Aurizon Holdings (ASX:AZJ)

Andrew Harding
MD, CEO
Market Cap (AUD): 11.03B
Sector: Industrials
Last Trade (AUD): 5.54 +0 (+0%)
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1. About

Aurizon is Australia’s largest rail freight operator and a top 50 ASX company. Each year, the Company transports more than 250 MT of Australian commodities, connecting miners, primary producers, and industry with international and domestic markets. It provides customers with integrated freight and logistics solutions across an extensive national rail and road network, traversing Australia. The Company also owns and operates one of the world’s largest coal rail networks, linking ~50 mines with three major ports in Queensland.

2. Business model

 

The Company operates the following divisions:[1]

 

Divisions

Revenue ($’M)

% of Revenue

% of Profit/ (Loss) (before Int & Tax)

Profit Drivers[2]

Network

$1,218.7

32.6%

51.1%

EBIT declined marginally to $480.6m in FY2018, with reductions in operating costs ($51.6m) offset by decreased revenue ($43.4m), mainly due to the non-recurrence of the UT4 true-up of regulatory revenue in FY2017 and increased depreciation ($8.5m).

Coal

$1,813.2

48.5%

45.6%

EBIT increased $8.6m (2%) to $428.6m, with increased volumes and ongoing benefits delivered from the transformation program more than offsetting an increase in operating costs due to price escalation and costs associated with installing capacity to deliver additional volumes.

Bulk

$618.1

16.5%

5.3%

EBIT increased $64.5m to $50.1m, due to benefits from the transformation program and lower net depreciation from the impairments in FY2017 partly offset by lower volumes. Bulk revenue per NTK increased 10% predominately due to lower contract utilisation and the commencement of new contracts in Bulk East.

Other

$90.8

2.4%

(2.0%)

EBIT decreased $16.4m mainly due to:-

Non-recurrence of $26.4m benefit from the UT4 corporate cost allocation true-up included in FY2017 $16.2m reduction in other revenue predominantly due to external construction work of $7.0m, and sale of workshop inventories of $9.0m that both took place in FY2017

3. Strategy

 

Key priorities include:[3]

 

Optimise

  • Delivering a cost-effective and customer-aligned model
  • Moving decisions closer to our operations and customers
  • Delivering a portfolio of value adding businesses
  • Allocating capital rigorously and efficiently

Excel

  • Labour and asset productivity through technology
  • Regulatory reform
  • Developing a safety and performance culture that is agile and innovative

Extend

  • Improving the competitiveness of supply chains we operate
  • Leveraging expertise to adjacent assets and activities
  • Bulk commodity supply chain manager of choice

4. Markets

 

[4]

Industry (Australia)

Industry Revenue (2018)

Growth Rate

Rail Freight Transport

$10 billion

2.9% (annual 14-19)  

Railway Equipment Manufacturing and Repair

$3 billion

(3.0%) (annual 13-18)   

5. Competition

 

Major competitors include:[5]

 

  • Asciano (ASX:AIO)
  • Downer EDI (ASX:DOW)
  • Brambles Limited (ASX:BXB)
  • QUBE (ASX:QUB)

6. History

 

2011[6]   

QR National Signed Wiggins Island Rail Project Agreement  

QR National’s approval of $185 million expansion of Goonyella coal rail network

 

2012   

QR National Limited – Change of name to Aurizon Holdings Limited and adoption of replacement Constitution

Whitehaven Coal Limited (ASX:WHC) entered into a long-term contract for rail haulage services with Aurizon Operations Limited

 

2013   

Aurizon and GVK Coal Infrastructure (Singapore) Pte Ltd (GVK Hancock) reached a significant major milestone towards signing the proposed Galilee Basin Rail and Port Transaction

Aurizon had secured a new long-term,performance-based contract with BM Alliance Coal Operations Pty Limited (BMA) and BHP Billiton Mitsui Coal Pty Limited (BMC) for the haulage of up to 65 million tonnes per annum (mtpa) of coal from its mine operations in Queensland

 

2014   

Aurizon and China’s Baosteel jointly bid to acquire 100% of the ordinary share of Aquila Resources Limited

 

2015   

Aurizon signed an agreement for a new intermodal hub in Sydney

Aurizon renews coal haulage contract for Dawson and Callide Mines with Anglo American & Mitsui

 

2016   

Wollongong Coal awarded coal haulage contract to Aurizon

 

2017   

Aurizon successfully prices A$ Medium Term Notes

 

2018[7]  

Diverse careers delivered through their Graduate program

7. Team

 

Board of Directors[8]

 

Tim Poole – Chairman, Independent Non-Executive Director

Andrew Harding – Managing Director & CEO

Marcelo Bastos – Independent Non-Executive Director

Russell Caplan – Independent Non-Executive Director

Karen Field – Independent Non-Executive Director[9]

Michael Fraser – Independent Non-Executive Director

Sam Lewis – Independent Non-Executive Director

Kate Vidgen – Independent Non-Executive Director

Dominic Smith – Company Secretary

 

Management

 

Andrew Harding – Managing Director and Chief Executive Officer

Pam Bains – Chief Financial Officer and Group Executive Strategy

Clay McDonald – Group Executive Bulk

Ed McKeiver – Group Executive Coal

Michael Carter – Group Executive Technical Services and Planning

Michael Riches – Group Executive Network

Tina Thomas – Group Executive Corporate


read more

8. Financials

 

2018 Full Year Results Presentation

      

Financial Year 2017/2018 (ended 30 June):[10]

 

Divisions

Revenue ($’M)

% Change

Profit/(Loss) (before Int & Tax) ($’M)

% Change

Network

$1,218.7

(3.4%)

$480.6

(0.1%)

Coal

$1,813.2

1.0%

$428.6

2.0%

Bulk

$618.1

(4.2%)

$50.1

447.9%

Other

$90.8

(15.1%)

($18.7)

(713.0%)

Total

$3,740.8

(1.8%)

$940.6

6.4%

9. Risk

 

Major risks include:[11]

 

Market risk

Market risk is the risk that adverse movements in foreign exchange and/or interest rates will affect the Group’s financial performance or the value of its holdings of financial instruments. The Group monitors and measures market risk using cash flow at risk. The objective of risk management is to manage the market risks inherent in the business to protect profitability and return on assets.

 

Foreign exchange risk

  • Exposure to foreign exchange risk: Foreign exchange risk arises from commercial transactions and recognised assets and liabilities that are denominated in or related to a currency that is not the Group’s functional currency. The Group’s foreign exchange exposure relates largely to the Euro (€) denominated medium-term note borrowings issued in September 2014 (EMTN 1) and May 2016 (EMTN 2). The Group also has exposure to movements in foreign currency exchange rates through anticipated purchases of parts and equipment.

 

Interest rate risk

  • Exposure to interest rate risk: The Group holds both interest-bearing assets and interest-bearing liabilities, and therefore the Group’s income and operating cash flows are subject to changes in market interest rates. The Group’s main interest rate risk arises from long-term borrowings which expose the Group to cash flow interest rate risk.

 

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Credit risk arises from cash and cash equivalents, derivative financial instruments, deposits with financial institutions and receivables from customers.

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. Credit risk further arises in relation to financial guarantees received from certain parties.

 

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulties in meeting the obligations associated with its financial liabilities.

References

  1. ^ Annual Report 2018, P.55-56
    https://www.listcorp.com/asx/azj/aurizon/news/2018-annual-report-1948238.html
  2. ^ Annual Report 2018, P.15-20
    https://www.listcorp.com/asx/azj/aurizon/news/2018-annual-report-1948238.html
  3. ^ https://www.listcorp.com/asx/azj/aurizon/news/full-year-results-presentation-1948230.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=1888
    http://www.ibisworld.com.au/industry/default.aspx?indid=257
  5. ^ https://www.owler.com/company/aurizon#competitors
    https://anz.businesschief.com/top10/2436/Top-10-Australian-transport-logistics-companies
  6. ^ http://www.asx.com.au/asx/statistics/announcements.do?by=asxCode&asxCode=azj&timeframe=Y&year=2011
    http://www.asx.com.au/asxpdf/20110325/pdf/41xnbt1wmpllfm.pdf
    http://www.asx.com.au/asxpdf/20121203/pdf/42bp2r1jwyt8md.pdf
    http://www.asx.com.au/asxpdf/20121228/pdf/42c6fbrgy38w22.pdf
    http://www.asx.com.au/asxpdf/20131125/pdf/42l34mbswpt0ps.pdf
    http://www.asx.com.au/asxpdf/20130307/pdf/42dhxrj6ydfb6g.pdf
    http://www.asx.com.au/asxpdf/20140505/pdf/42pf6c5bn6d5pl.pdf
    http://www.asx.com.au/asxpdf/20151207/pdf/433m1y158b5zlw.pdf
    http://www.asx.com.au/asxpdf/20150708/pdf/42zpycwpr1d9lb.pdf
    http://www.asx.com.au/asxpdf/20160815/pdf/4399h4xk4y4x39.pdf
    https://www.listcorp.com/asx/azj/aurizon/news/aurizon-successfully-prices-a-medium-term-notes-1619981.html
  7. ^ https://www.aurizon.com.au/news/news/diverse-careers-delivered-through-our-graduate-program
  8. ^ https://www.aurizon.com.au/company/leadership
  9. ^ https://www.listcorp.com/asx/azj/aurizon/news/board-update-1968690.html
  10. ^ Annual Report 2018, P.55-56
    https://www.listcorp.com/asx/azj/aurizon/news/2018-annual-report-1948238.html
  11. ^ Annual Report 2018, P.73-77
    https://www.listcorp.com/asx/azj/aurizon/news/2018-annual-report-1948238.html