Aurizon reviews freight and intermodal as profits plunge


Bottom line takes 88 per cent hit while dividend gets a boost

Aurizon reviews freight and intermodal as profits plunge
Aurizon is reviewing its intermodal business.

 

Rail-focused intermodal firm Aurizon has seen full-year net profit after tax (NPAT) fall 88 per cent to $72 million, mostly due to impairments flagged last month.

The company will hope such impacts will be rare, given revenues only fell 9 per cent, from $3.78 billion to $3.46 billion.

Freight volumes declined 4 million tonnes (mt) or 9 per cent to 40.4mt with bulk volumes down 8 per cent and intermodal volumes down 24 per cent partly due to the CRT disposal.

"Despite a 20 per cent reduction in operating costs over the last two years, a 28 per cent reduction in revenue over the same period has resulted in an EBIT loss for the year, and a performance review is underway to determine options to achieve appropriate risk adjusted returns for both Bulk and Intermodal [segments]," the company says.

The review will be split between the intermodal arm and the Diversified Bulk Freight (DBF) segment, given the differing products, markets and drivers.

For intermodal, review will focus on train service profitability.

The firm sees its value proposition to customers as being redefined with the Enfield facility in Sydney opening new markets in import/export container shuttles and regional trains.

For DBF, it will be the commodity mix and future growth opportunities to be assessed on categories and/or corridors such as minerals, grains, livestock and the north-west of Western Australia.

It expects to continue to progress the implementation of transformation initiatives to deliver lower costs and drive efficiencies.

Twenty‐Foot Equivalent Units (TEU) were flat for the year as they are not impacted by the sale of the CRT Group, which did contribute to the last full-year result, the company notes.

Bulk volumes were impacted by the closure of Clive Palmer’s Queensland Nickel refinery and lower mineral volumes, reflecting the challenging commodity price environment, as well as lower agricultural throughput, particularly wheat and livestock.

Freight revenue per net tonnes per kilometre declined 16 per cent due to the impact of lower transport service contract payments from the Queensland government, the sale of CRT and a reduction in fuel revenue and the impact of challenging market conditions on customer health and new contract pricing.   

"While conditions in the Queensland market remain difficult there was solid growth through the Melbourne to Brisbane rail corridor, with volume growth of 9 per cent driven by improvement in customer service and on time performance," the company says.

Fuel consumption improved by 3 per cent through driver behaviour programs – supported by improved data and analytics, such driver assist and driver methodology programs – and technology improvements such as trip optimiser technology.

"It was a challenging year for the Company and our customers, with volumes and revenue under pressure in our above rail businesses, particularly in Freight, however we’ve seen a stabilisation in Coal volumes in the second half, with relatively resilient earnings for the year in a lower volume environment," Aurizon MD and CEO Lance Hockridgesays.

"Transformation continues to be the major driver of earnings growth, with $131 million delivered this year, along with an uplift in EBIT from the below-rail Network business.

"We have increased confidence in our ability to deliver an additional $250 million in cost reductions and productivity improvements to take $380 million out of our cost base for the three years to FY18.

"If achieved, that would mean a reduction of more than $630 million in our cost base over a five-year period.

"A number of substantial initiatives have been recently commenced including a new regional model for Operations, improved alignment of train crew and maintenance workers to long term demand, the outsourcing of non-core maintenance activities, and the continued consolidation of corporate support functions.

"For the second consecutive year, the board has allocated 100 per cent of underlying NPAT to dividends for shareholders.

"With the company’s capital expenditure requirements reducing over the next two years, an increase in free cash flow growth will enable us to continue to deliver distributions to shareholders, even in an environment of low earnings growth."

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