Transcription of Discussion with Aurizon Holdings Limited (ASX:AZJ) Managing Director and CEO, Lance Hockridge

Aurizon Holdings Limited (ASX:AZJ) is Australia’s largest rail freight operator, 150 years old in total, but five years since IPO. We are predominantly of course, in the commodity business delivering so much of Australia’s export commodities, most notably coal, but iron ore and others. But we also importantly of course, own and operate the critically important central Queensland coal network, some 2,700 kilometres of track and all of the associated operations. And in addition to which we operate right through Australia, an integrated freight and logistics operation for our customers.

It was a challenging year from a financial point of view for us. So for example, our EBIT as well as our revenue was down roughly 10 per cent. However, that disguised a number of I think very important initiatives and outcomes. So for example, a year in which we had zero lost time injuries from a safety point of view. A year in which our cash flow, our free cash flow, improved by 35 per cent. A year in which we delivered a $131 million of transformation benefits, again underlying the capability that this organisation has to be able to improve through its transformation initiatives.

Again, the Board committed to a 100 per cent payout of underlying NPAT for the final dividend. And further committed to a 70 to 100 per cent payout ratio, going forward. It means by the by that during the year, we returned in excess of $830 million through dividends and buybacks to our owners. Which in turn, means that we’ve returned more than $3.2 billion over the last five years, to our owners.

The coal sector in Australia has been through, on so many dimensions, a challenged period of time. Our customers have certainly been under the pump. We’ve seen a significant stabilisation though, particularly in the last six months or so, on the back of their own cost cutting initiatives, on the back of supply chain initiatives, as well as on price. I believe that the demand side of the equation remains very strong. When you think about the North Asian and Indian sub-continent demand, both for metallurgical coal and thermal coal, notwithstanding that we do not believe that there will continue to be the rise of renewables. In absolute terms, the requirement for coal, particularly for Australia’s high quality coal will see the underwriting of demand in this space, for some period of time yet.

Our biggest challenge is to continue to be able to drive the efficiency in the business. To continue to be able to really, everyday deliver as well as we possibly can for the customers, which goes to things like our operating performance, our on time performance etc. In turn though, that’s what generates the opportunities for us. We’ve seen a number of recent contract wins. As the tonnages continue to increase over time, as we come out of this more troubled period, then there will be more and more opportunity for growth in that sector, as we go forward.

As always, the number one focus is safety. We’ve taken the business from frankly, and also ran in the safety space to being if not at, certainly approaching world-class level. So everything is about safety. It’s about a cultural and leadership journey in the business, which is all about capability. And our capability of course, particularly in the kinds of markets that we’re operating in, is so much driven by transformation. So continuing to keep the foot on the accelerator, around delivering those transformation benefits, is absolutely the name of the game.

Ends