Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (June 2017)
39 slides from Aurizon's debt investor presentation, June 2017
Slide 1: Aurizon Network Debt Investor Update
Aurizon Network Debt Investor Update June 2017 Pam Bains – EVP & Group Chief Financial Officer David Collins – VP Finance & Group Treasurer 1
Slide 2: Important Notice
Important Notice No Reliance on this document No offer of securities This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to as Nothing in this presentation should be construed as a recommendation of or an offer to sell or a “Aurizon” which includes its related bodies c
Slide 3: Agenda
Agenda Introduction Investment Highlights Regulation Coal Market Update Questions & Answers 3
Slide 4: Biographies
Biographies Pam Bains David Collins Executive Vice President & Chief Financial Officer Vice President – Finance & Group Treasurer Pam has over 20 years’ experience in finance and David has over 20 years’ experience in finance and commercial roles working in the UK, India and Australia. commercial ro
Slide 5: Introduction
Introduction
Slide 6: About Aurizon Group
About Aurizon Group WHO WE ARE › Aurizon (ASX: AZJ; market capitalisation of circa A$11bn1) is Australia’s largest rail freight operator and a top 50 ASX company › Each year, we transport more than 250 million tonnes of Australian commodities — connecting miners, primary producers, and industry with
Slide 7: Aurizon Legal Structure
Aurizon Legal Structure Aurizon has two distinct businesses – Above Rail operations and Below Rail (Network) operations. Aurizon Holdings Limited Market cap of circa A$11bn1 Baa1 (stable) / BBB+ (stable) Aurizon Operations Limited Aurizon Finance Pty Ltd Above Rail Below Rail Other members of Au
Slide 8: About Aurizon Network
About Aurizon Network CENTRAL QLD COAL NETWORK (CQCN) KEY NETWORK FACTS 40 + operating coal mines serviced PORT OF ABBOT POINT LEGEND Townsville Open access network with 3 above rail Abbot Point Coal Terminal (APCT) City/town Power Station coal operators – Aurizon Operations, Bowen Coal Export Termi
Slide 9: Robust Financial Performance
Robust Financial Performance 5 YEAR EBITDA & EBITDA MARGIN2 65% › Strong and stable free cashflow generation 63% › Improvement in profitability metrics driven by higher revenue (access 61% fees), including improving EBITDA margins to 65% in FY16 60% 60% › No major capex plans mean increased cashflow
Slide 10: Investment Highlights
Investment Highlights
Slide 11: Summary of Key Investment Highlights
Summary of Key Investment Highlights 1 Regulated revenues within a stable and well established regulatory regime 2 Long term lease arrangements supported by the QLD coal mining sector Infrastructure network servicing well-established haulage customers and high 3 quality mines predominantly operated
Slide 12: Regulated Revenues Within a Stable and Well-Established Regulatory Regime
Regulated Revenues Within a Stable and 1 Well-Established Regulatory Regime WELL ESTABLISHED REGULATORY REGIME STABLE REGULATED REVENUE BASE WELL DEVELOPED BUILDING BLOCK APPROACH TO REVENUE DETERMINATION › The provision of transportation services by › Over 90% of Aurizon Network revenue is rail on
Slide 13: Long term lease arrangements supported by the QLD coal mining sector
Long term lease arrangements supported by 2 the QLD coal mining sector QUEENSLAND COAL RESERVES1 AUSTRALIA’S COAL EXPORTS BY DESTINATION2 › Australia is the world’s largest Metallurgical coal metallurgical coal exporter (~67% market share) and the world’s second Metallurgical coal comprises largest
Slide 14: Infrastructure network servicing well-established haulage customers
Infrastructure network servicing well- 3 established haulage customers… › Aurizon Network’s largest customers are Aurizon Operations and FY16 RAILED VOLUME SPLIT BY AURIZON NETWORK CUSTOMERS2 Pacific National › Both Aurizon Holdings (Baa1 / BBB+) and Pacific National (Baa3 / BBB-)1 are well-establis
Slide 15: High quality mines predominantly operated by investment grade coal miners
…and high quality mines predominantly operated by investment grade coal miners DIVERSIFIED COAL MINING CUSTOMERS THAT ARE PREDOMINANTLY LARGE GLOBAL COMPANIES › Mines on the CQCN are operated by a diversified group of coal miners Junior miners › Customers are predominantly large investment grade com
Slide 16: The CQCN Regulatory Framework Provides Revenue Protection Through a Building Block Approach
The CQCN Regulatory Framework Provides Revenue 4 Protection Through a Building Block Approach MAXIMUM ALLOWABLE REGULATORY REVENUE TOTAL ACTUAL REVENUE PROTECTION REVENUE (FORECASTED) FOR EACH YEAR TESTS OF UNDERTAKING PERIOD AT1 Outside the revenue protection scope RETURN ON CAPITAL (Weighted Avera
Slide 17: Take-or-Pay Protection With a Revenue Cap
… with Take-or-Pay Protection Should Revenues Fall Short (With a Revenue Cap) ToP › Primary revenue protection mechanism available to AT2 Train Paths Take-or-pay Aurizon Network Revenue cap Take or pay AT3 Net Train Kilometres (NTK) mechanisms › Allows Aurizon Network to recover revenue shortfall di
Slide 18: Robust financial and capital position and ratings stability
Robust financial and capital 5 position and ratings stability › Aurizon Network operates as a separate standalone entity to the OVERVIEW OF AURIZON NETWORK DEBT FACILITIES Aurizon Group › Standalone debt facilities are in place at the Aurizon Network level, Senior syndicated debt facilities Maturity
Slide 19: Aurizon Network: Experienced Board
Aurizon Network: Experienced Board 6 MICHAEL FRASER ALEX KUMMANT JOHN COOPER NON-EXECUTIVE CHAIRMAN DIRECTOR, NON-EXECUTIVE DIRECTOR EXECUTIVE VICE PRESIDENT Mr Fraser has more than 30 years’ experience in the Australian Mr Kummant has more than 25 years’ experience in the North Mr Cooper has more t
Slide 20: Regulation
Regulation
Slide 21: Aurizon Network – UT4 Final Decision
Aurizon Network – UT41 Final Decision MAXIMUM ALLOWABLE › Overall maximum revenue of $3.933 billion over the period of the Undertaking REVENUE (MAR) › Weighted Average Cost of Capital (WACC) - 7.17% TRUE-UP RECOVERY › The Final UT4 Decision highlighted a net under recovery of Regulatory Revenue in F
Slide 22: UT5 – Submitted November 2016
UT5 – Submitted November 2016 REVENUE PROPOSAL › Significantly larger Regulated Asset Base (RAB) of ~$6.2 billion1 as a result CONTEXT of customer requested expansions. › Aurizon Network submitted to the Queensland Competition › The roll-forward RAB now includes the majority of capital expenditure A
Slide 23: Coal Market Update
Coal Market Update
Slide 24: Strong drivers support Queensland coal volumes
Strong drivers support Queensland coal volumes 1 Australia is the world’s largest exporter of seaborne coal 2 Proximity to Asia gives Australia a competitive advantage Queensland has the largest coal resource in Australia with a long 3 production life High quality assets held by the major diversifie
Slide 25: Australia is the world's largest exporter of seaborne coal
1 Australia is the world’s largest exporter of seaborne coal METALLURGICAL COAL SEABORNE EXPORTS AUSTRALIA METALLURGICAL COAL EXPORTS BY DESTINATION VOLUME AND MARKET SHARE, CALENDAR YEARS CALENDAR YEARS (MILLION TONNES) 186.5 186.2 190.0 400 +7pts 70% 170.0 158.5 145.0 300 65% 132.2 Million tonnes
Slide 26: Proximity to Asia gives Australia a competitive advantage
Proximity to Asia gives Australia a competitive 2 advantage AUSTRALIAN COAL EXPORTS BY DESTINATION CALENDAR YEARS (MILLION TONNES) Japan │ South Korea │ Taiwan 205 209 179 190 183 72 72 67 73 62 117 121 133 137 112 South Korea China 2008 2010 2012 2014 2016 Japan China 93 India Taiwan 75 63 46 36 28
Slide 27: Large Bowen Basin reserves support production life in excess of 30 years
Large Bowen Basin reserves support 3 production life in excess of 30 years Bowen Basin reserves and resources1 › The CQCN services the Bowen Basin region in Queensland, which supplies over 8,840mt 67% of the world’s metallurgical coal › Premium hard coking, LV PCI and semi-soft coking coal supply ma
Slide 28: Queensland's assets are high quality and held by the major diversified miners
Queensland’s assets are high quality and held by the 4 major diversified miners 2017 global seaborne metallurgical coal margin curve1 › The recovery in the metallurgical coal spot price from lows in CY15 has improved cash margins significantly across all producers › Queensland metallurgical coal pro
Slide 29: Coal Market Update: Market Fundamentals
Coal Market Update: Market Fundamentals Metallurgical Coal: Contract, Spot and Realised Price (USD) Metallurgical Coal: Spot Price and Australia Export Volume Month Average (January 2015 to April 2017) 100 96 92 95 94 96 $250 89 90 79 Price [USD] per tonne $300 73 $200 75 Million tonnes $150 US$/t $
Slide 30: Questions & Answers
Questions & Answers
Slide 31: Appendices
Appendices
Slide 32: Appendix 1: UT5 Draft Revenue & WACC
Appendix 1 UT5 Draft Revenue & WACC
Slide 33: UT5 Draft: MAR and Forecast Volumes
UT5 Draft: MAR1 and Forecast Volumes UT4 UT5 MAR Total FY2017 FY2018 FY2019 FY2020 FY2021 Total $m Return on capital 1,526 420 409 402 395 386 1,592 Depreciation (less inflation) 771 218 284 281 289 287 1,141 Maintenance costs 805 207 221 225 235 240 921 Operating costs 815 223 206 211 217 221 855 T
Slide 34: UT5 Draft: Allowable Return on Capital
UT5 Draft: Allowable Return on Capital FINANCIAL OUTCOMES UT4 FINAL UT5 SUBMISSION Decision Date 28 Apr 2016 n/a Risk-free Rate 3.21% 2.13% Averaging Period 20-Day to 31 Oct 2013 20-Day to 30 Jun 2016 Term of Risk-free Rate 4-year 10-year Gearing Ratio 55% 55% Benchmark Credit Rating BBB+ BBB+ Asset
Slide 35: Appendix 2: Financial Information
Appendix 2 Financial Information
Slide 36: Network Profit & Loss (Underlying)
Network Profit & Loss (Underlying) 1H 2H COMMENTARY Variance fav / (adv) › Revenue Access increase primarily $m FY2017 FY2016 FY2016 attributable to UT4 True-up ~$45m Tonnes (million) 112.9 114.0 (1%) 111.9 › Revenue Other includes the recognition of Bandanna Group’s Revenue - Access 629 560 12% 576
Slide 37: Network Balance Sheet
Network Balance Sheet 31 Dec 2016 30 June 2016 COMMENTARY As at ($m) › Decrease primarily attributable to a Total current assets 272 289 reduction in Trade and Other Receivables from lower accruals for FY16 adjustments and GAPE Fees Property, plant & equipment 5,417 5,432 › Increase in Other current
Slide 38: Network Cashflow Statement
Network Cashflow Statement 1H $m FY2017 FY2016 EBITDA - statutory 432.3 362.5 › Strong growth in FCF due to stronger earnings and lower Working capital & other movements (1.7) 7.7 capex due to ceasation of Non-cash adjustments - impairment 1.4 7.7 growth capex Cash from operations 432.0 377.9 Intere
Slide 39: <4 AURIZON.
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