Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — 1HFY2018 Earnings Presentation
71 slides from Aurizon's earnings presentation, Feb 12, 2018
Slide 1: ASX Market Announcement: Half Year Results Analyst Presentation
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 12 February 2018 Half Year Results Analyst Presentation Please find attached for immediate release to the market, the Half Year Results anal
Slide 2: 1HFY2018 Results
1HFY2018 Results Andrew Harding – MD & CEO For personal use only Pam Bains – CFO & Group Executive Strategy 12 February 2018
Slide 3: Disclaimer
Disclaimer No Reliance on this document No offer of securities For personal use only 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
Slide 4: Performance Overview
For personal use only Performance Overview Andrew Harding Managing Director & CEO
Slide 5: Safety Performance
Safety Performance Revised metrics refocussing our safety journey For personal use only Total Recordable Injury Frequency Rate (TRIFR)1 Incidents per million person-hours worked -10% 11.44 10.33 9.88 8.43 7.12 FY2015 FY2016 FY2017 1QFY2018 2QFY2018 1. TRIFR includes employees and contractors and rep
Slide 6: Update on key priorities
Update on key priorities Focus remains on cashflow, capital discipline and value For personal use only Capital › $688m in shareholder distributions since January 2017 Management › ~75% of $300m buy back complete, balance to be completed in 2HFY2018 › Intermodal Interstate operations closed in line w
Slide 7: FY2018 Half Year Highlights
FY2018 Half Year Highlights1 Solid financial result, strong shareholder distributions For personal use only Financial Results › Underlying EBIT down 5% due to impact of UT4 true ups Underlying EBIT bridge – Group1 ($m) › Volumes up 2%, growth in Coal (4%) offsetting reduction in Bulk (6%) › Statutor
Slide 8: Coal update
Coal update Strong operating conditions for customers, competitive market environment for Aurizon Contract wins Aurizon Customers Coal market conditions strong For personal use only › Baralaba Coal Company › While demand has improved, a › Hard coking coal price increased Baralaba North Mine competit
Slide 9: Bulk Update
Bulk Update Freight review – underperforming hauls exited and transformation efforts progressing to plan For personal use only Initial Freight Review Examples of transformation Today (# hauls) (# hauls) 1 Retain 5 8 › Benefit from ongoing transformation Cement Australia › 10 year extension MMG › Nov
Slide 10: Network update
Network update QCA’s UT5 Draft Decision risks value erosion across the CQCN coal supply chain For personal use only › 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 ACCC UT5 Draft determine
Slide 11: Regulatory Decisions
Regulatory Decisions Recent decisions made by regulators in the Infrastructure and Utilities sectors Weighted Average Cost of Capital1 (WACC) For personal use only 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% AusN
Slide 12: Intermodal Update
Intermodal Update Closure and divestment of Intermodal drives value For personal use only Interstate Business Queensland Business › Operations continue for Intermodal Queensland Closure of Interstate business on time and below with a continued focus on cost base optimisation, budget with improved s
Slide 13: Financial Results
For personal use only Financial Results Pam Bains CFO & Group Executive Strategy
Slide 14: Key financial highlights
Key financial highlights EBIT1 impacted by non recurrence of UT4 one offs in Network $m 1HFY2018 1HFY2017 Variance › Revenue impacted by UT4 and FY16 revenue For personal use only true up in Network Revenue 1,565 1,621 (3%) Operating Costs (821) (832) 1% › Operating costs benefited from $42m in tran
Slide 15: Coal
Coal Increased volumes and transformation deliver improved performance $m 1HFY2018 1HFY2017 Variance › Revenue For personal use only 4% › Volumes - NSW & SEQ up 12% and CQCN up 2% Above Rail Revenue 603 582 › Flat pricing with contract utilisation up 2ppts Track Access 319 304 5% › Costs Other 5 4 2
Slide 16: Bulk
Bulk Cost control and reduced depreciation offset lower volumes in Bulk $m 1HFY2018 1HFY2017 Variance › Revenue For personal use only › Lower Bulk volumes with cessation of Mt Isa Freighter and Revenue 308 343 (10%) lower grain volumes Operating Costs (275) (305) 10% › Lower iron ore volumes with pr
Slide 17: Network
Network Result impacted by UT4 true ups $m 1HFY2018 1HFY2017 Variance › Revenue For personal use only › UT4 one off true up ($45m) in 1HFY2017 Revenue 608 671 (9%) › FY2016 revenue cap adjustment ($11m) Operating Costs (208) (230) 10% › 1HFY2017 true ups for GAPE and AFDs ($12m) Depreciation (151) (
Slide 18: Intermodal Closure and Sale
Intermodal Closure and Sale Result impacted by Interstate closures process Discontinued Operations - Intermodal › EBIT flat driven by reduced revenues from the For personal use only progressive Interstate closure, offset by reduced $m 1HFY2018 1HFY2017 Variance operating cost and depreciation Revenu
Slide 19: Capital Expenditure
Capital Expenditure Disciplined capital allocation results in reduced spend For personal use only Capital expenditure FY2016 – FY2019 ($m)1 -29% › FY2018 capex reduced to ~$500m 703 › Lower than forecast 1H spend › Lower Network spend in 2H likely 532 261 ~500 ~500 due to UT5 Draft Decision › Increa
Slide 20: Cashflow
Cashflow FCF1 impacted by prior period asset sales Free Cash Flow ($m) Net Cash from Operations ($m) For personal use only +10% -11% 387 686 701 345 636 522 63 -3 1HFY2015 1HFY2016 1HFY2017 1HFY2018 1HFY2015 1HFY2016 1HFY2017 1HFY2018 Total Group Continuing operations › Free cash flow 1HFY2017 inclu
Slide 21: Funding update
Funding update Strategy progressing but potential future impact from UT5 UT5 Draft Decision For personal use only 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 fl
Slide 22: Outlook & Key Takeaways
For personal use only Outlook & Key Takeaways Andrew Harding Managing Director & CEO
Slide 23: FY2018 Outlook
FY2018 Outlook Earnings guidance unchanged, above rail coal volumes reduced For personal use only › 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 Coal implementing revised
Slide 24: Key takeaways
Key takeaways Continue to focus on key priorities in FY2018 For personal use only › 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
Slide 25: Contact and Further Information
For personal use only Contact and Further Information Chris Vagg Kath Clapham Head of Investor Relations & Manager Investor Relations Group Treasurer + 61 7 3019 9044 +61 7 3019 9030
Slide 26: Additional Information
For personal use only Additional Information Group Information Network Regulation Coal Bulk Network Capital Expenditure 25
Slide 27: Aurizon's rail haulage operations are Australia-wide
Aurizon’s rail haulage operations are Australia-wide For personal use only Darwin KEY OPERATIONAL STATISTICS1 Wyndham COMMODITIES Coal, iron ore, bulk freight and intermodal Cairns Broome ROLLINGSTOCK NORTHERN 500+ active locomotives TERRITORY Townsville Mt Isa OPERATIONAL FOOTPRINT Bowen Port Headl
Slide 28: Capital allocation framework
Capital allocation framework For personal use only 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% › 1HFY201
Slide 29: Additional Information: Network Regulation
For personal use only Additional Information Network Regulation 28
Slide 30: 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 For personal use only › QCA proposed a weighted average cost of capital (WACC) of 5.41% against the 6.78% proposed by Auri
Slide 31: UT5 Draft Determination (con't)
UT5 Draft Determination (con’t) Table 2: WACC breakdown by component For personal use only 30
Slide 32: Regulatory Decisions – Infrastructure & Utilities
Regulatory Decisions – Infrastructure & Utilities Examples of recent decisions made by regulators in the Infrastructure and Utilities sectors East Water South East WaterNSW Gippsland Corp, Sydney WaterNSW For personal use only Aurizon Water & – Murray- SeqWater Water & Aqwest & Desalination – Coasta
Slide 33: Regulatory Decisions – Infrastructure & Utilities
Regulatory Decisions – Infrastructure & Utilities Examples of recent decisions made by regulators in the Infrastructure and Utilities sectors Dampier to For personal use only Aurizon AusNet Gas APA VTS Bunbury ElectraNet TransGrid Powerlink Network Services Australia Natural Gas Pipeline Electricity
Slide 34: Additional Information: Group Financial Information
For personal use only Additional Information Group Financial Information 33
Slide 35: Financial highlights (underlying)
Financial highlights (underlying)1 1H 2H $m Variance FY2018 FY2017 FY2017 For personal use only Revenue 1,565.3 1,621.2 (3%) 1,521.3 Operating costs (821.0) (832.4) 1% (858.6) EBITDA 744.3 788.8 (6%) 662.7 EBIT 485.3 511.5 (5%) 372.7 NPAT 281.5 295.0 (5%) 199.6 EPS (cps) 13.9 14.4 (3%) 9.7 Interim d
Slide 36: EBIT by Business Unit (underlying)
EBIT by Business Unit (underlying) 1H 2H $m Variance For personal use only FY2018 FY2017 FY2017 Coal 222.5 218.2 2% 201.8 Bulk 20.1 2.4 738% (16.8) Network 248.5 292.7 (15%) 188.2 Other (5.8) (1.8) (222%) (0.5) Continuing Operations 485.3 511.5 (5%) 372.7 35
Slide 37: Group operating highlights
Group operating highlights (continuing operations) 1H 2H Variance For personal use only FY2018 FY2017 FY2017 Above Rail1 Revenue / NTK ($/’000 NTK) 37.6 37.5 - 40.1 Network Revenue / NTK ($’000 NTK) 20.9 23.7 (12%) 23.7 Labour Costs2 / Revenue 23.8% 25.0% 1.2ppt 24.4% NTK / FTE (MNTK) 13.4 12.7 6% 1
Slide 38: Other profit & loss (underlying)
Other profit & loss (underlying) 1H 2H $m Variance For personal use only FY2018 FY2017 FY2017 Revenue 40.8 55.0 (26%) 52.0 Total operating expenses1 (42.1) (51.4) 18% (47.3) EBITDA (1.3) 3.6 (136%) 4.7 Depreciation and amortisation (4.5) (5.4) 17% (5.2) EBIT (5.8) (1.8) (222%) (0.5) 1. FY2017 includ
Slide 39: Operating metrics (Continuing Operations)
Operating metrics (Continuing Operations) Metric 1HFY2018 1HFY2017 Variance 2HFY2017 For personal use only Above Rail1 opex/ NTK ($/’000 NTK) 30.3 30.8 2% 33.9 Opex Above Rail1 Net opex / NTK (excluding access2) 18.0 18.3 2% 20.2 ($/’000 NTK) Production Above Rail1 Total tonnes hauled (m) 136.3 133.
Slide 40: Quarterly Above Rail tonnes – December Quarter 2017
Quarterly Above Rail tonnes – December Quarter 2017 For personal use only Quarter Ending Quarter Financial YTD Dec-17 Dec-17 vs. Year to date vs. Dec-16 Dec-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 % Dec-17 Dec-16 % Coal volumes (mt) CQCN 38.7 35.2 31.7 39.7 38.1 (1%) 77.8 76.6 2% NSW & SEQ 13.6 13.2 1
Slide 41: Balance sheet summary
Balance sheet summary As at ($m) 31 Dec 2017 30 June 2017 For personal use only Assets classified as held for sale1 121.0 7.3 Other current assets 719.8 722.1 Property, plant & equipment 8,731.8 8,835.0 Other non-current assets 302.6 281.5 Total assets 9,875.2 9,845.9 Liabilities classified as held
Slide 42: Reconciliation of borrowings
Reconciliation of borrowings $m Commentary For personal use only Total debt including working capital facility 3,503.8 › Non-current debt on a Cash basis Reconciliation to Financial Statements Add/(less): › Transaction costs directly attributable to borrowings are capitalised to the balance sheet an
Slide 43: Aurizon Debt Maturity Profile
Aurizon Debt1 Maturity Profile ($m) 1,025 For personal use only 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
Slide 44: Material items to note
Material items to note $m 1HFY2018 1HFY2017 Variance For personal use only Redundancy expense (15) (3) (12) Long term and short term › Table represents items that are (12) (29) 17 incentives included in Underlying EBIT Employee Costs (27) (32) 5 › This table is designed to assist investors to ‘norma
Slide 45: Redundancy cost breakdown
Redundancy cost breakdown Redundancy Redundancy › Redundancy costs since IPO have been included in underlying EBIT as well as classified For personal use only Year costs included in costs classified underlying EBIT as Significant as a significant item ($m) items ($m) › Aurizon classifies redundancy
Slide 46: Dividend history
Dividend history Amount per share Payment Date Franking Payout Ratio (cents) For personal use only FY2018 Interim 26 March 2018 14.0 50% 100%1 FY2018 Total Dividend TBD FY2017 Final 25 September 2017 8.9 50% 100% FY2017 Interim 27 March 2017 13.6 70% 100% FY2017 Total dividend 22.5 FY2016 Final 26 S
Slide 47: Additional Information: Coal
For personal use only Additional Information Coal 46
Slide 48: Coal profit & loss (underlying)
Coal profit & loss (underlying) 1H 2H $m Variance For personal use only FY2018 FY2017 FY2017 Tonnes (m) 107.8 103.5 4% 94.7 Above Rail 603.4 581.9 4% 574.9 Track Access 319.3 304.8 5% 325.5 Other 4.6 3.7 24% 4.2 Total Revenue 927.3 890.4 4% 904.6 Operating Expenses (614.3) (583.7) (5%) (607.6) EBITD
Slide 49: Coal Financial and Operating Metrics
Coal Financial and Operating Metrics 1H 2H For personal use only FY2018 FY2017 Variance FY2017 Tonnes (m) 107.8 103.5 4% 94.7 NTKs (bn) 25.8 24.8 4% 22.8 Operating Ratio 76.0% 75.5% (0.5ppt) 77.7% Above Rail Revenue /NTK ($/’000 NTK) 23.4 23.5 - 25.2 Opex (excl access)/NTK ($/’000 NTK) 14.8 14.5 (2%
Slide 50: Coal haulage tonnages (mt) by system
Coal haulage tonnages (mt) by system 1H 2H Variance For personal use only FY2018 FY2017 FY2017 CQCN Newlands 9.8 9.4 4% 8.4 Goonyella 31.8 30.0 6% 24.3 Blackwater 30.4 31.1 (2%) 28.3 Moura 5.8 6.1 (5%) 5.9 Total CQCN 77.8 76.6 2% 66.9 NSW & SEQ West Moreton 3.9 3.3 18% 3.7 Hunter Valley 26.1 23.6 11
Slide 51: Coal haulage tonnages (mt) by type
Coal haulage tonnages (mt) by type Aurizon: Above Rail Coal Type Split For personal use only 100% 49% 48% 49% 49% 52% 52% 51% 52% 51% 51% 48% 48% FY13 FY14 FY15 FY16 FY17 1HFY2018 Thermal Metallurgical Source : Wood Mackenzie Coal Supply Data Tool (2017 Q4), Aurizon analysis 50
Slide 52: Coal contract expiry
Coal contract expiry Aurizon Coal contract volume expiry by year For personal use only (mtpa, as at 31 December 2017) 50 45 Million tonnes per annum 40 35 30 25 20 15 10 5 0 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 FY30 Baralaba Coal Company MACH Energy QCoal Notes: › This represe
Slide 53: Coal Revenue and contractual outlook
Coal Revenue and contractual outlook Aurizon’s Annualised Above Rail Coal Above Rail1 Revenue Composition Coal Contracted Volumes (mtpa)2 For personal use only 608 252 251 577 586 579 249 570 28 30 23 26 12 232 10 8 20 12 6 150 74 77 81 134 136 65 182 178 417 411 418 167 175 175 170 355 364 1HFY2016
Slide 54: Coal Market: Metallurgical Coal & Thermal Coal Seaborne Markets
Coal Market: Metallurgical Coal & Thermal Coal Seaborne Markets For personal use only 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 $
Slide 55: Coal Market: Monthly Seaborne Export Volume
Coal Market: Monthly Seaborne Export Volume Australia: Metallurgical Coal Export Australia: Thermal Coal Export For personal use only 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-
Slide 56: Coal Market: Australian Coal Investment
Coal Market: Australian Coal Investment Aust. Coal Mining Capital Expenditure: Quarter Aust. Coal Exploration Expenditure: Quarter For personal use only 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
Slide 57: Additional Information: Bulk
For personal use only Additional Information Bulk 56
Slide 58: Bulk profit & loss (underlying)
Bulk profit & loss (underlying) 1H 2H $m Variance For personal use only FY2018 FY2017 FY2017 Tonnes (m) 28.5 30.3 (6%) 28.0 Total Revenue 307.6 343.2 (10%) 302.0 Total operating expenses (274.5) (305.3) 10% (280.8) EBITDA 33.1 37.9 13% 21.2 Depreciation and amortisation (13.0) (35.5) 63% (38.0) EBIT
Slide 59: Bulk Financial and Operating Metrics
Bulk Financial and Operating Metrics 1H 2H For personal use only FY2018 FY2017 Variance FY2017 Tonnes (m) 28.5 30.3 (6%) 28.0 NTKs (bn) 7.0 8.1 (14%) 7.3 Operating Ratio 93.5% 99.3% 5.8ppt 105.6% Total Revenue / NTK ($000 NTK) 43.9 42.4 4% 41.4 Opex (excl access)/NTK ($/’000 NTK) 29.6 29.8 1% 32.6 L
Slide 60: Additional Information: Network
For personal use only Additional Information Network 59
Slide 61: Network snapshot
Network snapshot For personal use only Central Qld Coal Network (CQCN) Key Network facts Townsville PORT OF ABBOT POINT LEGEND 40 + operating coal mines serviced Abbot Point Coal Terminal (APCT) City/town Open access network with three Power Station Bowen Coal Export Terminal above rail coal operato
Slide 62: Network profit & loss (underlying)
Network profit & loss (underlying) 1H 2H $m Variance For personal use only FY2018 FY2017 FY2017 Tonnes (m) 116.6 112.9 3% 97.9 Access Revenue 577.0 628.5 (8%) 571.4 Services and other 30.5 42.6 (28%) 19.6 Total Revenue 607.5 671.1 (9%) 591.0 Operating costs (208.0) (230.5) 10% 251.2 EBITDA 399.5 440
Slide 63: Network Financial and Operating Metrics
Network Financial and Operating Metrics 1H 2H For personal use only FY2018 FY2017 Variance FY2017 Tonnes (m) 116.6 112.9 3% 97.9 NTK (bn) 29.0 28.3 2% 24.9 Operating Ratio 59.1% 56.4% (2.7ppt) 68.2% Access Revenue/NTK ($/’000 NTK) 19.9 22.2 (10%) 22.9 Maintenance/NTK ($/’000 NTK) 2.0 2.1 5% 2.4 Opex
Slide 64: Network volumes (mt)
Network volumes1 (mt) 1H 2H For personal use only 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.
Slide 65: Network volumes (mt)
Network volumes1 (mt) Aurizon: Network Coal Type Split For personal use only 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 (20
Slide 66: Network revenue cap adjustments
Network revenue cap adjustments AT2-4 AT5 Total › Revenue adjustment amounts (RAA) are the difference by system between Aurizon’s Total For personal use only Year (diesel tariff) (electric tariff) $m $m $m Actual AT2-5 Revenue and Allowable AT2-5 2017 1, 3 26.7 12.4 39.1 Revenue 3 2 2 › RAA also inc
Slide 67: Reconciliation of billed MAR to reported access revenue
Reconciliation of billed MAR to reported access revenue $m FY2014 FY2015 FY2016 FY2017 FY2018 Actual Actual Actual Actual Estimate** For personal use only Billed Access Revenue (AT1 to AT5) (ex. GAPE) 794 787 924 892 932 Approved Adjustments to MAR Transitional tariff adjustment (70) - - - - Flood C
Slide 68: Additional Information: Capital Expenditure
For personal use only Additional Information Capital Expenditure 67
Slide 69: 1HFY2018 group and business unit capital expenditure
1HFY2018 group and business unit capital expenditure ($m) For personal use only 239 148 219 143 56 43 18 16 20 16 1 5 13 16 2 0 1 0 1HFY20182 Network Coal Bulk Intermodal Corporate1,2 Non Growth Growth 1. Includes capitalised interest 2. Net of lease incentive payments 68
Slide 70: 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 For personal use only CQCN Ce
Slide 71: For personal use only
7, 4) AURIZON. AjUGHSSNH feuocsied Jo