Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (March 2019)
53 slides from Aurizon's debt investor presentation, March 2019
Slide 1: Aurizon Network - 1HFY2019 Results Debt Investor Update
Aurizon Network - 1HFY2019 Results Debt Investor Update February/March 2019
Slide 2: Disclaimer
1HFY2019 RESULTS Disclaimer NO RELIANCE ON THIS DOCUMENT NO OFFER OF SECURITIES This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to Nothing in this presentation should be construed as a recommendation of or an offer to sell or a as “Aurizon” which includes its relat
Slide 3: Half Year in Review – Aurizon Group
1HFY2019 RESULTS Half Year in Review – Aurizon Group
Slide 4: Update on key priorities
1HFY2019 RESULTS PERFORMANCE OVERVIEW Update on key priorities Progress has been made on key priorities PRIORITY › UT5 Approved by QCA 21 February 2019 Engagement continues with all stakeholders › Operational Efficiency Improvement Precision Railroading in execution Key technology programs progressi
Slide 5: FY2019 Half Year highlights
1HFY2019 RESULTS PERFORMANCE OVERVIEW FY2019 Half Year highlights1 Non-Network result in line with expectations given loss of Cliffs in Bulk and maintenance activities in Coal. Network result reflects the UT5FD, including partial true up from FY2018 FINANCIAL RESULTS CASHFLOW › Underlying EBIT down
Slide 6: Key financial highlights
1HFY2019 RESULTS PERFORMANCE OVERVIEW Key financial highlights1 EBIT result impacted by UT5FD true up in Network and the Cliffs contract cessation in Bulk › Revenue reflects Aurizon’s decision to $m 1HFY2019 1HFY2018 Var account for the UT5FD, including the acceleration of the total FY2018 true up,
Slide 7: Coal update
1HFY2019 RESULTS PERFORMANCE OVERVIEW Coal update Operating in a positive demand environment, Coal is investing in fleet for capability today and future volume growth › Maintenance investment in FY2019 and fleet reliability program delivers performance improvements and supports expected future volum
Slide 8: Half Year in Review – Aurizon Network
1HFY2019 RESULTS Half Year in Review – Aurizon Network
Slide 9: Network snapshot
1HFY2019 1HFY2019 RESULTS RESULTS ADDITIONAL NETWORK INFORMATION PERFORMANCE Network snapshot As at 31 December 2018 117 40+ three above rail million tonnes mines serviced operators $5.7b five 2670km Regulated Asset export terminals railway track Base1 HAULAGE BREAKDOWN2 1HFY2019 Thermal Coal 32% Me
Slide 10: Network
1HFY2019 1HFY2019 RESULTS RESULTS FINANCIALPERFORMANCE NETWORK PERFORMANCE Network EBIT performance reflects the UT5FD, including $30m impact of true up from FY2018 with a further $30m to be recognised 2HFY2019. RAB rollover estimated value $5.7bn1 Revenue $m 1HFY2019 1HFY2018 Variance › $30m recogn
Slide 11: Network profit and loss (underlying)
1HFY2019 1HFY2019 RESULTS RESULTS ADDITIONAL NETWORK INFORMATION PERFORMANCE Network profit and loss (underlying) 1HFY2019 1HFY2018 Variance 2HFY2018 $m Tonnes (m) 116.5 116.6 - 113.0 Access Revenue 534 577 (7%) 590 Services and other 23 31 (24%) 21 Total Revenue 557 608 (8%) 611 Operating costs (19
Slide 12: Network Cash flow – free cash flow growth
1HFY2019 RESULTSNETWORK FY2018 RESULTS NETWORK PERFORMANCE PERFORMANCE Network Cash flow – free cash flow growth $m › Free Cash Flow has increased in H1 1HFY2019 1HFY2018 FY19 mainly due to lower payments EBITDA - statutory 351 393 on PP&E during the half Working capital & other movements 84 31 › Wo
Slide 13: Network balance sheet
1HFY2019 RESULTSNETWORK FY2018 RESULTS NETWORK PERFORMANCE PERFORMANCE Network balance sheet › Total current assets has decreased largely As at $m 31 Dec 2018 31 Jun 2018 due to $79m decrease in trade and other Total current assets 189 259 receivables due to the collection of FY18 GAPE fees and Take
Slide 14: Network Key Financial Metrics
1HFY2019 RESULTSNETWORK FY2018 RESULTS NETWORK PERFORMANCE PERFORMANCE Network Key Financial Metrics REVENUE EBIT VOLUMES 1500 (mT) (A$m) 1,262 (A$m) 1,178 1,219 1,108 600 250 226 230 215 226 980 1,012 506 211 1000 500 484 481 481 200 182 417 412 400 150 557 117 300 500 203 100 200 50 100 0 0 0 FY13
Slide 15: Regulation
1HFY2019 RESULTS Regulation
Slide 16: UT5 Final Decision summary
1HFY2019 1HFY2019 RESULTS RESULTS ADDITIONAL INFORMATION REGULATION UT5 Final Decision summary AN1 UT5 AN’S RESPONSE QCA UT5DD QCA UT5FD SUBMISSION TO UT5DD Return on Capital (WACC) 1,592 1,289 1,677 1,381 Depreciation (less inflation) 1,141 899 936 1,034 Maintenance cost 921 817 928 739 Operating c
Slide 17: Network update
INVESTOR UPDATE 1HFY2019 RESULTS PERFORMANCE OVERVIEW REGULATION Network update UT5 approved by the QCA on 21 February 2019 › Aurizon submitted a conforming undertaking to the QCA on 18 February 2019 which was approved on 21 February 2019 › Compared to UT5DD: › MAR increased ~$230m to $4.123bn over
Slide 18: Network EBIT scenarios post UT5 Final Decision
1HFY2019 1HFY2019 RESULTS RESULTS FINANCIAL PERFORMANCE REGULATION Network EBIT scenarios post UT5 Final Decision Network EBIT range for FY2019 is $380m – $485m under various revenue recognition scenarios assuming no volume variance. FY2020 EBIT growth from MAR increase INDICATIVE NETWORK EBIT RANGE
Slide 19: UT5 Final Decision MAR and known adjustments
1HFY2019 1HFY2019 RESULTS RESULTS ADDITIONAL INFORMATION REGULATION UT5 Final Decision MAR and known adjustments $m FY2018 FY20193 FY20203 FY20213 UT5 Final Decision MAR (ex GAPE) 874 887 936 908 Estimated MAR (ex GAPE) 9321 887 936 908 Known adjustments: Revenue Cap / Flood Recovery (3) 45 (1) UT5
Slide 20: Funding and Capital Management
1HFY2019 RESULTS Funding and Capital Management
Slide 21: Funding update
1HFY2019 1HFY2019 RESULTS RESULTS FINANCIAL FUNDING PERFORMANCE AND CAPITAL MANAGEMENT Funding update Work is underway to determine the optimal legal and capital structure for the Group KEY DEBT METRICS 1HFY2019 1HFY2018 LEGAL & CAPITAL STRUCTURE REVIEW › Current legal structure is a legacy of the I
Slide 22: Capital expenditure
1HFY2019 1HFY2019 RESULTS RESULTS FINANCIAL FUNDING PERFORMANCE AND CAPITAL MANAGEMENT Capital expenditure FY2019 capital expenditure mix change with Network decrease offset by increase in Coal to support fleet reliability and growth CAPITAL EXPENDITURE1 FY2016 – FY2019 ($M) › Capital expenditure gu
Slide 23: 1HFY2019 group and business unit capital expenditure ($m)
1HFY2019 1HFY2019 RESULTS RESULTS ADDITIONAL FUNDING ANDINFORMATION CAPITAL MANAGEMENT 1HFY2019 group and business unit capital expenditure ($m) 223 201 111 63 111 44 28 19 22 16 2 28 19 0 3 0 2 0 1HFY20192 Network Coal Bulk1 Intermodal Corporate2 Non Growth Growth 1. Net of externally funded paymen
Slide 24: Network RAB, CAPEX and Depreciation profile
1HFY2019 RESULTSFUNDING FY2018 RESULTS FUNDING AND AND CAPITAL CAPITAL MANAGEMENT MANAGEMENT Network RAB, CAPEX and Depreciation profile RAB ROLL FORWARD CAPEX ACCOUNTING DEPRECIATION 93% 569 288 363 283 257 5.8 5.8 300 308 5.7 5.7 5.1 283 258 215 3.0 281 252 276 158 111 80 5 7 0 FY10 FY15 FY16 FY17
Slide 25: Outlook & Key Takeaways
1HFY2019 RESULTS Outlook & Key Takeaways
Slide 26: FY2019 outlook
1HFY2019 RESULTS OUTLOOK & KEY TAKEAWAYS FY2019 outlook Non-Network EBIT guidance confirmed at $390m - $430m EBIT $m 1HFY2019 RESULT GUIDANCE Non-Network 217 390 - 430 Network 203 n/a Group (ex redundancy) 420 n/a Redundancy costs (14) n/a Group 406 n/a KEY ASSUMPTIONS › Coal – 2H volumes higher wit
Slide 27: Key takeaways
1HFY2019 RESULTS OUTLOOK & KEY TAKEAWAYS Key takeaways Continue to deliver on promises, focus remains on executing against the strategic framework to position Aurizon for long term earnings growth Focus on shareholder returns – maintained payout ratio at 100% of underlying NPAT UT5 – Engagement cont
Slide 28: Additional Information Group
1HFY2019 RESULTS Additional Information Group
Slide 29: Aurizon’s rail haulage operations
1HFY2019 RESULTS ADDITIONAL INFORMATION Aurizon’s rail haulage operations KEY OPERATIONAL STATISTICS COMMODITIES Coal, iron ore and bulk freight ROLLINGSTOCK 500+ active locomotives OPERATIONAL FOOTPRINT More than 160 operational sites PEOPLE More than 4,500 operational full-time employees WAGONS 13
Slide 30: Aurizon’s vision, purpose and values
1HFY2019 RESULTS ADDITIONAL INFORMATION Aurizon’s vision, purpose and values Focussed on customers and recognises its important role in both regional Australia and global supply chains VISION PURPOSE Achievement of vision represents: The first Growing choice for regional • #1 in the market bulk Aust
Slide 31: Strategic levers required to fulfil Aurizon’s vision
1HFY2019 RESULTS ADDITIONAL INFORMATION Strategic levers required to fulfil Aurizon’s vision Execution against the three strategic levers is aimed at driving differentiation, competitive advantage and sustainable performance STRATEGIC LEVERS Delivering a cost effective Labour and asset Improving the
Slide 32: Capital allocation framework
1HFY2019 RESULTS ADDITIONAL INFORMATION Capital allocation framework Operating Sustaining Dividends Surplus capital Cash flow & (payout range returns 70-100%) (e.g. Buy-backs) & Transformation Net borrowings Capital Growth capital (at ~40% targeted (only where it gearing) maximises shareholder value
Slide 33: Additional Information Network
1HFY2019 RESULTS Additional Information Network
Slide 34: Central Queensland Coal Network (CQCN)
1HFY2019 RESULTS ADDITIONAL INFORMATION Central Queensland Coal Network (CQCN) CQCN comprises four major coal systems and one connecting system link (GAPE) servicing Queensland’s Bowen Basin coal region Townsville LEGEND PORT OF ABBOT POINT Abbot Point Coal Terminal (APCT) City/town Power Station Bo
Slide 35: Network strategic levers
1HFY2019 RESULTS ADDITIONAL INFORMATION Network strategic levers Priorities are focussed on the development of a fit for purpose network that creates value and facilitates changing the regulatory environment for the benefit of all Fit for purpose Existing UT5 solution Capability Customer solutions R
Slide 36: Network volumes (mt)
1HFY2019 RESULTS ADDITIONAL INFORMATION Network volumes1 (mt) 1HFY2019 1HFY2018 Variance 2HFY2018 Newlands 6.5 6.8 (4%) 6.3 Goonyella 62.6 63.9 (2%) 62.6 Blackwater/WIRP 31.8 32.8 (3%) 29.9 Moura 7.0 5.7 23% 5.4 GAPE 8.6 7.4 16% 8.8 Total 116.5 116.6 - 113.0 Average haul length2 (kms) 247.5 248.3 -
Slide 37: Network revenue adjustment amounts (revenue cap)
1HFY2019 RESULTS ADDITIONAL INFORMATION Network revenue adjustment amounts (revenue cap) AT2-4 AT5 › Revenue adjustment amounts (RAA) are the Financial Total (diesel tariff) (electric tariff) difference by system between Aurizon’s Total Year $m $m $m Actual AT2-5 Revenue and Allowable AT2-5 1 Revenu
Slide 38: Reconciliation of billed MAR to reported access revenue
1HFY2019 RESULTS ADDITIONAL INFORMATION Reconciliation of billed MAR to reported access revenue FY2018 FY2019 $m Actual Estimate* Billed Access Revenue (AT1 to AT5) (ex. GAPE) 940 887 Approved Adjustments to MAR Flood Claim recoveries1 18 Revenue Cap (ex. GAPE and inclusive of capitalised interest)
Slide 39: Network financial and operating metrics
1HFY2019 RESULTS ADDITIONAL INFORMATION Network financial and operating metrics 1HFY2019 1HFY2018 Variance 2HFY2018 Tonnes (m) 116.5 116.6 - 113.0 NTK (bn) 28.8 29.0 (1%) 27.9 Operating Ratio 63.6% 59.1% (4.5ppt) 62.0% Maintenance/NTK ($/’000 NTK) 2.2 2.0 (10%) 2.4 Opex/NTK ($/’000 NTK) 12.3 12.4 1%
Slide 40: Additional Information Coal Market
1HFY2019 RESULTS Additional Information Coal Market
Slide 41: Australian export coal demand
1HFY2019 RESULTS ADDITIONAL INFORMATION Australian export coal demand The fundamentals of metallurgical and thermal coal remain strong, driven by steel and energy demand growth in Asia, supporting growth in Australian exports of ~2% pa over the next decade INDIA: CRUDE STEEL PRODUCTION (MT)1 +41% Me
Slide 42: Australia FY2018 coal supply summary
1HFY2019 RESULTS ADDITIONAL INFORMATION Australia FY2018 coal supply summary Coal Production Domestic Consumption Export All Coal Export (By Destination) All Coal Export (By Port) 118mt 157mt 448mt 66mt 382mt 89mt 120mt 31% 48mt 47mt 48mt 41% 67mt 23% 32mt 31% State Split State Split State Split 28m
Slide 43: Coal market | Australia
1HFY2019 RESULTS ADDITIONAL INFORMATION Coal market | Australia AUSTRALIA: METALLURGICAL COAL EXPORT AUSTRALIA: THERMAL COAL EXPORT 250 $300 250 $150 Hard Coking Coal Price (USD/t) Thermal Coal Price (USD/t) 200 200 million tonnes million tonnes $200 $100 150 150 100 100 $100 $50 50 50 103 108 91 90
Slide 44: Coal price | Coal capital and exploration expenditure
1HFY2019 RESULTS ADDITIONAL INFORMATION Coal price | Coal capital and exploration expenditure HARD COKING COAL SPOT PRICE (US$/t FOB) THERMAL COAL SPOT PRICE (US$/t FOB) $300 $150 $250 $223 $103 $200 $100 $150 $100 $50 $50 $0 $0 Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- J
Slide 45: Coal demand | Metallurgical coal
1HFY2019 RESULTS ADDITIONAL INFORMATION Coal demand | Metallurgical coal MAJOR COKING (METALLURGICAL) COAL EXPORT MAJOR COKING (METALLURGICAL) COAL IMPORT NATIONS: 2017 NATIONS (AND SOURCE): 2017 177mt 79mt 57mt 50mt 7% 13% 7% 36mt 6% 8% 50mt 17% 82% 11% 29mt 26mt 23mt 44% 69% 13mt 53% 26% 43% Austr
Slide 46: Coal demand | Thermal coal
1HFY2019 RESULTS ADDITIONAL INFORMATION Coal demand | Thermal coal MAJOR STEAM (THERMAL) COAL EXPORT NATIONS: MAJOR STEAM (THERMAL) COAL IMPORT NATIONS 2017 (AND IMPORT SOURCE): 2017 389mt 219mt 161mt 155mt 9% 132mt 202mt 21% 24% 10% 158mt 17% 69mt 58% 83mt 70mt 56% 25% 61% 14% 43% 22% 36% 29% Indon
Slide 47: Australia coal competitiveness
1HFY2019 RESULTS ADDITIONAL INFORMATION Australia coal competitiveness METALLURGICAL COAL CASH COSTS (US$/t, CFR INDIA, 2018) THERMAL COAL CASH COSTS (US$/t, CFR JAPAN, 2018) $180 $80 $160 $70 $140 $120 $60 US$/t US$/t $100 $161 $50 $71 $128 $63 $63 $64 $80 $59 $109 $96 $40 $60 $75 $40 $30 Russia Au
Slide 48: Additional Information Regulation
1HFY2019 RESULTS Additional Information Regulation
Slide 49: Regulated Revenues within a stable & well-established Regulatory Regime
1HFY2019 RESULTS ADDITIONAL INFORMATION Regulated Revenues within a stable & well-established Regulatory Regime WELL ESTABLISHED REGULATORY STABLE REGULATED REVENUE WELL DEVELOPED BUILDING REGIME BASE BLOCK APPROACH TO REVENUE DETERMINATION WACC (return on › The provision of transportation services
Slide 50: The CQCN Regulatory Framework Provide Revenue Protection Through a Building Block Approach
1HFY2019 RESULTS ADDITIONAL INFORMATION The CQCN Regulatory Framework Provide Revenue Protection Through a Building Block Approach MAXIMUM ALLOWABLE REVENUE REGULATORY REVENUE TOTAL ACTUAL REVENUE PROTECTION TESTS (FORECASTED) FOR EACH YEAR OF UNDERTAKING PERIOD AT1 Outside the revenue protection sc
Slide 51: Revenue cap with Take-or-Pay Protection
1HFY2019 RESULTS ADDITIONAL INFORMATION … with Take-or-Pay Protection Should Revenues Fall Short (With a Revenue Cap) ToP › Primary revenue protection mechanism available AT2 Train Paths to Aurizon Network Take-or-pay Revenue cap Take or pay AT3 Net Train Kilometres (NTK) mechanisms › Allows Aurizon
Slide 52: Glossary
1HFY2019 RESULTS ADDITIONAL INFORMATION Glossary Metric Description Access Revenue Amounts received by Aurizon Network for access to the Network infrastructure under all Access Agreements Average haul length NTK/Total tonnes Contract utilisation Total volumes hauled as a percentage of total volumes
Slide 53: Aurizon
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