Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (March 2017)
44 slides from Aurizon's debt investor presentation, March 2017
Slide 1: Aurizon Network Debt Investor Update
Aurizon Network Debt Investor Update Pam Bains – EVP & Group Chief Financial Officer David Collins – VP Finance & Group Treasurer March 2017
Slide 2: Important notice
Important notice No Reliance on this document No offer of securities This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to as Nothing in this presentation should be construed as a recommendation of or an offer to sell or a “Aurizon” which includes its related bodies c
Slide 3: Agenda
Agenda Introduction Aurizon Network Financials Funding and Capital Management Regulation Coal Market Update 3
Slide 4: Introduction
Introduction
Slide 5: About Aurizon
About Aurizon Aurizon (ASX: AZJ) is Australia’s largest rail freight operator and a AURIZON HOLDINGS LEGAL STRUCTURE • top 50 ASX company. Aurizon has four major product lines for customers: Coal, Iron Ore, Freight and Network. ABOVE RAIL • Market cap of A$10.2bn2 › Aurizon transports more than 250
Slide 6: Recent Developments
Recent Developments GROUP FINANCIAL • › Revenue up 1% to $1.8bn - increase in Below Rail partly offset by volume driven decrease in RESULTS Above Rail › Underlying EBIT up 21% to $488m, driven by transformation benefits in Above Rail and impact of finalisation of UT4 in Below Rail › Statutory NPAT o
Slide 7: Network Snapshot
Network Snapshot CENTRAL QLD COAL NETWORK (CQCN) KEY NETWORK FACTS 40 + operating coal mines serviced PORT OF ABBOT POINT LEGEND Townsville Open access network with 3 above rail Abbot Point Coal Terminal (APCT) City/town Power Station coal operators – Aurizon Operations, Bowen Coal Export Terminal P
Slide 8: Network - Summary of Key Credit Highlights
Network - 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 pr
Slide 9: Aurizon Network Financials
Aurizon Network Financials Half Year Ended 31 December 2016
Slide 10: Below Rail Benefits From UT4 Finalisation
Below Rail Benefits From UT4 Finalisation REVENUE › Increased 15% to $671m due to true-up from under recovery of UT4 revenue from prior years UNDERLYING EBIT › Increased $50m (20%) to $295m due to higher revenue OPERATIONAL › Improving asset management leads to 20% reduction in system closure hours
Slide 11: Below Rail Profit & Loss (Underlying)
Below Rail Profit & Loss (Underlying) 1H 2H COMMENTARY Variance fav / (adv) › Revenue Access increase primarily $m FY2017 FY2016 FY2016 attributable to UT4 True-up ~$45m Tonnes (million) 112.9 114.0 (1%) 111.9 › Revenue Other includes the recognition of Bandanna Group’s Revenue - Access 629 560 12%
Slide 12: Below Rail Balance Sheet
Below Rail Balance Sheet 31 Dec 2016 30 June 2016 COMMENTARY As at ($m) › Decrease primarily attributable to a Total current assets 272 289 reduction in Trade and Other Receivables from lower accruals for FY16 adjustments and GAPE Fees Property, plant & equipment 5,417 5,432 › Increase in Other curr
Slide 13: Funding and Capital Management
Funding and Capital Management
Slide 14: Funding Update
Funding Update CURRENT RATINGS ARE APPROPRIATE ABOVE RAIL $0.6BN MATURITY PROFILE › Moody’s outlook lifted to Baa1 (stable) on February 15, 2017 $m › Board supports current credit ratings in light of market Drawn bank debt outlook (Moody’s Baa1 (negative), S&P BBB+ (stable)) 300 Undrawn bank debt ›
Slide 15: Group Capital Spend Continues to Reduce
Group Capital Spend Continues to Reduce CAPITAL EXPENDITURE FORECAST(F) FY2017 – FY2019 ($M)1 294 ~550 ~525 ~500 › Network 1H17 capex $125m (1H16 $198m) 206 › FY2017 capex forecast down $50m › Growth capital in 1HFY2017 fully committed 370 ~355 ~330 › Transformation capital for 1HFY2017 has focussed
Slide 16: Below Rail Cashflow Statement
Below Rail Cashflow Statement 1H $m FY2017 FY2016 EBITDA - statutory 432.3 362.5 › Strong growth in FCF due to stronger earnings and lower Working capital & other movements (1.7) 7.7 capex due to ceasation of Non-cash adjustments - impairment 1.4 7.7 growth capex Cash from operations 432.0 377.9 Int
Slide 17: Regulation
Regulation
Slide 18: Aurizon Network – UT4 Final Decision
Aurizon Network – UT41 Final Decision MAXIMUM ALLOWABLE › Overall maximum revenue of $3.933 billion over the period of the Undertaking REVENUE (MAR) › Weighted Average Cost of Capital (WACC) - 7.17% TRUE-UP RECOVERY › The Final UT4 Decision highlighted a net under recovery of Regulatory Revenue in F
Slide 19: UT5 – Submitted November 2016
UT5 – Submitted November 2016 CONTEXT REVENUE PROPOSAL › Aurizon Network submitted to the Queensland Competition Authority (QCA) its Draft Access Undertaking (UT5 Draft). › Significantly larger Regulated Asset Base (RAB) of ~$6.2 billion 1 as a result of customer requested expansions. › The UT5 Draf
Slide 20: Coal Market Update
Coal Market Update
Slide 21: Coal Market Update: Market Fundamentals
Coal Market Update: Market Fundamentals METALLURGICAL COAL: CONTRACT, SPOT AND REALISED PRICE (USD) METALLURGICAL COAL: SPOT PRICE AND AUSTRALIA EXPORT VOLUME MONTH AVERAGE (JANUARY 2015 TO DECEMBER 2016) 100 96 92 95 94 96 $250 89 90 +242% 79 Price [USD] per tonne $300 73 $200 75 Million Tonnes $15
Slide 22: Coal Market Update: Australia
Coal Market Update: Australia METALLURGICAL COAL SEABORNE EXPORTS AUSTRALIA METALLURGICAL COAL EXPORTS BY DESTINATION VOLUME AND MARKET SHARE, CALENDAR YEARS CALENDAR YEARS (MILLION TONNES) 186.5 186.2 190.0 400 +7pts 70% 170.0 158.5 145.0 300 65% 132.2 Million tonnes Market Share 200 60% 100 55% 0
Slide 23: Questions & Answers
Questions & Answers 4 AURIZON.
Slide 24: Appendices
Appendices Appendix 1: UT5 Draft Revenue and WACC Appendix 2: Regulatory Revenue Protection Appendix 3: Aurizon Group Financial Information Appendix 4: Aurizon Company History Appendix 5: Network Management Team
Slide 25: Appendix 1 UT5 Draft Revenue & WACC
Appendix 1 UT5 Draft Revenue & WACC
Slide 26: UT5 Draft: MAR and Forecast Volumes
UT5 Draft: MAR1 and Forecast Volumes UT4 UT5 MAR Total FY2017 FY2018 FY2019 FY2020 FY2021 Total $m Return on capital 1,526 420 409 402 395 386 1,592 Depreciation (less inflation) 771 218 284 281 289 287 1,141 Maintenance costs 805 207 221 225 235 240 921 Operating costs 815 223 206 211 217 221 855 T
Slide 27: UT5 Draft: Allowable Return on Capital
UT5 Draft: Allowable Return on Capital FINANCIAL OUTCOMES UT4 FINAL UT5 SUBMISSION Decision Date 28 Apr 2016 n/a Risk-free Rate 3.21% 2.13% Averaging Period 20-Day to 31 Oct 2013 20-Day to 30 Jun 2016 Term of Risk-free Rate 4-year 10-year Gearing Ratio 55% 55% Benchmark Credit Rating BBB+ BBB+ Asset
Slide 28: Appendix 2 Regulatory Revenue Protection
Appendix 2 Regulatory Revenue Protection
Slide 29: Regulated Revenues Within a Stable and Well-Established Regulatory Regime
Regulated Revenues Within a Stable and Well-Established Regulatory Regime 1 WELL ESTABLISHED REGULATORY REGIME 2 STABLE REGULATED REVENUE BASE 3 WELL DEVELOPED BUILDING BLOCK APPROACH T O REVENUE DETERMINATION › Over 90% of Aurizon Network › The provision of transportation services by rail on the CQ
Slide 30: The CQCN Regulatory Framework Provides Revenue Protection Through a Building Block Approach
The CQCN Regulatory Framework Provides Revenue Protection Through a Building Block Approach MAXIMUM ALLOWABLE REGULATORY REVENUE TOTAL ACTUAL REVENUE PROTECTION REVENUE (FORECASTED) FOR EACH YEAR TESTS OF UNDERTAKING PERIOD AT1 Outside the revenue protection scope RETURN ON CAPITAL (Weighted Average
Slide 31: Take-or-Pay Protection Should Revenues Fall Short (With a Revenue Cap)
… with Take-or-Pay Protection Should Revenues Fall Short (With a Revenue Cap) ToP › Primary revenue protection mechanism available to AT2 Train Paths Take-or-pay Aurizon Network Revenue cap Take or pay AT3 Net Train Kilometres (NTK) mechanisms › Allows Aurizon Network to recover revenue shortfall di
Slide 32: Appendix 3 Aurizon Group Financial Information
Appendix 3 Aurizon Group Financial Information
Slide 33: Group Financial Highlights
Group Financial Highlights $m 1HFY2017 1HFY2016 Variance › Revenue growth includes timing differences in Revenue 1,781 1,758 1% Network to reflect UT4 finalisation and bank guarantee for Bandanna Operating costs (1,006) (1,075) 6% › Operating costs decrease reflects $64m in transformation benefits a
Slide 34: Earnings Reconciliation and Significant Items
Earnings Reconciliation and Significant Items EARNINGS RECONCILIATION SIGNIFICANT ITEMS – IMPAIRMENTS 1H $m FY2017 FY2016 FY2016 $m Underlying EBIT 488 403 871 Intermodal (162) Significant items FMT1 project (64) Impairments (257) (426) (528) Redundancy costs (64) Freight review contract costs (10)
Slide 35: Strong FCF Generation Helped by Moorebank
Strong FCF Generation Helped by Moorebank 1H $m FY2017 FY2016 › Strong growth in FCF due to stronger EBITDA - statutory 454 257 earnings and lower capex Working capital & other movements 33 (47) › FCF exceeded dividend payments Non-cash adjustments - impairment 266 426 › Result includes $98m proceed
Slide 36: Balance Sheet Summary
Balance Sheet Summary As at ($m) 31 Dec 2016 30 Jun 2016 Total current assets 756 844 Property, plant & equipment 9,454 9,719 Other non-current assets 257 305 Total assets 10,467 10,868 Other current liabilities (596) (732) Total borrowings (3,388) (3,490) Other non-current liabilities (940) (932) T
Slide 37: Improvements in Key Operating Markets, Too Early to Call Volume Impact
Improvements in Key Operating Markets, Too Early to Call Volume Impact COAL IRON ORE MARKETS › Strong prices driven by supply restricting policy in › Price support driven by: China › Increase in Chinese crude steel production › Near term volume upside more apparent with › Demand for higher grade ore
Slide 38: FY17 AZJ Group Guidance Range Unchanged
FY17 AZJ Group Guidance Range Unchanged FY2017 FY2018 › Revenue $3.35 - $3.55bn › Achievement of 70% OR target remains dependent on: › Underlying EBIT $900 - 950m, assumptions: › Delivery of $380m transformation target › Above Rail › Above rail volume growth › Moderate growth from prior year – trans
Slide 39: Appendix 4 Aurizon Company History
Appendix 4 Aurizon Company History
Slide 40: Company History
Company History New Capital Structure and Reorganisation Restructure New long term capital structure Separation of Queensland Rail implemented, with standalone Tim Poole from QR Limited (State of QLD debt facilities put in place for appointed to interest of 100%) both Aurizon Holdings and Aurizon Bo
Slide 41: Appendix 5 Network Management Team
Appendix 5 Network Management Team
Slide 42: Aurizon Network: Experienced Management
Aurizon Network: Experienced Management ALEX KUMMANT SCOTT RIEDEL CLAY MCDONALD DIRECTOR, VICE PRESIDENT – NETWORK VICE PRESIDENT – NETWORK EXECUTIVE VICE PRESIDENT OPERATIONS COMMERCIAL Mr Kummant has more than 25 years’ experience in the North Mr Riedel has more than 25 years’ experience in the ra
Slide 43: 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 Australian Mr Kummant has more than 25 years’ experience in the North Mr Cooper has more tha
Slide 44: ~ AURIZON.
~ 2 AURIZON.
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