H coal volumes stable and continued delivery of transformation benefits Revenue › Down 10% to $3.1bn › Coal above rail revenue down 3%. Excluding fuel (pass through) down 2% in line with volume decline › Freight down 20%, adjusting for lower TSC and CRT s
Slide 7: Below Rail highlights
Below Rail highlights For personal use only 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 a
Slide 8: Transformation delivering sustainable value
Transformation delivering sustainable value For personal use only 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 e
Slide 9: Safety performance
Safety performance, our target is For personal use only Lost Time Injury Frequency Rate (LTIFR)1 Total Recordable Injury Frequency Rate (TRIFR)1 11.43 55.65 Lost time injuries per million person-hours worked Incidents per million person-hours worked 6.14 30.81 22.34 3.08 13.14 2.40 +76% (100%) 5.85
Slide 10: Results analysis
For personal use only Results analysis Keith Neate – EVP & CFO
Slide 11: Group financial highlights
Group financial highlights For personal use only $m FY2016 FY2015 Variance 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 12: Earnings reconciliation and significant items
Earnings reconciliation and significant items For personal use only Earnings reconciliation Significant items FY2016 FY2016 FY2015 $m 2H 1H Underlying EBIT 871 468 403 970 Aquila Investment Significant items - impairment (528) (102) (426) - Non West Pilbara investment 135 Investment in Associate (22
Slide 13: Underlying EBIT bridge – Group
Underlying EBIT bridge – Group For personal use only › Includes ($70m) for TSC Includes: and ($2m) for CRT › Below rail depreciation – ($43m) › All commodity volume › Labour escalation – ($26m) amounts exclude access › QNI provision – ($20m) and fuel 46 › Consumable escalation – ($13m) › Rollingstoc
Slide 14: Underlying EBIT bridge – Above Rail
Underlying EBIT bridge – Above Rail For personal use only › Includes ($70m) for TSC Includes: and ($2m) for CRT › QNI provision – ($20m) › All commodity revenue › Labour escalation – ($20m) › Labour - $67m › Maintenance recovery – ($15m) amounts exclude access › Fleet productivity - $28m and fuel ›
Slide 15: Underlying EBIT bridge – Below Rail
Underlying EBIT bridge – Below Rail For personal use only Includes: › Energy & connection costs – ($18m) Includes: › Access - $88m › Capitalisation of rail renewals - $13m › WIRP – ($14m) › Other services - ($17m) › Rail renewals – ($14m) 6 71 43 484 506 FY2015 Revenue Operating Costs Depreciation F
Slide 16: Further capex reductions forecast
Further capex reductions forecast For personal use only Capital expenditure FY2016 – FY2018 ($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 capi
Slide 17: Cash flow – significant free cash flow growth
Cash flow – significant free cash flow growth For personal use only $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 - i
Slide 18: Funding update
Funding update For personal use only 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
Slide 19: Business and customer update
For personal use only Business and customer update Lance Hockridge – Managing Director & CEO
Slide 20: Transformation update
Transformation update For personal use only Consistent delivery of benefits $380m+ 633 › Transformation remains Aurizon’s core focus 250 › $383m in benefits delivered past three years 383 › A further $250m required over next two years to achieve 131 FY2016-2018 target of $380m – confidence has incre
Slide 21: Coal update
Coal update For personal use only 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 Janua
Slide 22: Coal market update
Coal market update For personal use only Australia Metallurgical Coal: Weighted Average Total Cash Metallurgical coal seaborne exports Costs (FOB, USD) Volume and market share, calendar years -52% 400 +6pts 70% $132 300 65% Million tonnes Market Share $87 200 60% $63 100 55% 0 50% 2010 2011 2012 201
Slide 23: Coal contract expiry
Coal contract expiry For personal use only Aurizon Above Rail contract volume expiry by year (mtpa, as at July 2016) No material contract expiries until FY2022 45 40 Carborough Downs (Vale) : FY16 ► FY17 Minerva (Sojitz): FY16 ► FY21 35 Mt Arthur (BHP Billiton): FY21 ► FY28 Million tonnes per annum
Slide 24: Freight Performance Review
Freight Performance Review For personal use only Context Performance review underway › Freight recorded an EBIT loss for FY2016 despite lower › Review underway to determine options to achieve appropriate cost base as revenues have fallen faster risk adjusted returns › Over last two years: › Opportun
Slide 25: Below rail regulation – UT5 strategy
Below rail regulation For personal use only 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
Slide 26: Outlook & summary
For personal use only Outlook & summary Lance Hockridge – Managing Director & CEO
Slide 27: Outlook & guidance
Outlook & guidance For personal use only 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 f
Slide 28: Aurizon fundamentals
Aurizon fundamentals For personal use only ENTERPRISE ABOVE RAIL BELOW RAIL Improve returns › Long life assets supported by long duration › Defensive, regulated asset supporting › effective allocation of capital to (10+ years) contracts major export industry with RAB of $5.6bn ensure optimum portfol
Slide 29: Questions & Answers
For personal use only Questions & Answers
Slide 30: FY2016 Results – Additional information
For personal use only FY2016 Results Additional information
Slide 31: Aurizon Operations Snapshot
Aurizon Operations Snapshot For personal use only 30
Slide 32: Aurizon's Blueprint sets the vision and roadmap
Aurizon’s Blueprint sets the vision and roadmap for the future For personal use only To be a world leading rail-based transport business 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 33: How we will deliver our strategy
How we will deliver our strategy For personal use only To develop and operate multi-customer, rail-based, integrated supply chains Customer Focus Productivity Improvement Growth Opportunities Deliver great service Drive safety, efficiency & disciplined execution Bulk supply chains Innovate commercia
Slide 34: Group Financial Information
For personal use only Group Financial Information
Slide 35: Accounting Changes in FY2016
Accounting Changes in FY2016 For personal use only › 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,
Slide 36: Financial highlights – Underlying
Financial highlights – Underlying For personal use only $m FY2016 FY2015 Variance Revenue 3,458 3,780 (9%) EBITDA 1,432 1,489 (4%) EBIT 871 970 (10%) NPAT 510 604 (16%) EPS (cps) 24.4 28.4 (14%) Final dividend (cps) 13.3 13.9 (4%) ROIC 8.6% 9.7% (1.1ppts) Gearing 37.4% 30.2% (7.2ppts) 35
Slide 37: Material items for note
Material items for note For personal use only $m FY2016 FY2015 Variance › Table represents items that are Redundancy Expense (24) (36) 12 included in Underlying EBIT Reduction in long term and short term › This table is designed to assist 38 - 38 incentives reflecting Company performance investors t
Slide 38: Underlying EBIT by segment
Underlying EBIT by segment For personal use only $m FY2016 FY2015 Variance Below Rail (Network) 506 484 5% Above Rail 435 552 (21%) - Commercial & Marketing 2,878 3,079 (7%) - Operations (2,443) (2,527) 3% Other (70) (66) (6%) Group 871 970 (10%) 37
Slide 39: Group operating highlights
Group operating highlights For personal use only FY2016 FY2015 Variance Revenue / NTK ($/’000 NTK) 48.3 52.2 (7%) Labour Costs / Revenue 24.6% 25.7% 1.1ppts NTK / FTE (MNTK) 11.4 10.5 9% EBITDA Margin – Underlying 41.4% 39.4% 2.0ppts Operating Ratio – Underlying 74.8% 74.3% (0.5ppts) NTK (bn) 71.6 7
Slide 40: Operations metrics
Operations metrics For personal use only Metric FY2016 FY2015 Variance Net operations Opex1/NTK 34.1 34.9 2% ($/‘000 NTK) Opex Net operations Opex/NTK 19.9 21.5 7% (ex-access)2($/‘000 NTK) Production Net tonne kilometres (bn) 71.6 72.4 (1%) Tonnes (m) 270.9 281.2 (4%) Full time equivalents (FTE)3 (O
Slide 41: Balance sheet summary
Balance sheet summary For personal use only As at ($m) 30 June 2016 30 Jun 2015 Total current assets 844 934 Property, plant & equipment 9,719 9,900 Other non-current assets 305 502 Total assets 10,868 11,336 Other current liabilities (732) (845) Total borrowings (3,490) (2,983) Other non-current li
Slide 42: Reconciliation of Borrowings
Reconciliation of Borrowings For personal use only $m Commentary Total debt per slide 17 (cash basis) 3,429 Add/(less): Short-term borrowings 6 › Short-term borrowing › Transaction costs directly attributable to borrowing is capitalised in Transaction costs capitalised (17) accordance with AASB 9 Di
Slide 43: Dividend history
Dividend history For personal use only Amount per share Payment Date Franking Payout Ratio (cents) FY2016 Final1 26 September 2016 13.3 70% 100% FY2016 Interim 29 March 2016 11.3 70% 100% FY2016 Total dividend 24.6 FY2015 Final 28 September 2015 13.9 30% 100% FY2015 Interim 23 March 2015 10.1 0% 70%
Slide 44: Function & Segment detail
For personal use only Function & Segment detail
Slide 45: Below Rail (Network) profit & loss - Underlying
Below Rail (Network) profit & loss - Underlying For personal use only 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) (2
Slide 46: Above Rail profit & loss - Underlying
Above Rail profit & loss - Underlying For personal use only FY2016 Variance $m FY2016 FY2015 fav / (adv) 2H 1H Revenue 3,146 1,534 1,612 3,483 (10%) Track Access (1,016) (497) (519) (973) (4%) Employee Benefits (739) (340) (399) (834) 11% Consumables (501) (239) (262) (633) 21% Fuel (120) (49) (71)
Slide 47: Commercial & Marketing profit & loss - Underlying
Commercial & Marketing profit & loss - Underlying For personal use only FY2016 Variance $m FY2016 FY2015 fav / (adv) 2H 1H Total revenue 2,931 1,421 1,510 3,151 (7%) Coal 1,881 931 950 1,894 (1%) - Below Rail 734 361 373 707 4% - Other 1,147 570 577 1,187 (3%) Freight 739 342 397 919 (20%) Iron Ore
Slide 48: Operations profit & loss - Underlying
Operations profit & loss - Underlying For personal use only FY2016 Variance $m FY2016 FY2015 fav / (adv) 2H 1H Revenue 215 113 102 332 (35%) Track Access (1,016) (497) (519) (973) (4%) Employee Benefits (710) (328) (382) (787) 10% Consumables (495) (238) (257) (604) 18% Energy & Fuel (120) (49) (71)
Slide 49: Other profit & loss - Underlying
Other profit & loss - Underlying For personal use only FY2016 Variance $m FY2016 FY2015 fav / (adv) 2H 1H Revenue 15 2 13 46 (67%) Employee Benefits (35) (16) (19) (54) 35% Consumables (35) (16) (19) (25) (40%) Other (10) (10) - (29) 66% Total operating expenses (80) (42) (38) (108) 26% EBITDA (65)
Slide 50: Coal Above Rail revenue composition
Coal Above Rail revenue1 composition For personal use only Core revenue remains stable despite volume decline › Fixed revenue (capacity charge) has increased and variable revenue 612 (usage charge) has decreased reflecting increase in new form volumes 42 575 577 570 21 24 30 20 18 10 8 › Fuel revenu
Slide 51: Aurizon Network Overview
Aurizon Network Overview For personal use only 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 connecting system link › 2,670 kilometres
Slide 52: Below Rail (Network) volumes (mt)
1 Below Rail (Network) volumes (mt) For personal use only 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 1
Slide 53: Queensland FY2016 Take-or-Pay
Queensland FY2016 Take-or-Pay1 For personal use only $m Coal Network1 Consolidated › Moura was the only system to trigger Annual1 Take or Pay in FY2016 for Aurizon Network Income › In all other systems, actual GTK’s exceeded system forecast GTK’s adjusted for Network Coal Customers 3.6 - 3.6 cause /
Slide 54: Network revenue cap adjustments
Network revenue cap adjustments For personal use only AT2-4 AT5 › Revenue cap is the difference by System between Aurizon’s Total Total Year (diesel tariff) (electric tariff) Actual Revenue (TAR) and System Allowable Revenue (SAR) $m $m $m and also includes rebates and energy cost variations. This i
Slide 55: Reconciliation of MAR to reported access revenue
Reconciliation of MAR to reported access revenue For personal use only FY2014 FY2015 FY2016 FY20171 MAR to reported Access Revenue Actual Actual Actual Estimate Access Revenue (AT1 to AT5) (ex. GAPE) 794 787 924 918 Approved Adjustments to MAR Transitional tariff adjustment (70) - - - Flood Claim re
Slide 56: Movement in Network MAR FY2016-2017
Movement in Network MAR FY2016-2017 For personal use only $m MAR Step-up (FY2016 to FY2017) 11 WIRP Revenue Ramp-up FY2017 20 Uplift in MAR FY2016-FY2017 31 Flood Claim (6) Revenue Cap (FY14) (8) Revenue Over Recovery (17) › Excludes GAPE of ($2m) One-off MAR Adjustments FY2016 (31) Net Impact - 55
Slide 57: Coal haulage tonnages (mt) by system
Coal haulage tonnages (mt) by system For personal use only FY2016 Variance FY2016 FY2015 2H 1H fav / (adv) Queensland Newlands 20.9 10.4 10.5 22.2 (6%) Goonyella 60.6 31.7 28.9 65.2 (7%) Blackwater 62.2 29.9 32.3 61.0 2% Moura 12.4 5.5 6.9 12.6 (2%) West Moreton 6.9 3.5 3.4 7.3 (5%) Total Qld 163.0
Slide 58: Coal Take-or-Pay accrual
Coal Take-or-Pay accrual For personal use only FY2016 $m FY2016 FY2015 2H 1H Take-or-Pay charge1 (Expense) 3.6 3.6 - (9.3) Take-or-Pay passed through to customers (Revenue) 3.6 3.6 - 1.4 Adjustments2 relating to earlier years - - - (0.7) Net EBIT impact - - - (8.6) 1. Principally from Aurizon Networ
Slide 59: Queensland Coal - Deficit Tonnage Charges
Queensland Coal - Deficit Tonnage Charges (DTC) For personal use only Full Year YoY › A form of protection for the Above Rail Coal business $m 2H 1H Charge Variance when actual tonnages are less than contracted 2016 - 2 2 (2) › DTC refers to the period in which the income was recognised in the P&L,
Slide 60: Above Rail Coal contractual outlook
Above Rail Coal contractual outlook For personal use only Aurizon’s Annualised Coal Above Rail revenue “Old Form” vs. “New Above Rail Coal Contracted breakdown Form” coal volumes4 Volumes (mtpa)1 227 223 215 216 100% 100% 4% 4% 4% 46 48 21% 44 44 28% 29% 29% 37% 96% 96% 96% 181 175 170 172 79% 72% 7
Slide 61: Capital Expenditure
For personal use only Capital Expenditure
Slide 62: FY2016 group and functional capital expenditure
FY2016 group and functional capital expenditure ($m) For personal use only 703 437 363 273 263 150 129 109 56 116 80 35 34 1 11 21 FY2016 Network Operations Support Other1 Sustaining Transformational and productivity Growth 1. Capitalised interest 61
Slide 63: WIRP Fast Facts
WIRP Fast Facts For personal use only › 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) inves
Slide 64: Major Operations projects
Major Operations projects For personal use only 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
Slide 65: Intermodal Facilities
Intermodal Facilities For personal use only Stuart › $44m new facility that contributes to both Aurizon’s real facility, estate footprint consolidation and investment in the Freight Townsville business › Site includes a freight distribution centre, a modern container terminal and three new rail trac
Slide 66: Hexham facility operational
Hexham facility operational For personal use only 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 capabili
Slide 67: Network Control improvement project
Network Control improvement project For personal use only 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 operati
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 For personal use only Contract utilisation Total volumes hauled as a percentage of total volumes contracted CQCN Central Queensland C
Slide 69: For personal use only
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