For personal use only

Transcription

1 Dominic D Smith Senior Vice President & Company Secretary Aurizon Holdings Limited ABN T F E CompanySecretary@aurizon.com.au W aurizon.com.au Level 17, 175 Eagle Street Brisbane QLD 4000 GPO Box 456 Brisbane QLD 4001 ASX Market Announcements ASX Limited 20 Bridge Street Sydney NSW December 2013 BY ELECTRONIC LODGEMENT Aurizon analyst and investor presentation Please find attached analyst and investor presentation for immediate release to the market. The presentation will be made at 11:00am (AEDT) and will be available via webcast, accessible through the following link: Yours faithfully Dominic D Smith SVP & Company Secretary

2 Aurizon Investor Briefing Monday 16 th December 2013 Sydney

3 Disclaimer: 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

4 Welcome & introduction Lance Hockridge MD & CEO

5 Agenda 1 MD & CEO - Lance Hockridge Welcome & introduction 2 EVP Operations Mike Franczak Operations update The Integrated Operating Plan & Rollingstock Update 3 EVP & CFO Keith Neate Operating Ratio update Impact of rollingstock and strategic projects reviews Year to date trading update 4 MD & CEO - Lance Hockridge UT4 update Enterprise Agreements update Summary 5 Q&A 6 Closing Address 4 4

6 Key Messages Market volumes remain strong in coal and iron ore in 1H FY2014 Progress towards 75% Operating Ratio in FY2015 remains on target Integrated Operating Plan (IOP) implemented and already delivering results The IOP implementation has been enabled by a number of factors since IPO including: Implementation of the functional business model (from 1 st December 2011 to 1 st July 2013) Greater coal volume certainty (contract renewals/awards) Senior management changes (in particular Mike Franczak) 1H FY2014 results will include impact of fleet and strategic projects impairments 5

7 Integrated Operating Plan & Fleet Update Mike Franczak EVP Operations

8 July 18 Investor Day highlighted the programs and right metrics to transform operations and deliver value Recall key transformation programs Rigorous and balanced approach to deliver on productivity targets Impacting key metrics Using the right combination of metrics across multiple areas of the business Transformational Programs Integrated Operating Plan (IOP) Longer/Denser trains Energy consumption Rollingstock maintenance Operations technology Productivity, Efficiency and Service Metrics Gross Tonne Kilometres (GTK) Velocity (turn around time) Train weights (HP/Tonne) Rollingstock availability/ reliability On time, consistent service Litres/dGTK Creates Value for AZJ Lower unit costs (c/ntk) EBIT Lower OR ROIC Increased capital efficiency TSR increased shareholder value Improved customer satisfaction Delivering sustainable value Improving a variety of value levers Asset productivity (NTK/wagon or loco) Labour productivity (NTK/FTE) Safe, disciplined execution of our transformation programs and operating plan with a heavy focus on asset productivity - will deliver our financial & operational targets 7

9 The Operations transformation programs are gaining traction Indicators for Operations rolling 12 months Record volumes being hit Throughput net tonnes 1 Turnaround Time hrs (Coal) 2 Highest quarterly coal volume in Q1 of 53.5mt with 385 fewer train starts Highest ever monthly coal volume hauled in October of ~19.0mt with 140 fewer train starts 285, , , ,000 12% Opportunity % Opportunity Continued focus even with success achieved 0 Jul Jul Some targets have already been achieved but we will keep driving for more Significant opportunity still exists We will keep on pushing the envelope to drive further efficiencies Payload Coal South tonnes/train (Coal) 2 Payload Coal North tonnes/train (Coal) 2 8,500 8,000 5,500 5,000 4,500 Jul- 12 4% 13 Opportunity Opportunity Jun 14 Blackwater Moura Jun 15 10,500 10,000 9,500 7,500 7,000 6,500 6,000 5,500 5,000 4,500 Jul- 12 6% 13 Opportunity Opportunity 14 Goonyella Newlands 15 Actual % change 1. Represents Coal and Bulk (including Iron Ore) and excluding overheads and Intermodal 2. Represents coal from Central Queensland Coal Corridors only (weighted average) 8

10 Further examples of traction Indicators for Operations rolling 12 months The needle is moving Fuel consumption Litres/dGTK FTE productivity NTK/FTE 1 Key metrics are trending in the right direction and unit cost improvements in line with our target of 10% p.a. productivity improvement % Opportunity Opportunity Targeting continuous year on year improvement in operational productivity Example of improvements include FTE productivity and energy consumption 1 Jul Wagon productivity NTK/wagon 2 ( 000) Loco productivity NTK/loco 2 ( 000) Jul % Microscope remains on asset productivity Significant improvements have already been made and will continue to be one of the main outcomes of the IOP Jul % 13 Opportunity ,000 8,500 8,000 7,500 7,000 6, Jul % 13 Opportunity Actual % change 1. Represents Coal and Bulk (including Iron ore) and Intermodal 2. Includes all Aurizon owned fleet (e.g. Coal, Bulk, Intermodal and Iron Ore), excluding stored assets 9

11 The Integrated Operating Plan is the cornerstone of Operations transformation Integrated Operating Plan (1) Supply chain Consolidated approach Areas Example drivers Mine Aurizon Optimise planning better compliance in day of operations Operations Planning Tighten schedule and improve turnaround time IOP Cascade surplus rollingstock to allow older assets to be disposed of Port Competitor Commercial and Marketing Work with our customers to reduce variability in customer ordering patterns Underlying principles 1. Reduce variability 2. Highly scheduled 3. Improve consistency of service 4. Improve velocity 5. Focus on asset productivity 6. Reduce asset base Network 1 Service Delivery Rollingstock Maintenance Increase path utilisation Optimise maintenance and closures of the Network Increase driver utilisation by optimising crewing strategies and rosters Increase reliability and availability of existing rollingstock 1. Represents all networks that Aurizon operates on 10

12 Aurizon is reviewing its Integrated Operating Plan Aurizon s operations footprint Western Australian Corridors Geraldton Port Hedland PERTH Western Australia Kalgoorlie Esperance DARWIN Interstate Intermodal Northern Territory Alice Springs Queensland South Australia New Port Augusta South Wales ADELAIDE Mt Isa Victoria MELBOURNE Cairns Townsville Mackay Tasmania HOBART Rockhampton Newcastle SYDNEY CANBERRA Aurizon operations Do not operate North West Corridor Coal North Corridor North Coast Line Coal South Corridor South West Corridor BRISBANE Hunter Valley Coal For personal use only (IOP) across its key national corridors Corridor optimisation is underway Transform all Freight and Coal corridor operations to maximise productivity through: Scheduled operations Longer / denser trains Facility consolidation Optimising labour Increased rollingstock productivity 11

13 IOP corridor redesign has already identified significant productivity improvements A corridor optimisation process is in place This approach is being applied to our corridors, which move both bulk and coal traffic Significant opportunities have been identified Considerable value has been identified through labour and asset productivity initiatives Initiatives are underway Initiatives are starting to unlock value Optimisation opportunities to drive further productivity Area of opportunity Description Identified benefit Scheduled operations Longer / denser trains Facilities consolidation Labour productivity Rollingstock productivity Update scheduling practices to enable precision operations by: Running additional trains during track outages Optimising refuelling practices Reducing unplanned dwell and utilising planned dwell Improve asset utilisation through: Consolidating tonnage onto fewer services Running select over-length services Maximising train lengths within existing Network infrastructure Optimise the efficiency of our facilities footprint including a review of: Legacy property holdings Light maintenance facilities Crewing depots Review existing crew strategy including: Mix of single and two driver operations Improving route competencies to improve crew flexibility Improve rollingstock productivity through: Improving train design Cascading newer more efficient locomotives Increase available Network time to increase number of train starts Enable review of refuelling locations Increase effectiveness of maintenance inspections by using natural dwell time Deliver more throughput for customers using less train starts and rollingstock Enable a lower operating cost per tonne delivered Review facilities footprint Once off sale proceeds Reduce ongoing maintenance and property holding costs Improve safety of crew Reduce crew motor vehicle travel time Reduce crew overtime Release of surplus rollingstock Improve fuel consumption Disposal of legacy fleet 12

14 Aurizon is now in a position to revise its rollingstock fleet plan due to two key drivers Driver IOP continued improvement in operational performance New organisation structure providing a holistic and functional view Description Improvement in key operational metrics across Coal and Bulk Sustainability of improvement gives confidence of further realised value IOP transformation is the operational cornerstone to improve Aurizon s OR National perspective on leveraging resources, capabilities and operational synergies across Australia Instilling a renewed focus on operational discipline More cascading opportunities between rail corridors and commodities Which means Aurizon can confidently rationalise its fleet We can continue to deliver value to customers We will deliver more with less 13

15 The Enterprise Rollingstock Master Plan (ERSMP) reflects demand and optimises capital investment and expense ERSMP Development The goal of the ERSMP is to match customer demand with optimised rollingstock solutions, in accordance with Operating Plans, Maintenance/Life Cycle Plans and Fleet Strategy Finance Capital Funding Considerations & Financial Analysis Procurement Asset Disposal & Purchasing Rollingstock Maintenance Market Intelligence Rail Infrastructure Network/Port Service Delivery Ops Engineering & Technology Nat Ops & Service Centre Service Design / Supply Chain Maintenance Plans Availability & Reliability Targets Overhauls and capital programs Contract summary Volume forecasts Infrastructure maintenance plans Critical asset calendar Major projects Crew planning Service delivery Asset life cycles Consist configurations Fleet strategy Train scheduling Asset deployment Customer priority and allocation Operations Planning ERSMP Service design Operating plans Productivity Plans 14

16 The ERSMP is underpinned by key guiding ERSMP objectives One common and transparent Rollingstock Plan looking: Ahead 5 years At all Australian operations and activities Will right size and right type the rollingstock Match supply to demand in the most cost efficient way Include procurement, disposal and new technologies Demonstrate the fleet plan impact on operating metrics For personal use onlyprinciples and objectives Interoperability Fungibility Standardisation ERSMP principles Ensuring ability to operate in multiple networks and operations, to maximise interoperability between vehicles Buying from a preferred minimum set of standard types of rollingstock Purchasing consistent Original Equipment Manufacturer (OEM) equipment for loco componentry Defining standard wagon and loco componentry (particularly bogies) 15

17 Aurizon s current rollingstock summary, as at July As at July 2013 Locomotives Wagons Total ,546 Active ,163 Stored 201 3,383 Average age (years) For personal use only Locomotives 162 Locomotives 12,449 wagons 4,308 Wagons 49 Locomotives 584 Wagons 43 Locomotives 1,205 wagons 16

18 Our revised ERSMP provides a renewed view of fleet requirements Delivered on commitment Rollingstock plan has now been reviewed 5 year rollingstock fleet review (1) Locomotives [308] [-28%] [77] [ ] Approximate figures Informed by 829 [598] Improvements in the operating metrics and impact of the IOP Wagons FY13 fleet Not Required Estimated New (2) Estimated FY18 fleet ( [-12%] Assumes total volumes CAGR of 3%-5% p.a. over 5 years Resulting in [5,185] [2,931] We are now in a position to provide an update on a significant reduction in assets between now and FY18 18,546 [16,292] FY13 fleet Not Required Estimated New (2) Estimated FY18 fleet ( 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 17

19 Productivity (NTKs/Active fleet) Active Fleet Classes The revised ERSMP will drive a range of Forecast fleet metrics (1) Locomotives 59 FY13 Locomotives [-49%] [+30%] [ ] [ ] FY18 Wagons Wagons 297 FY13 [-38%] [+15%] FY18 Outcome Significant reduction in classes across Aurizon s rollingstock Outcome Large planned productivity improvements across Aurizon s rollingstock Benefits [ ] Approximate figures 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 For personal use only additional productivity and efficiency benefits FY13 FY18 FY13 FY18 1.All figures are subject to market changes 18

20 Summary The transformation journey (organisational and cultural change, IOP, disciplined operations) is delivering significant operations improvements as seen in the key metrics These improvements have allowed Aurizon to revise its fleet disposal and procurement requirements based on the current demand forecast Aurizon has a surplus position of 308 locos and 5,185 wagons over the next 5 years This smaller, simpler more productive fleet profile will position Aurizon to more efficiently meet the growth and service requirements of its customers 19

21 Finance update Keith Neate EVP & CFO

22 Operating Ratio update Remain on track to deliver Operating Ratio of 75% by FY2015 1H Operating Ratio % 1H FY2014 volumes in coal & iron ore remain strong, partly offset by weaker freight performance Network access revenues fixed due to transitional tariffs. FY2014 access revenues approximately $60m lower than FY2013 for CQCN (excluding GAPE and electric energy charge (EC) revenue) H H Operating Ratio % H H H 2014 (f) H H H

23 Rollingstock Review 1H FY2014 results will include the financial impact of the Rollingstock Review Locomotives will either be written down to Net Realisable Value (NRV) and sold, or scrapped depending on age and type Wagons will generally be written down to scrap value Estimated impairment will be in the order of $130m - $150m (pre-tax, subject to audit), and reflects the immediate disposal of 181 locos and 2,675 wagons The impairment represents approximately a 4% decrease of the $3.4bn asset value as at 30 November 2013 Immediate benefits of the fleet rationalisation will be reduced maintenance spend and depreciation expense, average benefit of some $20m per annum over five years Remaining rollingstock identified as surplus will be disposed over the 5 year period of the fleet plan. Depreciation will be revised to reflect impairment to estimated realisable value 22

24 Strategic Projects Review 1H FY2014 results will include the financial impact of the Strategic Projects Review Completed review of the current status of strategic projects, resulting in an impairment of $47m (pre-tax, subject to audit) in respect of the following: Surat Basin Rail (SBR) Joint Venture costs given announcement of termination of the Joint Venture in November 2013 following recent announcement by Glencore that its Wandoan Project is being put on hold Costs for alternative Galilee Basin rail developments expensed following submission of revised corridor proposal and Environment Impact Study (EIS) in August 2013 by alternative developers, together with consolidation of our own corridor with GVK Hancock, announced 25 November

25 Transformation update Headcount 248 people have accepted Voluntary Redundancy (VR) since July 2013 VR cost estimated to be $23m - annualised benefit expected to be $26m Gross headcount reduction since IPO 2,074 or 22% Other initiatives Real Estate 220 sites (Industrial & Housing) identified as surplus to requirements Corporate Services 31% reduction in credit card holders, 18% decrease in spend Over 20% reduction in discretionary spend - annualised benefit expected to be in the order of $40m Operations Labour cost down 5%, whilst absorbing 4% rate increase and 12% volume increase Voluntary Redundancy acceptances 1H FY2014 Commercial & Marketing 30 Strategy & Business Development 18 Human Resources 35 Finance 28 Enterprise Services 7 Total Support 118 Network 1 Operations 129 Total Network & Operations 130 Total - Enterprise 248 Management remuneration will be based on profit outcomes after inclusion of costs in respect of the VR programme and the impairments (both rollingstock and strategic projects) 24

26 Above rail volume update 5 months to 30 November 2013 Coal Queensland volumes up 14% with particular strength in the Goonyella corridor NSW volumes have increased 10% We estimate coal volumes for 1H FY2014 to be approximately 107mt FY2014 coal guidance remains mt. We will update the market in February when we have a better indication of the wet season impact Iron Ore Volumes on track for ~30mt in FY2014 Freight Bulk volumes down due to various factors including plant disruptions, a mine closure and weaker than expected grain harvest in Queensland Intermodal volumes have increased reflecting contracts with new customers Above rail volumes Five months ended 30 November (mt) % Growth Queensland % NSW % Total Coal % Iron Ore % Freight (5%) Total % 25

27 Regulation & EA update Lance Hockridge MD & CEO

28 UT4 Update Queensland Competition Authority (QCA) has received 11 stakeholder submissions in response to Aurizon Network s UT4 proposal Aurizon responded on 29 November 2013 to proactively address many of the key customer issues The UT4 process is ongoing and has included independent external review on elements of Aurizon s submission (operating costs) and a recent (13 December) industry forum on the Weighted Average Cost of Capital (WACC) The QCA has indicated that full approval of UT4 is unlikely before 30 June 2014, however they intend to release a position paper on the pricing elements in the March quarter 2014 to enable tariffs to be determined for FY2015 A final decision on all elements for UT4 is being targeted for late CY2014 to enable a commencement date of 1 January 2015 If there is sufficient certainty on UT4 pricing by 30 June 2014, Aurizon will reflect the full year impact of the tariffs in its FY2014 accounts 27

29 18 Enterprise Agreements to be renegotiated Agreements Employer covered Commence bargaining Interail Intermodal NSW EA 2009 Interail Australia Pty Ltd Feb June 2013 Interail Coal Operations - NSW EA 2010 Interail Australia Pty Ltd May October 2013 AER Operations EA 2011 QR National EAs 2010 AWR Rollingstock Maintenance EA 2011 AWR Rail Operations EA 2011 Australia Eastern Railroad Pty Ltd Aurizon Operations Limited and Aurizon Network Pty Ltd Australia Western Railroad Pty Ltd Australia Western Railroad Pty Ltd Expiry date M A M J J A S O N D J F M A M J April December 2013 April December 2013 Completed Under negotiation Under negotiation Under negotiation Q2 FY14 10 May 2014 Q3 FY14 30 June 2014 QR National Intermodal Logistics EA 2012 CRT Group Pty Ltd 30 June 2015 For personal use only between now and 30 June

30 QLD Enterprise Agreements (EA) update Aurizon is not looking for anything that our competitors haven't already secured Our current environment Government owned legacy issues no forced redundancy, prescription, complexity and a lack of focus on competitiveness in the EAs 14 EAs with over 900 classification points and hundreds of allowances and disability payments Inability to change some policies without consent of unions Unnecessary inconsistency of entitlements across Aurizon The bargaining landscape First bargain in Queensland after privatisation Continuing restructure and reform program across enterprise Facing significant union opposition to the reform Aurizon needs Bargaining progressing slowly at present - unlikely to reach agreement by 31 December 2013 Offering 4% wage increases if Aurizon s goals are met To meet the challenges in achieving its bargaining goals Aurizon has: Sought assistance from the Fair Work Commission with regular facilitated bargaining Robust operational and legal contingency planning Increased levels of employee engagement Delivered and scheduled ongoing customer briefings Possible outcomes: Potential protected industrial action from early 2014 Potential for unions preference to do nothing and delay bargaining Conditions under current EA s will roll forward. Pay rises will be only be awarded once negotiations finalised, with no backdating Reach agreement 29

31 Summary Market volumes remain strong in coal and iron ore in 1H FY2014 Progress towards 75% Operating Ratio in FY2015 remains on target Integrated Operating Plan (IOP) implemented, and already delivering results The IOP implementation has been enabled by a number of factors since IPO including: Implementation of the functional business model (from 1 st December 2011 to 1 st July 2013) Greater coal volume certainty (contract renewals/awards) Senior management changes (in particular Mike Franczak) 1H FY2014 results will include impact of fleet and strategic projects impairments We wish you and your families a very Merry and safe Christmas and a Happy New Year 30

32 Q&A

33 Aurizon Investor Briefing Monday 16 th December 2013 Sydney