Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Investor Day (October 2015)
57 slides from Aurizon's investor day presentation, Oct 7, 2015
Slide 1: ASX cover letter: Aurizon Investor Day presentation
Aurizon Holdings Limited ABN 14 146 335 622 For personal use only ASX Market Announcements ASX Limited 20 Bridge Street Sydney NSW 2000 BY ELECTRONIC LODGEMENT 7 October 2015 Aurizon Investor Day presentation Please find attached Investor Day presentation for immediate release to the market. The pre
Slide 2: Next transformation phase to deliver $310-380 million of benefits
ASX Announcement For personal use only 7 October 2015 Next transformation phase to deliver $310-380 million of benefits Aurizon today announced the next phase of its transformation program to deliver further cost reductions and productivity benefits totalling $310-380 millioni for the three years fr
Slide 3: Investor Briefing
For personal use only Investor Briefing 7th October 2015
Slide 4: Important notice
Important notice ONLYonly No Reliance on this document No offer of securities This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) Nothing in this presentation should be construed as a recommendation of or an offer to (referred to as “Aurizon” which includes its related bodies co
Slide 5: Welcome & Introduction
For personal use only Welcome & Introduction Lance Hockridge - Managing Director & CEO
Slide 6: Agenda
Agenda ONLYonly › Welcome & Introduction MD & CEO – Lance Hockridge use › Above Rail Operations – The next three years EVP Operations – Mike Franczak PERSONAL USE › Questions personal › Afternoon Tea › Support Cost Review CFO & EVP Finance – Keith Neate For FOR › West Pilbara Infrastructure Project
Slide 7: We have delivered on IPO targets through continuous improvement
We have delivered on IPO targets, through sustainable, replicable, continuous improvement › Achievements since IPO ONLYonly › Improvement in LTIFR and TRIFR by > 90% SAFETY › A measure of our cultural change use PERSONAL USE › Delivered major growth projects e.g. GAPE and WIRP personal OPERATIONAL ›
Slide 8: Priority remains to strengthen existing business and create sustainable value
The priority remains to strengthen our existing business and create sustainable value for our shareholders ONLYonly › Continue our journey towards ZEROHarm SAFETY › Our momentum is underpinned by compliance, driven by culture › Remains core to everything we do use PERSONAL USE CONTINUOUS › Operation
Slide 9: Aurizon will build on its enterprise-wide transformational achievements
Aurizon will build on its Enterprise-wide transformational achievements for the next phase of our journey ONLYonly › Aurizon’s financial targets are challenging › Transformation is continuous, all-encompassing and benefits the › FY2016 impacted by the removal of ~$200m Enterprise in multiple ways: n
Slide 10: Wiggins Island Rail Project (WIRP) update
Wiggins Island Rail Project (WIRP) update ONLYonly › Aurizon Network (AN) has received notices from 7 of 8 WIRP customers in relation to the WIRP Deeds use › AN disputes the validity of the notices, which could allow WIRP customers to reduce the above regulatory financial commitment (WIRP fee) they
Slide 11: Above Rail Operations
For personal use only Above Rail Operations Mike Franczak – EVP Operations
Slide 12: Operational transformation has delivered $195m in gross savings
Operational transformation has delivered $195m in gross savings in FY2014 and FY2015, against a target of $160-200m ONLYonly Operations transformation benefits, FY2014 and FY2015 ($m gross1) $200m use 21 PERSONAL USE 19 $160m 17 personal 54 195 For FOR 84 Labour productivity Fleet RSEM2 Fuel and Oth
Slide 13: Operational transformation is underpinned by core programs
Our operational transformation is underpinned by 6 fulsome, core programs ONLYonly Rollingstock Engineering & Integrated Operating Plan Maintenance Transformation Operations Technology › Rollingstock fleet planning across entire › Implementation of condition monitoring › Freight Management Transform
Slide 14: Aurizon Network performance is a critical enabler of Above Rail operators
Aurizon Network performance is a critical enabler of Above Rail operators and customer service ONLYonly FY2015 operational highlights Continuous improvement initiatives › Safety › Significant technology investment delivering use improved safety, service and productivity: › Zero LTIFR and 3.7 TRIFR P
Slide 15: Key operational metrics and ratios will continue to improve
Key operational metrics and ratios have and will continue to improve as a result of our core Operations programs Programs Key Metrics Productivity Ratios ONLYonly Actual FY13-FY15 Targeted FY16-FY18 Actual FY13-FY15 Targeted FY16-FY18 improvement improvement improvement improvement -9% -4%/-7% Proce
Slide 16: Operations targeting additional $250-$300m in gross transformation benefits
Operations is targeting an additional $250-$300m in gross transformation benefits by FY2018 ONLYonly Operations transformation benefits, FY2016 - FY2018 ($m gross1) $300m use $250m PERSONAL USE personal For FOR Fleet Productivity Fuel and Energy Labour RSEM2 Stretch3 Total Transformation Net Benefit
Slide 17: Operations targeting additional $250-$300m in gross transformation benefits
Operations is targeting an additional $250-$300m in gross transformation benefits by FY2018 ONLYonly Operations transformation benefits, FY2016 - FY2018 ($m gross1) $300m use $250m PERSONAL USE Focus for today personal For FOR Fleet Fuel and Labour RSEM2 Stretch3 Total Transformation Net productivit
Slide 18: Enterprise Agreements
ENTERPRISE AGREEMENTS For personal use only 16
Slide 19: Legacy EAs were not competitive and did not support transformation
The EAs grandfathered to Aurizon at IPO were not competitive and did not support Transformation ONLYonly The burning platform use UNCOMPETITIVE RESTRICTIVE LIMITED COSTS CORE CONDITIONS FLEXIBILITY PERSONAL USE • 14 separate agreements • Inflexible roster rules personal 10-15% less competitive • No
Slide 20: Key EA highlights - Core Conditions
Key EA highlights - Core Conditions (~3600 QLD based employees under the EA) ONLYonly Item Impact of change › No forced redundancy › Reduction of up to 350-400 FTEs over the life of the agreement › New EAs result in a significant cost avoidance in Employees in Transition use (EiT) for any future red
Slide 21: Key EA highlights – Construction & Maintenance
Key EA highlights – Construction & Maintenance (~1,300 QLD based employees under the EA) ONLYonly Item Description Impact of change › No forced redundancy › Majority of FTE reduction › Up to 300-350 FTEs to exit by end of FY2018 expected in targeted areas use › Target areas are Redbank, Townsville a
Slide 22: Key EA highlights – Train Crew & Transport Operators
Key EA highlights – Train Crew & Transport Operators (~1,100 QLD based employees under the EA) Item Description Impact of change ONLYonly › Master roster › Increase in availability through: › 5-10% increase in availability diagrams › Reductions in shift length corresponding to a reduction in demand
Slide 23: Direct and indirect benefits of the EAs exceed costs
Direct and indirect benefits of the EAs is larger than incurred costs and directly enables the $250-300m Operations transformation ONLYonly › AZJ fundamentally believes the new Enterprise Agreements SAFETY keep our people safer › Reducing exposures (e.g. less hours driving cars) use PERSONAL USE › T
Slide 24: Rollingstock Engineering & Maintenance Transformation
ROLLINGSTOCK ENGINEERING & MAINTENANCE TRANSFORMATION For personal use only 22
Slide 25: RSEM transformation is a core component of Aurizon's transformation
The Rollingstock Engineering & Maintenance (RSEM) transformation is a core component of Aurizon’s transformation ONLYonly 48% 50-60% PEOPLE ~2,700 PRODUCTIVITY 30-34% 102% use 1,400 PERSONAL USE FY10 FY15 FY18 FY10 FY15 FY18 personal FTEs mNTK / FTE 10% 2-3% 34% MAINTENANCE AVAILABILITY COST 15-20%
Slide 26: RSEM delivery model is evolving to create competitive advantage
The RSEM delivery model is evolving to create a strategic competitive advantage ONLYonly Evolution of rollingstock maintenance delivery model IPO 2018 “Leveraging competitive use “Get fit” “Ticket to the game” advantage” PERSONAL USE › Close surplus depots › Initial deployment of condition › Use ele
Slide 27: RSEM procedures transformed by new technology and work processes
RSEM procedures are being transformed by new technology and work processes ONLYonly More efficient, faster, safer, predictive, condition-based maintenance Key benefits use WORK ORDER • Safety and service CREATION • Shunting movements PERSONAL USE ON TRAIN REPAIR • Asset utilisation (faster personal
Slide 28: Wayside condition monitoring example of maintenance transformation
Wayside condition monitoring is an example of our maintenance transformation use PERSONAL USE personal For FOR ONLYonly 26
Slide 29: Wheel profiles scanned by laser and infrared imaging
Wheel profiles are scanned by laser and infrared imaging and analysed to drive maintenance planning ONLYonly Scan of wheel profile, taken at 80km/hr use PERSONAL USE personal Wheel profile analysis results For FOR 27
Slide 30: Scanning allows early identification of equipment issues
Scanning allows early identification of equipment issues, e.g. open wagon doors ONLYonly Open wagon doors personal For FOR use PERSONAL USE 28
Slide 31: Draft gear faults automatically detected and alarmed
Draft gear faults are now automatically detected and alarmed, preventing train parting ONLYonly Draft gear - prior cycle use Draft gear – subsequent cycle PERSONAL USE personal For FOR 29
Slide 32: Underside condition reviews while train is in service
Underside condition reviews, previously only possible during annual inspections in pits, can now be conducted while the train’s in service ONLYonly Detailed full scan use PERSONAL USE personal Axles, Draft gear, Coupler Centre sill, Brake rigging For FOR 30
Slide 33: On train repair is an example of process re-engineering
On train repair is an example of process re-engineering use PERSONAL USE personal For FOR ONLYonly 31
Slide 34: Key messages from today
Key messages from today ONLYonly Operations is targeting an additional $250-300m in gross transformation benefits by FY2018 use PERSONAL USE personal Operations transformation is underpinned by six fulsome , core programs that are aligned to our strategy and core values For FOR Operations has built
Slide 35: Questions and Discussion
For personal use only Questions and Discussion
Slide 36: Afternoon Tea
For personal use only AFTERNOON TEA
Slide 37: Support Cost Review
For personal use only Support Cost Review Keith Neate – CFO & EVP Finance
Slide 38: Support Cost review
Support Cost review ONLYonly Support Costs overview use PERSONAL USE personal Transformation achievements to date For FOR Opportunities and Challenges
Slide 39: Centralised Support costs overview
Centralised Support costs overview › Centralised support costs represent direct and indirect costs attributable to ONLYonly supporting the Enterprise’s operating and commercial functions AURIZON CENTRALISED SUPPORT FUNCTIONS use STRATEGY & HUMAN ENTERPRISE CEO & FINANCE BUSINESS RESOURCES SERVICES B
Slide 40: Support costs transformation delivered $57m in gross savings
Centralised Support costs transformation has delivered $57m in gross savings in FY2014 and FY2015 ONLYonly Achievements › Reduction in layers and increases in spans of control (6 Support functions consolidated into 4) STRUCTURAL › Centralisation of administrative and support resources use › Increase
Slide 41: Targeting $60-$80m in gross transformation benefits over FY2016 to FY2018
Targeting $60-$80m in gross transformation benefits over FY2016 to FY2018 ONLYonly › Further restructures implemented during FY2016 in the key support functions of Human Resources, Finance, Enterprise Real Estate and Safety, Health & STRUCTURAL Environment › Headcount reduction in Q1 FY2016 - 36 FTE
Slide 42: Current market presents challenging environment for delivery of savings
Current market presents challenging environment for delivery of savings › The following timing challenges are being managed in pursuit of Support cost ONLYonly reduction: › Key objective is to rationalise the property footprint in alignment with Operations › Weak commercial and residential property
Slide 43: Aurizon's Real Estate Portfolio
Aurizon’s Real Estate Portfolio Real Estate Portfolio as at 30 June 2015 ONLYonly Portfolio Value1 ~$1bn › 800+ Land parcels › 196 Operational sites use › 122 Terminals/Depots › 29 RSEM2 facilities › 42 Staff Locations PERSONAL USE personal Opex ~$100m p.a. › Maintenance › Utility charges › Property
Slide 44: Real estate transformation journey and future opportunities
Aurizon’s real estate transformation journey and future opportunities › Aurizon continues to pursue transformation initiatives to unlock sustainable value, ONLYonly right size the footprint, eliminate waste, duplication and promote cultural change Achievements Opportunities › Focus has been on addre
Slide 45: Aurizon's information technology journey
Aurizon’s information technology journey › Aurizon is investing in process and system transformation to improve customer ONLYonly service and unlock the next wave of productivity improvements Drivers for technology Building the foundations investment › Technology designed under › Foundational invest
Slide 46: West Pilbara Infrastructure Project
For personal use only West Pilbara Infrastructure Project Mike Carter – EVP Strategy & Business Development
Slide 47: Executive Summary / Key Messages
Executive Summary / Key Messages ONLYonly As a developer and operator of rail-based supply chains, Aurizon continues the staged assessment of the West Pilbara Infrastructure Project (WPIP) use West Pilbara Iron Ore (Mining) Project (WPIOP) is a unique model that has the potential to PERSONAL USE del
Slide 48: WPIOP's unique model in the world's leading iron ore basin
WPIOP’s unique model has the potential to deliver a sustainable competitive development in the world’s leading iron ore basin ONLYonly PROPOSED PORT The Pilbara use A tier one iron ore basin with world class mining operations PERSONAL USE personal PROPOSED RAILWAY The West Pilbara Currently undevelo
Slide 49: The project has high quality partners
The project has high quality partners, including two of the world’s leading steel manufacturers and a leading global trading house useONLYonly 4th largest global steel maker 5th largest global steel Leading privately owned natural PERSONAL USE and 2nd largest in China maker resources company persona
Slide 50: WPIOP aims to facilitate self sufficiency and consistency of supply for Baosteel
WPIOP aims to facilitate greater self sufficiency and consistency of supply for Baosteel ONLYonly Baosteel Crude Steel Production1 Baosteel’s indicative raw material purchasing – Iron ore1 Mt Mt, 2014 70 67 Major iron ore suppliers Steel production use 60 Iron ore demand BHP 36% Steel Capacity PERSO
Slide 51: WPIOP aims to support Baosteel's competitive advantage in flat steel
WPIOP aims to support Baosteel’s efforts to build a competitive advantage in flat steel ONLYonly Baosteel is focusing high-end high-margin segments in flat steel… …specifically through newly commissioned Zhanjiang plant Approximate Domestic • $US8bn Zhanjiang steel mill project in Southern use Marke
Slide 52: Proposed structure with separate mine and infrastructure vehicles
The proposed structure involves separate mine and infrastructure vehicles, with InfraCo being majority owned by Aurizon ONLYonly INDICATIVE OWNERSHIP STRUCTURE PROPOSED COMMERCIAL ARRANGEMENTS Proposed separate structures for mine and infrastructure InfraCo use InfraCo is proposed to be majority own
Slide 53: WPIOP targeting a long term sustainable position on global cost curve
WPIOP is targeting a long term sustainable position on the global cost curve ONLYonly Global Iron Ore Cost Curve – Historical and Projected FOB, US$/dmt 62% Fe fines equivalent Projected cost curve continues to flatten as high cost supply (seaborne and Chinese production) exits the 160 INDICATIVE ma
Slide 54: Supply costs of the project continue to improve
The supply costs of the project continues to improve though capex and opex savings ONLYonly Capital Cost Reductions $AUD 2015 Operational Cost Reductions ~25% Aurizon’s operating capabilities use c.$6bn ~$600m expected to drive a circa 16% operating cost reduction from the ~$500m ±25% Tariff submiss
Slide 55: Whole of project governance structure
Whole of project governance structure ONLYonly Commercial decisions are supported by a strong governance framework Current project timeline use NOVEMBER – Aurizon deliver ±15% tariff and FS Whole-of-Project Governance DECEMBER – CEO review and progress decisioning 2015 PERSONAL USE personal Oversigh
Slide 56: Questions and Discussion
For personal use only Questions and Discussion
Slide 57: For personal use only
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