TCI Investor Conference, New York. Mike Franczak EVP Operations 17 June 2014

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1 TCI Investor Conference, New York Mike Franczak EVP Operations 17 June 2014

2 Important notice No Reliance on this document This document was prepared by Aurizon Holdings Limited (ACN ) (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 date of publication, it may contain information that has not been independently verified. Aurizon makes no representation or warranty as to the accuracy, completeness or reliability of any of the information contained in this document. Document is a summary only This document contains information in a summary form only and does not purport to be complete and is qualified in its entirety by, and should be read in conjunction with, all of the information which Aurizon files with the Australian Securities Exchange. Any information or opinions expressed in this document are subject to change without notice. Aurizon is not under any obligation to update or keep current the information contained within this document. Information contained in this document may have changed since its date of publication. No investment advice This document is not intended to be, and should not be considered to be, investment advice by Aurizon nor a recommendation to invest in Aurizon. The information provided in this document has been prepared for general informational purposes only without taking into account the recipient s investment objectives, financial circumstances, taxation position or particular needs. Each recipient to whom this document is made available must make its own independent assessment of Aurizon after making such investigations and taking such 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. No offer of securities Nothing in this presentation should be construed as a recommendation of or an offer to sell or a solicitation of an offer to buy or sell securities in Aurizon in any jurisdiction (including in the United States). This document is not a prospectus and it has not been reviewed or authorised by any regulatory authority in any jurisdiction. This document does not constitute an advertisement, invitation or document which contains an invitation to the public in any jurisdiction to enter into or offer to enter into an agreement to acquire, dispose of, subscribe for or underwrite securities in Aurizon. Forward-looking statements This document may include forward-looking statements which are not historical facts. Forward-looking statements are based on the current beliefs, assumptions, expectations, estimates and projections of Aurizon. These statements are not guarantees or predictions of future performance, and involve both known and unknown risks, uncertainties and other factors, many of which are beyond Aurizon s control. As a result, actual results or developments may differ materially from those expressed in the forward-looking statements contained in this document. Aurizon is not under any obligation to update these forward-looking statements to reflect events or circumstances that arise after publication. Past performance is not an indication of future performance. No liability To the maximum extent permitted by law in each relevant jurisdiction, Aurizon and its directors, officers, employees, agents, contractors, advisers and any other person associated with the preparation of this document, each expressly disclaims any liability, including without limitation any liability arising from fault or negligence, for any errors or misstatements in, or omissions from, this document or any direct, indirect or consequential loss howsoever arising from the use or reliance upon the whole or any part of this document or otherwise arising in connection with it. 2

3 Aurizon is on the journey to World Class Operating Ratio (1) Return on Invested Capital (ROIC) (2) +0.6ppt ppt FY2010 FY2011 FY2012 FY2013 1H FY2014 FY2010 FY2011 FY2012 FY2013 1H FY2014 1) Operating Ratio = 1 EBIT margin 2) ROIC = Underlying EBIT/(Net Working Capital + Net PP&E + AUC+ Gross Intangible Assets) 3

4 North American Class 1's have shown operating ratios <65% and ROICs >12% are achievable Aurizon is on its way Operating ratios below 70% are achievable for Aurizon, but it is a long term journey (often 10+ years) All Class 1's have steadily improved returns on capital since 2004, moving towards 12% ROIC Operating ratio (%) 100 ROIC (%) Aurizon Aurizon Rest of Class 1 average CN (leader in delivering gains) CSX (largest shift of all Class 1s) Aurizon Rest of Class 1 average CN CSX Aurizon 1. Class 1 metrics based on calendar year data from December 1995 through to December Aurizon metrics based on financial year data from June 2011 through to December ROIC = Return on Invested Capital 3. Rest of Class 1average comprises metrics for BNSF, UP, NS, KCS and CP Source: Analysis of Class 1 Railroads (Association of American Railroads (AAR)) & Company reports 4

5 Aurizon is evolving to an improved business model Transformation journey IPO Voluntary Redundancy (VR) program to reduce headcount Implementation of functional model to remove operating silos New holistic business model - Integrated Operating Plan (IOP) Asset/fleet productivity + rationalisation Crew efficiency Coordinated cross business planning Improved contract structures and service Increasing value through sustainable, replicable and continuous improvement Longer term outcome (post 75%) highly influenced by outcome of Enterprise Agreement (EA) negotiations November 2010 December 2011 March 2012 July 2013 May 2014 Future 5

6 The IOP is underpinned by key business and operational principles. What s changed? We focus on 5 core business principles to drive value Core design considerations guide our work Enterprise view Asset focus / fungibility of assets Common KPIs / metrics to drive Enterprise outcomes Safe working practices Balanced volumes Eliminate waste Maximise train payloads Technology Multi-user; multi-cargo trains Coordinated planning (where permitted) across functions and lines of business Continuous improvement focus with a replicable and adaptable model Increase velocity Reliability based maintenance Network planning localised execution Standardisation Energy efficient Flexibility 6

7 and is being rolled out across all key national corridors Aurizon s operations footprint Aurizon operations Do not operate DARWIN Cairns Port Hedland Northern Territory Mt Isa Townsville North West Corridor Coal North Corridor Mackay North Coast Line Western Australia Alice Springs Queensland Rockhampton Coal South Corridor South West Corridor Geraldton PERTH Kalgoorlie South Australia Port Augusta New South Wales BRISBANE Hunter Valley Coal Western Australian Corridors Esperance Interstate Intermodal ADELAIDE Victoria CANBERRA Newcastle SYDNEY MELBOURNE HOBART Tasmania 7

8 North West corridor IOP redesign example Principles Impact Redesign Activities Standardisation Reduction of loco classes, e.g. Clyde New operating plan Redesign consideration 18 Nov 2013 IOP workshop kick-off Energy efficient Maximise train payloads Eliminate waste Multi-user trains Increase velocity Fuel efficiency gains from loco cascade, reduced fuelling points Increased payload in multiple services, e.g. Glencore Elimination of dwell no longer required from a cycle, e.g. Hughenden stops Improved asset utilisation through consolidation of services, e.g. Bowen Coke Quicker cycles through reduction of number of crew changes, e.g. Charters Towers Example of how this works through in a corridor Below rail engagement (QR) 4000 class locomotive cascade from CQCN Crew training Rollingstock maintenance changes Community engagement Network access negotiation Government engagement Forward looking Exit non-core business (TOMA) Customer engagement Close down depots Safety risk assessments (End of Train device) NOSC consolidation Additional growth volume opportunities EA implication 12 May 2014 Full new design implementation completion Balanced volumes Right sized asset based on volume requirement, e.g. IPL Rationalisation of fuelling and maintenance footprint Future operation efficiency gain Reduction of property (admin) Future design of yard requirement This approach is being replicated across the entire business 8

9 Outcome FOR PERSONAL USE ONLY Wagons Locomotives The IOP is helping drive a smaller, more productive, standardised fleet Active Fleet Classes Productivity (NTKs/Active fleet) 5 Year Fleet Plan 3 Benefits [-49%] 59 [ 30 ] FY13 FY18 [-38%] 297 [ 185] [+30%] FY13 FY18 [+15%] [-28%] [308] [77] 829 [598] FY13 fleet Not Required Estimated New (2) Estimated FY18 fleet (1) [-12%] [5,185] [2,931] 18,546 [16,292] Reduced (RSM) footprint Standardised maintenance practices Reduced materials, inventory and carrying costs Ease of training Younger, more fuel efficient fleet Reduce maintenance and depreciation expense FY13 FY18 FY13 Significant reduction in classes across Aurizon s rollingstock FY18 Large planned productivity improvements across Aurizon s rollingstock FY13 fleet Not Required Estimated New (2) Estimated FY18 fleet (1) [ ] Approximate figures 1. All figures are subject to market changes 2. Expect procurement of new rollingstock to support growth options and asset replacements. We do not expect anything material before FY2016. Will update market on requirements and capital cost closer to the time 3. Assumes total volumes CAGR of 3%-5% p.a. over 5 years 9

10 Technology is helping Aurizon re-engineer its work to drive leading edge improvements in safety, efficiency and capacity Fewer equipment failures Moving from interval to condition based maintenance Reduced dwell time in yards Improved asset reliability and productivity Improved labour productivity (finders become fixers) 10

11 Productivity & efficiency FOR PERSONAL USE ONLY Production Operations transformation programs delivering a strong 1H FY2014 performance Operating expenses (c/ntk) 4 have improved by ~14% Metric 1H FY2014 1H FY2013 1H Variance 2H FY2013 Net tonne kilometres (bn) % 33.5 Tonnes (m) % People 1 Fleet 2 Full time equivalents 2 5,464 5, % 5,520 NTK/Employee (FTE) 1, % NTK/Active loco % 8.16 NTK/Active wagon % 0.35 Average Payload Coal (tonnes) 2 7,921 7, % 7,769 Turnaround time - CQCN 3 (hrs) % Fuel consumption (l/dgtk) % The NTK/Employee metric for the half year is annualised for operational purposes and uses monthly average FTE 2. Monthly average 3. CQCN = Central Queensland Coal Network 4. Operations costs base includes Coal, Iron Ore and Freight costs (unless otherwise noted) but excludes Access, Electricity and Intermodal road solutions costs 11

12 Operational transformation of Aurizon is well underway. Key Takeaways 1 2 Aurizon has demonstrated a track record of improvement and transformation Aurizon is poised to deliver future value 12

13 TCI Investor Conference, New York Mike Franczak EVP Operations 17 June 2014