QR National to restructure


Rail freight operator QR National announces a 56 percent jump in profit to $350 million and plans to restructure

QR National to restructure
QR National to restructure

August 29, 2011

Australia's largest coal freight operator QR National has emerged shaken but unscathed by this year’s natural disasters in Queensland to announce a 56 percent jump in profit to $350 million and a restructure.

In its first full year profit result since listing, the
QR National
today reported an underlying EBIT of $367 million up 35 per cent compared to FY10 and a statutory EBIT of $205 million compared to a loss last year of $72 million.

Managing Director & CEO Lance Hockridge says the increase in earnings is a solid outcome for QR National given the impact of Queensland’s floods on haulage volumes.

"The floods impacted heavily on Queensland coal production and many of our customers have experienced slower than expected recovery of coal supplies," Hockridge says.

"The wet weather contributed to a 37 million tonne reduction in coal haulage volumes compared to expectations."

However Hockridge says QR National gained momentum in its transformation program with a focus on improved revenue quality, cost management and operational efficiencies, enabling an offset of the impact of the reduced coal haulage.

The company’s cost management efforts in April resulted in the voluntary redundancy of 660 employees.

Hockridge says QR National is now looking to advance a proposal to restructure the business along functional lines, to achieve a more customer-focussed cost efficient business.

"The changes involve a move from a business-unit structure towards one structured on functional roles, much like the high-performing class one railroads in North America," Hockridge says.

"Implementation of the high-level functional structure will be followed by further redesign and restructuring within the business subject to consultation with employees and employee representatives.

"In combination with other work, this delivers the required commercial and customer-focussed behaviours in the company and support the acceleration of transformation.

An update on the company’s restructure will be provided at its Annual General Meeting on November 11.

Meanwhile Hockridge points to new long term coal contracts in excess of 26 million tonnes per annum with a total revenue value of more than $1.6 billion signed this year significantly bolstering its coffers.

"We have also advanced the iron ore growth strategy in Western Australia in line with ourcommitments, with tonnages on track for trebling to around 30 million tonnes by financial year 2014 under new and existing contracts," he says.

QR National expects continued growth from the resources and bulk commodity sectors in the 2012 financial year, but remains cautious in the short-term on the speed of recovery of coal haulage volumes.

"Softer coal haulage volumes in Queensland have persisted into the first quarter, with customers continuing to report a delayed return to full production levels," Hockridge says.

"Year-to-date we have seen coal railings in Queensland 18 per cent below volumes for the same period last year.

"As coal supplies increase over the months ahead we would expect there would be opportunities to maximise tonnages, and we have brought forward both maintenance and capital expenditure to underpin and grow throughput capability."

On the upside, Hockridge says revenue quality is improving as the company converts business to new form contracts and continues to derive efficiency gains and cost improvements from its ongoing transformation program across the business.

"Importantly, the company is in a robust financial position heading into the new financial year," he says.

We have a strong balance sheet, low gearing and solid opportunities for revenue growth and cost reduction.

"QR National expects to spend approximately $1.6 billion on capital projects in financial year 2012 to support the anticipated growth in our key markets.

"In early 2012 we’re also bringing on line significant new business with the GAP rail infrastructure expansion in Queensland and iron ore haulage services for the Karara mine in Western Australia."

QR NATIONAL NETWORK SERVICES

Full year revenue of $1.2 billion and underlying EBIT of $284.7 million were up on the prior year by 11 percent and 3 per cent respectively.

"The improvement in revenue reflects increased activity in Rolling stock Services and the securing of new maintenance contracts," Hockridge says.

"The impact of record rainfall reduced railings across the network to 164 mtpa, down 12 per cent on the prior year."

Reduced revenues for track access will be recovered through the revenue cap mechanism in 2013 subject to regulatory approval.

QR NATIONAL COAL

While volumes and Net Tonne Kilometres were weaker due to the record wet weather, revenue was broadly in line with the previous year at $1.7 billion.

This was due to improved revenue margins from the renegotiation of contracts.

"QR National Coal is continuing to deliver on a range of productivity improvements, including payload gains of three per cent per train in the two largest coal systems, Goonyella and Blackwater, creating greater system capacity and delivering an extra 3.5 million tonnes during financial year 2011 using existing resources," Hockridge says.

In NSW, strong performance continued with the early introduction of new trains in the Hunter Valley allowing QR National to take advantage of additional spot tonnes in the market as well as delivering on contracted tonnage growth.

QR NATIONAL FREIGHT

Despite extreme weather conditions across Australia impacting the business, revenue of $1.3 billion was up 11 per cent, on the prior year.

This included revenue growth in Intermodal, the iron ore business in Western Australia and the Transport Services Contract (TSC) with the Queensland Government for regional and livestock services in Queensland.

Underlying EBIT grew by $126.5 million, to $30.6 million. Capital expenditure grew from $89 million to $197.8 million to support iron ore growth projects.

CAPITAL INVESTMENT

Company-wide capital investment during the year totalled $1.4 billion, including $460 million on the rail infrastructure expansion and $256 million in above-rail coal and iron ore rollingstock assets.

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