Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — FY2014 Earnings Presentation
69 slides from Aurizon's earnings presentation, Aug 18, 2014
Slide 1: Full year results presentation cover letter
Dominic D Smith Vice President & Company Secretary Aurizon Holdings Limited ABN 14 146 335 622 T +61 7 3019 9000 F +61 7 3019 2188 E CompanySecretary@aurizon.com.au W aurizon.com.au Level 17, 175 Eagle Street Brisbane QLD 4000 GPO Box 456 Brisbane QLD 4001 For personal use only ASX Market Announceme
Slide 2: FY2014 Results Presentation
For personal use only FY2014 Results Presentation Lance Hockridge – Managing Director & CEO Keith Neate – EVP & CFO Mike Franczak – EVP Operations 18 August 2014
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
Key headlines ONLYonly Safety 71% improvement in LTIFR, 0.28 now at World Class performance 49% improvement in MTIFR Earnings Statutory EBIT down 32% - includes transformation related asset impairment ($190m), other asset impairments use ($127m) and voluntary redundancy costs ($69m) Underlyi
Slide 6: Safety performance
Safety performance, our target is ONLYonly Lost Time Injury Frequency Rate (LTIFR)1 Medically Treated Injury Frequency Rate (MTIFR) 1 Medically treated injuries per million person-hours worked use 44.21 11.43 Lost time injuries per million person-hours worked PERSONAL USE 71% 49% personal improvemen
Slide 7: Statutory earnings impacted by significant items
Statutory earnings impacted by significant items ONLYonly FY2014 $m FY2014 FY2013 2H 1H Total Revenue 3,832 1,867 1,965 3,766 use Statutory EBITDA 965 513 452 1,182 Statutory EBIT 465 264 201 685 PERSONAL USE Significant items For details of the Significant items, refer to slide 14 personal Transf
Slide 8: Financial highlights – Underlying
Financial highlights – Underlying ONLYonly $m FY2014 FY2013 Variance 13% improvement in underlying EBIT & EPS use Total revenue 3,832 3,766 2% Coal volume up 9% driven by higher demand in both Queensland and Hunter Valley PERSONAL USE EBITDA 1,351 1,251 8% Iron Ore volume up 21%, at full contrac
Slide 9: Operating highlights
Operating highlights ONLYonly FY2014 FY2014 vs. FY2014 2H 1H FY2013 FY2013 Opex / NTK improved 10% Variance use Revenue / NTK ($/000 NTK) 51.7 52.2 51.3 55.8 (7%) Revenue / NTK decrease driven by lower PERSONAL USE Labour Costs / Revenue 27.1% 27.2% 26.9% 29.0% 1.9ppt Network revenue due to capped
Slide 10: On track to deliver 75% operating ratio in FY2015
On track to deliver 75% operating ratio in FY2015 ONLYonly FY2014 achieved $129m in transformation benefits against a target of 2.1ppt improvement vs. FY2013 $90m Operations benefits - $96m 88.0 o $42m reduction in labour use o $29m in fleet productivity o $13m in fuel productivity 83.4 PERSONAL U
Slide 11: Results analysis
For personal use only Results analysis Keith Neate - EVP & CFO
Slide 12: FY2014 vs. FY2013 underlying EBIT bridge
FY2014 vs. FY2013 underlying EBIT bridge ONLYonly Incremental volume related costs (ex access and fuel) for GAPE contracted tonnes ramp-up - $98m Coal, Intermodal & Iron Ore - ($39m) Volume growth: Increase in underlying fuel price - ($20m) Decrease in access revenue (ex. GAPE) - ($60m) o
Slide 13: Underlying EBIT by segment
Underlying EBIT by segment ONLYonly FY2014 $m FY2014 FY20131 Variance Key drivers of Group performance: 2H 1H use Network - capped transitional revenue for CQCN with Network 412 195 217 417 (1%) increased network maintenance costs to support PERSONAL USE record volume throughput Coal - volumes u
Slide 14: Key FY2014 segment earnings drivers
Key FY2014 segment earnings drivers ONLYonly Network Coal Iron Ore Freight Record volume throughput 9% QLD and 7% NSW volume 21% increase in volumes Volumes decreased by 6% over the CQCN of 214.5mt, an growth hauled and 18% increase in o Bulk down 9% use increase of 32mt (18%) on NTK’s o Int
Slide 15: Significant items for FY2014
Significant items for FY2014 Asset Class ($m) Pre-Tax ONLYonly Transformation-related asset impairments: Rollingstock 170 Integrated Operating Plan identified 200 locomotives and almost 2,800 wagons as surplus 76 locos and 2,387 wagons sold during the year, with further disposals to follow Sus
Slide 16: Cash flow summary
Cash flow summary ONLYonly $m FY2014 FY2013 Free cash flow up $223m on FY2013 EBITDA - statutory 965 1,182 Working Capital & Other movement 341 (133) Non-cash impairments of $317m use Cash from operations 1,306 1,049 PERSONAL USE Net finance costs (114) (112) Income taxes paid (124) (31) Tax pai
Slide 17: Strong balance sheet
Strong balance sheet ONLYonly As at ($m) 30 June 2014 30 June 2013 Increase in total current assets due to $210m increase Total current assets 1,336 933 in cash and cash equivalents and $88m increase in assets held for sale use Property, plant & equipment 9,441 9,460 Other non-current assets 172 1
Slide 18: Committed capital expenditure profile
Committed capital expenditure profile ONLYonly Committed growth vs. sustaining capex1 ($m) Growth Capex includes WIRP, Rolleston Electrification, Hexham and Whitehaven rollingstock 1,370 FY2014 sustaining capex: use 1,202 - additional spend for coal wagon and locomotive ~1,100 overhauls identifi
Slide 19: Operations – Drive to 75
For personal use only Operations – “Drive to 75” Mike Franczak – EVP Operations
Slide 20: Significant improvement in core operational performance
Significant improvement in core operational performance Operations delivered a 9% improvement in operating expenses (c/NTK) vs. FY2013 2 ONLYonly Metric Basis FY2014 FY2013 FY2014 2H FY2014 2H FY2013 2H FY2014 vs. vs. FY2013 2H FY2013 Variance Variance use Production Net tonne kilometres (bn) Annual
Slide 21: Blackwater opportunity cost saving of $34m
Blackwater opportunity cost saving of $34m through the delivery of increased volumes on a flat cost base ONLYonly Operational Performance Transformation Operational FY2013 FY2014 Improvement Drivers Efficiencies Volumes (MTPA) 50.5 49.7 62.0 23% mtpa increase Turn around Time (TAT) use • Improved pa
Slide 22: Transformation programs underpin operational improvements
Transformation programs underpin operational improvements ONLYonly Transformational THE FULL CASCADE OF THE IOP IS UNDERWAY ACROSS THE NATION programs North West corridor re-design use November • Integrated Operating 2013 Plan (IOP) IOP kick-off New Operating PERSONAL USE Plan developed • Longer / d
Slide 23: Delivered $96m transformation in FY2014; target revised
Delivered $96m transformation in FY2014. Target revised from $130m+ to a range of $160m-$200m ONLYonly Category July 2013 FY2014 FY2015 Focus Revised target target benefits range for delivered FY2014/15 use Labour $50-$70m $42m Improvement in labour costs by focusing on productivity $60-$70m and ing
Slide 24: Further opportunities to improve operational performance
Further opportunities to improve operational performance ONLYonly • Ingraining a “continuous • Extracting more value • Further rationalisation of improvement” culture across Aurizon by challenging the way use the facilities footprint we work with our • Enhancing rules qualification of network suppli
Slide 25: Other – business update
For personal use only Other – business update Lance Hockridge – MD & CEO
Slide 26: Strategic Projects – West Pilbara Infrastructure Project
Strategic Projects – West Pilbara Infrastructure Project ONLYonly Aurizon and Baosteel have effected an off-market takeover of Aquila Resources (delisted on 29th July) Strategic intent of Aurizon’s investment in Aquila is to facilitate development of rail and port infrastructure for the West Pil
Slide 27: Aquila Resources and West Pilbara Infrastructure Project timeline
Aquila Resources and West Pilbara Infrastructure Project timeline For personal use only Subject to change depending on terms 50% shareholder agreed with AMCI(IO)3 acceptance reached Aquila InfraCo FID4 delisted 2014 2015 January 5 May 8 Aug 11 Jul July 29 Jul 3 Jul Off-market takeover First Aquila +
Slide 28: Strategic Projects - other
Strategic Projects - other ONLYonly Galilee Basin (Coal) Moorebank (Intermodal) Aurizon progressing with GVK Hancock to acquire 51% interest in The Sydney Intermodal Terminal Alliance (SIMTA) consortium, use Hancock Coal, which holds the Abbot Point T3 (Port Project) and comprising Qube (67% int
Slide 29: Freight development plan
Freight development plan ONLYonly Greater integration and collaboration across the enterprise to deliver customer service excellence, disciplined operations driving cost efficiencies and productivity gains Strategy FY2014 Achievements use Replicate business model successfully implemented in the Co
Slide 30: Other matters
Other matters ONLYonly Enterprise Agreements update Network Regulation update Queensland There has been a substantial amount of engagement with key Aurizon’s main efforts have been directed toward negotiating for use stakeholders on all key matters including SUFA and UT4 replacement Enterprise A
Slide 31: Outlook & summary
For personal use only Outlook & summary Lance Hockridge – MD & CEO
Slide 32: FY2015 Outlook
FY2015 Outlook ONLYonly Based on current market conditions, our volume outlook in respect of FY2015 is: o Coal – haulage volumes in a range of 210-220mt use o Iron Ore – decrease in contracted volumes from 30mt in FY2014 to ~23mt in FY2015 as previously disclosed PERSONAL USE o Freight – modest in
Slide 33: Summary
Summary ONLYonly Strong underlying result driven by: o Volume growth and delivering sustainable value from the transformation program use Disciplined capital management continues with dividend payout ratio increasing from 65% to 70% PERSONAL USE 75% Operating Ratio for FY2015 remains the key o
Slide 34: Questions & Answers
For personal use only Questions & Answers
Slide 35: FY2014 Supporting information
For personal use only FY2014 Supporting information 18 August 2014
Slide 36: 2014 Full Year Results additional information
For personal use only 2014 Full Year Results additional information
Slide 37: Accounting Changes
Accounting Changes ONLYonly Comparison to FY2013 Financial Statements Network Segment has been adjusted to reflect the internal restructure of Aurizon Network that occurred on 1 July 2013 (linked to the refinancing of the syndicated debt facilities that occurred on 27 June 2013) use - Two division
Slide 38: Network profit & loss - Underlying
Network profit & loss - Underlying ONLYonly FY2014 FY14 vs. FY13 $m FY2014 2H 1H FY2013 Variance Tonnes (million) 214.5 106.9 107.6 182.3 18% use Revenue growth impacted by Revenue - Access 951 461 490 921 3% capped transitional tariffs ($60m) PERSONAL USE - Services 17 9 8 26 (35%) GAPE revenue
Slide 39: Network metrics
Network metrics ONLYonly FY2014 FY14 vs. Record volume throughput over the FY13 CQCN totalling 214.5mt, an increase of FY2014 2H 1H FY20132 Variance 32mt (18%) on FY2013 EBIT – Underlying ($m) 412 195 217 417 (1%) use Maintenance spend per NTK remained constant in nominal terms despite Tonnes (m
Slide 40: Queensland FY2014 Take-or-Pay - Network and Coal
Queensland FY2014 Take-or-Pay - Network and Coal 1 ONLYonly $m Coal Network Consolidated Income Revenue Protection mechanisms exist where volumes hauled are less than regulatory volumes used to set use Coal Customers 13.1 13.1 reference tariffs Coal Customers - prior year Where actual Network re
Slide 41: Network revenue cap adjustments
Network revenue cap adjustments ONLYonly AT2-4 AT5 Total A further revenue protection mechanism is the revenue cap Year (diesel tariff) (electric tariff) adjustment. Actual Network revenue is compared to the regulatory $m $m $m determination, and under/over recoveries are adjusted in the 1 2014 15
Slide 42: Central Queensland Coal Network volumes (mt)
Central Queensland Coal Network volumes (mt) ONLYonly FY2014 FY2014 FY2013 2H 1H Newlands 12.0 5.9 6.1 14.5 use Goonyella 114.4 57.1 57.3 97.6 PERSONAL USE Blackwater 63.1 31.4 31.7 54.9 personal Moura 12.5 6.2 6.3 10.8 GAPE 12.5 6.4 6.1 4.5 Total 214.5 106.9 107.6 182.3 For FOR Average haul length
Slide 43: Coal profit & loss - Underlying
Coal profit & loss - Underlying ONLYonly FY2014 FY14 vs. FY13 $m FY2014 2H 1H FY2013 Variance Above rail revenue increased $132m driven by the strong volumes Revenue - Above Rail 1,211 614 597 1,079 12% Below rail access revenue (and the use - Below Rail 649 289 360 776 (16%) corresponding opera
Slide 44: Coal metrics
Coal metrics ONLYonly FY2014 FY14 vs. FY13 FY2014 2H 1H FY2013 Variance Total NTK growth of 13% was greater than the 9% increase in EBIT – Underlying ($m) 400 213 187 320 25% volumes due to increased GAPE use volumes and the commencement Tonnes hauled (m) - QLD 169.9 81.3 88.6 155.8 9% of Whitehav
Slide 45: Coal metrics (continued)
Coal metrics (continued) ONLYonly FY2014 FY14 vs. Above Rail Revenue / NTK in line FY2014 FY2013 FY13 with prior year: 2H 1H Variance o $29m decrease in DTC - refer slide 47 Above Rail Revenue / NTK 24.6 25.9 23.4 24.7 - use ($/000 NTK) o Volume mix - ~50% of volume Below Rail Revenue / NTK 13.2 1
Slide 46: Coal haulage tonnages (mt) by system
Coal haulage tonnages (mt) by system ONLYonly FY2014 FY14 vs. FY13 FY2014 FY2013 2H 1H Variance Queensland use Newlands 16.4 8.2 8.2 17.0 (4%) PERSONAL USE Goonyella 70.8 32.2 38.6 68.6 3% personal Blackwater 62.0 31.3 30.7 50.5 23% Moura 12.6 6.1 6.5 10.9 16% West Moreton 8.1 3.5 4.6 8.8 (8%) Total
Slide 47: Coal Take-or-Pay accrual
Coal Take-or-Pay accrual ONLYonly FY2014 $m FY2014 2H 1H FY2013 Take-or-Pay charge1 (Expense) (25.0) (20.0) (5.0) (16.0) use PERSONAL USE Take-or-Pay passed through to customers (Revenue) 15.3 9.4 5.9 13.9 personal Adjustments2 relating to earlier years (2.2) - (2.2) (1.8) Net EBIT impact from non
Slide 48: Queensland Coal - Deficit Tonnage Charges (DTC)
Queensland Coal - Deficit Tonnage Charges (DTC) ONLYonly Full Year YoY A form of protection for the above rail coal business when actual DTC ($m) 2H 1H Charge Variance tonnages are less than contracted 2014 DTC refers to the period in which the income was recognised in 1 7 8 (29) the P&L, not th
Slide 49: Above Rail Coal contractual outlook
Above Rail Coal contractual outlook For personal use only Aurizon’s Annualised Above Coal above rail revenue “Old Form” vs. “New Form” Rail Coal Contracted breakdown coal volumes4 Volumes (mtpa)1 232 230 228 100% 100% 6% 3% 39 41 45 31% 30% 29% 39% 38% 46% 47% 51% 94% 97% 193 188 183 69% 70% 71% 61%
Slide 50: Iron Ore profit & loss - Underlying
Iron Ore profit & loss - Underlying ONLYonly FY2014 FY14 vs. FY13 $m FY2014 2H 1H FY2013 Variance Revenue 378 188 190 357 6% Revenue growth not as strong use as volume growth due to the Operating costs (239) (119) (120) (223) (7%) impact of capacity charges arising in FY2013 for volumes PERSONAL U
Slide 51: Iron Ore metrics
Iron Ore metrics ONLYonly FY2014 FY14 vs. FY13 FY2014 2H 1H FY2013 Variance EBIT – Underlying ($m) 103 53 50 97 6% use Tonnes hauled (m) 29.9 14.9 15.0 24.7 21% PERSONAL USE Contract Utilisation2 100% 100% 100% 82% 18ppt personal NTK (bn) 12.2 6.1 6.1 10.3 18% Capacity charge income in FY2013 cont
Slide 52: Freight profit & loss – Underlying
Freight profit & loss – Underlying (Freight includes Bulk and Intermodal businesses) ONLYonly FY2014 FY14 vs. 5% revenue decrease driven by 6% FY13 volume decline, noting: ($m) FY2014 2H 1H FY2013 Variance 1. $77m decrease in Bulk revenues from 9% volume decline Revenue 1,029 479 550 1,082 (5%) us
Slide 53: Freight metrics
Freight metrics ONLYonly FY2014 FY14 vs. Freight volumes decreased 6% due to: FY13 FY2014 2H 1H FY2013 Variance o Bulk volumes down 9% - lower QLD grain volumes, unscheduled EBIT – Underlying ($m) 34 14 20 23 48% customer plant shut down, impact use of Indonesian Govt. Nickel export Tonnes hauled
Slide 54: 2H FY2014 vs. 1H FY2014 Underlying EBIT bridge
2H FY2014 vs. 1H FY2014 Underlying EBIT bridge ONLYonly Volume declines: A net decrease in operating and other expenses of $27m, o Freight – ($43m) including: Decrease in access revenue use o Coal – ($20m) o Bad debt recovery (Freight) - $10m o Iron Ore – ($8m) (ex. GAPE) – ($46m) o Reduced el
Slide 55: Continued improvement in Return on Invested Capital
Continued improvement in Return on Invested Capital ONLYonly Return on Invested Capital (ROIC)1 use 0.8ppt PERSONAL USE personal 8.8 8.0 6.7 For FOR 4.4 2.0 FY2010 FY2011 FY2012 FY2013 FY2014 1. Underlying 54
Slide 56: Dividend history
Dividend history ONLYonly Payment Date Amount per share (cents) Franking FY2014 Final1 22 September 2014 8.5 0% FY2014 Interim 28 March 2014 8.0 80% use FY2014 Total dividend 16.5 PERSONAL USE FY2013 Final 23 September 2013 8.2 90% FY2013 Interim 27 March 2013 4.1 70% personal FY2013 Total dividend
Slide 57: Debt summary Aurizon Group
Debt summary Aurizon Group $0.325bn maturity profile as ONLYonly $m at 30 June 2014 Credit ratings unchanged at BBB+/Baa1 25 Drawn Debt Stable debt maturity profile with an average tenor of 3.5 Undrawn Debt years (FY2013 - 3.6 years) 300 275 use Liquidity at 30 June 2014 $0.94bn (undrawn facil
Slide 58: Group and segment capital expenditure
Group and segment capital expenditure ($m) ONLYonly FY2014 capex and segment breakdown1 use 932 PERSONAL USE 473 personal 595 336 459 159 For FOR 259 71 97 89 10 16 26 70 55 71 4 6 FY2014 Network Coal Iron Ore Freight Other2 Growth Sustaining 1. FY2014 excludes $120m strategic projects asset impairm
Slide 59: 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 date: $523m of $858m e
Slide 60: Wiggins Island Rail Project (WIRP)
Wiggins Island Rail Project (WIRP) ONLYonly WIRP is designed to link mines in the Southern Bowen Basin with the new Wiggins Island Coal Export Terminal (WICET) at the Port of Gladstone increasing total capacity of the Blackwater and use Moura systems by 27mtpa, or approx. 30% at full production
Slide 61: Major committed Coal growth projects
Major committed Coal growth projects ONLYonly Hexham Train Stage one of the Hexham Train Support Facility (TSF) will service Aurizon’s growing Hunter Valley Support Facility coal freight business and alleviate capacity pressures in the coal supply chain Hunter Valley The TSF will provide for sta
Slide 62: Network Regulation update
Network Regulation update ONLYonly Transitional Tariffs In June 2014, a “Transitional Tariffs” Draft Amending Access Undertaking (DAAU) was approved by the QCA to further extend UT3 to the earlier of 30 June 2015 and the QCA’s final determination on UT4, and to apply transitional Reference Tariffs
Slide 63: Demand for seaborne thermal coal is expected to grow at 3.4% per annum
Demand for seaborne thermal coal is expected to grow at 3.4% per annum through to 2023 For personal use only Thermal Seaborne Export Demand By Country (mt) +3.4% 1,296 1,049 1,059 Other 982 1,024 952 964 906 Taiwan In 2014, subdued demand from China’s power sector and 807 717 South Korea high inve
Slide 64: China and India will drive absolute electricity demand
China and India will drive absolute electricity demand with thermal coal remaining the dominant fuel source For personal use only +3.3% Electricity demand growth, 2011-2035, TWh, CAGR 5,000 Projected growth to 2035 in coal power generation 4,500 capacity in Non-OECD nations suggests that one new the
Slide 65: Reversing earlier cost escalation, unit costs in Australian coal supply reduced
Reversing earlier cost escalation, increased volumes and cost cutting have reduced unit costs in Australian coal supply For personal use only Coal price movements influence operating costs During the period 2009-2012, a high coal price environment resulted in a cost escalation of 93% driven by wag
Slide 66: Australia remains the dominant seaborne metallurgical coal supplier
Australia remains the dominant seaborne metallurgical coal supplier with cost position improving 140 For personal use only Weighted Average cash costs US$/t US Appalachia 120 Mozambique Canada Metallurgical coal costs have shifted lower over 100 Vietnam the past two years, and Australia’s position
Slide 67: Chinese domestic iron ore production expected to be displaced
Chinese domestic iron ore production is expected to be displaced Australian supply expansions For personal use only Iron Ore Export Demand By Country (mt) +2.1% Rapid increase in Australia’s exports of Iron Ore exports, 1,572 1,605 1,677 including 24%/yr growth in FY14, has underpinned 1,477 1,527
Slide 68: Definitions
Definitions Metric Description ONLYonly 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 d
Slide 69: FY2014 Results Presentation
For personal use only FY2014 Results Presentation Lance Hockridge – Managing Director & CEO Keith Neate – EVP & CFO Mike Franczak – EVP Operations 18 August 2014