Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Investor Day (July 2013)
77 slides from Aurizon's investor day presentation, Jul 18, 2013
Slide 1: Aurizon analyst and investor presentation (ASX cover letter)
Dominic D Smith Senior Vice President & Company Secretary Aurizon Holdings Limited ABN 14 146 335 622 T +61 7 3019 9000 F +61 7 3019 2188 E CompanySecretary@aurizon.com.au W aurizon.com.au Level 17, 175 Eagle Street Brisbane QLD 4000 GPO Box 456 Brisbane QLD 4001 For personal use only 18 July 2013 A
Slide 2: Aurizon Investor Briefing
For personal use only Aurizon Investor Briefing Thursday 18th July 2013 Sydney
Slide 3: Disclaimer: Important notice
Disclaimer: Important notice For personal use only 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 co
Slide 4: Welcome & introduction
For personal use only Welcome & introduction Lance Hockridge – MD & CEO
Slide 5: Agenda
Agenda Welcome & introduction For personal use only 1 MD& CEO - Lance Hockridge Enterprise Strategy – Aurizon’s 3 Pillars to Success 2 EVP Strategy - Alex Kummant World Class Transformation – Drive to 75% - Overview 3 EVP Business Sustainability – Greg Robinson Drive to 75% - Centralised Overheads 4
Slide 6: Introducing our Senior Management Team
Introducing our Senior Management Team Lance E Hockridge Ken Lewsey For personal use only MD & CEO Executive Vice President, Business Development Mr Hockridge joined QR Limited (now Aurizon Operations Limited) as Chief Executive Officer in Ken has over 20 years‟ experience in the logistics, steel di
Slide 7: Our vision, our mission and our values
Our vision, our mission and our values For personal use only Our Vision Our Values • Grow our people • Safety • Grow with our customers • Integrity • Grow the nation • Leadership, passion and courage • World-class performance Our Mission To be a world leading transport business. To partner with our
Slide 8: Targeting $230m+ in cost efficiencies and productivity
Targeting $230m+ in cost efficiencies and productivity plus improved revenue quality and other initiatives For personal use only Illustrative only – not to scale % FY10 FY11 FY12 FY13 FY15 FY20 90 88 84 75 FY10 Incremental FY11 Incremental FY12 Incremental FY13f UT4 Impact Revenue Growth Cost FY15f
Slide 9: Roadmap to achieving 75% Operating Ratio target by FY15
Revisit roadmap to achieving 75% Operating Ratio target (25% EBIT margin) by FY15 For personal use only FY10 >>> FY12 FY13 FY15 90% >>> 84% 75% • LTIFR reduced by 61% since FY10 • LTIFR reduced by 60% versus FY12 • Achieve World class status Safety • MTIFR reduced by 56% since FY10 • MTIFR reduced b
Slide 10: Our safety journey demonstrates success
Our safety journey demonstrates success and our ability to execute operational change For personal use only Great success in the safety space… …moving closer to Lost Time Injury Frequency Rate (LTIFR) 11.43 Key activities to continue our safety Safety Bell Curve Lost time injuries per million person
Slide 11: Revenue Quality: secured coal haulage contracts circa 120Mtpa
Revenue Quality: Aurizon has secured coal haulage contracts of circa 120Mtpa in FY13 For personal use only Date Customer Tonnes (p.a.) Contract Duration Description Announced 11 years 9 months Renewal of contract for the transport of Ensham Up to 5.5 mtpa March 2013 to 31 December 2024 coal from Ens
Slide 12: Revenue quality: 'New Form' contracts
Revenue quality: Revenue protection and commercial returns enhanced through “New Form” For personal use only contracts Coal above rail revenue breakdown “Old” Form vs. “New” Form coal volumes1 5% 3% 31% 30% 29% 39% 39% 46% 51% 55% 51% 60% 34% 35% 43% 97% 95% 50% 52% 69% 70% 71% 56% 61% 61% 54% 49% 4
Slide 13: Transformation and Capital Efficiencies
“Transformation” and “Capital Efficiencies” For personal use only • Focus of today‟s briefing: – The “Drive to 75” by FY15 is all about improving the way we do business to achieve sustainable positive outcomes for our customers and shareholders – It is also a “sign-post” on our way to achieving Clas
Slide 14: Cultural change driving operational success and shareholder return
Cultural change driving operational success and shareholder return For personal use only • Functional structure implementation almost complete, providing solid foundation for delivering customer service excellence and disciplined operations • Strong Leadership team in place and responsible for accel
Slide 15: Robust macroeconomic outlook
Robust macroeconomic outlook Such is the scale For personal use only China – GDP growth rate and incremental GDP growth Historical and IMF forecasts of China‟s economy now, growth of 7-8% will 15 IMF forecast 1,000 be creating as much or Incremental GDP growth (USD 2012$B) 14 more new activity each
Slide 16: Other Matters
Other Matters For personal use only FY13 update: • Total coal tonnes hauled in FY13 193.7 Mt (within guidance of 192–195Mt) • Will release FY13 results on Monday 19th August • Structural changes • Iron Ore and Intermodal transitioned to Commercial & Marketing and Operations from 1 July 2013 (previ
Slide 17: Enterprise Strategy
For personal use only Enterprise Strategy Alex Kummant – EVP Strategy 16
Slide 18: The three value creation pillars for Aurizon
1 The three value creation pillars for Aurizon PRIMARY ENTERPRISE FOCUS For personal use only 1 2 3 Value creation Become Operate, develop and Maximise Value in the pillars World Class integrate bulk supply chains freight and logistics space Description Become a lean, World Class Expand our presence
Slide 19: Over 80% of resources focussed on World Class
1 Over 80% of resources focussed on World Class 1 For personal use only % of total AZJ % of project 1 resources focussed resources on Pillar focussed on Pillar Value 80-85% World creation Become Class FIX pillars World Class 50% Description Become a lean, World Class operator by building on lessons
Slide 20: Six building blocks to drive World Class transformation
1 Six building blocks to drive World Class transformation For personal use only FY12 FY15 FY20 OR: 84% OR: 75% OR: <70% ROIC: 7% ROIC: 10% ROIC: 12-14% Building blocks Build the Core (2012-15) Platform for medium-term growth (2015-2020) Coordination of a Expand/rationalise network, improve Extend el
Slide 21: Class 1's have shown operating ratios <65% achievable
1 Class 1's have shown operating ratios <65% and ROICs >12% are achievable For personal use only Operating ratios below 70% are achievable for Aurizon, All Class 1's have steadily improved returns but it is a long term journey (often 10+ years) on capital since 2004, moving towards 12% ROIC Operatin
Slide 22: Best practice examples of World Class
1 Best practice examples inform what „World Class' looks like for each of these building blocks For personal use only World class Best description practice Example Impact 1 Control over Establish strong position in a Deliberate acquisitions to position for NAFTA volumes 106% YoY growth in a connecte
Slide 23: Opportunities in Bulk Freight
2 Opportunities in Bulk Freight Aurizon coal and iron ore rail haulage market share as at Q2 2013 For personal use only 4% of global railed market 11% of global seaborne 6,400 mtpa market 27% of Australian 2,300 mtpa seaborne market 60% of Australian open access market 96% 89% 940 mtpa Other 420 mtp
Slide 24: Primary and secondary bulk market capabilities
2 Primary and secondary bulk market capabilities For personal use only Current Category Examples Typical haulage characteristics Aurizon Capability • Iron Ore • Intermodal Requirements – None • Supply chain – Likely that corridor is dedicated to single commodity, rolling stock can be reallocated Cur
Slide 25: Retaining and integrating Intermodal
3 Retaining and integrating Intermodal to maximise inherent opportunities and value For personal use only Moving forward - strategic options • Maximise freight and logistics supply chain in Queensland to drive greater Maximise Queensland co-ordination and efficiency Business • Reform Queensland busi
Slide 26: World Class Transformation: The Drive to a 75% Operating Ratio
For personal use only World Class Transformation: The Drive to a 75% Operating Ratio Greg Robinson – EVP Business Sustainability (Head of the “Drive to 75” Transformation Program)
Slide 27: Building our platform for sustainable earnings growth
Building our platform for sustainable earnings growth For personal use only Build the Core Platform for medium-term growth Ongoing Phase 3 Shareholder value creation Strong operational efficiency Building Sustainability June Technology enabled operations 2015 Highly nimble and flexible organis
Slide 28: A cross-functional, multi-layered approach will drive transformation
A cross-functional, multi-layered approach will drive transformation For personal use only Transformation Executive Vice Management Regional head Presidents leadership team management EVP EVP EVP EVP EVP EVP Execution Transformation plan Function • Initiative Ops BD C&M ... • Initiative Business Sus
Slide 29: Frontline Leadership Development
Frontline Leadership Development For personal use only • Last October a cross-functional team of Frontline Leaders collaborated to define “What do our Frontline Leaders need to succeed in Aurizon?” • Over 3 days the team created a number of initiatives to assist their teams and peers in becoming wor
Slide 30: 5k Your Way Success – Fuel saving
5k Your Way Success – Fuel saving For personal use only • Service Delivery Coal South are making real progress in their efforts to help Aurizon achieve an Operating Ratio of 75% or less by 2015 • In December an idea was put forward by Supervisor Dan Davie “If you set half the locomotives in idle whe
Slide 31: 5k Your Way Success – Rollingstock Maintenance
5k Your Way Success – Rollingstock Maintenance For personal use only 2800 Class Suspension Tube Refurbishment • At Redbank, the 2800 Class suspension tubes have always been sent out to external contractors to machine. Through the engagement of team members through the Drive to 75 team challenge, que
Slide 32: Emerging transformation themes
Emerging transformation themes For personal use only Fully implement functional model Leverage Functional Extract above & below rail integration benefits model Increased exploration of cross functional opportunities Remove overlap and increase accountability Business priorities Next genera
Slide 33: Drive to 75: Centralised Support Costs
For personal use only Drive to 75: Centralised Support Costs Keith Neate – EVP & CFO
Slide 34: Centralised Support Functions
Centralised Support Functions For personal use only Centralised Support Functions BUSINESS BUSINESS ENTERPRISE HUMAN STRATEGY FINANCE DEVELOPMENT SUSTAINABILITY SERVICES RESOURCES Development and Secures significant Striving for best Provision of Provision of Provision of people review of growth opt
Slide 35: Aurizon structure – cost allocations
Aurizon structure – cost allocations For personal use only Reporting Segments Commercial & Marketing Coal Functions Business Corporate reallocations Functional allocation to Segments Operations Freight Iron Ore Network Network Strategy Aurizon Business Corporate Functions Development Allocation Busi
Slide 36: Centralised Support Costs – 1H FY13
Centralised Support Costs – 1H FY13 For personal use only Support function Head Labour IT1 Real Dep’n Other3 1H FY13 Allocation to costs $m count Estate2 function Finance 18 - - 1 5 24 Network Human Resources 24 - - - 7 31 Coal Enterprise Services 21 23 4 1 49 Freight Business Sustainability 7 - 38
Slide 37: Target $100m reduction in Support Costs by FY15
Target $100m reduction in Support Costs by FY15 For personal use only Sustainability Development Expense Targeted Initiatives/Opportunities Resources Enterprise Category Saving Business Business Services Strategy Finance Range Human Labour $40-60m • Redundancy programs • Natural attrition • Simplify
Slide 38: Transformation: Enterprise Agreements Update
For personal use only Transformation: Enterprise Agreements Update John Stephens – EVP Human Resources
Slide 39: Our Enterprise People Strategy
Our Enterprise People Strategy For personal use only We are focussing on delivering the strategic priorities that support our transformation efforts and will drive culture change The foundations Our Strategic People Goals Our Strategic Priorities 1. We have a diverse, Capable and capable and engaged
Slide 40: EA renegotiation is a key enabler of the drive to 75
EA renegotiation is a key enabler of our desired culture and the drive to 75 For personal use only Key Points 1. „Enabling‟ and commercially viable industrial 4. The 14 Queensland agreements, last negotiated in instruments are a key platform to support our 2010, cover approximately 6,000 staff, have
Slide 41: Enterprise Agreements expiry timeline
During the next 18 months, 18 of our 19 Enterprise Agreements will expire For personal use only Expiry date Commence Agreements Employer covered 2013 2014 bargaining M A M J J A S O N D J F M A M J Interail Intermodal NSW EA 2009 Interail Australia Pty Ltd Feb 2013 30 June 2013 Interail Coal Operati
Slide 42: The Queensland based EAs cover ~6,000 staff
The 14 Queensland based EAs cover ~6,000 staff For personal use only Our current environment Where do we want to be? • Government owned legacy issues – no forced • Fair, competitive and To achieve these redundancy, prescription, complexity and a lack of commercially sustainable outcomes, we have foc
Slide 43: Break
For personal use only Break
Slide 44: Drive to 75: Above Rail Operations
For personal use only Drive to 75: Above Rail Operations Mike Franczak – EVP Operations
Slide 45: Operations will deliver a $130m+ productivity improvement
Operations will deliver a $130m+ productivity improvement in support of the “Drive To 75” in FY15 For personal use only • Completing the final steps in the functional reorganisation and building capability • Leveraging an integrated approach to the Strategic Themes business in the • Reducing and var
Slide 46: Operations snap shot
Operations snap shot For personal use only Above rail activities – Australia wide Operations quick facts Yard and mainline train operations Headcount1 5,500 Rollingstock maintenance Net Tonne KM (m)2 67,000 Infrastructure renewal programs Locomotives1 826 Engineering, Program Management, Health & Wa
Slide 47: Building a culture of performance
Building a culture of performance – getting the balance right For personal use only Service People • Delivering what • Accountable we promise - • Productive consistently • Clear metrics Disciplined Productivity Execution Of Cost The Integrated & Efficiency Control Operating Plan • Intense focus on a
Slide 48: Leveraging the Operations value chain
Leveraging the Operations value chain For personal use only Transformation Productivity, Efficiency & Value Creation Programs Service Metrics 1 1 1 Integrated Gross On time, Lower unit costs Operating Plan Tonne consistent (c/NTK) Longer trains Kilometres service EBIT – Lower OR (GTK)
Slide 49: Progress thus far has been positive
Progress thus far has been positive but still room for improvement For personal use only Operating costs – c/NKT FTE Productivity – NTK/FTE 150 150 140 130 120 120 110 90 100 90 0 0 Jun- Jun- Jun- Jun- Jun- Jun- 11 12 13 11 12 13 Rollingstock Maintenance – c/NTK Fuel consumption – Litre/dGTK 150 150
Slide 50: Train consist design
Train consist design Improving train lengths and densities drives numerous benefits For personal use only • Fewer train starts – reduced labour costs and improved capacity • Improved asset productivity – use of distributed power enables better Horse Power (HP)/Tonne ratios and fleet productivity • R
Slide 51: Progress in average train payload capacity
Progress in average train payload capacity has been positive but there is opportunity for improvement For personal use only 10,200 Goonyella Payloads (tonnes) 7,500 Newlands Payloads (tonnes) 7,000 6,500 9,900 6,000 5,500 9,600 5,000 4,500 0 0 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
Slide 52: Integrated Operating Plan
Integrated Operating Plan For personal use only Review the operating plan across all lines of business to drive improved service and costs • Reduced operating variability by design – a simpler plan, scheduled, with better compliance • Improved asset productivity-tightening schedule and cycle time •
Slide 53: Energy consumption
Energy consumption We are targeting a 2 - 4% p.a reduction in energy consumption rates For personal use only • Better train consist design • Smaller, more productive and efficient fleet • Enhanced driver training • Technology – Driver assist – Regenerative power – AESS (Photo of diesel loco fuelling
Slide 54: Rollingstock maintenance
Rollingstock maintenance For personal use only Continuing the journey of improvement • Transforming the footprint – enabled by a redesigned operating plan and improved fleet productivity • Predictive technologies • Continued improvement in standards and processes – lean continuous improvement Rollin
Slide 55: Operations technology - rollingstock
Operations technology - rollingstock For personal use only Continuing to deploy technology to move from reactive to predictive, condition-based capabilities to enhance safety, reliability and productivity • Turning finders into fixers – more productive workforce • Reducing variability in operations
Slide 56: Targeting $130m+ productivity improvement by FY15
Targeting $130m+ productivity improvement by FY15 For personal use only Consumption Longer Trains Maintenance Rollingstock Technology Operations Integrated Operating Targeted Category Initiatives Energy savings Plan Labour $50-70m • Reducing operational variability • Centralised crew demand planning
Slide 57: Targeted 10% annual improvement in operating costs per NTK
Resulting in a targeted 10% annual improvement in operating costs per NTK For personal use only Operating costs – c/NKT FTE Productivity – NTK/FTE 150 150 140 130 120 120 110 90 100 90 0 0 Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- Jun- 11 12 13 14 15 11 12 13 14 15 Rollingstock Maintenance – c/NT
Slide 58: Improved fleet plan to be completed by end of FY14
Operations‟ initiatives have created an opportunity to improve the fleet plan, which will be completed For personal use only by end of FY14 Fleet plan will reflect: • Integration of Iron Ore and Intermodal operations Asset productivity • Opportunities to: will unlock – Cascade opportunities and is c
Slide 59: Operations will deliver a $130m+ productivity improvement
Operations will deliver a $130m+ productivity improvement in support of the “Drive to 75” in FY15 and beyond For personal use only Opportunity will be unlocked by: • Building a culture of performance • Leveraging the operations value chain - Integrated operating plan redesign - Train consist design
Slide 60: Drive to 75: Below Rail Operations
For personal use only Drive to 75: Below Rail Operations Mike Carter – EVP Network
Slide 61: Network business is in the zone of Class 1's
Aurizon‟s Network business is in the zone of Class 1‟s For personal use only Track utilisation Maintenance cost 1 Renewal spend '000 GTK per track km $/'000 GTK 0 10,000 20,000 30,000 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 -15% 0.28 0.263 Aurizon 0.261 BNSF 0.26 Network 0.24 BNSF UP 0.221 0.22 0.20 UP
Slide 62: Network is targeting a number of strategic initiatives
Network is targeting a number of strategic initiatives For personal use only Network’s strategic initiatives … …aligned to the enterprise strategy building blocks 1 Step through the door into world class Coordination of a connected safety network Business priorities 2 Create customer advocates from
Slide 63: Lifting Network tonnages and utilisation; UT4
Lifting Network tonnages and utilisation as Aurizon‟s prime delivery goal boosts productivity For personal use only for our customers and drives improved prices Network aims to work constructively with our customers on UT4 Average price per net tonne ($/NT) Phase 1 – Inform, negotiate and recalibrat
Slide 64: World class Network utilisation requires world class maintenance
World class Network utilisation is not possible without world class maintenance For personal use only Reactive to preventative to Harden and modernise the predictive asset Transform infrastructure maintenance to world class Greater utilisation of Continue to improve technology in diagnosis of resour
Slide 65: Quality real time asset diagnosis
Quality real time asset diagnosis is key to a world class predictive focus For personal use only Ground Penetrating Radar Track Defect Inspection Reporting Note: Whole Network complete Note: Tendering for remote recording equipment for locomotives with automatic download 64
Slide 66: Combining prediction and remote monitoring
Combining prediction and remote monitoring directly improves productivity of track workers and trains For personal use only providing integrated system benefits Mechanical Rail Lubricator Electric Rail Lubricator (ERL) 65
Slide 67: Efficient track machinery for world class maintenance
Efficient & productive track machinery is a key lever for transforming infrastructure maintenance For personal use only to world class Reduced track possessions & improved The immediate focus is ballast cleaning & reliability are key to increased utilisation resurfacing 100% Ballast Treatment Projec
Slide 68: The main game – lift Network utilisation
The main game – lift Network utilisation for the benefit of all For personal use only Next generation technology Next generation technology to drive precision planning to drive precision execution Optimise Network capacity to world class utilisation The Network Development Collaboration to enhance P
Slide 69: Two prime creators of variance – planning and Network control
We are chasing two prime creators of variance – planning and Network control For personal use only Supply Chain Optimisation Real-Time Traffic Management Forecasts / Plans (2 years to DOO) „What-if‟ opportunity analysis Plan to Schedule creation Business rules embedded into solution Real-t
Slide 70: Improved planning and optimisation benefits
Improved planning and optimisation benefits all by facilitating higher tonnages For personal use only Benefits Minimising scheduling changes Reduced from 40 at it‟s highest point to 60 Planning Disciplined Planning 2 per day in Goonyella system 50 Regime implemented Alterations 40 (Jul 2012 to Jun 2
Slide 71: Unlocking new productivity from a holistic view of rail assets
Unlocking new productivity and efficiency benefits from an holistic view of rail assets For personal use only Network Development Plan Energy savings through regenerative braking • Will allow existing infrastructure to support more Train train services Time Train Throughput density (hr / rate (tonne
Slide 72: Above and Below Rail Summary
Above and Below Rail Summary For personal use only Success by Network will provide direct benefits and magnified above rail performance benefits for all operators, the supply chain and our collective customers Network‟s transformation strategy is anchored on the Enterprise goal to become World Class
Slide 73: Break
For personal use only Break
Slide 74: Panel discussion: Q&A
For personal use only Panel discussion: Q&A
Slide 75: Closing Address
For personal use only Closing Address Lance Hockridge – MD & CEO
Slide 76: Summary
Summary For personal use only • The key near-term value creation pillar for Aurizon is to become a World Class transport business • Aurizon is in a relatively unique and exciting position whereby we have: – Robust financial capacity – Positive revenue growth opportunities – Yet to be fully realised
Slide 77: Aurizon Investor Briefing
For personal use only Aurizon Investor Briefing Thursday 18th July 2013 Sydney