Here we go ,Here we go Hope the words and the music are in Sync but it looks like this gem in the rough is emerging for better times
Bullish Asciano on track for bigger things MATTHEW STEVENS From: The Australian September 16, 2011
IN confirming coal as its most elemental source of growth, Asciano said yesterday it would "certainly" consider investment in both coal terminals and rail infrastructure if offered the opportunity to manage a "Pilbara-style" end-to-end logistics service to the east coast miners.
At the end of an impressively bullish strategy briefing yesterday, Asciano's new boss John Mullen confirmed he would be very interested in becoming an investment partner with miners contemplating a fully integrated mine-to-port network, but on the basis that he would be managing the new system.
Mullen arrived at yesterday's session with three key messages.
First, Asciano's very own financial crisis was over and the business was set to deliver annual EBIT growth of between 15-20 per cent over the next three years.
Second, profit and revenue growth was set for the long term because of the nature of the contracts the company was writing across its business silos.
And third, the business was heading into cashflow-positive territory and access to capital was no longer a constraint on growth.
Related Coverage Ports and rail group stays the course The Australian, 10 hours ago Hauling back to black Herald Sun, 24 Aug 2011 Asciano shunts port-rail split The Australian, 24 Aug 2011 Bankers weep over Asciano The Australian, 24 Aug 2011 Asciano kills sale expectations The Australian, 24 Aug 2011
For Mullen, the decoupling of Asciano's growth story from that of the wider economy is a crucial first step towards changing the market's perception of the company as an investment. Indeed, the need to refresh the Asciano proposition left Mullen delivering revenue projections that went a wee bit further than he says he would have been comfortable with in any other circumstance.
Asciano's boss is banking on doubling coal revenues over five years while driving 35-45 per cent growth in the intermodal rail business and 25-30 per cent growth at the Patrick ports business.
Mullen is effectively announcing that Asciano is sitting on the accelerating side of Australia's two-speed economy.
Having called the 100 per cent increase in coal haulage revenues, Mullen was specifically asked whether Asciano would be interested in investing in coal terminals. He responded with an unequivocal "yes" and added, uninvited, that he would consider an invitation to joint-venture participation in "below rail" as well.
In conversation later, Mullen made the point that his theatre of opportunity stretches beyond coal and beyond the east coast. He likes the look of the iron ore industry where there seems to be a growing queue of smaller players whose ability to afford their ambitions would be enhanced by this sort of partnership. And he agrees that BHP Billiton's Olympic Dam project, which will require rail-to-port logistics either northwards or southwards, could be fertile ground for discussion.
Whether Mullen's public pitch for a deeper relationship with coalminers has been matched by commercial conversation with possible customers for the sort of solution he is talking about is not clear. What we do know, though, is that there are at least four coalminers (two producers and two planning to produce) that are actively considering investment in rail infrastructure, and all of them are in Queensland. BHP Billiton, quite famously, made very clear its interest in owning the coal freight rail networks when it attempted (but failed) to turn the QR National IPO into a partial customer buyout.
The failure of two attempts to extract QR's below-rail assets from the float has apparently only fuelled BHP's interest in pursuing its options.
Through the BHP-Mitsubishi Alliance it is now in the early phases of reviewing an investment of more than $1 billion on the construction of its own discrete link between the Bowen Basin coalfields and its share of the next phase of development at the Abbot Point port.
Others to have flagged an interest in investment in integrated rail and port networks include Xstrata, Gina Rinehart's Hancock Prospecting and India's Adani, the new owner of the existing Abbot Point terminal.
The reason why anyone needs this sort of end-to-end offer was explained by Mullen's coal freight boss, David Irwin, who revealed that while Asciano had contracted to move 169 million tonnes of coal in 2014, the chances of hitting the target were "probably reasonably low".
Why?
"Because these coal chains (in the Hunter Valley and central Queensland) do not allow anyone, whether it is the port, the below or above-rail provider, to actually deliver all of their contracted levels.
"You put the elements of these infrastructure chains together and the consolidated piece can't deliver what the independent pieces suggest they can in theory."
The twin proposition that Queensland is emerging as Asciano's sunshine state and that this could turn out to be very bad for the incumbent coal freight market leader, QR National, was made abundantly clear yesterday, and not just by Mullen. The story was taken up with more than obvious relish by Irwin.
Irwin opened his conversation by confirming that PN Coal had now re-signed, ahead of expiry, all its service contracts in NSW and Queensland and had replaced the old arrangements with performance-based, take-or-pay deals that generate minimum rates of return. And then, after saying he was deliberately not having a crack at his competitors, Irwin promptly turned his guns on QR National.
He noted that QR was making a positive of the fact that it had so far shifted only 29 per cent of its contracts on to a "commercial basis" and was making a virtue of it by asking the market to imagine how much upside would be generated when the migration was complete.
"I think that really needs to be looked at quite carefully," Irwin warned. "Because the likelihood of them doing that with BMA, for example, before the expiry of those contracts, I would suggest, is zero. And I would also suggest that would be the case with almost all of their other Queensland customers."
The BHP-Mitsubishi Alliance is QR National's biggest single customer, generating about 40 per cent of the company's Queensland revenues. The relationship between BMA and QR is not as strong as it once was and there is considerable speculation that the nation's biggest metallurgical coalminer might look elsewhere for haulage when the current 10-year contracts start rolling off in 2014.
Asked why he felt QR would struggle to re-sign contracts early, Irwin really powered up.
"The example I can talk about, because it has been talked about publicly, people compare the legacy BMA contracts that QR have with BMA in Queensland and our legacy contract with Coal & Allied in NSW.
"I think the difference is that we can, and have, demonstrated to our customers there is a value proposition to change their arrangements despite the fact that coming out of legacy agreements they are paying us more. And, in the majority of those cases, significantly more.
"In the end it comes down to the way we undertake those discussions. We listen to what our customers need, we don't necessarily tell them what they need, and we also look to find the pathway that ensures that the risk piece that is attached to that, the performance piece, is very, very good.
"We are building fit-for-purpose infrastructure at the right time in the right way and we are making our competitor sweat in its home market," he continued.
"Talking about growth, we have got a very significant step-up in our Queensland business on January 1. We take on 15 million tonnes of Anglo's business that is currently QR's business.
"If I was in QR's shoes and I had 15 million tonnes of contracted coal disappearing on January 1, I would be looking to ensure that BMA was getting overserviced, not underserviced."
AIO Price at posting:
$4.71 Sentiment: Buy Disclosure: Held
