Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Investor Presentation (June 2018)
64 slides from Aurizon's investor presentation, Jun 27, 2018
Slide 1: Investor Presentation
Aurizon Holdings Limited ABN 14 146 335 622 ASX Market Announcements ASX Limited 20 Bridge Street Sydney NSW 2000 BY ELECTRONIC LODGEMENT 27 June 2018 Investor Presentation Please find attached an ASX announcement including an Investor Presentation for release to the market. The Investor Presentatio
Slide 2: Aurizon provides Strategy and Operations Update at Investor Day
ASX Announcement Date: 27 June 2018 Aurizon provides Strategy and Operations Update at Investor Day Aurizon Holdings today released details of its new strategic framework to drive improved operational performance and shareholder value, as part of an Investor Day presentation in Sydney. Strategy in A
Slide 3: MD&CEO commentary
MD&CEO commentary “Aurizon is on course for a strong performance in FY2018, and despite some uncertainty regarding a number of one off challenges in FY2019 we expect to see above rail earnings growth into FY2020 with increased coal volumes and the benefits from the next wave of transformation initia
Slide 4: Investor Day 2018
Investor Day 2018 27 June 2018
Slide 5: Disclaimer
AURIZON INVESTOR DAY 2018 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
Slide 6: Overview & Strategy
AURIZON INVESTOR DAY 2018 Overview & Strategy Andrew Harding Managing Director & CEO 3
Slide 7: Agenda
AURIZON INVESTOR DAY 2018 Agenda OVERVIEW & STRATEGY NETWORK UPDATE Andrew Harding – Managing Director & CEO Michael Riches – Group Executive Network CFO UPDATE COAL UPDATE Pam Bains – CFO & Group Executive Strategy Ed McKeiver – Group Executive Coal AFTERNOON BREAK BULK UPDATE Clay McDonald – Group
Slide 8: Our executive team
AURIZON INVESTOR DAY 2018 Our executive team ANDREW HARDING PAM BAINS Managing Director & Chief Financial Officer & Chief Executive Officer Group Executive Strategy MICHAEL RICHES ED McKEIVER CLAY McDONALD Group Executive Network Group Executive Coal Group Executive Bulk TINA THOMAS MICHAEL CARTER G
Slide 9: Safety performance
AURIZON INVESTOR DAY 2018 Safety performance Aurizon is on a journey to reset the safety culture TOTAL RECORDABLE INJURY FREQUENCY RATE (TRIFR)1 -6% 11.44 10.73 Incidents per million person-hours worked 9.88 8.43 7.12 FY2015 FY2016 FY2017 1QFY18 YTDFY18* 1. TRIFR includes employees and contractors *
Slide 10: CEO context
AURIZON INVESTOR DAY 2018 CEO context Despite strong coal markets, we are facing a number of challenges in the external landscape. The challenges are well understood and being addressed in a structured and coordinated way • Strong coal markets – annual volume growth of ~2% over the next 10 years Ext
Slide 11: Strategy in action
AURIZON INVESTOR DAY 2018 Strategy in action Work to date has been focused on the key actions to prepare the business for the next phase of performance improvement and growth › Business unit structure implemented Business unit › Refreshed management team in place structure › Regionalisation of key p
Slide 12: Aurizon's vision, purpose and values
AURIZON INVESTOR DAY 2018 Aurizon’s vision, purpose and values We are focussed on our customers and recognise the important role we play in both regional Australia and global supply chains OUR VISION OUR PURPOSE How will we know our vision has been The first Growing achieved? choice for regional • #
Slide 13: Strategic levers required to fulfil Aurizon's vision
AURIZON INVESTOR DAY 2018 Strategic levers required to fulfil Aurizon’s vision Execution against our three strategic levers is aimed at driving differentiation, competitive advantage and sustainable performance STRATEGIC LEVERS OUTCOME • Delivering a cost effective and customer aligned model • Movin
Slide 14: From transformation to continuous improvement
AURIZON INVESTOR DAY 2018 From transformation to continuous improvement Transformation continues to be at the core of creating sustainable value within the organisation FY2016 TO FY2018 THE FUTURE › Aurizon expects to reach its 3 year › Transformation will underpin value creation for transformation
Slide 15: Enterprise Agreement renegotiation update
AURIZON INVESTOR DAY 2018 Enterprise Agreement renegotiation update Supporting sustainable business transformation in an environment of low wage growth WHAT DOES SUCCESS EXTERNAL LANDSCAPE AURIZON LANDSCAPE LOOK LIKE › Current wage growth is › ~80% of Aurizon FTEs are subdued covered by an EA Flexib
Slide 16: Precision railroading operations
AURIZON INVESTOR DAY 2018 Precision railroading operations Leveraging the integrated model aims to better serve our customers through improved discipline across our operating plans OBJECTIVES • Load time variability Mine • Loading as per schedule Enhance service • Departing on time predictability Ne
Slide 17: Earnings update
AURIZON INVESTOR DAY 2018 Earnings update The implementation of the strategy will improve long-term Above Rail earnings and ROIC, Network remains uncertain due to UT5 • Strong EBIT result with earnings in line with guidance FY2018 • OR expected to be ~70% • Coal volumes within guidance range of 210
Slide 18: CFO Update
AURIZON INVESTOR DAY 2018 CFO Update Pam Bains CFO & Group Executive Strategy 15
Slide 19: CFO context
AURIZON INVESTOR DAY 2018 CFO context FY2019 will be a period of consolidation leading to improved Above Rail earnings in FY2020 through Coal volume growth and benefits flowing from the next wave of transformation 1 Strong performance in FY2018 • Group EBIT within guidance range ($900-960m) • Transf
Slide 20: Network EBIT Bridge
AURIZON INVESTOR DAY 2018 Network EBIT Bridge Worst case scenario assumes final UT5 decision equals the UT5 draft decision INDICATIVE NETWORK EBIT* FY2017 – FY2019 ($M) Based on transitional tariffs If transitional tariffs in place for full FY19, EBIT UT4 Adjustments ~10-30 UT5 Adjustments will incr
Slide 21: Capital structure objectives
AURIZON INVESTOR DAY 2018 Capital structure objectives Optimal capital structure to enable balance of shareholder returns and investment Flexibility to adjust to changing market conditions and Sustainability of business risk and cashflows to take advantage through the cycle of future opportunities C
Slide 22: Capital allocation strategy
AURIZON INVESTOR DAY 2018 Capital allocation strategy Aurizon’s capital allocation strategy remains unchanged however the UT5 draft decision potentially impacts the credit rating and therefore gearing PRIORITISATION OF CAPITAL 1 Credit rating Gearing Non Growth Capital 2 UT5 DRAFT DECISION IMPACT Di
Slide 23: Strong cashflow generation
AURIZON INVESTOR DAY 2018 Strong cashflow generation History of strong distributions paid to shareholders FREE CASHFLOW ($M) DISTRIBUTIONS PAID TO SHAREHOLDERS ($M) ~650-700 831 634 762 302 300 552 465 340 69 346 237 227 529 462 396 FY14 FY15 FY16 FY17 FY18(f)* FY14 FY15 FY16 FY17 FY18 Buy Back Divi
Slide 24: Capital expenditure
AURIZON INVESTOR DAY 2018 Capital expenditure FY2019 capital expenditure mix changes with Network decrease offset by increases in Above Rail CAPITAL EXPENDITURE1 FY2017 – FY2019 ($M) › FY2018 capital expenditure expected to be under $500m › Growth capital in FY2019 includes new coal wagons 498 ~480-
Slide 25: Capital approval process
AURIZON INVESTOR DAY 2018 Capital approval process Aurizon has a disciplined approach to investment evaluation Review - Assess delivery of investment Operate outcomes - Additional - Capture capacity lessons learned - Improved Execute performance - Deliver - Sustainable Select & outcomes Define - Tra
Slide 26: Interest rate and financing risk
AURIZON INVESTOR DAY 2018 Interest rate and financing risk Strategy remains to refinance in advance of debt maturities, diversify funding sources and extend tenor. Interest rates are hedged to match regulatory undertakings CURRENT FUNDING SOURCES AND DEBT MATURITY INTEREST RATE HEDGING PROFILE PROFI
Slide 27: Network
AURIZON INVESTOR DAY 2018 Network Michael Riches Group Executive Network 24
Slide 28: UT5 strategy
AURIZON INVESTOR DAY 2018 UT5 strategy Aurizon is exploring multiple pathways to resolve UT5 • March 2018 submitted response to the UT5 draft decision Regulatory • June 2018 submitted response to QCA Maintenance consultation paper - Maintenance cannot be considered in isolation, and is inextricably
Slide 29: Network context - UT5 draft decision recap
AURIZON INVESTOR DAY 2018 Network context - UT5 draft decision recap QCA’s UT5 draft decision risks value erosion across the CQCN coal supply chain AURIZON QCA DRAFT AURIZON NETWORK’S NETWORK UT5 DECISION RESPONSE TO DRAFT SUBMISSION DECISION Total Adjusted MAR 4,892 3,893 4,757 WACC (post tax nomin
Slide 30: Risk, capital and maintenance
AURIZON INVESTOR DAY 2018 Risk, capital and maintenance Operation of the CQCN to deliver optimal value to all stakeholders requires the appropriate balance of investment, maintenance and operational support • For an infrastructure asset, the level of capital investment is directly related to its rel
Slide 31: Operational response to the UT5 draft decision
AURIZON INVESTOR DAY 2018 Operational response to the UT5 draft decision The retrospectivity of UT5 to 1 July 2017 requires a change to align our operating and maintenance practices and risk tolerance to those assumed in the draft decision EXAMPLES OF RECENT CHANGES • No deviation from the plan (exc
Slide 32: Network Strategy
AURIZON INVESTOR DAY 2018 Network Strategy Getting closer to our customers will drive improved performance, better alignment of asset condition and management of long term requirements THE PROBLEM TODAY THE PATHWAY TO A SOLUTION Clearly defining …provides clarity of …therefore driving …for the benef
Slide 33: Network strategic levers
AURIZON INVESTOR DAY 2018 Network strategic levers Priorities are focused on the development of a fit for purpose network that creates value and facilitates changing the regulatory environment for the benefit of all Fit for purpose Existing UT5 solution Capability Customer solutions Regulatory frame
Slide 34: Transformation in Network
AURIZON INVESTOR DAY 2018 Transformation in Network Progress has been made in transforming the cost base which drives value for the whole supply chain NETWORK OPERATING COSTS TRANSFORMATION INITIATIVES ($M)1 359 $ Operating costs Corporate costs 39 28 Compressible Footprint consolidation Energy cost
Slide 35: Future of regulation
AURIZON INVESTOR DAY 2018 Future of regulation Moving to best practice regulation will improve regulatory outcomes aligned with our business operating model STANDARDS OBJECTIVES CURRENT BEST PRACTICE Upstream and Adjusting statutory Objective downstream competition Customers at the heart of objectiv
Slide 36: Supply chain capability
AURIZON INVESTOR DAY 2018 Supply chain capability The opportunity to create value for the whole of supply chain will be underwritten by regulatory reform Network Today Network Tomorrow Supply chain value Supply chain value ▪ Alignment of supply chain Supply chain ▪ Optimisation of capital contracted
Slide 37: Coal
AURIZON INVESTOR DAY 2018 Coal Ed McKeiver Group Executive Coal 34
Slide 38: Coal context
AURIZON INVESTOR DAY 2018 Coal context Coal has secured 10% growth in contracted volumes since 2017 with the integrated business unit model driving better business outcomes to deliver for our customers COAL VOLUMES (MTPA) 210 211 210-220 › Established new Business Unit in Mackay 207 › Growth in cont
Slide 39: Coal contract outlook
AURIZON INVESTOR DAY 2018 Coal contract outlook The investment being made during FY2018 and into FY2019 will allow Coal to preserve and grow value COAL CONTRACT VOLUME EXPIRY BY YEAR (MTPA) 60 › Market is competitive › Weighted average remaining contract 45 length of 9.2 years Million tonnes per ann
Slide 40: Coal strategic levers
AURIZON INVESTOR DAY 2018 Coal strategic levers Priorities are focussed on the Optimise and Excel levers to improve cost competitiveness, asset utilisation and delivery performance Asset Precision Customer Existing Supply chain Portfolio Cost Asset utilisation Adjacencies Utilisation operations enga
Slide 41: Enhancing execution capability
AURIZON INVESTOR DAY 2018 Enhancing execution capability Coal has an integrated approach to operational transformation that continues to deliver improved performance and profitability INTEGRATED PLANNING & ASSET PRODUCTIVITY SCHEDULING • Eliminate CQCN dwell, ~3.5 consists wasted in • Build-out Coal
Slide 42: Case studies
AURIZON INVESTOR DAY 2018 Case studies Examples of how improved execution capability is delivering value WEST MORETON SERVICE NSW OPERATIONS AUTOMATED SCHEDULING IMPROVEMENT IMPROVEMENT OPTIMISATION Across the West Moreton corridor a Coal has implemented a schedule FY2018 transformation initiatives
Slide 43: Fleet capability and performance
AURIZON INVESTOR DAY 2018 Fleet capability and performance One off maintenance investment in FY2019 and fleet reliability program delivers capability today and supports future volume growth ACTIVITY DRIVERS MAINTENANCE PLAN ATTAINMENT (GOONYELLA LOCOS) › Sweating assets for growth, includes restorin
Slide 44: Technology delivering value
AURIZON INVESTOR DAY 2018 Technology delivering value Coal will differentiate itself over the medium term by implementing scale-driven technological solutions – while continuing to deliver on the primary task Expanding the predictive Productivity improvement Asset & crew performance maintenance capa
Slide 45: Bulk
AURIZON INVESTOR DAY 2018 Bulk Clay McDonald Group Executive Bulk 42
Slide 46: Bulk context
AURIZON INVESTOR DAY 2018 Bulk context Moving from the former business to ‘Future Bulk’ will involve a challenging transition period but there is a clear end goal in place Focused on Inconsistent service growth performance markets Strategic Robust Retain, partnerships portfolio Transform, Exit Exten
Slide 47: Bulk strategic levers
AURIZON INVESTOR DAY 2018 Bulk strategic levers The plan to optimise the business is in execution. Focus now turns to the Excel and Extend levers to drive the turnaround plan Precision Customer Existing Supply chain Portfolio Cost Service delivery Asset utilisation Adjacencies operations engagement
Slide 48: Update on the plan
AURIZON INVESTOR DAY 2018 Update on the plan Bulk is delivering on its plan to strengthen its haulage portfolio AVERAGE TONNES WEIGHTED CONTRACT LIFE* 17 hauls were part of the initial freight As at November 2017 5.8 review and excluded the 3 iron ore contracts. With cessation of Cliffs and Mt Gibso
Slide 49: Case study – Customer led approach (IPL)
AURIZON INVESTOR DAY 2018 Case study – Customer led approach (IPL) Bulk was able to deliver an innovative service design solution to IPL that underpinned the successful negotiation of a new contract which creates value for both Aurizon and IPL IPL is a key customer on the Mt Isa corridor for the Bul
Slide 50: Case study – Improved operational performance (Forrestfield bypass)
AURIZON INVESTOR DAY 2018 Case study – Improved operational performance (Forrestfield bypass) A small capital investment has unlocked value through improved performance and delivery ORIGINAL OPERATION OPTIMISE (Forrestfield Bypass project) • Kalgoorlie Freighter operates a daily service • Capital sp
Slide 51: Bulk is focused on growth markets
AURIZON INVESTOR DAY 2018 Bulk is focused on growth markets Aligned to growing commodity markets, Bulk has a well developed pipeline of opportunities AUSTRALIAN EXPORT GROWTH: CAGR% (FY17- FY23) 11.3 › Growth in electric vehicle and battery 8.3 markets are expected to support demand for 6.5 commodit
Slide 52: Building strategic partnerships will drive long term value
AURIZON INVESTOR DAY 2018 Building strategic partnerships will drive long term value Established presence in key mineral provinces, Bulk will position itself as a supply chain manager Strategic Partnerships Road to Rail • Road is an important part of bulk supply chains • Links to trucking solution
Slide 53: Summary and Q&A
AURIZON INVESTOR DAY 2018 Summary and Q&A 50
Slide 54: Contact and further Information
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 51
Slide 55: Coal market information
AURIZON INVESTOR DAY 2018 Coal market information 52
Slide 56: Australian export coal demand
AURIZON INVESTOR DAY 2018 Australian export coal demand The fundamentals of metallurgical and thermal coal remain strong, driven by steel and energy demand growth in Asia, supporting growth in Australian exports of ~2% pa over the next decade INDIA: CRUDE STEEL PRODUCTION +44% Metallurgical Coal › S
Slide 57: Coal market: Australia
AURIZON INVESTOR DAY 2018 Coal market: Australia 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 $50 50 50 0 $0 0 $0 2010 2011 2012 201
Slide 58: Australia coal competitiveness
AURIZON INVESTOR DAY 2018 Australia coal competitiveness METALLURGICAL COAL CASH COSTS (US$/t, CFR INDIA, 2018) THERMAL COAL CASH COSTS (US$/t, CFR JAPAN, 2018) $120 $70 $100 $60 US$/t US$/t $80 $117 $50 $112 $64 $60 $61 $96 $86 $53 $55 $60 $40 $73 $40 $30 Russia Australia Canada Mozambique United S
Slide 59: Coal Price | Coal Capital & Exploration Expenditure
AURIZON INVESTOR DAY 2018 Coal Price | Coal Capital & Exploration Expenditure HARD COKING COAL SPOT PRICE (US$/t FOB) THERMAL COAL SPOT PRICE (US$/t FOB) $300 $150 $250 $230 $103 $200 $100 $150 $100 $50 $50 $0 $0 Mar- Sep- Mar- Sep- Mar- Sep- Mar- Mar- Sep- Mar- Sep- Mar- Sep- Mar- 15 15 16 16 17 17
Slide 60: Coal trade
AURIZON INVESTOR DAY 2018 Coal trade AUSTRALIA: METALLURGICAL COAL EXPORT AUSTRALIA: THERMAL COAL EXPORT 20mt 120% 20mt 20% 80% 10% 15mt 18mt 40% 0% 0% 10mt 16mt -10% -40% 5mt -80% 14mt -20% Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- 16 16 16 17 17 17 17 18 16 16
Slide 61: Bulk market information
AURIZON INVESTOR DAY 2018 Bulk market information 58
Slide 62: Australia Exploration Expenditure
Australia Exploration Expenditure NICKEL & COBALT COPPER $60m US$20k $60m US$7.5k +130% +73% Copper Price (US$/t FOB) Nickel Price (US$/t FOB) US$15k $40m $40m US$5.0k US$10k $20m $20m US$2.5k US$5k $0m US$0k $0m US$0.0k Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec- Jun- Dec-
Slide 63: Enterprise Agreement information
AURIZON INVESTOR DAY 2018 Enterprise Agreement information 60
Slide 64: Summary of Enterprise Agreements
AURIZON INVESTOR DAY 2018 Summary of Enterprise Agreements # OF EMPLOYEES ENTERPRISE AGREEMENT EXPIRY DATE STATUS OF BARGAINING COVERED (approx.) WA Rollingstock Maintenance EA 100 10 May 2017 Complete Queensland Staff EA 700 28 January 2018 Ongoing NSW Coal EA 300 31 March 2018 Ongoing WA Rail Oper