Aurizon Holdings Ltd. · ASX:AZJ
Aurizon — Debt Investor Presentation (March 2016)
48 slides from Aurizon's debt investor presentation, March 2016
Slide 1: Debt Investor Update
Debt Investor Update March 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 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 at the da
Slide 3: Agenda
Agenda I. Aurizon Group II. Aurizon Network III. Aurizon Network: Regulation & Customers IV. Australian Coal Market Update V. Aurizon Network: 1H Results Appendix I: Aurizon Group: 1H Results Appendix II: Capital Overview Appendix III: Australian Economic Outlook Appendix IV: Definitions 3
Slide 4: Biographies
Biographies Pam Bains David Collins Vice President – Network Finance Vice President – Finance & Group Treasurer Pam has over 20 years’ experience in finance and David has over 20 years’ experience in finance and commercial roles working in the UK, India and Australia. commercial roles covering busin
Slide 5: I. Aurizon Group
I. Aurizon Group
Slide 6: About Aurizon Group
About Aurizon Group › Aurizon (ASX: AZJ; market capitalisation of A$8.4bn1) is Australia’s largest rail freight operator and a top 50 ASX company › Aurizon connects miners, primary producers and industry with markets by providing integrated freight and logistics solutions across Australia. Aurizon a
Slide 7: Aurizon Group
Aurizon Group Aurizon Holdings Limited Aurizon Operations Aurizon Finance Pty Limited Limited Aurizon Other members of Below Rail Network Pty Ltd Aurizon Holdings Group Above Rail Leases CQCN Haulage of coal, iron-ore and other freight RAB of A$5.6bn1 Construction, engineering Receives reg
Slide 8: Aurizon Group update
Aurizon Group update 1. Weaker Commodity prices Volumes are steady as Queensland continues to produce coal at a globally competitive cost taking advantage of key proximity to Asia › Below Rail – Running at near record volumes (5 successive years of record volumes); significant improvements to operat
Slide 9: Aurizon Group update
Aurizon Group update 3. Moody’s put Aurizon Holdings and Aurizon Network ratings on review for downgrade This reflects the “increasing level of downside risk for Aurizon's credit profile, as a result of escalating financial pressures on its coal and iron ore mine counterparties, due in turn to weak
Slide 10: II. Aurizon Network
II. Aurizon Network
Slide 11: Aurizon Network overview
Aurizon Network overview › The CQCN comprises 4 major coal systems and 1 connecting Central Queensland Coal Network (CQCN) system link serving Queensland’s Bowen Basin coal region: Newlands, Goonyella, Blackwater and Moura with GAPE the connecting system link 2,670 kilometres network length of whi
Slide 12: Standalone capital structure
Standalone capital structure › Aurizon Network operates as a separate standalone entity to Aurizon Operations and Aurizon Holdings Aurizon Network: Debt maturity profile Separate Board and Management team Drawn Debt Undrawn Debt Separate statutory financial reporting A$m A$MTN › Standalone debt
Slide 13: Growth in Aurizon Network’s RAB
Growth in Aurizon Network’s RAB › QCA determines Aurizon Network's access pricing based on the Aurizon Network’s RAB¹ over time (A$bn) estimated value of the RAB › RAB value of A$4.5bn (excluding assets subject to access facilitation +86% deeds1) as at 30 June 2013 › The QCA has deferred approval of
Slide 14: Aurizon Network: Capital structure
Aurizon Network: Capital structure Aurizon Network RAB – Gearing Structure 7,000 60.6% › All material growth projects were completed by 53.0% 53.0% December 2015 48.4% 6,000 5,600 › Aurizon Network’s Net Debt position in the medium term is expected to remain flat given no further grow 5,000 4,900 4,
Slide 15: 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 yea
Slide 16: III. Aurizon Network: Regulation & Customers
III. Aurizon Network: Regulation & Customers
Slide 17: Regulated revenues, stable regulatory regime
Regulated revenues, stable regulatory regime Well established regulatory Well developed building block approach to 1 regime 2 Stable regulated revenue base 3 revenue determination › Over 90% of Aurizon Network › The provision of transportation services by rail on the CQCN is revenue is from track ac
Slide 18: 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 19: Take-or-Pay protection if revenues fall short
Take-or-Pay protection if revenues fall short ToP › Primary revenue protection mechanism available to AT2 Train Paths Take-or-Pay Aurizon Network Take-or- Revenue cap Pay AT3 Net Train Kilometres (NTK) mechanisms › Allows Aurizon Network to recover revenue shortfall directly from the access holder A
Slide 20: 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 21: History of the regulatory framework
History of the regulatory framework CQCN Regulation Overview UT4 Overview CQCN Regulation Evolution UT4 Development and Key Milestones Jun 2016 UT4 Implemented 2016 2016 Undertaking 4 (UT4) Apr 2016 QCA expected to issue UT4 Final Decision Final decision to be issued 2016 Dec 2015 Access Regime Cert
Slide 22: Aurizon Network’s 2014 Draft Access Undertaking status
Aurizon Network’s 2014 Draft Access Undertaking status › QCA published its Draft Decision on Aurizon Network’s Undertaking 4 (UT4) Maximum Allowable Revenue (MAR) for the period of the next undertaking on 30 September 2014 The decision details an unsmoothed MAR of A$3.906bn including a vanilla Wei
Slide 23: Long term customer relationships
Long term customer relationships FY15 revenues (split by Aurizon Network customers) › In FY15, ~68% of our regulated coal access revenue was derived from access agreements with Aurizon Holdings, while ~32% was 68% derived from other Above Rail operators (including Pacific National) and miners › The
Slide 24: IV. Australian Coal Market Update
IV. Australian Coal Market Update
Slide 25: 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 4 Queensland’s coal producers are globally cost
Slide 26: Queensland has the largest coal resources in Australia; long production life
Queensland has the largest coal resources in Australia; long production life Queensland has more than 78bt of coal resource, 39bt in the Bowen Basin region serviced by the CQCN Queensland coal endowment (Reserves and Resource as at 30 June 2014, mt)1 Bowen Basin coal reserves2 Total Queensland3: 22%
Slide 27: Proximity to Asia gives Australia a competitive advantage
Proximity to Asia gives Australia a competitive advantage Metallurgical coal seaborne exports Australia’s metallurgical coal exports › Australian volume resilient to date with Volume and market share, calendar years by destination (CY15) 2015 export volume broadly steady on the 400 70 South Korea EU
Slide 28: V. Aurizon Network: 1H Results
V. Aurizon Network: 1H Results
Slide 29: Below rail highlights
Below rail highlights EBIT uplift driven by higher revenue based on UT4 Consolidated Draft Decision Revenue › Increased 10% to A$581m with revenue based on Consolidated Draft Decision (CDD) from December 2015 EBIT › Increased 12% (A$27m) to A$245m, 61% of the group result (underlying) Operating co
Slide 30: Aurizon Network: Profit & loss - underlying
Aurizon Network: Profit & loss - underlying 1H 2H Variance A$m fav / (adv) FY2016 FY2015 FY2015 › Revenue increased 10% due to regulatory Tonnes (Million) 114.0 114.7 (1%) 111.0 revenue yield increasing as revenue aligns with the QCA’s UT4 Consolidated Draft MAR position NTKs (Billion) 28.9 28.4 2%
Slide 31: Aurizon Network volumes (mt)
Aurizon Network volumes (mt)1 1H Variance 2H FY2016 FY2015 fav / (adv) FY2015 Newlands 6.1 8.0 (24%) 6.6 Goonyella 59.8 60.1 (0%) 59.6 Blackwater 30.8 32.5 (5%) 30.3 Moura 6.5 6.5 0% 5.7 GAPE 7.9 7.6 4% 7.8 WIRP 2.9 - 0.9 Total 114.0 114.7 (1%) 110.9 Average haul length2 (kms) 253 247 2% 251 NTKs (b
Slide 32: Aurizon Network balance sheet
Aurizon Network balance sheet As at (A$m) 31 Dec 2015 30 June 2015 › Decrease in total current assets primarily due to a Total current assets 282 376 A$113m decrease in cash holdings, which were higher at year end to ensure that liquidity metrics were Property, plant & equipment 5,407 5,360 maintain
Slide 33: Aurizon Network: Key financial metrics
Aurizon Network: Key financial metrics 1. Source: http://www.aurizon.com.au/investors/overview/ Historical Financials to 31 December 2015 33
Slide 34: Appendix I: Aurizon Group: 1H Results
Appendix I: Aurizon Group: 1H Results
Slide 35: Group highlights: 1H FY2016
Group highlights: 1H FY2016 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$403m › Excluding previously announced items, revenue down 4%, underlying EBIT down 2% against 5% volume decline › Statutory
Slide 36: Group financial highlights
Group financial highlights A$m 1HFY2016 1HFY2015 Variance › Sale of Redbank and impact of expired revenue contracts in Revenue 1,758 1,965 (11%) FY2015 and 5% volume decline in 1HFY2016 › Includes A$16m one off cost of employee shares and A$18m EBIT – underlying1 403 486 (17%) QNI debt provision › O
Slide 37: Appendix II: Capital Overview
Appendix II: Capital Overview
Slide 38: Aurizon Network: Capital program delivery
Aurizon Network: Capital program delivery Wiggins Island Rail › WIRP is the staged development of new rail lines and upgrading of existing lines to service the new Project (WIRP) Wiggins Island Coal Export Terminal at the Port of Gladstone › Commenced: FY2012 › All rail infrastructure required for t
Slide 39: Aurizon Network: Capital expenditure
Aurizon Network: Capital expenditure Capacity Construction Period Total Capital Major Growth Projects Completion 1 Increment Notes (years) (A$m) (mtpa) On time, GAPE January 2012 2.0 1,100 33 on budget On time, WIRP March 2015 / December 2015 4.0 799 27 on budget On time, under Hay Point (second roa
Slide 40: Wiggins Island Rail Project (WIRP)
Wiggins Island Rail Project (WIRP) › 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 estimated spend
Slide 41: WIRP fast facts
WIRP fast facts › 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) › A$0.8bn1 investment in new and upgrad
Slide 42: Appendix III: Australian Economic Outlook
Appendix III: Australian Economic Outlook RBC Capital Markets
Slide 43: GDP growth subdued but positive with further growth forecast
GDP growth subdued but positive with further growth forecast RBA able to act with conventional tools if conditions deteriorate GDP growth dependent on terms of trade but remains positive Underlying inflation well under control RBC’s 6.0 RBC’s 6.0 Forecasts Forecasts 5.0 5.0 4.0 4.0 3.0 3.0 2.0 2.0 1
Slide 44: Labour market proving resilient, rebalancing away from mining
Labour market proving resilient, rebalancing away from mining The suite of labour market indicators are mixed but stronger than we expected Strong growth in employment, unemployment rate stable to dropping Vacancy measures rising 8 12 3 5 11 2 6 4 10 1 3 4 9 0 8 2 2 -1 7 1 -2 0 6 0 -3 5 -2 stdev's f
Slide 45: Disclaimer
Disclaimer Additional information is available on request. To U.S. Residents: This publication has been approved by RBC Capital Markets, LLC (member FINRA, NYSE), which is a U.S. registered broker-dealer and which accepts responsibility for this report and its dissemination in the United States. Any
Slide 46: Appendix IV: Definitions
Appendix IV: Definitions
Slide 47: Definitions
Definitions Defined Term Definition 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 dGTK
Slide 48: www.aurizon.com.au 175 Eagle Street, Brisbane QLD, 4000, Australia
www.aurizon.com.au 175 Eagle Street, Brisbane QLD, 4000, Australia 48
Aurizon Holdings — Debt Investor Presentation (March 2016) on 6ix