Australian bulk rail freight operator Aurizon yesterday (February 11, 2019) reported decreases in top-line revenues, earnings before interest, tax and depreciation, and a big decline in net profit after tax.
ASX-listed Aurizon recorded top line revenues of AU$1.46 billion (U.S. $1.03 billion) for the six months to December 2018. That is the first half of the Australian 2018-2019 financial year, which runs from July to June. Aurizon's revenue numbers are down by 7 percent on the AU$1.57 billion recorded in the prior corresponding period for the six months ending December 2017.
Revenues were down due to the end of the Cliffs' haulage contract, which finished because an iron ore mine is no longer producing. Industrial action and weather also affected revenues, the rail operator said. A further drag on earnings was Aurizon's acceptance of a ruling by a state-based competition regulator to cap earnings at about AU$4.12 billion from its monopoly network in Queensland. Financial effects of this decision are reflected in the first half results.
"Group revenue decreased AU$109.9 million, or seven percent, impacted by the [regulator's] UT5 Final Decision in Network and the cessation of Cliffs in Bulk," the half year report said.
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Costs, costs, costs
Major group-level costs included employee benefits, the costs of which are largely unchanged from the previous corresponding period at AU$385.7 million; energy/fuel, which improved 7 percent to AU$118 million; track access costs, which improved by 43 percent from AU$107 million in the prior corresponding period to AU$61.4 million; and consumables, which increased in cost by 15 percent from AU$167.9 million in the prior corresponding period to AU$192.9 million.
Earnings before interest and taxation fell by 16 percent from AU$485.3 million in the prior corresponding period to AU$406.0 million.
Net profit after tax stood at AU$226.9 million, down 19 percent from the AU$281.5 million recorded in the prior corresponding period.
The company also released a variety of operating metrics. It hauled 130.1 million tons of freight, down 5 percent from the 136.3 million recorded in the prior corresponding period. The group employs approximately 4,560 people (full time equivalent).
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Segment-by-segment... in red
On a segment-by-segment basis, the EBIT accounts were written in red.
Coal was down 5% at AU$210.3 million. Hauled coal volumes were down 1 percent to stand at 106.5 million tons; volumes were reduced by adverse weather. Costs increased by 8 percent due to maintenance issues, costs incurred through growth and depreciation.
Bulk freight EBIT was down 29 percent at AU$14.2 million; the lower result was driven by the closure of the Cliffs' contract. Operating costs fell by 13 percent to stand at AU$165 million and this was driven by ongoing operational efficiencies. Tonnage hauled fell by 17 percent to stand at 23.6 million tons.
Network freight EBIT was down 18.5% to AU$202.9 million. Tonnage volumes hauled were flat at 116.5 million tons. The lower result was driven by an 8 percent decrease in track access and services revenues, from AU$608 million to AU$557 million. Network freight experienced "unfavourable" costs because of increased maintenance, labor costs and depreciation.
There was a significant decline in category described as "other EBIT" of 269 percent to minus AU$21.4 million. The group said that the decline in "other EBIT" was due to group-wide redundancy costs of AU$13.9 million.
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Queensland Intermodal Business
Aurizon also provided details of its disposal of the Queensland Intermodal Business to Linfox. Aurizon recorded AU$12.7 million in closure costs and a further AU$500,000 in redundancy costs. Closure of the Queensland Intermodal Business removed AU$50 million of EBIT losses from the business, the group said. Consideration of AU$7 million was furnished to Aurizon from the sale of the business to Linfox; however an AU$30 million loss on the sale was recorded. Aurizon is also trying to sell its Acacia Ridge Intermodal Terminal (a rail terminal in the south of Brisbane) for AU$205.0 million, but that transaction is suspended pending the resolution of a legal battle with the federal competition regulator, which opposes the sale.
In balance - assets and liabilities
Turning to the balance sheet, Aurizon also boasts considerable assets – and is also carrying considerable debt.
Aurizon holds about AU$646.6 million of current assets as at December 31, 2018, which is down about 18 percent from the AU$806.2 million held at June 30, 2018. Current assets declined due to a reduction in cash of AU$18.6 million, along with reductions in "assets held for sale" due to the disposal of the Queensland Intermodal Business. There were also reductions in receivables due to a termination payment from the end of the Cliffs contract.
As might be expected, the rail operator has considerable non-current assets in the form of property, plant and equipment of about AU$8.62 billion, which was down marginally (in percentage terms) from AU$8.66 billion. It has a further AU$363 million of other non-current assets and total assets of AU$9.63 billion.
Aurizon is carrying AU$644.8 million of current liabilities and "total borrowings" of AU$3.46 billion. It also has "other non-current liabilities" of AU$836.2 million. Total liabilities stood at AU$4.94 billion. The group is seeking to diversify its debt base and increase its debt tenor; to that end it canceled a variety of syndicated bank debts and replaced it with bilateral bank debt of AU$50 million with maturity extended to November 2023. The weighted average debt maturity tenor in the first half of the financial year was 4.8 years.
Meanwhile, safety improved at Aurizon. The company recorded 8.92 incidents per million man-hours worked in the six months ending December 2018, a 9 percent fall compared to the prior corresponding period. However, that bald statistic hides some volatility. In the 2017 financial year the total recordable injury frequency rate was as low as 7.12 incidents per million man-hours worked but was 10.04 in the 2018 financial year.
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