Aurizon : FY2025 Results presentation transcript

About this update from Aurizon Holdings Ltd.

Andrew Harding: Managing Director & Chief Executive Officer Good morning and welcome to the full year 2025 Results. We are in Brisbane today therefore I acknowledge the Traditional Custodians of this land, the Turrbal and Jagera people, and pay my respects to the elders past, present and future for they hold the memories, the traditions, the culture and hopes of Aboriginal Australia. We must always remember that under the ballast, sleepers, rail systems and office buildings where Aurizon does business, was and always will be traditional Aboriginal land. I am joined on the call by: Gareth Long, acting CFO & Group Executive Strategy George Lippiatt, Group Executive Bulk & Containerised Freight; Ed McKeiver, Group Executive Coal; and David Wenck, General Counsel and Head of People. After fifteen years at Aurizon, including five leading Network, Pam Bains retired earlier this month, having progressed UT6 to the signing of a non-binding term sheet, a significant achievement. Cat Peppler who has been at Aurizon for more than thirteen years and was most recently Group Executive Corporate, has stepped into the role and joins us today as Group Executive Network. George will be presenting the financial results today for the last time, having been the CFO for the reporting period. SLIDE 3: AURIZON OVERVIEW Aligned with Aurizon's strategy, the strength of our Network and Coal businesses provides the opportunity to pursue growth in Bulk and Containerised Freight. Our Network business is nearly two thousand seven hundred kilometres of track infrastructure in Central Queensland, supporting 90% of Australian coking coal exports. An 8.5% return is currently booked across the 6.2-billion-dollar asset with more than half of Group earnings coming from this regulated revenue base. Our Coal business is linked to the ongoing demand for Australian coal across global markets. India is already Australia's largest trading partner for steel-making coal, and is expected to be the largest driver of demand over the coming decades. Last year saw another record for steel production in India, up six percent on the prior year, which itself was a record. For thermal coal, last year saw a net increase in global coal-fired generation capacity with 95% of this built in Asia, a continent where nearly all of Australian thermal coal is exported to. The average age of the coal-fired fleet in this continent is just 15 years, against a typical economic life of 40 plus years. Coal accounts for a third of Group earnings and is backed with long-duration contracts. The Bulk opportunity is based on the growth in global demand for Australian commodities such as base metals, grain and magnetite and the strategic importance of the Tarcoola-to-Darwin rail line. While still a small contributor to our earnings, this is where our strongest growth prospects lie. For Containerised Freight, which is reported in our other segment, the opportunity is based on Australian GDP growth and land-bridging volume from the Port of Darwin to southern capital cities which is progressing. Turning to our Safety performance SLIDE 4: SAFETY PERFORMANCE We experienced a deterioration in both the Total Recordable Injury Frequency Rate and the Actual and Potential Serious Injury and Fatality Frequency Rate over the past year. Across the business, soft muscle injuries and foot injuries, from walking on ballast, are the most common injuries. Our focus remains on incidents that have the potential for serious injury or a fatality and protecting our employees, our customers and the communities in which we operate. Level crossing safety is a continuing issue for the rail industry and was a focus in this year's National Rail Safety Week. Adding to our existing level crossing campaign, we released a new series of videos called 1.2.3.Brace, featuring our drivers once again sharing their personal experiences and urging the community to take greater care around level crossings. Collectively, we must step up efforts and investment to improve safety at level crossings. This includes the rail and road industries, all levels of government, enforcement and road safety agencies, and the general community. Turning to the results. SLIDE 6: FY2025 RESULTS As communicated in late-June, underlying earnings for the year were impacted by: a deferral of Network revenue as a result of lower railed volumes, and an increase in the provisions relating to three Bulk customers. Outside of these two items, Group EBITDA for the year would have been over $100m higher. The payout ratio has been maintained at 80% with a dividend of 6.5 cents, fully franked. Today we announce a new on-market buy-back of up to $150m, following on from the completion of a $300m buy-back last year. It's important to note that commodity prices across nearly all of the major commodities we haul are lower over the past twelve-months. When combined with inflationary pressures, it results in a tough operating environment for Australian producers. This doesn't just impact our Bulk business - both thermal coal and coking coal prices are down 20% compared to a year ago. As a result we suspended railing for two coal customers which incurred an associated provision. We are combining the management of our Bulk and Containerised Freight operations under the leadership of George Lippiatt to unlock commercial and operational synergies and streamline accountability. Three significant items have been booked in the half, resulting in the variance between underlying and statutory net profit after tax. George will talk to these items shortly but I did want to talk to one briefly - the impairment of goodwill associated with the Bulk business. It is important to note this impairment of $57 million represents around 3% of the book carrying value of the Bulk business. It is a result of some changes in timing of growth opportunities plus changes in assumptions of future carbon costs associated with bulk rail haulage. Specifically in terms of the latter it relates to higher assumed costs for Australian Carbon Credit Units or ACCUs and emissions intensity. The Net Present Cost of carbon is now around $170m, or 8% of the book carrying value of the Bulk business. Not only is future modelling under the Safeguard Mechanism challenging but we still have perverse policy outcome where most of the trucking industry is exempt and rail - the far more environmentally friendly mode of transport - is not. I am of the firm view further reform of the Safeguard Mechanism is needed to give business greater certainty and address this anomaly. Turning to Actions in Progress. SLIDE 7: ACTIONS IN PROGRESS UPDATE At first half results, I shared some of the actions we are taking in response to market dynamics. Although Aurizon has inflation protection in the Network business through the regulatory framework, and also through our commercial contracting, we are seeing price escalations in some parts of the cost base, in excess of this protection. Having initially targeted $50m in annualised savings in our non-operational cost base, a further $10m has been identified. Importantly, all $60m has been actioned and will flow through in its entirety in FY2026. This review focused on achieving greater efficiencies and includes a reduction of approximately 200 full-time-equivalent roles. During the half we also successfully priced our inaugural hybrid which George will speak about shortly. SLIDE 8: NETWORK OWNERSHIP REVIEW Identified as part of the Actions In Progress at the first half results, a Network Ownership Review is taking place. This review is ongoing and no decision has been made. The Aurizon Board regularly undertakes a detailed assessment of the portfolio and capital structure of the company. The outcome of the review was last published externally in 2019 and found that based on the five elements, as published on this slide, the benefits of integration outweighed the benefits of separation at the time. We are drawing upon the same elements in the current review and we have appointed an investment bank to assist with the process. The progression of UT6 to a (non-binding) term sheet with customers supports engagement with prospective investors. Turning to business units. SLIDE 9: BUSINESS UNITS Despite the impact of approximately $50m of deferred revenue and in addition to lower external revenue, Network earnings increased driven by the step-up in regulatory revenue. To better match the cost of operating and maintaining the Network with the revenue received, we are changing our revenue recognition approach from FY2026 which George will speak to in more detail shortly. The assumption for regulatory volumes in FY2026 is more than 6% higher than actual volumes in FY2025. Under the new approach any variance in volumes will no longer be deferred to future periods. As noted earlier, we are pleased to report that UT6 has progressed to a non-binding term sheet with customers. This is a very complex undertaking and now provides the pathway for securing the earnings profile of Network from mid-2027. Coal earnings were flat with higher volumes and higher yield, offset by higher operating costs. Contract utilisation is still below what is considered a normal level and our expectations are for this to step-up in FY2026. TrainGuard is operating in the Blackwater and Goonyella corridors and is projected to reduce the number of train drivers by around 50 during FY2026. Our contract with Whitehaven's Gunnedah mines will cease in June 2026. I am proud of our performance hauling for Whitehaven over the past decade and more generally on our superior operational performance in the Hunter Valley over the last 12-months. We tried really hard to retain Whitehaven and I am disappointed that we were not chosen as their rail operator going forward. The impact on our Hunter Valley operations from FY2027 is dependant on the redeployment of capacity, noting we have multiple strategies available in this regard. Bulk EBITDA was lower with contract growth more than offset by the cessation of a rail maintenance contract, lower South Australia grain volumes and an increase in doubtful debt provisions as previously disclosed. In addition to the BHP Copper South Australia contract, we also signed ten-year contract extensions for Minara and Karara in Western Australia. These are decade-long contracts that provide a foundation for the Bulk portfolio to build on. Finally, to Containerised Freight, where although we are not yet breaking-even at an EBITDA level, we have stepped-up volumes in the three months to July, up 30% compared to the same period last year. Non-foundation customer TEUs increased four-fold over the same period. And we have made some operational changes to support both the cost base and customer offering including: the extension of a (Bulk) Broken Hill to Perth service to Sydney for an added frequency; and bringing all of our containerised freight services together at a single facility in Adelaide as we showcased at our site visit last month Land-bridging volume began during the year, with containers now railing down to Melbourne in addition to Adelaide. We are continuing to work with auto-logistics company NYK to support the import and distribution of motor vehicles into Australia. I look forward to updating the market on this exciting development in due course. SLIDE 10: BULK INVESTMENT Finally, I want to take the opportunity to talk about our investment in Bulk and the connection to the recently announced BHP Copper South Australia contract. Although a challenging year, the growth opportunity remains. The infrastructure investment and recent contract signings provides a solid foundation to build upon. As recently as FY2017, Bulk was loss-making at an EBIT level and was best characterised as a grouping of contracts, rather than a business unit with a clear strategy. I brought together the business unit under a single Group Executive, bringing both accountability and the opportunity for growth. As shown on the slide, we have delivered growth. Our operations are located in the key mining regions of Australia and we hold the lease of the strategically important Tarcoola to Darwin line through to the mid-2050s. Central Australia holds: two-thirds of Australia's copper resources; about half of Australia's magnetite resources; and significant rare earths and phosphate rock resources. Recent contracting for customers such as BHP SA Copper, Karara Mining and South32 has pushed out the average contract length of the Bulk portfolio by three years to 8 years. When including the Tarcoola to Darwin concession, this extends to twelve years. Our investment in Bulk capacity enabled the successful contracting for the largest copper operations in Australia. SLIDE 11: BULK: BHP COPPER SOUTH AUSTRALIA CONTRACT As announced in June, Aurizon has been awarded a contract for BHP's Copper South Australia operations, including all rail and road haulage tasks with a total contract length of up to 15 years. It is understood to be Australia's largest ever road to rail conversion for a major minerals project. The contract begins in October this year and is in addition to Aurizon's existing haulage of copper concentrate from Wirrida to Tennant Creek. The contract is expected to deliver revenue of $1.5 billion over the first ten years. The integrated logistics solution is highly scalable and means we can quickly capture additional volumes should BHP proceed with identified growth opportunities in South Australia. The transport of copper concentrate and cathode from BHP's Olympic Dam, Carrapateena, and Prominent Hill mines, as well as inbound freight, will shift to rail between Pimba and Port Adelaide. Leveraging our extensive South Australian footprint including port terminal assets at Port Adelaide and the Gillman freight terminal was critical to securing these contracts. The largest single new investment is a new Attention : This is an excerpt of the original content. To continue reading it, access the original document here .

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