Aurizon sees possible trouble down the track

Bottom line takes a hit but Hockridge in confident savings will turn that around

Aurizon sees possible trouble down the track
Aurizon expects its transformation to pay dividends

Aurizon has foreshadowed potential industrial relations, competition and weather impacts as issues for the coming financial year.

The concerns are raised as the intermodal operator reveals a 43 per cent fall in annual net earnings after tax, to $253 million from $447 million the year before.

CEO Lance Hockridge was keen to emphasise other gains at a time of change for the group.

"This is another solid result for Aurizon, which underscores the momentum we are achieving with our transformation program despite the continuation of subdued market conditions," Hockridge says.

"Across all metrics our operating performance is improving, and we continue to pursue significant operational reforms to make the company leaner, more efficient and more profitable.

Aurizon delivered a 13 per cent increase [to $851 million] in Underlying EBIT [earnings before interest and tax] in FY14 despite a modest 2 per cent increase in revenue.

"Underpinning this result was $129 million in transformation benefits, compared to $96 million in the prior year.

"Revenue quality improved $98 million from new form coal contracts."

While a softening of its coal haulage market hurt the bottom line, it did gain a 10 per cent boost in the earnings before interest, tax depreciation and amortisation for its freight business, to $88 million.

This was in the face of lower tonnage and distance travelled of five and six per cent respectively and a $21 million reduction in services under the Queensland Government’s Transport Services Contract (TSC).

Partly offsetting this was a 17 per cent increase in Intermodal volumes, against the trend of flat market conditions overall, due to new contracts commencing including Coles and Woolworths.

Hockridge is bullish about his firm’s involvement in Aquila Resources with Baosteel.

"Aurizon is now investigating the creation of a world-class multi-user supply chain for a greenfield iron ore development in the West Pilbara, with the potential to unlock presently stranded high-quality projects for other mid-tier miners," he says.

"It's Aurizon's intention, following the successful development of the West Pilbara rail and port infrastructure, to divest its shareholding in Aquila."

Of the looming risks, it notes:

  • industrial action may result from the company’s determination to "re-negotiate fair, competitive and commercially sustainable" Enterprise Agreements (EA), noting its application to terminate all current 14 EAs will be heard by the Full Bench of the Fair Work Commission in November
  • a final decision by the Queensland Competition Authority on Access Undertaking (UT4) is expected by next June. While there has been substantial engagement with all key stakeholders on UT4, "there remains a risk that Aurizon does not receive a satisfactory outcome"
  • potential impacts of extraordinary weather events, especially in Queensland where a wet season can severely interrupt the coal business.

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