Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Investor Presentation (June 2016)
38 slides from Aurizon's investor presentation, June 2016
Slide 1: UT4 Final Decision Investor Briefing
UT4 Final Decision Investor Briefing June 2016 Alex Kummant – EVP Network Pam Bains – Aurizon Network CFO
Slide 2: Important notice
Important notice No Reliance on this document No offer of securities This document was prepared by Aurizon Network Pty Ltd (ABN 78 132 181 116) Nothing in this presentation should be construed as a recommendation of or an FOR PERSONAL USE ONLY (referred to as “Aurizon” which includes its related bod
Slide 3: Overview
Overview Alex Kummant – EVP Network
Slide 4: UT4 finalisation
UT4 finalisation Process Other matters beyond finalisation FOR PERSONAL USE ONLY › In light of the current economic climate and in order to provide › Post UT4 approval, a range of individual matters needs to be certainty for the industry and our shareholders, Aurizon will move implemented and manage
Slide 5: Final Decision – summary of key outcomes
Final Decision – summary of key outcomes Maximum Allowable Revenue › Overall maximum revenue of $3.925 billion over the period of the Undertaking (refer slide 10) (MAR) › Weighted Average Cost of Capital (WACC) - 7.17% True-up recovery process › The Final UT4 Decision highlights a net under recovery
Slide 6: UT4 operational & contracting processes
UT4 operational & contracting processes Issue UT3 UT4 WIRP Pricing and N/A › WIRP capex partially deferred for pricing purposes. As Deferrals railings increase, Aurizon can seek QCA approval to recover deferred capex escalated at WACC › Socialisation of WIRP pricing across existing users FOR PERSONA
Slide 7: UT4 operational & contracting processes
UT4 operational & contracting processes Issue UT3 UT4 Expansion Process › Aurizon commitment to fund expansions › No mandatory funding commitment: under $300m › Aurizon can fund at regulated return; or › Aurizon can fund at above regulated returns with QCA approval; or FOR PERSONAL USE ONLY › Users
Slide 8: Other policy matters
Other policy matters Issue UT3 UT4 Ring fencing › Rigorous regime to prevent discrimination › Revised regime with similar effect, but more detailed in favour of related operator and protect reporting and compliance obligations third party access data › Regime allows the use of the Aurizon Group func
Slide 9: UT4 Revenue outcomes
UT4 Revenue outcomes Pam Bains – VP Network Finance
Slide 10: QCA Final UT4 Decision: MAR
QCA Final UT4 Decision: MAR Maximum Allowable Revenue (MAR) Total FY2014 FY2015 FY2016 FY2017 $m UT4 › This is a raw MAR, as published by Return on capital (WACC)1 346 347 415 420 1,567 the QCA and excludes Revenue FOR PERSONAL USE ONLY Cap, true-up of prior year revenue Return of capital (Depreciat
Slide 11: QCA Final UT4 Decision: Volumes
QCA Final UT4 Decision: Volumes System Volumes FY2014a FY2015a FY2016f FY2017f Total UT4 Blackwater1 65.0 63.7 66.2 67.8 262.7 › FY2014 and FY2015 represent actual FOR PERSONAL USE ONLY volumes railed Goonyella 112.5 119.6 112.1 115.6 459.8 › FY2016 and FY2017 volumes are QCA regulatory forecast vol
Slide 12: UT4 Final Decision: Revenue true-up
UT4 Final Decision: Revenue true-up › The true-up represents the difference $m FY2014 FY2015 FY2016 FY2017 between the Final Decision System Allowable Revenue (SAR) and the Allowable Revenue before adjustments2 777 896 943 988 Transitional SAR for the relevant year Final Decision1 FOR PERSONAL USE O
Slide 13: Reconciliation of MAR to reported Access Revenue
Reconciliation of MAR to reported Access Revenue FY2014 FY2015 FY20161 FY20171 MAR to reported Access Revenue Actual Actual Estimate Estimate Access Revenue (AT1 to AT5) (ex. GAPE) 794 787 907 918 FOR PERSONAL USE ONLY Approved Adjustments to MAR Transitional tariff adjustment (70) - - - Flood Claim
Slide 14: Non-regulated Access Revenue
Non-regulated Access Revenue FY2014 FY2015 FY2016 FY2017 Non-regulated Access Revenue (ex. GAPE) Actual Actual Estimate Estimate Electric Traction Charge (EC) 50 40 44 52 FOR PERSONAL USE ONLY Rebates (64) (56) (55) (53) QCA levy 6 7 7 5 Non-Coal Access 13 13 10 10 Other - 8 2 1 Total non-regulated
Slide 15: Access Revenue Bridge
Access Revenue Bridge 73 1,202 FOR PERSONAL USE ONLY 105 26 8 6 6 1,114 32 3 6 32 105 1,048 6 12 17 62 951 FY14 Reg Rev Revenue Flood Non Reg FY15 Reg Rev Revenue Flood Non Reg FY16 Reg Rev Revenue Flood Non Reg UT4 FY17 Access Cap Claim Rev & Access Cap Claim Rev & Access Cap Claim Rev & True-up Ac
Slide 16: WIRP regulatory revenue profile
WIRP regulatory revenue profile FY2014 FY2015 FY2016 FY2017 $m Actual Actual Forecast Forecast Regulatory volumes (mt) - - 10.4 14.3 Estimated WIRP Capex for pricing ($m) - forecast - - ~640 ~640 FOR PERSONAL USE ONLY Revenue ($m) – forecast (MAR equivalent) - - ~50 ~70 **Aurizon estimate only. Ther
Slide 17: Network RAB, capex & depreciation profile
Network RAB, capex & depreciation profile RAB roll forward Capex Accounting depreciation 87% 569 FOR PERSONAL USE ONLY 281 350 80 270 5.6 5.6 5 4.6 3.0 290 288 270 265 260 220 FY10 FY15 FY16 FY17 FY15 FY16f FY17f FY15 FY16f FY17f Regulated Asset Base (RAB) $Abn Growth $m Sustaining $m Depreciation $
Slide 18: Summary
Summary Alex Kummant – EVP Network
Slide 19: Achievements and outcomes
FY2015 represents an all Achievements and outcomes time volume record Achievements Outcomes Volumes (Mtpa railed) Cycle Velocity (Km/Hour) +24% + 10% › 168mt Mar 2016 YTD volumes in line with record FY2015 250 25 Operational 200 › 200mt railed for YTD2016 achieved one day earlier than 20 Improvement
Slide 20: UT5 process
UT5 process › On 11 May 2016, the Queensland Competition Authority (QCA) issued Aurizon Network with an Initial Access Undertaking notice under section 133 of the QCA Act 1997 › The notice details that Aurizon Network has until 9 September 2016 (120 days) to submit a Draft Access Undertaking to the
Slide 21: Aurizon's on-going public engagement
Aurizon’s on-going public engagement - Increased Customer consultation CUSTOMER FOR PERSONAL USE ONLY - Fair and efficient pricing - Safe and reliable network Transitioning to a more OPERATORS - Ease of access balanced regulatory model will require engagement with a broad spectrum of - Transparent a
Slide 22: Questions & Answers
Questions & Answers
Slide 23: Additional Information
Additional Information
Slide 24: Final Decision UT4 vs. UT3 MAR
Final Decision UT4 vs. UT3 MAR UT4 UT3 Mix of UT4 Mix of UT3 Maximum Allowable Revenue (MAR) $m Variance FY14 – FY17 FY10 – FY13 MAR (%) MAR (%) Return on capital (WACC)1 1,527 1,599 (72) 38% 52% FOR PERSONAL USE ONLY Return of capital (Depreciation) 1,288 698 590 32% 23% Inflation (515) (401) (114)
Slide 25: Aurizon Network Overview
Aurizon Network Overview Central Queensland Coal Network (CQCN) FOR PERSONAL USE ONLY › 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 26: History of the Regulatory Framework
History of the Regulatory Framework CQCN Regulation Overview UT4 Overview CQCN Regulation Evolution UT4 Development and Key Milestones Jun 2016 UT4 Implemented 2016 2016 Undertaking 4 (UT4) Apr 2016 QCA issued UT4 Final Decision FOR PERSONAL USE ONLY 2016 Dec 2015 Access Regime Certified 2011 QCA is
Slide 27: QCA's approach to regulation
QCA’s approach to regulation The QCA takes a three step approach for determining the reference tariffs charged by Aurizon Network to CQCN users FOR PERSONAL USE ONLY Step 1 Step 2 Step 3 › RAB is approved by the QCA on a › ‘Building block’ approach adopted to › Reference tariffs determined annually,
Slide 28: MAR building block methodology
MAR building block methodology › The maximum allowable revenue (MAR) is the total FOR PERSONAL USE ONLY RETURN ON CAPITAL (Weighted Average Cost of Capital – WACC) revenue Aurizon Network is permitted to earn each year, determined in accordance with the 'regulatory asset base' (RAB) and 'building bl
Slide 29: Revenue protection mechanisms
Revenue protection mechanisms ToP › Aurizon Network’s regulated revenue is protected through a combination of provisions that are included in the QCA-approved access agreements AT 2 Train Paths › These mechanisms come into effect when revenue shortfalls occur due to actual tonnage Take-or- Revenue c
Slide 30: Key Regulatory vs. Accounting adjustments
Key Regulatory vs. Accounting adjustments Adjustment item Explanation Shortfall/(Surplus) of AT1 › AT1 Revenue moves inline with volumes and is not protected by Take-or-Pay or Revenue Cap Forecast vs. Actual FOR PERSONAL USE ONLY Take or Pay variations › Take-or-Pay charges are levied on the access
Slide 31: Access Facilitation Deeds (AFD) summary
Access Facilitation Deeds (AFD) summary › Access Facilitation Deeds are financing arrangements whereby customers fund Mine Specific Infrastructure (“MSI”) that is owned (i.e. operated, managed & maintained) by Aurizon FOR PERSONAL USE ONLY › Historically MSI has included spurs, balloon loops and con
Slide 32: Network revenue cap adjustments
Network revenue cap adjustments AT2-4 AT5 Total › Revenue cap is the difference by System between Aurizon’s Total Year (electric tariff) Actual Revenue (TAR) and System Allowable Revenue (SAR) $m $m $m and also includes rebates and energy cost variations. This is collected through a tariff adjustmen
Slide 33: Wiggins Island Rail Project (WIRP) facts
Wiggins Island Rail Project (WIRP) facts › WIRP is a project designed to link mines in the Southern Bowen Basin with the new Wiggins Island Coal Export Terminal (WICET) at the Port of Gladstone and will increase the total capacity of the Moura and Blackwater systems by 27mtpa (30%). Total estimated
Slide 34: GAPE revenue overview
GAPE revenue overview Opex & Maintenance Costs › O&M are as per the Regulatory approved amounts › The return that Aurizon (O&M) › ROA is calculated using a Risk Free Rate (RfR) plus a earns on its GAPE assets fixed margin is known as the Maximum FOR PERSONAL USE ONLY Capacity Revenue (MCR) Return of
Slide 35: WACC variables across all regulated entities
WACC variables across all regulated entities Aurizon Network QR DBCT ACTO Gas Brookfield TPI Energex/Ergon~ Regulator QCA FD QCA DD QCA DD ERA FD ERA FD ERA FD AER FD Decision Date 28 April 2016 8 Oct 2015 22 Apr 2016 30 Jun 2015 18 Sep 2015 18 Sep 2015 29 Oct 2015 FOR PERSONAL USE ONLY Averaging Pe
Slide 36: Example of socialisation in the event of a revenue shortfall
Example of socialisation in the event of a revenue shortfall Scenario: A Coal mine on the Goonyella System closes due to insolvency and the mine ceases all railings at 31 December (half way through the fiscal year) with no future railings to occur. The mine was forecast by the regulator to rail 5mt
Slide 37: Glossary
Glossary Defined Term Definition Access Facilitation Deed Access Facilitation Deed (AFD) - financing arrangements whereby customers fund Mine Specific Infrastructure (“MSI”) (i.e. prepay construction cost) that is owned (i.e. operated, managed & maintained) by Aurizon Access Revenue Amount received
Slide 38: Aurizon
s 2 AURIZON.