Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — FY2015 Earnings Presentation
74 slides from Aurizon's earnings presentation, Aug 17, 2015
Slide 1: Aurizon – Full year results 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 17 August 2015 Aurizon – Full year results presentation Please find attached the Company’s full year results presentation for immediate rele
Slide 2: FY2015 Results
For personal use only FY2015 Results Lance Hockridge – MD & CEO Keith Neate – EVP & CFO
Slide 3: Important notice
Important notice ONLYonly No Reliance on this document This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (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
Slide 4: Year in review
For personal use only Year in review Lance Hockridge - Managing Director & CEO
Slide 5: Key headlines – FY2015
Key headlines – FY2015 Safety › 43% improvement in LTIFR, 14% improvement in TRIFR ONLYonly Results › Revenue flat at $3.78bn › Underlying EBIT up 14% to $970m › Statutory NPAT up 139% to $604m (impact of VRP and impairment of $386m in FY2014) use › ROIC up 0.9ppt to 9.7%, statutory EPS up 141% at 2
Slide 6: Safety performance
Safety performance, our target is ONLYonly Continued improvement in core safety indicators despite tragic road accident in Central Queensland in October 2014 which resulted in three fatalities - two Aurizon employees and one contractor. This incident reinforces the importance of our focus on safety.
Slide 7: Key financial and operational highlights
Key financial and operational highlights Continued profit growth despite flat volumes ONLYonly $m FY2015 FY2014 Variance Revenue 3,780 3,822 (1%) › Flat above rail volumes, lower pass through fuel revenue › Strong Network performance with uncapped revenue and record EBIT (underlying) 970 851 14% ton
Slide 8: FY2015 achievements create platform for future
FY2015 achievements create platform for future 9.7 ROIC of 9.7% (+0.9ppts) and OR of 74.3% (-3.4ppts) in FY2015 ONLYonly 8.8 ROIC (%) 8.0 Improvements since IPO despite above rail volumes being well below original forecasts 6.7 Driven by a more commercial, disciplined approach and generating $252m i
Slide 9: Other key matters
Other key matters ONLYonly Queensland Enterprise Agreements (EA) update Network Regulation (UT4) update › Significant achievement in restructuring EAs after more than two › Queensland Competition Authority (QCA) published its draft years of protracted negotiations decision on Aurizon’s Maximum Allow
Slide 10: Results analysis
For personal use only Results analysis Keith Neate – EVP & CFO
Slide 11: Key financial highlights
Key financial highlights ONLYonly $m FY2015 FY2014 Variance Revenue 3,780 3,822 (1%) › Revenue was flat due to flat above rail volumes and low fuel use prices EBIT – underlying 970 851 14% › Network earnings growth and transformation delivered a 14% PERSONAL USE improvement in underlying EBIT EBIT –
Slide 12: FY2015 vs FY2014 underlying EBIT bridge
FY2015 vs FY2014 underlying EBIT bridge ONLYonly Volume growth: Includes: Transformation benefits: › Iron Ore – ($33m) › Depreciation – ($20m) › Operations – $99m › Bulk – ($5m) › Cost escalation – ($15m) › Support – $24m › Intermodal – $10m › Labour escalation – ($14m) › Cost of transformation – ($
Slide 13: Underlying EBIT by function
Underlying EBIT by function1 ONLYonly FY2015 $m FY2015 FY2014 Variance 2H 1H Key drivers of Group performance: use Network 484 266 218 412 17% › Network revenue uncapped, based on transitional tariffs and actual volumes PERSONAL USE › Flat above rail volumes with marginal Commercial & coal growth of
Slide 14: Key FY2015 drivers
Key FY2015 drivers ONLYonly Network Commercial & Marketing Operations Other › Underlying EBIT up $72m › Underlying EBIT down $55m › Underlying EBIT up $72m › Underlying EBIT up $30m (+17%) (-2%) (+3%) (+31%) › Revenue increased $96m or › Freight revenue (-$110m) – › Revenue decreased $4m with › Reve
Slide 15: Continued improvement in core operational drivers
Continued improvement in core operational drivers ONLYonly Metric FY2015 FY2014 Variance Net operations Opex1/NTK › Improvement in Opex/NTK (ex access) 34.9 35.2 1% ($/‘000 NTK) Opex despite lower volumes due to ongoing transformation benefits and lower fuel price Net operations Opex/NTK 21.5 22.8 6
Slide 16: Cash flow summary
Cash flow summary ONLYonly $m FY2015 FY2014 EBITDA - statutory 1,489 964 › FY2014 impacted by non-cash impairments, FY2015 underlying EBITDA increased 10% Working capital & other movements 7 342 use Cash from operations 1,496 1,306 Interest received 9 9 PERSONAL USE › Net cash received due to tax ef
Slide 17: Capex update
Capex update ONLYonly Capital expenditure FY2015 – FY2017 ($m)1 › Capex spend for FY2015 in line with forecast at $1.1bn › Forecast for FY2016 and FY2017 remains at $1.45bn, with 555 1,107 marginal change in categories reflecting development of IOP and fleet planning 272 use ~$1,100m › Growth spend
Slide 18: Balance sheet summary
Balance sheet summary ONLYonly As at ($m) 30 June 2015 30 June 2014 › High FY2014 cash on hand balance to fund Total current assets 934 1,314 purchase of Aquila in July 2014 › Capex spend on WIRP, Hexham, Rolleston use Property, plant & equipment 9,900 9,441 Other non-current assets 502 193 › Invest
Slide 19: Debt summary
Debt summary Aurizon Group maturity profile as at 30 June 2015 › Strong cashflow resulted in repayment of Group level ONLYonly $m revolving debt facilities, with all long term debt currently 0 0 held in Aurizon Network Drawn Debt Undrawn Debt › Debt maturity profile average tenor increased to 4.3 ye
Slide 20: Other – business update
For personal use only Other – business update Lance Hockridge – Managing Director & CEO
Slide 21: Aurizon's shareholder value focus
Aurizon’s shareholder value focus › Achieved 75% OR target in FY2015 as foreshadowed at IPO on significantly lower volumes than originally forecast ONLYonly › New Blueprint introduced that sets out the vision and roadmap to the future › Priority remains to strengthen and grow the existing business b
Slide 22: Aurizon's Blueprint sets the vision and roadmap for the future
Aurizon’s Blueprint sets the vision and roadmap for the future ONLYonly To be a world leading rail-based transport business that partners with customers for growth. use PERSONAL USE We are an Australian rail-based transport business with a global orientation that creates value personal sustainably f
Slide 23: How we will deliver our strategy
How we will deliver our strategy ONLYonly To develop and operate multi-customer, rail-based, integrated supply chains use PERSONAL USE Customer Focus Productivity Improvement Growth Opportunities personal Deliver great service Drive safety, efficiency & disciplined execution Bulk supply chains Innov
Slide 24: West Pilbara Iron Ore Project (WPIOP) update
West Pilbara Iron Ore Project (WPIOP) update To date, Aurizon has reduced project capex by $1.5bn whilst use only …to improve the project’s potential cost increasing throughput by 33%. All project participants are pursuing position and long term sustainability other levers to further reduce cost… 20
Slide 25: Other strategic projects update
Other strategic projects update ONLYonly Moorebank Galilee Basin › June 2015 – Sydney Intermodal Terminal Alliance (SIMTA) › Separable projects to develop and operate greenfield, multi-user selected by Federal Government to develop and operate the rail and port infrastructure connecting the Galilee
Slide 26: Markets we operate in
Markets we operate in Coal – Above Rail Coal – Below Rail ONLYonly › Industry has responded to challenging commodity price › Top six mining companies account for 80% of contract volumes environment by focusing on cost and productivity › Volume risk socialised by system for CQCN › Aurizon’s customer
Slide 27: Freight update
Freight update ONLYonly Revenue1 base is changing in FY2016 and beyond Bulk – FY2015 revenue $468m Commercial and operational improvements have delivered results › Volume environment remains challenging in the medium term due use to competition from road and lower commodity prices but › $111m in tra
Slide 28: Outlook & summary
For personal use only Outlook & summary Lance Hockridge – Managing Director & CEO
Slide 29: FY2016 Outlook
FY2016 Outlook ONLYonly › Above rail volume outlook based on current market conditions is expected to be flat vs FY2015 › Coal – 210-220mt vs 211.2mt › Iron Ore – 24mt vs 25.6mt use › Freight – 45mt vs 46.0mt › Network access revenue assumed to be consistent with UT4 draft revenue decision PERSONAL
Slide 30: Summary
Summary ONLYonly › Achieved 74.3% OR in FY2015 despite volume headwinds › Blueprint in place to set strategic direction and framework for continuous improvement › 10.5% average ROIC for FY2016-FY2018 use › 70.0% OR target by FY2018 › Exploring growth opportunities that meet our investment criteria P
Slide 31: Questions & Answers
For personal use only Questions & Answers
Slide 32: FY2015 Results – Additional information
For personal use only FY2015 Results Additional information
Slide 33: Aurizon Operations Snapshot
personal For FOR PERSONAL USE useONLYonly Aurizon Operations Snapshot 32
Slide 34: North American Class 1s have shown operating ratios <70% achievable
North American Class 1s have shown operating ratios <70% and ROICs >13% are achievable – Aurizon is on its way ONLYonly Operating ratios below 70% are achievable All Class 1’s have grown returns since 2009, for Aurizon, but it is a long term journey moving towards 14% ROIC (often 10+ years) use Oper
Slide 35: Group Financial Information
For personal use only Group Financial Information
Slide 36: Accounting Changes in FY2015
Accounting Changes in FY2015 ONLYonly › Income statement: presentation has been changed to show net finance costs and to make the costs categorisation consistent with revised segment reporting note. (i.e. Energy and Fuel and Track Access expenditure has been split out from Consumables) › Cash flow s
Slide 37: Financial highlights – Underlying
Financial highlights – Underlying ONLYonly $m FY2015 FY2014 Variance Revenue 3,780 3,822 (1%) use EBITDA 1,489 1,351 10% PERSONAL USE EBIT 970 851 14% personal NPAT 604 523 15% EPS (cps) 28.4 24.5 16% For FOR Final dividend (cps) 13.9 8.5 64% ROIC 9.7% 8.8% 0.9ppt Gearing 30.2% 28.4% (1.8ppt) 36
Slide 38: Group Operating Highlights
Group Operating Highlights ONLYonly FY2015 FY2015 FY2014 Variance 2H 1H use Revenue / NTK ($/’000 NTK) 52.2 51.7 52.7 51.7 1% PERSONAL USE Labour Costs / Revenue 25.7% 24.6% 26.8% 27.1% 1.4ppt personal NTK / FTE (MNTK) 10.5 10.2 10.7 9.8 7% EBITDA Margin – Underlying 39.4% 41.3% 37.6% 35.3% 4.1ppt O
Slide 39: Reconciliation - Consolidated Underlying vs. Statutory earnings
Reconciliation - Consolidated Underlying vs. Statutory earnings ONLYonly FY2015 FY2015 vs FY2015 FY2014 FY2014 2H 1H use Underlying EBIT 970 484 486 851 14% Significant items PERSONAL USE Voluntary redundancy program - - - (69) - personal Asset impairment - - - (317) - Statutory EBIT 970 484 486 465
Slide 40: 2HFY2015 vs 1HFY2015 underlying EBIT bridge
2HFY2015 vs 1HFY2015 underlying EBIT bridge ONLYonly Transformation Benefits: Volume growth: › Operations – $40m › Coal – ($28m) › Support – $17m › Bulk – ($24m) Includes: › Costs of transformation – ($10m) › Intermodal – ($16m) › Labour – $21m › Consumables – $13m use › Iron Ore – ($12m) Notable it
Slide 41: Reconciliation of Borrowings
Reconciliation of Borrowings ONLYonly As at 30 June 2015 ($m) Commentary Total debt per slide 18 (cash basis) 2,926 use Add/(less): PERSONAL USE Short-term borrowings 59 › Short-term borrowing › Transaction costs directly attributable to borrowing is capitalised in personal Transaction costs capital
Slide 42: Dividend history
Dividend history ONLYonly Amount per share Payment Date Franking Payout Ratio (cents) FY2015 Final1 28 September 2015 13.9 30% 100% FY2015 Interim 23 March 2015 10.1 0% 70% use FY2015 Total dividend 24.0 PERSONAL USE FY2014 Final 22 September 2014 8.5 0% 70% FY2014 Interim 28 March 2014 8.0 80% 65%
Slide 43: Function & Segment detail
For personal use only Function & Segment detail
Slide 44: Network profit & loss - Underlying
Network profit & loss - Underlying ONLYonly FY2015 FY2015 FY2015 v FY2014 $m FY2014 2H 1H Tonnes (million) 225.7 111.0 114.7 214.5 5% use Revenue - Access 1,048 547 501 951 10% PERSONAL USE - Services 13 7 6 17 (24%) personal - Other 47 24 23 44 7% Total Revenue 1,108 578 530 1,012 9% Operating cost
Slide 45: Commercial & Marketing profit & loss - Underlying
Commercial & Marketing profit & loss - Underlying ONLYonly FY2015 FY2015 v $m FY2015 FY2014 2H 1H FY2014 Total revenue 3,151 1,497 1,654 3,271 (4%) use Coal 1,894 924 970 1,864 2% PERSONAL USE - Above rail 1,187 575 612 1,215 (2%) personal - Below rail 707 349 358 649 9% Freight 919 410 509 1,029 (1
Slide 46: Operations profit & loss - Underlying
Operations profit & loss - Underlying ONLYonly FY2015 FY2015 v $m FY2015 FY2014 2H 1H FY2014 Revenue 332 156 176 336 (1%) use Employee Benefits (787) (374) (413) (790) - PERSONAL USE Energy & Fuel (183) (74) (109) (268) 32% Track Access (973) (476) (497) (916) (6%) personal Consumables (604) (279) (
Slide 47: Other profit & loss - Underlying
Other profit & loss - Underlying ONLYonly FY2015 FY2015 v $m FY2015 FY2014 2H 1H FY2014 Revenue 46 (1) 47 17 171% use Employee Benefits (54) (24) (30) (60) 10% PERSONAL USE Consumables (25) (15) (10) (46) 46% personal Other (29) (19) (10) (4) (625%) Total operating expenses (108) (58) (50) (110) 2%
Slide 48: Underlying EBIT by segment (old reporting regime)
Underlying EBIT by segment (old reporting regime) ONLYonly FY2015 FY2015 $m FY2015 FY2014 v 2H 1H FY2014 Key drivers of Group performance: › Record Network volumes uncapped due to pending use Network 484 266 218 412 17% UT4 decision PERSONAL USE Coal 435 231 204 400 9% › Transformation benefits offs
Slide 49: Coal profit & loss - Underlying
Coal profit & loss - Underlying ONLYonly FY2015 FY2015 v $m FY2015 FY2014 FY2014 2H 1H use Revenue - Above rail 1,187 575 612 1,215 (2%) PERSONAL USE - Below rail 707 349 358 649 9% personal Total Revenue 1,894 924 970 1,864 2% Operating costs (1,286) (605) (681) (1,291) - EBITDA 608 319 289 573 6%
Slide 50: Iron Ore profit & loss - Underlying
Iron Ore profit & loss - Underlying ONLYonly FY2015 FY2015 FY2014 $m FY2015 v 2H 1H FY2014 use Revenue 338 163 175 378 (11%) PERSONAL USE Operating costs (218) (108) (110) (239) 9% personal EBITDA 120 55 65 139 (14%) EBITDA margin 35.5% 33.7% 37.1% 36.8% (1.3ppt) Depreciation expense (38) (19) (19)
Slide 51: Freight profit & loss – Underlying
Freight profit & loss – Underlying (Freight includes Bulk and Intermodal businesses) ONLYonly FY2015 FY2015 FY2015 FY2014 v $m 2H 1H FY2014 use Revenue 919 410 509 1,029 (11%) PERSONAL USE Operating costs (829) (368) (461) (941) 12% personal EBITDA 90 42 48 88 2% EBITDA margin 9.8% 10.2% 9.4% 8.6% 1
Slide 52: Aurizon Network Overview
Aurizon Network Overview ONLYonly Central Queensland Coal Network (CQCN) › The 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 use connecting system link › 2,670 kilometres network
Slide 53: Central Queensland Coal Network volumes (mt)
1 Central Queensland Coal Network volumes (mt) ONLYonly FY2015 FY2015 v FY2015 FY2014 2H 1H FY2014 Newlands 14.7 6.7 8.0 12.0 23% use Goonyella 119.6 59.5 60.1 114.5 4% PERSONAL USE Blackwater 63.7 31.2 32.5 63.1 1% personal Moura 12.3 5.8 6.5 12.4 (1%) GAPE 15.4 7.8 7.6 12.5 23% Total 225.7 110.9 1
Slide 54: Queensland FY2015 Take-or-Pay - Network and Coal
Queensland FY2015 Take-or-Pay - Network and Coal ONLYonly $m Coal Network1 Consolidated Income › GAPE was the only system to trigger Take or Pay in FY2015 for Aurizon Network use Coal Customers 1.4 - 1.4 › In all other systems, actual GTK’s exceeded system forecast GTK’s adjusted for Network cause /
Slide 55: Network revenue cap adjustments
Network revenue cap adjustments ONLYonly AT2-4 AT5 › Revenue cap is the difference by System between Network’s Total Year (diesel tariff) (electric tariff) Total Actual Revenue (TAR) and System Allowable Revenue $m $m $m (SAR) and also includes rebates and energy cost variations. This is collected t
Slide 56: Coal haulage tonnages (mt) by system
Coal haulage tonnages (mt) by system ONLYonly FY2015 FY15 vs. FY2015 FY2014 FY14 2H 1H Variance use Queensland Newlands 22.2 10.9 11.3 16.4 35% PERSONAL USE Goonyella 65.2 30.4 34.8 70.8 (8%) personal Blackwater 61.0 29.8 31.2 62.0 (2%) Moura 12.6 5.9 6.7 12.6 0% West Moreton 7.3 3.6 3.7 8.1 (10%) T
Slide 57: Coal Take-or-Pay accrual
Coal Take-or-Pay accrual ONLYonly FY2015 $m FY2015 FY2014 2H 1H use Take-or-Pay charge1 (Expense) (9.3) (2.1) (7.2) (25.0) Take-or-Pay passed through to PERSONAL USE 1.4 1.4 0.0 15.3 customers (Revenue) Adjustments2 relating to earlier personal (0.7) (0.7) 0.0 (2.2) years Net EBIT impact (8.6) (1.4)
Slide 58: Queensland Coal - Deficit Tonnage Charges (DTC)
Queensland Coal - Deficit Tonnage Charges (DTC) ONLYonly Full Year YoY › A form of protection for the above rail coal business when $m 2H 1H Charge Variance actual tonnages are less than contracted 2015 3 1 4 (4) › DTC refers to the period in which the income was use recognised in the P&L, not the p
Slide 59: Above Rail Coal contractual outlook
Above Rail Coal contractual outlook ONLYonly Aurizon’s Annualised Coal above rail revenue “Old Form” vs. “New Above Rail Coal Contracted breakdown Form” coal volumes4 Volumes (mtpa)1 use 232 230 225 100% 100% PERSONAL USE 6% 4% 39 41 45 27% 32% 31% 36% 41% personal 47% 94% 96% 193 189 180 73% 68% 69
Slide 60: Capital Expenditure
For personal use only Capital Expenditure
Slide 61: FY2015 group and functional capital expenditure ($m)
FY2015 group and functional capital expenditure ($m) ONLYonly 1,107 use PERSONAL USE 472 personal 569 131 268 421 148 20 504 100 281 91 For FOR 173 11 30 26 50 FY2015 Network Operations Support Other1 Sustaining Transformational and productivity Growth 1. Capitalised interest 60
Slide 62: Major committed Network growth projects
Major committed Network growth projects ONLYonly Wiggins Island Rail › WIRP is the staged development of new rail lines and upgrading of existing lines to service the new Project (WIRP) Wiggins Island Coal Export Terminal at the Port of Gladstone › Commenced: FY2012 › Spend to 30 June 2015: $725m of
Slide 63: Wiggins Island Rail Project (WIRP)
Wiggins Island Rail Project (WIRP) ONLYonly › WIRP is a project designed to link mines in the Southern Bowen Basin with the new Wiggins Island Coal Export Terminal (WICET) at the Port of Gladstone and will increase the total capacity of the Moura and Blackwater systems by 27mtpa (30%). Total estimat
Slide 64: WIRP Fast Facts
WIRP Fast Facts ONLYonly › Wiggins Island Rail Project (WIRP) Stage 1 will facilitate transport of 27mtpa of coal to the new Wiggins Island Coal Export Terminal (WICET) › 33% increase in export tonnage transported in the Blackwater and Moura systems (81mtpa to 108mtpa) › $831m(1) investment in new a
Slide 65: Major Coal initiative in NSW
Major Coal initiative in NSW ONLYonly Hexham › The Long Term Train Support Facility (LTTSF) at Hexham has Train been operational since July 2015 Support › This new world class facility provides Aurizon existing and Facility future fleet maintenance and provisioning capability, driving Hunter improve
Slide 66: Major committed Operations projects
Major committed Operations projects ONLYonly Whitehaven › Delivery of new rollingstock for the start-up of Whitehaven’s Maules Creek mine New Rollingstock › Tranche 1 – 3 new consists were commissioned and progressively introduced into service from Coal - NSW December 2014 - March 2015 › Tranche 2 –
Slide 67: Global Markets
For personal use only Global Markets
Slide 68: High quality Australian thermal coal is well placed to meet growing demand
High quality Australian thermal coal is well placed to meet growing demand for more efficient coal-fired generation use only Thermal Coal Seaborne Imports By Country (mt) › In the short-term, policies introduced by China’s authorities have reduced its demand for coal imports. While exports of Austra
Slide 69: Volume growth has assisted Australian metallurgical coal producers reduce unit costs
Volume growth has assisted Australian metallurgical coal producers reduce unit costs in response to lower prices, while United States exports are increasingly unviable use only Metallurgical Coal Seaborne Imports By Country (mt) › Like thermal coal, China’s metallurgical coal imports +1.9% have been
Slide 70: AUD/USD depreciation helping mitigate lower USD commodity prices
In addition to successful AUD unit cost reduction, AUD/USD depreciation is helping mitigate the impact of lower USD commodity prices on the profitability of Australian producers use only Indices of Australian coal producer unit cash costs and › Australian coal producers have been among the world’s m
Slide 71: China's accumulated steel stock per capita remains well below the US
China’s accumulated steel “stock” per capita remains well below the United States, suggesting a substantial volume of steel production is still to come Steel stock-in-use per capita (tonne) – China vs. US › While China’s total steel demand growth is expected to use only 20 moderate, there remains up
Slide 72: Australian coal export volume continued to grow in FY15
Australian coal export volume continued to grow in FY15 as increased shipments to India and other markets more than offset softer Chinese demand use only Australia’s metallurgical coal exports by destination (mt) › Australia recorded continued growth in coal exports in FY15. Lower exports to China w
Slide 73: 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 ONLYonly CQCN Central Queensland Coal Network d
Slide 74: For personal use only
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