Aurizon interim results to take $321m hit


Single systems platform project terminated as, half year results to recognise values reduction and costs

Aurizon interim results to take $321m hit
Andrew Harding says Aurizon is on track to hit forecast interim result

 

Rail freight firm Aurizon expects ‘underlying’ half-year earnings before interest and tax (EBIT) to come in a $900-950 million after warning of $321 million in pre-tax financial impairments and ‘significant items’.

Amongst the impairments is provision for an early halt after two years to its partially successful computer systems rationalisation scheme, with risks of further work seen as unlikely to gain a strong-enough reward.

The impairments include $85 million from its ‘transformation and redundancy program’ and intermodal asset impairments of $162 million, the latter valuing that business at $177 million.

Against that fall in value, it has started its national contract with K&S Corporation and seen import-export volumes through its Enfield intermodal facility in Sydney improve.

Intermodal volume increased 10 per cent for the first half compared to the prior comparable period.

"However, there remain considerable challenges within the intermodal market segment and operational requirements have impacted on the cost side such that overall profitability has declined," the company says.

"The detailed process of the freight review has provided greater granularity around operational costs, utilization of assets and future capital investment.

"While the deterioration in underlying trading performance has resulted in this impairment, the freight review is ongoing and no final decision on the future of the Intermodal business has been taken.

"Accordingly, the impairment does not anticipate the impact of any decisions that may be made following completion of this review. The review is expected to be completed by mid-year 2017."

Other costs included a Mt Isa mine haulage contract exit of $10 million.

The $85 million in significant items included $64 million in redundancy for 494 workers, $6 million for Mt Isa contract-related redundancies, $15 million relating to property plant and equipment along with $6 million of projects no longer proceeding and assets deemed as surplus.

Meanwhile, at a cost of $64 million, the company has terminated its Freight Management Transformation (FMT) program, which aimed to unify 18 existing logistics planning, scheduling, ordering and billing systems.

"The FMT project was not delivering value for the business, was at high risk of over-spend and delays, and so it was stopped," MD and CEO Andrew Harding says.

"By undertaking the freight review we’re getting the granularity we need to make informed decisions and to clearly understand the future value and potential of the businesses in this area.

"In parallel to the review, we have determined that interim leadership and structural change for the Intermodal Business are required.

"We have immediately moved to restructure with commercial and operational activities under a single Vice President, Andy Jakab who is reporting directly to me. This is effective immediately and will continue until at least the freight review is complete. We will also act swiftly on outcomes of the completed review, due mid-year 2017.

"Despite these matters, the Company remains on track with its FY2017 guidance and remains committed to its transformation targets through to FY2018.

"I see great opportunity for sustained long-term improvements in productivity, efficiency and cost reduction."

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