Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — QR National — FY2012 Earnings Presentation
58 slides from Aurizon's earnings presentation, Aug 23, 2012
Slide 1: Full Year Results 2012
Full Year Results 2012 Lance Hockridge Managing Director & CEO Deborah O’Toole EVP & CFO 23 August 2012 1
Slide 2: Important notice
Important notice No Reliance on this Presentation This Presentation was prepared by QR National Limited (ACN 146 335 622) (referred to as “QR National” which includes its related bodies corporate). Whilst QR National has endeavoured to ensure the accuracy of the information contained in this Present
Slide 3: Agenda
Agenda • Year in review Lance Hockridge, Managing Director and CEO • Financial & Business Overview Deborah O‟Toole, Executive Vice President and CFO • Roadmap for the future Lance Hockridge, Managing Director and CEO • Questions and Answers 3
Slide 4: Year in Review
Year in Review
Slide 5: Results demonstrate successful execution of our strategy in FY12
Results demonstrate successful execution of our strategy in FY12 Strong financial and operational performance despite flat coal volumes • Underlying EBIT of $584m – up 52% • Revenue of $3.63bn – up 10% • Operating Ratio improvement of 4ppt – to 84% • Coal Volumes of 185.6Mt – up 2% • Safety Improvem
Slide 6: Safety performance
Safety performance Lost Time Injury Frequency Rate (LTIFR) Medically Treated Injury Frequency Rate (MTIFR) 11.43 44.21 24.67 6.14 -44% 19.26 -22% 3.08 10.74 2.40 FY09 FY10 FY11 FY12 FY09 FY10 FY11 FY12 6
Slide 7: Financial highlights
Financial highlights FY111 ($M) FY12 ($M) VARIANCE (%) Statutory Revenue 3,293 3,634 10% Statutory EBITDA (1) 679 1,057 56% Underlying EBITDA (1) (2) 840 1,048 25% Statutory EBIT (1) 222 593 168% Underlying EBIT (1) (2) 383 584 52% Statutory NPAT (1) (3) 361 441 22% Statutory Operating Cash Flow (1)
Slide 8: Robust result despite flat coal volumes
Robust result despite flat coal volumes +10% Coal Volumes (mt) Revenue1 ($m) 3,625 CAGR +4-6% 3,293 2,973 195- 2,605 198 205 2,344 184 187 182 186 FY08 FY09 FY10 FY11 FY12 FY13f FY08 FY09 FY10 FY11 FY12 29% 16% EBITDA1 ($m) 26% EBIT1 ($m) 24% 12% 19% EBITDA margin EBIT Margin 10% 15% 1,048 584 840 6
Slide 9: Key group operating metrics
Key group operating metrics FY11 FY12 VARIANCE Revenue / NTK (A$/000 NTK) 55.1 57.7 5% Labour Costs / Revenue 34% 31% 3 ppt NTK/employee (MNTK) 6.6 7.0 6% Opex1/ NTK (A$/000 NTK) 48.6 48.4 0% EBITDA Margin 26% 29% 3 ppt Operating Ratio2 88% 84% 4 ppt ROIC3 4.4% 6.7% 2.3 ppt NTK (bn) 59.8 62.9 5% Ton
Slide 10: Execution capability successfully delivered major growth projects in FY12
Execution capability successfully delivered major growth projects in FY12 • First railings commenced 19 December 2011 GAPE • System capacity now 50mtpa • Completed August 2012 • Largest electrical upgrade on the Central Queensland Coal System since Blackwater 1980s – 4 new feeder stations Electrific
Slide 11: Delivering on growth
Delivering on growth CQCN Network Capacity Hunter Valley Volumes (Mt) under construction (Mtpa) +15% +14% 34 310 30 272 229 234 19 16 FY10 FY11 FY12 FY15 FY09 FY10 FY11 FY12 • CQCN capacity of > 300Mtpa by • Volumes increased 15% FY15 • GAPE2 will add further 25Mtpa 11
Slide 12: Iron ore EBIT doubled
Iron ore EBIT doubled EBIT 17.5% • Strong performance delivered: • Cliffs RHA for expansion volumes to 11.5% 11.5Mtpa operational 1 February 2012 • MRL Polaris RHA for up to 4.2Mtpa operational October 2011 EBIT Margin % EBIT • Karara RHA operational 15 January 2012 • Mt Gibson Extension Hill 3.0Mtp
Slide 13: Agenda
Agenda • Year in review Lance Hockridge, Managing Director and CEO • Financial & Business Overview Deborah O‟Toole, Executive Vice President and CFO • Roadmap for the future Lance Hockridge, Managing Director and CEO • Questions and Answers 13
Slide 14: Financial overview
Financial overview
Slide 15: EBIT uplift from $383m to $584m
EBIT uplift from $383m to $584m Coal Volumes (Mt) 233 • EBIT forecast achieved through active 219 management of the business • Volume impact offset by benefits delivered from the transformation program, including; 182 186 • Greater revenue quality • Improved margins • Capital & operational disciplin
Slide 16: EBIT increase driven by transformation benefits
EBIT increase driven by transformation benefits 700 35 101 62 600 45 500 86 584 15 59 400 383 300 100 0 Coal Volumes Coal Revenue Efficiencies FY12 Freight volumes assets useful lives Other Restated (1) Network Access Extension of Coal quality (2) and revenue Quality FY11 Cost Revenue 1. FY11 compar
Slide 17: Improved performance in all divisions
Improved performance in all divisions Underlying EBIT FY111 FY12 Variance Coal 159 257 62% Network Services 301 341 13% Freight2 31 100 226% Corporate (108) (114) -6% Consolidated EBIT 383 584 52% 1. FY11 comparatives restated due to a retrospective application of a voluntary change in accounting po
Slide 18: Balance sheet remains strong, facilitating growth and capital management
Balance sheet remains strong, facilitating growth and capital management Key issues: Balance Sheet FY111 FY12 Variance • Capacity to support growth opportunities Net Debt ($m) 686 1,103 61% • BBB+ and Baa1 ratings maintained Gearing 9% 13% 4ppt Key Drivers: • Very low gearing level provides balance
Slide 19: On market buy-back announced
On market buy-back announced • We intend to undertake an on-market buy-back of up to 10% of our issued share capital equating to approximately 244 million shares • This demonstrates our commitment to managing our balance sheet efficiently, whilst maintaining appropriate flexibility to invest in futu
Slide 20: Disciplined capital spend
Disciplined capital spend Growth Capex FY12 Capital Expenditure Variance • $534m reduction due to: Offer Document vs. Actual • Delayed project start - $264m. WIRP most significant with $240m delayed spend 1,791 • Response to less demand - $40m • Capital optimisation initiatives and project scope 534
Slide 21: Capital committed to growth
Capital committed to growth Capital Expenditure1 $m FY13 Capital Expenditure1 $m by Segment Growth vs. Sustaining 1,339 640 1,173 ~1,100 1,030 1,139 877 723 250 160 307 296 50 200 FY10 FY11 FY12 FY13f Network Freight Coal Corporate Growth Capex Forecast capex Sustaining Capex • Major committed growt
Slide 22: Business overview
Business overview
Slide 23: Coal
Coal FY11 FY12 VARIANCE Tonnages (million) 181.6 185.6 2% NTK (billion) 40.9 41.9 2% Revenue ($m) 1,691 1,828 8% EBITDA ($m) 369 441 20% Margin % 22% 24% 2 ppt EBIT ($m) 159 257 62% Margin % 9% 14% 5 ppt Capital Expenditure1 ($m) 451 123 -73% 1. Excludes capitalised interest 23
Slide 24: Coal operating metrics
Coal operating metrics Revenue/NTK (A$/000 NTK) Opex/NTK (A$/000 NTK) Operating Ratio +6% 0% 43.6 37.5 37.5 91% 41.4 87% 86% -5ppt 37.3 32.4 FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12 • Reflects revenue quality • Lower than forecast coal • Operating ratio uplift from new form volumes offset by imp
Slide 25: Network Services
Network Services FY111 FY12 VARIANCE Tonnages (million) 164.0 166.7 2% NTK (billion) 40.0 41.2 3% Revenue ($m) 1,180 1,210 3% EBITDA ($m) 466 527 13% Margin % 39% 44% 5 ppt EBIT ($m) 301 341 13% Margin % 26% 28% 2 ppt Capital Expenditure2 ($m) 683 663 -3% 1. FY11 comparatives restated due to a retro
Slide 26: Network Services operating metrics
Network Services operating metrics Access Revenue/NTK +4% (A$/000 NTK) 18.1 17.4 14.8 Key Drivers: • Total revenue increased 3% despite flat tonnages due to $20m EBITDA contribution from GAPE tonnes railed from January 2012 at commercial returns and regulatory tariff reset FY10 FY11 FY12 Maintenance
Slide 27: Freight
Freight FY11 FY12 VARIANCE Tonnages (million) 61.5 66.6 8% NTK (billion) 19.0 21.0 11% Revenue ($m) 1,277 1,524 19% EBITDA ($m) 89 173 94% Margin % 7% 11% 4 ppt EBIT1 ($m) 31 100 226% Margin % 2% 7% 5 ppt Capital Expenditure2 ($m) 196 332 69% 1. Includes $33m contribution from TSC additional payment
Slide 28: Freight operating metrics
Freight operating metrics Revenue/NTK (A$/000 NTK) Opex/NTK (A$/000 NTK) Operating Ratio +8% +3% 72.6 67.8 108% -5ppt 66.0 65.7 67.3 98% 60.9 93% FY10 FY11 FY12 FY10 FY11 FY12 FY10 FY11 FY12 • TSC performance • Increase reflects • Operating ratio revenue temporary spike reflects revenue and • Growth
Slide 29: Outlook
Outlook • We expect the current softer demand environment for coal haulage services to continue in the near-term • Latest expectations are for an increase in coal haulage volumes of 195 to 205 million tonnes for FY13 • The medium to long-term outlook for Australian resources remains robust and we do
Slide 30: The pace of change continues
The pace of change continues • Transformation momentum delivered $121m benefit in FY12 • Margins improving with revenue quality uplift and strong cost focus • Focus on capital discipline and capital management • Sustainable improvements across all businesses • Key focus ROIC and increase in sharehol
Slide 31: Agenda
Agenda • Year in review Lance Hockridge, Managing Director and CEO • Financial & Business Overview Deborah O‟Toole, Executive Vice President and CFO • Roadmap for the future Lance Hockridge, Managing Director and CEO • Questions and Answers 31
Slide 32: Roadmap for the future
Roadmap for the future
Slide 33: QR National's roadmap for the future
QR National’s roadmap for the future Strong and resilient business model • Leveraged to growth markets • Unmatched scale of operations • Strong and reliable cash flows from Network Services and growth opportunities from Coal and Iron Ore • Strong balance sheet Robust strategy • Focus on transformati
Slide 34: Targeting 75% operating ratio by 2015
Targeting 75% operating ratio by 2015 91% 88% 84% 75% FY10 FY11 FY12 FY15 • Increased customer focus • Performance based contracts Revenue Quality • Flexibility for volume growth • Improved risk mitigation • QLD coal system growth Volume Growth • Iron ore ramp-up • Hunter Valley market share • Right
Slide 35: Transformation strategy
Transformation strategy • Embed a high performance culture through safety and Performance Based Culture leadership • Improve operational performance and accountability • Drive improved performance based contracts Customer Focus • Improve volume throughput and customer satisfaction • Differentiated s
Slide 36: Transforming operating structure
Transforming operating structure • Drives long term customer focus • Aligns with North American Class 1 Railroads Functional model • Will accelerate QR National‟s transformation agenda implemented • Creates an environment of greater collaboration and cooperation • Greater clarity around accountabili
Slide 37: Transforming revenue quality
Transforming revenue quality New Form Contracts – Coal Volumes Railed Group Revenue/NTK CAGR +12% 95% 58 55 74% 46 65% 44 41 37 50% 43% 38% 29% 18% Coal Group 2010 2011 2012 2013f 2014f 2015f FY16f FY17f FY10 FY11 FY12 • Value-driven for our customers, • Reflects the strength of the offering greater
Slide 38: Improved ROIC driven by capital optimisation focus
Improved ROIC driven by capital optimisation focus Project Development & Execution • Investment optimisation resulted in savings of >20% in projects under development including: • 11Mtpa Network expansion in the Goonyella system – 6 major projects reduced to 3 • Halved cost of GAPE above rail mainte
Slide 39: Momentum in growth – Northern QLD
Momentum in growth – Northern QLD GAPE – Northern Missing Link • Completed August 2012 • System capacity now 50Mtpa with potential expansions to 200Mtpa and more GAPE– Northern Bowen Basin • QLD Govt support for QR National‟s proposed (E-W) corridor to service the Galilee basin • First stage – 25Mtp
Slide 40: Momentum in growth – Southern QLD
Momentum in growth – Southern QLD WIRP stage 1 • One of the largest rail expansions in Australia • Additional 27Mtpa in haulage in the southern Bowen Basin coal region • Stage 1 - 13km Balloon Loop near Gladstone and 18km Rocklands to Stanwell Duplication • $132m in contracts awarded in June for civ
Slide 41: China growth story remains on course
China growth story remains on course GDP growth – China to remain strong China steel intensity trending toward compared to advanced economies developed economies Steel consumption1 Real GDP Growth % Kg/capita 15 1,300 kg/capita, real GDP$/capita 1,200 South Korea IMF forecasts 12 1,100 1,000 Taiwan
Slide 42: Longer term commodity demand remains strong
Longer term commodity demand remains strong • Seaborne demand to 2021: Macro picture • Thermal Coal CAGR +5.8% • Met coal CAGR +5.2% • We are currently delivering on significant additional capacity QR National • Hay Point – 11Mpta response • WIRP stage 1 – 27Mtpa • GAPE2 – 25Mtpa • Customer engageme
Slide 43: Summary
Summary • Positioned for growth and success • Discipline and focus on consistent execution • Flexibility and optionality in dynamic market • Confidence in our strategy and growth prospects 43
Slide 44: Agenda
Agenda • Year in review Lance Hockridge, Managing Director and CEO • Financial & Business Overview Deborah O‟Toole, Executive Vice President and CFO • Roadmap for the future Lance Hockridge, Managing Director and CEO • Questions and Answers 44
Slide 45: Additional slides
Additional slides £2 aR NATIONAL
Slide 46: Reconciliation of statutory profit & loss
Reconciliation of statutory profit & loss 2011 2012 $A(m) from continuing operations Underlying result Significant items Statutory Underlying result Significant items Statutory Revenue1 3,292.7 0.0 3,292.7 3,625.3 8.8 3,634.1 Consumables2 (1,327.2) 0.0 (1,327.2) (1,400.1) 0.0 (1,400.1) Employee bene
Slide 47: Reconciliation of statutory profit & loss
Reconciliation of statutory profit & loss 2011 2012 Offer Document $A(m) from continuing operations Statutory Underlying Pro forma Statutory Underlying Pro forma Statutory Underlying Pro forma Statutory EBIT 221.6 221.6 221.6 593.3 593.3 593.3 578.0 578.0 578.0 Transaction related costs - 99.0 99.0
Slide 48: Transforming operating discipline
Transforming operating discipline On Time Departure - OTD (%) Average cycle time (hrs) Payloads (tonnes) 90 24 8,000 80 7,000 23 70 22 6,000 5,000 60 21 4,000 20 50 3,000 19 2,000 40 18 1,000 30 17 0 2010 2011 2012 2010 2011 2012 2010 2011 2012 Goonyella Blackwater/Moura Goonyella Blackwater/Moura M
Slide 49: Transforming operating discipline – panel rostering
Transforming operating discipline – panel rostering Goonyella System - Average Train Crew Overtime (BLP) per Service Hours Key Drivers for the improvement 16 • the implementation of new train crew panel 14 rosters over the past six months • Tighter management of labour/task 12 allocation 10 Outcomes
Slide 50: Transformation – coal operating discipline
Transformation – coal operating discipline Hunter Valley Goonyella Coal System Day of Operations Performance Day of Operations Performance 12.8% 31.0% 10.8% 26.0% 7.9% 18.7% 17.5% 3.0% 7.5% 5.5% 4.1% 0.7% 0.8% 0.5% 0.2% 1.0% 2009 2010 2011 2012 2009 2010 2011 2012 QR National at fault QR National Co
Slide 51: Transformation – rollingstock maintenance
Transformation – rollingstock maintenance Faults Per Loco Year (FLY) Fleet Cost, Maintenance and Depreciation -15% 40% -63% Callemondah Coal Opex cents/NTK Jilalan Coal Depreciation cents/NTK FY11 FY12 FY11 FY12 FY11 FY12 • Reliability centred maintenance program • 15% reduction in cost through disc
Slide 52: Queensland coal system
Queensland coal system Townsville ¥: \es ‘Sonomay WF Rolling stock depot — Newlands coal rail system a & Tain crew depot ~ Goonyella coal rail system 2Z i Thermal mine —— Blackwater coal rail system & @ Metallurgical coal — Moura coal rail system Wy Mixed coal product —— Existing rail @ City/town ee
Slide 53: Surat Basin growth
Surat Basin growth • Large thermal coal deposits exist in the Surat Basin • QR National is a one third joint venture partner in the Surat Basin Railway with the ATEC Rail Group and Xstrata Coal • The proposed SBR includes a new 210km rail corridor from Wandoan to the Moura system near Banana, 130kms
Slide 54: North Queensland growth
North Queensland growth • Qld Government has endorsed two rail corridors to support growth of the Galilee basin • This includes an East-West corridor linking QR National‟s existing Goonyella network to the Central Galilee • By leveraging the existing rail network, QR National will be able to efficie
Slide 55: Iron Ore growth
Iron Ore growth • QR National has total committed investment in excess of $350 million underway in WA in new trains and new facilities to support the growth of our Pilbara customers and our business Mid West • Potential for construction of fourth rail corridor in the Pilbara –multi user model • QR N
Slide 56: Offer Document to FY12 Divisional Variance
Offer Document to FY12 Divisional Variance Network Services - $413m variance including: FY12 Capital Expenditure Divisional Variance Offer Document vs. Actual • WIRP 1 rescheduling • Hay Point re-scoping 1,792 • Goonyella re-scoping 224 Coal - $224m variance including: 1,173 • Rollingstock acquisiti
Slide 57: Leveraged to global growth sectors
Leveraged to global growth sectors Metallurgical coal Thermal coal Iron Ore global seaborne demand (Mtpa) global seaborne demand (Mtpa) global seaborne demand (Mtpa) 392 1,404 1,668 1,426 21% 1,336 46% 40% 1,242 281 23% 8% 249 263 948 1,109 1,147 23% 242 865 892 893 24% 236 801 25% 10% 8% 27% 10% 50
Slide 58: Metric definitions
Metric definitions METRIC DEFINITION Return on Invested Capital Calculated using 12-month trailing EBIT and comparative number represents ROIC year ended 30 June 2012 EBIT/Net working capital + Net PP&E + AUC + Gross Intangible Assets NTK Net Tonnages x Kilometres GTK Gross Tonnages x Kilometres Fau