Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — H1 FY2013 Earnings Presentation
69 slides from Aurizon's earnings presentation, Feb 20, 2013
Slide 1: ASX cover letter: Half Year Report Analysts Presentation
Dominic D Smith Senior Vice President & Company Secretary Aurizon Holdings Limited ABN 14 146 335 622 T +61 7 3019 1976 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 20 February 20
Slide 2: Interim Results 2013
For personal use only Interim Results 2013 Lance Hockridge – Managing Director & CEO Keith Neate – Executive Vice President & CFO (Acting) 20 February 2013
Slide 3: Important notice
Important notice For personal use only 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 t
Slide 4: Half year in review
For personal use only Half year in review Lance Hockridge - MD & CEO
Slide 5: Another strong financial and operational performance
Another strong financial and operational performance For personal use only Safety • 44% improvement in LTIFR • 28% improvement in MTIFR Earnings • Underlying EBIT up 36% • Statutory EBIT down 1% - after Voluntary Redundancy Program (VRP) payment $88m Dividends • Interim dividend declared 4.1c • Comm
Slide 6: Financial highlights
Financial highlights For personal use only Six months ended 31 December ($m) 2011(4) 2012 Variance Total revenue • Iron ore volumes up 89%, 1,717 1,878 9% coal flat EBITDA - Statutory 494 514 4% • Iron ore growth & Network fees key drivers EBIT - Statutory 270 268 -1% - Underlying(1) 261 356 36% NPA
Slide 7: Reconciliation Statutory vs. Underlying earnings
Reconciliation Statutory vs. Underlying earnings For personal use only Six months ended 31 December ($m) 2011 2012 Underlying EBIT 261 356 Significant items Voluntary redundancy program(1) - (88) Stamp Duty(2) 9 - Statutory EBIT 270 268 Interest Expense (15) (42) Statutory PBT 255 226 Taxation Expen
Slide 8: Underlying earnings quality transformed – more to come
Underlying earnings quality transformed – more to come For personal use only +9% Coal Volumes (mt) Group Revenue(1) ($m) 1,878 103 1,817 100 98 97 1,698 1,717 95 88 1,448 1,504 82 1,435 1H FY10 2H FY10 1H FY11 2H FY11 1H FY12 2H FY12 1H FY13 1H FY10 2H FY10 1H FY11 2H FY11 1H FY12 2H FY12 1H FY13 Gr
Slide 9: Operating highlights
Operating highlights For personal use only 1H FY12 1H FY13 Variance • New form contracted coal Revenue / NTK ($/000 NTK) 53.8 56.0 4% volume increase • VRP impact, but expected to rise as employee headcount Labour Costs/ Revenue 32% 30% 2ppt grows by ~300 in 2H (graduates & trainees) NTK/employee (M
Slide 10: Safety performance
Safety performance For personal use only Lost Time Injury Frequency Rate (LTIFR) Medically Treated Injury Frequency Rate (MTIFR) 11.43 44.21 Medically treated injuries per million man-hours worked Lost time injuries per million man-hours worked 6.14 24.67 19.26 -28% 3.08 -44% 10.74 2.40 7.75 1.35 FY
Slide 11: Significant contract wins since July 2012
Significant contract wins since 1 July 2012 For personal use only Date Customer Tonnes (p.a.) Contract duration Description announced Coal Whitehaven Up to 16 mtpa Dec 2012 12 years New contract to expand Aurizon‟s footprint in NSW from July 2014 and Gunnedah Basin (approx) Rio Tinto Up to 12 mtpa D
Slide 12: Update on major committed growth projects
Update on major committed growth projects For personal use only • Construction commenced in FY12 Wiggins Island • $214m spent so far (of $900m total) with first railings expected CY14 – Rail Project project on time and on budget QLD (WIRP) • Commissioning expected in early CY15 in line with mine dev
Slide 13: Network regulatory update
Network regulatory update For personal use only • Regulatory matters currently in progress: – Access Undertaking 4 (UT4) Aurizon‟s draft undertaking for UT4 currently expected before end of FY13 – Electric Traction Services Draft Amending Access Undertaking (DAAU) Undertaking withdrawn in Januar
Slide 14: Flood related update
Flood related update For personal use only 1. Cyclone Oswald flood (January 2013): – Minimal disruptions to Newlands and Goonyella systems – Blackwater system reopened 6 February 2013 - outage 12 days – Moura system, which had the greatest damage, reopened 19th February • Estimated financial impact:
Slide 15: Results analysis
For personal use only Results analysis Keith Neate - EVP & CFO (Acting)
Slide 16: Results summary
Results summary For personal use only Six months ended 31 December ($m) 2011 2012 Variance Total revenue 1,717 1,878 9% EBITDA - Statutory 494 514 4% - Underlying 485 602 24% EBIT - Statutory 270 268 - - Underlying 261 356 36% Net interest expense (15) (42) >100% Tax Expense - Statutory (59) (50) -1
Slide 17: Group EBIT improvement driven by iron ore volumes and GAPE earnings
Group EBIT improvement driven by iron ore volumes and GAPE earnings ($m) For personal use only 73 13 10 22 29 86 356 88 10 268 261 1H FY12 Coal Network Freight Maintenance Labour Depreciation Other 1H FY13 Voluntary 1H FY13 Underlying Revenue Access Volumes excl. labour Underlying Redundancy Statuto
Slide 18: Sustainable reform benefits
Sustainable reform benefits For personal use only • Program delivered $28m in sustainable benefits in 1H FY13: – $18m benefit from the voluntary redundancy program. Full year run rate of the voluntary redundancy program expected to be ~$80m – $10m coal revenue quality benefits from new form contract
Slide 19: Capital efficiency through innovation
Capital efficiency through innovation For personal use only Payload performance - Newlands, QLD Payload performance - Hunter Valley, NSW +10% +26% 7,000 8,000 6,000 7,000 6,000 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000 0 0 FY11 FY12 HY13 FY11 FY12 HY13 1H 2H • Consist increased fro
Slide 20: Planning integration and optimisation delivers results in Goonyella
Planning integration and optimisation delivers results in Goonyella For personal use only Planning • Reduced from 14 at implementation to 2 per day in Goonyella system Alterations (May to Dec 2012) Speed • 83% improvement in Weighted Speed Restriction Time (WSRT) Delay for 1H FY13 Restrictions (At i
Slide 21: Balance sheet remains strong
Balance sheet remains strong For personal use only As at ($m) 30 June 2012 31 December 2012 Total current assets 880 854 Property, plant & equipment 9,037 9,281 • Capex spend $499m Other non-current assets 104 118 Total assets 10,021 10,253 Total current liabilities (768) (766) Total borrowings (1,2
Slide 22: Capital management
Capital management For personal use only • Completed $54m on-market share buy-back of ~14.5m shares • Completed $1.0b selective share buy-back of a tranche of Queensland Treasury Holdings‟ (QTH) shares in Aurizon in November 2012. QTH held 18% post buy back • The current dividend policy remains unch
Slide 23: Group and segment capital expenditure
Group and segment capital expenditure For personal use only Group growth vs. sustaining capex ($m)(1),(2) 1H FY13 segment capex ($m)(1) 1,339 306 1,173 1,030 ~1,050 213 1,139 877 ~690 723 550 499 96 360 329 47 63 50 ~360 93 307 296 27 27 200 170 190 33 20 23 FY10 FY11 FY12 1H FY13 2H FY13 (f) Networ
Slide 24: Debt summary
Debt summary For personal use only Debt maturity profile ($m) Debt re-financing 1,575 • First tranche of facility re-financed 1H FY13 now due 1H FY15 1,425 • Long term funding structure to be finalised during CY13 Current cost of debt 1,425 Interest cost on drawn debt reduced from 6.5% to 5.3% Liq
Slide 25: Cash flow
Cash flow For personal use only Six months ended 31 December ($m) 2011 2012 Cash flows from operating activities Cash from operations 509 384 • Cash voluntary redundancy costs $116m Net interest paid (33) (39) Income taxes paid - (17) • First tax payment Net operating cash flows 476 328 Cash flows f
Slide 26: Segment results
For personal use only Segment results
Slide 27: Segment results – underlying EBIT
Segment results – underlying EBIT For personal use only Six months ended 2011(1) 2012 Variance 31 December ($m) • Revenue quality up, volume flat Coal 139 142 2% • VRP savings offset by CPI & maintenance Network 161 226 40% • Access earnings – GAPE & revenue cap Freight 29 50 72% • 89% growth of iro
Slide 28: Coal profit & loss - underlying
Coal profit & loss - underlying For personal use only Six months ended 2011 2012 Variance 31 December ($m) • Volumes flat, quality up Total revenue 921 929 1% • Change in QLD/NSW mix Operating costs (691) (701) -1% • Labour rate, CPI & maintenance EBITDA 230 228 -1% EBITDA margin 25% 25% 0ppt • Revi
Slide 29: Coal metrics
Coal metrics For personal use only Six months ended 31 December 2011 2012 Variance Tonnes hauled • Global demand, market volatility and - QLD 81.0 78.4 -3% (m) industrial action - NSW 16.5 18.9 15% • Improved mine productivity in NSW - Total 97.5 97.3 0% NTK (bn) - QLD 19.5 19.0 -3% - NSW 2.5 2.9 16
Slide 30: Network profit & loss - underlying
Network profit & loss - underlying For personal use only Six months ended 31 December 2011 2012 Variance ($m) • GAPE, tariff increase & Revenue - Access 365 470 29% revenue cap recovery • Lower volume as projects - Services 71 52 -27% complete - Other 10 11 10% Total Revenue 446 533 20% • CPI impact
Slide 31: Network metrics
Network metrics For personal use only Six months ended 31 December 2011 2012 Variance Tonnes (m) 86.8 90.0 4% • GAPE ramp up NTK (bn) 21.3 22.1 4% • 20% revenue growth Access revenue/NTK ($/000 NTK) 17.1 21.3 25% against 4% NTK growth • Catch up on deferred Maintenance/NTK ($/000 NTK) 2.4 2.6 -8% re
Slide 32: Freight profit & loss - underlying
Freight profit & loss - underlying For personal use only Six months ended 31 2011 2012 Variance December ($m) Revenue - Iron ore 69 168 143% • 89% volume increase • CBH grain contract expiry, TSC - Other 581 567 -2% increase Total Revenue 650 735 13% Operating costs (588) (641) -9% • Haul mix EBITDA
Slide 33: Freight metrics
Freight metrics For personal use only Six months ended 31 December 2011 2012 Variance Tonnes hauled - Iron Ore 5.6 10.6 89% (m) - Other 27.3 25.9 -5% - Total 32.9 36.5 11% NTK (bn) - Iron Ore 2.6 4.8 85% - Other 7.3 6.8 -7% - Total 9.9 11.6 17% Revenue/NTK ($/000 NTK) 65.6 63.4 -3% • Change in haul
Slide 34: Strategy
For personal use only Strategy Lance Hockridge - MD & CEO
Slide 35: Strategy
Strategy For personal use only • Delivering improved shareholder value in two ways: 1. Reforming the business to achieve the 75% operating ratio target (or 25% EBIT margin) by FY15, and thereafter targeting further improvements to achieve world class levels; and 2. Securing further growth opportunit
Slide 36: Roadmap to achieving 75% operating ratio target in FY15
Roadmap to achieving 75% operating ratio target in FY15 For personal use only FY10 >>> FY12 1H FY13 FY15 91% >>> 84% 81% 75% • LTIFR reduced by 61% since FY10 • LTIFR reduced a further 44% • Achieve World class status Safety • MTIFR reduced by 56% since FY10 • MTIFR reduced a further 28% • ZERO Harm
Slide 37: Revenue Quality - continued conversion of legacy to new form contracts
“Revenue Quality”- continued conversion of legacy to new form contracts For personal use only BMA – Goonyella(2) 97% 94% BMA – Blackwater(2) Whitehaven 74% Rio Tinto - Clermont 62% 48% 41% 38% 36% 32% 29% 19% 18% (1) 2010 2011 2012 2013(f) 2014(f) 2015(f) 2016(f) 2017(f) 2018(f) % of contracted volu
Slide 38: Volume Growth – below rail coal capacity
“Volume Growth” – below rail coal capacity For personal use only Goonyella to Abbot Point Expansion (GAPE) ~$1b CQCN Capacity under construction (mtpa) capex • Above regulated returns (fixed return) 76mt • 15 year contract 310 • Railings commenced December 2011 272 229 234 • Full ramp up by FY15 ~ $
Slide 39: Volume Growth – Iron ore
“Volume Growth” – Iron ore For personal use only • $350m investment in the iron ore business has been delivered on time and within budget • All customers either at or ramping up to full contract production • Volumes remain on track for ~30mtpa by FY14 • Working on growth options in the Mid West and
Slide 40: Securing further growth opportunities
Securing further growth opportunities For personal use only Coal – Queensland & New South Wales • Bowen Basin and Hunter Valley - continue to investigate opportunities within existing operating footprints • Surat Basin – Aurizon – a JV partner in Surat Basin Railway, with ATEC Rail Group & Xstrata C
Slide 41: Outlook & summary
For personal use only Outlook & summary Lance Hockridge - MD& CEO
Slide 42: FY13 outlook
FY13 outlook For personal use only • Taking into account the impact of the recent flood and derailment, of a loss of coal throughput of around 4mt with the potential for some recovery of coal tonnes lost, we expect our FY13 coal volumes to be in the range of 192-195mt • We will continue to work with
Slide 43: Summary
Summary For personal use only • Key focus on improvement in ROIC continues • Improved customer service proposition resulting in contract renewals/awards • Transformation to achieve 75% operating ratio in FY15 on track, with mission to “World Class” thereafter • Planning investor briefings this half
Slide 44: Questions & answers
For personal use only Questions & answers
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For personal use only Note: this page intentionally left blank 44
Slide 46: Additional slides
For personal use only Additional slides
Slide 47: Definitions
Definitions For personal use only Metric Description Access Revenue Amount received for access to the Network infrastructure under the Access Agreement DOOL Difference between planned runs vs. actual runs on a 48hr schedule GAPE Goonyella to Abbot Point Expansion Gearing Net debt/net debt + equity K
Slide 48: December 2011 segment restatement ($m)
31 December 2011 segment restatement ($m) For personal use only Following the move to the functional model, we have restated prior year earnings with the principal changes detailed below: 31 December 2011 31 December 2011 31 December 2011 Original Restatements Restated Coal Freight Network Unallocat
Slide 49: June 2012 segment restatement ($m)
30 June 2012 segment restatement ($m) For personal use only Following the move to the functional model, we have restated prior year earnings with the principal changes detailed below: 30 June 2012 30 June 2012 30 June 2012 Original Restatements Restated Coal Freight Network Unallocated Total Coal Fr
Slide 50: Group EBIT improvement driven by iron ore volumes and GAPE earnings
Group EBIT improvement driven by iron ore volumes and GAPE earnings ($m) For personal use only • Iron ore revenue $99m • Operations ($9m) including Iron ore ($4m) • Additional access costs ($20m) and lower recovery of costs in rollingstock • Higher fuel costs ($10m) maintenance • Lower Bulk revenue
Slide 51: Coal Contracts "legacy" vs. "New Form"
Coal Contracts “legacy” vs. “New Form” For personal use only “Legacy” above rail coal contracts Characteristics of new form coal contracts • Typically reflect a specified volume of product of • Tailored service offers are provided to allow even railings in each year customers choice to best meet vol
Slide 52: Above rail contracted coal volume profiles
Above rail contracted coal volume profiles For personal use only Queensland (QLD) NSW (Hunter Valley) mt mt 44 202 198 196 192 40 40 39 34 152 FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15 QLD railed QLD existing contracts NSW tonnes railed NSW contracted tonnes Notes: • The existing Aurizon contracted to
Slide 53: Recent coal contract announcements: Rio – renewal of Clermont contract
Recent coal contract announcements: Rio – renewal of Clermont contract For personal use only Volume (p.a.) 9.5mtpa to 12mtpa Haul Origin Clermont Haul Destination Dalrymple Bay Coal Terminal Contract Term 10 years 1 July 2013 to 30 June 2023 52
Slide 54: Recent coal contract announcements: Whitehaven
Recent coal contract announcements: Whitehaven - continuing growth in NSW For personal use only Volume (p.a.) Up to 16mtpa Haul Origin Narrabri, Gunnedah, Werris Creek and Maules Creek Haul Destination Port of Newcastle - NCIG, CCT and KCT Contract Term 12 years commencing 1 July 2014 (approx) to 30
Slide 55: Network tonnages by system
Network tonnages by system For personal use only Variance 1H mt 1H FY12 2H FY12 FY12 1H FY13 FY13 vs. 1H FY12 Newlands 7.7 6.9 14.6 8.7 12% Goonyella 43.6 40.4 84.0 47.7 9% Blackwater 28.2 26.9 55.1 27.4 -3% Moura 7.2 5.7 13.0 6.2 -14% Total 86.8 79.9 166.7 90.0 4% 54
Slide 56: Regulated Asset Base (RAB), agreed with QCA at the start of UT3
Regulated Asset Base (RAB), agreed with QCA at the start of UT3 For personal use only • Value of ~$3.6bn as at 30 June 2011 (approved by the regulator (QCA)) • FY12 capital expenditure claim for QCA approval not expected to be approved until later in 2013 due to size and complexity • Value of the RA
Slide 57: Access undertaking (UT4)
Access undertaking 4 (UT4) For personal use only • Current Undertaking (UT3) ends 30 June 2013 • Undertakings specify access conditions, tariffs and investment plans among other information • Currently expect to submit Aurizon's draft undertaking for the period FY14 to FY17 before end of FY13 • Acce
Slide 58: Regulated WACC parameters
Regulated WACC parameters For personal use only UT2 UT3 QCA components (expired June (expiry June The regulated rate of return is 2006) 2013) determined as follows: Regulated return is made up of the cost of Debt rating BBB+ BBB+ debt and the cost of equity, weighted by the Risk free rate 5.21% 5.19
Slide 59: Revenue cap adjustments
Revenue cap adjustments For personal use only Year AT2-4 AT5 Total • Revenue Adjustment Amounts are caused by (diesel tariff) (electric tariff) $m actual throughput varying from the parameters $m $m underlying the regulatory forecasts (System 2012 2.7 11.2 13.9 Forecasts) which form a key parameter
Slide 60: Electric traction services
Electric traction services For personal use only • Aurizon proposed changes to current electric tariff structure (AT5 tariffs (1)) in a draft amending access undertaking (DAAU) submitted to the QCA in 2012 • The QCA handed down a Draft Determination in July 2012 which Aurizon vigorously contested on
Slide 61: Standard User Funding Agreement (SUFA)
Standard User Funding Agreement (SUFA) For personal use only • SUFA is a framework designed to provide industry with a regulatory mechanism to enable alternative funding of future CQCN expansions (i.e. mining industry could fund expansions themselves) • This was required by the Queensland Competitio
Slide 62: SUFA (continued)
SUFA (continued) For personal use only • How will it operate? – Before construction: » Aurizon Network – establishes unit trust – a subsidiary company to be confirmed, for the purposes of this summary called “ABC”, appointed Trustee – received ordinary unit » Aurizon Group acts as guarantor to Auriz
Slide 63: SUFA (continued)
SUFA (continued) For personal use only • How will it operate? (continued) – During construction: » Capital received from funders as progressive subscriptions for PU‟s » ABC engages Aurizon Network as project manager and uses the subscription funding to pay construction costs – During Operations » AB
Slide 64: Strong economic growth in China and India will underpin increasing global raw materials demand
Strong economic growth in China and India will underpin increasing global raw materials demand For personal use only 15 14 IMF forecasts 13 12 11 10 Real GDP Growth % 9 8 7 China 6 India 5 World 4 Advanced economies 3 2 1 0 -12007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 -2 -3 -4 Calendar Y
Slide 65: Sustainable, moderate growth equates to ever-larger growth in absolute volume terms
Sustainable, moderate growth equates to ever-larger growth in absolute volume terms For personal use only China’s real GDP – historical and forecast Structural composition of China’s economy Full year growth rate and absolute incremental growth % share of annual GDP IMF forecast 55 Illustrative 15 2
Slide 66: Urbanisation of China's population remains a key driver for raw materials demand
Urbanisation of China’s population remains a key driver for raw materials demand For personal use only China’s rural and urban population Selected Nations: Urban residents, percentage of total population Historical and forecast Historical and forecast 1,100 UN forecast +44% 100 1,000 90 900 80 % sha
Slide 67: China's per-capita steel consumption trends towards the level of developed economies
China’s per-capita steel consumption trends towards the level of developed economies For personal use only Steel consumption1 INDICATIVE Kg/capita Steel Intensity Curve (Kg/capita; Real GDP $/capita) 1,300 South Korea (1970-2008) Label Heavy industry 1,200 export 1,100 economies 1,000 Taiwan (1970-2
Slide 68: Expected growth in steel consumption in China's western and central regions
Expected growth in steel consumption in China’s western and central regions For personal use only China’s steel intensity and level of economic development by region 1,600 1,500 Shanghai 1,400 1,300 1,200 Zhejiang Beijing Steel Intensity (kg/capita) 1,100 1,000 Shandong Tianjin 900 Jiangsu 800 700 S
Slide 69: Interim Results 2013
For personal use only Interim Results 2013 Lance Hockridge – Managing Director & CEO Keith Neate – Executive Vice President & CFO (Acting) 20 February 2013