Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (March 2018)
48 slides from Aurizon's debt investor presentation, March 2018
Slide 1: Aurizon Network - Debt Investor Update HY2018 Results
Aurizon Network - Debt Investor Update HY2018 Results February – March 2018
Slide 2: Disclaimer
Disclaimer No Reliance on this document No offer of securities This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to as Nothing in this presentation should be construed as a recommendation of or an offer to sell or a “Aurizon” which includes its related bodies corpora
Slide 3: Agenda
Agenda Half year in review – Aurizon Group Half year in review – Aurizon Network Regulation Funding and Capital Management Outlook and summary 3
Slide 4: Half year in review – Aurizon Group
Half year in review – Aurizon Group
Slide 5: About Aurizon Group
About Aurizon Group Who we are › Aurizon (ASX: AZJ; market capitalisation of circa A$9bn1) is Australia’s largest rail freight operator and a top 50 ASX company › Each year, we transport more than 250 million tonnes of Australian commodities — connecting miners, primary producers, and industry with
Slide 6: FY2018 Half Year Highlights
FY2018 Half Year Highlights1 Solid financial result, strong shareholder distributions Financial Results Underlying EBIT bridge – Group1 ($m) › Underlying EBIT down 5% due to impact of UT4 true ups › Volumes up 2%, growth in Coal (4%) offsetting reduction in Bulk (6%) 18 › Statutory NPAT up 52% to $2
Slide 7: Update on key priorities
Update on key priorities Focus remains on cashflow, capital discipline and value Capital › $688m in shareholder distributions since January 2017 Management › ~75% of $300m buy back complete, balance to be completed in 2HFY2018 › Intermodal Interstate operations closed in line with plan › Intermodal
Slide 8: Key financial highlights
Key financial highlights EBIT1 impacted by non recurrence of UT4 one offs in Network › Revenue impacted by UT4 and FY16 $m 1HFY2018 1HFY2017 Variance revenue true up in Network Revenue 1,565 1,621 (3%) Operating Costs (821) (832) 1% › Operating costs benefited from $42m in transformation, offset by
Slide 9: Intermodal Update
Intermodal Update Closure and divestment of Intermodal drives value Interstate Business Queensland Business Closure of Interstate business on time and below › Operations continue for Intermodal Queensland budget with improved safety performance and no with a continued focus on cost base optimisatio
Slide 10: Intermodal Closure and Sale
Intermodal Closure and Sale Result impacted by Interstate closures process › EBIT flat driven by reduced revenues from the Discontinued Operations - Intermodal progressive Interstate closure, offset by reduced $m 1HFY2018 1HFY2017 Variance operating cost and depreciation Revenue 140 159 (12%) › Sign
Slide 11: Coal Market: Metallurgical Coal & Thermal Coal Seaborne Markets
Coal Market: Metallurgical Coal & Thermal Coal Seaborne Markets 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 0 $0 0 $0 201
Slide 12: Coal Market: Monthly Seaborne Export Volume
Coal Market: Monthly Seaborne Export Volume Australia: Metallurgical Coal Export Australia: Thermal Coal Export 20mt 40% 20mt 20% 20% 10% 15mt 18mt 0% 0% -20% 10mt 16mt -10% -40% 5mt -60% 14mt -20% Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- 16 16 16 16 17 17 17 1
Slide 13: Coal Market: Australian Coal Investment
Coal Market: Australian Coal Investment Aust. Coal Mining Capital Expenditure: Quarter Aust. Coal Exploration Expenditure: Quarter A$4.0b A$250m A$200m A$3.0b A$150m A$2.0b A$100m +23% A$1.0b A$50m -5% A$0.0b A$0m Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep Sep 2010 2011 2012 2013 20
Slide 14: Half year in review – Aurizon Network
Half year in review – Aurizon Network
Slide 15: Network snapshot
Network snapshot Central Qld Coal Network (CQCN) Key Network facts 40 + operating coal mines serviced PORT OF ABBOT POINT LEGEND Townsville Open access network with three above Abbot Point Coal Terminal (APCT) City/town Power Station rail coal operators – Aurizon Operations, Bowen Coal Export Termin
Slide 16: Network
Network Result impacted by UT4 true ups › Revenue $m 1HFY2018 1HFY2017 Variance › UT4 one off true up ($45m) in 1HFY2017 Revenue 608 671 (9%) › FY2016 revenue cap adjustment ($11m) › 1HFY2017 true ups for GAPE and AFDs ($12m) Operating Costs (208) (230) 10% › $17m higher electric charge revenue (off
Slide 17: Network profit & loss (underlying)
Network profit & loss (underlying) 1H 2H $m Variance FY2018 FY2017 FY2017 Tonnes (m) 116.6 112.9 3% 97.9 Access Revenue 577.0 628.5 (8%) 571.4 Services and other 30.5 42.6 (28%) 19.6 Total Revenue 607.5 671.1 (9%) 591.0 Operating costs (208.0) (230.5) 10% 251.2 EBITDA 399.5 440.6 (9%) 339.8 EBITDA m
Slide 18: Cash flow – free cash flow growth
Cash flow – free cash flow growth $m HY1 F18 HY1 FY17 EBITDA - statutory 393 432 › Free Cash Flow has remained steady in both half year periods Working capital & other movements 31 (1) › Higher cash inflows from Non-cash adjustments - impairment - 1 operating activities primarily Cash from operation
Slide 19: Aurizon Network Balance Sheet
Aurizon Network Balance Sheet As at ($m) 31 Dec 2017 30 June 2017 › Slight increase in PP&E due to no Total current assets 212 296 major growth capital with focus on sustaining capital works program Property, plant & equipment 5,402 5,390 › Borrowings increased due to net Other non-current assets 19
Slide 20: Network volumes (mt)
Network volumes1 (mt) 1H 2H Variance FY2018 FY2017 FY2017 Newlands 6.8 6.2 10% 5.8 Goonyella 63.9 61.4 4% 49.7 Blackwater 28.3 27.5 3% 25.1 Moura 5.7 6.2 (8%) 6.0 GAPE 7.4 6.7 10% 6.6 WIRP 4.5 4.9 (8%) 4.6 Total 116.6 112.9 3% 97.9 Average haul length2 (kms) 248 251 1% 254 1. Table represents coal t
Slide 21: Network volumes (mt)
Network volumes1 (mt) Aurizon: Network Coal Type Split 100% 28% 28% 28% 28% 30% 30% 72% 72% 72% 72% 70% 70% FY13 FY14 FY15 FY16 FY17 1HFY2018 Thermal Metallurgical 1. Represents coal tonnes hauled on the CQCN by all operators 2. Source : Wood Mackenzie Coal Supply Data Tool (2017 Q4), Aurizon analys
Slide 22: Aurizon Network: Key Financial Metrics
Aurizon Network: Key Financial Metrics Revenue EBIT Volumes (A$m) (A$m) (mT) +29% +41% +63% 1,500 600 250 226 226 1,262 215 1,178 484 506 481 211 1,108 500 200 182 980 1,012 417 412 164 167 1,000 892 827 400 295 325 150 117 608 300 249 100 500 200 100 50 0 0 0 FY11 FY12 FY13 FY14 FY15 FY16 FY17 H1 F
Slide 23: Regulation
Regulation
Slide 24: Network update
Network update QCA’s UT5 Draft Decision risks value erosion across the CQCN coal supply chain › Maximum allowable revenue (MAR) $3.9bn, $1bn lower than Aurizon’s submission › Aurizon’s risk for investing (WACC) determined at 5.41% - compared to 6.3% the UT5 Draft ACCC determined for Hunter Valley co
Slide 25: UT5 Draft Determination
UT5 Draft Determination QCA published UT5 draft decision on 15 December 2017 › QCA’s proposed Maximum Allowable Revenue (MAR) is $3.893bn, $999m below the Aurizon UT5 submission › QCA proposed a weighted average cost of capital (WACC) of 5.41% against the 6.78% proposed by Aurizon › Material anomali
Slide 26: UT5 Draft Determination (cont’d)
UT5 Draft Determination (cont’d) Table 2: WACC breakdown by component 26
Slide 27: Regulatory Decisions
Regulatory Decisions Recent decisions made by regulators in the Infrastructure and Utilities sectors Weighted Average Cost of Capital1 (WACC) AZJ Network* 5.41% Water NSW - Murray Darling Basin 5.50% ElectraNet 5.75% DBCT 5.82% Dampier to Bunbury Natural Gas Pipeline 5.83% AusNet Gas Services 5.94%
Slide 28: Regulatory Decisions – Infrastructure & Utilities (Water, Rail and Port)
Regulatory Decisions – Infrastructure & Utilities Examples of recent decisions made by regulators in the Infrastructure and Utilities sectors South East East Water WaterNSW – Water & Gippsland Corp, Sydney WaterNSW Aurizon Murray- SA SeqWater Yarra Water & Aqwest & Desalination – Coastal Network Dar
Slide 29: Regulatory Decisions – Electricity & Gas
Regulatory Decisions – Infrastructure & Utilities Examples of recent decisions made by regulators in the Infrastructure and Utilities sectors Dampier to Aurizon AusNet Gas APA VTS ElectraNet TransGrid Powerlink Bunbury Natural Network Services Australia Gas Pipeline Electricity & Gas Regulator QCA A
Slide 30: Funding and Capital Management
Funding and Capital Management
Slide 31: Capital allocation framework
Capital allocation framework Operating Sustaining Dividends Surplus capital Cash flow & (70-100% Returns (e.g. Buy-backs) payout ratio) & Transformational Net borrowings Capital Growth capital (at ~40% targeted gearing) 1HFY2018 outcomes › Group gearing target of ~40% › 1HFY2018 dividend maintained
Slide 32: Funding update
Funding update Strategy progressing but potential future impact from UT5 UT5 Draft Decision Key Debt Metrics 1HFY2018 1HFY2017 Weighted average › QCA recognises that the credit metrics would fall 5.1 years 5.3 years maturity below the BBB+ threshold under the regulatory cash flows expected as a resu
Slide 33: Aurizon Debt Maturity Profile ($m)
Aurizon Debt1 Maturity Profile ($m) 1,025 778 525 711 490 500 50 425 225 300 Network EMTN Network A$MTN 450 Corporate Drawn Bank Debt 275 Corporate Undrawn Bank Debt Network Drawn Bank Debt Network Undrawn Bank Debt FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 1. Calculated on drawn debt, excluding worki
Slide 34: Capital Expenditure
Capital Expenditure Disciplined capital allocation results in reduced spend Capital expenditure FY2016 – FY2019 ($m)1 -29% › FY2018 capex reduced to ~$500m 703 › Lower than forecast 1H spend 532 › Lower Network spend in 2H 261 ~500 ~500 likely due to UT5 Draft Decision 587 › Increase in growth capit
Slide 35: Network RAB, capex & depreciation profile
Network RAB, capex & depreciation profile RAB roll forward Capex Accounting depreciation 93% 569 281 363 80 5.7 5.8 5.8 257 5.1 5 146 3.0 300 288 283 5 258 252 215 141 151 FY10 FY15 FY16 FY17f FY18f FY15 FY16 FY17 H1 FY18 FY15 FY16 FY17 H1 FY18 Regulated Asset Base (RAB) $Abn Growth $m Sustaining $m
Slide 36: Outlook and Summary
Outlook and Summary
Slide 37: FY2018 Outlook
FY2018 Outlook Earnings guidance unchanged, above rail coal volumes reduced › Underlying EBIT $900 – 960m (continuing operations) › Operating ratio 69.5% - 71.5% Assumptions › Coal volumes 210 – 220mt (previously 215 – 225mt) due to likely impact from implementing revised maintenance and operating p
Slide 38: Key takeaways
Key takeaways Continue to focus on key priorities in FY2018 › Revised operating and maintenance to align with the UT5 Draft Decision UT5 response › Customer engagement continues › Detailed response to QCA – 12 March 2018 › Complete sale of Intermodal Queensland and Acacia Ridge (subject to regulator
Slide 39: HY2018 Results Additional information
HY2018 Results Additional information
Slide 40: Network revenue cap adjustments
Network revenue cap adjustments AT2-4 AT5 Total › Revenue adjustment amounts (RAA) Year (diesel tariff) (electric tariff) are the difference by system between $m $m $m Aurizon’s Total Actual AT2-5 Revenue 1, 3 and Allowable AT2-5 Revenue 2017 26.7 12.4 39.1 › RAA also includes adjustments for 3 2 2
Slide 41: Reconciliation of billed MAR to reported access revenue
Reconciliation of billed MAR to reported access revenue FY2014 FY2015 FY2016 FY2017 FY2018 $m Actual Actual Actual Actual Estimate** Billed Access Revenue (AT1 to AT5) (ex. GAPE) 794 787 924 892 932 Approved Adjustments to MAR Transitional tariff adjustment (70) - - - - Flood Claim recoveries1 - 12
Slide 42: Network Financial and Operating Metrics
Network Financial and Operating Metrics 1H 2H FY2018 FY2017 Variance FY2017 Tonnes (m) 116.6 112.9 3% 97.9 NTK (bn) 29.0 28.3 2% 24.9 Operating Ratio 59.1% 56.4% (2.7ppt) 68.2% Access Revenue/NTK ($/’000 NTK) 19.9 22.2 (10%) 22.9 Maintenance/NTK ($/’000 NTK) 2.0 2.1 5% 2.4 Opex/NTK ($/’000 NTK) 12.4
Slide 43: Regulation Additional information
Regulation Additional information
Slide 44: Regulated Revenues Within a Stable and Well-Established Regulatory Regime
Regulated Revenues Within a Stable and Well-Established Regulatory Regime Well Developed Building Block Approach To Well Established Regulatory Regime Stable Regulated Revenue Base Revenue Determination › The provision of transportation › Over 90% of Aurizon Network revenue services by rail on the C
Slide 45: The CQCN Regulatory Framework Provides Revenue Protection Through a Building Block Approach
The CQCN Regulatory Framework Provides Revenue Protection Through a Building Block Approach Maximum Allowable Regulatory Revenue Total Actual Revenue Protection Revenue (Forecasted) For Each Year Of Tests Undertaking Period AT1 Outside the revenue protection scope RETURN ON CAPITAL (Weighted Average
Slide 46: Revenue cap with Take-or-Pay Protection
… with Take-or-Pay Protection Should Revenues Fall Short (With a Revenue Cap) ToP › Primary revenue protection mechanism available to AT2 Train Paths Take-or-pay Aurizon Network Revenue cap Take or pay AT3 Net Train Kilometres (NTK) mechanisms › Allows Aurizon Network to recover revenue shortfall di
Slide 47: Glossary
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 contracted CQCN Central Queensland Coal
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