Slide 1: Aurizon Network European Roadshow
Aurizon Network European Roadshow May 2016 Pam Bains – Aurizon Network, Chief Financial Officer David Collins – Aurizon Group, Treasurer
Slide 2: Important notice
Important notice No Reliance on this document This document was prepared by Aurizon Network Pty Limited (ACN 132 181 116) (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 at the
Slide 3: Agenda
Agenda I Introduction to Aurizon Network II Credit highlights III Coal industry update IV Regulatory update V Financial overview 33
Slide 4: I. Introduction to Aurizon Network
I. Introduction to Aurizon Network
Slide 5: Aurizon Network has retained a strong credit profile since our EUR notes issue in 2014
Aurizon Network has retained a strong credit profile since our EUR notes issue in 2014 Increased regulatory certainty following the QCA Final Decision on UT4 Stable revenue growth and continued high contribution of regulated revenue (>90% of total access revenue) Positive ratings momentum with
Slide 6: Overview of Aurizon Network
Overview of Aurizon Network › Aurizon Network controls, manages, operates and maintains the Below Rail fixed rail infrastructure assets of the Central Queensland Coal Network (CQCN) ‒ Regulated Asset Base (RAB) of A$5.6 billion(2) ASX listed Aurizon ‒ Moody’s and Standard & Poor’s credit rating: Baa
Slide 7: Company history
Company history New Capital Structure and Reorganisation Restructure New long term capital structure Tim Poole appointed to Separation of Queensland Rail implemented, with standalone Aurizon Board as Chairman from QR Limited (State of QLD debt facilities put in place for both interest of 100%) Auriz
Slide 8: Central Queensland Coal Network overview
Central Queensland Coal Network overview Central Queensland Coal Network › The Central Queensland Coal Network (CQCN) comprises 4 major coal systems and 1 connecting system link serving Queensland’s Bowen Basin coal region: Newlands, Goonyella, Blackwater and Moura with GAPE the connecting system li
Slide 9: Standalone capital structure
Standalone capital structure Overview of Aurizon Network debt facilities › Aurizon Network operates as a separate standalone entity to Senior syndicated debt facilities Aurizon Operations and Aurizon Holdings Facility Maturity ‒ Separate Board and Management team A$1.3bn syndicated facility Jul-18 ‒
Slide 10: II. Credit highlights
II. Credit highlights
Slide 11: Summary of key credit highlights
Summary of key credit highlights 1 Highly regulated revenues within a stable and well established regulatory regime 2 Long term lease arrangements supported by the central QLD coal mining sector Infrastructure network servicing well-established haulage customers and high 3 quality mines predominantl
Slide 12: Highly regulated revenues within a stable and well established regulatory regime
Highly regulated revenues within a stable and 1 well established regulatory regime Well developed building block approach to 1 Well established regulatory regime 2 Stable regulated revenue base 3 revenue determination › The provision of transportation › Over 90% of Aurizon Network services by rail o
Slide 13: Long term lease arrangements supported by the QLD coal mining sector
Long term lease arrangements supported by the 2 QLD coal mining sector CQCN historical coal volumes (FY09 – FY15, mtpa) 250 › 99 year lease arrangements(1) in place with the State of Queensland to control, manage, operate and maintain the 200 CQCN › CQCN is the optimal mode of transport between coal
Slide 14: Long term lease arrangements supported by the QLD coal mining sector
Long term lease arrangements supported by the 2 QLD coal mining sector Australian metallurgical coal exports by Bowen Basin coal reserves(1) destination (CY15)(2) RoW › The CQCN serves Queensland’s 13% India Bowen Basin, which is predominantly Metallurgical coal 23% comprises more than three metallu
Slide 15: Infrastructure network servicing well-established haulage customers
Infrastructure network servicing well-established 3 haulage customers… FY15 railed volume split by Aurizon Network customers › Network’s largest customers are Aurizon’s above rail operations and Pacific National ‒ 68% of regulated access revenue was derived Including Pacific from access agreements w
Slide 16: High quality mines operated by investment grade coal miners
…and high quality mines predominantly operated 3 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 2
Slide 17: Revenue protection mechanisms limit exposure to patronage and volume risk
Revenue protection mechanisms limit exposure 4 to patronage and volume risk ToP › Aurizon Network’s regulated revenue is protected through a combination of AT2 Train Paths provisions that are included in the QCA-approved access agreements Take-or- Revenue cap These mechanisms come into effect when r
Slide 18: Strong financial position and ratings stability
5 Strong financial position and ratings stability Consistent revenue growth Stable credit ratings Revenue (A$m) › No change to credit ratings both at Group and Aurizon Network level since ASX listing in November 2010 ‒ Baa1 / BBB+ (negative / stable) at both Group and Network levels › Ratings underp
Slide 19: Experienced board and management team
6 Experienced board and management team Experienced Board and management team with strong strategic, operational and financial management skills and an average of 20 years of industry experience Strong track record of efficiently managing open access multi-user network and successfully executing
Slide 20: III. Coal industry update
III. Coal industry update
Slide 21: 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 22: Australia is the world's largest exporter of seaborne coal
Australia is the world’s largest exporter of seaborne coal Australian coal exports growing across a diversified customer base Metallurgical coal seaborne exports Volume and market share, calendar years › Australian volume resilient to date 400 70% with 2015 export volume broadly Million tonnes 300 6
Slide 23: Large Bowen Basin reserves support production life in excess of 30 years
Large Bowen Basin reserves support production life in excess of 30 years Bowen Basin reserves and resources(1) › The CQCN services the Bowen Basin region in Queensland, which supplies over 8,840mt 60% of the world’s metallurgical coal › Premium hard coking, LV PCI and semi-soft coking coal supply ma
Slide 24: Proximity to Asia gives Australia a competitive advantage
Proximity to Asia gives Australia a competitive advantage Australia’s metallurgical coal exports by destination (CY15) › In 2015, 76% of Australia’s metallurgical coal and 91% of RoW 13% India thermal coal was exported to five countries (Japan, South 23% Korea, Taiwan, China and India)(1) EU-28 11%
Slide 25: Queensland's assets are high quality and held by major diversified miners
Queensland’s assets are high quality and held by the major diversified miners 2016 global seaborne metallurgical coal margin curve(1) 60 › Australian coal supply has responded to a Operating margin(2) (US$/t Large majority of Queensland metallurgical coal production challenging price environment wit
Slide 26: IV. Regulatory update
IV. Regulatory i update
Slide 27: Regulatory framework
Regulatory framework Key Policy Elements › The CQCN operates under a stable and well established regulatory regime Socialised Pricing – The CQCN is regulated by the QCA and provides open › Customers pay their access charges via a five part tariff access to all accredited rail operators that allocate
Slide 28: Update on UT4 – summary of key outcomes
Update on UT4 – summary of key outcomes › Final Decision published on 28 April 2016 on Aurizon Network’s 2014 Draft Access Undertaking covering the period FY14 to FY17 › The Final Decision has specified: − Overall maximum revenue of $3.925 billion over the period of the Undertaking (QCA Consolidated
Slide 29: Growth in Aurizon Network's RAB
Growth in Aurizon Network’s RAB Aurizon Network’s RAB over time (A$bn) › QCA determines Aurizon Network's access pricing based on the estimated value of the RAB › Estimated RAB value of A$5.6bn(1) › Value of the RAB determined by: – Opening balance – Add inflation – Add capex 5.6 4.5 4.7 – Less depr
Slide 30: QCA's approach to regulation
QCA’s approach to regulation The QCA takes a three step approach for determining the reference tariffs charged by Aurizon Network to CQCN users Step 1 Step 2 Step 3 › RAB is approved by the QCA on a › ‘Building block’ approach adopted to › Reference tariffs determined annually, taking Depreciated Op
Slide 31: The CQCN regulatory framework provides revenue protection
The CQCN regulatory framework provides revenue protection › Aurizon Network’s regulated revenue is protected through a combination of contractual and regulatory mechanisms that are included in the Access Undertaking and access agreements › These mechanisms come into effect when revenue shortfalls oc
Slide 32: Socialisation in the event of a revenue shortfall
Socialisation in the event of a revenue shortfall Scenario: A Coal Mine on the Goonyella System closes due to insolvency and the mine ceases all railings at 31 December (half way through the fiscal year) with no future railings to occur. The mine was forecast by the regulator to rail 5mt per annum R
Slide 33: V. Financial overview
V. Financial overview
Slide 34: Historical financial and operating performance
Historical financial and operating performance FY15 vs 1H16 vs Historical financials FY13 FY14 FY15 FY14 1H15 1H16 1H15 (A$ millions; 30 June year end) › 1H16 EBIT uplift driven by higher revenue based on UT4 Draft Decision released in December Total assets 5,033 5,378 5,811 8.1% 5,505 5,805 5.4% 20
Slide 35: Key financial metrics summary
Key financial metrics summary Revenue EBIT Volumes (A$m) (A$m) (A$m) +24% +64% +38% 1,012 1,108 892 980 484 215 226 827 417 412 182 164 167 295 325 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 Other Services Access Net Debt / EBITDA (underlying) Interest cover ratio Ope
Slide 36: Capital expenditure and capital structure overview
Capital expenditure and capital structure overview Capital expenditure (A$m) Debt maturity profile (A$m) 624 595 569 429 336 281 1200 711 288 525 490 259 195 100 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 Sustaining capex Growth capex Undrawn debt Drawn debt A$ MTN EMTN › All m
Slide 37: Capital structure and gearing over time
Capital structure and gearing over time Aurizon Network RAB – Gearing Structure › Aurizon Network’s Net Debt position in the medium term is expected to remain flat given no 64.5% further growth projects 53.0% 53.0% 48.4% › Once all growth capex has been rolled into the RAB gearing will remain slight
Slide 38: Appendix
Appendix o j <a a) =, — 3 -— i, aa,
Slide 39: Below rail infrastructure
Below rail infrastructure Traction Track power Signal Signalling/ Overhead/ Telecoms Power Signal phone Ballast Ballast Rail Structures Sleeper Super-structure Facilities Sub-structure 39
Slide 40: Aurizon Group highlights: 1H16
Aurizon Group highlights: 1H16 Safety › ZERO LTIFR, a first for Aurizon. TRIFR increased 25% versus 2HFY2015 Results › Revenue down 11% to A$1.76bn, underlying EBIT down 17% to A$403m › Excluding previously announced items, revenue down 4%, underlying EBIT down 2% against 5% volume decline › Statuto
Slide 41: Aurizon Group financials: 1H16
Aurizon Group financials: 1H16 1H16 vs Historical financials 1H15 1H16 1H15 (A$ millions; 30 June year end) › Sale of Redbank and impact of expired revenue contracts in FY2015 and 5% volume decline in 1HFY2016 Revenue 1,965 1,758 (10.5%) › Includes A$16m one off cost of employee shares and A$18m QNI
Slide 42: Sustainability of coal
Sustainability of coal In FY2015, CQCN ENVIRONMENTAL carried MANAGEMENT Reducing our footprint Aurizon Group had a >50% Global seaborne 5.8% metallurgical coal reduction in our total In FY2015, Australia exported Scope 1 and Scope 2 188mt of metallurgical coal – enough to make: GHG emissions AURIZON
Slide 43: Aurizon Network: Experienced Management
Aurizon Network: Experienced Management Alex Kummant Scott Riedel Pam Bains Director, Vice President – Network Vice President – Network Executive Vice President Operations Finance Mr Kummant has more than 25 years’ experience in the North Mr Riedel has over 25 years’ experience in the rail and Ms Ba
Slide 44: Aurizon Network: Experienced Board
Aurizon Network: Experienced Board 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 Mr Kummant has more than 25 years’ experience in the North Mr Cooper has more than 35 years’
Slide 45: Glossary
Glossary Defined Term Definition Access Facilitation Deed Assets that have the construction cost prepaid by the customer Access Revenue Amount received for access to the Network infrastructure under the Access Agreement AT Access tariff CQCN Central Queensland Coal Network Net operating cash flows l