AFR article 14 Feb 2023:Aurizon’s bulk haulage income from its...

AFR article 14 Feb 2023:

Aurizon’s bulk haulage income from its $2.35billion One Rail Australia acquisition has fallen short of targets,contributing to a 46 per cent drop in annual net profit, but the company isteeing up potential customers for its land bridge plan.

The rail group’s shares fell 3 per cent to$3.59 after profits slid to $276 million, with higher finance and operatingcosts and lower coal volumes contributing to the decline as well as a $48million loss related to the sale of One Rail’s east coast rail haulage business in February.

While earnings from Aurizon’s expanding bulkhaulage business rose by $79 million to $214 million, this was below the $100million in earnings before interest, taxation, deprecation and amortisation(EBITDA) the company had been targeting after spending $2.35 billion buying One Rail.

Aurizon chief executive Andrew Harding wantsto diversify Aurizon away from coal by hauling more bulk commodities such asgrain and iron ore.

Chief financial officer George Lippiattacknowledged that the earnings contribution from One Rail during its 11 monthsin the company’s ownership “fell short”, attributing the miss to bad weather inthe Northern Territory, train derailments and the time taken to get aparticular customer established.

“We absolutely expect One Rail to contribute$100 million of EBITDA in FY24,” Mr Lippiatt said.

Mr Harding said he remained convinced thatopportunities would be created by the so-called “land bridge” plan revealed to investors last month, and that Aurizon had signed memorandums of understanding (MOU) with several parties and was in talks with others.

Aurizon wants shipping lines to offloadcontainers in Darwin so that it can move them by rail through the centre ofAustralia to Melbourne and Sydney.

Mr Harding declined to name the parties thathave signed MOUs, but said they included companies handling containers thatwanted alternative options to sea freight.

“All of them are attracted by the expectationand promise of much faster service into the east coast of Australia,” he said.

Aurizon’s coal haulage volumes were lower thanexpected after being hit by bad weather, derailments and mine productionproblems. Earnings from coal haulage slid 16 slid per cent over the full yearto $455 million due to a 5 per cent decline in tonnes hauled and higher wagesand materials costs.

But the company said coal volumes wereimproving, partially due to the end of China’s ban on importing Australian coal.

Network volumes, which include goods hauled bythird parties on rail tracks managed by the company, were below forecasts,while fees related for transporting coal to Queensland’s Wiggins Island exportterminal were $10 million lower than a year earlier.

Aurizon’s regulatory agreement with theQueensland Competition Authority allows it to recover some revenues, helpingboost network earnings 1 per cent to $813 million.

Group underlying EBITDA fell 3 per cent to$1.43 billion, at the lower end of Aurizon’s guided range and total operatingcosts jumped 30 per cent to more than $2 billion, partially due to higher fueland energy costs.

Group interest costs on drawn debt rose to 4.1per cent from 3.4 per cent a year earlier, hurting free cash flow, and thecompany surprised analysts by forecasting it would pay some $300 million ininterest this financial year.

Aurizon will pay a final dividend of 8¢ pershare, compared with a final dividend of 10.9¢ a year earlier, representing apayout ratio of 75 per cent of underlying net profit after tax from continuingoperations.

Investors were told early last year thatdividends were likely to be paid at the lower end of its forecast payout rangeof between 70 and 100 per cent of underlying net profit for the next one or twoyears.

Mr Harding said he could not forecast whenAurizon would return to paying a higher proportion back to investors.

The CEO earned $3.75 million in fiscal 2023,including $950,000 in cash and deferred shares as part of a short-term bonuspackage, which was about one-third of his potential short-term bonus windfall.