Aurizon Holdings Ltd. · ASX:AZJ

Aurizon — H1 FY2014 Earnings Presentation

67 slides from Aurizon's earnings presentation, Feb 17, 2014

1. Slide 1: Half Year Report Analysts Presentation cover letter

   Dominic D Smith 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 ASX Market Announceme

2. Slide 2: Interim Results 2014

   For personal use only Interim Results 2014 Lance Hockridge – Managing Director & CEO Keith Neate – Executive Vice President & CFO 17 February 2014

3. Slide 3: Important notice

   Important notice ONLYonly 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 contained in this document

4. Slide 4: Half year in review

   For personal use only Half year in review Lance Hockridge - MD & CEO

5. Slide 5: Key highlights – 1H FY2014

   Key highlights – 1H FY2014 ONLYonly Safety  56% improvement in LTIFR from FY2013  26% improvement in MTIFR from FY2013 Earnings  Underlying EBIT up 19% use  Statutory EBIT down 25%, includes $197m asset impairment PERSONAL USE Dividends  Interim dividend declared 8.0cps personal  Franking 80%,

6. Slide 6: Safety performance, our target is zero

   Safety performance, our target is ONLYonly Lost Time Injury Frequency Rate (LTIFR)1 Medically Treated Injury Frequency Rate (MTIFR)1 Medically treated injuries per million person-hours worked 44.21 use 11.43 Lost time injuries per million person-hours worked PERSONAL USE 56% 26% improvement improvem

7. Slide 7: Financial highlights

   Financial highlights ONLYonly 1H $m Variance FY2014 FY2013 use Total revenue 1,965 1,879 5%  Coal volume uplift 13% EBITDA - Statutory 452 514 (12%)  Iron Ore volume uplift 42% PERSONAL USE - Underlying1 674 602 12%  $222m of impairments and VRP5 personal EBIT - Statutory 201 268 (25%) costs - Un

8. Slide 8: Delivered 12% volume growth on essentially flat cost base

   Delivered 12% volume growth Operating highlights on essentially flat cost base4 ONLYonly 1H 2H 1H Variance FY2014 FY2013 fav/(adv) FY2013 use Revenue / NTK1 (A$/000 NTK) 51.3 56.0 (8%) 55.5  Increasing contract utilisation and haul length PERSONAL USE Labour Costs / Revenue 26.9% 30.0% 3.1ppt 28% 

9. Slide 9: 75% Operating Ratio update

   “75% Operating Ratio” update ONLYonly We remain on track to deliver an Operating Ratio of 75% in 1H Operating Ratio respect of FY2015: % 1H FY2014 achieved $59m savings against FY2014 target of use $90m: -2.6ppt 1. Centralised Support costs – target $100m by FY2015 85.8 85.0 PERSONAL USE 81.0 78.4 –

10. Slide 10: Operations transformation programs delivering a strong 1H FY2014 performance

    Operations transformation programs delivering a strong 1H FY2014 performance Operating expenses (c/NTK) 4 ONLYonly have improved by ~14% 1H 1H 1H 2H Metric FY2014 FY2013 Variance FY2013 use Transformation programs Production Net tonne kilometres (bn) 38.2 33.5 14.0% 33.5 PERSONAL USE Tonnes (m) 149.

11. Slide 11: Network optimisation has supported record volumes in 1H FY2014

    Network optimisation has supported record volumes in 1H FY2014 ONLYonly  CY2013 was the best calendar year on Network Operations Initiatives supporting throughput record for CQCN delivering 6% more optimisation: tonnes with 2% fewer trains than the last  Capital Renewals Program replacing life exp

12. Slide 12: Results analysis

    For personal use only Results analysis Keith Neate - EVP & CFO

13. Slide 13: Reconciliation Consolidated Underlying vs. Statutory earnings

    Reconciliation Consolidated Underlying vs. Statutory earnings ONLYonly 1H 2H use FY2014 FY2013 FY2013 Underlying EBIT 423 356 398 PERSONAL USE Significant items personal Voluntary redundancy program (25) (88) (8)  Further VRP was carried out during the half, with 262 employees accepting the offer S

14. Slide 14: Asset impairment - update

    Asset impairment - update ONLYonly Impairment of $197m (pre-tax), $138m (post-tax), covers two major areas: 1. Integrated Operating Plan - Rollingstock review Impairment of $147m (pre-tax), in respect of excess rollingstock use – – Impact represents approximately 4% of $3.3b rollingstock value as at

15. Slide 15: 1H FY2014 vs. 1H FY2013 underlying EBIT bridge

    1H FY2014 vs. 1H FY2013 underlying EBIT bridge ONLYonly • Incremental volume related costs (ex access and fuel) for Intermodal & Iron Ore – ($27m) • Labour – CPI escalation ($18m) • Decrease in access revenue – ($24m) use • Increase in project costs – ($13m) • Increase in maintenance costs to improv

16. Slide 16: 1H FY2014 vs. 2H FY2013 underlying EBIT bridge

    1H FY2014 vs. 2H FY2013 underlying EBIT bridge ONLYonly Major items include: • Incremental volume related costs (ex access and fuel) – ($38m) • Increase in project costs – ($18m) • GAPE contracted tonnes ramp-up - $38m • Labour - CPI escalation – ($15m) use • Volume growth: • Underlying diesel fuel

17. Slide 17: Underlying EBIT by segment

    Underlying EBIT by segment ONLYonly 1H 1H 2H Variance $m FY2014 FY20131 fav/(adv) FY2013  Key drivers of Group performance: use o Fixed transitional revenue for Network 217 221 (2%) 196 PERSONAL USE CQCN with increased network maintenance costs to support personal record volume throughput Coal 187

18. Slide 18: Network

    Network ONLYonly 1H 1H 2H Variance FY2014 FY20134 FY2013 use fav/(adv)  Goonyella and Blackwater EBIT - Underlying ($m) 217 221 (2%) 196 PERSONAL USE systems railing at record levels & GAPE ramp-up personal Tonnes (m) 107.6 90.0 20% 92.3  Fixed transitional revenue for the CQCN with increased NTK

19. Slide 19: Coal

    Coal ONLYonly 1H 1H 2H Variance FY2014 FY2013 fav/(adv) FY2013  Strong production and export use EBIT – Underlying ($m) 187 142 32% 178 demand for both metallurgical and thermal coal PERSONAL USE Tonnes hauled (m) - QLD 88.6 78.4 13% 77.4  Record December, Q2 FY2014 and personal - NSW 21.1 18.9 12

20. Slide 20: Coal (continued)

    Coal (continued) ONLYonly 1H 1H 2H Variance fav/(adv) FY2014 FY2013 FY2013 use  Above Rail Revenue/NTK: Above Rail Revenue/NTK ($/000 NTK) 23.4 24.7 (5%) 24.8 PERSONAL USE o $26m decrease in DTC o Volume mix - ~50% of volume personal Below Rail Revenue/NTK ($/000 NTK) 14.1 17.6 (20%) 18.0 growth fr

21. Slide 21: Iron Ore

    Iron Ore ONLYonly 1H 1H 2H Variance FY2014 FY2013 fav/(adv) FY2013 use  Contract utilisation increased, at EBIT - Underlying ($m) 50 45 11% 52 full contractual capacity and PERSONAL USE driving reduction in unit costs Tonnes hauled (m) 15.0 10.6 42% 14.1 personal  As previously noted, Mt Gibson’s

22. Slide 22: Freight

    Freight (Freight includes Other Bulk and Intermodal businesses) ONLYonly 1H 1H 2H Variance use FY2014 FY2013 fav/(adv) FY2013 PERSONAL USE  Bulk volumes down 7% EBIT - Underlying ($m) 20 5 300% 18 personal  Intermodal volumes up 14% Tonnes hauled (m) 24.6 25.9 (5%) 23.4  Significant start-up cost

23. Slide 23: Balance sheet strength continues

    Balance sheet strength continues ONLYonly As at ($m) 31 December 2013 30 June 2013 use Total current assets 868 933  Reduction in trade and other receivables  1H FY2014 Capex spend offset by $197m PERSONAL USE Property, plant & equipment 9,460 9,473 asset impairment and depreciation Other non-curr

24. Slide 24: Debt summary

    Debt summary ONLYonly Aurizon Group $325m debt maturity profile ($m) as at 31 December 2013  $3.625bn unsecured Group facilities – $0.6bn at Aurizon Group level use • $0.325bn drawn as at 31 December 2013 300 – $2.5bn at Aurizon Network level 300 PERSONAL USE 200 • $1.750bn drawn as at 31 December

25. Slide 25: Cash flow summary

    Cash flow summary ONLYonly $m 1H FY2014 1H FY2013 EBITDA - statutory 452 514  Decrease in trade receivables due to tighter credit control Working capital & Other movement 200 (130) Cash from operations 652 384  Non-cash impairments of $197m use Net finance costs (47) (39) PERSONAL USE  Increase i

26. Slide 26: Current committed capital expenditure profile materially reduced by FY2016

    Current committed capital expenditure profile materially reduced by FY2016 ONLYonly Committed growth vs. sustaining capex1,2 ($m) 1,370  1H FY2014 capex $417m (Growth $215m, use 1,202 Sustaining $202m)  Growth capex expected to decline in FY2016 PERSONAL USE 981 ~1,000 ~900 following the completio

27. Slide 27: Other – business update

    For personal use only Other – business update Lance Hockridge - MD & CEO

28. Slide 28: Enterprise Agreements renegotiation update

    Enterprise Agreements renegotiation update ONLYonly New South Wales  Current enterprise agreements (EAs) expired 31st October 2013 (representing c. 200 coal staff in NSW)  The unions have commenced the process for protected industrial action given no resolution on key issues use  The unions have

29. Slide 29: Network Regulation update

    Network Regulation update ONLYonly  Aurizon Network will continue to work with stakeholders and the QCA to support the regulatory process and timeline. A draft determination on UT4 is expected to be published by the QCA in June 2014 and a final determination is expected in December 2014 UT4  The s

30. Slide 30: China's long-term commodity demand fundamentals remain strong

    China’s long-term commodity demand fundamentals remain strong ONLYonly China’s economic growth GDP growth rate (%) and additional activity generated 16 100 IMF forecast  China’s current growth rate of 7-8% is 90 more sustainable yet will deliver around use 14 Incremental GDP growth (USD 2012$) as m

31. Slide 31: Consumption from emerging economies to underpin global energy demand growth

    Consumption from emerging economies to underpin global energy demand growth ONLYonly Electricity consumption per capita, kWh per capita 13,246 Should China’s per capita consumption reach Germany’s current level, China’s national use electricity consumption would be more than 2.5 7,847 times greater

32. Slide 32: Coal is the most cost-effective source of energy

    Coal is the most cost-effective source of energy and remains a core component of the energy mix ONLYonly Electricity Generating Costs in 2020 (International Energy Agency New Policy Scenario) 100 use China $ per MWh ($2010) 80 60 PERSONAL USE Relative coal cost 40 20 personal 0 Coal (1) Gas (2) Nucl

33. Slide 33: Asia's ongoing urbanisation and income growth will drive electricity demand

    Asia's ongoing urbanisation and income growth will drive increased electricity demand, underpinning coal volume growth For personal use only Drivers of Demand Non-OECD Asia Coal Demand (Million tonnes of standard coal equivalent1) • Increased access to electricity in developing countries. Example: 3

34. Slide 34: Strategy

    Strategy ONLYonly • Delivering improved shareholder value in two ways: 1. Reforming the business to achieve the 75% Operating Ratio target (or 25% EBIT margin) in respect of use FY2015, and thereafter targeting further improvements to achieve world class levels; and PERSONAL USE 2. Securing further

35. Slide 35: Investment criteria – Strategic growth initiatives

    Investment criteria – Strategic growth initiatives ONLYonly  Alignment and fit to enterprise strategy, objectives and capabilities use - Providing appropriate portfolio exposure, momentum and opportunity PERSONAL USE personal  Return – risk vs. reward/internal hurdles and timing - Providing approp

36. Slide 36: Opportunities unfold post completion of current committed capital projects in FY2016

    Opportunities unfold post completion of current committed capital projects in FY2016 use PERSONAL USE ONLYonly 1,370 personal 1 Growth PLUS 1,202  Richer revenue mix1 981 ~1,000 Capital ~900 2  Continued drive to reduce Management OR AND For FOR ~500 3 Combination  Not growth constrained Sustaini

37. Slide 37: Outlook & summary

    For personal use only Outlook & summary Lance Hockridge – MD & CEO

38. Slide 38: FY2014 Outlook

    FY2014 Outlook ONLYonly  Our view on the medium to long term macroeconomic environment remains positive and we will continue to maintain the momentum from our transformation and reform initiatives use  The strong coal haulage volumes seen in 1H FY2014 have continued in January and early February,

39. Slide 39: Summary

    Summary ONLYonly  Strong underlying result driven by: use • Volume growth; and • Transformation benefits PERSONAL USE  75% Operating Ratio in respect of FY2015 on track personal • Integrated Operating Plan implementation delivering productivity and efficiency improvements • Network optimisation in

40. Slide 40: Questions & Answers

    For personal use only Questions & Answers

41. Slide 41: Interim Results 2014

    For personal use only Interim Results 2014 Lance Hockridge – Managing Director & CEO Keith Neate – Executive Vice President & CFO 17 February 2014

42. Slide 42: Definitions

    Definitions ONLYonly Metric Description Access Revenue Amount received for access to the Network infrastructure under the Access Agreement DOOL Difference between planned runs vs. actual runs on a 48hr schedule Free Cash Flow Cash flow from operations less investing cash flow use GAPE Goonyella to A

43. Slide 43: Additional interim results financial information

    For personal use only Additional interim results financial information

44. Slide 44: Accounting changes included in 1H FY2014 Financial Statements

    Accounting changes included in 1H FY2014 Financial Statements ONLYonly  Comparison to 1H FY2013 Financial Statements – Consolidated Income Statement – Interest income was disclosed as a separate line item in the 1H FY2013 half-year accounts. In the 1H FY2014 half year accounts it is reported in Oth

45. Slide 45: Queensland 1H FY2014 Take-or-Pay – Network and Coal

    Queensland 1H FY2014 Take-or-Pay 1 – Network and Coal ONLYonly $m Coal Network Consolidated  Revenue Protection mechanisms exist where volumes hauled are less than regulatory volumes used to set reference tariffs Income  Where actual Network revenues earned are less than the levels use used in set

46. Slide 46: Network profit & loss - underlying

    Network profit & loss - underlying ONLYonly 1H 1H 2H  EBIT decrease reflects the following: Variance $m FY2014 FY20131 fav/(adv) FY2013 o Revenue - Increased Access Revenue from GAPE ramp-up use Tonnes (mt) 107.6 90.0 20% 92.3 offsetting reduction in regulated Revenue - Access 490 470 4% 451 revenu

47. Slide 47: Network revenue cap adjustments

    Network revenue cap adjustments ONLYonly AT2-4 AT5 Total(1)  A further revenue protection mechanism is the revenue Year use (diesel tariff) (electric tariff) $m cap adjustment. Actual Network revenue is compared to $m $m the regulatory determination, and under/over recoveries 4 PERSONAL USE 2013 28

48. Slide 48: Network coal tonnages by system in CQCN

    Network coal tonnages by system in Central Queensland Coal Network (CQCN) useONLYonly 1H 2H 1H mt FY2014 FY2013 Variance FY2013 PERSONAL USE Newlands 6.1 7.0 (13%) 7.5 personal Goonyella 57.3 47.7 20% 49.9 Blackwater 31.7 27.4 16% 27.5 Moura 6.3 6.2 2% 4.6 For FOR GAPE 6.1 1.7 259% 2.8 Total 107.61

49. Slide 49: Coal profit & loss - underlying

    Coal profit & loss - underlying ONLYonly 1H 1H Variance 2H FY2014 FY2013 fav/(adv) FY2013 $m  EBIT improvement reflects the use following: Revenue - Above Rail 597 540 11% 539 o $29m (3%) increase in revenue PERSONAL USE - Below Rail 360 385 (6%) 391 driven from 13% volume growth, however margins w

50. Slide 50: Coal haulage tonnages by system

    Coal haulage tonnages by system ONLYonly 1H 1H 2H Variance mt FY2014 FY2013 (%) FY2013 use Queensland PERSONAL USE Newlands 8.2 8.3 (1%) 8.7 Goonyella 38.6 33.9 14% 34.7 personal Blackwater 30.7 25.4 21% 25.1 Moura 6.5 6.3 3% 4.6 West Moreton 4.6 4.5 2% 4.3 For FOR Total Qld 88.6 78.4 13% 77.4 New S

51. Slide 51: Coal Take-or-Pay accrual

    Coal Take-or-Pay accrual ONLYonly 1H 2H $m FY2014 FY2013 FY2013 use  Lower take-or-pay charges Take-or-pay charge1 (Expense) (5.0) (19.0) 3.0 due to increased volumes PERSONAL USE  Higher pass through given Take-or Pay passed through to customers (Revenue) 5.9 6.5 7.4 move to new form contracts pe

52. Slide 52: Queensland coal - Deficit tonnage charges (DTC)

    Queensland coal - Deficit tonnage charges (DTC) ONLYonly $m 1H1 2H1 FY1  A form of protection for the above rail coal business when use actual tonnages are less than contracted 2014 6.9 - 6.9  Usually seen in old form or “legacy” contracts PERSONAL USE 2013 33.2 4.2 37.4  Annual charge to the cus

53. Slide 53: Iron Ore profit & loss - underlying

    Iron Ore profit & loss - underlying ONLYonly 1H 1H 2H Variance $m FY2014 FY2013 fav/(adv) FY2013 use  EBIT improvement reflects the Revenue 190 168 13% 189 following: PERSONAL USE o $22m (13%) increase in revenue Operating costs (120) (105) (14%) (118) on 42% increase in volumes; personal reflects

54. Slide 54: Freight profit & loss – underlying

    Freight profit & loss – underlying (Freight includes Other Bulk and Intermodal businesses) ONLYonly 1H 1H 2H Variance  EBIT improvement reflects the use ($m) FY2014 FY2013 fav/(adv) FY2013 following: o A $16m (3%) decrease in revenue PERSONAL USE Revenue 550 566 (3%) 516 largely due to $18m decreas

55. Slide 55: Dividend history

    Dividend history ONLYonly Payment Date Amount per share Franking use FY2014 Interim 28 March 2014 8.0 c 80% PERSONAL USE FY2013 Final 23 September 2013 8.2 c 90% FY2013 Interim 27 March 2013 4.1 c 70% personal FY2012 Final 28 September 2012 4.6 c 0% FY2012 Interim 30 April 2012 3.7 c 0% FY2011 Final

56. Slide 56: Key operations performance metrics are showing continuous improvement

    Key operations performance metrics are showing continuous improvement For personal use only Throughput – net tonnes (‘000)1, 2 Turnaround Time – hrs (CQCN)2 24,000 1H FY2014 record 28.5 1H FY2014 record 23,000 coal volumes average TAT 28.0 22,000 27.5 21,000 27.0 20,000 0 0.0 H1 F20Y13 H2 FY2013 H1

57. Slide 57: Key operations performance metrics (continued)

    Key operations performance metrics are showing continuous improvement (continued) For personal use only Fuel consumption – Litres/dGTK1,4 FTE productivity – NTK/FTE2,4 3.70 13.0 12.5 3.65 12.0 3.60 11.5 11.0 3.55 1H FY2014 record 10.5 1H FY2014 record fuel consumption 10.0 FTE productivity 0.00 0.0

58. Slide 58: Operations transformation programs continuing in 2H FY2014

    Operations transformation programs continuing in 2H FY2014 For personal use only Area Example  Driver Advice System (DAS) Fuel efficiency AZJ has driven significant fixed and  Regenerative braking variable cost improvement with further improvements to come, e.g. - Fleet changes  North Coast Line

59. Slide 59: Aurizon's secured circa 120mtpa in New Form coal contracts in FY2013

    Aurizon’s secured circa 120mtpa in “New Form” coal contracts in FY2013 ONLYonly Date Customer Tonnes (p.a.) Contract Duration Description Announced 11 years 9 months Renewal of contract for the transport of coal Ensham Up to 5.5 mtpa March 2013 to 31 December 2024 from Ensham mine use 10+ years - Ea

60. Slide 60: Coal Contracts Old Form vs. New Form

    Coal Contracts “Old Form” vs. “New Form” ONLYonly Old form “legacy” haulage coal contracts Characteristics of new form coal contracts • Typically reflect a specified volume of product of even • Tailored service offers are provided to allow customers use railings in each year choice to best meet volu

61. Slide 61: Coal operations

    Coal operations For personal use only Major rail haulage operators State/Region Aurizon Annualised Above Rail Contract Volumes (Million tonnes per annum)1 229 227 228 Aurizon QLD, NSW Changes from FY2013 results: Asciano (Pacific National) NSW, QLD  Closure of Peabody’s Wilkie Creek X-Rail NSW  Te

62. Slide 62: Revenue protection and commercial returns enhanced through New Form contracts

    Revenue protection and commercial returns enhanced through “New Form” contracts For personal use only Coal above rail revenue breakdown “Old” Form vs. “New” Form coal volumes1 100% 3% 100% 6% 31% 30% 29% 39% 38% Actual fixed revenue 46% 48% for 1H FY2014 is 47% 53% which is lower than the 49% previo

63. Slide 63: Group and segment capital expenditure

    Group and segment capital expenditure ($m) ONLYonly 1H FY2014 capex and segment breakdown(1),(2) use 417 PERSONAL USE personal 215 167 202 For FOR 116 14 15 17 33 20 29 4 2 1H FY2014 Network Coal Iron ore Freight Other Growth Sustaining 1. Includes capitalised interest. 2. 1H FY2014 excludes strateg

64. Slide 64: Major committed Network growth projects

    Major committed Network growth projects ONLYonly Wiggins Island Rail  WIRP is the staged development of new rail lines and upgrading of existing lines to service the Project (WIRP) new Wiggins Island Coal Export Terminal at the Port of Gladstone. Stage 1 will deliver six rail infrastructure project

65. Slide 65: Major committed Coal growth projects

    Major committed Coal growth projects ONLYonly Hexham Train Support  Stage one of the Hexham Train Support Facility (TSF) will service Aurizon’s growing Hunter Valley Facility coal freight business and alleviate capacity pressures in the coal supply chain Hunter Valley  The TSF will provide for sta

66. Slide 66: Wiggins Island Rail Project

    Wiggins Island Rail Project ONLYonly  Aurizon Network and the WIRP Customers have agreed to revised delivery timeframes to align with the delayed Wiggins Island Coal Export Terminal (WICET) commissioning date use  All WIRP infrastructure to be commissioned by December 2015 which aligns with the to

67. Slide 67: Interim Results 2014

    For personal use only Interim Results 2014 Lance Hockridge – Managing Director & CEO Keith Neate – Executive Vice President & CFO 17 February 2014

Aurizon Holdings — H1 FY2014 Earnings Presentation on 6ix