Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (February 2020)
58 slides from Aurizon's debt investor presentation, February 2020
Slide 1: AMTN Investor Update
AMTN Investor Update Pam Bains – CFO & Group Executive Strategy Chris Vagg – Head of Investor Relations & Group Treasurer February 2020
Slide 2: Disclaimer
DEBT INVESTOR UPDATE Disclaimer NO RELIANCE ON THIS DOCUMENT NO OFFER OF SECURITIES This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to Nothing in this presentation should be construed as a recommendation of or an offer to sell or a as “Aurizon” which includes its r
Slide 3: Contents
DEBT INVESTOR UPDATE Contents 1. Biographies 2. Overview of Aurizon Holdings 3. ESG 4. Future of Coal 5. Overview of Aurizon Network 6. Aurizon Network investment highlights 7. Additional information - Future of Coal - Aurizon Network - Aurizon Operations Aurizon Holdings Limited is referred to in t
Slide 4: Biographies
DEBT INVESTOR UPDATE Biographies Pam Bains Chris Vagg CFO & Group Executive Strategy Head of Investor Relations & Group Treasurer Pam has over 20 years’ experience in finance and Chris has more than 20 years’ experience in the finance commercial roles working in the UK, India and Australia industry
Slide 5: Overview of Aurizon Holdings
DEBT INVESTOR UPDATE Overview of Aurizon Holdings
Slide 6: Aurizon's rail haulage operations
DEBT INVESTOR UPDATE ABOUT AURIZON Aurizon’s rail haulage operations KEY OPERATIONAL STATISTICS COMMODITIES Coal, iron ore and bulk freight ROLLINGSTOCK ~500 active locomotives OPERATIONAL FOOTPRINT ~40 operational sites PEOPLE More than 4,600 full-time employees WAGONS 11,000+ active wagons 6
Slide 7: Aurizon's vision, purpose, values and strategic levers
DEBT INVESTOR UPDATE ABOUT AURIZON Aurizon’s vision, purpose, values and strategic levers Execution against the three strategic levers is aimed at driving differentiation, competitive advantage and sustainable performance VISION PURPOSE STRATEGIC LEVERS Accelerate cost competitiveness of Aurizon The
Slide 8: Prioritisation of capital
DEBT INVESTOR UPDATE ABOUT AURIZON Prioritisation of capital CAPITAL ALLOCATION HIERARCHY 1 2 3 4 DETERMINE NON GROWTH SURPLUS AVAILABLE DIVIDENDS CAPITAL CAPITAL CAPITAL › Ongoing operating › Sustaining and › Within 70-100% › Capital management cashflows transformation payout ratio opportunities pr
Slide 9: Aurizon is Australia's largest integrated freight rail network
DEBT INVESTOR UPDATE ABOUT AURIZON Aurizon is Australia’s largest integrated freight rail network Above Rail consists of the Coal and Bulk business units, Below Rail consists of Network ABOVE RAIL (AURIZON OPERATIONS) BELOW RAIL (NETWORK) Coal Bulk Network › Services 40+ mines across › Transports ir
Slide 10: Legal and capital structure
DEBT INVESTOR UPDATE ABOUT AURIZON Legal and capital structure Aurizon has standalone funding structures for Operations and Network with independent gearing levels, consistent with their different business risk profiles Holdings Operations Network › Standalone funding › Standalone funding structure
Slide 11: ESG
DEBT INVESTOR UPDATE ESG
Slide 12: Sustainability
DEBT INVESTOR UPDATE ESG Sustainability FY2019 was the third year of TCFD disclosure for Aurizon › Aurizon takes a direct approach to reporting OUR FY2019 environmental, social and governance (ESG) SUSTAINABILITY disclosures with the publication of the annual HIGHLIGHTS Sustainability Report › In Au
Slide 13: Environment
DEBT INVESTOR UPDATE ESG Environment Aurizon continues to focus on cutting diesel and greenhouse gas emissions as part of our efforts to maintain Australia’s excellent air quality standards and manage our carbon footprint AURIZON’S GREENHOUSE GAS PROFILE AURIZON’S LOCOMOTIVE EMISSIONS INTENSITY PERF
Slide 14: Future of Coal
DEBT INVESTOR UPDATE Future of Coal
Slide 15: Australian export coal demand
DEBT INVESTOR UPDATE FUTURE OF COAL Australian export coal demand The fundamentals of Australian metallurgical and thermal coal remain strong, driven by steel and energy demand in Asia, supporting coal export growth of 1-2%pa over the next decade METALLURGICAL COAL THERMAL COAL › Metallurgical coal
Slide 16: Australia FY2019 coal supply summary
DEBT INVESTOR UPDATE FUTURE OF COAL Australia FY2019 coal supply summary Coal Production Domestic Consumption Export All Coal Export (By Destination) All Coal Export (By Port) 114mt 162mt 454mt 60mt 393mt 88mt 118mt 51mt 56mt 72mt 29% 49mt 41% 22% 35mt 30% State Split State Split State Split 14% 29m
Slide 17: Future of coal – metallurgical coal
DEBT INVESTOR UPDATE FUTURE OF COAL Future of coal – metallurgical coal Driven by urbanisation and infrastructure development, the opportunity remains for India and South East Asian nations to increase steel usage INDIA: CRUDE STEEL PRODUCTION AND COKING APPARENT (CRUDE STEEL EQUIVALENT) STEEL USE P
Slide 18: Future of coal – thermal coal
DEBT INVESTOR UPDATE FUTURE OF COAL Future of coal – thermal coal 98% of Australian exports are destined for Asia. It is this region (rather than global consumption) that is projected to use coal-fired generation assets for a prolonged period PER CAPITA ELECTRICITY CONSUMPTION VS. PER CAPITA INTERNA
Slide 19: Overview of Aurizon Network
DEBT INVESTOR UPDATE Overview of Aurizon Network
Slide 20: Network snapshot
DEBT INVESTOR UPDATE NETWORK Network snapshot As at 31 December 2019 117 40+ three above rail million tonnes mines serviced operators $5.6b five 2,670km Regulated Asset export terminals railway track Base1 HAULAGE BREAKDOWN2 (estimate as at 30 June 2019) Thermal Coal 31% Metallurgical Coal 69% 1. Ro
Slide 21: Central Queensland Coal Network (CQCN)
DEBT INVESTOR UPDATE NETWORK Central Queensland Coal Network (CQCN) CQCN comprises four major coal systems and one connecting system link (GAPE) servicing Queensland’s Bowen Basin coal region 21
Slide 22: Aurizon Network investment highlights
DEBT INVESTOR UPDATE Aurizon Network investment highlights
Slide 23: Summary of key investment highlights
DEBT INVESTOR UPDATE NETWORK Summary of key investment highlights CQCN services well established haulage customers and high quality mines, predominately operated by investment grade miners CQCN links to significant coal resources Regulated revenues within a stable regulatory regime Strong financial
Slide 24: CQCN services well established haulage customers and miners
DEBT INVESTOR UPDATE NETWORK CQCN services well established haulage customers and miners Network services a diversified group of mining customers that are predominately large global companies with 74% investment grade1 FY19 SPLIT OF MINERS SERVICED BY CQCN2 1H20 RAILED VOLUME SPLIT BY ACCESS HOLDER
Slide 25: CQCN infrastructure links to significant coal resources
DEBT INVESTOR UPDATE NETWORK CQCN infrastructure links to significant coal resources Underpinned by a 99 year lease from the Queensland Government, CQCN holds a unique position given its proximity to 13.8bt of coking coal resources QLD: TOTAL ESTIMATED COAL RESOURCES › A 99 year lease arrangement is
Slide 26: Regulated revenues within a stable regulatory regime
DEBT INVESTOR UPDATE NETWORK Regulated revenues within a stable regulatory regime In December 2019 the QCA approved the UT5 Undertaking that will deliver a range of material benefits to Network and its customers and provide greater long term certainty for the industry LONG TERM CERTAINTY 10 year und
Slide 27: Regulated revenues within a stable regulatory regime
DEBT INVESTOR UPDATE NETWORK Regulated revenues within a stable regulatory regime Next major milestone for the UT5 Undertaking is the Report Date which will see the WACC increase from 5.9% to 6.3% INDICATIVE UT5 TIMELINE 03/05/19 30/06/17 30/06/18 30/06/19 30/06/20 30/06/21 30/06/23 30/06/27 WACC 5.
Slide 28: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK Strong financial position and credit ratings stability Board is committed to Baa1/BBB+ credit ratings. These credit ratings have been held since establishment in 2013. Gearing currently at 58.1%1 INTEREST RATES FY2020 FUNDING ACTIVITY › Network debt is 94% fixed until en
Slide 29: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK Strong financial position and credit ratings stability Network has stable operating cash flows and EBITDA through the cycle, with debt levels managed in line with credit rating thresholds and regulatory assumptions NET CASHFLOW FROM OPERATIONS ($m) EBITDA1 & EBITDA MARGI
Slide 30: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK Strong financial position and credit ratings stability The UT5 Undertaking provides longer term revenue certainty INDICATIVE NETWORK ADJUSTED MAR* FY2018 – FY2023 ($M) ~954 ~6 ~948 ~8 ~942 ~12 13 ~937 13 936 55 ~78 869 12 60 45 60 45 18 21 FY18 MAR FY2018 FY2018 FY17 & F
Slide 31: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK Strong financial position and credit ratings stability Network financial metrics REVENUE ($m) EBIT ($m) VOLUMES (mt) 1,262 506 230 233 1,219 484 481 481 226 226 1,178 215 1,108 1,118 211 417 412 980 1,012 400 182 596 117 232 FY13 FY14 FY15 FY16 FY17 FY18 FY19 1H20 FY13 F
Slide 32: Strong financial position and credit ratings stability
DEBT INVESTOR UPDATE NETWORK Strong financial position and credit ratings stability Network RAB, capex and depreciation profile RAB ROLL FORWARD ($bn) CAPEX ($m) ACCOUNTING DEPRECIATION ($m) 5.7 5.7 5.6 5.6 569 321 5.1 300 308 258 281 215 363 3.0 80 283 163 252 7 251 5 1 139 288 283 276 6 247 250 13
Slide 33: Questions
DEBT INVESTOR UPDATE Questions
Slide 34: Contact and further information
Contact and further information Chris Vagg Head of Investor Relations & Group Treasurer +61 7 3019 9030
Slide 35: Additional information: Future of Coal
DEBT INVESTOR UPDATE Additional information Future of Coal
Slide 36: Global coking (metallurgical) coal landscape
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION – FUTURE OF COAL Global coking (metallurgical) coal landscape Around one-quarter of global metallurgical coal demand is met through seaborne trade with Australia commanding over 60% of this market 2017, million tonnes 1,040mt 713mt Import Market: Split 99m
Slide 37: Metallurgical coal market | Australia
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION – FUTURE OF COAL Metallurgical coal market | Australia Driven by quality, cost-competitiveness and proximity to Asian markets, Australia holds a unique position in the seaborne market AUSTRALIA: METALLURGICAL COAL EXPORT1 METALLURGICAL COAL CASH COSTS (US$
Slide 38: Global steam (thermal) coal landscape
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION – FUTURE OF COAL Global steam (thermal) coal landscape Over 80% of global thermal coal demand is produced and consumed within country. Australia holds a 20% share of the seaborne market that is dominated by Asian demand 2017, million tonnes 5,678mt 4,648mt
Slide 39: Thermal coal market | Australia
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION – FUTURE OF COAL Thermal coal market | Australia Australia’s thermal coal competitiveness is driven by coal quality characteristics and geographic proximity to Asia AUSTRALIA: THERMAL COAL EXPORT1 THERMAL COAL CASH COSTS (US$/t, CFR JAPAN, 2019)2 250 $150
Slide 40: Additional information: Network
DEBT INVESTOR UPDATE Additional information Network - Regulation - Financial Information
Slide 41: UT5 Undertaking - What's included in each building block
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK UT5 Undertaking - What’s included in each building block BUILDING BLOCK DETAILS Return on capital (WACC) › 5.70% from 1 July 2017 to 2 May 2019 › 5.90% from 3 May 2019 to Report Date (expected mid CY2020) › 6.30% from Report Date to 30 June 2023
Slide 42: UT5 Undertaking - What's included in each building block
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK UT5 Undertaking - What’s included in each building block BUILDING BLOCK DETAILS Operating expenditure › Includes all costs associated with train control, planning, infrastructure management and business development. It also includes corporate ove
Slide 43: UT5 Undertaking - Rebate mechanism
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK UT5 Undertaking - Rebate mechanism Rebate will be payable to customers where Network performs below target levels › A customer will be entitled to a rebate from Network where it has received less than its annual contracted capacity, as assessed b
Slide 44: UT5 Undertaking - QCA role
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK UT5 Undertaking - QCA role The QCA has an ongoing role under the UT5 Undertaking › Will pre-approve Maintenance strategies and budgets in the event agreement is not reached between Network and customers1 › Will approve capital expenditure on a po
Slide 45: The regulatory framework
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK The regulatory framework The framework provides revenue protection through a building block approach MAXIMUM ALLOWABLE REVENUE REGULATORY REVENUE PROTECTION TOTAL ACTUAL REVENUE (FORECASTED) TESTS RETURN ON CAPITAL AT1 Outside the revenue protect
Slide 46: Revenue protection mechanisms
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK Revenue protection mechanisms Regulated revenue is protected through a combination of mechanism within the regulatory framework › Protection mechanisms come into effect when revenue shortfalls occur due to actual tonnage railed being less ToP tha
Slide 47: Regulated asset base (RAB)
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK Regulated asset base (RAB) Network maintains a record of the value of its existing assets for regulatory pricing called the RAB ROLLFORWARD RAB › This represents the value of Network assets for regulatory purposes › Each year Network rolls forwar
Slide 48: Network
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK Network EBIT performance reflects the uplift in revenue from the approved UT5 Undertaking Revenue $m 1HFY2020 1HFY2019 Variance › Increase in track access revenue principally as a Track Access 565 534 6% result of the UT5 Undertaking Services & O
Slide 49: Network - Profit & loss (underlying)
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK Network - Profit & loss (underlying) 1HFY2020 1HFY2019 Variance 2HFY2019 $m Tonnes (m) 116.6 116.5 - 116.2 Access Revenue 564.7 534.1 6% 536.2 Services and other 31.2 23.3 34% 24.1 Total Revenue 595.9 557.4 7% 560.3 Operating costs (201.2) (196.8
Slide 50: Network - Balance sheet summary
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - NETWORK Network - Balance sheet summary $m 31 December 2019 30 June 2019 Total current assets 211.5 251.7 Property, plant & equipment 5,324.5 5,347.8 Other non-current assets 262.6 305.3 Total assets 5,798.6 5,904.8 Total borrowings 3,187.8 3,299.9 Other
Slide 51: Additional information: Operations
DEBT INVESTOR UPDATE Additional information Operations
Slide 52: Coal snapshot
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - OPERATIONS Coal snapshot As at 31 December 2019 106 336 233km average haul million tonnes active locos length 74 8,570 23.8km/hr average services active wagons velocity per day TONNES HAULAGE BREAKDOWN (estimate as at 30 June 2019) Thermal Coal CQCN 30%
Slide 53: Coal contract portfolio
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - OPERATIONS Coal contract portfolio COAL CONTRACT PORTFOLIO EXPIRY PROFILE1 FORECAST COAL CONTRACTED VOLUMES (MTPA)1 AS AT 31 DECEMBER 2019 0 - 3 years 9% 250 238 229 70 31% >3 - 7 years 63 63 60% >7 years COAL VOLUMES (MTPA) 180 166 175 214 210-220 212 2
Slide 54: Coal contract portfolio
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - OPERATIONS Coal contract portfolio AURIZON COAL CONTRACT VOLUME EXPIRY BY YEAR (MTPA – AS AT 31 DECEMBER 2019) 60 Contracted volume expiry Peabody extension / new volume Coronado extension / new volume 45 Million tonnes per annum 30 15 0 FY20 FY21 FY22 F
Slide 55: Bulk snapshot
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - OPERATIONS Bulk snapshot As at 31 December 2019 24 167 HAULAGE BREAKDOWN1 million tonnes active locos 25% Bauxite/Alumina 48% Iron Ore Other2 27% >10 2,464 products hauled active wagons 1. Incorporates hauls that report tonnes, does not include Linfox an
Slide 56: Aurizon Operations Limited Consolidated Operating Group
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION - OPERATIONS Aurizon Operations Limited Consolidated Operating Group1 Proforma – Key financial information UNDERLYING REVENUE2 ($m) UNDERLYING EBIT2 ($m) 2,554 2,529 429 437 2,308 400 1,322 231 FY17 FY18 FY19 1H20 FY17 FY18 FY19 1H20 FREE CASH FLOW ($m) VO
Slide 57: Glossary
DEBT INVESTOR UPDATE ADDITIONAL INFORMATION Glossary Metric Description Access Revenue Amounts received by Aurizon Network for access to the Network infrastructure under all Access Agreements AFD Access Facilitation Deed Average haul length NTK/Total tonnes CQCN Central Queensland Coal Network ESG E
Slide 58: <4 AURIZON.
% <4 AURIZON.
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