ANNUAL REPORT 2013–14
Our Vision
Grow our People. Grow with our Customers. Grow the Nation.
Our Mission
To be a world leading transport business, to partner with customers for
growth and to double the value of the Company every five years, while
becoming the safest transport company in the world.
Our Employee Promise
To build a diverse, collaborative and creative workplace where people
know what they are accountable to do and can count on having what
they need to succeed.
Our Values
Safety – Safety of ourselves and others is our number one priority.
Integrity – We are honest and fair and conduct business with the
highest ethical standards.
Leadership, Passion & Courage – We are passionate about leading
change. We deliver results with energy and conviction.
World Class Performance – We deliver world-class performance and
superior value for our shareholders, customers and staff.
Contents
FY2014 in Review ..............................................1
Chairman’s Report ............................................2
Directors’ Report ................................................4
Operating and Financial Review ................9
Remuneration Report ................................... 27
Auditor’s Independence Declaration ..... 49
Sustainability ................................................... 50
Corporate Governance Statement ........... 54
Financial Report.............................................. 60
Shareholder Information .........................105
FY2014 IN REVIEW | AURIZON
1
Highlights in FY2014
> Statutory EBIT down 32% due to asset
impairments of $317m and VRP costs of $69m.
Refer page 11 for further information
> Underlying EBIT up 13% or $97m largely due to:
• Strong volume growth in coal and iron ore
Further ramp up of contracted volumes in
•
the Goonyella to Abbot Point Expansion
(GAPE)
• Transformation benefits of $129m
•
Improved revenue quality of $102m from
new form coal contracts and iron ore
> Record coal volumes of 210.4mt were up 9%
on FY2013 (193.7mt)
> Final dividend declared of 8.5cps (unfranked),
a dividend payout ratio of 70% vs 65% in
FY2013. Record date is 2 September 2014 and
payment date is 22 September 2014. Total
FY2014 dividend of 16.5cps vs 12.3cps in
FY2013
> Network – record volumes over Central
Queensland Coal Network (CQCN) of 214.5mt
(up 18% on FY2013)
> Coal operations – significant cost productivity
across all corridors
> Iron Ore – acquisition of Aquila with Baosteel
completed. Focus turns now to development of
West Pilbara Infrastructure Project
> Freight – 48% increase ($11m) in underlying
EBIT largely due to transformation benefits
> Enterprise Agreements (EA) – NSW finalised
4 year deal, Queensland agreements remain
outstanding with Aurizon applying to terminate
14 EAs which will be heard by full bench of Fair
Work Commission in November 2014
FY2014 in Review
Financial Headlines
($m)
Total Revenue
EBIT – Statutory
Adjustments - Voluntary Redundancy Program (VRP)
- Stamp Duty
- Asset Impairments
EBIT – Underlying
NPAT – Statutory
NPAT – Underlying
Final Dividend (cps)
Earnings Per Share – Underlying1
ROIC2 (%)
EBIT Margin – Underlying3 (%)
EBITDA Margin – Underlying3 (%)
Operating Ratio – Underlying3,4 (%)
Coal Volumes (mt)
Iron Ore Volumes (mt)
Freight Volumes (mt)
Gearing (net debt / net debt + equity) (%)
People (FTE)
FY2014
3,832
465
69
-
317
851
253
523
8.5
24.5
8.8%
22.3%
35.3%
77.7%
210.4
29.9
46.3
28.4%
7,524
FY2013
3,766
685
96
(27)
-
754
447
487
8.2
21.6
8.0%
20.2%
33.5%
79.8%
193.7
24.7
49.3
26.7%
7,851
VARIANCE %
2%
(32%)
13%
(43%)
7%
4%
13%
0.8ppt
2.1ppt
1.8ppt
2.1ppt
9%
21%
(6%)
(1.7ppt)
4%
1 Earnings Per Share calculated on weighted average number of shares on issue of 2,137m in FY2014
(2,257m in FY2013)
2 ROIC is defined as last 12 months underlying EBIT divided by average net working capital plus net
PP&E plus AUC plus gross intangible assets
3 Operating ratio, EBITDA and EBIT margins calculated using underlying revenue which excludes
interest income and stamp duty refunds ($3,822m in FY2014 and $3,736m in FY2013)
4 Operating ratio – diesel fuel rebate is included as revenue for remuneration purposes
Operating Ratio (OR) Update
> OR improved to 77.7% (77.0% in 2H FY2014)
and remains on track to meet the target of
75% in respect of FY2015
> Transformation benefits delivered of $129m,
further detail on page 15
•
FY2015 Financial Outlook
> Our expectations for FY2015 are for:
Coal haulage volumes between
210mt – 220mt (vs 210.4mt in FY2014)
Iron ore haulage volumes of 23mt
(vs 29.9mt in FY2014)
•
> FY2015 earnings could be impacted by
industrial action, UT4 delays or a materially
worse wet season
> Accordingly, Aurizon plans to reduce the cost
base further and increase transformation
benefits to a range of $250m to $300m
2
Chairman’s Report
Aurizon’s third full financial
year as a listed entity has been
another eventful and successful
period for the Company.
The Company has marched forward with both
its transformation and growth plans and again
demonstrated an ability to deliver a solid financial
performance in tough market conditions. As
Chairman it is exciting to witness the progress
at Aurizon as Managing Director & CEO Lance
Hockridge and his leadership team implement the
Company’s transformational journey and create
new growth opportunities.
In financial year (FY) 2014 Aurizon continued to
build momentum towards achieving one of its core
financial targets – a 75% Operating Ratio (OR) by
FY2015. Across the Company this target is known
as the “Drive to 75” and is an initiative motivating
employees at every level of the organisation. In
FY2014 our OR improved to 77.7%, which is a gain
of 2.1 percentage points compared to FY2013’s
result of 79.8%. Whilst it is a stretch, Aurizon is well
positioned to deliver on its target in FY2015.
Aurizon’s many achievements in FY2014, including
improvements with the OR, are detailed over the
following pages of this Annual Report. We know
we can and will deliver more in the years ahead.
In FY2014 we have pursued opportunities
to extend our reach beyond rail, through the
integration of rail and port infrastructure,
demonstrating we are laying the foundation
for long-term growth and prosperity.
Overview of results
The past year has seen a further deterioration in
domestic economic conditions, with continued
downward pressure on commodity prices, as well
as volatile global equity markets. This environment
has impacted many of our major customers and
presented significant challenges for Aurizon.
However, through our Integrated Operating
Plan and an unrelenting focus on cost control
and business efficiency, a solid financial result
has been delivered.
In the Network business, the Company achieved
record full year below-rail tonnages across the
Central Queensland Coal Network (CQCN) of 214.5
million tonnes (mt). In the Coal business, above-rail
tonnages transported in New South Wales and
Queensland also reached record levels of 210.4mt.
These are important milestones for the Company,
reflecting the ongoing operational and commercial
transformation across the business.
Statutory Net Profit After Tax (NPAT) for the year
was $253 million, down 43% due to the
asset impairments, redundancy costs and write
downs of strategic projects foreshadowed to the
market in June. However Underlying Earnings
Before Interest and Tax was up significantly to
$851 million, a 13% increase over the prior
year, and earned on increased revenues of
$3.832 billion, up 2% on FY2013. The Company
also delivered transformational benefits of
$129 million, compared to $96 million in the
prior year.
The Aurizon Board declared an unfranked final
dividend of 8.5 cents per share, giving a full-year
dividend of 16.5 cents per share. Previously the
Board has outlined its policy to distribute between
60 and 70% of Underlying Earnings in dividends
to shareholders. For the full year the Board has
decided to distribute dividends at the upper end of
this range. This represents an increase of 4.2 cents,
or 34% over FY2013, with dividends to be paid to
shareholders on 22 September 2014.
Aurizon’s Total Shareholder Returns (TSR) for the
year outperformed the S&P/ASX 200 index by 5.6%.
Significantly the Company’s TSR performance has
outperformed the S&P/ASX 200 each year since
listing by an average of 5.5%.
The financial performance for the FY2014 is set out
in detail on pages 9 to 26.
Safety and sustainability
Safety is Aurizon’s core value and highest priority.
Our goal is ZEROHARM, which means no workplace
injuries to anyone, ever. Improved safety is one
of the best measures of our overall performance.
It reflects the collective achievement of our
employees and is a key indicator of the broader
cultural change occurring in the Company.
In FY2014 Aurizon was pleased to welcome
industry recognition of our safety achievements,
receiving multiple awards, including the 2013
Chartered Institute of Logistics and Transport
Australia Industry Excellence Award for Safety.
Throughout the year key safety metrics, in
particular the Lost Time Injury Frequency Rate
(LTIFR) and Medically Treated Injury Frequency
Rate (MTIFR), continued to trend downwards. With
strong focus and discipline the Company has now
driven the LTIFR to 0.28 and MTIFR to 2.52, which
are now at benchmark performance. Certainly we
are encouraged that our efforts to lift safety to
world-class standards are gaining traction. However
we know this is an area in which we can never
become complacent or be satisfied with anything
less than ZEROHARM.
Our commitments and progress in the areas of
safety, environment, community and people are
discussed in detail in the sustainability section of
this report on pages 50 to 53.
Remuneration
At Aurizon’s Annual General Meeting (AGM)
last year, 28% of the total vote received from
shareholders did not support the Company’s 2013
Remuneration Report. This constituted a “first
strike” under the Corporations Act. The Board
assures shareholders it takes this matter very
seriously and following the AGM, the Chairman
of the Remuneration, Nomination & Succession
Committee Russell Caplan and I met with major
shareholders and stakeholder advisory groups
to better understand these concerns and to take
the necessary action to ensure confidence in the
Company’s remuneration practices. As a result of
feedback we received, a number of major changes
to our short and long term incentive programs have
been implemented, which are explained in detail
on page 28 of this report. The Board is confident
these changes have strengthened the Company’s
remuneration practices and still incentivise
executives to deliver on the ambitious plans set
out for the Company.
ANNUAL REPORT 2013–14 CHAIRMAN’S REPORT | AURIZON
3
Outside of this growth pipeline Aurizon continues
to transform and deliver on significant operational
reforms to make the Company leaner, more
efficient and more profitable. We are now carrying
more freight with a fleet of locomotives and
wagons reduced by about 20% during the year.
The impairment to our accounts from these
initiatives (summarised on page 11), will be
rewarded by lower operating and maintenance
costs going forward.
Another initiative of FY2014 that is emblematic
of Aurizon’s preparedness to make difficult
decisions and tackle inefficient practices of the
past has been the restructure of our rollingstock
maintenance operations in Queensland. This will
involve progressively ceasing operations at the
Townsville and Redbank (south east Queensland)
maintenance workshops by 2017, with heavy
maintenance and component overhaul work to be
centralised in Rockhampton, which is closer to the
majority of our services in Central Queensland.
Outlook
FY2015 is shaping up to be a pivotal year in the
history of Aurizon. It is the Company’s 150th
year in operation – a monumental milestone
and a reminder of the incredible heritage and
capability that lies within Aurizon. The Company’s
predecessors over the past 150 years could not
have imagined the scale of our transformation and
growth journey over the past four years. However,
while we are proud of our history we are squarely
focused on the job ahead of us in transforming
Aurizon into one of the world’s great railroads.
FY2015 is also the year the Company is focused on
achieving the 75% OR target. Our efforts to drive
down costs and increase productivity will not slow
or stop at this achievement. Management has laid
out the roadmap for achieving the next level of
business improvement. Our leaders are building
a business for 2025 and beyond by embedding a
culture which will underpin a long term sustainable
future for Aurizon.
From a macro perspective, we will continue to
face challenges associated with weaker economic
conditions and more moderate demand for
Australian resources. However the Company
maintains its confidence in the medium to long
term global demand for Australian resources,
particularly coal and increasingly iron ore.
At the Company level we will be focused on
progressing Aurizon’s transformational journey
with the same sense of urgency and commitment
displayed since our privatisation in 2010. Key
challenges for the coming year will be to finalise
the Access Undertaking (UT4) with the Queensland
Competition Authority, our customers and
other industry stakeholders, as well as reaching
a resolution on new Enterprise Agreements for
Queensland-based employees.
Acknowledgements
On behalf of the Board I thank all of Aurizon’s
employees for their hard work and enthusiasm
towards achieving the Company’s goals in FY2014.
Widespread reform is never an easy task but under
capable leadership Aurizon’s transformation has
continued with great clarity and precision.
We are also grateful to the ongoing support of
our shareholders, customers, government and
community stakeholders.
I look forward to welcoming you at the Company’s
AGM on 12 November 2014 in Perth.
John B Prescott AC
Chairman
Growth and Transformation
In FY2014 Aurizon entered into a potential
landmark growth project with one of the world’s
largest iron and steel companies, Baosteel
Resources. Baosteel (85% interest) and Aurizon
(15%) jointly acquired Aquila Resources in an
off-market bid. Aquila has a number of iron ore,
coal and manganese projects at pre-development
stage in Western Australia, Queensland and South
Africa. The acquisition of Aquila was completed in
July 2014.
This is an unprecedented opportunity for Aurizon
to participate in the development of multi-user,
world-class rail and port infrastructure to unlock
iron ore deposits for a range of customers in the
West Pilbara in Western Australia.
We are now undertaking the next phases of work,
including scoping the rail and port infrastructure
requirements for the West Pilbara Iron Ore
Project, while a strategic review of Aquila’s other
businesses is in progress. Any infrastructure
development will be dependent on passing through
several stages, the agreement of tariffs with mine
owners (the Australian Premium Iron Joint Venture)
and a Final Investment Decision by Aurizon.
Similarly the Company has continued to progress
a large proposal in Queensland’s emerging Galilee
Basin with another end-customer GVK Hancock, to
serve the growing needs of India’s urbanisation.
Aurizon intends to acquire a majority (51%)
interest in Hancock Coal Infrastructure Pty Ltd,
which owns GVK’s rail and port projects. The
proposed multi-user rail and port infrastructure will
facilitate a staged consolidation of tonnes from
miners in the Galilee and Bowen Basins, exported
through the Abbot Point Coal Terminal.
The transactions in the Pilbara and Galilee
demonstrate Aurizon’s ambition to pursue
new avenues for growth and to foster a more
sophisticated, value-adding approach in our
business development strategy. Both of these
growth projects enable Aurizon to leverage one
of the Company’s core capabilities – operating
multi-user supply chains for customers. While
transformative and exciting for the Company, they
do not detract from our deeply held commitment
to existing domestic customers and providing
world-class services to support the global
competitiveness of their products.
4
Directors’ Report
Aurizon Holdings Limited
For the year ended 30 June 2014
The Directors of Aurizon Holdings present their
Directors’ Report together with the Financial
Report of the Company and its controlled entities
(collectively “the Consolidated Entity” or “the
Group”) for the financial year ended 30 June 2014
and the Independent Auditor’s Report thereon.
This Directors’ Report has been prepared in
accordance with the requirements of Division 1
of Part 2M.3 of the Corporations Act.
Board of Directors
The following people are Directors of the Company,
or were Directors during the reporting period:
J B Prescott AC
(appointed 14 September 2010) (Chairman,
Independent Non-Executive Director)
L E Hockridge
(appointed 14 September 2010) (Managing
Director & CEO)
J Atkin
(appointed 14 September 2010) (Independent
Non-Executive Director)
R R Caplan
(appointed 14 September 2010) (Independent
Non-Executive Director)
J D Cooper
(appointed 19 April 2012) (Independent
Non-Executive Director)
K L Field
(appointed 19 April 2012) (Independent
Non-Executive Director)
G T John AO
(appointed 14 September 2010) (Independent
Non-Executive Director)
A J P Staines
(appointed 14 September 2010) (Independent
Non-Executive Director)
G T Tilbrook
(appointed 14 September 2010) (Independent
Non-Executive Director)
P Zito
(appointed 1 December 2013) (Independent Non-
Executive Director)
Details of the experience, qualifications and special
responsibilities and other Directorships of listed
companies in respect to each of the Directors as at
the date of this Directors’ Report are set out in the
pages following.
J B Prescott AC
Experience: Mr Prescott has substantial experience
in the mining, manufacturing, transport and
government sectors. He was a long-term executive
of The Broken Hill Proprietary Company Limited
(now BHP Billiton Limited), serving 10 years as an
Executive Director and seven years as Managing
Director and Chief Executive Officer (1991–1998).
He was also Chairman of ASC (formerly Australian
Submarine Corporation Pty Ltd) (2000–2009)
and a Director of Newmont Mining Corporation
(2002–2013).
Mr Prescott has been a Global Counsellor of The
Conference Board since 2001, a member of the
Global Advisory Council since 2013 and a member
of the Commonwealth Remuneration Tribunal
since 2010. Other Directorships and consulting/
advisory positions have included Conference
Board USA, World Economic Forum, Booz Allen
and Hamilton, J.P. Morgan Chase & Co, Proudfoot
Consulting and Asia Pacific Advisory Committee of
New York Stock Exchange.
Qualifications: BCom (Indus Rel), HonDsc, HonLLD,
FAICD, FAIM, FTSE
Special Responsibilities: Member of
Remuneration, Nomination & Succession
Committee. Member of Safety, Health &
Environment Committee.
Australian Listed Company Directorships held
in the past three years: None other than Aurizon
Holdings Limited.
L E Hockridge
Experience: Mr Hockridge became Managing
Director & CEO (MD & CEO) of Aurizon Holdings
in July 2010. He has guided Aurizon’s transition
to a top 50 ASX company after 145 years as a
government owned railway.
From 2007 until 2010, Mr Hockridge was CEO
of QR Limited which was split to form Aurizon
Holdings and the passenger-focused Queensland
Rail that remained in government ownership.
Mr Hockridge has more than 30 years’ experience
in the transportation and heavy industrial sectors
in Australia and the United States with BHP Billiton
and BlueScope Steel. At BHP Billiton Limited,
Mr Hockridge was a member of the leadership
team that led BlueScope Steel’s successful
demerger from BHP and subsequent listing on
the ASX. In 2005, Mr Hockridge was appointed
President of BlueScope Steel’s North American
operations where he led a major turnaround in
safety, production and financial performance.
Mr Hockridge is a member of the Business Council
of Australia’s Efficient Regulation policy committee
and a regular participant in industry forums on
transport infrastructure and reform.
Mr Hockridge has been appointed to Q20, the
business leaders group promoting Queensland
investment as part of the G20 Summit in Brisbane
in November 2014.
Qualifications: FCILT, FAIM, MAICD
Special Responsibilities: Director of Aurizon
Network Pty Ltd. Member of Safety, Health &
Environment Committee.
Australian Listed Company Directorships held
in the past three years: None other than Aurizon
Holdings Limited.
J Atkin
Experience: Mr Atkin has more than 30 years’
experience in financial services and the legal
profession in Australia and internationally.
Mr Atkin is a Director of The Australian Outward
Bound Foundation and a member of the Board of
the State Library of NSW Foundation. Previously,
Mr Atkin was Chief Executive Officer of The Trust
Company Limited (2009–2013), was Managing
Partner of Blake Dawson (2002–2008) and a
Corporate and Mergers & Acquisitions partner at
Mallesons Stephen Jaques (1987–2002).
Qualifications: BA (Hons), LLB (Hons), FAICD
Special Responsibilities: Chairman and Non-
Executive Director of Aurizon Network Pty
Ltd. Member of Remuneration, Nomination &
Succession Committee.
Australian Listed Company Directorships held in
the past three years: The Trust Company Limited
– CEO and Executive Director (19 January 2009
–15 April 2013).
R Caplan
Experience: Mr Caplan has extensive international
experience in the oil and gas industry. In a
42-year career with Shell, he held senior roles in
the upstream and downstream operations and
corporate functions in Australia and overseas. From
1997 to 2006 he had senior international postings
in the UK, Europe and the USA. From 2006 to
July 2010 he was Chairman of the Shell Group of
Companies in Australia.
Mr Caplan is Chairman of Orica Limited and
Chairman of the Melbourne and Olympic Parks
Trust. He is a former Non-Executive Director
of Woodside Petroleum Limited and a former
Chairman of the Australian Institute of Petroleum.
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
5
Qualifications: LLB, FAICD, FAIM
Special Responsibilities: Chairman of
Remuneration, Nomination & Succession
Committee. Member of Audit, Governance & Risk
Management Committee.
Australian Listed Company Directorships
held in the past three years: Orica Limited –
Non-Executive Director commenced – 1 October
2007 (ongoing).
J D Cooper
Experience: Mr Cooper has more than 35 years’
experience in the construction and engineering
sector in Australia and overseas. Currently, Mr
Cooper is Chairman and Non-Executive Director of
Southern Cross Electrical Engineering Limited and
also holds Non-Executive Directorships with NRW
Holdings Limited.
During his career as an executive, Mr Cooper’s roles
have encompassed large civil, commercial and
infrastructure projects and complex engineering
and project management activities in the mining,
oil and gas, engineering and property sectors.
Qualifications: BSc (Building) (Hons), FIE Aust,
FAICD, FAIM
Special Responsibilities: Non-Executive Director of
Aurizon Network Pty Ltd. Member of Safety, Health
& Environment Committee.
Australian Listed Company Directorships held
in the past three years: Southern Cross Electrical
Engineering Limited – Chairman and Non-
Executive Limited (24 August 2006 – 31 January
2010). Director commenced – 30 October 2007
(ongoing), Flinders Mines Limited – Non-Executive
Director (13 September 2010 – 18 December
2012), NRW Holdings Limited – Non-Executive
Director commenced – 29 March 2011 (ongoing),
Neptune Marine Services Ltd – Non-Executive
Director (4 April 2012 – 25 June 2013), Clough
Limited (24 August 2006 – 31 January 2010).
G T John AO
Experience: Mr John has 30 years management
experience in the transport operations sector
including 16 years as Managing Director of
Australia Post. He was also a Senior Executive of
TNT Australia Ltd.
Mr John is a Director of Seven West Media Ltd.
Mr John is former commissioner of the Australian
Football League and board member of Racing
Victoria.
His previous roles include Chairman of Australian
Air Express, Chairman of Star Track Express,
Chairman of the Kahala Posts Group, Director of
the International Post Corporation (Netherlands),
Vice Chairman of Sai-Cheng Logistics International
(China) and a trustee of the Committee for
Melbourne and the MCG. He has received the
Australian Sports Medal and Centenary Medal.
Qualifications: FCILT, MAICD
Special Responsibilities: Non-Executive Director of
Aurizon Network Pty Ltd. Member of Safety, Health
& Environment Committee.
Australian Listed Company Directorships held
in the past three years: Seven West Media Ltd
Non-Executive Director Commenced – 3 December
2008 (ongoing).
K L Field
Experience: Mrs Field has more than three decades
in the mining industry in Australia and overseas
and has a strong background in human resources
and project management.
Mrs Field is currently a Non-Executive Director
of Sipa Resources and has held Non-Executive
Directorships with the Water Corporation (Deputy
Chairman), Centre of Sustainable Resource
Processing, Electricity Networks Corporation
(Western Power), MACA Limited and Perilya
Limited. In addition, Mrs Field is a Director of
a number of community based organisations
including aged care provider Amana Limited
Inc and the University of Western Australia’s
Centenary Trust for Women.
Qualifications: B Econ, FAICD
Special Responsibilities: Chairman of Safety,
Health & Environment Committee. Member
of Audit, Governance & Risk Management
Committee.
Australian Listed Company Directorships held
in the past three years: Sipa Resources Limited –
Independent Non-Executive Director commenced –
16 September 2004 (ongoing), MACA Limited (27
May 2011 – 1 May 2012), Perilya Limited
(16 August 2007 – 5 February 2009).
A J P Staines
Experience: Ms Staines has extensive corporate,
financial and commercial and advisory experience
in governance, strategy and risk management.
Ms Staines is a Director of Goodstart Early Learning
and the NSW Transport Advisory Board.
Former Directorships include the Australian Rail
Track Corporation, Gladstone Ports Corporation,
North Queensland Airports, Allconnex Water and
Early Learning Services (now G8). Ms Staines is
a former Chief Executive Officer of Australian
Airlines, a Qantas subsidiary she co-launched
in 2002 as a member of the carrier’s 12-person
senior team. Ms Staines has previously held various
financial, strategy and economic roles at Qantas.
Prior to this, Ms Staines held various financial
roles at American Airlines’ headquarters in Dallas.
Ms Staines is a Member of CEW (Chief Executive
Women).
Qualifications: BEcon, MBA, FAICD
Special Responsibilities: Member of Audit,
Governance & Risk Management Committee.
Member of Remuneration, Nomination &
Succession Committee.
Australian Listed Company Directorships held in
the past three years: G8 Education Limited
(12 May 2009 – 27 May 2010).
G T Tilbrook
Experience: Mr Tilbrook has broad experience in
corporate strategy, investment and finance. He
joined Wesfarmers in 1985 and was an Executive
Director from 2002 to 2009.
Between 2000 and 2006, when Wesfarmers was
a joint owner of the Australian Railroad Group
(ARG), he was a Director of ARG and Chairman of
Westnet Rail. Mr Tilbrook is a Director of Fletcher
Building, GPT Group, Orica Limited and the Bell
Shakespeare Company. He is also a Councillor of
Curtin University and the Australian Institute of
Company Directors WA.
Qualifications: BSc, MBA, FAICD
Special Responsibilities: Chairman of Audit,
Governance & Risk Management Committee.
Member of Remuneration, Nomination &
Succession Committee.
Australian Listed Company Directorships held
in the past three years: Orica Limited – Non-
Executive Director commenced – 14 August 2013
(ongoing), GPT Group Limited – Non-Executive
Director commenced – 11 May 2010 (ongoing),
Fletcher Building Limited – Non-Executive Director
commenced – 1 September 2009 (ongoing),
Transpacific Industries Group Ltd – Non-Executive
Chairman (3 September 2009 – 1 March 2013).
6
Directors’ Report (continued)
P Zito
Experience: Mr Zito has extensive finance and
operational experience both domestically and
internationally, including as Finance Director
for Australia and Europe, then President of
European and Global operations with the
Pilkington Group. He joined the Board of Pilkington
Plc in 2002. He became President an Executive
Director and President Global Automotive for
Nippon Sheet Glass Co following its acquisition
of Pilkington in 2007; and from 2007–2013 was
a Non-Executive Director of global technology
company, Invensys plc.
Qualifications: Diploma of Business Studies
(Accounting). Fellow Australian Society of
Accountants. Special Responsibilities: Non-
Executive Director of Aurizon Network Pty
Ltd. Member of Audit, Governance and Risk
Management Committee.
Australian Listed Company Directorships held
in the past three years: None other than Aurizon
Holdings Limited.
Company Secretary
Mr Dominic Smith was appointed Company
Secretary of the QR Limited Group in May
2010 and to Aurizon Holdings Limited upon its
incorporation on 14 September 2010.
Mr Smith has over 20 years ASX listed company
secretariat, governance, corporate legal and
senior management experience across a range
of industries. Mr Smith holds a Masters of Laws
degree from the University of Sydney and is
a Fellow of both the Governance Institute of
Australia and the Australian Institute of
Company Directors.
Qualifications: BA, LLB, LLM, DipLegS, FGIA, FCIS,
FAICD
Principal activities
The principal activities of entities within the Group,
during the year, were:
> Integrated heavy haul freight railway operator
> Rail transporter of coal from mine to port for
export markets
> Bulk, general and containerised freight
businesses
> Large-scale rail services activities
Coal
Transport of coal from mines in Queensland and
New South Wales to end customers and ports.
Iron ore
Transport of iron ore from mines in Western
Australia to ports.
Freight
Transport of bulk mineral commodities (including
iron ore), agricultural products, mining and
industrial inputs and general freight throughout
Queensland and Western Australia and
containerised freight throughout Australia.
Network
Provision of access to, operation and management
of, the Central Queensland Coal Network (CQCN).
Review of operations
A review of the Group’s operations for the financial
year and the results of those operations, are
contained in the Operating and Financial Review as
set out on pages 9 to 26 of this report.
Dividends
A 90% franked final dividend of 8.2 cents per fully
paid ordinary share was paid on 23 September
2013 and an 80% franked interim dividend of
8.0 cents per fully paid ordinary share was paid
on 28 March 2014. Further details of dividends
provided for or paid are set out in Note 26 to the
consolidated financial statements.
Since the end of the financial year, the Directors
have declared to pay a final dividend of 8.5 cents
per fully paid ordinary share. The dividend will be
unfranked and is payable on 22 September 2014.
State of affairs
In the opinion of the Directors there were no
significant changes in the state of affairs of the
Company that occurred during the financial year
under review.
Events since the end of the
financial year
Other than those disclosures on page 100 of the
Annual Report, the Directors are not aware of any
events or developments which are not set out in
this report that have, or would have, a significant
effect on the Group’s state of affairs, its operations
or its expected results in future years.
Likely developments
Information about likely developments in the
operations of the Group and the expected results
of those operations are covered in the Chairman’s
Report set out on pages 2 to 3 of this report.
In the opinion of the Directors, disclosure of any
further information would be likely to result in
unreasonable prejudice to the Group.
Environmental regulation
and performance
Aurizon Holdings is committed to managing
its operational activities and services in an
environmentally responsible manner to meet legal,
social and moral obligations. In order to deliver
on this commitment, Aurizon Holdings seeks to
comply with all applicable environmental laws and
regulations. The Energy Efficiency Opportunity
Act 2006 (EEO) (Cth) requires the Group to assess
its energy usage including the identification,
investigation and evaluation of energy-saving
opportunities and to report publicly on the
assessments undertaken including what action
the Group intends to take as a result. The Group
continues to meet its obligations under the
EEO Act.
The National Greenhouse and Energy Reporting
Act 2007 (NGER) (Cth) requires the Group to
report its annual greenhouse gas emissions and
energy use. The Group has implemented systems
and processes for the collection and calculation
of the data required and is registered under the
NGER Act. Further details of the Company’s
environmental management are set out on
page 53 of this Annual Report.
Environmental prosecutions
There have been no environmental prosecutions
during this financial year.
Risk management
The Company is committed to managing its
risks in an integrated, systematic and practical
manner. The overall objective of risk management
is to assist the Company to achieve its objectives
by appropriately considering both threats and
opportunities and making informed decisions.
The Audit, Governance & Risk Management
Committee oversees the process for identification
and management of risk in the Company (see page
58 of this Annual Report). The Company’s Risk
Management Division is responsible for providing
oversight of the risk management function and
assurance on the management of significant risks
to the MD & CEO and the Board.
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
7
The Company’s risk management framework,
responsibilities and accountabilities are aligned
with the Company’s business model where
the individual businesses are accountable for
demonstrating they are managing their risks
effectively and in accordance with the Board-
approved risk management policy and framework.
The risk management framework has a strong
focus on key organisational controls. This focus
helps to shape the strategies, capabilities and
culture of the organisation, identify and address
vulnerabilities, strengthen the system of internal
controls and build a more resilient organisation.
The Company also has a risk register with risk
profiles populated at the various layers of the
organisation and a management specification that
outlines the processes for the prevention, detection
and management of fraud within the Company
and for fair dealing in matters pertaining to fraud.
Directors’ interests
Directors’ interests are as at 30 June 2014.
Only Mr Hockridge, the MD & CEO, receives
performance rights and these details are set out
in Section 7.0 of the Remuneration Report.
Directors’ meetings
The number of Board meetings (including Board
Committee meetings) and number of meetings
attended by each of the Directors of the Company
during the financial year are listed below.
During the year, the Aurizon Network Pty Ltd
Board met on seven occasions. Apologies were
recorded for two meetings only with Mr Carter and
Mr Kummant (Director of Aurizon Network Pty Ltd
effective 1 December 2013), unable to attend one
meeting each.
TABLE 1 – DIRECTORS’ MEETINGS
DIRECTOR
AURIZON HOLDINGS
AUDIT, GOVERNANCE &
RISK MANAGEMENT
REMUNERATION,
NOMINATION &
SUCCESSION
SAFETY, HEALTH &
ENVIRONMENT
J B Prescott AC
L E Hockridge
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO
A J P Staines
G T Tilbrook
P Zito2
A
171
171
17
17
17
17
17
17
17
9
B
17
17
17
16
17
17
15
16
17
8
A
-
-
-
8
-
8
-
8
8
4
B
-
-
-
7
-
8
-
8
8
4
A
6
-
6
6
-
-
-
6
6
-
B
6
-
6
5
-
-
-
6
6
-
A
4
4
-
-
4
4
4
-
-
-
B
4
4
-
-
4
4
4
-
-
-
A Number of meetings held while appointed as a Director or Member of a Committee.
B Number of meetings attended by the Director while appointed as a Director or Member of a Committee.
1 In addition to the meetings above, a Committee of the Board comprising of Mr J B Prescott and Mr L E Hockridge met on two occasions.
2 Mr P Zito was appointed Non-Executive Director of Aurizon Holdings Limited effective 1 December 2013 and Director of Aurizon Network Pty Ltd on
22 January 2014
TABLE 2 – DIRECTORS’ INTERESTS AS AT 30 JUNE 2014
DIRECTOR
J B Prescott AC
L E Hockridge
J Atkin
R R Caplan
G T John AO
NUMBER OF ORDINARY SHARES
220,981
1,196,586
35,072
82,132
57,132
DIRECTOR
A J P Staines
G T Tilbrook
K L Field
J D Cooper
P Zito
NUMBER OF ORDINARY SHARES
14,223
49,112
14,245
40,000
Nil
8
Directors’ Report (continued)
Non-audit services
During the year the Company’s auditor
PricewaterhouseCoopers (PwC) performed other
services in addition to its audit responsibilities.
The Directors are satisfied that the provision
of non-audit services by PwC during the
reporting period did not compromise the auditor
independence requirements set out in the
Corporations Act.
All non-audit services were subject to the
Company’s Non-Audit Services Policy and do
not undermine the general principles relating to
auditor independence set out in APES 110 Code
of Ethics for Professional Accountants as they did
not involve reviewing or auditing the auditor’s own
work, acting in a management or decision-making
capacity for the Company, or jointly sharing risks
and rewards.
No officer of the Company was a former Partner
or Director of PwC and a copy of the auditor’s
independence declaration as required under the
Corporations Act 2001 is set out in, and forms part
of, this Directors’ Report.
Details of the amounts paid to the auditor of the
Company and its related practices for non-audit
services provided throughout the year are as set
out below:
OTHER ASSURANCE SERVICES
PwC Australian firm:
Audit of regulatory returns
Other assurance services
Total remuneration for other
assurance services
TAXATION SERVICES
PwC Australian firm:
Tax compliance services
Total remuneration for taxation
services
OTHER SERVICES
PwC Australian firm:
Advisory services
Total remuneration for
other services
2014
$’000
Nil
481
481
79
79
242
242
CEO and CFO declaration
The MD & CEO and Chief Financial Officer (CFO)
have provided a written statement to the Board
in accordance with Section 295A of the
Corporations Act.
With regard to the financial records and systems
of risk management and internal compliance
in this written statement, the Board received
assurance from the MD & CEO and CFO that the
declaration was founded on a sound system of risk
management and internal control, and that the
system was operating effectively in all material
aspects in relation to the reporting of financial risks.
Indemnification and insurance
of officers
The Company’s Constitution provides that it may
indemnify any person who is, or has been, an
officer of the Group, including the Directors, the
Secretaries and other Executive Officers, against
liabilities incurred whilst acting as such officers to
the extent permitted by law. The Company has
entered into a Deed of Access, Indemnity and
Insurance with each of the Company’s Directors.
No Director or officer of the Company has received
benefits under an indemnity from the Company
during or since the end of the year.
The Company has paid a premium for insurance
for officers of the Group. This insurance is against a
liability for costs and expenses incurred by officers
in defending civil or criminal proceedings involving
them as such officers, with some exceptions. The
contract of insurance prohibits disclosure of the
nature of the liability insured against and the
amount of the premium paid.
Proceedings against the Company
The Directors are not aware of any current or
threatened civil litigation proceedings, arbitration
proceedings, administration appeals, or criminal
or governmental prosecutions of a material nature
in which Aurizon Holdings is directly or indirectly
concerned, which are likely to have a material
adverse effect on the business or financial position
of the Company.
Remuneration Report
The Remuneration Report is set out on pages 27
to 48 and forms part of the Directors’ Report for
the financial year ended 30 June 2014.
Rounding of amounts
The Group is within the class specified in ASIC
Class Order 98/100 dated 10 July 1998 relating
to the “rounding off” of amounts in the Directors’
Report and the Financial Report. Amounts in the
Directors’ Report have been rounded to the nearest
million dollars and amounts in the Financial Report
have been rounded off to the nearest hundred
thousand dollars in accordance with ASIC Class
Order 98/100, except where stated otherwise.
Auditor’s Independence Declaration
A copy of the Auditor’s Independence Declaration,
as required under section 307C of the Corporations
Act, is set out on page 49. The Directors’ Report
is made in accordance with a resolution of the
Directors of the Company.
John B Prescott AC
Chairman
18 August 2014
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
9
Directors’ Report (continued)
Operating and Financial Review
CONSOLIDATED RESULTS
The Group’s financial performance is explained using measures that are not defined under IFRS and are therefore termed non-IFRS measures. The non-IFRS
financial information contained within this Directors’ Report and Notes to the Financial Statements has not been audited in accordance with Australian Auditing
Standards. The non-IFRS measures used to monitor group performance are EBIT (Statutory and Underlying), EBITDA (Statutory and Underlying), EBITDA margin
– underlying, Operating Ratio – underlying, Return on Invested Capital (ROIC), Net debt and Net gearing ratios. Each of these measures is discussed in more detail
on page 104.
- Statutory
- Underlying1
- Statutory
- Underlying1
- Underlying
- Statutory
- Underlying1
- Statutory
- Underlying1
- Underlying
1. Annual Comparison
Financial Summary
($m)
Total Revenue
EBITDA
EBIT
Net finance costs
Income tax expense
NPAT
Earnings Per Share (cps)2
Final Dividend per share (cps)
ROIC3
Operating Ratio
Net operating cash flow
Gearing (net debt / net debt + equity)
Net tangible assets per share ($)
Other Operating Metrics
Revenue / NTK ($/’000NTK)
Labour Costs / Revenue
NTK / employee (FTE) (MNTK)
Opex / NTK ($/’000 NTK)
NTK (bn)
Tonnes (m)
Underlying EBIT by Segment
Network
Coal
Iron Ore
Freight
Unallocated4,5
Group
FY2014
3,832
965
1,351
465
851
(112)
(216)
253
523
11.8
24.5
8.5
8.8%
77.7%
1,068
28.4%
3.0
FY2014
51.7
27.1%
9.8
40.2
73.9
286.6
FY2014
412
400
103
34
(98)
851
FY2013
3,766
1,182
1,251
685
754
(103)
(164)
447
487
19.8
21.6
8.2
8.0%
79.8%
906
26.7%
3.0
FY2013
55.8
29.0%
8.5
44.5
67.0
267.7
FY2013
417
320
97
23
(103)
754
VARIANCE %
2%
(18%)
8%
(32%)
13%
(9%)
(32%)
(43%)
7%
(40%)
13%
4%
0.8ppt
2.1ppt
18%
(1.7ppt)
-
VARIANCE %
(7%)
1.9ppt
15%
10%
10%
7%
VARIANCE %
(1%)
25%
6%
48%
5%
13%
1 Refer to page 11 for a reconciliation between statutory and underlying earnings
2 Earnings Per Share calculated on weighted average number of shares on issue of 2,137m in FY2014 (2,257m in FY2013)
3 ROIC is defined as last 12 months underlying EBIT divided by average net working capital plus net PP&E plus AUC plus gross intangible assets
4 Items of revenue and expense of a corporate nature and other operations within the Group including provision of overhaul and maintenance services to
external customers
5 Note that some of the numbers in the operating and financial review may not match the financial statements due to rounding
10
Directors’ Report (continued)
Operating and Financial Review
Additional information on the 13% increase in
underlying EBIT to $851m is below:
> One off costs to deliver the transformation
costs above (excluding VRP) of $18m
> A net increase in operating and other expenses
of $119m to support the incremental volume
growth including:
• $39m of additional costs relating to Iron
Ore, Coal and Intermodal volume growth
(excluding fuel and access charges) with
Intermodal also reflecting additional start-
up costs for delivering new contracts
$20m from the increase in the fuel price
$19m additional non-cash costs associated
with adjusting leave provisions to reflect
the year end discount rate and land
rehabilitation provisions in accordance with
accounting standards
•
•
•
• $17m increase in employee benefits due to
escalation and increases in average rates
$12m increase in centralised strategic
project costs
$11m increase in operating costs
(excluding fuel and access) due to price
escalation
•
> A net increase of $109m from volume growth
and new business in Intermodal (net of access
and fuel):
•
•
$98m increase in the GAPE revenue due to
the ramp up in contracted tonnes
$37m increase in Intermodal due to volume
growth from new customers
$17m increase in Iron Ore revenue due to
increased volumes
$10m increase in Coal revenue due to
growth with an additional 16.7mt railed
• $53m decrease in Bulk Freight revenue due
•
•
to a 9% reduction in volumes
> A net increase of $81m in revenue quality as
follows:
• $98m benefit from Coal including incentives
for achieving performance targets
$4m benefit from Iron Ore
•
• $21m decrease in Freight from lower
payments for the Transport Services
Contract (TSC) in Queensland
> Net impact of Network transitional tariffs of
$85m as follows:
• $60m decrease in access revenues (excludes
GAPE) due to capped revenue agreed under
the transitional tariff arrangements
• $25m increase in maintenance costs
reflecting impact of the higher volumes
> A benefit of $129m from transformation
initiatives (refer to Section 4 for additional
detail on transformation initiatives):
• $96m from Operations including labour,
•
fleet productivity, fuel and safety
$33m from centralised support areas
including labour, professional services, lease
costs and travel
Variance Analysis – Annual
Statutory EBIT decreased 32% to $465m,
primarily due to $386m of significant items.
Significant items included $317m of asset
impairments and $69m of costs related to the
Voluntary Redundancy Program (VRP). The asset
impairments were related to transformation
($190m) and other matters ($127m) as
announced on 25 June 2014 with the major
item being $170m for rollingstock based on fleet
efficiencies generated by the Integrated Operating
Plan (IOP). The VRP costs reflected 410 employees
that have accepted a voluntary redundancy plus a
provision for additional employees impacted by the
progressive closure of the Redbank and Townsville
rollingstock maintenance operations in FY2015
and FY2016 as previously announced 8 May 2014.
Underlying EBIT increased 13% to $851m due
to stronger volumes, the continuing ramp up
in contracted GAPE tonnes and transformation
benefits more than offsetting lower Network
regulated access revenue (excluding GAPE)
that was capped under the transitional tariff
arrangements. The Company realised sustainable
transformation benefits of $129m during the year.
Coal volumes grew 9% driven by higher customer
demand in both Queensland and the Hunter Valley
despite the closure of Peabody’s Wilkie Creek mine
in December 2013 and the end of Rio Tinto’s Hail
Creek contract in October 2013. Iron Ore volumes
increased 21% to reach full contractual capacity,
while Freight volumes declined 6% with higher
Intermodal volumes (growth of 17%) more than
offset by declining Bulk volumes (decrease of 9%).
Network regulated access revenue for the CQCN
was determined in accordance with the transitional
tariff arrangement as negotiated with customers
which resulted in $60m reduction in regulated
access revenues from FY2013 to FY2014.
Regulated access revenues for the CQCN for
FY2014 will be adjusted to reflect the outcome of
UT4 when the final decision is made, expected by
June 2015.
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
11
Reconciliation to Statutory Earnings
Underlying earnings is a non-statutory measure and is the primary reporting measure used by Management and the Group’s chief operating decision making body
for the purpose of managing and determining financial performance of the business. Underlying earnings is derived by adjusting statutory earnings for significant
items as noted in the following table:
($m)
Underlying EBIT
Significant Items:
Voluntary Redundancy Program1
Stamp Duty2
Transformation related asset impairments
Other impairments
Statutory EBIT
Net Finance Costs
Statutory PBT
Taxation Expense
Statutory NPAT
2HFY2014
428
1HFY2014
423
FY2014
851
FY2013
754
(44)
-
(43)
(77)
264
(59)
205
(59)
146
(25)
-
(147)
(50)
201
(53)
148
(41)
107
(69)
-
(190)
(127)
465
(112)
353
(100)
253
(96)
27
-
-
685
(103)
582
(135)
447
1 The 2014 VRP resulted in 410 employees accepting the offer at a cost of $37m. In addition, a further $32m in costs associated with expected redundancies
for the progressive closures of Redbank and Townsville as announced 8 May 2014 has also been recognised. In FY2013, 960 employees accepted the offer
at a cost of $96m
2 Stamp duty paid in 2006 in relation to acquisition of Australian Railroad Group, recovered in FY2013 on successful appeal to Supreme Court of WA
Summary of asset impairments
Transformation related asset impairments of
$190m refers to the following:
> Rollingstock ($170m) – the IOP identified
200 locomotives and almost 2,800 wagons
that were surplus to Aurizon’s needs. It is
anticipated that there will be a sustainable
annual benefit of ~$20m through reduced
maintenance and depreciation spend over the
next 5 years
> Non-core Freight assets ($20m) – a year-end
review was undertaken on the carrying value
of cash generating units with certain non-core
Freight assets impaired
Other impairments of $127m refers to the
following:
> Strategic projects ($73m) – includes costs
previously capitalised for Abbot Point T4
expansion (now progressing with GVK
Hancock on their Galilee corridor and T3
proposal), East Pilbara Independent Railway
(less probable given progress on West Pilbara
Infrastructure Project) and the Surat Basin Rail
JV (termination of the JV in February 2014)
> Assets under construction ($54m) – includes
costs previously capitalised for Dudgeon Point
Coal Terminal Expansions and the Wiggins
Island Rail Project Stage 2. These projects are
now considered longer-term based on expected
customer demand
12
Directors’ Report (continued)
Operating and Financial Review
2. Other Financial Information
Cash Flow Summary
($m)
Statutory EBITDA
Working capital and other movement
Cash from operations
Net finance costs
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of PP&E
Payments for PP&E & intangibles
Net (payments for) / distributions from investment in associates
Net cash (outflow) from investing activities
Cash flows from financing activities
Net proceeds from borrowings
Payment for share buy-back and share based payments
Dividends paid to Company shareholders
Net cash (outflow) / inflow from financing activities
Net increase / (decrease) in cash
Net cash outflow from investing activities
decreased from $891m to $830m, largely due to:
> A decrease in capital expenditure of $74m
to $870m due to deferred spend in Network
(timetable for Wiggins Island has been
aligned to the delay in the Port) and Iron Ore
(completion of growth projects in FY2013)
Net cash outflow from financing activities has
increased from $6m to $28m, largely due to:
> Increase in dividend payments to $346m
reflecting an increased dividend payout ratio
and $24m in share-based payments
> Partly offset by net borrowing proceeds of
$342m principally to fund Network’s capital
expenditure program and the acquisition of
Aquila with Baosteel
Cash Flow Movements – Annual
Net cash inflow from operating activities increased
18% from $906m to $1,068m largely due to:
> Growth in cash from operations of $257m or
24% (from $1,049m to $1,306m)
• Working capital and other inflow of
$341m mainly due to the increase in trade
payables relating to the over collection
of Network access tariffs due to the
fixed transitional tariffs, the non-cash
impairments and the timing of payroll
accruals. The over-collection of Network
access tariffs of $70m will be returned to
customers in 1HFY2015
• Partly offset by decrease in statutory
EBITDA from $1,182m to $965m due to
an increase in underlying adjustments in
respect of impairments to rollingstock and
strategic projects as announced on 25
June 2014 ($317m) and VRP costs ($69m)
more than offsetting a $100m increase in
underlying EBITDA. The impairments are
non-cash
> Partly offset by increase in income tax paid to
$124m reflecting the increase in taxable profits
FY2014
965
341
1,306
(114)
(124)
1,068
37
(870)
3
(830)
342
(24)
(346)
(28)
210
FY2013
1,182
(133)
1,049
(112)
(31)
906
49
(944)
4
(891)
1,306
(1,112)
(200)
(6)
9
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
13
30 JUNE 2014
1,336
9,441
172
10,949
(853)
(2,841)
(882)
(4,576)
6,373
28.4%
30 JUNE 2013
933
9,460
126
10,519
(782)
(2,479)
(762)
(4,023)
6,496
26.7%
The debt maturity profile is stable with an average
tenor of 3.5 years (3.6 years in FY2013).
The Company is expecting to refinance its $1.5bn
debt tranche (due June 2016) in FY2015.
Liquidity as at 30 June 2014 was $0.94bn
(undrawn facility and cash).
Tax
Income tax expense for FY2014 was $100m,
representing an effective tax rate of 28.5%. The
cash tax rate for FY2014 was 3.4%, significantly
below 30% due to the following:
> tax effect of asset impairments of $317m as
announced during the year
> an adjustment to the tax depreciation charge
for prior years due to a recent Government
announcement to not proceed with a proposed
measure relating to the interaction between
the tax consolidation rules and the tax
depreciation rules
> items being deductible for tax purposes that
have been capitalised on the balance sheet
The effective tax rate for FY2015 is expected to be
in the range of 28-30% and the cash tax rate is
expected to be in the range of 15-20%.
Balance Sheet Summary
($m)
Total current assets
Property, plant & equipment
Other non-current assets
Total Assets
Other current liabilities
Total borrowings
Other non-current liabilities
Total Liabilities
Net Assets
Gearing (net debt / net debt plus equity)
Balance Sheet Movements –
30 June 2014 vs 30 June 2013
Total current assets have increased by $403m
largely due to:
> Increase in cash and cash equivalents of
$210m to fund Aurizon’s portion of the
acquisition of Aquila completed in July 2014
> Increase in assets classified as held for sale of
$88m reflecting certain non-core operations
and other assets that are intended to be sold in
the near future
> Increase in trade receivables of $24m
principally reflecting year end billing of
Network Take or Pay and Coal incentives
Total other non-current assets have increased
due to the increase in intangible assets of $38m
relating to acquisition of computer software.
Other current liabilities have increased $71m
largely due to:
> Increase in trade and other payables of
$140m principally relating to over-collection of
Network transitional tariffs ($70m) and timing
of payroll accruals ($21m)
> Partly offset by a reduction in current tax
liabilities of $68m
Total borrowings have increased $362m to fund
Network’s capital expenditure program and the
acquisition of Aquila with Baosteel.
Other non-current liabilities have increased $120m
principally due to an increase in deferred tax
liabilities of $84m.
Dividend
The Board has declared a final dividend of 8.5cps
which was based on:
> Payout ratio of 70% (applied to underlying
NPAT, excluding significant items) compared
to 65% for the interim FY2014 dividend
(underlying NPAT) and final FY2013 dividend
(on statutory NPAT)
> The final dividend is unfranked, due principally
to the impact on cash tax payable of the
impairments. We anticipate being in a tax
payable position during FY2015 and expect full
franking of the final FY2015 dividend
The relevant final dividend dates are:
> 28 August – ex dividend date
> 2 September – record date
> 22 September – payment date
Funding
Group gearing increased from 26.7% to 28.4%
due to higher debt levels. Credit ratings remain
unchanged at BBB+/Baa1.
Interest cost on drawn debt reduced to 4.8% for
FY2014 from 5.1% in FY2013 due to reduced
margins following the refinancing in FY2013.
Aurizon further diversified funding sources with
a debut issuance in the domestic capital markets
in FY2014. Aurizon Network issued a 7 year $525
MTN in October 2013 with coupon of 5.75% per
annum. The proceeds were used to repay existing
bank debt maturing in 2015.
14
Directors’ Report (continued)
Operating and Financial Review
- Statutory
- Underlying
- Statutory
- Underlying
- Underlying
- Statutory
- Underlying
- Statutory
- Underlying
- Underlying
3. Half Year Comparison
Financial Summary
($m)
Total Revenue
EBITDA
EBIT
Net finance costs
Income tax expense
NPAT
Earnings Per Share (cps)
Final / Interim Dividend per share (cps)
ROIC
Operating Ratio
Net operating cash flow
Gearing (net debt / net debt + equity)
Other Operating Metrics
Revenue / NTK ($/000NTK)
Labour Costs / Revenue
NTK / employee (MNTK)
Opex / NTK ($/000 NTK)
NTK (bn)
Tonnes (m)
Underlying EBIT by Segment
Network
Coal
Iron Ore
Freight
Unallocated
Group
2HFY2014
1,867
513
677
264
428
(59)
(109)
146
260
6.8
12.2
8.5
8.8%
77.0%
547
28.4%
2HFY2014
52.2
27.2%
9.5
40.2
35.7
137.2
2HFY2014
195
213
53
14
(47)
428
1HFY2014
1,965
452
674
201
423
(53)
(107)
107
263
5.0
12.3
8.0
8.6%
78.4%
521
27.9%
1HFY2014
51.3
26.9%
10.1
40.2
38.2
149.4
1HFY2014
217
187
50
20
(51)
423
VARIANCE %
(5%)
13%
-
31%
1%
(11%)
(2%)
36%
(1%)
36%
(1%)
6%
0.2ppt
1.4ppt
5%
(0.5ppt)
VARIANCE %
2%
(0.3ppt)
(6%)
-
(7%)
(8%)
VARIANCE %
(10%)
14%
6%
(30%)
8%
1%
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
15
4. Operating Ratio Update
Aurizon remains on target to achieve a 75% OR
(25% EBIT margin) in respect of FY2015. The
underlying OR for FY2014 was 77.7%, a 2.1ppts
improvement from FY2013. The OR for 2HFY2014
was 77.0%.
A key component of achieving the 75% OR is
the delivery of $230m+ of sustainable cost out
and productivity improvements by FY2015, as
announced in July 2013, with Operations delivering
$130m and centralised support areas delivering
$100m. Aurizon can report that the total amount
delivered in FY2014 was $129m, comprised as
follows:
> Operations
$96m
> Centralised support costs $33m
The net costs to deliver the transformation benefits
of $129m was $55m, comprised of $37m for
VRP and $18m for non-VRP initiatives. A further
$32m of VRP cost has been included in FY2014
to account for expected redundancies associated
with the progressive closure of the Redbank and
Townsville workshops during FY2015 and FY2016
as announced during the year. The non-VRP
costs of $18m reflect specific costs associated
with identifying and implementing key initiatives
identified below, principally in the centralised
support areas.
Due to the potential impact to FY2015 earnings
from industrial action, a failure to reach a
satisfactory outcome on UT4 in FY2015 and/or a
materially worse wet season than FY2014, Aurizon
has increased its cost reduction and productivity
improvements target to a range of $250m–$300m,
in order to achieve the 75% OR target.
Below is further detail behind the key initiatives for
FY2014:
Operations – $96m
> $42m reduction in labour costs – due to a 6%
reduction in average FTEs driven primarily
by footplate hours, removal of deployment
inefficiencies, holding natural attrition
levels, progressive depot consolidation for
maintenance and Intermodal, commencing
workshop labour reform and corridor IOP
initiatives (e.g. North West corridor)
> $29m in fleet productivity – IOP and improved
operational practices have resulted in a
reduction in active fleet requirements with
savings in depreciation and maintenance
> $13m in fuel efficiency – due to a 5%
improvement in fuel consumption rates driven
by improvements in gross train weights,
rationalisation of older, less fuel efficient fleet
and enablement of fuel technology solutions
> $12m in safety performance – lower casualty
costs due to a significant reduction in major
derailments from improved safety performance
In addition to the transformation cost reductions
identified of $96m, Operations has also delivered
an opportunity cost saving of $50m through the
delivery of increased volumes on a flat cost base.
These costs would have otherwise been incurred
due to the record above rail volumes Aurizon
has railed, if not for significant improvements in
turn-around-time (TAT), payloads and pathing
availability. In the Blackwater system alone, TAT
improved 15% and average payloads increased
by 4%, allowing a 23% increase in volume to be
delivered on the same asset and cost base. If the
Blackwater system operated at FY2013 operating
parameters without transformation, it would have
required approximately 100 more FTEs and 6
additional consists to deliver the 23% increase
in volumes, an opportunity cost saving of $34m.
Centralised support costs – $33m
> $15m reduction in labour costs associated with
a net reduction of FTEs
> $11m reduction in professional services and
other discretionary spend
> $7m reduction in other costs including
rationalisation of the property portfolio and
improved procurement practices
Variance Analysis – Half on Half
Underlying EBIT increased $5m or 1% to $428m
due to:
> A net decrease of $54m from lower volumes
•
which decreased 8%:
• $43m decrease in Freight revenues due to
volume declines, net of access and fuel,
with decreases in both Bulk and Intermodal
revenues
$20m decrease in coal revenue due to
volume declines, net of access and fuel
• $8m decrease in Iron Ore revenue due to
volume declines, net of access and fuel
Partly offset by a $17m increase in GAPE
revenue due to the ramp up in contracted
tonnes
•
> A net increase of $30m in revenue quality
principally due to:
•
$29m benefit from Coal revenue quality
from improved rates including net
incentives
> Net impact of Network transitional tariffs of
$46m as follows:
•
$46m decrease in regulated access revenue
(excluding GAPE) due to the assumption
that a greater portion of tonnes would be
railed in 1HFY2014 versus what actually
happened for the year. Maintenance
costs were constant from 1HFY2014 to
2HFY2014 so there is no further impact
> A benefit of $58m from transformation
initiatives. Refer to Section 4 for additional
detail on transformation initiatives with a
summary provided below:
•
$22m in centralised support principally from
lower labour costs of $13m and professional
services of $9m
• $36m in operations principally from lower
labour costs of $13m, fleet productivity of
$19m, fuel productivity of $2m and a $2m
improvement in safety performance
> One off costs to deliver the transformation
costs above (excluding VRP) of $11m
> A net decrease in operating and other expenses
of $27m:
• $10m due to the receipt of an outstanding
•
•
invoice, previously written off as non-
recoverable from a Freight customer
$9m decrease in electric traction costs for
Network due to decrease in electric volumes
The balance representing other volume
related costs (other than fuel and access)
which decreased due to the lower volumes,
more than offsetting cost and labour
escalation
16
Directors’ Report (continued)
Operating and Financial Review
SEGMENT REVIEW
Network
Aurizon Network operates the 2,670km CQCN. The open access network is the largest coal rail network in Australia and one of the country’s most complex,
connecting multiple customers from more than 50 mines to four ports. The CQCN includes four major coal systems the Moura, Blackwater, Goonyella and
Newlands.
- Access
- Services
- Other
- Access
- Services
- Other
Network Financial Summary
($m)
Total Revenue
Operating Costs
EBITDA
EBITDA margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
($m)
Total Revenue
Operating Costs
EBITDA
EBITDA Margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
Network Operating Metrics
Tonnes (m)
NTK (bn)
Access revenue / NTK ($/000 NTK)
Maintenance / NTK ($/000 NTK)
Opex / NTK ($000 NTK)
FY2014
1,012
951
17
44
(402)
610
60.3%
(198)
412
59.3%
2HFY2014
491
461
9
21
(196)
295
60.1%
(100)
195
60.3%
FY2013
980
921
26
33
(375)
605
61.7%
(188)
417
57.4%
1HFY2014
521
490
8
23
(206)
315
60.5%
(98)
217
58.3%
VARIANCE %
3%
3%
(35%)
33%
(7%)
1%
(1.4ppt)
(5%)
(1%)
(1.9ppt)
VARIANCE %
(6%)
(6%)
13%
(9%)
5%
(6%)
(0.4ppt)
(2%)
(10%)
(2.0ppt)
2HFY2014
106.9
27.0
17.1
2.5
11.0
1HFY2014
107.6
27.2
18.0
2.5
11.2
FY2014
214.5
54.2
17.5
2.5
11.1
FY2013
182.3
44.7
20.6
2.5
12.6
VARIANCE %
18%
21%
(15%)
-
12%
ANNUAL REPORT 2013–14
DIRECTORS’ REPORT | AURIZON
17
Network Variance Analysis –
Half on Half
The $22m decrease in underlying EBIT was largely
due to:
> A net decrease in revenue of $30m principally
comprising:
• $29m decrease in regulated access revenue
despite a small reduction in volumes from
107.6mt to 106.9mt comprised of a decrease
of $46m for fixed CQCN revenues (due to
transitional tariff noted previously) partly
offset by an increase of $17m for GAPE
revenues. The forecast second half regulatory
volumes were used to attribute the agreed
FY2014 Transitional MAR of $739m between
the first and second half of FY2014. This
variance arose due to the second half
volumes being much stronger than the
second half regulatory volume forecast
> A net decrease in operating costs of $10m
principally comprising:
•
$9m decrease in traction costs, as energy
costs were aligned to revenue attribution
between the first and second half of
FY2014 as described above
> A net increase in depreciation of $2m mainly
due to increased ballast renewal works, asset
renewals and AFDs which were commissioned
during the second half of the year
Offsetting the decrease in CQCN regulated
revenues was the continued ramp-up of contracted
GAPE tonnes which delivered a further $98m in
revenue. The above, combined with an increase
in depreciation of $10m resulted in a 1.9ppt
increase (i.e. adverse movement) of the OR to
59.3%. Transitional tariffs will again be in place for
FY2015 until a final UT4 decision which is currently
expected by June 2015.
Network Variance Analysis – Annual
The $5m decrease in underlying EBIT was
due to:
> A net increase in revenue of $32m principally
comprising:
• $30m increase in regulated access revenue
due to the ramp up in contracted GAPE
volumes ($98m) more than offsetting the
reduction in regulated access revenues
($68m) for the remainder of the CQCN due
to the capped transitional tariffs as noted
previously and inclusive of $8m of flood
claim recovery in FY2013
> A net increase in operating costs of $27m
principally comprising:
•
$7m increase in traction costs from an
increase in tariffs and higher electric traffic
(electric GTKs increasing 20% from 48.9bn
to 58.5bn)
• A net $13m increase in maintenance
activities. CQCN operational maintenance
expenditure increased $25m as a result
of increased volumes, partly offset by a
reduction in non-recurrent maintenance
costs of $9m relating to the floods
maintenance works and a further $3m
reduction in derailment and dewirement
maintenance expenditure in FY2013
> A net increase in depreciation of $10m due
to asset renewals, increased ballast renewal
works and part commissioning of the Hay Point
Expansion works
Network Performance Overview
The Network business delivered many performance
records in FY2014, including record volumes
over the CQCN of 214.5mt, an 18% increase on
FY2013. This was achieved whilst driving major
improvements in safety performance and keeping
the maintenance spend per NTK constant in
nominal terms. Key operational achievements were:
> A significant enhancement in Network
reliability, resulting in:
•
33% reduction in Network delays
(measured as Below Rail minutes per train
service) from 44mins in FY2013 to 29mins
in FY2014
47% reduction in Network caused
cancellations from 792 in FY2013 to 417
in FY2014
•
> 21% increase in NTKs to 54.2bn
> A substantial capital program was delivered
during the year with major progress achieved
on the Wiggins Island, Hay Point and Rolleston
expansion projects
In relation to UT4, there has been substantial
engagement with key stakeholders on all key
matters. On 11 August 2014, Aurizon Network
withdrew and resubmitted its UT4 submission in
order to reflect this engagement, enabling the QCA
to base its draft decision on this new document.
The QCA has advised Aurizon Network it will
separate the draft decision into revenue and policy
with a draft revenue decision to be published in
September 2014. All other remaining pricing (e.g.
tariffs) and policy matters will have a draft decision
published in December 2014. A final decision is
expected no later than 30 June 2015 including the
reconciliation of Transitional Tariffs in place since
1 July 2013.
Underlying EBIT decreased 1% to $412m due to
the fixed revenue nature of the transitional tariffs
for the CQCN (ex GAPE) which was set at $739m
inclusive of revenue cap. This resulted in Network
not recognising all of the revenue associated
with the 18% volume growth, with $70m being
classified as a provision at year-end, to be returned
to customers as agreed in 1HFY2015. In addition,
Network incurred additional maintenance costs
of $25m to ensure performance levels were
maintained in the strong volume environment, with
no corresponding revenue recovery.
18
Directors’ Report (continued)
Operating and Financial Review
Network Operations Update
(i) Access Undertaking 2013 (UT4)
> The next key regulatory milestone is the
QCA issuing a draft revenue decision in
September 2014
> A draft decision on all other pricing and policy
aspects is to be published December 2014,
based on the re-submitted UT4
> The final UT4 determination is currently
expected to be finalised and take effect by
June 2015
(ii) Transitional Tariff arrangements for FY2015
> In June 2014, a ‘Transitional Tariffs’ Draft
Amending Access Undertaking (DAAU) was
approved by the QCA to further extend UT3
to the earlier of 30 June 2015 and the QCA’s
final decision on UT4 and to apply transitional
Reference Tariffs for FY2015
> The transitional Reference Tariffs recover a
total Maximum Allowable Revenue (MAR) for
FY2015 of $777m, inclusive of the FY2013
revenue cap (including interest) of circa $36m,
but excluding Electric Charge (EC) and rebates,
with forecast volumes of 193.7mt. Both the
MAR and volumes are exclusive of the GAPE
which operates under different contractual
obligations
(iii) Standard User Funding Agreements (SUFA)
> The SUFA framework facilitates customers
with an alternative mechanism to funding
the expansion and growth of the CQCN.
Where Aurizon Network chooses not to fund
an expansion of the CQCN, SUFA enables
a customer/s to directly fund the requisite
expansion. SUFA further diversifies Aurizon
Network’s options for funding expansions to
the CQCN
> The QCA issued a position paper in May 2014
highlighting its position regarding an effective
SUFA outcome. The QCA is expected to issue a
draft decision in September 2014 with a final
decision expected in February 2015. The final
decision will be encapsulated in the final UT4
agreement
(iv) Growth
Committed Project Status
Wiggins Island Rail Project (WIRP)
> WIRP is a project designed to link mines in the
Southern Bowen Basin with the new Wiggins
Island Coal Export Terminal (WICET) at the
Port of Gladstone currently under construction
and will increase the total capacity of the
Moura and Blackwater systems by 27mtpa, or
approximately 30%
> The rail works required for the first coal
shipments will be commissioned progressively
to align to the commencement of WICET’s
operations by the end of March 2015
> The WIRP fee (earnings above the regulated
level) and ramp-up of regulated earnings are
to commence in FY2016, with the total cost of
the project estimated to be $858m (excluding
capitalised interest)
Hay Point Terminal Expansion
> The expansion of the Goonyella system to
support the Hay Point Port upgrade, adding
a further 11mtpa of below rail capacity and
lifting the Goonyella system capacity to
140mtpa, is nearing completion and under
budget, at $121m
> The Wotonga Feeder Station was completed
in June 2014 and is awaiting connection
from Powerlink. This is expected before the
completion of the Hay Point Coal Terminal
expansion, with first shipment anticipated
September 2015
Rolleston Electrification Project
> Construction of the electrification of
the existing 107km Rolleston spur line
commenced in July 2013 with completion
and commissioning of the project to occur by
December 2014, at a total cost estimated to
be $163m
Other Project Status
Surat Basin Rail (SBR)
> The SBR Joint Venture was terminated in
February 2014, with Aurizon Network through
its subsidiary Aurizon Surat Basin Pty Ltd
continuing to hold an interest in the intellectual
property and other rights relating the
terminated JV
Port of Hay Point Expansion (Dudgeon Point Coal
Terminal (DPCT))
> On 20 June 2014, Northern Queensland
Bulk Ports Corporation announced it was
withdrawing its development proposal for
the DPCT, noting the “current and short-term
forecast market demand for coal does not
support an expansion to the capacity proposed
in the DPCT project”
> As a result, Aurizon Network has impaired
its investment in the form of assets under
construction for the Port of Hay Point
Expansion project. It should be noted that
these amounts being impaired are still
underwritten by the regulatory revenue
mechanism and that recovery will be sought
through the normal regulatory process,
notwithstanding the immediate accounting
treatment
Wiggins Island Rail Project Stage 2 (WIRP 2)
> Aurizon Network has formed the view that the
likelihood of Stage 2 proceeding in the short
to medium term has materially diminished
and as a result has impaired its investment
in the form of assets under construction for
the WIRP 2 project. The impairment excludes
those components of the projects that have
been specifically underwritten by customers.
It should also be noted that these amounts
being impaired are still underwritten by the
regulatory revenue mechanism and that
recovery will be sought through the normal
regulatory process, notwithstanding the
immediate accounting treatment
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
19
Coal
Aurizon’s coal business is one of the world’s largest rail transporters of coal from mine to port for export markets, hauling on average nearly 600,000 tonnes a day.
Aurizon provides a critical link in Australia’s six major coal chain systems for the majority of Australia’s coal producers. Our coal transport operation links mines
in the Newlands, Goonyella, Blackwater, Moura and West Moreton systems in Queensland and the Hunter Valley coal system in New South Wales, to domestic
customers and coal export terminals.
Coal Financial Summary
($m)
Total Revenue
- Above Rail
- Below Rail1
- Other
Operating Costs1
EBITDA
EBITDA Margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
($m)
Total Revenue
- Above Rail
- Below Rail
- Other
Operating Costs
EBITDA
EBITDA Margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
FY2014
1,864
1,211
649
4
(1,291)
573
30.7%
(173)
400
78.5%
2HFY2014
906
614
289
3
(608)
298
32.9%
(85)
213
76.5%
FY2013
1,863
1,079
776
8
(1,369)
494
26.5%
(174)
320
82.8%
1HFY2014
958
597
360
1
(683)
275
28.7%
(88)
187
80.5%
VARIANCE %
-
12%
(16%)
(50%)
6%
16%
4.2ppt
1%
25%
4.3ppt
VARIANCE %
(5%)
3%
(20%)
200%
11%
8%
4.2ppt
3%
14%
4.0ppt
1 An amount equivalent to below rail revenue is included in operating costs, reflecting the pass through nature of access tariffs
Coal Operating Metrics
Total Tonnes hauled (m)
- Queensland
- NSW
% Volumes under new form contracts
Contract utilisation
Total NTK (bn)
- Queensland
- NSW
Above Rail revenue / NTK ($/000 NTK)
Below Rail revenue / NTK ($/000 NTK)
Total revenue / NTK ($/000 NTK)
Above Rail revenue / Gross contracted NTK ($/000 NTK)
Opex / NTK ($000 NTK)
2HFY2014
100.7
81.3
19.4
53%
88%
23.7
20.7
3.0
25.9
12.2
38.2
23.1
29.2
1HFY2014
109.7
88.6
21.1
52%
93%
25.5
22.1
3.4
23.4
14.1
37.6
21.9
30.2
FY2014
210.4
169.9
40.5
53%
91%
49.2
42.8
6.4
24.6
13.2
37.9
22.5
29.8
FY2013 VARIANCE %
9%
9%
7%
11ppt
11ppt
13%
13%
10%
-
(26%)
(11%)
15%
16%
193.7
155.8
37.9
42%
80%
43.6
37.8
5.8
24.7
17.8
42.7
19.6
35.4
20
Directors’ Report (continued)
Operating and Financial Review
Coal Variance Analysis – Annual
The $80m, or 25% increase in underlying EBIT was
largely due to:
> Revenue was constant compared to FY2013
despite 9% volume growth:
• Above rail revenue increased $132m or
12% driven by the strong volumes with
above rail revenue per NTK constant at
$24.6 per ‘000 NTK. NTK growth was
stronger than volume growth at 13%,
reflecting the longer hauls from the growth
tonnes in both Queensland (GAPE) and
NSW (Whitehaven, from the Gunnedah
Basin). Average haul length increased 4%
to 233km
• Above rail revenue per NTK was constant:
– $29m reduction in DTC revenue to $8m.
As DTC is a protective mechanism that
relates to prior period’s lost railings, it
distorts volume based revenue metrics
– A major customer operating under
a lower yielding legacy contract
contributed almost half of the volume
growth
• Below rail revenue decreased $127m or
16%, reflecting the impact of transitional
tariffs and an increase in access tariffs
paid directly from customers to Network.
This revenue represents below rail
access tariffs that are passed through
to customers on behalf of Network and
there is an equivalent operating cost. As
Network operated under a fixed revenue
environment in FY2014, the access costs
and access revenue in Coal only represent
Aurizon’s above rail portion of Network’s
fixed revenue (i.e. Coal’s portion of $739m).
As a result, below rail revenue per NTK
decreased 26%
> A net decrease in operating costs of $78m or 6%:
• Access charges decreased $125m reflecting
the agreed lower transitional tariffs for
FY2014 and the impact from customers
directly paying access tariffs to Network.
Further details are noted above in below rail
revenue
• $41m in transformation benefits,
principally lower labour, fuel efficiency and
maintenance costs
– The average haul length increased 4%
• Partly offset by an $88m increase in other
operating costs reflecting volume related
cost increases, increases in the underlying
fuel price and operating cost escalation
–
to 233km
Increasing levels of contract utilisation
for customers operating under new
form contracts. Due to the higher level
of fixed revenue under these contracts,
actual tonnage will only determine the
variable component of revenue which
generally accounts for less than 30%
of above rail revenue. Average contract
utilisation increased from 80% to 91%
and for new form contracts is 95%
resulting in less variable revenue despite
the strong volume growth. The high
levels of fixed revenue combined with
strong volumes is reflected in the 15%
growth of above rail per GCNTK, with
the level of GCNTK reducing 2%, yet
Aurizon generating a 12% increase in
above rail revenue
Coal Performance Overview
FY2014 saw Coal underlying EBIT improve 25% to
$400m despite flat revenue with operating costs
decreasing by 6% and underlying operating ratio
improving 4.3ppts to 78.5%. Volumes grew 9%
to 210.4mt and represent an annual record for
Aurizon with strong growth in both Queensland
(9%) and NSW (7%). The volume growth was
achieved despite the closure of Peabody’s Wilkie
Creek mine in December 2013 and the end of
Rio Tinto’s Hail Creek contract in October 2013,
which contributed to a 5% reduction in contracted
tonnes to 229mt. Coal revenue was flat despite the
strong volume growth, reflecting a 16% decrease
in below rail revenue due to lower transitional
access tariffs, offset by a 12% increase in above
rail revenue.
Volumes hauled under new form contracts
increased 11ppts to 53% principally due to two
contracts converting from legacy to new form
conditions, Rio Tinto’s Clermont contract (now
majority owned by Glencore) which commenced
1 July 2013 and the Ensham contract which
commenced 1 April 2013. Contract utilisation
increased 11ppts from 80% to 91% which was
reflected in the 15% increase in above rail revenue
per GCNTK, given a 2% decrease in GCNTK.
Total NTK growth of 13% was greater than the
9% increase in volumes due to increased GAPE
volumes and the commencement of Whitehaven
volumes from the Gunnedah Basin in NSW, both of
which have a longer than average haul length.
The increasing haul length (up 4%) as well as other
factors including lower Deficit Tonnage Charge
(DTC), customer mix impact and higher contract
utilisation resulted in above rail revenue per NTK
being in line when compared to FY2013.
While revenues were flat, a 6% reduction in
operating costs resulted in a 16% decrease in
operating costs per NTK with lower access costs
and transformation benefits partly offset by
incremental operating costs relating to higher
volumes.
Aurizon retained a contract with Yancoal’s
Yarrabee mine, which converted to a new form
contract on 1 July 2014. Volumes increased to
3.2mt for a term of 10 years and will include
haulage to the new Wiggins Island terminal once
complete.
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
21
Coal Variance Analysis – Half on Half
The $26m, or 14% increase in underlying EBIT was
largely due to:
> A net decrease in revenue of $52m, or 5%
comprising the following major items:
• $17m (3%) increase in above rail revenue
despite the 8% decline in volumes as
above rail revenue per NTK increased 11%.
The volume decrease was due to:
– An 8% decline in both Queensland and
NSW coal volumes reflecting normal
seasonality
• The increase in above rail revenue per NTK
was due to:
– Net incentives received from customers
for achieving annual performance
targets
Increase in the level of fixed revenue
combined with a slight decline in
contract utilisation
–
• Below rail revenue decreased $71m or 20%
reflecting the impact of transitional tariffs
in addition to the 8% decrease in volumes.
Below rail revenue per NTK decreased 13%
> A net decrease in operating costs of $75m or
11%, driven by:
• An 8% decline in volumes from 1HFY2014
reflecting seasonality with customers
typically railing more in 1H ahead of the
wet season
Employee productivity measures continue to
be an area of focus, with the key measure of
Employee Productivity, measured as NTK/FTE
increasing by 17% compared to FY2013. This
has been driven through:
> Reduction in FTEs achieved through structural
reform
> Focus on daily train crew productivity
(measured in footplate hours) through review
of train crew configurations and workings to
maximise workloads and minimise use of block
leisure period workings
> Improved system productivity through
reduction in cycle times, increased payloads
and on time arrivals
The Whitehaven Implementation Project
has secured all necessary rail infrastructure
provider approvals that will allow operation of
the standard Hunter Valley locomotive class,
ensuring continuation of the homogeneous fleet
strategy. New locomotive and wagon production
remains on schedule with first rollingstock arriving
in November 2014. Whitehaven short term
haulage agreement continues to provide ongoing
driver training for the long term contract whilst
generating profitable revenue.
Aurizon has commenced construction of the
Train Support Facility (TSF) at Hexham with the
commissioning now expected to be up to six
months later than the original date of November
2014 due to manageable delays in environmental
approvals and latent conditions on site. The TSF
will consolidate the maintenance and provisioning
footprint in NSW for Aurizon, driving further
improvements in operational efficiency and
effectiveness.
Iron Ore
Aurizon is Australia’s largest iron ore haulier
outside of Western Australia’s Pilbara region and
has continued to grow the business rapidly from
a base of 13.6mt in FY2012 to 29.9mt in FY2014.
Volumes are expected to reduce to 23mt in
FY2015 as noted below.
Coal Operations Update
During FY2014, Coal Operations continued focus
has been on asset productivity and disciplined
operations in delivering the increase in volumes,
whilst driving significant cost productivity
improvements across all corridors.
By driving the transformation program and
focusing on running a more integrated railway,
Coal Operations delivered record annual tonnes
of 210.4mt in FY2014. This performance was
achieved while continuing to reduce unit costs
by 16%.
The transformation initiatives around train
consist design, integrated operating plan, energy
consumption, rollingstock maintenance and
technology enabled operations are demonstrating
improvements through operational efficiencies in
the key Coal operating metrics including payloads,
energy consumption, turnaround time and labour
efficiencies.
The focus on disciplined operations through
the Integrated Operating Plan has continued
through FY2014, through reduction of operational
variability by design. At the execution level this
includes a constant daily focus on key operational
metrics and levers, together with critical review
of variability, dwell and path availability within
systems.
Asset productivity has been a key area of focus for
Operations as a whole. Locomotive and Wagon
productivity (as measured by millions of NTK’s
per active loco and wagon) increased in FY2014
by 20% and 17% respectively from FY2013.
The significant productivity uplift of assets
resulted from:
> Review of fleet requirements, including right
sizing the fleet within CQCN, through removal
of consists to optimise system velocity
> Focus on reduction in variability and dwell
within the systems through disciplined
operations
> Optimisation of train lengths and payloads in
all Queensland Coal Corridors, leading to a 3%
increase in average payload
Fuel efficiency improved by 5% compared to
FY2013 driven through the implementation of fuel
efficiency practices including:
> Rollout of the pilot for Driver Advisory Systems
> Active monitoring of idling assets
> Review of consist configurations for optimal
fuel consumption
> Implementation of regenerative braking
> Replacement of older locomotives with more
fuel efficient locomotives
22
Directors’ Report (continued)
Operating and Financial Review
Iron Ore Financial Summary
($m)
Total Revenue
Operating Costs
EBITDA
EBITDA Margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
($m)
Total Revenue
Operating Costs
EBITDA
EBITDA Margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
Iron Ore Operating Metrics
Tonnages hauled (m)
Contract utilisation
NTK (bn)
Revenue / NTK ($/000 NTK)
Opex / NTK ($000 NTK)
Iron Ore Performance Overview
FY2014 underlying EBIT increased 6% to $103m
as the Iron Ore business grew volumes 21% to
29.9mt which represents full contractual capacity.
OR was maintained at 72.8% despite an 11%
decrease in revenue per NTK (impact of capacity
charge revenue in FY2013 for volumes not railed)
due to a strong operational performance resulting
in an 11% reduction in opex per NTK.
Whilst volumes were strong and at full contracted
capacity, in FY2015 we estimate volumes will be
23mt due to the end of two contracts, namely
Mount Gibson’s 3.0mtpa Tallering Peak contract
(ceased 31 July 2014) and Mineral Resources’
4.2mtpa Carina contract (to cease 31 August
2014). Tallering Peak ceased due to the end of the
mine’s effective life however we are continuing
to rail due to stockpiled ore at the mine. The
Carina contract is ending due to the customer
deciding to manage their own rail haulage.
Aurizon has identified opportunities to deploy the
five locomotives currently used for this contract
elsewhere in the above rail operations, possibly to
the Intermodal business to replace locomotives
that are currently leased.
FY2014
378
(239)
139
36.8%
(36)
103
72.8%
2HFY2014
188
(119)
69
36.7%
(16)
53
71.8%
FY2013
357
(223)
134
37.5%
(37)
97
72.8%
1HFY2014
190
(120)
70
36.8%
(20)
50
73.7%
VARIANCE %
6%
(7%)
4%
(0.7ppt)
3%
6%
-
VARIANCE %
(1%)
1%
(1%)
(0.1ppt)
20%
6%
1.9ppt
2HFY2014
14.9
100%
6.1
30.8
22.1
1HFY2014
15.0
100%
6.1
31.1
23.0
FY2014
29.9
100%
12.2
31.0
22.5
FY2013 VARIANCE %
21%
18ppt
18%
(11%)
11%
24.7
82%
10.3
34.7
25.2
The associated wagons are leased and that lease
is due to expire on 31 August 2014. Accordingly,
Aurizon does not expect to hold surplus wagons.
Iron Ore Variance Analysis – Half on Half
The $3m, or 6% increase in underlying EBIT was
due to:
Iron Ore Variance Analysis – Annual
The $6m, or 6% increase in underlying EBIT was
due to:
> A net increase in revenue of $21m. Whilst
volumes grew 21%, revenue growth was
lower at 6% reflecting the impact of capacity
charges arising in FY2013 for volumes
contracted but not railed. The consequence of
this is also reflected in the reduction in revenue
per NTK of 11%
> A net increase in operating costs of $16m
reflecting the volume growth. Operating
performance continued to improve with
opex per NTK decreasing 11%, due to the
operational efficiencies gained as contractual
capacity hit 100%
> A net decrease in revenue of $2m due to
marginally lower volumes (0.1mt) and a 1%
decrease in revenue per NTK. This was the
result of a derailment in May 2014 impacting
Cliffs volumes
> The revenue decrease was more than offset
by lower operating costs, which resulted in a
reduction in opex per NTK of 4%
Iron Ore Operations Update
The Iron Ore business transitioned into the
Aurizon functional structure on 1 July 2013 with
Commercial & Marketing assuming accountability
for the customer relationships and Operations
for the above rail operations. This followed an
incubation period where it remained a stand-alone
business unit during the initial ramp-up phase.
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
23
Aurizon’s agreements with Baosteel, including an
Infrastructure Framework Agreement, provide a
minimum 12 month period of exclusivity during
which Aurizon will review the existing infrastructure
studies, develop infrastructure tariffs and, if these
tariffs are accepted by the Australian Premium
Iron Joint Venture (APIJV) participants, negotiate
the agreements necessary to restructure the APIJV
into a mine vehicle and an infrastructure vehicle.
Aurizon’s immediate priority is to negotiate the
terms on which AMCI(IO) (American Metals & Coal
International Inc. (51%) and POSCO (49%)) and/
or its owners, as participants in the APIJV, become
a party to similar agreements that set out the
pathway by which Aurizon can secure the rights to
develop the West Pilbara Infrastructure.
While these terms are being negotiated, a
confidentiality agreement allows Aurizon access
to APIJV information, including existing feasibility
studies, for due diligence purposes.
Any infrastructure development will be subject to
(among other things) a Final Investment Decision
by Aurizon and will only occur following detailed
planning and feasibility studies, concurrent
development of West Pilbara Iron Ore Project
(WPIOP) mines and entry into appropriate take
or pay contracts to support the tonnage profile for
viable rail and port infrastructure.
It is Aurizon’s intention, following the successful
development of the WPIP rail and port
infrastructure, to divest its shareholding in Aquila.
Freight
Aurizon’s Freight business supports a range
of customers nationally for bulk minerals and
commodities, agricultural products, mining
and industrial inputs and general and
containerised freight.
FY2014
1,029
(941)
88
8.6%
(54)
34
96.7%
2HFY2014
479
(440)
39
8.1%
(25)
14
97.1%
FY2013
1,082
(1,002)
80
7.4%
(57)
23
97.9%
1HFY2014
550
(501)
49
8.9%
(29)
20
96.4%
VARIANCE %
(5%)
6%
10%
1.2ppt
5%
48%
1.2ppt
VARIANCE %
(13%)
12%
(20%)
(0.8ppt)
14%
(30%)
(0.7ppt)
2HFY2014
21.7
5.9
81.2
78.8
1HFY2014
24.6
6.6
83.3
80.3
FY2014
46.3
12.5
82.3
79.6
FY2013 VARIANCE %
(6%)
(5%)
-
1%
49.3
13.2
82.0
80.2
Operationally it continues to perform at a high
level given it was predominantly established as a
greenfield business, but Aurizon continues to work
with customers to identify and optimise supply
chain performance resulting in increases to the
capacity of train services without any increases in
rollingstock requirements. In addition, as the IOP
continues to be implemented across the business,
we would anticipate generating further operational
improvements.
West Pilbara Infrastructure Project
Aurizon and Baosteel have effected an off-market
takeover of Aquila Resources which was delisted
on 29 July 2014. The strategic intent of Aurizon’s
investment in Aquila is to facilitate development
of rail and port infrastructure for the West Pilbara
Infrastructure Project (WPIP).
There is strong strategic rationale for Aurizon
participating alongside leading steel producers to
unlock the mine assets in the West Pilbara province
and to provide world-class multi-user infrastructure
with the potential to unlock other presently
stranded West Pilbara iron ore projects.
Freight Financial Summary
($m)
Total Revenue
Operating Costs
EBITDA
EBITDA margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
($m)
Total Revenue
Operating Costs
EBITDA
EBITDA margin
Depreciation and amortisation expense
Underlying EBIT
Underlying Operating Ratio
Freight Operating Metrics
Tonnages hauled (m)
NTK (bn)
Revenue / NTK ($/000 NTK)
Opex / NTK ($000 NTK)
Disposal of non-core business post
year-end
On 4 August 2014, Aurizon entered into an
agreement to sell its wholly owned logistics
subsidiary CRT Group (CRT) to Qube Logistics
(Aust) Pty Limited, a subsidiary of Qube Holdings
(Qube). The sale is consistent with Aurizon’s
strategy, as announced in July 2013, to maximise
the value of the Intermodal business by retaining
and integrating it within the enterprise but which
also included the disposal of certain non-core
assets.
CRT provides specialised bulk freight haulier
services including handling, packaging,
warehousing and distribution to the Australia
polymer, food and industrial sectors and has a
national network of depots, warehouses and
container parks which, based on a strategic
review, is considered non-core. The resources
arm was separated from CRT in April 2014 and
integrated into Aurizon’s broader operations given
its complementary focus on Aurizon’s key growth
sectors and commodities.
CRT employs approximately 250 people and has
an annual turnover (revenue) of c$100m. The
sale is subject to a number of conditions, with
settlement expected in or about October 2014.
24
Directors’ Report (continued)
Operating and Financial Review
Freight Performance Overview
The Freight business hauled 46.3mt of goods
during FY2014, a decrease of 6% compared
to FY2013 with NTKs down 5%. Bulk volumes
decreased 9% due lower Queensland grain
volumes (below average grain harvest), an
unscheduled customer plant shutdown and the
supply of nickel being impacted by the Indonesian
Government’s export ban. Partly offsetting this
was a 17% increase in Intermodal volumes,
against the trend of flat market conditions overall,
due to new contracts commencing including Coles
and Woolworths.
Revenue was also impacted by a reduction in
services under the Transport Services Contract
(TSC) with the Queensland Government which took
effect from 1 January 2013 and resulted in revenue
decreasing $21m when compared to FY2013. The
two TSC contracts run until 30 June 2015 (regional
freight) and 31 December 2015 (livestock). The
above factors resulted in revenue per NTK being
flat when compared to FY2013.
Underlying EBIT grew 48% despite the revenue
decrease with the realisation of $55m in
transformation benefits driving a 6% decrease
in operating costs. With a 5% reduction in NTKs,
the lower cost base resulted in a 1% improvement
in opex per NTK and the OR improved 1.2ppts
to 96.7%.
Freight Variance Analysis – Annual
The $11m, or 48% increase in underlying EBIT
reflects:
Freight Variance Analysis –
Half on Half
The $6m or 30% decrease in underlying EBIT
reflects:
> A net decrease in revenue of $71m (13%):
• $57m decrease in Bulk revenues driven by a
14% decrease in volumes
• $13m decrease in Intermodal revenues
driven by a 6% decline in revenue per NTK
with volumes flat
> A net decrease in operating costs of $61m (12%):
• $29m in transformation benefits,
principally lower labour, fuel efficiency and
maintenance costs
• $20m reduction in costs associated with the
decrease in Bulk volumes
> A net decrease in depreciation of $4m
Freight Operations Update
Continuing to drive the transformation program for
Freight operations within FY2014, the Integrated
Operating Plan has expanded from its initial focus
on North West Queensland and Western Australia
to encompass the North Coast Line, Central
West Queensland, South West Queensland and
Interstate Intermodal. Opportunities have been
realised across the Aurizon national footprint
including:
> Optimisation of assets through train schedule
and redesign
> Improved productivity of ground crew for
shunting and switching activities across regional
areas, through the consolidation of tasks
> A net decrease in revenue of $53m (5%),
comprising the following major items:
• $77m decrease in Bulk revenues due to the
> Continued reviews around crew rostering, right
sizing, positioning of train crew requirements
and regional depot closures
> Closure of Charters Towers and Avon crew
depots and East Cost Intermodal depots
> Closure of Hughenden & Kalgoorlie
maintenance depots through consolidation of
rollingstock maintenance work
> Consolidation of Queensland planning and
control functions
Additional opportunities have been identified
across all Freight corridors and are scheduled for
implementation in FY2015 and beyond.
9% volume decline
• $21m decrease in TSC revenue reflecting
reduced services that took effect 1 January
2013
• Partly offset by a $42m increase in
Intermodal revenues, principally from new
contracts and increased volumes (17%
increase)
> A net $61m decrease in operating costs
comprising:
• $55m in transformation benefits,
principally lower labour, fuel efficiency and
maintenance costs
• Lower costs in Bulk associated with the
9% volume reduction partly offset by cost
escalation and costs associated with the
17% increase in Intermodal volumes and
start-up costs
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
25
OTHER
Senior Management Changes
There were a number of changes in the senior
management team during FY2014:
> On 13 November 2013 we announced the
appointment of Mauro Neves to the role
of EVP Commercial & Marketing. Mauro
commenced with the Company on 1 January
2014. He brings further global experience
to the Executive Committee and has strong
commercial and operational capability, having
spent much of the last decade with Vale, most
recently as Global Director Coal
> On 4 November, 2014 Mike Carter moved
from the role of EVP Network to lead a newly
combined Strategy & Business Development
function and Alex Kummant moved from
Strategy to become the new EVP Network.
These changes were announced on 19 August
2013, as part of Aurizon’s transformation
program
> The changes to the Executive Committee
during the year included the departure of
Paul Scurrah, EVP Commercial & Marketing,
Ken Lewsey, EVP Business Development and
Greg Robinson, EVP Business Sustainability.
Enterprise Agreement (EA) Update
New South Wales (NSW)
The renegotiation of the NSW Coal Operations
EA was successfully approved within the set
bargaining parameters of 4% per year for the
first three years, with reduced hours in the fourth
year, while also retaining the essential flexibilities
around rostering which was the key objective.
Queensland
The 14 Queensland agreements that cover
approximately 5,500 staff represented by 6 unions,
expired on 31 December 2013. Aurizon’s main
efforts have been directed toward negotiating for
replacement enterprise agreements that are fair,
competitive and commercially sustainable. This
involves significant reform to the current EAs which
contain clauses that are no longer sustainable for a
publically listed company.
Bargaining commenced on 29 April 2013 and
during that time Aurizon has taken a number of
measures to move the process forward, including:
> Obtaining the assistance of the Fair Work
Commission (FWC) to facilitate bargaining
> Increasing bargaining meeting timetable
> Inviting unions to participate in consent
arbitration of outstanding matters (declined)
Despite the Company’s best efforts, and even after
the assistance of the FWC, no real progress was
made toward reaching new EAs.
The existing agreements are placing significant
unreasonable restrictions on the Company. Aurizon
has now made applications to the FWC under
s.225 of the Fair Work Act to terminate all of the
current 14 EAs. The applications to terminate
have been referred to a Full Bench of the Fair
Work Commission and the matter will be heard in
Brisbane on 5–7 November and 10–13 November.
If the EAs are terminated, the terms and conditions
of employment for Aurizon employees will be
regulated by the relevant industry awards and the
employee’s individual contracts. As part of the
application to terminate, Aurizon has provided a
series of undertakings to maintain a number of the
current terms and conditions, such as base wages,
certain allowances, superannuation, leave accruals
and redundancy pay. The undertakings are valid
for a period of six months to enable a new EA to be
negotiated.
Western Australia
Bargaining has commenced for Australia Western
Railroad (AWR) Rail Operations and Rollingstock
Maintenance agreements.
Sustainability
Refer to pages 50 to 53 of the Annual Report.
26
Directors’ Report (continued)
Operating and Financial Review
Risk
Aurizon has reached a mature level of risk and
opportunity management capability by focussing
on structural and cultural building blocks. A key
focus during FY2014 was the roll out of the revised
Board-approved risk appetite as a representation of
shareholder interests. The risk appetite is expressed
as a series of 24 statements that collectively define
the playing field in which Aurizon will operate.
An internal training package is the primary delivery
mechanism for communicating Board expectations
on managing risk and opportunity. As at 30 June
2014, 359 key decision-makers across Aurizon
have undertaken the training. Attendees develop
and share a common understanding of how to
apply risk appetite to make informed every-day
decisions aligned to Board expectations on risk
management.
The sophistication of the Aurizon risk management
approach is demonstrated by:
> improved safety performance;
> reduced operational incidents such as
derailments;
> a strong track record in delivery of major
projects; and
> recognition in the insurance underwriting
market of best-in-class risk management
practices acknowledged with a 58% reduction
in insurance premium for FY2015.
Advanced risk management capability has
positioned Aurizon to succeed in ambitious
large-scale growth projects such as the build and
operation of integrated supply chains in the Galilee
Basin and West Pilbara region.
Macro-economic global conditions and demand for
coal and iron ore
> Aurizon’s haulage business is highly dependent
upon the Asian, domestic and global economies
> An adverse change in general economic
conditions or a reduction in the demand for
coal and iron ore may have a material adverse
effect on Aurizon’s operational performance
and financial results
Adverse weather conditions
> Adverse weather conditions and natural
disasters may directly impact Aurizon’s
operations. For example, severe flooding or
cyclones could interrupt supply of commodities
and/or the operation of normal haulage
services
> This may have an adverse impact on Aurizon’s
business, operational performance and
financial results
The key risks that are currently facing Aurizon are
as follows:
Enterprise Agreement negotiations
> A significant portion of Aurizon’s employees
belong to labour unions (more than 90%)
> The majority of Aurizon’s Enterprise
Agreements expired in December 2013
> Any strike or industrial action or failure to
resolve a material dispute with labour unions
could have an adverse impact on Aurizon’s
business, operational performance and
financial results
Finalisation of User Access Undertaking 2013
(UT4)
> User Access Undertaking 2010 (UT3) expired
30 June 2013
> Aurizon submitted a revised UT4 on 11 August
2014 reflecting industry consultation and is
continuing discussions with the QCA and key
stakeholders on the finalisation of reference
tariffs – to apply retrospectively from 1 July
2013
> There is a risk that the QCA’s final decision
may result in an amended UT4 that is less
favourable to Aurizon
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
27
Consistent with this discretion the Underlying
EBIT and ROIC components of the STIA will be
zero for FY2014, despite the Company exceeding
the FY2014 Underlying EBIT and ROIC targets.
This is due to the Board’s determination that the
impairment charges, announced to the market in
December 2013 and again in June 2014, will be
taken into account for remuneration purposes and
therefore the thresholds for Underlying EBIT and
ROIC are deemed not to have been achieved.
Further details of these changes are set out in the
Remuneration Report.
The Board recognises its responsibility to maintain
shareholder confidence in Aurizon’s leadership
and remuneration practices. We assure you
the Company remains focused on delivering
sustainable value for our shareholders, and the
Directors are committed to closely aligning
the Executive remuneration framework to this
objective.
We value your feedback and look forward to
welcoming you to our 2014 Annual General
Meeting.
Yours faithfully
John B Prescott AC
Chairman
Russell Caplan
Chairman, Remuneration,
Nomination & Succession Committee
Directors’ Report (continued)
Remuneration Report
Dear Fellow Shareholder,
On behalf of the Board, we are pleased to present
Aurizon’s 2014 Remuneration Report.
Aurizon’s remuneration practices are aligned with
the Company’s strategy of providing Executive
rewards that drive and reflect the creation of
shareholder value.
Since our Initial Public Offering (IPO) in 2010,
Aurizon has successfully transitioned from a
government-owned corporation to an ASX Top 50
company. We have delivered strong returns to our
shareholders, with the share price increasing at a
compound annual growth rate (CAGR) of 21.8%
since IPO compared to a CAGR of 4.9% for the
ASX 100.
A measure of our success, and a benchmark we use
to compare our performance against the world’s
best railroads, is the Operating Ratio (OR). In 2010,
our OR was 91%. At the completion of FY2014,
the Company’s OR was 77.7% and we remain on
track with our target to reduce the OR to 75%
by FY2015, with continued reductions planned
thereafter. This significant improvement is the
result of a genuine organisation-wide commitment
and is comparable to the OR journey of North
America’s best Class 1 railroads.
Success of this scale could not have been achieved
without the strength of our Executive team, led by
our MD & CEO Lance Hockridge. We are confident
that we have a strong Executive team in place,
including talent recruited from the North American
Class 1 railroads, which equips us to aggressively
pursue and achieve the Company’s strategic
objectives.
Our ability to attract, retain and reward high
quality leaders is critical to our continued success.
The Board is mindful of ensuring that our
remuneration practices support this objective to
the benefit of our shareholders and surveys show
our Executive pay aligns with our peer group ASX
11-50 and comparator companies. Similarly the
Board is cognisant of changes in market practice
and of shareholder sentiment towards Executive
remuneration more generally.
At our Annual General Meeting last November,
72% of the total vote received from shareholders
supported the 2013 Remuneration Report, below
the 75% threshold. This constituted a “first strike”
against the Remuneration Report under the
Corporations Act so we needed to understand why
this occurred.
Accordingly the Board proactively engaged in
detail with our key shareholders and stakeholder
advisory groups. Using the feedback we received,
the Board undertook a comprehensive review of
Aurizon’s remuneration practices. We retained a
number of existing arrangements but made other
changes to respond.
The decisions made and reflected in the attached
remuneration report were as follows:
1.
2.
3.
4.
5.
6.
7.
8.
The Fixed Remuneration levels for our
Executives are appropriate and comparable
to similar roles within our market peer group
and therefore we saw no need for an increase.
Accordingly, for a second consecutive year,
there will be no increase in Fixed Remuneration
for Key Management Personnel (KMP) and the
other Executives, except for those Executives
who have been promoted, those with changed
duties and those whose remuneration level is
clearly anomalous.
The Short Term Incentive Award (STIA)
performance measures for FY2015 will be
Underlying Earnings Before Interest and Tax
(Underlying EBIT) 35%, Safety 17.5% and
Transformation 17.5% and Individual 30%.
The specific targets in these areas have been
reset for FY2015 with particular focus on the
stringency of threshold levels.
Disclosure of STIA performance will be
improved.
Earnings Per Share (EPS) growth will no longer
be used as a Long Term Incentive Award (LTIA)
performance measure and will be replaced by
Return On Invested Capital (ROIC).
The LTIA performance measures will be OR,
Relative Total Shareholder Returns (TSR)
and ROIC weighted 34%, 33% and 33%
respectively.
For the Relative TSR component of the LTIA
30% will vest at the median ranking, down
from 50% previously.
The LTIA performance measures will continue
to allow for a once only retest a year after
the initial assessments but at more stringent
performance levels. No further benefit will
flow to Executives in FY2014 as a result of this
provision.
The Board will have a discretion to adjust
outcomes for all performance targets but will
generally avoid exercising that discretion in
favour of Executives.
28
Directors’ Report (continued)
Remuneration Report
The Remuneration Report for
the year ended 30 June 2014 is
set out below. The information
in this Report has been audited.
1. Remuneration Report Introduction
Aurizon’s remuneration practices are aligned with
the Company’s strategy of providing Executive
rewards that drive and reflect the creation of
shareholder value.
Since incurring a “first strike” under the
Corporations Act, Aurizon has engaged with
shareholders to understand their concerns. The
changes mentioned in the Chairmen’s letter are
incorporated in this Report and summarised in the
following Table 1.
TABLE 1 – RESPONSE TO CONCERNS RAISED IN RELATION TO FINANCIAL YEAR 2013 REMUNERATION REPORT
CONCERN
Quantum of Total
Remuneration
BOARD RESPONSE
The Board reviewed the Executive Total Fixed Remuneration and decided that, for the second consecutive year, there would be no
Fixed Remuneration increase for the MD & CEO or the Executive KMP.
FY2013 FRAMEWORK
Actual remuneration MD & CEO:
The actual remuneration awarded by the Board for FY2013
was $6.110m, comprised of:
> $2.278m Fixed Remuneration & other non-monetary
FY2014 FRAMEWORK
Actual remuneration MD & CEO:
The actual remuneration awarded by the Board for FY2014
was $5.121m, comprised of:
> $2.249m Fixed Remuneration & other non-monetary
benefits;
benefits;
> $2.505m STIA; and
> $1.327m of equity based payments.
The MD & CEO and Executive KMP have agreed to enter into new employment contracts with effect from 1 July 2014. The new
employment contracts ensure that the maximum termination payment (Notice & Severance payment) provided to the Executive
is 12 months.
The Board also reviewed the STIA performance hurdles and the performance targets, with a particular focus on the stringency
of the threshold levels. It was decided that the ROIC performance hurdle will no longer form part of the STIA and the remaining
hurdle weightings will be adjusted accordingly.
> $1.306m STIA (plus $0.326m in deferred STIA); and
> $1.566m of equity based payments.
FY2013 FRAMEWORK
Performance hurdles for FY2014 STIA were:
> Underlying EBIT (28%)
> ROIC (7%)
> Safety (14%)
> Transformation (21%)
> Individual (30%)
The threshold EBIT level has been increased when compared to prior years. The thresholds for Transformation and Safety have
also been increased.
The Board also reviewed the LTIA performance hurdles and the performance targets, with a particular focus on the stringency
of the threshold levels. It was decided that the EPS performance hurdle will no longer form part of the LTIA and will be replaced
by ROIC. Additionally, the hurdle weightings were adjusted and the amount vesting for a median ranking for the Relative TSR
component was decreased to 30% (previously 50%).
FY2014 FRAMEWORK
Performance hurdles for FY2015 STIA will be:
> Underlying EBIT (35%)
> Safety (17.5%)
> Transformation (17.5%)
> Individual (30%)
FY2013 FRAMEWORK
Performance hurdles for the 2013 LTIA were:
> Operating Ratio Improvement (50%)
> Average annual EPS growth (25%)
> Relative TSR (25%)
The Board has improved the disclosures relating to the operation of the STIA, the FY2014 targets and the determination
of outcomes.
FY2014 FRAMEWORK
Performance hurdles for the 2014 LTIA will be:
> Operating Ratio Improvement (34%)
> Relative TSR (33%)
> ROIC (33%)
Three matters were raised relating to remuneration. Firstly, a representative of the Australian Shareholders Association (ASA)
observed that his organisation considered that the LTIA to the MD&CEO was excessive and asked about the fair value of the
award and who else participates. The Chairman explained that the Board considered the award in line with market practice,
explained that it was the market value on issue and described the participants. Secondly a shareholder asked the Chairman
to confirm that the Board will award all employees $1000 worth of Aurizon shares under a general employee share plan.
The Chairman did confirm. Finally, the ASA representative observed that the Chairman’s Fees had increased. The Chairman
responded that he was not present when the Directors made that decision but that he understood that the Fees were reviewed in
the prior year when they were adjusted to be closer to the median of Aurizon’s comparator companies.
Termination
arrangements
Performance
hurdles & thresholds
associated with the
STIA
Performance
hurdles & thresholds
associated with the
LTIA. Shareholders
raised the EPS
growth hurdle in
particular.
Transparency of
STIA operation
& performance
outcomes
Questions raised at
the last AGM
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
29
2. Directors and Executives
The KMP of the Group (being those whose
remuneration must be disclosed in this Report)
include the Non-Executive Directors and
those Executives who have the authority and
responsibility for planning, directing and controlling
the activities of Aurizon.
The Non-Executive Directors and Executives that
formed part of the KMP for the whole of the
Financial Year ended 30 June 2014 are identified in
Table 2 – Key Management Personnel.
Table 3: Former Executives identifies other
persons whose remuneration was disclosed in the
FY2013 Report.
During the year a review of the KMP was
conducted. The Board determined that from
1 July 2014 support functions EVP’s would no
longer meet the definition of KMP given the
change in functional segment reporting from
FY2015. Although remuneration details have been
disclosed in this report for all Executives previously
considered KMP, next year it is proposed that
details will be provided only for those roles that
meet the new determination.
TABLE 2 – KEY MANAGEMENT PERSONNEL
NAME
NON-EXECUTIVE DIRECTORS1
J B Prescott AC
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO
A J P Staines
G T Tilbrook
P Zito2
POSITION
Chairman, Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
EXECUTIVES
L E Hockridge
M G Carter
J M Franczak
A Kummant
K Neate
M Neves De Moraes3
G P Pringle
R J Stephens
1 Roles that meet the new determination of KMP and will be disclosed in FY2015
2 P Zito was appointed a Director on 1 December 2013
3 M Neves De Moraes commenced in the role on 1 January 2014
Managing Director & Chief Executive Officer1
Executive Vice President, Strategy & Business Development
Executive Vice President, Operations1
Executive Vice President, Network1
Executive Vice President and Chief Financial Officer1
Executive Vice President, Commercial & Marketing1
Executive Vice President, Enterprise Services
Executive Vice President and Chief Human Resources Officer
TABLE 3 – FORMER EXECUTIVES
NAME
K R Lewsey1
G Robinson2
P Scurrah3
POSITION
Executive Vice President, Business Development
Executive Vice President, Business Sustainability
Executive Vice President, Commercial & Marketing
1 K R Lewsey ceased in the role on 31 October 2013
2 G Robinson ceased in the role on 31 October 2013
3 P Scurrrah ceased in the role on 31 October 2013
30
Directors’ Report (continued)
Remuneration Report
3.2 Remuneration Framework and
Objectives Financial Year 2015
Figure 2, on page 31, summarises the revised
remuneration framework for FY2015. The
Remuneration Framework for FY2014 is available
in the FY2013 Remuneration Report (Section 1.4).
3.3 Executive Remuneration
Governance
Figure 3, on page 32, represents Aurizon’s
remuneration governance framework.
Details on the composition of the Remuneration,
Nomination & Succession Committee
(Committee) are set out on page 7 of this report.
The Committee’s Charter is available in the
Governance section of the Company’s website
at www.aurizon.com.au
3. Remuneration Framework
Components
3.1 Total Potential Remuneration
Aurizon’s Remuneration Framework for each
Executive comprises three components:
> Fixed remuneration (not subject to
performance conditions) that comprises salary
and other benefits, including superannuation;
> STIA (“at risk” component, awarded on the
achievement of performance conditions over a
12 month period) that comprises both a cash
component and a component deferred into
equity; and
> LTIA (“at risk” component, awarded on the
achievement of performance conditions over, in
general, a three year period) that consists only
of an equity component.
The structure is intended to provide an appropriate
mix of fixed and variable remuneration and provide
a combination of incentives intended to drive
performance against the Company’s short and
longer term business objectives.
The mix of potential remuneration components
for FY2015 for the MD & CEO and remaining
Executive KMP is set out in Figure 1: Total Potential
Remuneration Financial Year 2015.
FIGURE 1 – TOTAL POTENTIAL REMUNERATION FINANCIAL YEAR 2015 1
MD & CEO: CASH COMPONENT: 54%
EQUITY COMPONENT: 46%
29%
25%
17%
29%
EXECUTIVE KMP: CASH COMPONENT: 58%
EQUITY COMPONENT: 42%
35%
23%
16%
26%
FIXED REMUNERATION
STIA
DEFERRED STIA2
LTIA
1 Assumes achievement of the stretch performance hurdle outcomes for STIA, full provision of the
Deferred STIA in future and vesting of the LTIA at a value equal to the original award, i.e., assuming no
share price appreciation
2 From FY2014, any STIA will have a portion awarded in the form of rights to shares, which vest on the
first anniversary of payment of the cash component subject to the Board’s ability to ‘claw-back’.
This condition has been introduced over a two year period, 20% in FY2014 which will increase to
40% in FY2015. The total STIA opportunity has not been altered – only the portion to be deferred
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
31
FIGURE 2 – REMUNERATION FRAMEWORK FINANCIAL YEAR 2015
PERFORMANCE MEASURE
STRATEGIC OBJECTIVES AND LINK TO PERFORMANCE
N
O
I
T
A
R
E
N
U
M
E
R
D
E
X
I
F
D
R
A
W
A
E
V
I
T
N
E
C
N
I
M
R
E
T
-
T
R
O
H
S
D
R
A
W
A
E
V
I
T
N
E
C
N
I
M
R
E
T
-
G
N
O
L
Considerations:
> Experience, qualifications
> Role and responsibility
> Retain key talent
> Reference to remuneration paid by similar sized
companies in similar industry sectors
> Internal and external relativities
> To attract and retain Executives with the right talent to
achieve results (including being competitive internationally for
those Executives with relevant Class 1 Rail experience)
> Safety (17.5%)
> Transformation (17.5%)
> Underlying EBIT (35%)
> Individual (30%)
Measured over a one year performance period1
STIA at Risk:
MD & CEO: Target 100% of Fixed Remuneration
and Maximum 150% of Fixed Remuneration
Remaining Executive KMP: Target 75% of Fixed
Remuneration and Maximum 112.5% of Fixed Remuneration
> Participation levels set with reference to the appropriate levels
of short term incentive offered by our peers in the market
The non-financial and financial performance measures were
chosen because:
> Safety captures the need to continuously improve safety
across all aspects of this heavy industry business
> Transformation captures the need to quickly change from a
statutory government owned organisation to a world-class,
profitable listed company
> Underlying EBIT delivers financial benefits to shareholders
through growth in underlying operating earnings
> Operating Ratio Improvement (34%)
> Relative TSR (33%)
> ROIC (33%)
Measured over a three year performance period2
LTIA at Risk:
MD & CEO: Maximum 100% of Fixed Remuneration
Remaining Executive KMP: Maximum 75% of Fixed Remuneration
> Operating Ratio Improvement was chosen as it is a key
measure of our success in transforming Aurizon into a world
class rail company – maximising the profit earned from each
dollar of revenue generated
> Relative TSR was chosen as it is a measure of the return
generated for Aurizon’s shareholders over the performance
period relative to a peer group of companies (ASX100)
> ROIC was chosen to reflect the fact that Aurizon operates
a capital intensive business and our focus should be on
maximising the level of return generated on the capital
we invest
Note: minimum shareholding requirements for Executives
encourage retention of shares and alignment with
shareholder interests
Total remuneration
Overall, Executive remuneration is designed to support delivery of superior shareholder returns by placing a significant proportion of an Executive’s total target
remuneration at risk and awarding a significant portion of at risk pay in equity
1 FY2014 STIA performance measures were Safety (14%), Transformation (21%), Underlying EBIT (28%), ROIC (7%) and Individual (30%)
2 FY2014 LTIA performance hurdles were Operating Ratio Improvement (50%), Relative TSR (25%) and EPS (25%)
32
Directors’ Report (continued)
Remuneration Report
FIGURE 3 – REMUNERATION GOVERNANCE FRAMEWORK
BOARD
The Board:
> approves the overall remuneration policy and ensures it is competitive,
fair and aligned with the long-term interests of the Company
> approves Non-Executive Director remuneration, Executive Director and
Executive remuneration
> assesses the performance of, and determines the STIA outcome for the MD
& CEO giving due weight to objective performance measures while retaining
discretion to determine final outcomes
> considers and determines the STIA outcomes of KMP based on the
recommendations of the MD & CEO
REMUNERATION, NOMINATION & SUCCESSION COMMITTEE
The Remuneration, Nomination & Succession Committee is delegated responsibility
by the Board to review and make recommendations on:
> the remuneration policies and framework for the Company
> Non-Executive Director remuneration
> remuneration for Executive Directors and Executives, and
> Executive incentive arrangements
MANAGEMENT
> Provides information relevant to remuneration decisions and makes
recommendations to the Remuneration, Nomination and Succession Committee
> Obtains remuneration information from external advisors to assist the
Remuneration, Nomination and Succession Committee (i.e. factual information,
legal advice, accounting advice, tax advice)
CONSULTATION WITH
SHAREHOLDERS AND OTHER
STAKEHOLDERS
REMUNERATION CONSULTANTS
AND OTHER EXTERNAL ADVISORS
In performing duties and making
recommendations to the Board, the
Chairman of the Remuneration, Nomination
& Succession Committee appoints and
engages independent advisors directly in
relation to Executive remuneration matters.
These advisors:
> review and provide recommendations on
the appropriateness of the MD & CEO and
Executive remuneration
> provide independent advice, information
and recommendations relevant to
remuneration decisions
Any advice or recommendations provided
by external advisors are used to assist the
Board – they do not substitute for the Board
and Remuneration, Nomination & Succession
Committee processes
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
33
4. Proportional Remuneration
Outcomes for Financial Year 2014
Figure 4 represents the proportion of FY2014
actual and forfeited remuneration for the MD &
CEO and an illustrative Executive KMP member
(Note: The sections shown in stripes indicate
potential awards either forfeited or subject to re-
testing). The remuneration outcomes identified in
these diagrams are directly linked to the Company
performance described in Table 5: Financial Year
2014 STIA Performance Outcomes and Table 7:
Company Performance against LTIA Performance
Hurdles.
Remuneration outcomes are shown as a proportion
of Total Potential Remuneration, addressed with
reference to Company performance and vesting
outcomes of the 2010 and 2011 LTIA assuming a
Share Price of $5.00.
FIGURE 4 – PROPORTIONAL REMUNERATION OUTCOMES FOR FINANCIAL YEAR 2014
Managing Director & CEO
26% Fixed Remuneration
21% STIA: Actual FY2014
17% STIA: Forfeited FY2014
17% LTIA: 2011 Award
17% LTIA: 2011 Subject to Re-testing
2% LTIA: 2010 Award Lapsed
34% Fixed Remuneration
20% STIA: Actual FY14
18% STIA: Forfeited FY2014
6% STIAD: Actual FY2014
10% LTIA: 2011 Award
10% LTIA: 2011 Subject to Re-testing
2% LTA: 2010 Award Lapsed
Illustrative Example KMP
5. Short Term Incentive Award
5.1 Financial Year 2014 STIA framework and performance measures
What is the STIA and who
participates?
What are the Company
performance measures?
What is the amount that
participants can earn through
an STIA?
The STIA is “at risk” remuneration subject to the achievement of pre-defined individual and Company performance
hurdles which are set annually by the Board at the beginning of the performance period. For each component of the
STIA, three performance levels are set: Threshold, below which no STIA is paid for that component; Target, which
typically reflects a substantial improvement on historical achievement or a business improvement targeted outcome,
in both cases in line with relevant corporate plans and budgets; and Stretch, which is significantly better than Target.
The STIA applies in a similar manner to all non-enterprise agreement employees.
The performance measures which apply to all participants are Underlying EBIT, Transformation, Safety and ROIC.
The measures capture the need to continuously improve safety across all aspects of the business, the need to quickly
change from a statutory government owned organisation to a world-class, profitable listed company and, at the
same time, deliver benefits to shareholders. Individual performance hurdles relate to each specific role and measure
an individual’s contribution. Examples include outcomes in capital management, marketing, organisational change
and leadership.
Table 4, on page 34, identifies the detailed performance hurdles and relevant weightings for FY2014.
Employment agreements specify a target STIA, expressed as a percentage of Fixed Remuneration (100% for the MD
& CEO and 75% for remaining Executive KMP). Each Participant can earn between 0% up to a maximum of 150%
of this target percentage, depending on performance and subject to Board discretion.
Depending on performance assessed at year end, participants may earn for each enterprise measure: 0% for
performance below Threshold; 50% at Threshold (for measures other than Underlying EBIT, for which Threshold
earnings are 30%); with a linear scale up to 100% at Target performance; and a further linear scale to 200% at
Stretch performance. All components are subject to Board discretion and subject to the total STIA not exceeding
150% of the target.
34
Directors’ Report (continued)
Remuneration Report
TABLE 4 – PERFORMANCE MEASURES FOR FINANCIAL YEAR 2014
COMPANY
Underlying
EBIT
ROIC
Safety
WEIGHTING
THRESHOLD
PERFORMANCE MEASURES
TARGET
STRETCH
28%
$755m1
$834m
$917m
7%
14%
7.8%1
A consistent reduction in:
> Lost Time Injuries Frequency
Rate (LTIFR),
> Medically Treated Injuries
Frequency Rate (MTIFR) and
> A consistent frequency of safety
interactions.
8.7%
10% improvement in LTIFR
20% improvement in MTIFR
Greater than one safety interaction
per employee per month.
9.6%
The achievement of what would be
considered a world-class reduction in
LTIFRs and MTIFRs and a significant
frequency of safety interactions.
Substantial transformation having
regard to specified milestones and
outcomes.
It is not sufficient to maintain the
number of LTIs and MTIs. It is a
minimum requirement that the
number of hours lost to injury and
the number of injuries are reduced.
Safety captures the need to continuously improve and maintain safety across all aspects of the Company.
Demonstrable transformation having
regard to specified milestones and
outcomes.
Transformation of Aurizon very quickly after the IPO from the characteristics typical of a long-standing public
sector organisation to an efficient, profitable, listed market leader has and continues to be a strategic imperative.
Performance is defined in terms of project and program completion (or milestone achievement) and benefits delivery
(or progression towards delivery for lengthy transformational projects). An assessment is then performed by the
Remuneration, Nomination & Succession Committee of the level of achievement in relation to each transformation
project, considering pre-determined levels of expected achievement.
For FY2014 the transformation performance hurdles included:
> Operational improvements
> Customer focus
> Specific commercial objectives
> Growth initiatives
> People initiatives
Transformation far exceeding the
target level.
Performance hurdles for the Executive KMP are established on an annual basis by the MD & CEO. In the case of the
MD & CEO the individual hurdles are established by the Chairman after consultation with the Board. For FY2014 the
MD & CEO’s individual performance parameters included:
> Measured operational improvement
> Capital management
> Management and organisational effectiveness
Similar criteria are devolved to other Executive KMP.
Transformation
21%
INDIVIDUAL
30%
TOTAL
100%
1 The EBIT Threshold was set above the prior year actual outcome while the ROIC Threshold took account of the volatility of return measures where future
capital outlays were uncertain. In any event, the Threshold level of performance for both EBIT and ROIC was not achieved due to the treatment of impairments
discussed elsewhere in this report. The Board has set more stringent Thresholds for FY2015 and has committed to continue to do so in future
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
35
5.2 STIA performance hurdles historical
FIGURE 6 – PERFORMANCE AGAINST STIA PERFORMANCE HURDLES1
outcomes
Figure 6 shows the historical performance of
Aurizon’s STIA performance measures from
FY2011 to FY2014.
A 13% improvement in Underlying EBIT and a
0.8ppt increase in return on invested capital were
achieved from FY2013 to FY2014.
During FY2014 Aurizon achieved safety
improvements of 71% and 49% in LTIFR and
MTIFR respectively.
Growth and transformational advances relevant to
the STIA during FY2014 include:
> A record 215 million tonnes hauled from mine
to port across the Central Queensland Coal
Network (previous record from FY2010, was
187mt);
> In excess of $129 million in transformation
benefits;
> Approvals gained and construction commenced
on the $150 million Hexham train support
facility in the Hunter Valley;
> A positive vote for Aurizon NSW Coal
Operations Enterprise Agreement 2014; and
> Development and commencement of the
implementation of the Integrated Operating
Plan to unlock the potential of our national
footprint within the coal, iron ore and
freight supply chains focussing on improved
productivity and customer performance.
Company Performance related to FY2014 STIA
performance measures is identified in Table 5:
Financial Year 2014 STIA performance outcomes
on page 36.
1
5
8
4
5
7
+13%
4
8
5
3
8
3
.
6
2
9
1
.
4
7
0
1
0
9
4
.
2
5
2
.
-49%
FY2011
FY2012
FY2013
FY2014
FY2011
FY2012
FY2013
FY2014
Underlying EBIT ($m)
Medically Treated Injury Frequency Rate
(per million man-hours worked)
8
0
3
.
0
4
2
.
5
9
0
.
8
2
0
.
-71%
8
8
.
0
8
.
7
6
.
4
4
.
+0.8ppt
FY2011
FY2012
FY2013
FY2014
FY2011
FY2012
FY2013
FY2014
Lost Time Injury Frequency Rate
(per million man-hours worked)
Return on Invested Capital (ROIC)
1 These are some of the hurdles for prior years. For future awards ROIC will be an LTIA performance hurdle
36
Directors’ Report (continued)
Remuneration Report
TABLE 5: FINANCIAL YEAR 2014 STIA PERFORMANCE OUTCOMES
PERFORMANCE
MEASURES
UNDERLYING EBIT
ROIC
SAFETY
Safety Interactions
MTIFR
LTIFR
TRANSFORMATION
Project completion,
benefit delivery &
capability
INDIVIDUAL
WEIGHTING
28%
7%
14%
30 JUNE 2014
PERFORMANCE
Target1
Target1
Stretch
30 JUNE 2013
30 JUNE 2012
30 JUNE 2011
PERFORMANCE OUTCOMES
$851m
8.8%
1.23 per employee
per month
$754m
8.0%
1.15 per employee
per month
$584m
6.7%
1.13 per employee
per month
$383m
4.4%
1.10 per employee
per month
21%
Target
2.52
0.28
Majority
completed
on-time, in full
4.90
0.95
Majority
completed
on-time, in full
10.74
2.4
Majority
completed
on-time, in full
19.26
3.08
Majority
completed
on-time, in full
30%
100%
Personal outcomes varied between Threshold and Stretch depending on performance against individual KPIs.
1 Whilst the target underlying EBIT and ROIC outcomes were exceeded, the Board decided not to recognise these results for remuneration purposes because of the
impairment charges announced in December 2013 and June 2014
5.3 STIA Awards for Financial Year 2014
TABLE 6 – FINANCIAL YEAR 2014 STIA OUTCOMES
NAME
EXECUTIVE KMP
L E Hockridge
M G Carter
J M Franczak
A Kummant
K Neate
M Neves De Moraes2
G P Pringle
R J Stephens
TARGET
STIA
($’000)
MAXIMUM
POTENTIAL
STIA
($’000)
ACTUAL FY2014 STIA ($’000)
CASH
COMPONENT
DEFERRED
SHARE
COMPONENT
TOTAL STIA
PAYMENT
% OF
TARGET
STIA
% OF
MAXIMUM
STIA1
1,950
563
750
630
548
563
459
459
2,925
844
1,125
945
821
956
689
689
1,306
363
491
407
344
NIL
288
291
326
91
123
101
86
NIL
71
73
1,632
454
614
508
430
NIL
359
364
84%
81%
82%
81%
79%
78%
79%
56%
54%
55%
54%
52%
Not Applicable
52%
53%
1 Executives have forfeited between 44% and 48% of their maximum potential outcome
2 M Neves De Moraes commenced in the role on 1 January 2014 & was ineligible to participate in the STIA for FY2014. He was awarded a sign-on bonus of
$563,000 on commencement of his contract
5.4 Changes to the STIA Framework from Financial Year 2015
The following changes will be made to the STIA framework from FY2015:
> ROIC will no longer be used as a STIA performance measure. The Committee has determined that ROIC as a performance measure is better aligned with
the LTIA, as the hurdle measures the generation of long term shareholder wealth;
> The ROIC measure will not be replaced by another performance measure and the weightings for the Company measures will be adjusted accordingly.
The STIA weightings for FY2015 will be Underlying EBIT 35%, Safety 17.5%, Transformation 17.5% and Individual measures 30%;
> As identified in the FY2013 Remuneration Report (Section 5.1.1 2013 Remuneration Framework Review, page 47), from FY2014 any STIA for the MD & CEO
and Executive KMP will have a portion awarded in rights to shares and deferred for a period of one year. In FY2015 this percentage will increase from 20%
to 40%. Apart from its general discretion, the Board will also have the ability to “claw-back” the deferred portion of the award under the STIA in the event of
material misstatement; and
> Given the importance of the transaction with Baosteel, the individual performance hurdles for the MD & CEO will include criteria relating to stakeholder relations.
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
37
6 Long Term Incentive Award
6.1 Terms of the LTIA
Shareholders provided significant feedback on many aspects of our long-term incentive arrangements following the “first strike”. Taking into account this feedback
and the outcome of an independent external review has resulted in substantial changes, which are described in section 6.5. The terms of both the 2013 and the
2014 LTIA are set out below:
What is the LTIA and who
participates?
How is the LTIA determined?
What happens when performance
rights vest?
What is the amount that
Executives can earn through
an LTIA?
What is the performance period?
What are the performance hurdles
for the 2013 LTIA?
(Performance Period
1 July 2013 – 30 June 2016)
The LTIA is the component of Total Potential Remuneration linked to providing long-term incentives for selected
Executives who the Board has identified as being able to contribute directly to the generation of long-term
shareholder returns. This includes the MD & CEO, Executive KMP, the direct reports to the Executive KMP and a small
number of other management employees.
The number of performance rights issued under the LTIA to each employee is calculated by dividing their respective
LTIA potential remuneration (expressed as a percentage of Fixed Remuneration) by the five day Volume Weighted
Average Price (VWAP) of Aurizon shares at the time of their award.
Each performance right is a right to receive one share in Aurizon upon vesting. The number of performance rights
that vest is determined by performance outcomes compared with predetermined hurdles, described below.
Performance rights awarded under the LTIA vest subject to the satisfaction of performance hurdles. Rights vest and
the resulting shares are transferred to the Executive at no cost to the Executive.
The maximum potential remuneration (expressed as a percentage of Fixed Remuneration) available through the
LTIA is 100% in the case of the MD & CEO and 75% for the remaining Executive KMP.
The performance hurdles for the LTIA are measured over a three year period. In the event that the performance
hurdle is not achieved, the performance period may be extended for a further year at the discretion of the Board.
In the event of a performance period extension, in order for any additional performance rights to vest on the later
date, Aurizon has to achieve stronger performance than that required for the original performance period in the
final year.
The performance hurdles for the 2013 LTIA are as follows:
OPERATING RATIO (OR)
OR improvement essentially measures the operating cost as a percentage of revenue. Aurizon is committed to
reducing OR through further implementation of transformation initiatives, growth initiatives and continued tight
operational and financial discipline.
The target OR in FY2016 of 73% is considered by the Board to be very challenging and the rate of improvement
may not be maintained in the longer-term.
Figure 7 shows Aurizon’s improvement in comparison to that achieved by the Class 1 Railroads in North America.
RELATIVE TOTAL SHAREHOLDER RETURN
The vesting of rights for relative TSR growth is conditional on Aurizon’s TSR performance relative to a peer group of
companies in the ASX100 index that are broadly comparable to Aurizon (i.e. with which Aurizon competes for capital
and / or talent). Accordingly, financial, medical, telecommunications, pharmaceutical, gaming and property trusts are
excluded from this group.
The relative TSR comparator group comprises approximately 65 companies.
TSR measures the growth in the price of shares plus cash distributions notionally reinvested in shares. The TSR of
Aurizon over the performance period will be compared to the TSR of all of the companies in the peer group which are
still listed at the end of the performance period.
The relevant share prices will be determined by reference to a VWAP over a period to smooth any short term “peaks”
or “troughs”. Relative TSR performance is monitored by an independent expert at the end of each financial year.
EARNINGS PER SHARE GROWTH
EPS is calculated by dividing Aurizon’s Net Profit After Tax (NPAT) by the weighted average number of ordinary
shares on issue during the relevant period. EPS growth measures the growth in earnings on a per share basis.
38
Directors’ Report (continued)
Remuneration Report
HURDLE
Operating Ratio Improvement
WEIGHTING
50%
PERFORMANCE PERIOD (1 JULY 2013 – 30 JUNE 2016)
MINIMUM VESTING POINT
50% of the rights will vest with
an OR of 75%
MAXIMUM VESTING POINT
100% of the rights will vest
with an OR of 73%
Relative TSR: against peer group
within ASX100 Index
25%
50% of the rights will vest at
the 50th percentile
100% of the rights will vest at
the 75th percentile
EPS
What are the performance hurdles
for the 2014 LTIA?
(Performance Period
1 July 2014 – 30 June 2017)
RETESTING
(1 JULY 2013 – 30 JUNE 2017)
50% of the rights will vest
with an OR of 73%, up to
100% at an OR of 71%
50% of the rights will vest
at the 50th percentile, up to
100% at the 75th percentile
50% of rights vest with an
average annual growth rate of
7.5%, up to 100% at 10%
25%
50% of rights vest with an
average annual growth rate of
7.5%
All rights will vest pro-rata on a straight-line basis between the
minimum and maximum vesting points
The performance hurdles for the 2014 LTIA are as follows:
100% of the rights at an
average annual growth rate
of 10%
100%
OPERATING RATIO
The target OR in FY2017 of 71.5%
RELATIVE TOTAL SHAREHOLDER RETURN
As described in the 2013 LTIA
RETURN ON INVESTED CAPITAL
ROIC, for the purposes of the LTIA, will be calculated on the same basis as the published ROIC except to the extent of
the differences explained in this section. Essentially, ROIC is Underlying EBIT (the “numerator”) divided by Invested
Capital (the “denominator”). A ROIC Minimum and Maximum will be set at the commencement of the performance
period with reference to the 3 year ROIC Forecast as set out in the annual, Board approved, Corporate Plan.
The Minimum will be set at the 3 year average in the Forecast and a result below Minimum will attract 0% vesting.
The Maximum will be set above the 3 year average in the forecast and a result at or above the Maximum will attract
100% vesting. A result between Minimum and Maximum will attract vesting on a straight line basis between 50%
and 100%. For the purposes of LTIA, invested capital will not include major (infrastructure investments with an
approved budgeted capital expenditure over $250m) assets under construction (AUC) until these investments are
planned to generate income, subject to Board discretion (for example, in the case of a delay judged to be outside the
control of management and not able to be foreseen or mitigated).
The award to be made in relation to the performance period 1 July 2014 to 30 June 2017 will have a Minimum of
10.5% average ROIC p.a. and a Maximum of 11.5% average ROIC p.a. The average ROIC has been adjusted to
exclude the Wiggins Island Rail Project currently under construction until it is planned to generate income (which is
expected to be during this performance period). During this performance period both the West Pilbara infrastructure
project and the Galilee infrastructure project are expected to commence and, in accordance with the methodology
set out above, will be excluded from the calculation of ROIC for remuneration purposes until they are planned to
produce income.
HURDLE
Operating Ratio Improvement
WEIGHTING
34%
PERFORMANCE PERIOD (1 JULY 2014 – 30 JUNE 2017)
MINIMUM VESTING POINT
50% of the rights will vest with
an OR of 73%
MAXIMUM VESTING POINT
100% of the rights will vest
with an OR of 71.5%
Relative TSR: against peer group
within ASX100 Index
ROIC
33%
33%
30% of the rights
will vest at the 50th
percentile1
50% of the rights will vest with
an average ROIC of 10.5%
75% of the rights
will vest at the
62.5th percentile
100% of the
rights will vest at
the 75th percentile
100% of the rights will vest
with an average ROIC of
11.5%
1 In previous years’ 50% of the rights vest at the 50th percentile
100%
All rights will vest pro-rata on a straight-line basis between the
minimum and maximum vesting points
RETESTING
(1 JULY 2014 – 30 JUNE 2018)
100% of the rights will vest
at or below an OR of 70%.
0% will vest with an OR
above 70%
100% of the rights will vest at
the 75th percentile. 0% will
vest below the 75th percentile
100% of the rights will vest
with an average ROIC of
12.5%. 0% of the rights will
vest below 12.5% ROIC
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
39
6.2 LTIA performance hurdle outcomes
Figure 8 and the following information relate to
the key performance measures which underpin
the LTIA.
Aurizon is driving the business to achieve
an Operating Ratio of 75% for FY2015 and
better in subsequent years. Delivering on this
achievement will require further implementation
of transformation initiatives, growth initiatives and
continued tight operational and financial discipline.
Since IPO, the Operating Ratio has been reduced
each year and in FY2014 was 77.7%.
FIGURE 7 – HISTORICAL OPERATING RATIO COMPARISON
100
90
80
70
60
FY
1996
FY
1997
FY
1998
FY
1999
FY
2000
FY
2001
FY
2002
FY
2003
FY
2004
FY
2005
FY
2006
FY
2007
FY
2008
FY
2009
FY
2010
FY
2011
FY
2012
FY
2013
FY
2014
Rest of Class 1 average
CN (leader in delivering gains)
CSX (largest shift of all class 1s)
Aurizon
> Aurizon’s financial year ends 30 June, while Class 1s financial year ends 31 December. Aurizon figure up
to 30 June 2014 financial year
> CN achieved a reduction from high 80’s to low 70’s in a 7–8 year period
> CSX achieved a reduction from high 80’s to low 70’s in a 5–6 year period
> Rest of Class 1’s consists of BNSF, UP, NS, KCS; in 1995–96 figures do not include figures from
SF pre-merger with BN to form BNSF
Source: Analysis of Class 1 Railroads (Association of American Railroads (AAR)) up to December 2013
FIGURE 8 – HISTORICAL FINANCIAL PERFORMANCE OF LTIA PERFORMANCE HURDLES1
.
0
8
8
.
4
3
8
.
8
9
7
.
7
7
7
-2.1ppt
.
8
9
1
.
1
8
1
.
4
5
1
.
8
1
1
-40%
.
3
5
2
.
0
3
2
-9%
.
2
0
2
3
1
.
FY2011
FY2012
FY2013
FY2014
FY2011
FY2012
FY2013
FY2014
FY2011
FY2012
FY2013
FY2014
Operating Ratio (%)
Earnings Per Share
Total Shareholder Return (%)
1 These are the hurdles for prior years. For future awards EPS is being replaced with ROIC
A key benefit for Aurizon shareholders is the share
price appreciation since IPO. Figure 9 shows the
movements in both the Aurizon share price and
ASX100 index value over the period from listing
date 22 November 2010 to 30 June 2014. The
diagram assumes that a shareholder starts with
an initial investment of $100 in Aurizon and the
ASX100 index and shows the change in the value
of that investment, based on changes in spare
price / index value over the period. For Aurizon, the
diagram assumes a starting price of $2.45, being
the initial retail share price at listing, and excludes
dividends and dividend reinvestment.
FIGURE 9 – SHARE PRICE GROWTH OF AZJ AND ASX100 INDEX (22 NOVEMBER 2010 TO 30 JUNE 2014)1
$220
$210
$200
$190
$180
$170
$160
$150
$140
$130
$120
$110
$100
$90
$80
$203
$119
NOV
2010
MAR
2011
JUL
2011
NOV
2011
MAR
2012
JUL
2012
NOV
2012
MAR
2013
JUL
2013
NOV
2013
MAR
2014
JUL
2012
AZJ
ASX100 Index
Assumes AZJ day 1 starting share price for retail investors of $2.45
1 The diagram excludes the value that would have been received from dividend payments during the
year and is not equivalent to TSR
NOV
2012
40
Directors’ Report (continued)
Remuneration Report
Performance related to the historical LTIA as at 30 June 2014 is identified in Table 7: Company Performance against LTIA Performance Hurdles.
TABLE 7: COMPANY PERFORMANCE AGAINST LTIA PERFORMANCE HURDLES
PERFORMANCE HURDLE AND PERFORMANCE MEASUREMENT PERIOD
WEIGHTING RESULT % VESTED
IPO (2010) AWARD: 1 JULY 2010 – 30 JUNE 2013 (EPS) & 22 NOVEMBER 2010 – 22 NOVEMBER 2013 (RELATIVE TSR)
EPS: IPO Offer Document
FY2010 and FY2011 EBIT plus
EPS growth from FY2012 –
FY2013
Relative TSR: against peer
group within ASX100 Index
50% of rights vest with an EPS growth rate of 7.5%,
up to 100% at an EPS growth rate of 10% (with
rights vesting pro-rata on a straight-line basis)
50% of rights vest at the 50th percentile, up to 100%
at the 75th percentile (with rights vesting pro-rata on
a straight-line basis)
Top
Quartile
100%
9.4%
50%
92%
50%
% FOR
RETESTING1 % LAPSED
Not
applicable
8%
2011 AWARD: 1 JULY 2011 – 30 JUNE 2014
EPS: IPO Offer Document
FY2011 EBIT plus average
annual EPS growth from
FY2012 – FY2014
50% of the rights vest with an average annual growth
rate of 7.5%, up to 100% at an average annual
growth rate of 10% (with rights vesting pro-rata on a
straight-line basis).
FY2012 to FY2014 EPS growth was negative due to
the impairment charges announced in December
2013 and June 2014
50% of rights vest at the 50th percentile, up to 100%
at the 75th percentile (with rights vesting pro-rata on
a straight-line basis)
50% of rights will vest with a FY2015 OR of 79.5%,
up to 100% at 75% (with rights vesting pro-rata on a
straight-line basis)
50% of rights vest with an average annual growth
rate of 7.5%, up to 100% at an average annual
growth rate of 10% (with rights vesting pro-rata on a
straight-line basis)
50% of rights vest at the 50th percentile, up to 100%
at the 75th percentile (with rights vesting pro-rata on
a straight-line basis)
50% of rights will vest with a FY2016 OR of 75%, up
to 100% at 73% (with rights vesting pro-rata on a
straight-line basis)
50% of rights vest with an average annual growth
rate of 7.5%, up to 100% at an average annual
growth rate of 10% (with rights vesting pro-rata on a
straight-line basis)
50% of rights vest at the 50th percentile, up to 100%
at the 75th percentile (with rights vesting pro-rata on
a straight-line basis)
50% of rights will vest with a FY2017 OR of 73%, up
to 100% at 71.5% (with rights vesting pro-rata on a
straight-line basis)
30% of rights vest at the 50th percentile, 75% at
the 62.5th percentile, up to 100% of at the 75th
percentile (with rights vesting pro-rata on a straight-
line basis)
50% of the rights will vest with an average ROIC of
10.5%, up to 100% with an average ROIC of 11.5%
(with rights vesting pro-rata on a straight-line basis)
Relative TSR: against peer
group within ASX100 Index
2012 AWARD: 1 JULY 2012 – 30 JUNE 2015
Operating Ratio
Improvement2
EPS: Average annual EPS
growth from FY2012 – FY2015
Relative TSR: against peer
group within ASX100 Index
2013 AWARD: 1 JULY 2013 – 30 JUNE 2016
Operating Ratio
Improvement2
EPS: Average annual EPS
growth from FY2013 – FY2016
Relative TSR: against peer
group within ASX100 Index
2014 AWARD: 1 JULY 2014 – 30 JUNE 2017
Operating Ratio
Improvement2
Relative TSR: against peer
group within ASX100 Index
ROIC
50%
-17.4%
0%
100% of this
component
will be
retested
in 2015
50%
Top
Quartile
100%
33%
33%
33%
50%
25%
25%
34%
33%
33%
1 Effective for all LTIs granted from 1 July 2014, where the performance conditions for the respective LTIA is not met by year 3, the LTIA is subject to retest in the
fourth year at the discretion of the Board. Prior to 2014, the retest for LTIA grants before 1 July 2014 was not at the discretion of the Board as previously disclosed
and no such discretion was previously made
2 The Operating Ratio improvement hurdle is measured against the ratio calculated by including any diesel fuel rebate in revenue
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
41
6.3 Changes to the LTIA Framework
from Financial Year 2015
The following changes will be made to the LTIA
framework from FY2015:
> EPS growth will no longer be used as an LTIA
performance hurdle and will be replaced by
ROIC. The Board is of the view that the OR
hurdle sufficiently focuses on operational
efficiency and profit maximisation and that
the EPS growth hurdle does not provide
significant additional motivation to the
Executive team. ROIC, which has previously
been part of our STIA program, will replace
EPS. This performance measure focuses on the
generation of superior returns from the capital
that we have invested in the business and
should strongly align with the generation of
long term shareholder wealth;
> Thus, the LTIA performance measures will be
changed to OR 34%, Relative TSR 33% and
ROIC 33%, reflecting the equal emphasis on
ROIC and OR over the next three years as we
approach our target of world class operating
efficiency;
> For the Relative TSR component of LTIA, 30%
will vest at median TSR ranking, down from
50% previously. This change has been made to
reflect that median performance (i.e. requiring
outperformance of half of comparator group)
is a threshold level of performance and should
result in a threshold level of vesting, with
larger rewards reserved for progressively better
performance; and
> Any vesting and retesting relating to the
performance period 1 July 2014 to 30 June
2017 and subsequent awards will be at
the discretion of the Board having regard
to performance against the performance
conditions.
42
Directors’ Report (continued)
Remuneration Report
7 Executive Remuneration Financial Year 2014
Details of the remuneration paid to Executives are set out below:
TABLE 8 –EXECUTIVE REMUNERATION
SHORT-TERM EMPLOYEE BENEFITS
CASH SALARY
AND FEES
$’000
CASH BONUS1
$’000
NON-
MONETARY
BENEFITS2
$’000
POST-
EMPLOYMENT
BENEFITS
OTHER
$’0003
SUPER-
ANNUATION
$’000
LONG-TERM BENEFITS
LONG-
SERVICE
LEAVE
$’000
TERMINATION
BENEFITS
$’000
PROPORTION OF
COMPENSATION
PERFORMANCE
RELATED
REMUNERATION
CONSISTING
OF RIGHTS FOR
THE YEAR
TOTAL
$’000
%
(C+H / I)
%
(H / I)
NAME
YEAR
EXECUTIVE KMP
L E Hockridge
2014
2013
M G Carter
2014
2013
J M Franczak5 2014
2013
A Kummant6
K Neate7
M Neves
De Moraes8
G P Pringle
R J Stephens
K R Lewsey9
G Robinson10
P Scurrah11
Total
Executive KMP
compensation
(group)
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
A
1,915
1,927
626
622
1,000
242
781
586
705
387
369
-
587
585
594
593
413
722
209
548
370
813
B
1,306
2,505
363
725
491
750
407
750
344
563
-
-
288
575
291
575
-
703
-
575
-
825
7,569
7,025
3,490
8,546
C
200
205
(16)
64
29
33
141
69
21
21
30
-
(30)
14
32
(44)
(27)
17
(45)
8
(89)
8
246
395
D
-
-
-
-
-
430
129
150
-
-
563
-
-
-
-
-
-
-
-
-
-
-
E
35
17
124
126
-
-
18
12
25
15
-
-
25
25
18
17
9
25
9
25
6
17
692
580
269
279
F
99
129
52
57
7
2
6
4
21
8
3
-
17
12
24
21
(70)
33
(15)
9
(81)
46
63
321
EQUITY-
SETTLED
SHARE-
BASED
PAYMENTS
RIGHTS4
$’000
H
1,566
1,327
463
360
1,253
242
482
782
325
106
725
-
390
319
390
319
154
379
85
211
13
292
G
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
719
-
494
-
63
-
I
5,121
6,110
1,612
1,954
2,780
1,699
1,964
2,353
1,441
1,100
1,690
-
1,277
1,530
1,349
1,481
1,198
1,879
737
1,376
282
2,001
1,276
-
5,846
4,337
19,451
21,483
J
56
63
51
56
63
58
45
65
46
61
43
-
53
58
50
60
13
58
12
57
5
56
48
60
K
31
22
29
18
45
14
25
33
23
10
43
-
31
21
29
22
13
20
12
15
5
15
30
20
1
2
3
The short-term incentives (cash bonus) and
deferred short-term incentives and long-
term incentives (equity-settled share-based
payments) represent the at risk performance-
related remuneration. Cash bonus for FY2014
represents 80% STIA award
Non-monetary benefits represent the value of
Reportable Fringe Benefits for the respective
Fringe Benefits Tax year ending 31 March,
the estimated value of car parking provided,
motor vehicle lease payments and annual leave
accrued or utilised during the financial year
Other short-term employee benefits include sign
on bonus and relocation assistance
4
The value of rights granted in the year is the
fair value independently calculated at grant
date using an expected outcome model.
This was consistent with the Monte-Carlo
simulation conducted in the prior year and
resulted in similar outcomes. This amount is
progressively expensed over the vesting period.
Refer to Note 35 for further details regarding
the fair value of Rights. These values may not
represent the future value that the Executive
will receive, as the vesting of the Rights is
subject to the achievement of performance
conditions. Share rights for FY2014 includes
10% of deferred STIA expensed in FY2014.
The remaining 10% of the deferred STIA will
be expensed in FY2015
5
6
7
8
9
J M Franczak commenced in the role
3 April 2013. The 2013 remuneration has been
restated to include $73,000 performance rights
A Kummant commenced in the role
8 October 2012
K Neate commenced acting in the role
19 November 2012, confirmed in the role
8 April 2013
M Neves De Moraes commenced in the role
1 January 2014
K R Lewsey ceased in the role on
31 October 2013
10 G Robinson ceased in the role on
31 October 2013
11 P Scurrah ceased in the role on 31 October 2013
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
43
TABLE 9 – RIGHTS GRANTED AS COMPENSATION
NAME
DATE
GRANTED
INCENTIVE
PLAN
BALANCE AT
BEGINNING
OF YEAR
RIGHTS
AWARDED
DURING THE
YEAR
EXERCISED
DURING THE
YEAR
FORFEITED
IN YEAR
BALANCE
AT END OF
YEAR
FAIR
VALUE
PER
RIGHT
AT
GRANT
DATE
EXERCISE
PRICE
VESTED
IN YEAR
FORFEITED
IN YEAR
VALUE OF
RIGHTS
GRANTED
IN YEAR1
VALUE OF
RIGHTS
FORFEITED
IN YEAR
DATE ON
WHICH
GRANT
VESTS
EXPIRY DATE
NO.
NO.
NO.
NO.
NO.
$
$
%
%
$’000
$’000
L E
Hockridge
1-Dec-10
LTIAD - EPS
333,333
1-Dec-10
LTIAD - TSR
333,333
22-Aug-11 LTIAD - EPS
247,093
22-Aug-11 LTIAD - TSR
247,093
23-Aug-12 LTIAD - EPS
194,030
23-Aug-12 LTIAD - TSR
194,030
23-Aug-12 LTIAD - OR
194,030
-
-
-
-
-
-
-
16-Aug-13 LTIAD - TSR
16-Aug-13 LTIAD - EPS
16-Aug-13 LTIAD - OR
-
-
-
108,093
108,093
216,187
J M
Franczak
4-Apr-13
Retention
4-Apr-13
Retention
4-Apr-13
LTIAD - EPS
4-Apr-13
LTIAD - TSR
4-Apr-13
LTIAD - OR
16-Aug-13 LTIAD - TSR
16-Aug-13 LTIAD - EPS
16-Aug-13 LTIAD - OR
100,000
100,000
74,626
74,627
74,627
-
-
-
-
-
-
-
-
41,574
41,574
83,150
A
Kummant
9-Oct-12
Retention
100,000
23-Aug-12 LTIAD - EPS
23-Aug-12 LTIAD - TSR
23-Aug-12 LTIAD - OR
16-Aug-13 LTIAD - TSR
16-Aug-13 LTIAD - EPS
16-Aug-13 LTIAD - OR
62,686
62,686
62,687
-
-
-
-
-
-
-
34,922
34,922
69,846
-
-
-
-
-
-
-
30,349
30,349
60,699
K Neate
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
23-Aug-12 LTIAD - EPS
23-Aug-12 LTIAD - TSR
23-Aug-12 LTIAD - OR
10-Oct-12
STIAD
10-Oct-12
STIAD
16-Aug-13 LTIAD - TSR
16-Aug-13 LTIAD - EPS
16-Aug-13 LTIAD - OR
1-Jan-14
Retention
1-Jan-14
Retention
1-Jan-14
Retention
1-Jan-14
LTIAD - TSR
1-Jan-14
LTIAD - EPS
1-Jan-14
LTIAD - OR
M Neves
De Moraes
29,070
29,070
31,051
31,051
31,050
16,567
16,567
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(100,000)
-
-
-
-
-
-
-
-
-
-
-
(16,567)
-
-
-
-
75,000
(75,000)
75,000
75,000
31,180
31,181
62,361
-
-
-
-
-
(306,666)
(26,667)
- 1.14
4.75
92.00
8.00
(333,333)
-
- 0.94
4.75 100.00
-
-
-
-
-
-
-
-
- 247,093 2.93
- 247,093 1.28
- 194,030 3.29
- 194,030 2.06
- 194,030 3.29
- 108,093 2.78
- 108,093 4.07
- 216,187 4.07
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(100,000)
-
- 4.01
4.77 100.00
-
-
-
-
-
-
-
301
439
879
-
-
-
-
-
116
169
338
-
-
-
-
97
142
284
-
-
-
-
-
-
-
84
123
247
359
367
367
104
135
269
30 22-Nov-13 31-Dec-14
- 22-Nov-13 31-Dec-14
- 22-Aug-14 31-Dec-15
- 22-Aug-14 31-Dec-15
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 28-Jan-14 28-Jan-14
- 28-Jan-15 28-Jan-15
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 9-Oct-13
9-Oct-13
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 22-Aug-14 31-Dec-15
- 22-Aug-14 31-Dec-15
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 10-Oct-13 10-Oct-13
- 10-Oct-14 10-Oct-14
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 28-Feb-14 1-Jan-17
- 1-Jan-15
1-Jan-17
- 1-Jan-16
1-Jan-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 100,000 4.01
74,626 3.57
74,627 2.59
74,627 3.57
41,574 2.78
41,574 4.07
83,150 4.07
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 3.53
4.69 100.00
62,686 3.29
62,686 2.06
62,687 3.29
34,922 2.78
34,922 4.07
69,846 4.07
29,070 2.93
29,070 1.28
31,051 3.29
31,051 2.06
31,050 3.29
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 3.54
4.70 100.00
16,567 3.46
-
30,349 2.78
30,349 4.07
60,699 4.07
-
-
-
-
-
-
-
- 4.78
4.78 100.00
75,000 4.89
75,000 4.89
31,180 3.34
31,181 4.32
62,361 4.32
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
44
Directors’ Report (continued)
Remuneration Report
RIGHTS
AWARDED
DURING THE
YEAR
EXERCISED
DURING THE
YEAR
FORFEITED
IN YEAR
BALANCE
AT END OF
YEAR
FAIR
VALUE
PER
RIGHT
AT
GRANT
DATE
EXERCISE
PRICE
VESTED
IN YEAR
FORFEITED
IN YEAR
VALUE OF
RIGHTS
GRANTED
IN YEAR1
VALUE OF
RIGHTS
FORFEITED
IN YEAR
DATE ON
WHICH
GRANT
VESTS
EXPIRY DATE
NAME
DATE
GRANTED
INCENTIVE
PLAN
BALANCE AT
BEGINNING
OF YEAR
NO.
M G Carter 22-Nov-10 LTIAD - EPS
58,824
22-Nov-10 LTIAD - TSR
58,824
22-Aug-11 LTIAD - EPS
45,785
22-Aug-11 LTIAD - TSR
45,785
23-Aug-12 LTIAD - EPS
55,970
23-Aug-12 LTIAD - TSR
55,970
55,970
25,618
27,985
27,985
23-Aug-12 LTIAD - OR
28-Sep-11
STIAD
10-Oct-12
STIAD
10-Oct-12
STIAD
16-Aug-13 LTIAD - TSR
16-Aug-13 LTIAD - EPS
16-Aug-13 LTIAD - OR
-
-
-
31,180
31,180
62,363
G P Pringle 22-Nov-10 LTIAD - EPS
53,922
22-Nov-10 LTIAD - TSR
53,922
22-Aug-11 LTIAD - EPS
41,969
22-Aug-11 LTIAD - TSR
41,969
23-Aug-12 LTIAD - EPS
45,672
23-Aug-12 LTIAD - TSR
45,672
45,672
25,436
25,746
25,746
23-Aug-12 LTIAD - OR
28-Sep-11
STIAD
10-Oct-12
STIAD
10-Oct-12
STIAD
16-Aug-13 LTIAD - TSR
16-Aug-13 LTIAD - EPS
16-Aug-13 LTIAD - OR
-
-
-
25,443
25,443
50,888
R J
Stephens
22-Nov-10 LTIAD - EPS
53,922
22-Nov-10 LTIAD - TSR
53,922
22-Aug-11 LTIAD - EPS
41,969
22-Aug-11 LTIAD - TSR
41,969
23-Aug-12 LTIAD - EPS
45,672
23-Aug-12 LTIAD - TSR
45,672
45,672
25,436
25,746
25,746
23-Aug-12 LTIAD - OR
28-Sep-11
STIAD
10-Oct-12
STIAD
10-Oct-12
STIAD
16-Aug-13 LTIAD - TSR
16-Aug-13 LTIAD - EPS
16-Aug-13 LTIAD - OR
-
-
-
25,443
25,443
50,888
NO.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NO.
NO.
NO.
$
$
%
%
$’000
$’000
(54,118)
(4,706)
- 1.14
4.75 92.00
8.00
(58,824)
-
-
-
-
-
(25,618)
(27,985)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 0.94
4.75 100.00
45,785 2.93
45,785 1.28
55,970 3.29
55,970 2.06
55,970 3.29
-
-
-
-
-
-
-
-
-
-
- 2.99
4.69 100.00
- 3.54
4.70 100.00
27,985 3.46
31,180 2.78
31,180 4.07
62,363 4.07
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(49,608)
(4,314)
- 1.14
4.75
92.00
8.00
(53,922)
-
-
-
-
-
(25,436)
(25,746)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 0.94
4.75 100 .00
41,969 2.93
41,969 1.28
45,672 3.29
45,672 2.06
45,672 3.29
-
-
-
-
-
-
-
-
-
-
- 2.99
4.69 100.00
- 3.54
4.70 100.00
25,746 3.46
25,443 2.78
25,443 4.07
50,888 4.07
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(49,608)
(4,314)
- 1.14
4.75
92.00
8.00
(53,922)
-
-
-
-
-
(25,436)
(25,746)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 0.94
4.75 100.00
41,969 2.93
41,969 1.28
45,672 3.29
45,672 2.06
45,672 3.29
-
-
-
-
-
-
-
-
-
-
- 2.99
4.69 100.00
- 3.54
4.70 100.00
25,746 3.46
25,443 2.78
25,443 4.07
50,888 4.07
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
87
127
254
-
-
-
-
-
-
-
-
-
-
71
103
207
-
-
-
-
-
-
-
-
-
-
71
103
207
5 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
- 22-Aug-14 31-Dec-15
- 22-Aug-14 31-Dec-15
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 28-Sep-13 1-Oct-14
- 10-Oct-13
10-Oct-13
- 10-Oct-14
10-Oct-14
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
5 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
- 22-Aug-14 31-Dec-15
- 22-Aug-14 31-Dec-15
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 28-Sep-13 1-Oct-14
- 10-Oct-13
10-Oct-13
- 10-Oct-14
10-Oct-14
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
5 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
- 22-Aug-14 31-Dec-15
- 22-Aug-14 31-Dec-15
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 23-Aug-15 31-Dec-16
- 28-Sep-13 1-Oct-14
- 10-Oct-13
10-Oct-13
- 10-Oct-14
10-Oct-14
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
- 16-Aug-16 31-Dec-17
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
45
NAME
DATE
GRANTED
INCENTIVE
PLAN
BALANCE AT
BEGINNING
OF YEAR
RIGHTS
AWARDED
DURING THE
YEAR
EXERCISED
DURING THE
YEAR
FORFEITED
IN YEAR
BALANCE
AT END OF
YEAR
FAIR
VALUE
PER
RIGHT
AT
GRANT
DATE
EXERCISE
PRICE
VESTED
IN YEAR
FORFEITED
IN YEAR
VALUE OF
RIGHTS
GRANTED
IN YEAR1
VALUE OF
RIGHTS
FORFEITED
IN YEAR
DATE ON
WHICH
GRANT
VESTS
EXPIRY DATE
NO.
NO.
NO.
NO.
NO.
$
$
%
%
$’000
$’000
FORMER EXECUTIVE
G
Robinson
22-Aug-11 LTIAD - EPS
22-Aug-11 LTIAD - TSR
23-Aug-12 LTIAD - EPS
17,442
17,442
45,672
23-Aug-12 LTIAD - TSR
45,672
23-Aug-12 LTIAD - OR
10-Oct-12
STIAD
10-Oct-12
STIAD
P Scurrah
23-Aug-12 LTIAD - EPS
45,672
25,373
25,373
62,090
23-Aug-12 LTIAD - TSR
62,090
23-Aug-12 LTIAD - OR
10-Oct-12
STIAD
10-Oct-12
STIAD
K R Lewsey 22-Nov-10 LTIAD - EPS
62,090
29,851
29,851
63,725
22-Nov-10 LTIAD - TSR
63,725
22-Aug-11 LTIAD - EPS
49,600
22-Aug-11 LTIAD - TSR
49,600
23-Aug-12 LTIAD - EPS
55,970
23-Aug-12 LTIAD - TSR
55,970
23-Aug-12 LTIAD - OR
28-Sep-11
STIAD
10-Oct-12
STIAD
10-Oct-12
STIAD
55,970
29,615
29,851
29,851
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(3,837)
13,605 2.93
(3,837)
13,605 1.28
(25,576)
20,096 3.29
(25,576)
20,096 2.06
(25,576)
20,096 3.29
-
-
-
-
-
-
-
-
-
-
22.00
22.00
56.00
56.00
56.00
(25,373)
-
- 3.54
4.70 100.00
-
-
-
-
-
(25,373)
(62,090)
(62,090)
(62,090)
- 3.46
- 3.29
- 2.06
- 3.29
-
-
-
-
- 100.00
- 100.00
- 100.00
- 100.00
(29,851)
-
- 3.54
4.70 100.00
-
-
(29,851)
- 3.46
-
- 100.00
(58,627)
(5,098)
- 1.14
4.75
92.00
8.00
(63,725)
-
- 0.94
4.75 100.00
-
-
-
-
-
-
(10,912)
38,688 2.93
(10,912)
38,688 1.28
(31,343)
24,627 3.29
(31,343)
24,627 2.06
(31,343)
24,627 3.29
-
-
-
-
-
-
-
-
-
-
(29,615)
(29,851)
-
-
- 2.99
4.69 100.00
- 3.54
4.70 100.00
22.00
22.00
56.00
56.00
56.00
-
-
-
(29,851)
- 3.46
-
- 100.00
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11 22-Aug-14 31-Dec-15
5 22-Aug-14 31-Dec-15
84 23-Aug-15 31-Dec-16
53 23-Aug-15 31-Dec-16
84 23-Aug-15 31-Dec-16
- 10-Oct-13
10-Oct-13
88 10-Oct-14
10-Oct-14
204 23-Aug-15 31-Dec-16
128 23-Aug-15 31-Dec-16
204 23-Aug-15 31-Dec-16
- 10-Oct-13
10-Oct-13
103 10-Oct-14
10-Oct-14
6 30-Sep-13 31-Dec-14
- 22-Nov-13 31-Dec-14
32 22-Aug-14 31-Dec-15
14 22-Aug-14 31-Dec-15
103 23-Aug-15 31-Dec-16
65 23-Aug-15 31-Dec-16
103 23-Aug-15 31-Dec-16
- 28-Sep-13 1-Oct-14
- 10-Oct-13
10-Oct-13
103 10-Oct-14
10-Oct-14
Total2
4,861,970 1,537,751 (1,644,577) (516,699) 4,238,445
6,050
1,435
1 The value of Rights granted in the year is the fair value independently calculated at grant date using an expected outcome model, this was consistent with the
Monte-Carlo simulation conducted in the prior year and resulted in similar outcomes. This amount is progressively expensed over the vesting period
2 At 30 June 2014 no Rights had vested that had not yet been exercised. For the KMP identified above the total value of Rights granted but yet to vest is
$13.2 million
46
Directors’ Report (continued)
Remuneration Report
8 Executive Service Agreements
8.1 Executive Service Agreements
Remuneration and other terms of employment for the MD & CEO and Executives are formalised in a Service Agreement as summarised below.
TABLE 10 – SERVICE AGREEMENT SUMMARY
EXECUTIVE KMP
L E Hockridge
M G Carter
J M Franczak
A Kummant
K Neate
M Neves De Moraes
G P Pringle
R J Stephens
DURATION OF
SERVICE AGREEMENT
FIXED REMUNERATION
AT END OF FINANCIAL
YEAR 20141
NOTICE PERIOD2
BY EXECUTIVE
BY COMPANY3
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
$1,950,000
$ 750,000
$1,000,000
$ 840,000
$ 730,000
$ 750,000
$ 612,000
$ 612,000
6 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
12 months
6 months
12 months
12 months
6 months
6 months
6 months
6 months
1 Fixed remuneration includes a superannuation component
2 Post employment restraint in any competitor business in Australia is aligned to the notice period
3 Any termination payment (notice and severance) will be subject to compliance with the Corporations Act and will not exceed 12 months
8.2 Minimum shareholding policy for Executives
To align Directors and Executives with shareholders, the Company requires that Directors and Executives accumulate share ownership, which requires:
> Non-Executive Directors to accumulate and maintain one year’s Directors’ fees worth of shares in the Company;
> the MD & CEO to accumulate and maintain one year’s Fixed Remuneration of shares in the Company; and
> the remaining Executives to accumulate and maintain 50% of one year’s Fixed Remuneration of shares in the Company.
This is to be achieved within six years of the date of listing of the Company or their appointment (whichever is the later). This will be calculated with reference to
the Directors’ fees/Executives’ Total Fixed Remuneration during the period divided by the number of years. Details of KMP shareholdings as at 30 June 2014 are set
out in Table 11, on the following page.
ANNUAL REPORT 2013–14
DIRECTORS’ REPORT | AURIZON
47
TABLE 11 – KMP SHAREHOLDINGS AS AT 30 JUNE 2014
NAME
NON-EXECUTIVE DIRECTORS
J B Prescott AC
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO
A J P Staines
G T Tilbrook
P Zito1
EXECUTIVES
L E Hockridge
M G Carter
J M Franczak
A Kummant
K Neate
M Neves De Moraes2
G P Pringle
R J Stephens
BALANCE AT THE
START OF THE YEAR
‘000
RECEIVED DURING
THE YEAR ON
VESTING
‘000
OTHER CHANGES
DURING THE YEAR
‘000
BALANCE AT THE END
OF THE YEAR
‘000
215
35
82
20
14
57
14
49
-
872
88
-
100
20
-
56
120
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
640
167
100
100
17
75
155
155
6
-
-
20
-
-
-
-
-
(315)
-
-
-
-
-
-
(173)
221
35
82
40
14
57
14
49
-
1,197
255
100
200
37
75
211
102
1 P Zito was appointed a Director on 1 December 2013
2 M Neves De Moraes commenced in the role on 1 January 2014
8.3 Hedging and margin lending policies
Aurizon has in place a policy that prohibits Executives from hedging economic exposure to unvested Rights that have been issued pursuant to a Company
employee share plan. The policy also prohibits margin loan arrangements for the purpose of purchasing Aurizon shares. Adherence to this policy is monitored
regularly and involves each Executive signing an annual declaration of compliance with the policy.
9 Non-Executive Director Remuneration
9.1 Non-Executive Director remuneration policy
Overview of policy
Aggregate fees approved
by shareholders
How are individual fees
determined?
Fees for Non-Executive Directors are set at a level to attract and retain Directors with the necessary skills and
experience to allow the Board to have a proper understanding of and competence to deal with, current and emerging
issues for Aurizon.
The Directors’ Fee is a composite fee and covers all responsibilities of the respective members including Board and
Committee duties. The Fee is also a total fee in that it covers both cash and any contributions to a fund for the
purposes of superannuation benefits. There are no other retirement benefits in place for Non-Executive Directors.
Non-Executive Directors do not receive performance-based pay.
$2.5 million.
The cap does not include remuneration for performing additional or special duties for Aurizon at the request of the
Board or reasonable travelling, accommodation and other expenses of Directors in attending meetings and carrying
out their duties.
Within the aggregate cap, remuneration for Non-Executive Directors is reviewed by the Committee and set by the
Board, taking into account recommendations from an external expert.
Fees and payments to Non-Executive Directors are reviewed annually by the Board and reflect the demands which
are made on, and the responsibilities of, the Directors.
The Chairman’s fees are determined independently to the fees of Non-Executive Directors, based on comparative
roles in the external market. The Chairman is not present at any discussions relating to the determination of his own
remuneration.
48
Directors’ Report (continued)
Remuneration Report
9.2 Non-Executive Directors’ Fees
The current annual base fees for the Non-Executive Directors are set out in Table 12 – Directors’ Fees. There has been no increase applied to the Directors’ fees
since 1 July 2012.
TABLE 12 – DIRECTORS’ FEES
DIRECTORS
Chairman
Other Non-Executive Directors
TERM
Directors fees (inclusive of all responsibilities and superannuation)
Directors fees (inclusive of all responsibilities and superannuation)
SERVICE AGREEMENT SUMMARY
$475,000
$190,000
9.3 Actual Remuneration Outcomes for Non-Executive Directors
The remuneration for the Non-Executive Directors of the Company is summarised below.
TABLE 13 – NON-EXECUTIVE DIRECTORS’ REMUNERATION
NON-EXECUTIVE DIRECTORS
J B Prescott AC
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO
A J P Staines
G T Tilbrook
P Zito2
Total
YEAR
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
2014
2013
SHORT-TERM EMPLOYEE BENEFITS
SALARY AND FEES
$’000
447
457
NON-MONETARY
BENEFITS
$’0001
4
6
POST-EMPLOYMENT
BENEFITS
SUPERANNUATION
$’000
28
16
TOTAL
REMUNERATION
$’000
479
479
174
174
174
174
174
174
174
174
174
174
174
174
174
174
72
-
1,737
1,675
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
6
16
16
16
16
16
16
16
16
16
16
16
16
16
16
38
-
178
128
190
190
190
190
190
190
190
190
190
190
190
190
190
190
110
-
1,919
1,809
1 Non-monetary benefits represent the value of Reportable Fringe Benefits for the respective Fringe Benefits Tax year ending 31 March, the estimated value of car
parking provided
2 P Zito was appointed a Director on 1 December 2013
ANNUAL REPORT 2013–14 DIRECTORS’ REPORT | AURIZON
49
AUDITOR’S INDEPENDENCE DECLARATION
As lead auditor for the audit of Aurizon Holdings Limited for the year ended 30 June 2014, I declare that to
the best of my knowledge and belief, there have been:
a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation
to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Aurizon Holdings Limited and the entities it controlled during the period.
John Yeoman
Partner
PricewaterhouseCoopers
Brisbane
18 August 2014
PricewaterhouseCoopers, ABN 52 780 433 757
Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
50
Sustainability
“Sustainability is one of our
biggest challenges moving
forward and also one of the
biggest opportunities for our
Company. In recognising this,
Aurizon is now taking steps
to embed sustainability within
our wider business strategy
and operations.”
Sustainability Journey –
Moving towards World Class
As Australia’s largest private railroad operator,
we are serious about responsibly managing our
economic, social and environmental impacts,
and building a pathway to a long-term and
sustainable business.
Aurizon is both a freight operating and
infrastructure development company. In our
operations, we continue to make progress on a
number of sustainability issues, including our
safety performance, our operational efficiency and
environmental management. A key element of
our approach is the ongoing reduction in resource
use across all of our operations with a strong focus
on longer trains, higher-density trains, increased
reliability and improved average train velocity.
In infrastructure development, we aim to
incorporate best practice principles into our project
design and management, including a commitment
to quality and value and the minimisation of
safety and environmental risks.
In addition to continuing the improvement
in operations and development, Aurizon also
recognises the need to formally embed
broader sustainability objectives into our
corporate strategy.
Specific steps have been taken to strengthen
the governance of sustainability in the
Company consistent with the recent inclusion
of Recommendation 7.4 of the Corporate
Governance Principles. During FY2014, Aurizon
appointed a Vice President Sustainability and
established a steering committee to help define
and drive our sustainability approach to a new
level, including broader sustainability reporting
and disclosures in line with the ASX Listing Rule
requirements. The Vice President Sustainability
reports to the Executive Vice President Commercial
& Marketing and with oversight from the MD &
CEO and Aurizon Holdings Board, is developing an
Aurizon sustainability framework and reporting
process in compliance with the ASX Listing Rule
requirements.
Aurizon has adopted the 3rd edition of the
Corporate Governance Principles. While there
has been insufficient time since adoption of the
Corporate Governance Principles to fully identify
the material economic, environmental and
social sustainability risks we face, Aurizon has set
appropriate benchmarks against which we will
measure and report FY2014 performance.
Aurizon will prepare its inaugural sustainability
report in accordance with the Global Reporting
Initiative’s (GRI) Sustainability Reporting
Guidelines (G4 Reporting Guidelines) prior to
the end of FY2015. Aurizon will report, for the
first time on its sustainability performance and
management of the Company’s material priorities.
IDENTIFICATION
Research, analysis and review of information to
establish a list of material sustainability priorities
relevant to Aurizon including:
> stakeholder engagement and feedback
> strategic and operational risk assessments
> media reviews; and
> emerging challenges identified by
international bodies.
The outcome was the development of an initial
list of material sustainability priorities for
discussion with internal stakeholders.
PRIORITISATION
Consultation and review through workshops with
key internal stakeholders, including investor
relations, strategy, operations, health and safety,
human resources and enterprise risk services
representatives. This includes ranking priorities in
order of greatest impact to the business and to
stakeholders.
The prioritisation process is ongoing and will be
discussed in the inaugural report.
Our Sustainability Commitment
In FY2014, a Sustainability Commitment was
approved by Aurizon’s Executive Committee:
> We are committed to building a long-term
sustainable business that delivers lasting value
for our shareholders, customers, employees and
communities.
> We aim to take the safest, most efficient and
least resource-intensive approach to the
services we provide.
> We apply a balanced view when assessing risk
and making decisions, encompassing social,
environmental and economic considerations.
> Our sustainability strategy is integral to our
journey to world class performance.
Our Reporting Approach
Our Sustainability Commitment anchors our
approach to sustainability and will guide
the structure and content of our inaugural
sustainability report.
In order to better understand the important
sustainability factors impacting on the business,
we conducted a materiality assessment for the
first time in FY2014. We engaged an independent
consulting firm to interview our key internal
and external stakeholders about our material
sustainability risks. This helped us to map the
significant areas that impact the economic,
social and environmental risks of the Company
as well as the importance of particular issues to
our stakeholders. As part of this process, Aurizon
interviewed external stakeholders including
investor, regulator, industry associates and
customers.
The table below provides more detail on the
materiality process undertaken in FY2014.
REPORT
Our aim is to release a sustainability report
during FY2015 in accordance with GRI G4
Reporting Guidelines to achieve GRI G4 CORE
compliance.
ANNUAL REPORT 2013–14 SUSTAINABILITY | AURIZON
51
Four key sustainability areas of safety,
environmental management, community
engagement and organisational capability were
disclosed in our 2013 Annual Report. Information
pertaining to these four areas are outlined in this
Annual Report and will be expanded through the
inaugural sustainability report.
Safety
Safety is our core value and we are committed to
the safety of our people, the safety of those we
work with and the safety of the communities in
which we operate. We put safety above all else.
Our safety accreditation as an above rail operator
across Australia is evidence of our commitment
to safe operations, regulatory compliance and
continuous improvement.
A strong commitment to safety across all Aurizon
operations has ensured continued improvement
in our safety performance. Our safety goal of
ZEROHARM means no injuries to anyone, ever.
Since 2008, Aurizon has been on a path of
continuous improvement in relations to the
safety of our employees and locations across
the Company. Between 30 June 2009 and
30 June 2014, Aurizon achieved a 96% reduction
in Lost Time Injury Frequency Rate (LTIFR) to
0.28 and a 90% reduction in Medically Treated
Injury Frequency Rate (MTIFR) to 2.52. These
results demonstrate the Aurizon transformation
and are the outcome of focussing on safety as
a core value that is intrinsically linked to
decision making.
Similarly, in relation to Signals Passed at Danger/
MTKm there has been a 34% reduction to
0.65 in FY2014 and in relation to Running Line
Derailments/MTKm, there has been a 23%
reduction to 0.50 for FY2014.
Our comprehensive and embedded approach to
safety management includes targeted initiatives
to improve safety culture and establish robust
systems and behaviours throughout the workforce.
Aurizon has a Safety Policy which is endorsed
by the MD & CEO and approved by the Aurizon
Holdings Board. The Policy is supported by a Safety
Principle document which is approved by the VP
Safety, Health & Environment (VP SHE)
and serves to bring into effect the Policy directives.
The Safety, Health & Environment (SHE)
Committee is a Board Subcommittee which
oversees Aurizon environment compliance through
ongoing review.
In addition, Aurizon has established
dedicated teams across the organisation
with responsibility for:
> District Safety Improvement
Isolation and Lock Out
>
>
Road Safety
> Trackside Safety
> Derailment Prevention
>
>
> Contractor Safety
SPADs
Level Crossing Safety
During the past year, Aurizon has been setting
a world class standard for its commitment to
ZEROHARM and has been recognised with the
following industry awards:
1. Chartered Institute of Logistics and Transport
Australia (CILTA) Industry Excellence Award for
Safety. This award recognises an organisation
that has demonstrated a practical and
exceptional commitment to excellence in
safety in Australian Passenger, Freight and
Defence Transport or Logistics.
2. Top honours at the annual SAP Customer
Awards of Excellence for Safety, Health and
Environment Management (SHEM), the
fully integrated IT system that Aurizon has
implemented across the organisation to
manage all aspects of safety including safety
interactions, incidents, hazards and near misses.
3. ‘Highly Commended’ at the National Safety
Council of Australia (NSCA) Safety Awards
of Excellence for “Best Safety Leadership
Program”.
4. Australasian Railway Association (ARA) Safety
Award for community safety works, including
sponsorship of the Newcastle Knights and Jets
in the Hunter Valley and the rail safety school
program presentations delivered to more
than 12,000 children across approximately 80
primary schools in the Hunter region to date.
Organisational Capability
Aurizon encourages an inclusive and diverse
culture through our practices, our interactions with
each other, our customers and the communities
we participate in and interact with.
Aurizon is striving to build a collaborative, capable
and engaged workforce, passionate about
delivering world class service to its customers.
This objective forms a key part of our Enterprise
People Strategy. Aurizon has completed its second
Culture and Engagement employee survey since
IPO and is working on key elements to continue
to improve. Engagement is an integral part of this
work – both how we engage with our people and
how they provide input and innovative ideas. This
work is always aligned to our strongly embedded
values of:
Safety
Integrity
Leadership, passion and courage
>
>
>
> World class performance
The recognition of the efforts of our people
continues to be a focus at all levels of the
Company. In December 2013, Aurizon gifted
employees a one-off allocation of $1,000 worth of
Aurizon shares in recognition of their contribution
to the Company’s performance. In addition,
Aurizon’s annual Employee Excellence Awards
continue to formally recognise individuals and
teams for outstanding achievement across the
Company. Recognition schemes at the functional
and local level are tailored to the specific needs of
the relevant parts of the business and are results
and values focused.
Aurizon has launched a new capability
development strategy aimed at building a
world class railway talent pool. The capability
development program focuses on building railway
technical breadth through a newly developed
Railway Foundation course; commercial acumen
through the Railway Business Simulation;
and frontline leadership in driving continuous
improvement. Each capability program is
facilitated through the lens of improving both
results and the values and behaviours that make
Aurizon the company it is.
As at 30 June 2014, 7,524 (full time equivalent)
employees live and work in local communities
throughout Australia where Aurizon operates.
The majority of our employees live and work in
regional Australia. Our commitment to building a
world class railway talent pool is demonstrated by
the reduction of our voluntary turnover rate from
6.75% to 5.43% at 30 June 2014. As part of the
transformation journey to become a world class
company, the total turnover rate has decreased
from 20.56% to 12.21% at 30 June 2014.
52
Sustainability (continued)
1,031
61
North Queensland 917
5,880
Central Queensland 2,763
South Queensland 2,200
339
213
Total employees 7,524
Progress has also been made on Aurizon’s journey
towards a more diverse workforce and inclusive
workplace. Due to the Company operating
within a historically male dominated industry, it
was acknowledged in 2012 that the need for a
concerted diversity campaign was required.
This reality was and continues to be challenged
through strong leadership and a rigorous Diversity
Policy and plan that is actively implemented and
monitored to drive results.
The measurable objectives for gender diversity,
agreed by the Aurizon Holdings Board for 2014,
have been extended and are set out below along
with the FY2014 outcomes.
GOALS FOR 2014 DIVERSITY
At least one female Director at all times
Minimum of 21% females in the Management
Leadership Team (MLT)
Minimum of 31% of females in middle
management roles
Minimum of 25% females of trainees, apprentices
and graduates (TAGs)
OUTCOMES
20% (2/10) of the Board are female
26% of MLT are female
34% of middle management are female
26.8% of TAGs are female
As a signatory to the Australian Employment
Covenant, Aurizon is committed to increasing
ongoing indigenous employment opportunities.
Aurizon has achieved 19.2% of our target of 400
additional Aboriginal & Torres Strait Islander
(ATSI) employees.
Aurizon was the recipient of the 2014 ARA Award
for Workplace Diversity as a reflection of what
we have achieved on our diversity journey for the
Company and the industry.
Community Engagements
Aurizon is serious about developing and
maintaining positive community and stakeholder
relationships as part of its day-to-day operations,
infrastructure project delivery and maintenance
functions. We recognise that our business impacts
many regional, rural and urban communities
across the country and engagement with these
communities is an integral part of our operations.
In FY2013, Aurizon introduced the Community
Engagement Charter and feedback management
process. The Community Engagement Charter
reflects Aurizon’s aspiration to be a world class
high performing organisation and incorporates
many elements of best practice in engagement.
Over the last 12 months, the Company introduced
additional tools and templates to assist with
the effective and consistent governance and
management of our interactions with community
stakeholders. This approach included a community
complaints register and accompanying
accountability matrix, streamlined contact
points for community members, a company-
wide database to manage our community and
stakeholder interactions, stakeholder identification
and consultation process. In addition, Aurizon
ensures appropriate legislation and Aurizon’s
corporate safety principles are adhered to in all
community interactions.
ANNUAL REPORT 2013–14
SUSTAINABILITY | AURIZON
53
With the recent introduction of the Company’s
sustainability commitment, work has now
commenced to review the Community
Engagement Charter to ensure the frameworks,
considerations and processes for engagement
reflect the commitment. The Company will
increasingly look to work together with our
communities to find solutions to ensure
sustainable and mutually beneficial outcomes
in the areas where we operate and where our
employees reside.
The Company remains committed to its diverse
and established community investment portfolio.
Since privatisation, Aurizon has invested in
national, regional and local sponsorships and
community partnerships as well as continued the
important work driven from its bi-annual cash
grants program, the Community Giving Fund.
Aurizon’s commitment to our communities is also
evident in the Aurizon Community Giving Fund,
which since 2011 has distributed over $1.6 million
in cash grants to just under 150 charitable groups
across Australia. The Fund has been purposefully
designed to distribute monies to projects that
address relevant community needs. The work and
outcomes as a result of the Community Giving
Fund will continue well into the future.
Aurizon is also dedicated to raising awareness
and to reduce the number of deaths caused by
cardiovascular disease. Cardiovascular disease is
Australia’s single biggest killer affecting both men
and women equally. Aurizon has partnerships with
the Heart Foundation and the Wesley Research
Institute. In partnership with the Heart Foundation,
Aurizon conducted a six week employee based
health program designed to improve the health
and wellbeing of our employees in February 2014.
Over 800 employees participated in the program
with improved health results witnessed across
the board.
In the Hunter Valley region, the Newcastle
Knights and Jets sponsorships entered their third
year. The sponsorships promote safety, health
and well-being and education. Rail Safety is
a key community program within both these
partnerships and during FY2014, Aurizon’s Rail
Safety Team educated over 4,000 primary school
students along the Hunter Valley rail corridor.
Environmental Management
Aurizon’s commitment to environmental
sustainability is crucial to its corporate identity
and business activities. Our aim is to minimise
the environmental impact of our operations.
As a transport and logistics business, we support
our customers by endeavouring to use lower
carbon emissions intensive methods of land freight
transportation – utilising rail over longer distances
and a road fleet of over 200 trucks to pick up and
deliver freight around the country. For example, a
truck transporting 1,000 tonnes of freight would
consume 17L of diesel/km compared to a train
that would use 5L of diesel/km.
Aurizon is committed to both identifying and
measuring initiatives to reduce the emissions
intensity of its operations and has set a target
to reduce energy consumed per thousand Gross
Tonne Kilometres (GTK) by its locomotives by 4%
each year over 3 years with FY2013 being the
baseline year. In FY2014, we exceeded the target
with a reduction of 4.8%.
Aurizon has an Environmental Policy which is
endorsed by the MD & CEO and approved by the
Aurizon Holdings Board. The Policy is supported
by an Environment Principle document which is
approved by the VP SHE and serves to bring into
effect the Policy directives. The SHE Committee is
a Board Subcommittee which oversees Aurizon’s
environment compliance performance through
regular review.
Aurizon continues to meet its reporting obligations
under the National Greenhouse and Energy
Reporting Act 2007 (Cth) (NGER). The FY2014
NGER report is due to be submitted to the
regulator by 31 October 2014.
Aurizon is committed to managing its operational
activities and services in an environmentally
responsible manner to meet legal and social
obligations. As such, the Company seeks to
comply with all applicable environmental laws
and regulations.
Carbon disclosure project
2013 marked our inaugural participation in the
Carbon Disclosure Project (CDP), an international
independent not-for-profit organisation that
compiles corporate climate change information
for the investor community. CDP is the only global
system for companies and cities to measure,
disclose, manage and share vital environmental
information. Through involvement in the CDP,
we will increase the transparency of our carbon
performance and demonstrate to investors that
we are taking our carbon impacts and
opportunities seriously.
In November 2013, Aurizon was recognised as
a finalist in the CDP ASX 200 Climate Leadership
Awards for 2013. The finalist nomination was in
the category for ‘Best New Responding Company’
which recognises first-time ASX 200 companies
with the highest CDP climate disclosure scores for
that year.
Environmental compliance
Environmental compliance across the enterprise
is achieved through an annual and routine audit
schedule, employee environmental awareness
training modules and through our SHEM incident
reporting system.
We manage and monitor environmental incidents
through our SHEM system and have managed
the process internally by monthly environmental
reporting through to the Environment
Communities of Competence and the Central
Safety, Health and Environment Committee (CSC).
Aurizon sites have emergency plans in place
including provision for response and reporting of
spills. Spills training is provided to employees and
spill kits are provided at locations across Aurizon’s
portfolio of sites so that, in the event of a spill
occurring, immediate action can be taken.
54
Corporate Governance Statement
Aurizon Holdings Limited and the entities it controls (Aurizon Holdings or Company) believe corporate governance is a critical pillar on which business objectives
and, in turn, shareholder value must be built.
The Board has adopted a suite of charters and key corporate governance documents which articulate the policies and procedures followed by Aurizon Holdings.
These documents are available in the Governance section of the Company’s website, aurizon.com.au. These documents are reviewed regularly to address any
changes in governance practices and the law.
This Statement explains how Aurizon Holdings complies with the ASX Corporate Governance Council’s ‘Corporate Governance Principles and Recommendations
– 3rd Edition’ (ASX Principles or Recommendations), which were published on 27 March 2014. Whilst Aurizon Holdings is not required to report against the
new ASX Principles until the 2015 reporting period, consistent with the Company’s commitment to corporate governance, it will be an early adopter of the
Recommendations and is reporting against them in the current year.
Principle 1: Lay solid foundations for management and oversight
RECOMMENDATION
1.1 Role of Board and
management
1.2 Information
regarding election
and re-election of
director candidates
1.3 Written contracts
of appointment
1.4 Company Secretary
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
The Board has established a clear distinction between the functions and responsibilities reserved for the Board
and those delegated to management, which are set out in the Aurizon Holdings Limited Board Charter (Charter).
The Charter also provides an overview of the roles of the Chairman, individual Directors, the Managing Director and
CEO (MD & CEO) and the Company Secretary.
A copy of the Charter is available in the Governance section of the Company’s website, aurizon.com.au.
Aurizon carefully considers the character, experience, education and skillset, as well as interests and associations of
potential candidates for appointment to the Board and conducts appropriate checks to verify the suitability of the
candidate, prior to their election.
During the year the Board used a professional search firm to assist in employing an additional Director and as part of
the search received assurance on the background of the Director whom was subsequently appointed to the Board.
Aurizon has appropriate procedures in place to ensure that material information relevant to a decision to elect or
re-elect a director, is disclosed in the notice of meeting provided to shareholders.
In addition to being set out in the Charter, the roles and responsibilities of Directors are also formalised in the letter
of appointment which each Director receives and commits to on their appointment. The letters of appointment
specify the term of appointment, time commitment envisaged, expectations in relation to committee work or any
other special duties attaching to the position, reporting lines, remuneration arrangements, disclosure obligations in
relation to personal interests, confidentiality obligations, insurance and indemnity entitlements and details of the
Company’s key governance policies, such as the Securities Dealing Policy.
A copy of the key governance policies can be found on the Company’s website aurizon.com.au.
Each senior executive enters into a service contract which sets out the material terms of employment,
including a description of position and duties, reporting lines, remuneration arrangements and termination rights
and entitlements.
Contract details of senior executives which are KMP are summarised in the Company’s Remuneration Report on
page 46.
The Company Secretary is accountable to the Board for facilitating the Company’s corporate governance
processes and the proper functioning of the Board. Each Director is entitled to access the advice and services
of the Company Secretary.
In accordance with the Company’s Constitution, the appointment or removal of the Company Secretary is a matter
for the Board as a whole. Details of the Company Secretary’s experience and qualifications are set out on page 6
of the Annual Report.
ANNUAL REPORT 2013–14 CORPORATE GOVERNANCE STATEMENT | AURIZON
55
RECOMMENDATION
1.5 Diversity
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
Aurizon Holdings has adopted a Diversity Policy setting out its objectives and reporting practices with
respect to diversity, which is available in the Governance section of the Company’s website, aurizon.com.au.
The measurable objectives for gender diversity, agreed by the Aurizon Holdings Board for FY2013–14, are set
out below:
> At least one female Director at all times
> 21% of female representation on the Management Leadership Team (MLT)
> 31% of female representation in middle management
> 25% of female representation of combined Trainees, Apprentices and Graduates (TAGs).
The outcomes and a comparative of Aurizon Holdings’ female employees between 30 June 2013
and 30 June 2014 is set out below and illustrates the Company’s progress towards achieving its objectives:
> 20% (2/10) of the Board at 30 June 2014 (20% at 30 June 2012)
> 26% (20/77) of Management Leadership Team at 30 June 2014 (21% at 30 June 2013)
> 34% (177/519) of Middle Management roles at 30 June 2014 (29.8% at 30 June 2013)
> 26.8% (87/325) of Trainees, Apprentices and Graduates at 30 June 2014 (25.3% as 30 June 2013)
> 13.8% of total employees at 30 June 2014 (13.2% at 30 June 2013)
Further details on the Company’s diversity performance and activities can be found on the Company website
aurizon.com.au.
A performance review is undertaken annually in relation to the Board and the Board Committees. In addition to
individual evaluation sessions between the Chairman and individual Directors, a formal self-evaluation questionnaire
is used to facilitate the annual performance review process. Periodically the Board also engages a professional
independent consultant experienced in Board reviews to conduct a review of the Board and its Committees and the
effectiveness of the Board as a whole.
During the year the annual review of the position of the Chairman of the Board was facilitated by the Chairman
of the Remuneration, Nomination & Succession Committee and a review and evaluation of the performance of
the Board, the Chairman, each Director and each Board Committee was conducted in accordance with the process
described above by an external consultant.
Each year the Board sets financial, operational, management and individual targets for the MD & CEO. The MD &
CEO (in consultation with the Board), in turn set targets for their direct reports. Performance against these targets is
assessed periodically throughout the year and a formal performance evaluation for senior management is completed
for the year end. Details of the process followed are set out on page 32 of the Remuneration Report within the
Annual Report.
1.6 Board reviews
1.7 Management
reviews
56
Corporate Governance Statement
(continued)
Principle 2: Structure the Board to add value
RECOMMENDATION
2.1 Nominations
committee
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
The Remuneration, Nomination & Succession Committee comprises five members (including the Chairman), all of whom are
Independent Non-Executive Directors. Details of the membership of the Remuneration, Nomination & Succession Committee,
including the names and qualifications of the Committee members, are set out on pages 4 to 6 of the Annual Report.
2.2 Board skills matrix
The number of meetings held and attended by each member of the Remuneration, Nomination & Succession Committee
during the financial year are set out on page 7 of the Directors’ Report within the Annual Report.
The Charter governing the conduct of the Remuneration, Nomination & Succession Committee is reviewed annually and is
available in the Governance section of the Company’s website, aurizon.com.au.
The below skills and diversity attributes have been identified as the optimum skills and diversity attributes Aurizon Holdings
seeks to achieve across its Board membership. The Aurizon Holdings Board currently possesses an effective blend of these
skills and diversity attributes. However, the Board is conscious that recently announced developments will require some
dimensions to be supplemented in the near future, particularly having regard to the Company’s involvement with port
development and operations and partnering with international joint ventures.
General
> Other Board experience
> Management expertise
Governance
> Understanding of legal, ethical and fiduciary duties
> Governance committee experience
> Risk management
Behavioural
> Communication
> Analytical
> Strategic
Technical
> Financial qualifications
> Legal
> Engineering
> Human resources
Industry / experience
> Global / international
> Transport
> Mining and resources
> Government
Diversity
> Female
> Male
> Non-Caucasian ethnicity
> Language other than English
2.3 Disclose
independence and
length of service
Further details regarding the skills and experience of each Director are included on pages 4 to 6 of the
Directors’ Report.
In accordance with the Board Charter, the majority of Directors are independent. Only the MD & CEO is not considered
independent, by virtue of him being an Executive of the Company.
Details regarding which Directors are considered independent and the length of their service are set out on page 4 of the
Directors’ Report within the Annual Report.
ANNUAL REPORT 2013–14 CORPORATE GOVERNANCE STATEMENT | AURIZON
57
RECOMMENDATION
2.4 Majority of
directors
independent
2.5 Chair independent
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
In accordance with the Board Charter and as disclosed against Recommendation 2.3, the majority of Directors are
independent. Only the MD & CEO is not considered independent, by virtue of him being an Executive of the Company.
Further details regarding the independence of the Directors are set out on page 4 of the Directors’ Report within the
Annual Report.
The Chairman, Mr Prescott, is an Independent Non-Executive Director. The role of the MD & CEO is performed by
another Director.
2.6 Induction and
professional
development
Further details regarding the Directors are set out on pages 4 to 6 of the Directors’ Report within the Annual Report.
An induction process including appointment letters and ongoing education exists to promote early, active and relevant
involvement of new members of the Board.
All Aurizon Holdings Directors are members of the Australian Institute of Company Directors (AICD) and are encouraged to
further their knowledge through participation in seminars hosted by the AICD and other forums sponsored by professional,
industry, governance and Government bodies.
In addition to peer review, interaction and networking with other Directors and industry leaders, Aurizon Holdings’ Directors
participate, from time to time, in Aurizon Holdings’ leadership forums and actively engage with Aurizon Holdings’ employees
by visiting the Company’s operations to gain an understanding of the operational environment.
During the course of the year Directors receive accounting policy updates, especially around the time when the Board
considers the Half Year and Full Year accounts.
The Board also includes educational sessions on legal, accounting, regulatory change, developments in communication
including social media and human resource management.
Directors are encouraged and given the opportunity to broaden their knowledge of the business by visiting offices in
different locations. During the financial year, Directors made a number of visits to operational sites and to Company
comparator sites.
Principle 3: Act ethically and responsibly
RECOMMENDATION
3.1 Code of conduct
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
The Board has established a Code of Conduct for its Directors, senior executives and employees, a copy of which is
available in the Governance section of the Company’s website, aurizon.com.au.
Principle 4: Safeguard integrity in corporate reporting
RECOMMENDATION
4.1 Audit committee
4.2 CEO and CFO
certification
of financial
statements
4.3 External auditor
at AGM
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
The Audit, Governance & Risk Management Committee comprises five members (including the Chairman), all of whom
are Independent Non-Executive Directors. Details of the membership of the Audit, Governance & Risk Management
Committee, including the names and qualifications of the Committee members, are set out on pages 4 to 6 of the
Annual Report.
In addition to the Audit, Governance & Risk Management Committee members, the MD & CEO, CFO, Chief Internal
Auditor, external auditors and Company Secretary regularly attend Audit, Governance & Risk Management Committee
meetings.
The number of meetings held and attended by each member of the Audit, Governance & Risk Management
Committee during the financial year are set out on page 7 of the Directors’ Report within the Annual Report.
The Audit, Governance & Risk Management Committee Charter is reviewed annually and is available on the Aurizon
Holdings website, aurizon.com.au.
The Board has obtained a written assurance from the MD & CEO and CFO that the declaration provided under section
295A of the Corporations Act (and for the purposes of Recommendation 4.2) is founded on a sound system of risk
management and internal control and that the system is operating effectively in all material respects in relation to
financial reporting and material business risks.
Aurizon Holdings’ external audit function is performed by PricewaterhouseCoopers (PwC). Representatives of PwC will
attend the Annual General Meeting and be available to answer shareholder questions regarding the audit.
58
Corporate Governance Statement
(continued)
Principle 5: Make timely and balanced disclosure
RECOMMENDATION
5.1 Disclosure and
Communications
Policy
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
Aurizon Holdings has adopted a Disclosure and Communications Policy which sets out the processes and practices that
ensure its compliance with the continuous disclosure requirements under the ASX Listing Rules and the Corporations Act.
Aurizon Holdings has also established guidelines to assist officers and employees of the Company to comply with the
Company’s Disclosure and Communications Policy. A copy of the policy and guidelines are available on the Aurizon Holdings’
website, aurizon.com.au.
Principle 6: Respect the rights of security holders
RECOMMENDATION
6.1 Information on
website
6.2 Investor relations
programs
6.3 Facilitate
participation
at meetings of
security holders
6.4 Facilitate
electronic
communications
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
Aurizon Holdings keeps investors informed of its corporate governance, financial performance and prospects via
its website. Investors can access copies of all announcements to the ASX, notices of meetings, annual reports and
financial statement, Investor presentations webcasts and/or transcripts of those presentations and a key events
calendar via the ‘Investors’ tab and can access general information regarding the Company and the structure of its
business under the ‘About Us’, ‘Our Services’, ‘Networks’, ‘Projects’ and ‘Sustainability’ tabs.
Aurizon Holdings conducts regular briefings including interim and full year results announcements, Investor Days, site
visits and attends regional and industry specific conferences in order to facilitate effective two way communication
with investors and other financial markets participants. Access to Executive and Operational Management is provided
at these events, with separate one-on-one or group meetings offered whenever possible.
The presentation material provided at these events is posted on Aurizon Holding’s Investor Centre website, including
the webcast and transcript if applicable.
Aurizon Holdings uses technology to facilitate the participation of security holders in meetings including live
webcasting of meetings. Live teleconferences and in respect of Annual General Meetings (AGM), provide a direct
voting facility to allow security holders to vote ahead of the meeting without having to attend or appoint a proxy.
Shareholders are encouraged to participate in general meetings and are given an opportunity to ask questions
of the Company and its auditor at the AGM.
Aurizon provides its investors the option to receive communications from and send communications to,
the Company and the share registry electronically.
Principle 7: Recognise and manage risk
RECOMMENDATION
7.1 Risk committee
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
Aurizon Holdings’ Audit, Governance & Risk Management Committee oversees the process for identifying and
managing material risks in the Company in accordance with the Risk Management, Compliance & Assurance
Policy (Risk Policy). A copy of the Risk Policy is available in the Governance section of the Company’s website,
aurizon.com.au.
7.2 Annual risk review
Further details regarding the Committee, its membership and the number of meetings held during the financial year
are set out in response to Recommendation 4.1.
The Board has mandated Internal Audit to provide independent assurance on the effectiveness of the Company’s risk
management practices and report its findings to the Audit, Governance & Risk Management Committee. The purpose
of the review is to confirm the Company’s governance processes and practices continue to be sound and that the
entity manages risk within the Board approved risk appetite.
7.3 Internal audit
Internal Audit conducted its review during the financial year and concluded that controls over risk management
processes were considered adequate and effective.
The Company has an internal audit function that operates under a Board approved Internal Audit Charter.
The internal audit function is independent of management and the external auditor and is overseen by the Audit,
Governance & Risk Management Committee. In accordance with the Committee Charter the Chief Internal Auditor,
the appointment or removal of the Chief Internal Auditor is a matter for this committee.
The Chief Internal Auditor provides ongoing audit reports to the Audit, Governance & Risk Management Committee,
as well as an annual assessment of the adequacy and effectiveness of the Company’s control processes and risk
management procedures.
The external audit function is performed by PwC.
ANNUAL REPORT 2013–14
CORPORATE GOVERNANCE STATEMENT | AURIZON
59
RECOMMENDATION
7.4 Sustainability risks Aurizon identifies and manages material exposures to economic, environmental and social sustainability risks in
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
accordance with its Enterprise Risk Management Framework incorporating the Board-approved risk appetite.
Specific steps have been taken to strengthen the governance of sustainability in the Company during the year.
During FY2014, Aurizon appointed a Vice President Sustainability and established a steering committee to help define
and drive our sustainability approach to a new level, including broader sustainability reporting and disclosures in
compliance with the ASX Listing Rule requirements.
In our operations, we continue to make progress on a number of sustainability issues, including our safety
performance, our operational efficiency and environmental management. A key element of our approach is the
ongoing reduction in resource use across all of our operations with a strong focus on longer trains, higher-density
trains, increased reliability and improved average train velocity.
Aurizon has set appropriate benchmarks against which we will measure and report performance over the financial year
and the Company is working on fully identifying its material economic, environmental and social sustainability risks.
Aurizon will prepare its inaugural sustainability report in accordance with the Global Reporting Initiative’s
Sustainability Reporting Guidelines (G4 Reporting Guidelines) prior to the end of FY2015. Aurizon will report for the
first time on its sustainability performance and management of the Company’s material sustainability priorities.
This inaugural sustainability report will identify material exposures that could impact the Company’s ability to create
or preserve value for shareholders over the short, medium or long term and outlines how Aurizon manages or intends
to manage the identified risks.
Principle 8: Remunerate fairly and responsibly
RECOMMENDATION
8.1 Remuneration
committee
8.2 Disclosure of
Executive and
Non-Executive
Director
remuneration
policy
8.3 Policy on hedging
equity incentive
schemes
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
Aurizon Holdings’ remuneration function is performed by the Remuneration, Nomination & Succession Committee.
Further details regarding this Committee, its composition and members are set out in response to
Recommendation 2.1.
The Company seeks to attract and retain high performance Directors and Executives with appropriate skills,
qualifications and experience to add value to the Company and fulfil the roles and responsibilities required. It reviews
requirements for additional capabilities at least annually.
Executive remuneration is to reflect performance and, accordingly, remuneration is structured with a fixed component
and performance-based remuneration component.
Non-Executive Directors are paid fixed fees for their services in accordance with the Company’s Constitution. Fees paid
are a composite fee (covering all Board and Committee responsibilities) and any contributions by Aurizon Holdings to
a fund for the purposes of superannuation benefits for a Director. No other retirement benefits schemes are in place
in respect to Non-Executive Directors.
Further details regarding the remuneration of Executive and Non-Executive Directors are set out on pages 42 and 48
of the Remuneration Report within the Annual Report.
Aurizon Holdings’ Executives must not enter into any hedge arrangement in relation to any performance rights they
may be granted or otherwise entitled to under an incentive scheme or plan, prior to exercising those rights or, once
exercised, while the securities are subject to a transfer restriction.
For the purposes of this policy, hedging includes the entry into any transaction, arrangement or financial product
which operates to limit the economic risk of a security holding in the Company and includes financial instruments
such as equity swaps and contracts for differences. The term ‘Executive’ is broadly defined to include Aurizon Holdings
Executive Vice Presidents and their direct reports, Directors and officers and any other person entitled to participate
in an Aurizon Holdings performance rights plan.
Further details regarding the Company’s hedging policy are set out in the Aurizon Holdings’ Securities Dealing Policy
which is available in the Governance section of the Company’s website aurizon.com.au.
60
Financial Report
for the year ended 30 June 2014
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
1 Summary of significant accounting policies
2 Critical accounting estimates and judgements
3 Financial risk management
4 Segment information
5 Revenue
6 Other income
7 Expenses
8
Income tax expense
9 Assets and liabilities classified as held for sale
10 Cash and cash equivalents
11 Trade and other receivables
12 Inventories
13 Derivative financial instruments
14 Other assets
15 Investments accounted for using the equity method
16 Property, plant and equipment
17 Intangible assets
18 Deferred tax assets
19 Trade and other payables
20 Borrowings
21 Provisions
22 Other liabilities
23 Deferred tax liabilities
24 Contributed equity
25 Reserves
26 Dividends
27 Contingencies
28 Commitments
29 Interests in joint arrangements and associates
30 Related party transactions
31 Deed of cross guarantee
32 Remuneration of auditors
33 Reconciliation of profit after income tax to
net cash inflow from operating activities
34 Earnings Per Share
35 Share-based payments
36 Parent entity financial information
37 Events occurring after the reporting period
Directors’ declaration
Independent auditor’s report to the members
of Aurizon Holdings Limited
Non-IFRS financial information
61
61
62
63
64
65
65
74
75
80
83
84
84
84
85
85
85
86
86
86
86
87
88
88
89
89
89
91
91
91
92
93
93
93
94
95
96
98
98
98
98
100
100
101
102
104
ABN: 14 146 335 622
These financial statements are the consolidated
financial statements of the consolidated entity
consisting of Aurizon Holdings Limited and its
subsidiaries (Group). The financial statements are
presented in Australian dollars.
Aurizon Holdings Limited is a company limited by
shares, incorporated and domiciled in Australia.
Its registered office is:
Aurizon Holdings Limited
Level 17
175 Eagle Street
BRISBANE QLD 4000
A description of the nature of the consolidated
entity’s operations and its principal activities are
included in the review of operations and activities
and in the Directors’ Report, which are not part of
these financial statements.
The financial statements were authorised for
issue by the Directors on 18 August 2014.
The Directors have the power to amend and
reissue the financial statements.
All press releases, financial reports and other
information are available at our Investor Centre
on our website: www.aurizon.com.au
ANNUAL REPORT 2013–14 Consolidated income statement
For the year ended 30 June 2014
Revenue from continuing operations
Other income
Consumables
Employee benefits expense
Depreciation and amortisation
Impairment losses
Other expenses
Finance costs
Share of net profit of associates and joint venture partnership accounted for using the equity method
Profit before income tax
Income tax expense
Profit for the year
61
Notes
5
6
7
7
7
7
7
7
8
2014
$m
3,811.9
20.3
(1,390.5)
(1,103.7)
(499.2)
(316.6)
(53.5)
(122.0)
6.7
353.4
(100.6)
252.8
2013
$m
3,724.1
41.4
(1,353.2)
(1,182.5)
(496.3)
-
(51.0)
(105.6)
5.4
582.3
(135.4)
446.9
Cents
Cents
Earnings Per Share for profit attributable to the ordinary equity holders of the Company:
Basic and diluted Earnings Per Share
34
11.8
19.8
The above consolidated income statement should be read in conjunction with the accompanying notes.
Consolidated statement of comprehensive income
For the year ended 30 June 2014
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
Changes in the fair value of cash flow hedges
Income tax relating to these items
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
Notes
25(a)
8(c)
2014
$m
252.8
(26.6)
8.0
(18.6)
234.2
2013
$m
446.9
3.0
(0.9)
2.1
449.0
FINANCIAL REPORT | AURIZON 62
Consolidated balance sheet
As at 30 June 2014
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Current tax receivables
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Inventories
Derivative financial instruments
Property, plant and equipment
Intangible assets
Investments accounted for using the equity method
Other assets
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Derivative financial instruments
Trade and other payables
Borrowings
Provisions
Other liabilities
Current tax liabilities
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Derivative financial instruments
Borrowings
Provisions
Deferred tax liabilities
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
Notes
10
11
12
13
14
9
12
13
16
17
15
14
13
19
20
21
22
9
13
20
21
23
22
24
25
2014
$m
317.5
603.5
237.3
0.5
47.5
19.3
110.8
1,336.4
19.4
-
9,440.7
63.7
83.1
5.4
9,612.3
10,948.7
1.7
460.8
41.5
340.5
42.2
-
7.3
894.0
26.6
2,799.4
103.4
492.6
259.3
3,681.3
4,575.3
6,373.4
5,045.9
(3.2)
1,330.7
6,373.4
2013
$m
107.6
579.5
212.2
0.4
-
10.2
23.0
932.9
19.0
0.2
9,459.5
25.3
79.2
3.0
9,586.2
10,519.1
0.8
320.7
-
349.7
42.3
68.2
-
781.7
-
2,478.6
88.2
408.2
266.8
3,241.8
4,023.5
6,495.6
5,045.9
25.6
1,424.1
6,495.6
ANNUAL REPORT 2013–14 63
Consolidated statement of changes in equity
For the year ended 30 June 2014
Attributable to owners of Aurizon Holdings Limited
Balance at 1 July 2012
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Buy-back of ordinary shares
Dividends provided for or paid
Share-based payments
Balance at 30 June 2013
Balance at 1 July 2013
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Share-based payments
Notes
25(a)
26(a)
25(a)
25(a)
26(a)
25(a)
Contributed
equity
$m
6,100.0
-
-
-
(1,054.1)
-
-
(1,054.1)
5,045.9
5,045.9
-
-
-
-
-
-
Balance at 30 June 2014
5,045.9
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Reserves
$m
17.1
-
2.1
2.1
-
-
6.4
6.4
25.6
25.6
-
(18.6)
(18.6)
-
(10.2)
(10.2)
(3.2)
Retained
earnings
$m
1,177.1
446.9
-
446.9
-
(199.9)
-
Total
equity
$m
7,294.2
446.9
2.1
449.0
(1,054.1)
(199.9)
6.4
(199.9)
(1,247.6)
1,424.1
6,495.6
1,424.1
252.8
-
252.8
(346.2)
-
(346.2)
6,495.6
252.8
(18.6)
234.2
(346.2)
(10.2)
(356.4)
1,330.7
6,373.4
FINANCIAL REPORT | AURIZON 64
Consolidated statement of cash flows
For the year ended 30 June 2014
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Interest and other costs of finance paid
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Payments for property, plant and equipment
Payments for investment in associates
Distributions received from associates
Payments for intangibles
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Payments for share buy-back
Payments for shares acquired for share based payments
Payment of transaction costs related to borrowings and share buy-back
Repayment of borrowings
Dividends paid to Company's shareholders
Net cash (outflow) from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at end of year
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Notes
2014
$m
2013
$m
4,162.0
(2,856.2)
9.5
(123.3)
(123.8)
1,068.2
37.2
(825.6)
(2.5)
5.9
(44.8)
(829.8)
844.5
-
(24.4)
(2.4)
(500.0)
(346.2)
(28.5)
209.9
107.6
317.5
4,057.0
(3,007.6)
2.4
(114.1)
(31.4)
906.3
48.9
(929.6)
(1.8)
5.5
(13.9)
(890.9)
3,720.0
(1,049.8)
(5.9)
(56.0)
(2,415.0)
(199.9)
(6.6)
8.8
98.8
107.6
33
26(a)
10
ANNUAL REPORT 2013–14 Notes to the consolidated financial statements
30 June 2014
65
The adoption of AASB 11 and AASB 119 did not affect any of the amounts
recognised in the current period or any prior periods. The other standards only
affected the disclosures in the notes to the financial statements. Application of
AASB 13 has introduced new disclosures and changed the Group’s valuation
methodology adopted in valuing derivative financial assets and liabilities
used to hedge the Group’s risk exposures. The impact of this revised fair value
measurement was $0.3 million, recognised as a reduction in expense for the
year ended 30 June 2014.
(iii) Historical cost convention
These financial statements have been prepared under the historical cost
convention, as modified by the revaluation of available-for-sale financial
assets and financial assets and liabilities (including derivative instruments)
at fair value.
(iv) New accounting standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published
that are not mandatory for 30 June 2014 reporting periods and have not been
early adopted by the Group. The Group’s assessment of the impact of these
new standards and interpretations is set out below.
1 Summary of significant accounting policies
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise stated.
Where necessary, comparative information has been restated to conform with
changes in presentation in the current year. The financial statements are for
the consolidated entity consisting of Aurizon Holdings Limited (the Company)
and its subsidiaries and together are referred to as the Group or Aurizon.
(a) Basis of preparation
These general purpose financial statements have been prepared in accordance
with Australian Accounting Standards and Interpretations issued by the
Australian Accounting Standards Board and the Corporations Act 2001. Aurizon
Holdings Limited is a for-profit entity for the purpose of preparing the financial
statements.
The financial statements were approved for issue by the Directors on
18 August 2014. The Directors have the power to amend and reissue the
financial statements.
(i) Compliance with IFRS
The consolidated financial statements of the Group also comply with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB).
(ii) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for first time
in their annual reporting period commencing 1 July 2013:
> AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements,
AASB 12 Disclosure of Interests in Other Entities, AASB 128 Investments
in Associates and Joint Ventures, AASB 127 Separate Financial Statements
and AASB 2011-7 Amendments to Australian Accounting Standards
arising from the Consolidation and Joint Arrangements Standards
> AASB 2012-10 Amendments to Australian Accounting Standards –
Transition Guidance and other Amendments which provides an exemption
from the requirement to disclose the impact of the change in accounting
policy on the current period
> AASB 13 Fair Value Measurement and AASB 2011-8 Amendments to
Australian Accounting Standards arising from AASB 13
> AASB 119 Employee Benefits (September 2011) and AASB 2011-10
Amendments to Australian Accounting Standards arising from AASB 119
(September 2011)
> AASB 2012-5 Amendments to Australian Accounting Standards arising
from Annual Improvements 2009–2011 Cycle
> AASB 2012-2 Amendments to Australian Accounting Standards –
Disclosures – Offsetting Financial Assets and Financial Liabilities
FINANCIAL REPORT | AURIZON 66
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(a) Basis of preparation (continued)
Title of standard
Nature of change
Impact
IFRS 15 Revenue from
Contracts with Customers
AASB 9 Financial
Instruments
IFRS 15 outlines a single comprehensive
model for entities to use in accounting
for revenue arising from contracts with
customers. It supersedes current revenue
recognition guidance including IAS 18
Revenues, IAS 11 Construction Contracts
and related Interpretations. The core
principle is that an entity recognises revenue
to depict the transfer of promised goods
or services to customers in an amount that
reflects the consideration to which the entity
expects to be entitled in exchange for those
goods or services. This standard also allows
costs associated with obtaining a contract to
be capitalised and amortised over the life of
the new contract.
AASB 9 addresses the classification,
measurement and derecognition of
financial assets and financial liabilities.
Since December 2013, it also sets out
new rules for hedge accounting.
The Group has not yet assessed how its own revenue
recognition would be affected by the new rule.
Mandatory application date/
Date of adoption by Group
Must be applied for financial
years commencing on or after
1 January 2017. Early adoption
is permitted.
Must be applied for financial
years commencing on 1
January 2017*. Early adoption is
permitted.
There will be no impact on the Group's accounting
for financial liabilities, as the new requirements
only affect the accounting for financial liabilities
that are designated at fair value through profit or
loss and the Group does not have any such liabilities.
The new hedging rules align hedge accounting more
closely with the Group's risk management practices.
As a general rule, it will be easier to apply hedge
accounting going forward. The new standard also
introduces expanded disclosure requirements and
changes in presentation. The Group has not yet
assessed how its own hedging arrangements would
be affected by the new rules and it has not yet
decided whether to adopt any parts of AASB 9 early.
AASB 2013-3
Amendments to AASB
136 – Recoverable
Amount Disclosures for
Non-Financial Assets
This amendment expanded the disclosure of
recoverable amounts on non-financial assets
when they are based on fair value less costs
of disposal.
The amendment only affects the disclosure in the
event non-financial assets are impaired based on
fair value less costs of disposal.
Must be applied for financial
year commencing on
1 July 2014.
* The mandatory application of this standard may be further deferred to align to the equivalent international standard of 1 January 2018.
There are no other standards that are not yet effective and that are expected
to have a material impact on the Group in the current or future reporting
periods and on foreseeable future transactions.
(v) Critical accounting estimates
The preparation of financial statements requires the use of certain critical
accounting estimates. It also requires management to exercise its judgement
in the process of applying the Group’s accounting policies. The areas involving
a higher degree of judgement or complexity, or areas where assumptions and
estimates are significant to the financial statements, are disclosed in Note 2.
(b) Principles of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the assets and liabilities
of all subsidiaries of the Group as at reporting date and the results of all
subsidiaries for the year then ended.
Subsidiaries are all entities (including structured entities) over which the
Group has control. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and has
the ability to affect those returns through its power to direct the activities of
the entity.
Subsidiaries are fully consolidated from the date on which control is transferred
to the Group and de-consolidated from the date that control ceases.
Transactions between continuing and discontinued operations are treated as
external from the date that the operation was discontinued.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated on consolidation.
(ii) Associates
Associates are all entities over which the Group has significant influence but not
control or joint control. Investments in associates are accounted for using the
equity method of accounting (see (iv) below), after initially being recognised
at cost. Details of investment in associates are set out in Note 29(b).
(iii) Joint arrangements
Under AASB 11 Joint Arrangements investments in joint arrangements are
classified as either joint operations or joint ventures. The classification depends
on the contractual rights and obligations of each investor, rather than the legal
structure of the joint arrangement.
ANNUAL REPORT 2013–14 67
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(ii) Transactions and balances
(b) Principles of consolidation (continued)
(iii) Joint arrangements (continued)
Joint operations
Where the Group has joint operations, it recognises its direct right to assets,
liabilities, revenues and expenses of joint operations and its share of any
jointly held or incurred assets, liabilities, revenues and expenses. These have
been incorporated in the financial statements under the appropriate headings.
Details of joint operations are set out in Note 29(a).
Joint ventures
Interests in joint ventures are accounted for using the equity method (see (iv)
below), after initially being recognised at cost in the consolidated balance
sheet. Details of joint ventures are set out in Note 29(c).
(iv) Equity method
Under the equity method of accounting, the investments are initially
recognised at cost and adjusted thereafter to recognise the Group’s share of
the post-acquisition profits or losses of the investee in profit or loss and the
Group’s share of movements in other comprehensive income of the investee in
other comprehensive income. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. Dividends received or
receivable from associates and joint ventures are recognised as a reduction in
the carrying amount of the investment.
When the Group’s share of losses in an associate equals or exceeds its interest
in the associate, including any other unsecured long-term receivables, the
Group does not recognise further losses, unless it has incurred obligations or
made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates and
joint ventures are eliminated to the extent of the Group’s interest in these
entities. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Accounting policies of
equity accounted investees have been changed where necessary to ensure
consistency with the policies adopted by the Group.
(v) Changes in ownership interests
When the Group ceases to have control, joint control or significant influence,
any retained interest in the entity is remeasured to its fair value with the
change in carrying amount recognised in profit or loss. This fair value becomes
the initial carrying amount for the purposes of subsequently accounting for the
retained interest as an associate, joint venture or financial asset. In addition,
any amounts previously recognised in other comprehensive income in respect
of that entity are accounted for as if the Group had directly disposed of the
related assets or liabilities. This may mean that amounts previously recognised
in other comprehensive income are classified to profit or loss.
If the ownership interest in a joint venture or an associate is reduced but joint
control or significant influence is retained, only a proportionate share of the
amounts previously recognised in other comprehensive income are reclassified
to profit or loss where appropriate.
(c) Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Executive
Committee inclusive of the Managing Director & CEO (MD & CEO).
(d) Foreign currency and commodity transactions
(i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment in
which the entity operates (the functional currency). The consolidated financial
statements are presented in Australian dollars, which is the Company’s
functional and presentation currency.
Where the Group is exposed to the risk of fluctuations in foreign exchange
rates and market interest rates, it enters into financial arrangements to reduce
these exposures. While the value of these financial instruments is subject to risk
that market rates/prices may change subsequent to acquisition, such changes
will generally be offset by opposite effects on the items being hedged.
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at year end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in profit or
loss, except when they are deferred in equity as qualifying cash flow hedges
and qualifying net investment hedges or are attributable to part of the net
investment in a foreign operation.
Foreign exchange gains and losses that relate to borrowings are presented in
the income statement, within finance costs. All other foreign exchange gains
and losses are presented in the income statement on a net basis within other
income or other expenses.
Non-monetary items that are measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was
determined. Translation differences on assets and liabilities carried at fair value
are reported as part of the fair value gain or loss.
(e) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable. Amounts disclosed as revenue are net of returns, trade allowances,
rebates and amounts collected on behalf of third parties.
The Group recognises revenue when the amount of revenue can be reliably
measured, it is probable that future economic benefits will flow to the entity
and specific criteria have been met for each of the Group’s activities as
described below. The Group bases its estimates on historical results, taking into
consideration the type of customer, the type of transaction and the specifics of
each arrangement.
Revenue is recognised for the major business activities as follows:
(i) Services revenue
Services revenue comprises revenue earned from the provision of the
following services:
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>
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track access
freight transport, and
other services revenue.
Track access
Track access revenue includes revenue from regulated rail access services and
non-regulated services.
Access revenue generated from the regulated rail network, Central Queensland
Coal Network (CQCN), is recognised as services are provided and is calculated
on a number of operating parameters, such as the volume hauled and applied
to regulator approved tariffs. The tariff is determined by the total allowable
revenue, applied to the regulatory approved annual volume forecasts.
Where annual actual volumes railed are less than the regulatory forecast, an
annual take or pay mechanism may become operative. A variable component
of take or pay may also be applied where actual volumes do not meet certain
consecutive monthly forecasts. The take or pay portion of access revenue is
recognised in the year that the contractual railings were not achieved.
FINANCIAL REPORT | AURIZON 68
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(e) Revenue recognition (continued)
(i) Services revenue (continued)
In addition, the majority of access revenue is subject to a revenue cap
mechanism that serves to ensure the network recovers its system allowable
revenue over the regulatory period such that where actual revenue is below
the system allowable revenue, the revenue shortfall (net of take or pay) is
recovered in subsequent years and conversely, where actual revenue is above
the system allowable revenue, the excess revenue received is refunded through
the access tariffs in subsequent years. The majority of under or over recovery
in access tariffs (net of take or pay charges) are recognised as revenue in the
second year following the period in which the variation to system allowable
revenue occurred, in accordance with the regulatory framework and includes an
adjustment at the weighted average cost of capital to account for the time lag
in which the adjustment to reference tariffs occurs.
For the year ended 30 June 2014, transitional allowable revenue has been
applied for each coal system pending Draft Access Undertaking (UT4) revenue
and pricing approval. An adjustment for the difference between actual revenue
including take or pay and transitional allowable revenue will be paid/received
during the year ended 30 June 2015. A revenue cap adjustment will still apply
for the year to 30 June 2014 in respect of rebate and electric energy variations.
The timing of the revenue cap variation to tariffs is to be determined as part of
the UT4 process.
Freight transport
Revenue from freight transport services is calculated based on the rates agreed
with customers on a tonnes per delivery basis either by way of long-term
contract or on an ad-hoc basis. Revenue is recognised once the service has
been provided.
In some circumstances, the Group is able to recover extra charges where the
revenue receivable, based on tonnage hauled and agreed price, falls below
minimum levels set in contractual arrangements with customers. These
additional revenues include Deficit Tonnage Charges (DTC). Recognition of DTC
revenue is considered on a contract by contract basis and generally recognised
in the period following that in which the service was due to be provided where
the customer elects to pay the charges rather than to reduce future tonnage
entitlements.
Other services revenue
Revenue includes Transport Service Contract (TSC) payments received from the
Queensland Department of Transport and Main Roads for some specific rail
and road-based regional freight services and livestock transportation services.
Base amounts receivable under the TSC (regional freight and livestock) are
recognised on a straight-line basis over the term of the contract. Additional
payments are recognised when the revenue can be measured reliably on a
stage of completion basis over the term of the agreement. Refer to Note 5 for
details related to TSC revenue recognised in the financial statements.
(ii) Other revenue
Revenue from other service works is recognised by reference to the contractual
entitlement.
Access facilitation deeds for mine-specific infrastructure
The Group builds or acquires mine-specific infrastructure for customers and
provides access to those clients under access facilitation deeds. In substance,
charges under the deeds comprise capital charges and interest charges
where the Group finances the assets. The capital charges are recognised on
a straight-line basis over the term of the access facilitation deed while the
interest charges are accrued in accordance with the contractual terms of
the access facilitation deed arrangements. Where the customer prepays the
future charges, the amounts received are recognised as deferred income and
recognised within income on a straight-line basis over the term of the access
facilitation deed.
Liquidated damages
Liquidated damages occur when contractors fail to meet the key performance
indicators set out in their contract with the Group. Income resulting from
claims for liquidated damages is recognised as other revenue when all
performance obligations are met (including when a contractual entitlement
exists), it can be reliably measured (including the impact of the receipt, if any,
on the underlying asset’s carrying value) and it is probable that the economic
benefits will flow to the Group.
External maintenance and overhaul
External maintenance and overhaul revenue comprises revenue earned on the
maintenance of third party rollingstock and components. The majority of the
revenue arises from the overhaul of the Queensland Rail Passenger Fleet.
(f) Other income
(i) Disposal of assets
The gain or loss on disposal of assets is recognised at the date the significant
risks and rewards of ownership of the asset passes to the buyer, usually when
the purchaser takes delivery of the assets. The gain or loss on disposal is
calculated as the difference between the carrying amount of the asset at the
time of disposal and the net proceeds on disposal and is recognised as other
income or expenses in the income statement.
(ii) Interest revenue
Interest revenue is recognised using the effective interest method.
(iii) Dividends
Dividends are recognised as revenue when the right to receive payment
is established.
(g) Income tax
The income tax expense or revenue for the period is the tax payable on the
current period’s taxable income based on the applicable income tax rate for
each jurisdiction, adjusted for the changes in deferred tax assets and liabilities
attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting period in the
countries where the Group’s subsidiaries and associates operate and generate
taxable income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject
to interpretation. It establishes provisions, where appropriate, on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on temporary
differences arising between the tax bases of assets and liabilities and their
carrying amounts in the consolidated financial statements. However, deferred
tax liabilities are not recognised if they arise from the initial recognition of
goodwill. Deferred income tax is also not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business
combination that, at the time of the transaction, affects neither accounting
nor taxable profit or loss. Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the end of the
reporting period and are expected to apply when the related deferred income
tax asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for deductible temporary differences and
unused tax losses only if it is probable that future taxable amounts will be
available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to offset current tax assets and liabilities and when the deferred tax
balances relate to the same taxation authority.
ANNUAL REPORT 2013–14 69
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(g) Income tax (continued)
Current tax assets and tax liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
To the extent that an item is recognised in other comprehensive income or
directly in equity, the deferred tax is also recognised in other comprehensive
income or directly in equity.
(h) Leases
Leases on property, plant and equipment
Leases in which a significant portion of the risks and rewards of ownership
are not transferred to the Group as lessee are classified as operating leases.
Payments made under operating leases (net of any incentives received from
the lessor) are charged to the income statement on a straight-line basis over
the period of the lease.
Rental revenue from operating leases where the Group is a lessor is recognised
as income on a straight-line basis over the lease term. Where a sale and lease
back transaction has occurred, the lease is classified as either a finance lease
or operating lease based on whether risks and rewards of ownership are
transferred or not.
Cross border leases
The cross border lease arrangements involve transferring the legal title to, or
head leasing, the rollingstock to the lessor but the Group substantially retains
the risks and rewards incidental to ownership of the rollingstock and enjoys
substantially the same rights to its use as before the arrangement. Under
the cross border lease arrangements, the ability of the Group to dispose of or
otherwise deal with its interest in the rollingstock is restricted and cannot be
sold without the consent of the lessor. The rollingstock is depreciated based
on its estimated useful life as the Group intends to re-acquire the legal title of
these assets. Benefits received from the cross border lease arrangements were
recognised as income at the inception of the arrangements.
Where it is necessary under the cross border lease provisions to terminate
part or all of a lease due to damaged or disposed leased assets and there is a
difference between the value of the owned asset and the termination cost of
the leased asset, the net book value of the damaged asset is recognised in the
income statement as loss (or gain) on disposal and termination costs incurred
and are recognised in the income statement as other expenses.
Impairment of assets
(i)
Assets are tested for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s carrying
amount exceeds its recoverable amount. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash flows which are largely independent of the cash
flows from other assets or groups of assets (cash-generating units).
The recoverable amount is the greater of an asset’s fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset.
Impairment losses are recognised in the income statement. After the
recognition of an impairment loss, the depreciation (amortisation) charge for
the asset is adjusted in future periods to allocate the asset’s revised carrying
amount, less its residual value (if any), on a systematic basis over its remaining
useful life. Impairment losses, if any, recognised in respect of cash-generating
units, are allocated first to reduce the carrying amount of any goodwill
allocated to cash-generating units and then to reduce the carrying amount of
other assets in the unit on a pro-rata basis.
Non-financial assets, other than goodwill that suffered impairment, are
reviewed for possible reversal of impairment at each reporting period.
(j) Cash and cash equivalents
For the purpose of presentation in the statement of cash flow, cash and
cash equivalents includes cash on hand; deposits held ‘at call’ with financial
institutions; and other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes
in value.
(k) Trade and other receivables
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest method,
less provision for impairment. Trade receivables generally have credit terms
ranging from seven to 31 days. They are presented as current assets unless
collection is not expected for more than 12 months after the reporting date.
Collectability of trade and other receivables is reviewed on an ongoing basis.
Debts which are known to be uncollectible are written off by reducing the
carrying amount directly. A provision for impairment of trade and other
receivables is established when there is objective evidence that the Group
will not be able to collect all amounts due according to the original terms
of the receivables.
Significant financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation and default or delinquency in
payments (more than 90 days overdue) are considered indicators that the
trade receivable is impaired. The amount of the impairment allowance is the
difference between the asset’s carrying amount and the present value of
estimated future cash flows, discounted at the original effective interest rate.
Cash flows relating to short-term receivables are not discounted if the effect of
discounting is immaterial.
The amount of the impairment loss is recognised in the income statement
within other expenses. When a trade or other receivable for which an
impairment allowance had been recognised becomes uncollectible in a
subsequent period it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against other
expenses in the income statement.
Inventories
(l)
Inventories include items held in centralised stores, workshops and
infrastructure and rollingstock depots and are stated at the lower of cost and
net realisable value. Cost comprises the cost of purchase, cost of conversion
and other costs incurred in bringing the inventories to its present location and
condition. Cost is determined predominantly on an average cost basis.
Items expected to be consumed after more than one year are classified
as non-current.
The provision for inventory obsolescence is based on assessments by
management of particular inventory classes and relates specifically to
infrastructure and rollingstock maintenance items. The amount of the provision
is based on a proportion of the value of damaged stock, slow moving stock and
stock that has become obsolete during the reporting period.
(m) Non-current assets (or disposal groups) held for sale and
discontinued operations
Non-current assets (or disposal groups) are classified as held for sale if their
carrying amount will be recovered principally through a sale transaction, rather
than through continuing use and a sale is considered highly probable. They
are measured at the lower of their carrying amount and fair value less costs to
sell, except for assets such as deferred tax assets; assets arising from employee
benefits; financial assets; and investment property that are carried at fair value
and contractual rights under insurance contracts which are specifically exempt
from this requirement.
FINANCIAL REPORT | AURIZON 70
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(m) Non-current assets (or disposal groups) held for sale and
discontinued operations (continued)
Non-current assets (including those that are part of a disposal group) are not
depreciated or amortised while they are classified as held for sale. Interest and
other expenses attributable to the liabilities of a disposal Group classified as
held for sale continue to be recognised.
Non-current assets classified as held for sale and the assets of a disposal group
classified as held for sale are presented separately from the other assets in the
consolidated balance sheet.
(n) Investments and other financial assets
Classification
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for those with maturities greater than
12 months after the reporting period which are classified as non-current assets.
Loans and receivables are included in trade and other receivables (Note 11)
in the balance sheet.
Recognition and derecognition
Regular purchases and sales of financial assets are recognised on the trade
date – the date on which the Group commits to purchase or sell the asset.
Financial assets are derecognised when the rights to receive cash flows from
the financial assets have expired or have been transferred and the Group has
transferred substantially all the risks and rewards of ownership.
Measurement
At initial recognition, the Group measures a financial asset at its fair value
plus, in the case of a financial asset not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition of the
financial asset. Transaction costs of financial assets carried at fair value
through profit or loss are expensed in the income statement.
Loans and receivables are subsequently carried at amortised cost using the
effective interest method.
The Group assesses at each reporting date whether there is objective evidence
that a financial asset (or group of financial assets) is impaired. A financial asset
(or a group of financial assets) is impaired and impairment losses are incurred
only if there is objective evidence of impairment as a result of one or more
events that occurred after the initial recognition of the asset (a “loss event”)
and that loss event (or events) has an impact on the estimated future cash
flows of the financial asset (or group of financial assets) that can be
reliably estimated.
Assets carried at amortised cost
For loans and receivables, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated
future cash flow (excluding future credit losses that have not been incurred)
discounted at the financial asset’s original effective interest rate. The carrying
amount of the asset is reduced and the amount of the loss is recognised in the
income statement. If a loan has a variable interest rate, the discount rate for
measuring any impairment loss is the current effective interest rate determined
under the contract. As a practical expedient, the Group may measure
impairment on the basis of an instrument’s fair value using an observable
market price.
If, in a subsequent period, the amount of the impairment loss decreases
and the decrease can be related objectively to an event occurring after the
impairment was recognised (such as an improvement in the debtor’s credit
rating), the reversal of the previously recognised impairment loss is recognised
in the income statement.
(o) Derivatives and hedging activities
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured to their fair value
at the end of each reporting period. The accounting for subsequent changes
in fair value depends on whether the derivative is designated as a hedging
instrument and, if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of the cash flows of
recognised assets and liabilities and highly probable forecast transactions
(“cash flow hedges”).
At inception, the Group documents the relationship between hedging
instruments and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions. The Group also
documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions have been,
and will continue to be, highly effective in offsetting future cash flows of
hedged items.
The fair values of a derivative financial instruments used for hedging purposes
are disclosed in Note 13. The full fair value of a hedging derivative is classified
as a non-current asset or liability when the remaining maturity of the hedged
item is more than 12 months. It is classified as a current asset or liability when
the remaining maturity of the hedged item is less than 12 months.
(i) Cash flow hedge
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in other
comprehensive income and accumulated in reserves in equity. The gain or loss
relating to the ineffective portion is recognised immediately in profit or loss
within other income or other expense.
Amounts accumulated in equity are reclassified to profit or loss in the periods
when the hedged item affects profit or loss. However, when the forecast
transaction that is hedged results in the recognition of a non-financial asset,
the gains and losses previously deferred in equity are reclassified from equity
and included in the initial measurement of the cost or carrying amount of
the asset.
When a hedging instrument expires or is sold or terminated, or when a hedge
no longer meets the criteria for hedge accounting, any cumulative gain or loss
existing in equity at that time remains in equity and is recognised when the
forecast transaction is ultimately recognised in profit or loss. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately reclassified to profit or loss.
(ii) Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Changes in
fair value of any derivative instrument that do not qualify for hedge accounting
are recognised immediately in profit or loss in other income or expense.
(iii) Embedded derivatives
Through the Group’s purchase and sale contracts, it is possible that embedded
derivatives have been entered into. An embedded derivative will cause some
or all of the cash flows of the purchase or sale contract (i.e. the host contract)
to be modified by reference to a variable, such as a foreign exchange rate or a
commodity price.
Embedded derivatives are separated from the host contract and accounted
for as a stand-alone derivative if the economic characteristics and risks of the
embedded derivatives are not closely related to those of the host contract.
ANNUAL REPORT 2013–14 Notes to the consolidated financial statements
30 June 2014
71
Assets under construction
Assets under construction represent the cost of fixed assets currently under
construction and includes the cost of all materials used in construction, direct
labour, site preparation, interest, foreign currency gains and losses incurred
where applicable. Also included in assets under construction are costs directly
attributable with the development of significant strategic infrastructure
projects (refer Note 2(iv)). The development costs relate to directly attributable
expenditure predominantly on engineering design, environmental and building
approvals and project management.
Costs of assets under construction are only capitalised when it is probable that
future economic benefits associated with the asset will flow to the Group and
the costs can be measured reliably.
(ii) Subsequent costs
Subsequent costs are included in the asset’s carrying amount or recognised
as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost
of the item can be measured reliably. The carrying amount of any component
accounted for as a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to the income statement during the
reporting period in which they are incurred.
(iii) Depreciation and amortisation
Assets are depreciated or amortised from the date of acquisition, or, in respect
of internally constructed or manufactured assets, from the time an asset is
completed and held ready for use.
Buildings, infrastructure, rollingstock, plant and equipment are depreciated
using the straight-line method to allocate their costs, net of their residual
values, over their estimated useful lives. Motor vehicles are depreciated using
the diminishing value basis (percentages range from 13.6% to 35.0%).
Land and assets under construction are not depreciated.
Assets controlled by the Group under finance leases are amortised over the
useful lives of the assets. Leasehold improvements are depreciated over the
shorter of either the unexpired period of the lease or the estimated useful lives
of the improvements.
Where assets have separately identifiable components that are subject to
regular replacement, these components are assigned useful lives distinct from
the asset to which they relate. Any expenditure that increases the originally
assessed capacity or service potential of an asset is capitalised and the new
depreciable amount is depreciated over the remaining life of the asset.
The Group builds mine-specific infrastructure for customers and provides access
to those clients under access facilitation deeds. Infrastructure controlled by
the Group under these deeds is depreciated over the term of the deed, except
where economic benefits are expected to flow to the Group after the end of the
term of the deed.
1 Summary of significant accounting policies (continued)
(p) Property, plant and equipment
(i) Methodology for valuation of fixed assets
Buildings, plant and equipment and rollingstock
Buildings, plant and equipment and rollingstock are carried at cost less
accumulated depreciation. Cost includes expenditure that is directly
attributable to the acquisition of the asset or the fair value of the other
consideration given to acquire an asset at the time of its acquisition or
construction. Cost may also include transfers from equity of any gains or
losses on qualifying cash flow hedges of foreign currency purchases of
property, plant and equipment and capitalised interest.
Land
Land is carried at cost. As the Transport Infrastructure Act 1994 (Queensland)
stipulates that corridor land is owned by the State, only non-corridor land
owned by the Group is recorded in the financial statements. Ownership
of corridor land is with the Department of Environment and Resource
Management, on behalf of the State. This land is leased to the Department
of Transport and Main Roads and subsequently sub-leased to Aurizon Network
Pty Ltd under two separate subleases, each with a rental of $1.00 per year if
demanded. The subleases each expire on 30 June 2109.
The land subleases will automatically be renewed for a period of 99 years
if the infrastructure leases are renewed for that period (refer leased coal
infrastructure below).
Leased property, plant and equipment
Leases of property, plant and equipment where the Group, as lessee, has
substantially all the risks and rewards of ownership, are classified as finance
leases. Assets held under finance leases are recorded at the lower of the net
present value of the minimum lease payments or the fair value of the leased
asset at the inception of the lease. Each lease payment is allocated between
the liability and finance cost. The finance cost is charged to profit or loss on an
effective interest rate basis.
Owned infrastructure
Infrastructure assets are transferred from Assets under construction once fully
constructed and available for use. They are carried at cost less accumulated
depreciation. The costs represent capitalised expenditures that are directly
related to capital projects and may include materials, labour and equipment,
in addition to an allocable portion of indirect costs that clearly relate to a
particular project that will provide future economic benefit and remain within
the control of the Group.
Leased coal infrastructure
Coal infrastructure assets are owned by (a) the State, with respect to the CQCN
and (b) Queensland Rail, with respect to the North Coast Line (each referred to
as the Infrastructure Lessors). Under each infrastructure lease the infrastructure
is leased to Aurizon Network Pty Ltd, a controlled entity. The term of each
lease is 99 years (at a rate of $1.00 per year), unless the Infrastructure Lessor
exercises an option to extend its lease for a further 99 years.
The notice period for the Infrastructure Lessor to renew or allow expiry of the
lease is not less than 20 years prior to the end of the 99 year term. To the
extent that the lease expires at the end of 99 years, the Infrastructure Lessor
will pay Aurizon Network Pty Ltd the fair market value of the infrastructure
assets, including the infrastructure existing on commencement of the lease
as well as any railway assets added during the lease term as are reasonably
required to enable the infrastructure to be operated as a fully functioning
railway network. As the assets are not considered to be providing a public
service, the Group’s economic interest in the assets is accounted for as
property, plant and equipment.
FINANCIAL REPORT | AURIZON 72
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(p) Property, plant and equipment (continued)
(iii) Depreciation and amortisation (continued)
The depreciation and amortisation rates used during the year were based on
the following range of useful lives:
– Owned and leased infrastructure, including:
Tracks
Track turnouts
Ballast
Civil works
Bridges
Electrification
Field signals
– Buildings
– Rollingstock, including:
Locomotives
Locomotives componentisation
Wagons
Wagons componentisation
– Plant and equipment
– Leased property
30–45 years
20–25 years
8–20 years
20–100 years
50–100 years
20–50 years
15–40 years
10–40 years
25–35 years
8–12 years
25–35 years
10–17 years
3–20 years
3–40 years
The depreciation and amortisation rates are reviewed annually and adjusted if
appropriate (refer Note 2(ii)). An asset’s carrying amount is written down to its
recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the
carrying amount and are recognised in the income statement.
(q) Intangible assets
(i) Software and software development
Costs incurred in developing products or systems and costs incurred in acquiring
software and licenses that will contribute to future period financial benefits
through revenue generation and/or cost reduction are capitalised to software
and systems. Costs capitalised include external direct costs of materials and
service, employee costs and an appropriate portion of relevant overheads.
Software development costs include only those costs directly attributable
to the development phase and are only recognised following completion of
technical feasibility and where the Group has an intention and ability to use
the asset.
Software (mainly comprising SAP development costs) has a finite useful
life and is carried at cost less accumulated amortisation and impairment.
Amortisation is calculated using the straight-line method over the estimated
useful life which varies from 3 to 11 years.
Key customer contracts
(ii)
Key customer contracts have a finite useful life and are carried at cost less
accumulated amortisation and impairment losses. Amortisation is calculated
using the straight-line method over the useful life which varies from three to
six years.
(iii) Research and development
Research expenditure is recognised as an expense as incurred. Costs incurred
on development projects (relating to the design and testing of new or
improved products) are recognised as intangible assets when it is probable
that the project will, after considering its commercial and technical feasibility,
be completed and generate future economic benefits and its costs can
be measured reliably. The expenditure capitalised comprises all directly
attributable costs, including costs of materials, services and direct labour.
Other development expenditures that do not meet these criteria are recognised
as an expense as incurred. Development costs previously recognised as an
expense are not recognised as an asset in a subsequent period. Capitalised
development costs are recorded as intangible assets and amortised from the
point at which the asset is ready for use on a straight-line basis over its useful life.
(r) Trade and other payables
These amounts represent liabilities for goods and services provided to the
Group prior to the end of financial year which are unpaid. The amounts are
unsecured and are usually paid within 45 days or within the terms agreed
with the supplier. Trade and other payables are presented as current liabilities.
They are recognised initially at their fair value and subsequently measured at
amortised cost using the effective interest method.
(s) Borrowings and borrowing costs
(i) Borrowings
Borrowings are initially recognised as fair value, net of transaction costs
incurred. Borrowings are subsequently measured at amortised cost, using the
effective interest rate method.
Interest costs are calculated using the effective interest rate method. The
effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial instrument.
Interest is accrued monthly and paid on maturity. Commitment and agency
fees are accrued monthly and paid quarterly. Interest is paid on the Medium
Term Note semi-annually.
Establishment costs have been capitalised and are amortised over the life of
the facility and the term of the Medium Term Note.
Borrowings are removed from the balance sheet when the obligation specified
in the contract is discharged, cancelled or expired. The difference between
the carrying amount of a financial liability that has been extinguished or
transferred to another party and the consideration paid, including any non-
cash assets transferred or liabilities assumed, is recognised in profit or loss as
other income or finance costs.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the reporting date.
(ii) Borrowing costs
Borrowing costs which are directly attributable to the acquisition, construction
or production of a material qualifying asset are capitalised during the period
of time that is required to complete and prepare the asset for its intended
use or sale. A qualifying asset is an internally funded asset that necessarily
takes a substantial period of time to be prepared for its intended use or sale.
The capitalisation rate used to determine the amount of borrowing costs
to be capitalised is the weighted average interest rate applicable to the
entity’s outstanding borrowings during the year of 4.89% (2013: 5.00%).
Other borrowing costs are expensed.
(t) Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of resources
will be required to settle the obligation and the amount has been reliably
estimated. Provisions are not recognised for future operating losses.
Provisions are measured at the present value of management’s best estimate
of the expenditure required to settle the present obligation at the reporting
date. The discount rate used to determine the present value is a pre-tax rate
that reflects current market assessments of the time value of money and the
risks specific to the liability. The increase in the provision resulting from the
passage of time is recognised in finance costs.
ANNUAL REPORT 2013–14 73
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(t) Provisions (continued)
In accordance with the Group’s environmental sustainability policy and
applicable legal and constructive obligations, a provision for land rehabilitation
in respect of contaminated land, is recognised when an obligation for
rehabilitation is identified.
(u) Employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and
accumulating annual leave and leave loading that are expected to be settled
wholly within 12 months after the end of the period in which the employees
render the related service are recognised in respect of employees’ services up
to the end of the reporting period and are measured at the amounts expected
to be paid when the liabilities are settled. The short-term employee benefit
obligations are recognised in the provision for employee benefits.
(ii) Other long-term employee benefit obligations
The liabilities for long service leave and annual leave are not expected to
be settled wholly within 12 months after the end of the period in which the
employees render the related service. They are therefore recognised in the
provision for employee benefits and measured as the present value of expected
future payments to be made in respect of services provided by employees
up to the end of the reporting period using the projected unit credit method.
Consideration is given to expected future wage and salary levels, experience
of employee departures and periods of service. Expected future payments
are discounted using market yields at the end of the reporting period of
government bonds with terms and currencies that match, as closely as possible,
the estimated future cash outflows. Remeasurements as a result of experience
adjustments and changes in actuarial assumptions are recognised in profit
or loss.
The obligations are presented as current liabilities in the balance sheet if the
entity does not have an unconditional right to defer settlement for at least
12 months after the reporting period, regardless of when the actual settlement
is expected to occur.
(iii) Retirement allowance
Retirement allowance is payable to employees who fulfil the following
requirements:
>
retire or who are paid according to Voluntary Redundancy Scheme or
Medical Separation,
>
are not members of an accumulation super fund, and
> were employed prior to 1 February 1995.
Liabilities for retirement allowance for employees who have fulfilled these
requirements are recognised as current liabilities. The remaining liabilities are
included within employee benefits and recognised as non-current liabilities.
The non-current liability for retirement allowance is measured at the present
value of expected future payments to be made in respect of services provided
by qualifying employees. Consideration is given to expected future wage and
salary levels, experience of the departure of qualifying employees and periods
of service. Expected future payments are discounted using market yields at
the reporting date on Commonwealth Government bonds with maturities that
match, as closely as possible, to the estimated future cash outflows.
(iv) Share-based payments
The fair value of rights granted under the Performance Rights Plan is
recognised as an employee benefits expense with a corresponding increase in
equity. The total amount to be expensed is determined by reference to the fair
value of the rights granted, which includes any market performance conditions
and the impact of any non-vesting conditions, but excludes the impact of any
service and non-market performance vesting conditions.
Non-market vesting conditions are included in assumptions about the number
of rights that are expected to vest. The total expense is recognised over the
vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied. At the end of each period, the entity revises
its estimates of the number of rights that are expected to vest based on the
non-marketing vesting conditions. It recognises the impact of the revision to
original estimates, if any, in profit or loss, with a corresponding adjustment
to equity.
For the year share-based compensation was settled by making on-market
purchases of the Company’s ordinary shares.
(v) Bonus plans
The Group recognises a liability and an expense for bonuses based on
a formula that takes into consideration the Group and individual key
performance indicators, including profit attributable to the Company’s
shareholders after certain adjustments. The Group recognises a provision
where contractually obliged or where there is a past practice that has created
a constructive obligation.
(vi) Termination benefits
Termination benefits are payable when employment is terminated before the
normal retirement date, or when an employee accepts voluntary redundancy
in exchange for these benefits. The Group recognises termination benefits at
the earlier of the following dates: (a) when the Group can no longer withdraw
the offer of those benefits; and (b) when the entity recognises costs for a
restructuring that is within the scope of AASB 137 and involves the payment
of terminations benefits. In the case of an offer made to encourage voluntary
redundancy, the termination benefits are measured based on the number
of employees expected to accept the offer. Benefits falling due more than
12 months after the end of the reporting period are discounted to present value.
(vii) Superannuation
The Group pays an employer subsidy to the Government Superannuation
Office in respect of employees who are contributors to the Public Sector
Superannuation (QSuper) scheme.
Employer contributions to the QSuper Defined Benefit Fund are determined
by the State of Queensland Treasurer having regard to advice from the State
Actuary. The primary obligation to fund the defined benefits obligations
are that of the State. However, the Treasurer has the discretion to request
contributions from employers that contribute to the defined benefit category of
QSuper. No liability is recognised for accruing superannuation benefits as this
liability is held on a whole of Government basis and reported in the whole of
Government financial statements. The State Actuary performs a full actuarial
valuation of the assets and liabilities of the fund on a triennial basis. The latest
valuation was completed as at 30 June 2013 and the State Actuary found
the fund was in surplus from a whole of Government perspective. In addition,
from late 2007, the Defined Benefit Fund was closed to new members so any
potential future deficit would be diluted as membership decreases. Accordingly,
no liability/asset is recognised for the Group’s share of any potential deficit/
surplus of the Super Defined Benefit Fund of QSuper. The State of Queensland
has provided Aurizon with an indemnity if the Treasurer requires Aurizon to pay
any amounts required to meet the potential deficit/surplus.
The Group also makes superannuation guarantee payments into the QSuper
Accumulation Fund (Non-Contributory) and QSuper Accumulation Fund
(Contributory) administered by the Government Superannuation Office and to
other complying Superannuation Funds designated by employees nominating
Choice of Fund.
(v) Contributed equity
Ordinary shares are classified as equity. Incremental costs directly attributable
to the issue of new shares are shown in equity as a deduction, net of tax, from
the proceeds.
FINANCIAL REPORT | AURIZON 74
Notes to the consolidated financial statements
30 June 2014
1 Summary of significant accounting policies (continued)
(i)
Investments in subsidiaries, associates and joint venture entities
(v) Contributed equity (continued)
Where any Group company purchases the Company’s equity instruments,
for example as the result of a share-based payment plan, the consideration
paid, including any directly attributable incremental costs (net of income taxes)
is recognised directly in equity.
(w) Dividends
Provision is made for the amount of any dividend declared, being appropriately
authorised and no longer at the discretion of the entity, on or before the end of
the financial year but not distributed at the reporting date.
(x) Earnings Per Share
(i) Basic Earnings Per Share
Basic Earnings Per Share are calculated by dividing:
>
>
the profit attributable to owners of the Company, excluding any costs of
servicing equity other than ordinary shares, and
by the weighted average number of ordinary shares outstanding during
the financial year, adjusted for bonus elements in ordinary shares issued
during the year.
(ii) Diluted Earnings Per Share
Diluted Earnings Per Share adjusts the figures used in the determination of
basic Earnings Per Share to take into account:
>
>
the after income tax effect of interest and other financing costs associated
with dilutive potential ordinary shares, and
the weighted average number of additional ordinary shares that would
have been outstanding assuming the conversion of all dilutive potential
ordinary shares.
(y) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of associated
GST, unless the amount of GST incurred is not recoverable from the Australian
Taxation Office (ATO). In this case, the GST is recognised as part of the cost of
acquisition of the asset or as part of the expense.
Receivables and payables are stated inclusive of the amount of GST receivable
or payable. The net amount of GST recoverable from, or payable to, the ATO is
included with other receivables or payables in the balance sheet.
Cash flows are presented in the cash flow statement on a gross basis. The GST
components of cash flows arising from investing or financing activities which
are recoverable from, or payable to the ATO, are presented as operating
cash flows.
Aurizon Holdings Limited and its subsidiaries are grouped for GST purposes.
Therefore, any inter-company transactions within the Group do not
attract GST.
(z) Rounding of amounts
The Company is of a kind referred to in Class Order 98/100 (Class Order),
issued by the Australian Securities and Investments Commission, relating to
the ‘rounding off’ of amounts in the financial report. Amounts in the financial
report have been rounded off in accordance with that Class Order to the
nearest hundred thousand dollars, unless otherwise indicated.
(aa) Parent entity financial information
The financial information for the parent entity, Aurizon Holdings Limited,
disclosed in Note 36 has been prepared on the same basis as the consolidated
financial statements, except as set out below.
Investments in subsidiaries, associates and joint venture entities are accounted
for at cost in the financial statements of Aurizon Holdings Limited. Dividends
received from associates are recognised in the parent entity’s income
statement, rather than being deducted from the carrying amount of
these investments.
(ii) Tax consolidation legislation
Aurizon and its wholly-owned, Australian controlled entities have implemented
the tax consolidation legislation with effect from 22 November 2010. All
Australian wholly-owned companies in the Aurizon Holdings Limited Group are
part of the tax consolidated group and are therefore taxed as a single entity.
The head entity of the tax consolidated group is Aurizon Holdings Limited.
The Group has notified the ATO that it has formed a tax consolidated group,
applying from 22 November 2010.
The head entity, Aurizon Holdings Limited and the controlled entities in the tax
consolidated group account for their own current and deferred tax amounts.
These tax amounts are measured as if each entity in the tax consolidated
group continues to be a stand-alone taxpayer in its own right.
In addition to its own current and deferred tax amounts, Aurizon also
recognises the current tax liabilities (or assets) and the deferred tax assets
arising from unused tax losses and unused tax credits assumed from controlled
entities in the tax consolidation group.
The entities have also entered into a tax sharing and tax funding agreements.
The tax funding agreement sets out the funding obligations of members of
the tax consolidated group in respect of income tax amounts. The tax funding
arrangements require payments to the head entity equal to the current tax
liability assumed by the head entity. In addition, the head entity is required
to make payments equal to the current tax asset or deferred tax asset arising
from unused tax losses and tax credits assumed by the head entity from a
subsidiary member.
These tax funding arrangements result in the head entity recognising a
current inter-entity receivable/payable equal in amount to the tax liability/
asset assumed.
The tax sharing agreement limits the joint and several liability of the wholly-
owned entities in the case of a default by the head entity.
(iii) Employee benefits – share-based payments
The grant by the Company of rights over its equity instruments to the
employees of subsidiary undertakings in the Group is treated as a capital
contribution to that subsidiary undertaking. The fair value of employee services
received, measured by reference to the grant date fair value, is recognised over
the vesting period as an increase to investment in subsidiary undertakings,
with a corresponding credit to equity.
2 Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on
historical experience and other factors, including expectations of future events
that may have a financial impact on the entity and that are believed to be
reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
ANNUAL REPORT 2013–14 75
Notes to the consolidated financial statements
30 June 2014
2 Critical accounting estimates and judgements (continued)
3 Financial risk management
Impairment
(i)
The Group considers annually whether there have been any indicators of
impairment and then tests whether non-current assets, including goodwill,
have suffered any impairment, in accordance with the accounting policy stated
in Note 1(i). The recoverable amounts of cash generating units have been
determined based on value in use calculations or fair value less costs to sell.
For the assets and cash generating unit impaired during the year, the fair value
less costs to sell is estimated based on recent market transaction information.
These calculations require the use of assumptions. Refer to Notes 16 and 17
for further details on the carrying amounts of non-current assets subject to
impairment testing.
(ii) Depreciation
Management estimates the useful lives and residual values of property, plant
and equipment based on the expected period of time over which economic
benefits from use of the asset will be derived. Management reviews useful
life assumptions on an annual basis having given consideration to variables
including historical and forecast usage rates, technological advancements and
changes in legal and economic conditions. Refer to Note 1(p) for details of
current depreciation rates used.
(iii) Take or pay
The calculation of Take or Pay is based on an assessment of access charges
from contracted railings that have not been achieved subject to an adjustment
for Aurizon Network Pty Ltd (“below rail”) cause. Below rail cause is based on
information on below rail versus operator/mine cancellations in the relevant
year. The estimate of Take or Pay is based on management’s judgement of
below rail cause and is recognised in the year in which the contractual railings
have not been achieved.
(iv) Significant strategic infrastructure projects
During the period, work continued on various significant infrastructure projects
in relation to above and below rail development. A review of the current
status of a number of projects resulted in an impairment of $72.9 million
(refer Note 4(c) for more details). As at 30 June 2014, $41.9 million (2013:
$108.1 million) of costs were capitalised. The balance relates to Galilee Basin
rail development. Management’s judgement has been applied to the extent
to which capitalisation of these development costs is appropriate. Whilst
these strategically important projects continue to achieve key milestones, the
application of this judgement will continue to be re-assessed throughout the
life of the projects.
(v) Access undertaking
On 30 April 2013, Aurizon Network submitted its 2013 Draft Access
Undertaking (UT4) to the Queensland Competition Authority (QCA) for
approval. As full approval of UT4 would not occur before 30 June 2013, Aurizon
Network submitted to the QCA two Draft Amending Access Undertakings
(DAAUs) to extend the terminating date of its 2010 Access Undertaking
(UT3) from 30 June 2013 to 30 June 2014 and subsequently to 30 June 2015
(or earlier if UT4 is approved). The DAAU applies transitional tariffs up until
30 June 2015. The recent DAAU referencing the period from 30 June 2014
to 30 June 2015 was approved by the QCA on 12 June 2014. Access revenue
recognised in these financial statements is based on the transitional tariffs
contained in the DAAU. The DAAU also proposes a ‘true-up’ mechanism for
dealing with over and under recoveries from 2013-14 (refer Note 19).
The QCA has confirmed that full approval of UT4 is targeted for completion by
30 June 2015.
The Group has exposure to a variety of financial risks including market risk
(foreign exchange risk and interest rate risk), credit risk and liquidity risk.
Risk management is carried out by a central Treasury function on behalf of the
Group under Treasury Policies approved by the Board. Trading for speculation
is strictly prohibited. Compliance with the Policies is monitored on an ongoing
basis through regular reporting to the Board.
(a) Market risk
Market risk is the risk that adverse movements in foreign exchange and interest
rates will affect the Group’s financial performance or the value of its holdings
of financial instruments. The Group measures market risk using cash flow at
risk. The objective of risk management is to manage the market risks inherent
in the business to protect profitability and return on assets.
(i) Foreign exchange risk
Exposure to foreign exchange risk
Foreign exchange risk arises from commercial transactions and recognised
assets and liabilities that are denominated in or related to a currency that is
not the entity’s functional currency. These transactions apply in large part to
the US Dollar (USD) and the Euro (EUR).
The Group’s exposure to foreign currency risk together with the derivatives
which have been entered into to manage these exposures at the end of the
reporting period, expressed in Australian dollars (AUD), was as follows:
Cash and cash equivalents
Net forward exchange contracts
Net exposures
2014
2013
USD
$m
0.6
(14.7)
(14.1)
EUR
$m
2.8
(28.5)
(25.7)
USD
$m
0.9
(5.8)
(4.9)
EUR
$m
1.4
(3.1)
(1.7)
Risk management
In order to protect against foreign exchange movements, the Group enters
into forward foreign exchange contracts. These contracts are hedging highly
probable forecast foreign currency exposures. Such contracts are designated
as cash flow hedges. Realised gains or losses on these contracts arise due to
differences between the spot rates on settlement and the forward rates of the
derivative contracts.
During the year, the net realised gain arising from foreign exchange hedging
activities for the Group was $0.5 million (2013: loss of $1.0 million) as a result
of the AUD depreciating below the average hedged price. Of this net amount,
gross realised gains of $0.9 million (2013: loss of $0.5 million) represents the
effective portion of the hedges which has been recognised in the relevant
expenditure category or capitalised to a project and gross realised losses of
$0.4 million (2013: loss of $0.5 million) represents the ineffective portion of
hedges and non-designated derivatives, which have been recognised in
other expenses.
(ii) Interest rate risk
Exposure to interest rate risk
The Group holds both interest bearing assets and interest bearing liabilities,
and therefore the Group’s income and operating cash flows are subject to
changes in market interest rates.
The Group’s main interest rate risk arises from long term borrowings.
Borrowings issued at variable rates expose the Group to cash flow interest
rate risk.
FINANCIAL REPORT | AURIZON 76
Notes to the consolidated financial statements
30 June 2014
3 Financial risk management (continued)
(a) Market risk (continued)
(ii) Interest rate risk (continued)
At the reporting date, the Group has exposure to the following variable rate
borrowings and interest rate swaps.
30 June 2014
30 June 2013
Weighted
average
interest
rate
%
Weighted
average
interest
rate
%
Balance
$m
Balance
$m
4.2%
2,351.5
4.3%
2,525.0
3.4%
(1,725.0)
3.5%
(300.0)
Bank overdrafts
and bank loans
Interest rate
swaps
Net exposure to
cash flow interest
rate risk
15% movement in foreign
currency rates
15% decrease in foreign
currency rates
USD depreciation
EUR depreciation
15% increase in foreign
currency rates
USD appreciation
EUR appreciation
Profit
(before tax)
Equity
(before tax)
2014
$m
2013
$m
2014
$m
2013
$m
-
-
-
-
-
-
-
-
(1.8)
4.9
1.0
0.6
1.3
(3.7)
(0.7)
(0.4)
100 bps movement in interest rates
100 bps decrease in interest rates
Borrowings
Derivatives
21.1
-
23.2
-
-
(48.4)
-
(0.8)
626.5
2,225.0
100 bps increase in interest rates
Risk management
The Group manages its cash flow interest rate risk by using floating-to-fixed
interest rate swaps.
Swaps currently in place cover approximately 73% (2013: 12%) of the variable
loan principal outstanding. The weighted average maturity of the outstanding
swaps is approximately 2.9 years (2013: 0.3 years).
The contracts require settlement of net interest receivable or payable each
month. The settlement dates coincide with the dates on which interest is
payable on the underlying debt. The International Swaps and Derivatives
Association agreements we hold with each of our counterparties allow for the
netting of payments and receipts with respect to settlements for our interest
rate swap transactions.
During the year, the net realised loss arising from interest rate hedging
activities for the Group was $8.4 million (2013: loss of $2.0 million) as a result
of market interest rates closing lower than the average hedged rate. The total
realised loss represents the effective portion of the hedges which has been
recognised in interest expense.
The Group accounts for financial assets at fair value through profit or loss and
financial liabilities at amortised cost using the effective interest method.
(iii) Sensitivity on foreign exchange and interest rate risk
The following table summarises the gain/(loss) impact of reasonably possible
changes in market risk, relating to existing financial instruments, on net
profit and equity before tax. For the purpose of this disclosure, the following
assumptions were used:
>
>
>
>
>
15% (2013: 15%) appreciation/depreciation of foreign currency rates;
100 basis points (bps) increase/decrease in interest rates;
sensitivity analysis assumes hedge designations and effectiveness test
results as at 30 June 2014 remain unchanged;
sensitivity analysis is isolated for each risk assuming all other variables
remain constant, and
sensitivity analysis on foreign currency rates represent current market
conditions.
Borrowings
Derivatives
(21.1)
0.3
(23.2)
-
-
47.1
-
0.8
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk is the risk of financial loss to
the Group if a customer or counterparty to a financial instrument fails to meet
its contractual obligations. Credit risk arises from cash and cash equivalents,
derivative financial instruments, deposits with financial institutions and
receivables from customers.
The maximum exposure to credit risk, excluding the value of any collateral or
other security, at balance date to recognised financial assets, is the carrying
amount, net of any provisions for impairment of those assets, as disclosed in
the balance sheet and notes to the financial statements. Credit risk further
arises in relation to financial guarantees given to certain parties. Refer to
Note 3(d) for further details.
The Group does not have any material credit risk exposure to any single
receivable or group of receivables under financial instruments entered into by
the Group. For some trade receivables, the Group may also obtain security in
the form of guarantees, deeds of undertaking or letters of credit which can be
called upon if the counterparty is in default under the terms of the agreement.
Refer to Note 3(d) for further details.
The Group has policies in place to ensure that sales of services are only made
to customers with an appropriate credit profile. If customers are independently
rated, these ratings are used. Otherwise, if there is no independent rating, the
credit quality of the customer is assessed, taking into account its financial
position, past experience and other factors.
Credit risk on cash transactions and derivative contracts is managed through
the Board approved Group Treasury Policies which restricts the Group
to financial institutions whose long-term credit ratings, determined by a
recognised ratings agency, are at or above the minimum rating of A- . This
Policy also limits the amount of credit exposure to any one financial institution.
The Group’s net exposures and the credit ratings of its counterparties are
regularly monitored.
An analysis of the Group’s trade and other receivables that have been impaired
and the ageing of those that are past due but not impaired at the balance
date is presented in Note 11(b).
ANNUAL REPORT 2013–14 77
Notes to the consolidated financial statements
30 June 2014
3 Financial risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in meeting the obligations associated with its financial liabilities. The Group’s approach to
managing liquidity is to ensure, as far as possible, sufficient liquidity is available to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation.
Financing arrangements
The Group has access to the following arrangements at the end of the reporting period:
Utilised*
Facility Limit
Aurizon Finance
Working capital facility
Syndicated facility
Syndicated facility
Aurizon Network
Working capital facility
Term loan facility
Syndicated facility
Syndicated facility
Medium Term Note
Security
Maturity
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Corporate bond
Jun-15
Jun-16
Jun-18
Jun-15
Jul-14
Jun-16
Jun-18
Oct-20
Total Group financing arrangements
2014
$m
54.4
300.0
25.0
379.4
47.0
-
1,200.0
785.0
525.0
2,557.0
2,936.4
2013
$m
54.5
300.0
-
354.5
6.2
500.0
1,200.0
525.0
-
2,231.2
2,585.7
2014
$m
150.0
300.0
300.0
750.0
100.0
-
1,200.0
1,300.0
525.0
3,125.0
3,875.0
2013
$m
150.0
300.0
300.0
750.0
100.0
500.0
1,200.0
1,300.0
-
3,100.0
3,850.0
* Amount utilised includes bank guarantees but excludes capitalised borrowing costs and discounts on Medium Term Note.
In October 2013, Aurizon Network Pty Ltd issued a $525 million Medium Term Note at a coupon of 5.75% per annum, due to mature October 2020 and repaid and
cancelled its existing Term loan facility of $500 million.
Within the working capital facilities, the Group has access to financial accommodation arrangements totaling $250 million (2013: $250 million) which may be
utilised in the form of short-term working capital funding and the issuance of insurance bonds, bank guarantees and performance guarantees. At the end of the
reporting period, the Group utilised $59.9 million (2013: $60.7 million) for financial bank guarantees.
The Group has complied with externally imposed capital debt covenants during the 2014 and 2013 reporting periods.
FINANCIAL REPORT | AURIZON 78
Notes to the consolidated financial statements
30 June 2014
3 Financial risk management (continued)
(c) Liquidity risk (continued)
The following table summarises the contractual timing of undiscounted cash flows, including estimated interest payments, of financial liabilities and derivative
instruments. The contractual amount assumes current interest rates and foreign exchange rates estimated using forward curves applicable at the end of the
reporting period.
Less than
1 year
$m
Between
1 and 5 years
$m
Over 5 years
$m
Total contractual
cash flows
$m
Carrying amount
(assets)/
liabilities
$m
2014
Non-derivatives
Trade payables (Note 19)
Borrowings (Note 20)
Financial guarantees
Derivatives
Interest rate swaps used for hedging (net
settled)
Foreign exchange contracts used for hedging
- (inflow)
- outflow
2013
Non-derivatives
Trade payables (Note 19)
Borrowings (Note 20)
Financial guarantees
Derivatives
Interest rate swaps used for hedging (net
settled)
Foreign exchange contracts used for hedging
- (inflow)
- outflow
460.8
171.0
59.9
691.7
13.8
-
(43.0)
44.5
15.3
320.7
98.9
60.7
480.3
1.3
-
(6.9)
6.5
0.9
-
2,613.8
-
2,613.8
16.2
-
(0.2)
0.2
16.2
-
2,784.3
-
2,784.3
-
-
(2.1)
1.9
(0.2)
-
570.3
-
570.3
-
-
-
-
-
-
-
-
-
-
-
-
-
-
460.8
3,355.1
59.9
3,875.8
30.0
-
(43.2)
44.7
31.5
320.7
2,883.2
60.7
3,264.6
1.3
-
(9.0)
8.4
0.7
460.8
2,840.9
-
3,301.7
26.6
1.2
-
-
27.8
320.7
2,478.6
-
2,799.3
0.7
(0.5)
-
-
0.2
ANNUAL REPORT 2013–14 79
Notes to the consolidated financial statements
30 June 2014
3 Financial risk management (continued)
(d) Fair value measurements
The fair value of cash, cash equivalents and non-interest bearing financial assets and liabilities approximates their carrying value due to their short maturity.
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) are determined using valuation
techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates.
If all significant inputs required to fair value an instruments are observable, the instrument is included in level 2.
The Group measures and recognises the following assets and liabilities at fair value on a recurring basis:
• Forward foreign exchange contracts
• Interest rate swaps
Application of AASB 13 has introduced new disclosures and changed the Group’s valuation methodology adopted in valuing derivative financial assets and
liabilities used to hedge the Group’s risk exposures. The impact of this revised fair value measurement was $0.3 million, recognised as a reduction in expense for
the year ended 30 June 2014.
Forward exchange contracts fair value has been determined as the unrealised gain / loss at balance sheet date by reference to market exchange rates.
Interest rate swaps fair value has been determined as the net present value of contracted cash flows. These values have been adjusted to reflect the credit risk
of the Group and relevant counterparties, depending on whether the instrument is a financial asset or a financial liability. The Existing Exposure method, which
discounts estimated future cash flows to present value using credit adjusted discount factors after counterparty netting arrangements, has been adopted.
The fair value of non-current borrowings is estimated by discounting the future contractual cash flows at the current market interest rates that are available to
Aurizon for similar financial instruments. For the period ending 30 June 2014, the borrowing rates were determined to be between 3.4% to 5.0%, depending on
the type of borrowing (30 June 2013: 4.2% to 4.6%).
Financial assets carried at fair value
Forward exchange contracts (Note 13)
Financial assets carried at amortised cost
Cash and cash equivalents (Note 10)
Trade and other receivables (Note 11)
Financial liabilities carried at fair value
Forward exchange contracts (Note 13)
Interest rate swaps
Financial liabilities carried at amortised cost
Trade and other payables (Note 19)
Borrowings (Note 20)
Off-balance sheet
Unrecognised financial assets
Third party guarantees
Bank guarantees
Insurance company guarantees
Unrecognised financial liabilities
Bank guarantees
Carrying amount
Fair value
2014
$m
0.5
0.5
317.5
603.5
921.0
(1.7)
(26.6)
(28.3)
2013
$m
0.6
0.6
107.6
579.5
687.1
(0.1)
(0.7)
(0.8)
2014
$m
0.5
0.5
317.5
603.5
921.0
(1.7)
(26.6)
(28.3)
2013
$m
0.6
0.6
107.6
579.5
687.1
(0.1)
(0.7)
(0.8)
(460.8)
(2,840.9)
(3,301.7)
(320.7)
(2,478.6)
(2,799.3)
(460.8)
(2,910.3)
(3,371.1)
(320.7)
(2,558.8)
(2,879.5)
-
-
-
-
-
-
-
-
-
-
30.2
243.3
8.3
(59.9)
221.9
42.3
178.9
10.0
(60.7)
170.5
FINANCIAL REPORT | AURIZON 80
Notes to the consolidated financial statements
30 June 2014
3 Financial risk management (continued)
(d) Fair value measurements (continued)
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices), and
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
2014
Derivative financial assets
Derivative financial liabilities
Net financial instruments measured at fair value
2013
Derivative financial assets
Derivative financial liabilities
Net financial instruments measured at fair value
Level 1
$m
Level 2
$m
Level 3
$m
-
-
-
-
-
-
0.5
(28.3)
(27.8)
0.6
(0.8)
(0.2)
-
-
-
-
-
-
Total
$m
0.5
(28.3)
(27.8)
0.6
(0.8)
(0.2)
During the year, there were no transfers between Level 1, Level 2 and Level 3 fair value hierarchies.
4 Segment information
(a) Description of segments
Business Segments
The Group has determined operating segments based on the operating structure of the Group and the different reports reviewed by the Executive Committee.
The chief operating decision makers assess the performance of the operating segments based on the underlying earnings before interest and tax (Underlying
EBIT). Amounts included in the report by the chief operating decision maker are in accordance with the Group’s accounting policies.
The following summary describes the operations in each of the Group’s reportable segments:
Network
Provision of access to and operation and management of the Central Queensland Coal Network.
Coal
Transport of coal from mines in Queensland and New South Wales to end customers and ports.
Iron ore
Transport of iron ore from mines in Western Australia to ports.
Freight
Transport of bulk mineral commodities, agricultural products, mining and industrial inputs and general freight throughout Queensland, New South Wales and
Western Australia and containerised freight throughout Australia.
Unallocated
Items of revenue and expense of a corporate nature, ineffective hedging gains and losses and minor operations within the Group including third party above rail
provision of overhaul and maintenance services to external customers.
Interest expense for the entire Group is not allocated to specific segments but rather recorded as a corporate expense. With the exception of property, plant and
equipment, asset and liability positions of the Group are only reviewed at the consolidated level.
As a result of the internal restructure of Aurizon Network that occurred on 1 July 2013, two divisions were transferred to Aurizon Operations, being Specialised Track
Services and Engineering & Project Delivery. The comparative segment note disclosures for the Aurizon Network segment have been restated in accordance with
the accounting standards to exclude these two divisions, to align the segment note with the operating and reporting structure that has been in effect from
1 July 2013. These two divisions continue to provide services to Aurizon Network but, for reporting purposes, now reside in the unallocated segment as they are not
significant in their own right and therefore not reported separately.
Unrelated to the restructure, further adjustments were made to reclassify Enterprise Real Estate as a cost transfer from the central support function and not classify
as internal other revenue to be consistent with all other internal cost transfers. This has no impact on Group Revenue, Group EBIT or the Group Operating Ratio as it
is eliminated on consolidation.
ANNUAL REPORT 2013–14 Notes to the consolidated financial statements
30 June 2014
81
Total revenue from external customers
422.3
1,862.7
378.0
1,016.4
4 Segment information (continued)
(b) Segment information
2014
Segment revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Intersegment revenue
Services revenue
Track access
Freight transport
Other services
Other revenue
Total intersegment revenue
Total revenue
Other income (Note 6)
Total segment revenue and other income
Intersegment elimination
Consolidated revenue and other income
Segment result
Underlying EBITDA*
Depreciation and amortisation
Underlying EBIT*
Significant adjustments (Note 4(c))
EBIT*
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
Other segment information
Property, plant and equipment
Impairment losses
* Refer to page 104 for Non-IFRS information
Network
$m
Coal
$m
Iron ore
$m
Freight
$m
Unallocated
$m
Total
$m
363.1
649.3
-
-
1,210.7
377.8
14.6
44.6
-
2.7
-
0.2
0.4
873.5
126.2
16.3
587.5
-
2.2
-
589.7
-
-
-
-
-
-
-
-
-
-
0.2
7.2
-
-
7.4
1,012.0
1,862.7
0.2
0.8
1,012.2
1,863.5
378.0
0.1
378.1
1,023.8
5.2
1,029.0
-
-
46.7
85.8
132.5
-
-
217.4
-
217.4
349.9
14.0
363.9
610.2
(198.5)
411.7
573.1
(173.4)
399.7
139.3
(36.4)
102.9
87.9
(53.9)
34.0
(59.9)
(37.0)
(96.9)
1,012.8
2,462.0
187.5
149.6
3,811.9
587.7
7.2
219.6
-
814.5
4,626.4
20.3
4,646.7
(814.5)
3,832.2
1,350.6
(499.2)
851.4
(385.9)
465.5
(112.1)
353.4
(100.6)
252.8
5,031.4
66.1
2,854.3
113.1
465.1
-
647.7
77.0
442.2
60.4
9,440.7
316.6
FINANCIAL REPORT | AURIZON 82
Notes to the consolidated financial statements
30 June 2014
Total revenue from external customers
264.6
1,861.1
356.5
1,072.4
4 Segment information (continued)
(b) Segment information (continued)
2013
Segment revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Intersegment revenue
Services revenue
Track access
Freight transport
Other services
Other revenue
Total intersegment revenue
Total revenue
Other income (Note 6)
Total segment revenue and other income
Intersegment elimination
Consolidated revenue and other income
Segment result
Underlying EBITDA*
Depreciation and amortisation
Underlying EBIT*
Significant adjustments (Note 4(c))
EBIT*
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
Other segment information
Property, plant and equipment
* Refer to page 104 for Non-IFRS information
Network
$m
Coal
$m
Iron ore
$m
Freight
$m
Unallocated
$m
Total
$m
212.7
776.3
-
-
1,077.1
356.4
15.4
36.5
-
7.7
-
0.1
3.4
884.4
147.1
37.5
708.2
-
10.7
-
718.9
983.5
(4.0)
979.5
-
1.5
-
-
1.5
-
-
-
-
-
0.2
8.6
-
-
8.8
1,862.6
356.5
1,081.2
0.1
-
0.5
1,862.7
356.5
1,081.7
-
-
63.8
105.7
169.5
-
-
175.3
6.0
181.3
350.8
44.8
395.6
605.2
(188.6)
416.6
494.3
(174.4)
319.9
133.4
(36.8)
96.6
79.6
(56.6)
23.0
(61.8)
(39.9)
(101.7)
992.4
2,317.9
226.3
187.5
3,724.1
708.4
10.1
186.0
6.0
910.5
4,634.6
41.4
4,676.0
(910.5)
3,765.5
1,250.7
(496.3)
754.4
(68.8)
685.6
(103.3)
582.3
(135.4)
446.9
4,704.5
2,967.9
505.0
756.4
525.7
9,459.5
ANNUAL REPORT 2013–14 83
Notes to the consolidated financial statements
30 June 2014
4 Segment information (continued)
(v) Rollingstock impairment
(c) Significant adjustments
The Group’s underlying results differ from the statutory result. The exclusion of
certain items permits a more appropriate and meaningful analysis of Group’s
underlying performance on a comparative basis. The significant adjustments
for the current and prior year are:
Voluntary redundancy schemes (i)
Assets impairment (ii)
Assets under construction impairment (iii)
Strategic infrastructure project impairment (iv)
Rollingstock impairment (v)
Stamp duty
Total significant adjustments
2014
(i) Voluntary redundancy schemes
2014
$m
69.3
20.0
53.7
72.9
170.0
-
385.9
2013
$m
95.7
-
-
-
-
(26.9)
68.8
A voluntary redundancy scheme was carried out during the year with
910 employees affected at a total cost of $69.3 million.
(ii) Assets impairment
Following a full review of the Freight business, certain operations have been
identified as non-core. In undertaking the normal year end review of the
carrying value of its separately identifiable assets (cash generating units), the
Group has determined an impairment exists in respect of this non-core asset
which has resulted in an impairment of $20.0 million.
(iii) Assets under construction impairment
The market conditions and the longer-term outlook within the global and
domestic resources sector have seen many capital projects either deferred or
cancelled. As a direct consequence two projects under development by Aurizon
Network, Dudgeon Point and Wiggins Island Project Phase Two, are now
considered unlikely to progress in the near term. On 20 June 2014, Northern
Queensland Bulk Ports Corporation announced it was withdrawing
its development proposal for the Dudgeon Point Coal Terminal (DPCT),
noting a lack of demand to support the expansion. On a similar basis, whilst
Aurizon remains fully committed to the Wiggins Island Project Phase One,
the current and forecast demand does not support the continued development
or investment in incremental capacity in respect of Phase Two. This has
resulted in an impairment charge of $48.2 million and other minor projects
of $5.5 million were also impaired.
(iv) Strategic infrastructure project impairment
A strategic infrastructure project review carried out during the year resulted in
an impairment of assets under construction of $72.9 million. An impairment
has been recognised in respect of Surat Basin Rail Joint Venture costs due
to the termination of the joint venture in February 2014, following the
announcement by Glencore Xstrata that its Wandoan Project is being put on
hold. Costs associated with an alternative Galilee Basin rail development have
also been impaired following the submission of a revised corridor proposal
and Environmental Impact Study in August 2013 by alternative developers,
together with consolidation of our own corridor with GVK Hancock, announced
25 November 2013. The Group also recognised an impairment on the East
Pilbara Independent Rail (EPIR) project due to the project becoming less
probable to progress in the short to medium term given the focus on the
west Pilbara following the successful acquisition by Aurizon and its partner
Baosteel of Aquila Resources Limited.
The Group has completed its annual Enterprise Rollingstock Master Plan which
forecasts requirements for locomotives and wagons for the next ten years.
The strategy is based on estimated customer demand, expected productivity
improvements through integrated service design and standardisation of the
fleet to minimise operational complexity and maintenance cost. The review
of equipment reallocation resulted in 200 locomotives and 2,775 wagons
being immediately identified as surplus to the current requirements of the
Group. Rollingstock and associated inventory identified as surplus has been
decommissioned and written down to net realisable value resulting in an
impairment of $170.0 million relating to inventory of $15.2 million and
property, plant and equipment of $154.8 million.
2013
A voluntary redundancy scheme was carried out during the year, which
960 employees accepted at a total cost of $95.7 million.
In 2010, the Group recognised an expense of $24.9 million for stamp duty
paid in relation to the 2006 acquisition of Australian Railroad Group (ARG).
The amount was paid based on an assessment issued by the Western Australia
(WA) Office of State Revenue (OSR) and as required under the Group’s Joint
Acquisition Agreement (JAA) with Brookfield Infrastructure Group (Australia)
Pty Ltd (Brookfield) (previously Prime Infrastructure). Brookfield, as the primary
legal party to the dispute successfully appealed the stamp duty assessment
through to the Supreme Court of WA. On 24 June 2013, the WA OSR issued
a reassessment of stamp duty and refunded the stamp duty together with
interest to Brookfield. On 27 June 2013, Brookfield in turn refunded to Aurizon
$26.9 million including penalty interest of $2.1 million.
(d) Customer disclosure
The nature of the Group’s business is that it enters into long-term contracts
with key customers. One customer with A+ credit rating meets the 10%
threshold that requires disclosure under the Accounting Standards and who
represents approximately $554.1 million (2013: $470.8 million) of the Group’s
total revenue.
5 Revenue
Services revenue
Track access
Freight transport
Other services revenue
Other revenue
2014
$m
2013
$m
1,012.8
992.4
2,462.0
2,317.9
187.5
149.6
226.3
187.5
3,811.9
3,724.1
Included in track access is Revenue Cap of $16.8 million ($13.9 million rolled
forward at the approved regulated weighted average cost of capital) (2013:
$59.5 million – $49.2 million rolled forward at the approved regulated weighted
average cost of capital), recovered in the year in relation to contractual railings
that were not achieved for the financial years two years prior.
Included within the Freight transport revenue is $7.6 million (2013: $37.4 million)
of Deficit Tonnage Charges.
Included in Other services is revenue from Transport Service Contracts
(for Regional Freight and Livestock Transport Services) from the State of
Queensland of $126.2 million (2013: $146.8 million) including $20.6 million
(2013: $18.5 million) of accrued additional payments due to Aurizon under
the contract.
FINANCIAL REPORT | AURIZON 84
Notes to the consolidated financial statements
30 June 2014
6 Other income
Net gain on disposal of property, plant and
equipment
Foreign exchange gains (net)
Interest revenue
Stamp duty recovery
Other income
7 Expenses
2014
$m
2013
$m
10.3
11.8
Rental expense relating to leases
Other expenses
-
9.9
-
0.1
20.3
0.1
2.3
26.9
0.3
41.4
Research and development
Losses on derivatives
Inventory obsolescence
Impairment losses – trade receivables
Other expenses
Finance costs
2014
$m
2013
$m
32.2
36.2
0.4
1.6
1.9
3.5
13.9
53.5
0.4
0.3
2.0
5.1
7.0
51.0
Profit/(loss) before income tax includes the following specific expenses:
Consumables
Repairs and maintenance
Track access
Energy and fuel
Other
Employee benefits expenses
Defined benefit superannuation expense
Defined contribution superannuation expense
Voluntary redundancies and ex-gratia payments
(Note 4(c))
Salaries, wages and allowances
Other employment expenses including on-costs
Depreciation and amortisation expense
Depreciation
Amortisation of leased assets
Amortisation of intangibles
Software
Customer contracts
2014
$m
2013
$m
325.8
307.6
383.4
373.7
284.8
328.9
374.8
364.7
Interest and finance charges paid/payable
134.7
105.0
Provisions: unwinding of discount/change in
discount rate
Amortisation of capitalised borrowing costs
Total finance costs
1.2
20.2
4.4
18.4
156.1
127.8
Amount capitalised to qualifying assets
(34.1)
(22.2)
1,390.5
1,353.2
Finance costs expensed
122.0
105.6
18.2
68.7
69.3
690.8
256.7
18.5
68.9
95.7
721.4
278.0
1,103.7
1,182.5
321.9
171.3
493.2
305.8
183.9
489.7
4.9
1.1
6.0
5.2
1.4
6.6
8
Income tax expense
(a) Income tax expense
Current tax
Deferred tax
Deferred tax relating to prior periods
Current tax relating to prior periods
2014
$m
12.3
88.4
4.7
(4.8)
2013
$m
85.2
58.2
(12.6)
4.6
100.6
135.4
Income tax expense is attributable to:
Profit from continuing operations
100.6
135.4
Deferred income tax expense included in income tax
expense comprises:
(Increase) decrease in deferred tax assets (Note 18)
Increase (decrease) in deferred tax liabilities (Note 23)
25.7
67.4
93.1
(43.8)
89.4
45.6
Total depreciation and amortisation expense
499.2
496.3
Impairment losses*
Goodwill
Assets classified as held for sale
Inventory – rollingstock
Property, plant and equipment
0.3
17.3
15.2
283.8
316.6
-
-
-
-
-
* Refer to Note 4(c) for further information on impairment
ANNUAL REPORT 2013–14 85
2014
$m
317.5
317.5
2013
$m
107.6
107.6
2014
$m
2013
$m
382.9
406.4
(9.3)
(8.0)
373.6
229.9
603.5
398.4
181.1
579.5
Notes to the consolidated financial statements
30 June 2014
8
Income tax expense (continued)
10 Cash and cash equivalents
(b)
Numerical reconciliation of income tax expense/(benefit) to prima
facie tax payable
Profit before income tax expense
Tax at the Australian tax rate of 30% (2013: 30%)
Tax effect of amounts which are not deductible
(taxable) in calculating taxable income:
Entertainment
Research and development
Non-assessable income (Note 8(d))
Stamp duty refund on acquisition of subsidiary
(Note 4(c))
Other
Adjustment for current tax of previous periods
2014
$m
353.4
106.0
2013
$m
582.3
174.7
0.2
(1.8)
(6.4)
-
2.7
(0.1)
0.2
(6.5)
(17.5)
(8.1)
0.6
(8.0)
100.6
135.4
(c) Tax expense/(benefit) relating to items of other comprehensive income
Cash flow hedges
2014
$m
2013
$m
(8.0)
0.9
(d) Tax expense – non assessable income
This amount represents accounting income recognised by the Group during the
year which relates to transactions or events occurring prior to privatisation of
the Group on 22 November 2010. This income is non-assessable for income tax
purposes under tax privatisation legislation.
9 Assets and liabilities classified as held for sale
(a) Assets classified as held for sale
Property, plant and equipment
Trade and other receivables
Inventories
2014
$m
98.4
12.0
0.4
2013
$m
23.0
-
-
110.8
23.0
(b) Liabilities directly associated with assets classified as held for sale
Trade creditors
Provisions
2014
$m
2013
$m
3.9
3.4
7.3
-
-
-
Cash at bank
11 Trade and other receivables
Current
Trade receivables
Provision for impairment of receivables (a)
Net trade receivables
Other receivables
Other receivables include revenue for services performed but not yet invoiced
under contracts including Take or Pay, Transport Services Contract and annual
GAPE fees and a provision for impairment of $6.5 million (2013: $4.1 million).
(a) Impaired trade receivables
As at 30 June 2014, the amount of the provision for impaired trade receivables
was $9.3 million (2013: $8.0 million).
Movements in the provision for impairment of receivables are as follows:
At 1 July
Provision for impairment recognised during the year
Receivables written off during the year as uncollectable
Unused amounts reversed
At 30 June
2014
$m
2013
$m
8.0
4.4
(1.2)
(1.9)
9.3
2.9
5.8
(0.4)
(0.3)
8.0
The creation or release of the provision for impaired receivables has been
included in the income statement. Amounts charged to the provision
account are generally written off when there is no expectation of recovering
additional cash.
Based on the credit history of other receivables, it is expected that these
amounts will be received when due.
(b) Past due but not impaired
As at 30 June 2014, trade receivables of $56.6 million (2013: $64.2 million)
were past due but not impaired. These trade receivables relate to a number of
customers for whom there is no recent history of default. The ageing of these
trade receivables is as follows:
2014
$m
2013
$m
47.8
2.0
6.8
56.6
27.1
1.9
35.2
64.2
Assets held for sale relate to non-core freight and coal assets which are
currently in the process of being sold in the next 12 months.
Up to 3 months
3 to 6 months
Over 6 months
FINANCIAL REPORT | AURIZON 86
Notes to the consolidated financial statements
30 June 2014
12 Inventories
14 Other assets
Current
Raw materials and stores – at cost
Work in progress – at cost
Non-current
Raw materials and stores – at cost
Provision for inventory obsolescence
13 Derivative financial instrument
2014
$m
2013
$m
231.6
5.7
237.3
198.9
13.3
212.2
26.6
(7.2)
19.4
25.7
(6.7)
19.0
Current
Prepayments
Non-current
Loan Receivable
Other Receivables
2014
$m
2013
$m
19.3
10.2
-
5.4
5.4
3.0
-
3.0
15 Investments accounted for using the equity method
2014
$m
82.6
0.5
83.1
2013
$m
78.7
0.5
79.2
2014
$m
2013
$m
Investment in associates (Note 29(b))
Interest in joint ventures
Current assets
Forward exchange contracts – cash flow hedges
Total current derivative financial instrument assets
Non-current assets
Forward exchange contracts – cash flow hedges
Total non-current derivative financial instruments
Total derivative financial instrument assets
Current liabilities
Forward exchange contracts – cash flow hedges
Interest rate swap contracts – cash flow hedges
Total current derivative financial instrument liabilities
Non-current liabilities
Interest rate swap contracts – cash flow hedges
Total non-current derivative financial instrument liabilities
Total derivative financial instrument liabilities
0.5
0.5
-
-
0.5
1.7
-
1.7
26.6
26.6
28.3
0.4
0.4
0.2
0.2
0.6
0.1
0.7
0.8
-
-
0.8
(a) Instruments used by the Group
The Group holds derivative financial instruments to hedge (including
economically hedge) its foreign currency and interest rate exposures in
accordance with the Group’s financial risk management policy (refer to
Note 3).
ANNUAL REPORT 2013–14 87
Notes to the consolidated financial statements
30 June 2014
16 Property, plant and equipment
2014
Opening net book amount
Additions
Transfers between asset classes
Disposals
Impairment (Note 7)
Asset classified as held-for-sale
Depreciation/amortisation (Note 7)
Closing net book amount
Cost
Accumulated depreciation and impairment
Net book amount
Owned
Leased
2013
Opening net book amount
Additions
Transfer between asset classes
Disposals
Assets classified as held for sale
Depreciation/amortisation expense (Note 7)
Closing net book amount
Cost
Accumulated depreciation and impairment
Net book amount
Owned
Leased
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Total
$m
857.4
871.7
(726.8)
-
(126.4)
-
-
875.9
875.9
-
875.9
875.9
-
875.9
426.3
927.2
(495.9)
(0.2)
-
-
857.4
857.4
-
857.4
857.4
-
857.4
150.6
414.4
298.5
3,388.3
4,350.3
9,459.5
-
4.1
(2.4)
-
(10.7)
-
141.6
141.6
-
141.6
141.6
-
141.6
175.3
-
(10.2)
(0.7)
(13.8)
-
150.6
150.6
-
150.6
150.6
-
150.6
-
7.8
-
(2.6)
(32.2)
(21.5)
365.9
502.1
(136.2)
365.9
329.4
36.5
365.9
7.1
70.1
(3.1)
-
(46.4)
(53.8)
272.4
530.2
(257.8)
272.4
271.8
0.6
272.4
-
119.9
(9.9)
(154.8)
(6.1)
(215.3)
3,122.1
4,756.1
(1,634.0)
3,122.1
3,122.1
-
3,122.1
1.6
524.9
880.4
-
(9.3)
(24.7)
-
(283.8)
(2.1)
(97.5)
(202.6)
(493.2)
4,662.8
9,440.7
5,671.5
12,477.4
(1,008.7)
(3,036.7)
4,662.8
9,440.7
963.0
3,699.8
4,662.8
5,703.8
3,736.9
9,440.7
356.0
280.5
3,433.4
4,365.7
9,037.2
1.6
78.2
(2.6)
(2.3)
(16.5)
414.4
547.1
(132.7)
414.4
389.2
25.2
414.4
23.2
50.5
(7.7)
-
(48.0)
298.5
582.7
(284.2)
298.5
296.5
2.0
298.5
12.5
197.1
(19.9)
-
(234.8)
3,388.3
5,009.3
(1,621.0)
3,388.3
3,219.9
168.4
3,388.3
0.8
179.7
(5.3)
(0.2)
965.3
(0.6)
(36.4)
(16.3)
(190.4)
(489.7)
4,350.3
9,459.5
5,187.6
12,334.7
(837.3)
(2,875.2)
4,350.3
9,459.5
741.4
3,608.9
4,350.3
5,655.0
3,804.5
9,459.5
Assets under construction includes $41.9 million (2013: $108.1 million) that relates to strategic infrastructure projects (refer Note 2(iv)).
(a) Non-current assets pledged as security
Leased rollingstock assets of nil (2013: $168.4 million) have been pledged as security under the terms of the cross border lease arrangements.
FINANCIAL REPORT | AURIZON 88
Notes to the consolidated financial statements
30 June 2014
17 Intangible assets
2014
Opening net book amount
Additions
Transferred to held for sale
Amortisation expense
Impairment charge
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
2013
Opening net book amount
Additions
Transfers
Amortisation expense
Disposals
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
18 Deferred tax assets
The balance comprises temporary differences attributable to:
Provisions/accruals
Customer contracts
Unearned revenue
Cash flow hedges
Other temporary differences
Set-off of deferred tax liabilities pursuant to set-off provisions (Note 23)
Net deferred tax assets
Deferred tax assets expected to be recovered within 12 months
Deferred tax assets expected to be recovered after more than 12 months
Goodwill
$m
Software
$m
Key customer
contracts
$m
Software
development
$m
0.3
-
-
-
(0.3)
-
73.3
(73.3)
-
0.3
-
-
-
-
0.3
73.3
(73.0)
0.3
9.3
9.2
(0.1)
(4.9)
-
13.5
111.1
(97.6)
13.5
14.5
0.1
0.6
(5.2)
(0.7)
9.3
104.1
(94.8)
9.3
1.8
1.5
-
(1.1)
-
2.2
12.2
(10.0)
2.2
1.8
1.4
-
(1.4)
-
1.8
10.7
(8.9)
1.8
13.9
34.1
-
-
-
48.0
48.0
-
48.0
-
13.9
-
-
-
13.9
13.9
-
13.9
2014
$m
129.0
59.2
2.9
8.5
3.2
202.8
(202.8)
-
102.1
100.7
202.8
Total
$m
25.3
44.8
(0.1)
(6.0)
(0.3)
63.7
244.6
(180.9)
63.7
16.6
15.4
0.6
(6.6)
(0.7)
25.3
202.0
(176.7)
25.3
2013
$m
129.8
75.3
4.6
0.2
9.9
219.8
(219.8)
-
104.9
114.9
219.8
ANNUAL REPORT 2013–14 89
Notes to the consolidated financial statements
30 June 2014
18 Deferred tax assets continued
Movements
At 30 June 2012
(Charged)/credited
– to profit or loss
– to other comprehensive income
Charged/(credited) – directly to equity
At 30 June 2013
At 30 June 2013
(Charged)/credited
– to profit or loss
– to other comprehensive income
Charged/(credited) – directly to equity
At 30 June 2014
Provisions/
accruals
$m
Customer
contracts
$m
Unearned
revenue
$m
Cash flow
hedges
$m
70.5
59.3
-
-
129.8
129.8
91.4
(16.1)
-
-
75.3
75.3
(0.8)
(16.1)
-
-
129.0
-
-
59.2
2.9
1.7
-
-
4.6
4.6
(1.7)
-
-
2.9
1.0
0.1
(0.9)
-
0.2
0.2
0.3
8.0
-
8.5
Other
$m
Total
$m
9.3
175.1
(1.2)
-
1.8
9.9
9.9
(7.4)
-
0.7
3.2
43.8
(0.9)
1.8
219.8
219.8
(25.7)
8.0
0.7
202.8
19 Trade and other payables
21 Provisions
Trade payables
Other payables
2014
$m
434.3
26.5
460.8
2013
$m
283.4
37.3
320.7
For the year ended 30 June 2014, included in trade payables is an adjustment
of $69.9 million reflecting access revenue derived being greater than the
agreed Transitional Allowance Revenue under the transitional tariffs. Refer to
Note 1(e) for further detail.
20 Borrowings
Current – Unsecured
Working capital facility
Total unsecured current borrowings
Non-current – Unsecured
Bank facilities
Capitalised borrowing costs
2014
$m
2013
$m
41.5
41.5
-
-
2,828.0
2,525.0
(28.6)
(46.4)
2,799.4
2,478.6
During the year, Aurizon Network Pty Ltd issued Medium Term Notes (AUD
corporate bond) with a face value of $525 million at a coupon of 5.75% per
annum and repaid and cancelled its existing Term loan facility of $500 million.
This facility is due to mature in October 2020.
The Unsecured bank facilities and Medium Term Notes restrict the amount
of security that the Group and its subsidiaries can provide over their assets in
certain circumstances.
The Unsecured bank facilities also impose certain covenants on the Group to
ensure that certain financial ratios are met.
Details of the Group’s financing arrangements and exposure to risks arising
from current and non-current borrowings are set out in Note 3(c).
Current
Employee benefits (a)
Provision for insurance claims (b)
Litigation and workers’ compensation provision (c)
Decommissioning/make good and other provisions (d)
Non-current
Employee benefits (a)
Litigation and workers’ compensation claim (c)
Decommissioning/make good and other provisions (d)
Land rehabilitation (e)
Total provisions
(a) Employee benefits
Annual Leave
Long service leave
Other
2014
$m
2013
$m
317.0
318.3
7.0
16.3
0.2
13.7
16.5
1.2
340.5
349.7
39.7
25.2
4.1
34.4
103.4
28.0
24.7
3.9
31.6
88.2
443.9
437.9
2014
$m
85.1
169.0
102.6
356.7
2013
$m
85.5
169.1
91.7
346.3
FINANCIAL REPORT | AURIZON 90
Notes to the consolidated financial statements
30 June 2014
21 Provisions (continued)
(a) Employee benefits (continued)
The current provision for employee benefits includes accrued annual leave,
leave loading, retirement allowances, long service leave and bonus accrual.
Included in long service leave are all unconditional entitlements where
employees have completed the required period of service and also a provision
for the probability that employees will reach the required period of service.
Based on past experience, the Group does not expect all employees to take the
full amount of accrued leave or require payment within the next 12 months.
The current provision for employee benefits includes an amount of
$190.2 million (2013: $148.5 million) that is not expected to be taken
or paid within the next 12 months.
Other employee benefit liabilities includes redundancy provision, short-term
bonuses, payroll tax and retirement allowances.
(b) Provision for insurance claims
The provision for insurance claims is raised for insurance claims external to the
Group and represents the aggregate deductible component in relation to loss
or damage to property, plant and equipment and rollingstock.
(c) Litigation and workers’ compensation
A provision of $41.5 million (2013: $41.2 million) is made for the estimated
liability for workers’ compensation and litigation claims. Claims are assessed
separately for common law, statutory and asbestos claims. The outstanding
liability is determined after factoring future claims inflation and discounting
future claim payments. Estimates are made based on the average number of
claims and average claim payments over a specified period of time. Claims
Incurred But Not Reported (IBNR) are also included in the estimate.
(d) Decommissioning/make good and other provisions
A provision of $4.3 million (2013: $5.1 million) has been made for the
anticipated costs of the future restoration of leased office premises. Make
good requirements vary for different properties. The provision includes future
cost estimates associated with the restoration of office fixtures and fittings
to original condition, removal of all property and equipment to return the
premises to a vacant shell and making good any damage caused by their
removal and repairing and making good any damage which may be caused to
land adjoining the premises as a result of carrying out structural work or other
improvements. The provision has been calculated based on recent comparable
make good costs or independent assessments.
(e) Land rehabilitation
A provision of $34.4 million (2013: $31.6 million) has been recognised for
the estimated costs to remediate contaminated land in accordance with the
Group’s constructive obligations following the Board’s review of its revised
sustainability policy at 30 June 2010. The provision is based on an estimated
long-term inflation rate in the order of 2.9% (2013: 2.9%). The projected
remediation dates for the various sites range from 10 to 40 years. To measure
the present value of the estimated costs, a discount rate in the order of 4.3%
(2013: 4.5%) was used, based on the interest rate which reflects the maturity
profile of the liability.
(f) Movements in provisions
Movements in each class of provision during the financial year, other than
employee benefits, are set out below:
2014
Current and non-current
Carrying amount at start of the year
Charged/(credited) to profit or loss
Additional provision recognised
Unused amounts released or reversed
Charged/(credited) to the profit or loss –
unwinding of discount
Amounts used during the year
Carrying amount at end of year
Provision for
insurance
claims
$m
Litigation
and workers
compensation
provision
$m
Decommissioning/
make good and other
provision
$m
Provision
for land
rehabilitation
$m
13.7
2.2
(4.9)
-
(4.0)
7.0
41.2
17.7
(5.8)
0.6
(12.2)
41.5
5.1
0.3
(1.1)
-
-
4.3
31.6
2.2
-
0.6
-
34.4
Total
$m
91.6
22.4
(11.8)
1.2
(16.2)
87.2
ANNUAL REPORT 2013–14 Notes to the consolidated financial statements
30 June 2014
22 Other liabilities
23 Deferred tax liabilities
Current
Income received in advance
Other current liabilities
Non-current
Income received in advance
Other non-current liabilities
2014
$m
2013
$m
34.9
7.3
42.2
37.7
4.6
42.3
255.7
261.8
3.6
5.0
259.3
266.8
The balance comprises temporary
differences attributable to:
Property, plant and equipment
Consumables and spares
Accrued income
Cash flow hedges
Other temporary difference
Total deferred tax liabilities
Income received in advance represents amounts received from customers
as prepayment of future rentals under agreements of customer specific
infrastructure. These amounts are deferred and earned over the term of
the agreements.
Set-off of deferred tax assets pursuant to set-off
provisions (Note 18)
Net deferred tax liabilities
Deferred tax liabilities expected to be settled
after more than 12 months
Movements of deferred tax liabilities
At 1 July 2012
Charged/(credited)
– to profit or loss
At 30 June 2013
At 1 July 2013
Charged/(credited)
– to profit or loss
At 30 June 2014
24 Contributed equity
(a) Issued capital
Ordinary shares
– fully paid
Property, plant
and equipment
$m
Consumables
and spares
$m
Accrued
income
$m
Cash flow
hedges
$m
500.4
99.9
600.3
600.3
70.3
670.6
16.7
3.2
19.9
19.9
1.2
21.1
12.4
(7.2)
5.2
5.2
(1.8)
3.4
-
0.2
0.2
0.2
(0.1)
0.1
2014
Shares
‘000
2013
Shares
‘000
2014
$m
2013
$m
2,137,285
2,137,285
1,508.3
1,508.3
91
2014
$m
2013
$m
670.6
21.1
600.3
19.9
3.4
0.1
0.2
5.2
0.2
2.4
695.4
628.0
(202.8)
(219.8)
492.6
408.2
695.4
628.0
Other
$m
Total
$m
9.1
538.6
(6.7)
2.4
2.4
(2.2)
0.2
89.4
628.0
628.0
67.4
695.4
FINANCIAL REPORT | AURIZON 92
Notes to the consolidated financial statements
30 June 2014
24 Contributed equity (continued)
(b) Other contributed equity
25 Reserves
(a) Reserves
Other contributed equity
Selective share buy-back
On-Market share buy-back
2014
$m
2013
$m
3,537.6
4,388.3
Hedging reserve – cash flow hedges
-
-
(796.6)
(54.1)
Share-based payments
3,537.6
3,537.6
Movements:
Total contributed equity
5,045.9
5,045.9
Other contributed equity represents capital contributions from Queensland
State Government Pre-IPO less cumulative share buy-backs.
Hedging reserve – cash flow hedges
Balance 1 July
Fair value gains (losses) taken to equity
Deferred tax
(c) Movements in ordinary share capital
Fair value losses transferred to profit or loss
Date
Details
1 July 2012
Opening balance
Number
of shares
(‘000)
Deferred tax
$m
Other transfers – transfer to property, plant and
equipment (gross)
2,440,000
1,711.7
Balance 30 June
2014
$m
(18.5)
15.3
(3.2)
2013
$m
0.1
25.5
25.6
0.1
(25.9)
7.8
0.2
0.2
(0.9)
(18.5)
25.5
13.5
(24.4)
0.7
15.3
(2.0)
2.2
(0.7)
-
(0.2)
0.8
0.1
19.1
12.3
(5.9)
-
25.5
Share-based payments
Opening balance
Employee share plan expense
Employee share trust to employee
Deferred tax
Balance 30 June
(b) Nature and purpose of reserves
Hedging reserve – cash flow hedges
The hedging reserve is used to record gains or losses on a hedging instrument
in a cash flow hedge that are recognised in other comprehensive income,
as described in Note 1(o). Amounts are recognised in the income statement
when the associated hedged transaction affects the income statement.
Share-based payments
Share-based payments represent the fair value of share-based remuneration
provided to employees.
23 November 2012 On-Market share buy-back
(14,531)
-
26 November 2012
Selective share buy-back
(288,184)
(203.4)
30 June 2013
Closing balance
2,137,285
1,508.3
30 June 2014
Closing balance
2,137,285
1,508.3
(d) Ordinary shares
Ordinary shares have no par value and the Group does not have a limited
amount of authorised capital. Ordinary shares entitle the holder to participate
in dividends and the proceeds on winding up of the Company in proportion to
the number of and amounts paid on the shares held.
(e) Capital risk management
The Group’s objective is to maintain a strong capital base so as to maintain
investor, creditor and market confidence and to sustain future development of
the business.
The Group and the parent entity monitor its capital structure by reference to
its gearing ratio. This ratio is calculated as net debt divided by total capital.
Net debt is calculated as total borrowings less cash and cash equivalents. Total
capital is calculated as ‘equity’ as shown in the balance sheet plus net debt.
There were no changes in the Group’s approach to capital management during
the year.
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
2014
$m
2013
$m
2,840.9
2,478.6
(317.5)
(107.6)
2,523.4
2,371.0
6,373.4
6,495.6
8,896.8
8,866.6
28.4%
26.7%
ANNUAL REPORT 2013–14
Notes to the consolidated financial statements
30 June 2014
93
26 Dividends
(a) Ordinary shares
Interim dividend for the year ended 30 June 2014 of
8.0 cents (2013: 4.1 cents, 70% franked) per share,
paid 28 March 2014 (80% franked)
Final dividend for the year ended 30 June 2013 of
8.2 cents (2012: 4.6 cents, unfranked) per share, paid
23 September 2013 (90% franked)
175.2
346.2
112.3
199.9
(b) Dividends not recognised at the end of the reporting period
Since 30 June 2014, the Directors have recommended
the payment of a final dividend of 8.5 cents per fully
paid ordinary share (2013: 8.2 cents), unfranked.
The aggregate amount of the proposed dividend
expected to be paid on 22 September 2014 out of
retained earnings, but not recognised as a liability at
year end is:
2014
$m
2013
$m
181.7
175.3
(c) Franked dividends
The franked portions of the final dividends recommended after 30 June 2014
will be franked out of existing franking credits or out of franking credits arising
from the payment of income tax in the ending 30 June 2015.
Franking credits available for subsequent reporting
periods based on a tax rate of 30.0% (2013 – 30.0%)
2014
$m
2013
$m
(47.2)
71.4
The above amounts represent the balance of the franking account as at the
end of the reporting period, adjusted for:
(a) franking credits that will arise from the payment of the amount of the
provision for income tax,
Guarantees and letters of credit
For information about guarantees and letters of credit given by the Group, refer
to Note 3(d).
2014
$m
2013
$m
Deed of cross guarantee
Cross guarantees are given by the Company and some of its wholly owned
subsidiaries as described in Note 31.
171.0
87.6
Defined benefit fund liabilities
The State of Queensland has permitted existing employees of the Aurizon
Group, as at the date of the IPO, to retain their existing superannuation
arrangements with the State Superannuation Public Sector Scheme (QSuper)
and has provided the Group an indemnity if the State of Queensland Treasurer
requires the Group to pay any amounts required to meet the defined benefit
obligations. An actuarial assessment of the fund as at 30 June 2013 has
been completed which showed the fund to be in surplus. Existing contribution
arrangements are to continue into the foreseeable future.
Joint venture arrangements
Refer to Note 29 for details of the Group’s share of the net asset deficiencies
in joint venture investments. The Group is required to contribute additional
capital, if requested, to make good any deficiency under the terms of the joint
venture agreements.
(b) Contingent assets
Revenue cap adjustments
The Group has a contingent asset in respect of revenue cap adjustments.
Refer to Note 1(e)(i) for further details. Subject to regulatory approval and any
adjustments resulting from below rail cause, recovery and shortfalls via the
revenue cap of $39.1 million (2013: $53.0 million), plus interest, is expected
to be received during the year ending 30 June 2015. Management estimates
that the revenue cap attributable to the year ended 30 June 2014 will be
$7.0 million plus interest.
Deficit tonnage charges
The Group has a contingent asset of $2.8 million (2013: $6.9 million) in respect
of deficit tonnage charges relating to contracts with a period ending 30 June
2014. Deficit tonnage charges are recognised in the period following that in
which the service was due to be provided where the customer elects to pay the
charges rather than reduce future tonnage entitlements.
(b) franking debits that will arise from the payment of dividends recognised as
Flood recovery
a liability at the reporting date, and
(c)
franking credits that will arise from the receipt of dividends recognised as
receivables at the reporting date.
The consolidated amounts include franking credits that would be available to
the parent entity if distributable profits of subsidiaries were paid as dividends.
On 23 July 2014, the QCA approved an adjustment of $16.1 million (excluding
interest) to reference tariffs for the Blackwater and Moura systems in relation
to costs associated with flooding in central Queensland in January 2013.
Guarantees and letters of credit
For information about guarantees given to the Group, refer to Note 3(d).
27 Contingencies
The Group had contingencies at 30 June 2014 in respect of:
28 Commitments
(a) Capital commitments
(a) Contingent liabilities
Issues relating to common law claims and product warranties are dealt with as
they arise. There were no material contingent liabilities requiring disclosures in
the financial statements, other than as set out below.
Litigation
A number of common law claims are pending against the Group. Provisions
are taken up for some of these exposures based on the management’s
determination where they expect to settle such claims and are included as such
in Note 21.
Property, plant and equipment
Within one year
Later than one year but not later than five years
2014
$m
2013
$m
290.6
-
290.6
96.5
2.0
98.5
FINANCIAL REPORT | AURIZON 94
Notes to the consolidated financial statements
30 June 2014
28 Commitments (continued)
(b) Lease commitments
Commitments for minimum lease payments in
relation to non-cancellable operating leases are
payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
2014
$m
2013
$m
37.4
42.0
5.8
85.2
27.1
57.7
7.6
92.4
The above commitments flow primarily from operating leases of property and
machinery. These leases, with terms mostly ranging from one to ten years,
generally provide the Group with a right of renewal at which times the lease
terms are renegotiated. The lease payments comprise a base amount, while
the property leases also contain a contingent rental, which is based on either
the movements in the Consumer Price Index or another fixed percentage as
agreed between the parties.
(c) Lease commitments receivable: where the Group is the lessor
2014
$m
2013
$m
Some fixed assets are leased to tenants with rents
payable monthly. Minimum lease payments (excluding
GST) not recognised in the financial statements are
receivable as follows:
Within one year
Later than one year but not later than five years
Later than five years
The amounts are included in the consolidated financial statements under their
respective asset, liability, income and expense categories:
Group’s share of:
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Expenses*
Tax benefit
Net profit/(loss) after tax
2014
$m
2013
$m
4.1
-
(0.2)
-
3.9
2014
$m
-
(18.0)
5.4
(12.6)
0.4
16.3
(0.2)
(0.8)
15.7
2013
$m
-
-
-
-
The balance sheet and income statement for 30 June 2014 is based on the
financial statements of the Surat Basin Rail joint venture as at 30 June 2014.
* Relates to impairment losses, refer to Note 4(c).
(b) Investments in associates
The Group has an interest in the following associate:
4.8
4.7
4.9
4.4
6.2
5.6
14.4
16.2
Name
Moorebank
Industrial
Property Trust
Ownership interest
Country of
operation
2014
%
2013
%
Principal
activity
Australia
33
33
Investment
29 Interests in joint arrangements and associates
(i) Movement in carrying values
Opening balance
Additional investments
Share of profit in associates
Dividends received
Share of increment of revaluation of freehold land
Closing balance (Note 15)
2014
$m
78.7
2.5
6.7
(5.8)
0.5
82.6
2013
$m
77.5
1.8
5.4
(5.5)
(0.5)
78.7
(a) Joint operations
(i) Nickel West Land Logistics
The Group has an interest in the Nickel West Land Logistics Joint Venture
Agreement. The Group severally provides rail freight services under this
arrangement and the Joint Arrangement partner severally provides road freight
services. There are no assets jointly controlled by the operation.
(ii) Surat Basin
The Surat Basin Rail joint venture, in which the Group had a 33.3% (2013:
33.3%) participating interest through its wholly owned subsidiary, Aurizon
Surat Basin Pty Ltd, was terminated on 28 February 2014 and is in the process
of being wound up.
An impairment of $18.0 million has been recognised in respect of Surat Basin
Rail Joint Venture costs given announcement of termination of the joint
venture in November 2013 following announcement by Glencore Xstrata that
its Wondoan Project is being put on hold.
The Group’s share of the joint assets, any liabilities that it has incurred directly
and its share of any liabilities incurred jointly with the other venturers, income
from the sale or use of its share of the output of the joint operation, its share
of expenses incurred by the joint operation and expenses incurred directly in
respect of its interest in the joint operation are detailed below.
ANNUAL REPORT 2013–14 Notes to the consolidated financial statements
30 June 2014
29 Interests in joint arrangements and associates (continued)
30 Related party transactions
95
(b) Investments in associates (continued)
(ii)
Summarised financial information of associates
The Group’s share of the results of its principal associates and its aggregated
assets (including goodwill) and liabilities are as follows:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total net assets
Revenue
Profit from continuing operations
Other comprehensive income
Total comprehensive income
(iii) Contingent liabilities of associates
Share of contingent liabilities incurred jointly with other
investors
Contingent liabilities relating to liabilities of the
associate for which the Company is severally liable
2014
$m
2013
$m
2.3
80.9
83.2
0.5
78.8
79.3
(0.6)
(0.6)
-
(0.6)
82.6
8.1
6.7
-
6.7
-
(0.6)
78.7
7.4
5.4
-
5.4
2014
$m
2013
$m
-
-
-
-
-
-
(c) Investments in joint ventures
The joint ventures in which the Group has an interest and which are equity
accounted in the financial statements are as follows:
Name
CHCQ
Chun Wo/CRGL
Country of
operation
China-Hong
Kong
China-Hong
Kong
KMQR Sdn Bhd
ARG Risk Management
Limited
QLM Pty Ltd
Rail Innovation
Australia Pty Ltd
Integrated Logistics
Company Pty Ltd
Malaysia
Australia
Australia
Australia
Australia
Ownership
interest
2014
%
2013
%
Principal
activity
15
17
30
50
50
20
14
15
Construction
17
Construction
30
50
Consulting
Insurance
50 Dormant
20
Consulting
14
Consulting
(a) Parent entities
The parent and ultimate parent entity within the Group is Aurizon Holdings
Limited.
(b) Subsidiaries
The consolidated financial statements incorporate the assets, liabilities and
results of the following principal subsidiaries in accordance with the accounting
policy described in Note 1(b):
Equity holding
Country of
incorporation
Class of
shares
2014
%
2013
%
Australia
Ordinary
100.0
100.0
Name of entity
Aurizon Operations
Limited
Aurizon Intermodal
Pty Ltd
Logistics Australasia
Pty Ltd
Aurizon Resource
Logistics Pty Limited
CRT Group Pty Ltd
NHK Pty Ltd
Interail Australia Pty Ltd
Australia
Australia
Ordinary
Ordinary
100.0
100.0
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia
Australia
Australia
Ordinary
Ordinary
Ordinary
Ordinary
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Australian Rail Pty Ltd
Australia
Australia Eastern Railroad
Pty Ltd
Australian Railroad Group
Employment Pty Ltd
Australia
Ordinary
100.0
100.0
Australia
Ordinary
100.0
100.0
Australia Western
Railroad Pty Ltd
Australia
AWR Lease Co Pty Ltd
Australia
Aurizon Network Pty Ltd
Australia
Ordinary
Ordinary
Ordinary
100.0
100.0
100.0
100.0
100.0
100.0
Aurizon Surat Basin
Pty Ltd
Australia
Ordinary
100.0
100.0
Aurizon Property Holding
Pty Ltd
Australia
Aurizon Property Pty Ltd
Australia
Aurizon Terminal Pty Ltd
Australia
Ordinary
Ordinary
Ordinary
100.0
100.0
100.0
100.0
100.0
100.0
Australia
Ordinary
100.0
100.0
Aurizon Moorebank
Holdings Pty Ltd
Aurizon Moorebank
Pty Ltd
Aurizon Finance Pty Ltd
Australia
Australia
Ordinary
Ordinary
100.0
100.0
100.0
100.0
Aurizon International
Pty Ltd
Aurizon Moorebank
Unit Trust
Iron Horse Insurance
Company Pte Ltd
Australia
Ordinary
100.0
100.0
Australia
Units
100.0
100.0
Singapore
Ordinary
100.0
-
FINANCIAL REPORT | AURIZON 96
Notes to the consolidated financial statements
30 June 2014
30 Related party transactions (continued)
(c) Key Management Personnel compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
2014
$’000
2013
$’000
13,738
20,154
447
63
1,276
5,846
476
(127)
1,295
4,631
21,370
26,429
Short term employee benefits include cash salary, at risk performance
incentives and fees, non-monetary benefits and other short-term benefits.
Non-monetary benefits represent the value of Reportable Fringe Benefits
for the respective Fringe Benefits Tax year ending 31 March, the estimated
value of car parking provided, motor vehicle lease payments and annual leave
accrued or utilised during the financial year. Other short-term benefits include
sign-on bonus and relocation assistance.
(d) Transactions with Directors and Key Management Personnel
There were no KMP related party transactions during the year.
(e) Transactions with other related parties
The following transactions occurred with related parties:
Dividend revenue – Other related parties
2014
$’000
2013
$’000
-
1
(f)
Terms and conditions of transactions with related parties other than
Key Management Personnel or entities related to them
All other transactions, other than those with the State of Queensland as
described below, were made on normal commercial terms and conditions
and at market rates, except that there are no fixed terms for the repayment
of loans between the parent and its subsidiaries. All loans are non interest
bearing. Outstanding balances are unsecured.
(g) Transactions with State of Queensland controlled entities
Until its 22 November 2010 listing on the ASX, the Group was a Queensland
Government Owned Corporation, with all shares held by the Shareholding
Ministers on behalf of the State. The State currently holds 2.6% (2013: 8.9%)
interest in the Company and is no longer a significant related party of
the Group.
Transport Services Contracts
The Group has entered into Transport Services Contracts (TSCs) with the State
of Queensland (acting through the Department of Transport and Main Roads)
to provide general freight and livestock transportation services. The contracts
commenced on 1 July 2010 and expire on 30 June 2015 and 31 December
2015 respectively.
Under the contracts, for the initial two and a half years, the Group will receive
monthly base payments and quarterly payments in aggregate totaling $150.0
million for the year ended 30 June 2011, $148.1 million for the year ended
30 June 2012 and $75.1 million for the six months ended 31 December 2012.
After 31 December 2012 and until expiry of the contract, there has been
a Deed of Variation for each contract agreed for the remaining terms.
The monthly base payments and quarterly payments, in aggregate, total
$52.8 million for the 6 months to 30 June 2013, $109.8 million for the year
ended 30 June 2014, $85.0 million for the year ended 30 June 2015 and
$13.7 million for the year ended 30 June 2016.
In addition, the contracts provide for additional payments of $90.0 million
(general freight) and $13.0 million (livestock) between 31 December 2012
and the expiry of the contracts (refer to Note 5).
Service contracts with Queensland Rail
There exist a number of related party transactions between the Group and
Queensland Rail Limited (Queensland Rail) arising from the separation of
Queensland Rail from the Group on 30 June 2010. These transactions relate
to service contracts entered into between the parties that are broadly priced
on the basis of cost recovery plus a profit margin. At the conclusion of each
contract (tenures range between one and five years), they will ordinarily be
renegotiated.
The largest service contracts (by financial value) are for the provision of
maintenance services; repairs, manufacture and overhaul of rollingstock; hook
and pull services for passenger rollingstock; IT services; and stowing services.
31 Deed of cross guarantee
Aurizon Holdings Limited, Aurizon Finance Pty Ltd, Aurizon Property Holding
Pty Ltd, Aurizon Property Pty Ltd, Aurizon Terminal Pty Ltd, Aurizon Operations
Limited, Aurizon Intermodal Pty Ltd, Logistics Australasia Pty Ltd, Aurizon
Resource Logistics Pty Limited, CRT Group Pty Ltd, Interail Australia Pty Ltd,
Australian Rail Pty Ltd, Australia Eastern Railroad Pty Ltd, Australia Western
Railroad Pty Ltd, Australian Railroad Group Employment Pty Ltd and Aurizon
Network Pty Ltd (the “Aurizon Deed Parties” and each a “Aurizon Deed Party”)
entered into a Deed of Cross Guarantee dated 11 March 2011 (the “Cross
Guarantee”) with Aurizon Holdings Limited as the ‘Holding Entity’, under which
each Aurizon Deed Party guarantees the debts of each other Aurizon Deed
Party. By entering into the cross guarantee and lodging it with the Australian
Securities and Investments Commission (ASIC) on 29 March 2011, the wholly-
owned Aurizon Deed Parties have been relieved from the requirement to
prepare separate financial and directors’ reports by the operation of ASIC Class
Order 98/1418 (as amended) (the “Class Order”). The cross guarantee became
effective on lodgement with ASIC on 29 March 2011.
On 5 June 2013, each Aurizon Deed Party entered into a Revocation Deed
pursuant to which the Cross Guarantee is to be revoked in respect of Aurizon
Network Pty Ltd from the date the Revocation Deed becomes operative. The
Revocation Deed was lodged with ASIC on 15 July 2013 and a public notice to
creditors was printed in a national daily newspaper on 17 July 2013. Pursuant
to the provisions of the Revocation Deed, the revocation became operative
on 16 January 2014, being the date six months and one day after the date
the Revocation Deed was lodged with ASIC. From the time the Revocation
Deed became operative, the financial results of Aurizon Network Pty Ltd were
no longer consolidated into the financial statements of the remainder of the
Aurizon Deed Parties for the purposes of the Class Order. The consolidated
income statement, consolidated statement of comprehensive income and
summary of movements in consolidated retained earnings for the financial
year ended 30 June 2014 are set out below.
(a)
Consolidated income statement, statement of comprehensive income
and summary of movements in consolidated retained earnings
The Aurizon Deed Parties represent the ‘closed group’ for the purposes of
the Class Order and as there are no other parties to the cross guarantee that
are controlled by Aurizon Holdings Limited, they also represent the ‘extended
closed group’.
The results of all the Aurizon Deed Parties are presented below in the
consolidated income statement, a consolidated statement of comprehensive
income and a summary of movements in consolidated retained earnings.
This represents the results of the Group excluding Aurizon Network Pty Ltd,
NHK Pty Ltd, AWR Lease Co Pty Ltd, Aurizon Moorebank Holdings Pty Ltd,
Aurizon Moorebank Pty Ltd, Aurizon Moorebank Unit Trust, Aurizon Surat Basin
Pty Ltd and Aurizon International Pty Ltd.
ANNUAL REPORT 2013–14 Notes to the consolidated financial statements
30 June 2014
97
31 Deed of cross guarantee (continued)
(a)
Consolidated income statement, statement of comprehensive income
and summary of movements in consolidated retained earnings
(continued)
(b) Consolidated balance sheet
The balance sheet of the parties to the Deed of Cross Guarantee at each
reporting date is presented below.
Income statement
Revenue from continuing operations
Other income
Consumables
Employee benefits expense
Depreciation and amortisation expense
Impairment losses
Other expenses
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Statement of comprehensive income
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
2014
$m
2013*
$m
3,329.9
3,728.5
157.0
41.5
(1,274.1)
(1,353.2)
(1,040.6)
(1,182.5)
(395.4)
(253.7)
(37.6)
(65.4)
420.1
(83.6)
336.5
(495.9)
-
(51.0)
(105.6)
581.8
(135.4)
446.4
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Other assets
Assets classified as held for sale
Tax receivables
Total current assets
Non-current assets
Other assets
Inventories
Property, plant and equipment
Intangibles
Investments accounted for using the equity method
336.5
446.4
Other financial assets
Changes in the fair value of cash flow hedges
(4.7)
3.0
Income tax relating to components of other
comprehensive income
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
(0.1)
(4.8)
(0.9)
2.1
331.7
448.5
Current liabilities
Trade and other payables
Derivative financial instruments
Derivative financial instruments
Total non-current assets
Total assets
Summary of movements in consolidated retained earnings
Retained earnings at the beginning of the
financial year
Profit for the year
Dividends provided for or paid
Removal of Network Pty Ltd
Retained earnings at the end of the financial year
1,422.5
1,176.0
336.5
446.4
(346.2)
(199.9)
(737.9)
-
674.9
1,422.5
* Includes Aurizon Network Pty Ltd, which was removed from deed on 16 January 2014
as previously stated.
Current tax liabilities
Provision
Other liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2014
$m
2013*
$m
316.0
593.8
160.0
0.5
19.3
110.8
55.7
106.3
580.0
212.2
0.4
10.1
23.0
-
1,256.1
932.0
57.2
14.6
3.0
19.0
4,399.2
9,426.9
43.1
0.5
1,215.2
-
25.3
0.5
18.8
0.2
5,729.8
9,493.7
6,985.9 10,425.7
402.7
288.3
-
-
318.0
19.9
740.6
0.8
68.2
359.3
42.4
759.0
320.1
2,478.6
79.4
101.8
9.9
407.0
78.5
209.4
511.2
3,173.5
1,251.8
3,932.5
5,734.1
6,493.2
5,045.9
5,045.9
13.3
24.8
674.9
1,422.5
5,734.1
6,493.2
* Includes Aurizon Network Pty Ltd, which was removed from deed on 16 January 2014
as previously stated.
FINANCIAL REPORT | AURIZON 98
Notes to the consolidated financial statements
30 June 2014
32 Remuneration of auditors
During the year the following fees were paid or payable for services provided
by the auditor of the parent entity, its related practices and non-related
audit firms:
34 Earnings Per Share
(a) Basic Earnings Per Share
PwC Australia
Audit and other assurance services
2014
$’000
2013
$’000
Total basic Earnings Per Share attributable to the
ordinary equity holders of the Company
(b) Diluted Earnings Per Share
Audit and review of financial statements
2,167
1,950
2014
Cents
2013
Cents
11.8
19.8
2014
Cents
2013
Cents
11.8
19.8
Total diluted Earnings Per Share attributable to the
ordinary equity holders of the Company
(c) Reconciliation of earnings used in calculating Earnings Per Share
2014
$m
2013
$m
Basic and diluted Earnings Per Share
79
422
Profit from continuing operations
252.8
446.9
(d) Weighted average number of shares used as denominator
-
481
285
584
2,648
2,819
242
2,969
846
4,087
2014
$’000
2013
$’000
Weighted average number of ordinary shares
used as the denominator in calculating basic
Earnings Per Share
Adjustments for calculation of diluted Earnings
Per Share:
2014
Number
‘000
2013
Number
‘000
2,137,285
2,257,248
Rights
4,619
6,475
Weighted average number of ordinary
and potential ordinary shares used as the
denominator in calculating diluted Earnings
Per Share
2,141,904
2,263,723
(e) Information on the classification of securities
All shares issued by Aurizon Holdings Limited are fully paid ordinary shares that
participate equally in profit distributions.
35 Share-based payments
(a) Performance rights plan
The Performance rights plan was established by the Board of Directors to
provide long-term incentives to the Group’s senior executives based on
shareholder returns taking into account the Group’s financial and operational
performance. Under the Plan, eligible executives may be granted rights
on terms and conditions determined by the Board from time to time.
Participation in the plan is at the Board’s discretion so that no individual has a
contractual right to be awarded rights under the plan or to receive
any guaranteed benefits.
The Board will determine the exercise price payable on exercise of a vested
right and the exercise period of a right. The Board may, in its discretion,
determine that early vesting of a right will occur if there is a takeover bid,
scheme of arrangement or some other change of control transaction of
the Group. The Board may also accelerate the vesting of some or all of the
rights held by an executive in specified circumstances, these include but are
not limited to death, total and permanent disablement, or cessation
of employment.
Other assurance services
Audit of regulatory returns
Other assurance services
Total remuneration for audit and other
assurance services
Taxation services
Tax advisory services
Other services
Advisory services
Total remuneration of PwC Australia
(a) Non-PwC Australia related audit firms
Audit and other assurance services
Audit and review of financial statements
9
9
33 Reconciliation of profit after income tax to net cash inflow
from operating activities
Profit for the year
Depreciation and amortisation
Impairment of non-current assets
Amortisation of borrowing costs
Non-cash employee benefits expense –
share-based payments
Interest capitalised to qualifying assets
Net (gain) loss on sale of non-current assets
Share of profits of associates and joint
venture partnership
Change in operating assets and liabilities:
(Increase) in trade debtors
(Increase) in inventories
(Increase) decrease in other operating assets
(Decrease) increase in trade and other payables
(Decrease) increase in other operating liabilities
(Decrease) increase in provision for income
taxes payable
(Decrease) increase in deferred tax liabilities
(Decrease) increase in other provisions
Net cash inflow from operating activities
2014
$m
252.8
499.2
301.4
20.2
13.5
(34.1)
(10.3)
2013
$m
446.9
496.3
-
18.4
12.3
(22.2)
(11.8)
(6.7)
(5.4)
(35.2)
(26.0)
(12.6)
126.4
4.8
(115.7)
84.4
6.1
1,068.2
(30.9)
(6.6)
(5.3)
(40.1)
(35.5)
68.2
44.7
(22.7)
906.3
ANNUAL REPORT 2013–14 99
Notes to the consolidated financial statements
30 June 2014
35 Share-based payments (continued)
Retentions
(a) Performance rights plan (continued)
Performance rights are granted by the Company for nil consideration.
Each right is a right to receive one fully-paid ordinary share in Aurizon Holdings
Limited at no cost if the vesting conditions are satisfied. Rights granted under
the plan carry no dividend or voting rights.
Deferred Short-term Incentive Award (STIAD)
The STIAD was implemented in the 2011 financial year under which rights to
the value of 50% of the cash Short-term Incentive Awards (STIA) received by
eligible executives would be granted as rights to ordinary shares. The rights will
vest equally over a two year period and become exercisable provided that the
executive remains employed by the Group at the vesting date, unless otherwise
determined by the Board. This plan has not terminated with the last of the
tranches vesting in the October 2014.
From Financial Year 2014 a portion of any STIA for the MD & CEO as well
as the KMP will be awarded in rights to ordinary shares and deferred for a
period of one year. This will be introduced over a two year period with a 20%
deferral in Financial Year 2014, increasing to 40% in Financial Year 2015.
The rights will vest after one year and become exercisable provided that the
executive remains employed by the Group at the vesting date, unless otherwise
determined by the Board.
Long-term Incentive Award (LTIA)
Performance rights are granted to senior executives as part of the Group’s LTIA.
The first grant of LTIA rights was in November 2010. The rights are subject to
the executives remaining employed by the Group and satisfying market based
performance hurdles of Total Shareholder Return (TSR) and non-market based
Earnings Per Share (EPS) targets and Operating Ratio (OR).
The proportion of the LTIA rights that become exercisable will depend upon
the TSR achieved by the Group relative to a peer group of companies over a
three year period. The peer group comprises the companies in the ASX Top 100
index other than financial, medical, telecommunications, pharmaceutical and
gaming companies. To determine to what extent the TSR related performance
rights will vest, the TSR of the Group, over the performance period, will be
compared to the TSR of all the companies in the peer group. Each of these peer
companies will be ranked from highest to lowest based on their TSR over the
performance period and the number of rights that vest will depend on where
the Group is ranked amongst the peer group. For the purposes of calculating
the TSR measurement the relevant share prices will be determined by reference
to the volume weighted average share price over the 20 business days after the
grant date and 20 business days before the end of the performance period.
OR, which essentially measures the operating cost (in cents) of earning each
dollar of revenue, remains a key metric for Aurizon for measuring its success.
Aurizon is committed to its target of reducing OR to 75% by 2015. This will
require further implementation of transformation and growth initiatives and
continued tight operational and financial discipline. Accordingly, the Board
determined to increase the proportion of the LTIA that is subject to the OR
performance condition to 50% of the grant. The OR hurdle is measured
against the ratio calculated by including any diesel fuel rebate in revenue.
It should be noted that the target OR in 2016 is a significant decrease below
the 2015 target of 75% and that this rate of decline cannot be expected to
be maintained indefinitely into the future. The Board considers 72% to be an
extremely difficult target in such a short time. To put the target in perspective,
to achieve 72% by 2016 will require a 3% reduction year-on-year from IPO
to 2016.
At the Board’s discretion eligible executives may be granted retention rights
that may vest at the end of the specified retention period provided that the
executive remains employed by the Group at the vesting date.
Set out below are summaries of rights granted under the plans:
Balance
at start of
the year
Number
‘000
Granted
during
the year
Number
‘000
Exercised
during
the year
Number
‘000
Forfeited
during
the year
Number
‘000
Balance
at end of
the year
Number
‘000
2,278
13,476
355
16,109
1,715
7,719
420
9,854
-
(1,361)
(282)
635
4,816
330
5,146
1,749
6,669
455
8,873
(3,694)
(1,331)
13,267
(282)
(10)
393
(5,337)
(1,623)
14,295
(1,024)
(137)
(465)
(1,626)
(162)
(775)
(55)
(992)
2,278
13,476
355
16,109
Grant Date
2014
STIAD
LTI
Retentions
Total
2013
STIAD
LTI
Retentions
Total
At 30 June 2014 there was no vested but unexercised rights.
The weighted average exercise price of rights granted during the year was nil
(2013: nil), as the rights have no exercise price. The weighted average share
price at the date of exercise for rights exercised during the period was $4.73
(2013: $3.56). The weighted average remaining contractual life of share rights
outstanding at 30 June 2014 was 1.5 years (2013: 1.2 years).
Fair value of rights
In determining the fair value, the below standard market techniques for
valuation were applied in accordance with AASB 2. The fair value of the
STIAD and the portion of LTIA rights, that are subject to non-market based
performance conditions, are determined by the share price at grant date less
an adjustment for estimated dividends payable during the vesting period.
The fair value of the LTIA rights subject to the TSR market based performance
condition has been calculated using the Monte-Carlo simulation techniques
based on the inputs disclosed in the table below. In estimating expected
vesting it was assumed an equal chance that each company in the TSR peer
group may finish the performance period ranked at any position within the
Group. Analysis was performed comparing this approach to the Monte-Carlo
simulation conducted in the prior year and resulted in similar outcomes.
The model inputs for performance rights granted during the year ended
30 June 2014 included:
Tranche
Grant date
Vesting date
Expiry date
LTIA
TSR
EPS
OR
16 Aug 2013
16 Aug 2013
16 Aug 2013
16 Aug 2016
16 Aug 2016
16 Aug 2016
31 Dec 2017
31 Dec 2017
31 Dec 2017
Share price at grant date
$4.57
$4.57
$4.57
Expected life
Volatility
Risk free rate
Dividend yield
Fair value
3.5 years
3.5 years
3.5 years
20%
2.9%
3.90%
$2.78
n/a
n/a
3.90%
$4.07
n/a
n/a
3.90%
$4.07
FINANCIAL REPORT | AURIZON 100
Notes to the consolidated financial statements
30 June 2014
35 Share-based payments (continued)
(a) Performance rights plan (continued)
The key assumptions adopted for the valuation of performance rights granted
during 2013 are contained below:
STIAD
LTIA
Year 1
10 Oct
2012
10 Oct
2013
10 Oct
2013
Year 2
10 Oct
2012
10 Oct
2014
10 Oct
2014
TSR
EPS
OR
23 Aug
2012
23 Aug
2015
31 Dec
2016
23 Aug
2012
23 Aug
2015
31 Dec
2016
23 Aug
2012
23 Aug
2015
31 Dec
2016
$3.62
$3.62
$3.55
$3.55
$3.55
Tranche
Grant date
Vesting date
Expiry date
Share price at
grant date
Expected life
1 year
2 years
3.5 years
3.5 years
3.5 years
Volatility
Risk free rate
n/a
n/a
n/a
n/a
25%
2.7%
n/a
n/a
n/a
n/a
Dividend yield
2.20%
2.20%
2.20%
2.20%
2.20%
Fair value
$3.54
$3.46
$2.06
$3.29
$3.29
(b) Expenses arising from share-based payment transactions
Total expenses arising from share-based payment transactions recognised
during the period as part of employee benefit expense was $13.5 million
(2013: $12.3 million).
36 Parent entity financial information
(a) Summary financial information
The individual financial statements for the parent entity show the following
aggregate amounts below.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets
Shareholders’ equity
Contributed equity
Retained earnings
Reserves
Total equity
2014
$m
60.9
2013
$m
68.2
6,107.4
6,129.2
(75.5)
(68.2)
(1,031.6)
(1,057.7)
5,061.2
5,071.5
5,045.8
5,045.8
0.1
15.3
0.1
25.6
5,061.2
5,071.5
The parent entity has several employees. All costs associated with these
employees are borne by a subsidiary of the parent entity and are not included
in the above disclosures.
Profit or loss for the year
Total comprehensive income
346.2
346.2
199.9
199.9
(b) Guarantees entered into by the parent entity
There are cross guarantees given by Aurizon Holdings Limited, Aurizon
Operations Limited, Aurizon Finance Pty Ltd, Aurizon Property Holding Pty Ltd,
Aurizon Terminal Pty Ltd, Aurizon Property Pty Ltd, Aurizon Intermodal Pty Ltd,
Logistics Australasia Pty Ltd, Aurizon Resource Logistics Pty Limited, CRT Group
Pty Ltd, Interail Australia Pty Ltd, Australian Rail Pty Ltd, Australia Eastern
Railroad Pty Ltd, Australia Western Railroad Pty Ltd, Australian Railroad Group
Employment Pty Ltd and Aurizon Network Pty Ltd as described in Note 31.
(c) Contingent liabilities of the parent entity
The parent entity did not have any material contingent liabilities as at 30 June
2014 or 30 June 2013. For information about guarantees given by the parent
entity, please see above.
(d)
Contractual commitments for the acquisition of property,
plant or equipment
As at 30 June 2014, the parent entity did not have any contractual
commitments for the acquisition of property, plant or equipment (2013: nil).
37 Events occurring after the reporting period
(a) Aquila Resources Limited transaction
On 5 May 2014, Baosteel Resources Australia Pty Ltd and Aurizon’s wholly-
owned subsidiary, Aurizon Operations Limited, (together, the Bidders)
announced their intention to make a joint takeover offer to acquire 100% of
the ordinary shares in Aquila Resources Limited (Aquila) that they did not then
own (the Offer). The Offer opened for acceptance on 6 June 2014 and closed
on 25 July 2014.
At the date of signing this report, the Bidders (and their associates) are
registered holders of, in aggregate, 98.95% of Aquila’s ordinary shares
on issue.
The Bidders have exercised their rights to seek to compulsorily acquire
outstanding shares. Once this process successfully completes, Aurizon is
expected hold in total 15% of Aquila’s ordinary shares on issue (total Aurizon
cash consideration – approximately $210 million).
Disposal of non-core assets
(b)
On 4 August 2014, Aurizon entered into an agreement to sell its wholly owned
logistics subsidiary CRT Group (CRT) to Qube Logistics (Aust) Pty Limited,
a subsidiary of Qube Holdings (Qube). The sale is consistent with Aurizon’s
strategy, as announced in July 2013, to maximise the value of the Intermodal
business by retaining and integrating it within the enterprise which also
included the disposal of certain non-core assets.
CRT provides specialised bulk freight hauler services including handling,
packaging, warehousing and distribution to the Australia polymer, food and
industrial sectors and has a national network of depots, warehouses and
container parks which, based on a strategic review, is considered non-core.
The resources arm was separated from CRT in April 2014 and integrated into
Aurizon’s broader operations given its complementary focus on Aurizon’s key
growth sectors and commodities. CRT employs approximately 250 people and
has an annual turnover (revenue) of c$100m. The sale is subject to a number
of conditions, with settlement expected in October 2014.
ANNUAL REPORT 2013–14 101
Directors’ Declaration
30 June 2014
In accordance with a resolution of the Directors of the Company, I state that:
In the opinion of the Directors of the Company:
(a)
the financial statements and notes set out on pages 60 to 100 are in accordance with the Corporations Act 2001, including:
(i)
complying with Accounting Standards and other mandatory professional reporting requirements as detailed above, and the Corporations Regulations 2001,
(ii)
giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date, and
(b)
there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable, and
(c)
at the date of this declaration, there are reasonable grounds to believe that the members of the extended closed group identified in Note 31 will be able
to meet any obligations or liabilities to which they are, or may become, subject by virtue of the deed of cross guarantee described in Note 31.
Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
The Directors have been given the declarations by the Managing Director & Chief Executive Officer and Chief Financial Officer required by section 295A of the
Corporations Act 2001.
John B Prescott AC
Chairman
Brisbane
18 August 2014
FINANCIAL REPORT | AURIZON
102
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF AURIZON HOLDINGS LIMITED
Report on the financial report
We have audited the accompanying financial report of Aurizon Holdings Limited (the Company), which comprises
the consolidated balance sheet as at 30 June 2014, the consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for
the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’
declaration for the Aurizon Holdings Limited Group (the consolidated entity). The consolidated entity comprises the
company and the entities it controlled at year’s end or from time to time during the financial year.
Directors’ responsibility for the financial report
The directors of the company are responsible for the preparation of the financial report that gives a true and fair view
in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control
as the directors determine is necessary to enable the preparation of the financial report that is free from material
misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting
Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International
Financial Reporting Standards.
Auditor’s responsibility
Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in
accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether
the financial report is free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the consolidated entity’s preparation and fair presentation of the financial
report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors,
as well as evaluating the overall presentation of the financial report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Independence
In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.
PricewaterhouseCoopers, ABN 52 780 433 757
Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
Intro para here.Intro text here.Section titleANNUAL REPORT 2013–14
103
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS
OF AURIZON HOLDINGS LIMITED
Auditor’s opinion
In our opinion:
(a) the financial report of Aurizon Holdings Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its
performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations)
and the Corporations Regulations 2001; and
(b) the financial report and notes also comply with International Financial Reporting Standards as disclosed
in Note 1.
Report on the Remuneration Report
We have audited the remuneration report included in pages 27 to 48 of the Directors’ Report for the year ended
30 June 2014. The directors of the company are responsible for the preparation and presentation of the remuneration
report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on
the remuneration report, based on our audit conducted in accordance with Australian Auditing Standards.
Auditor’s opinion
In our opinion, the remuneration report of Aurizon Holdings Limited for the year ended 30 June 2014 complies with
section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
John Yeoman
Partner
Brisbane
18 August 2014
PricewaterhouseCoopers, ABN 52 780 433 757
Riverside Centre, 123 Eagle Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
FINANCIAL REPORT | AURIZON
104
Non-IFRS Financial Information
In addition to using profit as a measure of the Group and its segments’
financial performance, Aurizon uses EBIT (Statutory and Underlying), EBITDA
(Statutory/Underlying), EBITDA margin – Underlying, Operating Ratio –
Underlying, Return On Invested Capital (ROIC), Net debt and Net gearing ratio.
These measurements are not defined under IFRS and are, therefore, termed
“Non-IFRS” measures.
ROIC is defined as underlying EBIT divided by the average invested capital.
The average invested capital is calculated by taking the rolling twelve
months average of net property, plant and equipment including assets under
construction plus current assets less cash less current liabilities plus gross
intangibles. This measure is intended to ensure there is alignment between
investment in infrastructure and superior returns for shareholders.
EBIT – Statutory is defined as Group profit before net finance costs and
tax while EBITDA – Statutory is Group profit before net finance costs, tax,
depreciation and amortisation. EBIT underlying differs from EBIT – Statutory
due exclusion of significant items that permits a more appropriate and
meaningful analysis of the underlying performance on a comparative basis.
EBITDA margin is calculated by dividing underlying EBITDA by the total
revenue. These measures are considered to be useful measures because of
the Group’s operating performance because they approximate the underlying
operating cash flow by eliminating depreciation and/or amortisation.
Operating Ratio – Underlying is defined as underlying EBIT divided by total
revenue (excluding interest income). The Operating Ratio is the key measure of
the operating cost of earning each dollar of revenue and it is used as one of the
key performance measures of the KMP.
Net debt consists of borrowings (both current and non-current) less cash
and cash equivalents. Net gearing ratio is defined as Net debt divided by
Shareholders Equity plus Net debt. Net debt and Net gearing ratios are
measures of the Group’s indebtedness and provides an indicator of the
balance sheet strength.
These above mentioned measures are commonly used by management,
investors and financial analysts to evaluate the Company’s performance.
A reconciliation of the non-IFRS measures and specific items to the nearest
measure prepared in accordance with IFRS is included in the table below.
The non-IFRS financial information contained within this Directors’ Report and
Notes to the Financial Statements has not been audited in accordance with
Australian Auditing Standards.
Profit before income tax
Finance costs (net)
EBIT – Statutory
Significant adjustments:
– Voluntary redundancy schemes
– Assets impairments
– Assets under construction impairment
– Strategic infrastructure project impairment
– Rollingstock impairment
– Stamp duty
EBIT – Underlying
Depreciation and amortisation
EBITDA – Underlying
Operating Ratio
Average invested capital
ROIC
Borrowings – Current
Borrowings – Non-current
Total borrowings
Cash and cash equivalent
Net debt
Net Gearing Ratio
Notes
4(b)
4(b)
4(c)
4(c)
4(c)
4(c)
4(c)
7
20
20
10
2014
$m
353.4
112.1
465.5
69.3
20.0
53.7
72.9
170.0
-
851.4
499.2
1,350.6
77.7%
9,651.9
8.8%
41.5
2,799.4
2,840.9
(317.5)
2,523.4
2013
$m
582.3
103.3
685.6
95.7
-
-
-
-
(26.9)
754.4
496.3
1,250.7
79.8%
9,418.9
8.0%
-
2,478.6
2,478.6
(107.6)
2,371.0
24(e)
28.4%
26.7%
ANNUAL REPORT 2013–14 SHAREHOLDER INFORMATION | AURIZON
105
Shareholder Information
Range of Fully Paid Ordinary Shares as at 14 August 2014
RANGE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 999,999,999
1,000,000,000 – 9,999,999,999
Rounding
Total
Unmarketable Parcels
TOTAL HOLDERS
22,105
27,802
4,096
3,293
159
0
UNITS
14,063,113
63,065,128
30,164,066
66,592,352
1,963,399,844
0
% OF ISSUED
CAPITAL
0.66
2.95
1.41
3.12
91.86
0
57,455
2,137,284,503
100.00
Minimum $500.00 parcel at $5.00 per unit
MINIMUM PARCEL SIZE
100
HOLDERS
536
UNITS
16,121
The number of shareholders holding less than the marketable parcel of shares is 536 (shares: 16,121)
Substantial Holders of 5% or more of Fully Paid Ordinary Shares as at 14 August 2014*
NOTICE DATE
7 July 2014
24 December 2013
8 May 2012
SHARES
132,953,567
132,671,318
125,051,143
NAME
UBS AG and its related bodies corporate
HSBC Holdings
Children’s Investment Fund Management
* As disclosed in substantial shareholder notices received by the Company.
Investor Calendar
2015 DATES
16 February 2015
23 March 2015
24 August 2015
21 September 2015
12 November 2015
DETAILS
Half Year results and interim dividend announcement
Interim dividend payment date
Full Year results and final dividend announcement
Final dividend payment date
Annual General Meeting
Note:
The payment of a dividend is subject to the Corporations Act and Board discretion.
The timing of any event listed above may change. Please refer to the Company website, aurizon.com.au, for an up-to-date list of upcoming events.
ASX code: AZJ
Contact details
Aurizon
GPO Box 456
Brisbane QLD 4001
For general enquiries, please call
13 23 32 within Australia.
If you are calling from outside Australia,
please dial +61 7 3019 9000
www.aurizon.com.au
Investor Relations
For all information about your shareholding,
including employee shareholdings, dividend
statements and change of address, contact the
share registry Computershare on 1800 776 476
or visit investorcentre.com/au
To request information relating to Investor
Relations please contact our Investor Relations
team on +61 7 3019 1412 or email:
investor.relations@aurizon.com.au
106
Shareholder Information (continued)
Top 20 Holders of Fully Paid Ordinary Shares as at 14 August 2014
NAME
J P MORGAN NOMINEES AUSTRALIA LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
QUEENSLAND TREASURY HOLDINGS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
CITICORP NOMINEES PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
AMP LIFE LIMITED
WARBONT NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LIMITED
UBS NOMINEES PTY LTD
ECAPITAL NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
UBS NOMINEES PTY LTD
UBS WEALTH MANAGEMENT AUSTRALIA NOMINEES PTY LTD
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES
Total Remaining Holders Balance
ADDRESS
LOCKED BAG 20049,
MELBOURNE VIC, 3001
GPO BOX 5302, SYDNEY NSW,
2001
GPO BOX 764G, MELBOURNE
VIC, 3001
GPO BOX 1406, MELBOURNE
VIC, 3001
PO BOX R209, ROYAL EXCHANGE
NSW, 1225
C/- QUEENSLAND TREASURY,
CORPORATION, GPO BOX 1096,
BRISBANE QLD, 4001
GPO BOX 5302, SYDNEY NSW,
2001
GPO BOX 764G, MELBOURNE
VIC, 3001
GPO BOX 5430, SYDNEY NSW,
2001
PO BOX R209, ROYAL EXCHANGE
NSW, 1225
PO BOX 4151, SYDNEY NSW,
2001
PO BOX R209, ROYAL EXCHANGE
NSW, 1225
PO BOX R209, ROYAL EXCHANGE
NSW, 1225
GPO BOX 5302, SYDNEY NSW,
2001
GPO BOX 5430, SYDNEY NSW,
2001
PO BOX 4151, SYDNEY NSW,
2001
GPO BOX 3804, SYDNEY NSW,
2001
GPO BOX 5302, SYDNEY NSW,
2001
LEVEL 16, CHIFLEY TOWER,
2 CHIFLEY SQUARE, SYDNEY
NSW, 2000
GPO BOX 1257, MELBOURNE
VIC, 3001
UNITS
534,903,128
501,194,376
318,720,895
251,136,335
60,507,803
54,926,186
21,625,456
18,699,494
14,405,436
13,487,919
11,845,076
11,817,000
11,441,499
10,682,258
9,342,379
8,150,000
7,158,275
6,338,361
5,933,419
5,363,139
1,877,678,434
259,606,069
% OF UNITS
25.03
23.45
14.91
11.75
2.83
2.57
1.01
0.87
0.67
0.63
0.55
0.55
0.54
0.50
0.44
0.38
0.33
0.30
0.28
0.25
87.85
12.15
ANNUAL REPORT 2013–14 SHAREHOLDER INFORMATION | AURIZON
107
Glossary
Some terms and abbreviations used in this
document, together with industry specific terms,
have defined meanings.
These terms and abbreviations are set out in this
glossary and are used throughout this document.
A reference to dollars, $ or cents in this document is
a reference to Australian currency unless otherwise
stated. Any reference to a statute, ordinance,
code or other law includes regulations and any
other instruments under it and consolidations,
amendments, re-enactments or replacements of
any of them. Any reference to Annual Report is a
reference to this document.
ABN
Australian Business Number
CGT
Capital Gains Tax
Coal
The above rail coal haulage operating division of
Aurizon Holdings Limited
Company or Aurizon Holdings
Aurizon Holdings Limited (ACN 146 335 622) and
where the context requires, includes any of its
subsidiaries and controlled entities
Company Secretary
The Company Secretary of Aurizon Holdings
Limited
Constitution
The constitution of Aurizon Holdings Limited
above rail
Rollingstock – including locomotives and wagons
and associated infrastructure (e.g. maintenance
and operational depots)
ACN
Australian Company Number
Corporations Act
Corporations Act 2001 (Cth)
cps
Cents per share
CQCN
Central Queensland Coal Network
ASIC
Australian Securities and Investments Commission
CQIRP
Central Queensland Integrated Rail Project
ASX
Australian Securities Exchange operated by ASX
Limited (ABN 98 008 624 691)
ASX Listing Rules
The official listing rules of ASX
Aurizon
Aurizon Holdings Limited (ACN 146 335 622) and
where the context requires, includes any of its
subsidiaries and controlled entities
below rail
Track, electric infrastructure, signalling and
associated rail infrastructure
Board
The Board of Directors of Aurizon Holdings Limited
DTC
Deficit Tonnage Charges
EBIT
Earnings Before Interest and Tax
EBITDA
Earnings before interest, tax, depreciation and
amortisation
EBIT Margin
Underlying earnings before interest and tax divided
by total revenue and other income
EEO
Energy Efficiency Opportunity
EEO Act
Energy Efficiency Opportunity Act 2006 (Cth)
CAGR
Compound annual growth rate, expressed as a
percentage per year
EPS
Earnings Per Share
Freight
The above rail freight haulage operating division of
Aurizon Holdings Limited
FY
Financial year ended 30 June, as the context
requires
GAP
Goonyella to Abbot Point
GAPE
Goonyella to Abbot Point Expansion
GAAP
Generally Accepted Accounting Principles
IBNR
Incurred but not reported
IFRS
International Financial Reporting Standards
km
kilometre
LTIA
Long Term Incentive Awards
LTIFR
Lost Time Injury Frequency Rate, being a measure
of the number of lost time injuries per million hours
worked over a 12 month period
MTIFR
Medically Treated Injury Frequency Rate, being
a measure of the number of medically treated
injuries per million hours worked over a 12 month
period
MAR
Maximum Allowable Revenue that Aurizon Network
Pty Ltd is entitled to earn from the provision of coal
carrying train services in the CQCN across the term
of an access undertaking
mt
Millions of tonnes
mtpa
Millions of tonnes per annum
108
Glossary (continued)
tonne
One metric tonne, being 1,000 kilograms
tonne kilometres
The product of tonnes and distance
TSC
Transport Services Contract entered into
between the Queensland State Government
and the Company for the provision of regional
freight and livestock services
WACC
Weighted Average Cost of Capital, expressed
as a percentage
WICET
Wiggins Island Coal Expansion Terminal
WIRP
Wiggins Island Rail Project
Network
Aurizon Network Pty Ltd (ACN 132 181 116) a
wholly-owned subsidiary of Aurizon Holdings
NGER
National Greenhouse Energy Reporting
NGER Act
National Greenhouse Energy Reporting Act 2007
(Cth)
ntk
Net tonne kilometre, unit of measure representing
the movement over a distance of one kilometre of
one tonne of contents excluding the weight of the
locomotive and wagons
Operating Ratio
1 – EBIT margin, expressed as a percentage
OPEX
Operating expense including depreciation and
amortisation
PPT
Percentage point
QCA
Queensland Competition Authority
Queensland Rail
Queensland Rail Limited (ACN 132 181 090) – this
entity is owned by the State and operates the core
public rail passenger business
RAB
Regulated Asset Base the value of the asset
base on which pricing is determined by the price
regulator
ROIC
Return on Invested Capital
share
A fully paid ordinary share in Aurizon Holdings
STIA
Short-term Incentive Award
ANNUAL REPORT 2013–14 GLOSSARY AND CORPORATE INFORMATION | AURIZON
109
Corporate Information
Aurizon Holdings
Limited
ABN 14 146 335 622
Directors
> John B Prescott AC
> Lance E Hockridge
> John Atkin
> Russell R Caplan
> John Cooper
> Karen Field
> Graeme John AO
> Andrea Staines
> Gene Tilbrook
> Pasquale Zito
Company Secretary
> Dominic D Smith
Registered Office
Level 17, 175 Eagle Street
Brisbane QLD 4000 Australia
Auditors
PricewaterhouseCoopers
Share Registry
Computershare Investor
Services Pty Limited
117 Victoria Street
West End QLD 4001 Australia
Tel: 1800 776 476
(or +61 3 9938 4376)
ANNUAL REPORT 2013–14