Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (December 2016)
52 slides from Aurizon's debt investor presentation, December 2016
Slide 1: Aurizon Debt Investor Roadshow
Aurizon Debt Investor Roadshow December 2016 “Aurizon – Australia’s largest rail freight operator” Pam Bains – VP Network Finance (Network CFO) David Collins – VP Finance & Group Treasurer Further information is available online at www.aurizon.com.au
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: Agenda
Agenda › Aurizon Group Overview › Aurizon Group › Aurizon Network (Below Rail) › Aurizon Haulage (Above Rail) › Coal Industry Update 3
Slide 4: Aurizon Group Overview
Aurizon Group Overview
Slide 5: We're Australia's largest rail freight operator
We’re Australia’s largest rail freight operator. Top 50 ASX- Strong Transporting An integrated Employing listed company investment more than 270 above and 6,000 people with a market grade credit million tonnes of below rail at more than capitalisation of ratings, Australian supply chain 200 operatio
Slide 6: Group Overview: long term contracts and high quality customer base
Aurizon Group Overview Aurizon benefits from long term contracts with high fixed capacity charges and a high quality customer base › Aurizon's credit profile benefits from its strong market share and dominant positions within the Australian commodity supply chain › Its credit rating recognises the s
Slide 7: Key FY16 metrics
Aurizon Group Overview Key FY16 metrics Aurizon Group(1) Aurizon Network Aurizon Haulage(2) Revenue A$3.5bn A$1.2bn A$3.1bn EBITDA A$1.4bn A$0.8bn A$0.9bn Total Assets A$10.9bn A$5.9bn A$6.4bn Debt A$3.5bn A$3.0bn A$0.5bn Gearing(3) 37.4% 62.6% 8.5% Credit Baa1 (negative) / Baa1 (negative) / n/a Rat
Slide 8: Key Credit Highlights
Aurizon Group Overview Key Credit Highlights Aurizon has a strong financial position and stable credit ratings, providing low risk and stable returns to investors Well-established customers and high quality mines predominantly operated by investment grade coal miners Stable and well-established regu
Slide 9: Funding Summary
Aurizon Group Overview Funding Summary Aurizon Haulage A$0.5bn(1) drawn debt maturity profile $m › Aurizon Network bank debt facilities of $490m repriced in December 2015 and maturity extended to FY22 Drawn bank debt 200 Undrawn bank debt › Aurizon Haulage bank debt facilities of $300m repriced in A
Slide 10: Aurizon Group
Aurizon Group
Slide 11: Our operations are Australia-wide
Our operations are Australia-wide… Legend Darwin Key operational statistics(1) Coal Iron ore Bulk COMMODITIES Intermodal Wyndham Coal, iron ore, bulk freight CQCN Aurizon and intermodal Cairns City/town Broome Network NORTHERN TERRITORY Townsville PEOPLE Mt Isa Port Headland Bowen More than 6,000 op
Slide 12: …and includes coal haulage…
…and includes coal haulage… Queensland › Aurizon hauled 163 mt of coal in FY16, Key customers across five integrated rail corridors to six export ports. › Operating 49 coal services on the Central Qld Coal Network (CQCN) each day. › Employing around 3,700 operations staff, 352 locomotives and 8,900
Slide 13: …iron ore and bulk freight…
…iron ore and bulk freight… Iron Ore › Aurizon hauled 24 mt of iron ore in FY16, Key customers across two integrated rail corridors to three export ports. › Operating nine iron ore services each day in the mid-west region. › Employing over 700 operations staff, 100 locomotives and 2,300 wagons. Bulk
Slide 14: …and containerised intermodal freight
…and containerised intermodal freight. Intermodal › Aurizon hauled over 370,000TEU(1) of intermodal freight throughout Australia in FY16. › A national network of strategically located intermodal terminals allows Aurizon to co-locate with key customers and efficiently service population centres. Key
Slide 15: Aurizon Network manages Australia's largest export coal network
Aurizon Network manages Australia’s largest export coal network. › Aurizon operates and manages Australia’s largest and most complex export rail network, the Central Queensland Coal Network (CQCN) ‒ Comprises 4 major coal systems and 1 connecting system link serving Queensland’s Bowen Basin coal reg
Slide 16: Aurizon Network (Below Rail)
Aurizon Network (Below Rail)
Slide 17: Summary of key credit highlights
Summary of key credit highlights 1 Highly regulated revenues within a stable and well-established regulatory regime 2 Long term lease arrangements supported by the central QLD coal mining sector Infrastructure network servicing well-established haulage customers and high 3 quality mines predominantl
Slide 18: Regulated revenues within a stable regulatory regime
1 Regulated revenues within a stable and well- established regulatory regime Well-established regulatory Well developed building block approach to 1 regime 2 Stable regulated revenue base 3 revenue determination › Over 90% of Aurizon Network › The provision of transportation WACC services by rail on
Slide 19: Long term lease arrangements supported by the QLD coal mining sector
2 Long term lease arrangements supported by the QLD coal mining sector Australia’s coal exports by destination(2) Queensland coal reserves(1) (million tonnes) Metallurgical coal › 99 year lease arrangements in place with the State of Queensland to Metallurgical coal comprises approximately three qua
Slide 20: Infrastructure network servicing well-established haulage customers
3 Infrastructure network servicing well- established haulage customers… FY16 railed volume split by Aurizon Network customers › Aurizon Network’s largest customers are Aurizon Haulage and Pacific National Including › Both Aurizon Holdings (Baa1 / BBB+) and Pacific Pacific National (Baa3 / BBB-)(1) a
Slide 21: …and high quality mines operated by investment grade coal miners
3 …and high quality mines predominantly operated by investment grade coal miners Diversified coal mining customers that are predominantly large global companies › Mines on the CQCN are operated by a diversified group of coal miners Junior miners › Customers are predominantly large investment grade 2
Slide 22: Revenue protection mechanisms limit counterparty and volume risk
4 Revenue protection mechanisms limit exposure to counterparty credit risk and volume risk ToP › Aurizon Network’s regulated revenue is protected through a combination of AT 2 Train Paths provisions that are included in the QCA-approved access agreements Take-or- Revenue cap Pay AT 3 Net Train Kilom
Slide 23: Strong financial position and ratings stability
5 Strong financial position and ratings stability › Aurizon Network operates as a separate standalone entity to Overview of Aurizon Network debt facilities Aurizon Haulage and Aurizon Group › Standalone debt facilities are in place at the Aurizon Network level, supported by the regulated infrastruct
Slide 24: Aurizon Network – Regulatory Update
Aurizon Network – Regulatory Update UT4(1) Final Decision Maximum Allowable Revenue › Overall maximum revenue of $3.933 billion over the period of the Undertaking (MAR) › Weighted Average Cost of Capital (WACC) - 7.17% True-up recovery process › The Final UT4 Decision highlighted a net under recover
Slide 25: UT5 – Submitted November 2016
UT5 – Submitted November 2016 Context Revenue proposal › Significantly larger Regulated Asset Base (RAB) of ~$6.2 billion (1) as › Aurizon Network submitted to the Queensland Competition Authority a result of customer requested expansions. (QCA) its Draft Access Undertaking (UT5 Draft). › The UT5 Dr
Slide 26: UT5 Draft: MAR and forecast volumes
UT5 Draft: MAR(1) and forecast volumes UT4 UT5 MAR $m Total FY2017 FY2018 FY2019 FY2020 FY2021 Total Return on capital 1,526 420 409 402 395 386 1,592 Depreciation (less inflation) 771 218 284 281 289 287 1,141 Maintenance costs 805 207 221 225 235 240 921 Operating costs 815 223 206 211 217 221 855
Slide 27: UT5 Draft: Allowable Return on Capital
UT5 Draft: Allowable Return on Capital FINANCIAL OUTCOMES UT4 FINAL UT5 SUBMISSION Decision Date 28 Apr 2016 n/a Risk-free Rate 3.21% 2.13% Averaging Period 20-Day to 31 Oct 2013 20-Day to 30 Jun 2016 Term of Risk-free Rate 4-year 10-year Gearing Ratio 55% 55% Benchmark Credit Rating BBB+ BBB+ Asset
Slide 28: Aurizon Haulage (Above Rail)
Aurizon Haulage (Above Rail)
Slide 29: Aurizon Haulage – Summary of key credit highlights
Aurizon Haulage – Summary of key credit highlights 1 Long term contracts with average unexpired life of more than 10 years 2 Revenue contracts include high fixed capacity charges Well-established haulage customers and high quality mines predominantly 3 operated by investment grade coal miners Bulk f
Slide 30: Long term contracts with average unexpired life of more than 10 years
1 Long term contracts with average unexpired life of more than 10 years Aurizon Haulage contract volume expiry by year (mtpa, as at July 2016) No material contract expiries until FY22 45 40 Carborough Downs (Vale) : FY16 ► FY17 Minerva (Sojitz): FY16 ► FY21 35 Mt Arthur (BHP Billiton): FY21 ► FY28 M
Slide 31: Revenue contracts include high fixed capacity charges
2 Revenue contracts include high fixed capacity charges Aurizon Haulage’s Coal Haulage revenue Annualised Coal breakdown Contracted Volumes (mtpa)(1) 227 223 215 216 46 48 44 44 28% 29% 29% 37% 181 175 170 172 72% 71% 71% 63% FY16 FY17f FY18f FY19f FY16 FY17f FY18f FY19f 44% Wales48% New South 50% 6
Slide 32: Well-established haulage customers and high quality mines
3 Well-established haulage customers and high quality mines predominantly operated by investment grade coal miners Aurizon’s customers are well-established with Aurizon Haulage’s contracts are predominately high quality mines that enabled volumes to with investment grade coal miners(1) remain strong
Slide 33: Bulk freight and Intermodal provide diversification
4 Bulk freight and Intermodal provide diversification in Aurizon Haulage’s operations Iron Ore Bulk Freight › Although trading conditions have improved recently, Aurizon › Prices remain depressed for many commodities, resulting in a continues to work with customers in order to identify cost difficul
Slide 34: Strong financial position and ratings stability
5 Strong financial position and ratings stability › Aurizon Haulage comprises a number of entities in the Aurizon Group Overview of Aurizon Haulage debt facilities › Debt facilities are in place for Aurizon Haulage › Aurizon Haulage does not have a separate credit rating to the Senior syndicated deb
Slide 35: Coal Industry Update
Coal Industry Update
Slide 36: Coal update
Coal update Markets Customers › Australian export volumes stable in FY16 with increased › Customer credit ratings (by FY16 volume): seaborne market share › Investment grade 62%, sub-investment grade 28%, private 10% › Metallurgical coal: › Weighted average remaining contract life 10.5 years › 65% ma
Slide 37: Australia is the world's largest exporter of seaborne coal
Australia is the world’s largest exporter of seaborne coal with its proximity to Asia providing a competitive advantage › Australian volume resilient to date with FY16 export volume broadly steady Metallurgical coal seaborne exports Thermal coal seaborne exports on the previous year. Volume and mark
Slide 38: Queensland has the largest coal resources in Australia
Queensland has the largest coal resources in Australia with a production life in excess of 30 years Queensland coal reserves and resources(1) › The CQCN services the Bowen Basin region in Queensland, which supplies over 60% of the world’s metallurgical coal › Premium hard coking, LV PCI and semi-sof
Slide 39: Australia's coal assets are well-positioned on the global cost curve
Australia’s coal assets are well-positioned on the global cost curve Metallurgical Coal: Contract & Spot Price (USD) Thermal Coal: Contract & Spot Price (USD) › Metallurgical coal from Australia is amongst the highest quality globally and is produced at relatively lower cost › Australia’s coal asset
Slide 40: The future of seaborne metallurgical coal
The future of seaborne metallurgical coal › Metallurgical coal has no substitute in the ‘Basic Oxygen Indian steel production and metallurgical coal demand Furnace’ (BOF) method of steelmaking, which represents 70% of global steel production. Resource analysts, Wood Mackenzie, forecasts that metallu
Slide 41: The future of seaborne thermal coal
The future of seaborne thermal coal › There is increasing global electricity demand, driven by International Energy Agency (IEA) outlook for electricity economic development in Asia. Over one billion additional generation in non-OECD Asia by source (TWh, share) people will gain access to electricity
Slide 42: Appendix – Financial Information
Appendix – Financial Information
Slide 43: Aurizon Group – Underlying Profit & Loss
Aurizon Group – Underlying Profit & Loss $m FY2016 FY2015 Comment Tonnes (million) 270.9 281.2 Provision of access to the CQCN and freight Revenue 3,458 3,780 haulage services across Australia Predominantly consumables (509), employee Operating costs (2,026) (2,291) benefits (891) and track access (
Slide 44: Aurizon Group – Balance Sheet
Aurizon Group – Balance Sheet As at ($m) 30 June 2016 30 Jun 2015 Comment Current assets balance predominantly made up Total current assets 844 934 of cash (69), trade and other receivables (514) and inventory (153) Predominantly rollingstock and infrastructure Property, plant & equipment 9,719 9,90
Slide 45: Aurizon Group – Free Cash Flow
Aurizon Group – Free Cash Flow $m FY2016 FY2015 EBITDA - statutory 904 1,489 Working capital & other movements (85) 7 Non-cash adjustments - impairment 528 - Cash from operations 1,347 1,496 Interest received 2 9 Income taxes (paid) / received (131) 11 Net cash inflows from operating activities 1,21
Slide 46: Aurizon Network – Underlying Profit & Loss
Aurizon Network – Underlying Profit & Loss $m FY2016 FY2015 Comment Tonnes (million) 225.9 225.7 Revenue - Access 1,136 1,048 Provision of access to the CQCN - Services/Other 43 60 Provision of other incidental services Total Revenue 1,179 1,108 Predominantly consumables (147), energy Operating cost
Slide 47: Aurizon Network – Balance Sheet
Aurizon Network – Balance Sheet As at ($m) 30 June 2016 30 June 2015 Comment Current assets balance predominantly made up of trade and Total current assets 289 376 other receivables (241) and inventory (44) Property, plant & equipment 5,432 5,360 Predominantly infrastructure assets Other non-current
Slide 48: Aurizon Network – Free Cash Flow
Aurizon Network – Free Cash Flow $m FY2016 FY2015 EBITDA - statutory 756 700 Working capital & other movements (21) (2) Non-cash adjustments - impairment 8 - Cash from operations 743 698 Interest received 2 1 Income taxes (paid) / received (53) 7 Net cash inflows from operating activities 692 706 Ne
Slide 49: Aurizon Haulage – Underlying Profit & Loss
Aurizon Haulage – Underlying Profit & Loss $m FY2016 FY2015 Comment Provision of freight haulage services Revenue 3,083 3,385 across Australia Other income 268 300 Dividend income from internal investments Predominantly consumables (1,610) and Operating costs (2,437) (2,639) employee benefits (775)
Slide 50: Aurizon Haulage – Balance Sheet
Aurizon Haulage – Balance Sheet As at ($m) 30 June 2016 30 Jun 2015 Comment Current assets balance predominantly made up of cash (61), Total current assets 648 660 trade and other receivables (467) and inventory (109) Property, plant & equipment 4,314 4,558 Predominantly rollingstock assets Other no
Slide 51: Glossary
Glossary Defined Term Definition Access Facilitation Deed Assets that have the construction cost paid by the customer Access Revenue Amount received for access to the Aurizon Network infrastructure under the Access Agreement AT Access tariff CQCN Central Queensland Coal Network Net operating cash fl
Slide 52: <4 AURIZON.
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