Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (February 2017)
43 slides from Aurizon's debt investor presentation, Feb 15, 2017
Slide 1: Debt Investor Update 1HFY2017 Results
Debt Investor Update 1HFY2017 Results David Collins – VP Finance & Group Treasurer Sean Burton – VP Network Finance 15th February 2017
Slide 2: Important notice
Important notice No Reliance on this document Confidential information This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to as The material contained in this presentation and any accompanying oral briefing is confidential. “Aurizon” which includes its related bodies
Slide 3: Agenda
Agenda Full year in review – Aurizon Group › David Collins Full year in review – Aurizon Network › Sean Burton Regulation › Sean Burton Funding and Capital Management › David Collins Outlook and summary › David Collins 3 3
Slide 4: Half year in review: Aurizon Group
Half year in review: Aurizon Group David Collins – VP Finance & Group Treasurer
Slide 5: About Aurizon
About Aurizon Aurizon (ASX: AZJ) is Australia’s largest rail freight operator and a • Aurizon Holdings legal structure top 50 ASX company. Aurizon has four major product lines for customers: Coal, Iron Ore, Freight and Network. Above Rail FOR PERSONAL USE ONLY › Aurizon transports more than 250 mill
Slide 6: Solid performance as commodity markets strengthen
Solid performance as commodity markets strengthen FINANCIAL RESULTS › Revenue up 1% to $1.8bn - increase in Below Rail partly offset by volume driven decrease in Above Rail › Underlying EBIT up 21% to $488m, driven by transformation benefits in Above Rail and impact of finalisation of UT4 in Below R
Slide 7: Group financial highlights
Group financial highlights $m 1HFY2017 1HFY2016 Variance › Revenue growth includes timing differences in Revenue 1,781 1,758 1% Network to reflect UT4 finalisation and bank guarantee for Bandanna Operating costs (1,006) (1,075) 6% › Operating costs decrease reflects $64m in transformation benefits a
Slide 8: Improvements in key operating markets, too early to call volume impact
Improvements in key operating markets, too early to call volume impact COAL IRON ORE MARKETS › Strong prices driven by supply restricting policy › Price support driven by: in China › Increase in Chinese crude steel production › Near term volume upside more apparent with › Demand for higher grade ore
Slide 9: 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 December 2016) 100 96 92 95 94 96 $250 89 90 +242% 79 Price [USD] per tonne $300 73 $200 75 Million Tonnes $15
Slide 10: Coal market update: Australia
Coal market update: Australia 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 Market Share 200 60% 100 55% 0
Slide 11: Transformation continues to deliver real improvements
Transformation continues to deliver real improvements HEADLINE BENEFITS › $64m generated in 1HFY2017 OPERATIONS › Labour productivity (NTK / FTE) improved 13%: ($52M) › Continued benefits from new Enterprise Agreements (EA) including introduction of flexible crewing › Removal of management layer and
Slide 12: Half year in review: Aurizon Network
Half year in review: Aurizon Network Sean Burton – VP Network Finance
Slide 13: Below Rail snapshot
Below Rail snapshot CENTRAL QLD COAL NETWORK (CQCN) KEY NETWORK FACTS Townsville PORT OF ABBOT POINT LEGEND 40 + operating coal mines serviced Abbot Point Coal Terminal (APCT) City/town Open access network with 3 above rail Power Station Bowen Coal Export Terminal coal operators – Aurizon Operations
Slide 14: Below Rail result benefits from UT4 finalisation
Below Rail result benefits from UT4 finalisation REVENUE › Increased 15% to $671m due to true-up from under recovery of UT4 revenue from prior years UNDERLYING EBIT › Increased $50m (20%) to $295m due to higher revenue OPERATIONAL › Improving asset management leads to 20% reduction in system closure
Slide 15: Below Rail profit & loss (underlying)
Below Rail profit & loss (underlying) 1H 2H Variance $m fav / (adv) FY2017 FY2016 FY2016 Tonnes (million) 112.9 114.0 (1%) 111.9 Revenue - Access 629 560 12% 576 - Services/Other 42 21 100% 22 Total Revenue 671 581 15% 598 Operating costs (234) (211) (11%) (204) EBITDA 437 370 18% 394 EBITDA margin
Slide 16: Below Rail Balance Sheet
Below Rail Balance Sheet As at ($m) 31 Dec 2016 30 June 2016 Total current assets 272 289 Property, plant & equipment 5,417 5,432 Other non-current assets 153 157 Total assets 5,842 5,878 Other current liabilities (243) (305) Total borrowings (2,790) (3,003) Other non-current liabilities (855) (788)
Slide 17: Below Rail volumes (mt)
Below Rail volumes1 (mt) 1H 2H Variance FY2017 FY2016 fav / (adv) FY2016 Newlands 6.2 6.1 2% 6.0 Goonyella 61.4 59.8 3% 61.7 Blackwater2 27.5 30.8 (11%) 25.5 Moura 6.2 6.5 (5%) 5.4 GAPE 6.7 7.9 (15%) 8.1 WIRP 4.9 2.9 69% 5.2 Total 112.9 114.0 (1%) 111.9 Average haul length3 (kms) 251 253 (1%) 252 1.
Slide 18: Regulation
Regulation Sean Burton – VP Network Finance
Slide 19: Aurizon Network – Regulatory Update
Aurizon Network – Regulatory Update UT4(1) Final Decision Maximum Allowable Revenue › Overall maximum revenue of $3.933 billion over the period of the Undertaking (MAR) › Weighted Average Cost of Capital (WACC) - 7.17% True-up recovery process › The Final UT4 Decision highlighted a net under recover
Slide 20: UT5 – Submitted November 2016
UT5 – Submitted November 2016 Context Revenue proposal › Significantly larger Regulated Asset Base (RAB) of ~$6.2 billion(1) as › Aurizon Network submitted to the Queensland Competition Authority a result of customer requested expansions. (QCA) its Draft Access Undertaking (UT5 Draft). › The UT5 Dra
Slide 21: UT5 Draft: MAR and forecast volumes
UT5 Draft: MAR(1) and forecast volumes UT4 UT5 MAR $m Total FY2017 FY2018 FY2019 FY2020 FY2021 Total 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
Slide 22: 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 23: Funding and Capital Management
Funding and Capital Management David Collins – VP Finance & Group Treasurer
Slide 24: Funding update
Funding update CURRENT RATINGS ARE APPROPRIATE ABOVE RAIL $0.6BN MATURITY PROFILE › Board supports current credit ratings in light of market $m outlook (Moody’s Baa1 (negative), S&P BBB+ (stable)) Drawn bank debt › Strategy remains to diversify funding sources and extend 300 Undrawn bank debt tenor
Slide 25: Capital spend continues to reduce
Capital spend continues to reduce CAPITAL EXPENDITURE FORECAST(f) FY2017 – FY2019 ($M)1 294 ~550 › FY2017 capex forecast down $50m ~525 ~500 › Growth capital in 1HFY2017 fully committed › Transformation capital for 1HFY2017 has 206 focussed on operational technology programs including: 370 › Way
Slide 26: Strong FCF generation helped by Moorebank
Strong FCF generation helped by Moorebank 1H $m FY2017 FY2016 EBITDA - statutory 454 257 › Strong growth in FCF due to stronger earnings and lower capex Working capital & other movements 33 (47) › FCF exceeded dividend payments Non-cash adjustments - impairment 266 426 Cash from operations 753 636 ›
Slide 27: Balance sheet summary
Balance sheet summary As at ($m) 31 Dec 2016 30 Jun 2016 Total current assets 756 844 Property, plant & equipment 9,454 9,719 Other non-current assets 257 305 Total assets 10,467 10,868 Other current liabilities (596) (732) Total borrowings (3,388) (3,490) Other non-current liabilities (940) (932) T
Slide 28: Outlook & summary
Outlook & summary David Collins – VP Finance & Group Treasurer
Slide 29: FY2017 guidance range unchanged
FY2017 guidance range unchanged FY2017 FY2018 › Revenue $3.35 - $3.55bn › Achievement of 70% OR target remains dependent on: › Underlying EBIT $900 - 950m, assumptions: › Delivery of $380m transformation target › Above Rail › Above rail volume growth › Moderate growth from prior year – transformatio
Slide 30: Aurizon fundamentals on a page
Aurizon fundamentals on a page ENTERPRISE ABOVE RAIL BELOW RAIL IMPROVE RETURNS › Core business characteristics: › Defensive, regulated asset supporting major export industry with RAB of › Effective allocation of capital to › Long life assets supported by long $5.8bn ensure optimum portfolio mix and
Slide 31: Questions & Answers
Questions & Answers 4" AURIZON.
Slide 32: Appendix
Appendix
Slide 33: Network revenue cap adjustments
Network revenue cap adjustments AT2-4 AT5 Total Year (diesel tariff) (electric tariff) $m $m $m 1,3 2 2 › Revenue cap is the difference by System between 2016 (23.3) 2.7 (20.6) Aurizon’s Total Actual Revenue (TAR) and System 2 2 Allowable Revenue (SAR) and also includes rebates 2015 (29.0)2 (2.7) (3
Slide 34: Reconciliation of MAR to reported access revenue
Reconciliation of MAR to reported access revenue MAR to reported access revenue FY2014 FY2015 FY2016 FY20171,3 Actual Actual Actual Estimate Access Revenue (AT1 to AT5) (ex. GAPE) 794 787 924 932 Approved Adjustments to MAR Transitional tariff adjustment (70) - - - Flood Claim recovery from 2013 Eve
Slide 35: 1HFY2017 group and functional capital expenditure ($m)
1HFY2017 group and functional capital expenditure ($m) 256 164 125 117 41 114 68 57 12 24 19 2 2 8 3 7 3 2 1HFY2017 Network Operations Support Other1 Sustaining Transformational and productivity Growth 1. Capitalised interest 35
Slide 36: Ballast undercutting – a critical supply chain efficiency driver
Ballast undercutting – a critical supply chain efficiency driver Ballast Undercutting Machine in Operation New Spoil Management Wagons Undercutting scope (kms) +57% 140 118 124 123 89 85 FY12 FY13 FY14 FY15 FY16 FY17f BALLAST UNDERCUTTING TRANSFORMATION BENEFITS › Ballast supports the sleepers; and
Slide 37: Network Control improvement project
Network Control improvement project Rockhampton Control Centre Train Control Diagram – paper based Interactive Train Graph – electronic (pre July 2016) (post July 2016) APEX INNOVATION TRANSFORMATION BENEFITS › APEX - Advanced Planning & MOVEMENT PLANNER (FOUNDATION) KEY BENEFITS Execution › Paper T
Slide 38: Regulatory Revenue Protection
Regulatory Revenue Protection
Slide 39: Regulated revenues within a stable and well-established regulatory regime
Regulated revenues within a stable and well- established regulatory regime Well established regulatory Well developed building block approach to 1 regime 2 Stable regulated revenue base 3 revenue determination › The provision of transportation › Over 90% of Aurizon Network FOR PERSONAL USE ONLY serv
Slide 40: CQCN regulatory framework provides revenue protection through building blocks
The CQCN regulatory framework provides revenue protection through a building block approach Regulatory Revenue Total Actual Revenue Protection Maximum Allowable Revenue (forecasted) for each year of Tests Undertaking period RETURN ON CAPITAL AT1 Outside the revenue protection scope (Weighted Average
Slide 41: 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 42: Definitions
Definitions Metric Description Access Revenue Amount received for access to the Network infrastructure under the Access Agreement Average haul length NTK/Total tonnes Contract utilisation Total volumes hauled as a percentage of total volumes contracted CQCN Central Queensland Coal Network Diesel fue
Slide 43: Aurizon
7 <2 AURIZON.
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