Macquarie Conference 2019 - Andrew Harding - MD & CEO
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Macquarie Conference 2019
Andrew Harding – MD & CEO
May 2019
MACQUARIE CONFERENCE 2019
Disclaimer
NO RELIANCE ON THIS DOCUMENT NO OFFER OF SECURITIES
This document was prepared by Aurizon Holdings Limited (ACN 146 335 622) (referred to Nothing in this presentation should be construed as a recommendation of or an offer to sell or a
as “Aurizon” which includes its related bodies corporate (including Aurizon Operations solicitation of or subscription or invitation of an offer to buy or sell securities in Aurizon in any
Limited). Whilst Aurizon has endeavoured to ensure the accuracy of the information jurisdiction (including in the United States), nor shall it or any part of it form the basis of or be
contained in this document at the date of publication, it may contain information that has not relied on in connection with any contract or commitment whatsoever. This document is not a
been independently verified. Aurizon makes no representation or warranty as to the prospectus and it has not been reviewed or authorized by any regulatory authority in any
accuracy, completeness or reliability of any of the information contained in this document. jurisdiction. This document does not constitute an advertisement, invitation or document which
Aurizon owes you no duty, whether in contract or tort or under statute or otherwise, with contains an invitation to the public in any jurisdiction to enter into or offer to enter into an
respect to or in connection with this document, or any part thereof, including any implied agreement to acquire, dispose of, subscribe for or underwrite securities in Aurizon.
representations or otherwise that may arise from this document. Any reliance is entirely at
your own risk. FORWARD-LOOKING STATEMENTS
This document may include forward-looking statements which are not historical facts. Forward-
DOCUMENT IS A SUMMARY ONLY looking statements are based on the current beliefs, assumptions, expectations, estimates and
This document contains information in a summary form only and does not purport to be projections of Aurizon. These statements are not guarantees or predictions of future performance,
complete and is qualified in its entirety by, and should be read in conjunction with, all of the and involve both known and unknown risks, uncertainties and other factors, many of which are
information which Aurizon files with the Australian Securities Exchange. Any information or beyond Aurizon’s control. As a result, actual results or developments may differ materially from
opinions expressed in this document are subject to change without notice. Aurizon is not those expressed in the forward-looking statements contained in this document. Aurizon is not
under any obligation to update or keep current the information contained within this under any obligation to update these forward-looking statements to reflect events or
document. Information contained in this document may have changed since its date of circumstances that arise after publication. Past performance is not an indication of future
publication. performance.
NO INVESTMENT ADVICE NO LIABILITY
This document is not intended to be, and should not be considered to be, investment advice To the maximum extent permitted by law in each relevant jurisdiction, Aurizon and its directors,
by Aurizon nor a recommendation to invest in Aurizon. The information provided in this officers, employees, agents, contractors, advisers and any other person associated with the
document has been prepared for general informational purposes only without taking into preparation of this document, each expressly disclaims any liability, including without limitation
account the recipient’s investment objectives, financial circumstances, taxation position or any liability arising from fault or negligence, for any errors or misstatements in, or omissions from,
particular needs. Each recipient to whom this document is made available must make its this document or any direct, indirect or consequential loss howsoever arising from the use or
own independent assessment of Aurizon after making such investigations and taking such reliance upon the whole or any part of this document or otherwise arising in connection with it.
advice as it deems necessary. If the recipient is in any doubts about any of the information
contained in this document, the recipient should obtain independent professional advice.
2
MACQUARIE CONFERENCE 2019
Aurizon is Australia’s largest integrated freight rail network
The business unit structure has simplified the company. Above Rail consists of the Coal and
Bulk business units, Below Rail consists of Network
ABOVE RAIL BELOW RAIL
Coal Bulk Network
› Services 40+ mines across › Transports iron ore, minerals, › Regulated business managing
NSW and Queensland other commodities and 2,670km open access rail
agricultural products across network connecting 40+ mines
› Exports to markets including
both the east and west coast to 5 export terminals across 3
Japan, China, South Korea,
ports in Queensland
India and Taiwan
SNAPSHOT AS AT 31 DECEMBER 2018
› EBIT - $210m › EBIT - $14m › EBIT - $203m
› 107m tonnes hauled › 24m tonnes hauled › 117m tonnes railed
› 329 active locomotives › 146 active locomotives › 3 above rail operators
› 8,618 active wagons › 2,498 active wagons › Regulated asset base1 $5.7bn
› 76 services/day › 61 services/day › 72 services/day
1. Estimate at 1 July 2018 – roll forward value based on UT5FD (excl $0.4b in assets operating under Access Facilitation Deeds (AFDs))
3
MACQUARIE CONFERENCE 2019
Aurizon’s strategic vision
Is delivered through levers designed to improve performance and position the company for
the future
OUR VISION OUR PURPOSE
The first Growing
choice for bulk regional
commodity Australia by
transport delivering bulk
solutions commodities
to the world
EXCEL
STRATEGIC
LEVERS
› Reduce cost base › Regulatory reform › Supply chain adjacencies
EXAMPLE › Efficiency gains › Optimal corporate
› Exit non-core businesses
OUTCOMES through investment in structure
technology
4
MACQUARIE CONFERENCE 2019
Achievements to date
Actions have been aligned to the optimise and excel levers with good progress despite
external challenges
Business unit Ongoing operational Freight review
restructure efficiency › Bulk retained with
› Increases › Achieved $380m reform process
accountability transformation target ongoing
› Customer focus in FY2018 › Intermodal exited
rewarded by › Well defined pipeline with closure of
contracting success of initiatives to drive Interstate and sale of
efficiency gains in Queensland to Linfox
future years › Awaiting Court
outcome on Acacia
Ridge sale
Shareholder returns
› Dividends prioritised after non-growth capital –
100% payout ratio since 2015
› If surplus capital available, commitment to
further returns in absence of growth
5
MACQUARIE CONFERENCE 2019
Coal fundamentals remain supportive
Demand is driven by steel and energy growth in Asia, supporting an increase in Australian
exports of ~2%pa over the next decade
AUSTRALIA: METALLURGICAL COAL EXPORT
Export Volume and Price
Hard Coking Coal Price (USD/t)
250 $300
200 179
› Steel production drives demand
million tonnes
150
$200 › India achieved another record result in 2018 with
production of 106 million tonnes and was the largest export
100
$100 market for Australian metallurgical coal
50
› No industrial scale alternatives to metallurgical coal for the
0 $0 manufacture of steel
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Export Volume [LHS] Hard Coking Coal (Average Spot Price) [RHS]
AUSTRALIA: THERMAL COAL EXPORT
Export Volume and Price › Energy generation drives demand
250 $150
› Over 95% of Australian thermal coal exports are destined
Thermal Coal Price (USD/t)
203
200 for Asia. It is this region that continues to add energy
million tonnes
$100 generation capacity
150
100
› Average age of coal fired power plants in Asia is 13 years
$50
50
› 16GW of coal-fired capacity is currently under
construction in Southeast Asia
0 $0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Export Volume [LHS] Thermal Coal (Average Spot Price) [RHS]
Sources/Notes: Export Volume (and country split) - Australian Bureau of Statistics, Customised Report. Hard Coking Coal Price – Platts (Peak Downs Region product). Thermal Coal Price - Intercontinental Exchange (Newcastle 6,300 Gross As Received
product). Coal-fired generation under construction /Average age coal fired plants: Platts UDI Electric Power Plants Database (December 2018) (average weighted by unit capacity) 6
MACQUARIE CONFERENCE 2019
Coal business update
Operating in a competitive haulage market, Coal is continuing to drive operational efficiency
improvements
OPERATIONAL EFFICIENCY IMPROVEMENTS
TrainGuard (ETCS)1 Condition Monitoring Precision Railways
Expansion Capacity
Trial of
into Hunter release through
technology
Valley schedule
expected in
expected in adherence &
2019
2019 dwell reduction
COAL CONTRACT PORTFOLIO EXPIRY PROFILE
(AS AT 30 JUNE 2018)
0 - 3 years
18% › Investing for growth both in the Hunter Valley and CQCN
› Long dated contract book
› Haulage market is competitive – ongoing operational efficiency
15% >3 - 7 years improvements to preserve margins over the long term
68%
>7 years
1. ETCS – European Train Control Systems 7
MACQUARIE CONFERENCE 2019
Bulk business update
The Bulk turnaround is making good progress. Aligned to growing commodity markets, Bulk
has a well developed pipeline of opportunities
PROGRESS TO DATE GROWTH OPPORTUNITIES
BULK EBIT (EX IRON ORE) AUSTRALIAN EXPORT GROWTH: CAGR% (FY19-FY24)1
9.9
$0
8.6
2.2 1.8
1.3
0.3
FY2017 FY2018 1HFY2019 Nickel Lithium Copper Bauxite Iron ore Alumina
1 Growth within existing operations
› Reduced EBIT losses in Bulk (ex iron ore)
› Recent customer wins in Bulk East 2 Growth through market share
› Focus remains on driving operational efficiencies and
improving customer service and delivery Growth through supply chain services and
3
partnerships
1. Source: Office of the Chief Economist – Resources & Energy Quarterly (March 2019) 8
MACQUARIE CONFERENCE 2019
Network business update
UT5 finalisation provides stability
REGULATORY UPDATE MAXIMUM ALLOWABLE REVENUE & WACC
9.96%
› Aurizon Network submitted a conforming undertaking to
7.17%
the QCA on 18 February 2019 which was approved on 21 5.70%
February 2019
› Compared to the UT5 draft decision: 3.1 3.9 4.1
› Maximum allowable Revenue (MAR) increased
UT3 UT4 UT5
~$230m to $4.123bn over four years
MAR ($bn) WACC (%)
› WACC increased from 5.41% to 5.70%
RAB ROLL FORWARD2 $bn
› All deferred WIRP capital now included in the RAB –
estimated RAB rollover value $5.7bn1 +93%
› Engagement with stakeholders continues 5.7 5.8 5.8 5.7
5.1
› If agreements with customers can be reached, Aurizon
Network has the ability to lodge a Draft Amending Access
Undertaking for consideration by the QCA. An approved 3.0
amending access undertaking would modify the
conforming undertaking to reflect any agreements with
customers
1. As at 1 July 2018 and includes all deferred capital but excludes ~$0.4bn of AFDs
2. RAB roll-forward indicative (closing balance) projection based on Network’s submitted UT5 RAB. Excludes assets FY10 FY15 FY16 FY17 FY18f FY19f
operating under AFDs of ~$0.4bn and is subject to QCA approval of the FY18 claim 9MACQUARIE CONFERENCE 2019
Improving cashflow and shareholder returns
Free cashflow has improved through a disciplined approach around capital expenditure. In
the absence of growth, surplus capital will be returned to shareholders
PRIORITISATION OF CAPITAL
SHAREHOLDER RETURNS ($M)
1
830
762 Non Growth Capital
301
300
552
488 2
465
69 Dividends (payout range 70-100%)
529
462
396
3
Growth Capex
Surplus capital
FY15 FY16 FY17 FY18 FY19 only where it
returned to
maximises
shareholders
Buy Back Dividends Free Cashflow shareholder value
› 100% dividend payout ratio maintained since 2015
10MACQUARIE CONFERENCE 2019
Key messages
Aurizon has a simple strategy which enables the delivery of shareholder value
Growing above
~50% of the rail contract Ongoing Reviewing the
Maximise
portfolio has book through operational optimal legal
distributions
stable, improved efficiency gains and capital
and returns to
regulated service delivery will continue to structure for
shareholders
earnings and deliver value the Group
performance
11MACQUARIE CONFERENCE 2019
Q&AContact and further information Chris Vagg Kath Clapham Head of Investor Relations & Manager Investor Relations Group Treasurer kath.clapham@aurizon.com.au chris.vagg@aurizon.com.au +61 7 3019 9044 +61 7 3019 9030 ASX: AZJ US OTC: AZNNY
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