Aurizon Holdings Limited
ABN 14 146 335 622
ASX Market Announcements
ASX Limited
20 Bridge Street
Sydney NSW 2000
BY ELECTRONIC LODGEMENT
17 August 2015
Aurizon – 2015 Annual Report
Please find attached a copy of the Company’s 2015 Annual Report.
In accordance with the relief from dual lodgment of financial statements under ASIC Class Order 98/104, the
Annual Report will not be lodged separately with ASIC.
Copies of the Annual Report are expected to be dispatched to all shareholders who have elected to receive
a copy of the Annual Report, in mid-September 2015.
Aurizon’s Annual General Meeting will be held at 10.00am (Brisbane time) on Thursday 12 November 2015.
A copy of the Notice of Annual General Meeting is expected to be sent to all shareholders in mid-September
2015.
Kind regards
Dominic D Smith
VP & Company Secretary
T +61 7 3019 9000
Level 17, 175 Eagle St Brisbane QLD 4000 Australia
| F +61 7 3019 0720
| CompanySecretary@aurizon.com.au
| GPO Box 456 Brisbane QLD 4001 Australia
ANNUAL REPORT 2014-15
Contents
FY2015 in Review ................................................... 1
Chairman’s Report ................................................2
Directors’ Report ...................................................4
– Operating and Financial Review ...............10
– Remuneration Report ....................................25
Auditor’s Independence Declaration ........ 39
Sustainability ........................................................40
Corporate Governance Statement ............. 42
Financial Report ..................................................48
Shareholder Information ................................ 98
Glossary ................................................................100
Corporate Information .................................. 104
Our Vision
To be a world leading rail-based transport business that partners
with customers for growth .
Our Mission
We are an Australian rail-based transport business with a global
orientation that creates value sustainably for our customers,
shareholders, employees and the communities in which we operate.
Our Values
Safety: Safety of ourselves and others is our number one
priority. Safety is at the core of everything we do as we commit
to ZEROHarm.
People: Diversity strengthens our capability. Our energy, courage,
and passion motivate us to create extraordinary outcomes.
Integrity: We are honest, fair and conduct business with the
highest ethical standards. We are respectful in all of our dealings.
Customer: We are passionate about leading change. We deliver
results with energy and conviction
Excellence: We create value through collaboration and
innovation. Our hallmarks are clear accountability, continuous
improvement and disciplined execution.
B
AURIZON ANNUAL REPORT 2014–15 FY2015 in Review
Financial Headlines
($M)
Total revenue
Earnings Before Interest and Tax (EBIT) – statutory
Adjustments
- Voluntary Redundancy Program (VRP)
- Asset impairments
EBIT – underlying
Net Profit After Tax (NPAT) – statutory
NPAT – underlying
Final dividend (cps)
Interim dividend (cps)
Total dividend (cps)
Earnings Per Share (EPS) – Underlying (cps)
Return on Invested Capital (ROIC)
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) margin – underlying (%)
Operating Ratio (OR) update
› 74.3%, ahead of 75% target despite volumes
being significantly lower than forecast at IPO
› New 70% target for FY2018
EBIT margin – underlying (%)
Operating Ratio (OR) – underlying (%)
Coal volumes (mt)
Iron Ore volumes (mt)
Freight volumes (mt)
Net operations opex/NTK ($/000 NTK)
Gearing (net debt/net debt + equity)
People (FTE)
Highlights
› Underlying EBIT up 14% or $119m largely
due to:
• Transformation benefits of $123m
• Network earnings growth of $72m due
to record volumes, partly offset by:
– VRP costs of $36m
– Net impact of lower above rail
volumes of $25m (mainly Iron Ore)
– Non-cash impairment relating to
Galilee Basin greenfield expansion
project costs of $15m
› Statutory EBIT up 109% due to impact of
asset impairments ($317m) and VRP costs
($69m) in FY2014
› ROIC improved 0.9ppts to 9.7%
› Dividend payout ratio range lifted to
70-100% of NPAT
› Final FY2015 dividend 13.9 cents (based on
100% payout ratio), up 64% – 30% franked
› Total FY2015 dividend 24.0 cents, up 45%
› Significant achievement in restructuring
Enterprise Agreements, benefits to flow in
future years
FY2015
3,780
970
-
-
970
604
604
13.9
10.1
24.0
28.4
9.7%
39.4%
25.7%
74.3%
211.2
25.6
46.0
34.9
30.2%
6,869
FY2014
VARIANCE %
3,822
465
69
317
851
253
523
8.5
8.0
16.5
24.5
8.8%
35.3%
22.3%
77.7%
210.4
29.9
46.3
35.2
28.4%
7,524
(1%)
109%
-
-
14%
139%
15%
64%
26%
45%
16%
0.9ppt
4.1ppt
3.4ppt
3.4ppt
0%
(14%)
(1%)
1%
(1.8ppt)
9%
FY2016 outlook
› Above rail volume outlook based on current
market conditions is flat vs FY2015
• Coal – 210-220mt vs 211.2mt
• Iron Ore – 24mt vs 25.6mt
• Freight – 45mt vs 46.0mt
› Network access revenue assumed to be
consistent with UT4 draft revenue decision
› FY2016 revenue also impacted by
approximately $200m including:
• Estimated reduction in Transport
Services Contract (TSC) revenue from
1 July 2015
• Expiry of Queensland Rail passenger
fleet maintenance contract
on 30 June 2015
• Disposal of CRT business (effective
1 December 2014)
› OR target remains 73% driven by continued
improvement through productivity initiatives
and incremental cost out performance
FY2015 IN REVIEW
1
Chairman’s Report
Dear Shareholders
This is my final report to you as Aurizon
Chairman given I will be retiring on
1 September 2015. Over the nearly five years
since Aurizon listed on the Australian Securities
Exchange (ASX), the Company has been
invigorated and transformed. Today, Aurizon is
Australia’s largest listed rail transport business.
In Financial Year (FY) 2015 Aurizon’s financial
and operational performance was solid,
particularly in light of the difficult market
conditions that have continued for Australian
commodities. This is best demonstrated by the
achievement of our core financial target: the
75% Operating Ratio (OR). The final OR for
FY2015 was 74.3%, which is a 15.8 percentage
point (ppt) improvement since Aurizon’s
privatisation. The Company’s Return on Invested
Capital (ROIC) metric has improved to 9.7%
in FY2015.
An overview of Aurizon’s performance in
FY2015 is detailed in the following pages of
this Annual Report.
Aurizon continues to outperform the market in
terms of Total Shareholder Returns (TSR). The
Company’s TSR increased by 7% in FY2015,
and since IPO to 30 June 2015, it has increased
by 117%. This compares to 6% and 44% for the
S&P/ASX 200 Index in the respective periods.
In another capital management initiative, the
Company bought back and cancelled 15.3 million
of its shares at a cost of $69m during the year.
The financial performance for the FY2015 is set
out in detail on page 10.
Safety and sustainability
Aurizon’s core value is safety and it is the
Company’s and my personal priority. Despite
our intense focus on safety performance, it
is with great sadness that I report the tragic
deaths of employees, Maurice Dunbavan
and Neil Pettit, and contractor Callum Ryan
in a road accident in central Queensland in
October 2014. Once again I extend our deepest
sympathies to family and friends of these three
men. Any injury or loss of life is unacceptable
and we continue to focus on and pursue our
Company goal of ZEROHarm.
It is some comfort to know that, overall,
Aurizon’s key safety metrics continued to trend
downwards in FY2015. There were no other
lost time injuries during the year; the Lost Time
Injury Frequency Rate (LTIFR) improved 43%
and the Total Reportable Injury Frequency Rate
(TRIFR) improved 14%. These are encouraging
signs that employees are genuinely disciplined
in putting safety above all else.
As part of the Company’s broad program
of work to support cultural transformation
and establish itself as an employer of choice,
significant progress was made during FY2015
to diversify our workforce. This culminated in
multiple diversity awards for Aurizon, including
recognition of our Managing Director & CEO,
Lance Hockridge, as Diversity Champion CEO
by the Australian Human Resources Institute.
Our commitments and progress in the areas
of safety, environment, community and people
are discussed throughout this Annual Report.
Overview of results
The headwinds facing the Australian
resources sector intensified over the past
financial year. The price of iron ore and coal
has deteriorated, domestic economic
conditions have tightened and the global
equity markets have remained volatile.
A positive for Aurizon against this backdrop,
however, is that demand for high-quality
Australian resources has remained stable.
In a lower price environment, customers have
reduced their production costs and increased
volumes to drive down unit costs.
The export volumes of coal and iron ore,
Australia’s two most valuable commodities,
reached record levels in FY2015. Aurizon is the
predominant provider of haulage services and
network infrastructure for the Australian coal
industry, and consequently, we delivered record
volumes in our above and below rail coal
businesses in FY2015.
In the Network business, the Company
delivered a record 226 million tonnes (mt)
across the Central Queensland Coal Network
(CQCN) – a 5% improvement over 2014.
In the Coal business, Aurizon delivered a record
211mt in New South Wales and Queensland.
The increased tonnes were delivered with fewer
trains and less fuel as we continued to drive
productivity improvements for locomotives,
wagons and energy use.
Volumes in our Iron Ore business have
remained in line with forecast, at 26mt for the
year. Conditions in the general freight sector
have been more difficult but the overall tonnes
hauled of 46mt, is comparable to the previous
financial year.
Statutory Net Profit After Tax (NPAT) for the
year was $604m, up 139%, and Statutory
Earnings Before Interest and Tax (EBIT) rose
to $970m, a 109% increase over the prior year,
earned on stable revenues of $3.8 billion (bn)
(FY2014: $3.8bn).
The Aurizon Board declared a final dividend
of 13.9 cents per share (30% franked), giving
a full-year dividend of 24.0 cents per share.
This follows the Board’s decision to increase
the dividend payout ratio range to 70–100%
of NPAT. It represents an increase of 7.5 cents,
or 45% over FY2014, with dividends to be paid
to shareholders on 28 September 2015.
2
Transformation and growth
Aurizon’s management continued to execute
a disciplined program of transformation
and operational reforms in FY2015.
Transformational benefits of $123m
were delivered in FY2015, reinforcing the
$129m benefits gained in the prior year.
In FY2015 the Company finalised new Enterprise
Agreements (EAs) in Western Australia and
Queensland, covering more than half of our
workforce. Since year end a further two EAs
have been agreed with Queensland employees.
As a result, all Aurizon employees previously
covered by legacy EAs will be engaged under
contemporary employment conditions.
This will be a further catalyst for productivity
enhancements and workplace flexibility.
Despite the current challenging economic
environment, Aurizon continues to have a
strategic growth agenda for the existing business
and new markets. We are seeking to leverage
our capability as a leading rail-based transport
business and look for opportunities that create
value for our shareholders.
The Company substantially completed Stage 1
of the Wiggins Island Rail Project in the second
half of FY2015, which will support an extra
27 million tonnes per annum (mtpa) of coal to
the new Wiggins Island Coal Export Terminal in
Gladstone. The delivery of this major project,
on time and on budget, provides new revenue
streams for the Network business and Aurizon’s
above rail haulage services. Also in the second
half of FY2015, Aurizon commenced the
long-term 6.4mtpa Whitehaven Coal contract,
including servicing the Maules Creek mine, as
part of continued growth in the New South
Wales coal business.
In FY2015 Aurizon continued to assess a
proposal for the development of multi-user
rail and port infrastructure to unlock iron ore
deposits in the Pilbara in Western Australia.
The technical and commercial feasibility
study will progress over the coming year
with project partners Baosteel Resources,
POSCO and AMCI. The assessment includes a
number of approval stages and acknowledges
the volatility in the iron ore price. A final
investment decision is not expected to occur
until late calendar year 2016.
Aurizon, with joint venture partner Qube
Holdings, received in FY2015 Federal
Government approval for the development
of the Moorebank freight facility in south
western Sydney. Moorebank will be the largest
integrated warehouse rail terminal precinct in
Australia when fully developed. It will connect
to Port Botany, one of Australia’s busiest ports,
with road and dedicated rail infrastructure.
The first stage of the Moorebank project is
expected to open in 2017.
Board renewal
At last year’s Annual General Meeting I
announced my intention to retire as Chairman of
the Board and a Director of the Company. Since
that time one of my key responsibilities has
been to secure the right candidate to replace
me as Chairman. After a global search, I was
delighted to welcome Tim Poole as a Director
of Aurizon on 1 July 2015. Tim will assume the
Chairmanship on my retirement on 1 September
2015. Tim brings proven, highly relevant and
impressive credentials to your Board. His career
in large, capital-intensive projects, multi-national
joint ventures and corporate finance, particularly
in infrastructure and regulated industry
environments, equips him well for the role.
In addition to Tim’s appointment, Samantha
Lewis joined the Board in February 2015,
bringing credentials in accounting, finance,
auditing and capital markets. I am confident
the Aurizon Board will continue to develop the
right balance of skills, experience, diversity and
operational capabilities to guide the Company
and improve shareholder returns.
We also saw two Directors leave the Board
during the year. In October 2014 Pat Zito
resigned from the Aurizon Board, and in April
2015 Andrea Staines, an inaugural Director,
retired after almost five years on the Board.
I also note Graeme John AO has indicated
he will not seek re-election in November.
I acknowledge and thank Pat, Andrea and
Graeme for their contributions to the Company.
Outlook
The difficult market conditions experienced
in FY2015 are likely to prevail in the new
financial year. Market concerns are being driven
by a range of factors: a slowdown in global
growth; increased financial market instability;
an accumulation of sovereign debt by some
nations; and volatility in commodity prices.
The imbalance that exists between supply and
demand in coal and iron ore markets is not
expected to ease in the near future.
However, the fundamentals underpinning
demand for Australian resources remain
in place, spurred by the urbanisation and
industrialisation in developing markets such as
China and India. Aurizon anticipates demand
for Australian commodities will continue to
grow. This growth will clearly be at a more
moderate pace than in recent years, but
notably from a higher base than was the case
at the time of Aurizon’s privatisation.
We have set an OR target of 73% to drive our
transformation efforts in FY2016. Based on
the current market conditions, Aurizon’s coal
haulage outlook for FY2016 is expected in the
range of 210mt–220mt, iron ore tonnages at
around 24mt and freight volumes at around
45mt. A key priority for the coming year will
be to finalise the Access Undertaking (UT4)
with the Queensland Competition Authority,
our customers and other industry stakeholders.
Management will also be seeking to deliver
efficiency benefits and customer service
improvements from implementation of the new
Enterprise Agreements.
We will need to be increasingly responsive to
our customers, and discerning about strategic
growth opportunities in a rapidly changing
environment in Australia and abroad.
Acknowledgements
It has been a privilege to serve as Chairman of
this great organisation for close to a decade,
and to have been part of its transformation
and development from government-owned
to public company, and from newly listed to
now one of Australia’s blue-chip companies,
recognised on the global stage.
I am grateful for the support of our
shareholders, customers, government and
communities during my time with Aurizon.
I acknowledge the enduring support and
counsel of my fellow Directors, and recognise
the efforts of the Company’s employees
Australia-wide, on whom Aurizon will continue
to depend for its success.
Aurizon is safer, leaner, stronger and more
diverse than ever before, with a strong Board
and executive team and committed employees.
I leave with confidence in the Company’s future
and its ability to deliver for shareholders and
indeed, all its stakeholders.
John B Prescott AC
Chairman
CHAIRMAN’S REPORT
3
Directors’ Report
Aurizon Holdings Limited
For the year ended 30 June 2015
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 2015 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)
S L Lewis
(Appointed 17 February 2015)
(Independent Non-Executive Director)
T M Poole
(Appointed 1 July 2015)
(Independent Non-Executive Director)
G T Tilbrook
(Appointed 14 September 2010)
(Independent Non-Executive Director)
During the year both Mr P Zito (October 2014)
and Ms A J P Staines (April 2015) resigned as
Non-Executive Directors.
4
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: Chairman of
Nomination & Succession Committee. Member
of Remuneration 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 of Aurizon, then known as
QR National, in July 2010, to lead the Company
through what would be the largest Initial Public
Offering (IPO) in Australia in a decade.
Aurizon is midway through a major
transformation program, to deliver world
leading safety performance, customer
service excellence, and superior operational
and commercial capability. 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,
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. He was part of Q20, the business
advisory group promoting Queensland
investment as part of the G20 Summit in
Brisbane in November 2014.
Mr Hockridge is a private sector member of
the Australian Government’s Department of
Defence Gender Equality Advisory Board
and a founding member of Queensland’s
Male Champions of Change group that is
leading diversity initiatives in the workplace in
Queensland. He also won the Australian Human
Resource Institute Diversity CEO Champion
of 2014. Through Mr Hockridge’s leadership,
Aurizon has an empowerment partnership
with the Australian National Committee of
United Nations (UN) Women. Mr Hockridge
has spoken at UN Women’s business events
across Australia. On behalf of Aurizon he is a
signatory of the UN Women’s Empowerment
Principles which have been signed by over 960
companies worldwide and only 26 companies
in Australia. He is also the Chairman of The
Salvation Army’s South East Queensland
Advisory Board.
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.
AURIZON ANNUAL REPORT 2014–15 Special Responsibilities: Chairman of Safety,
Health & Environment Committee. Member
of Audit, Governance & Risk Management
Committee. Member of Nomination &
Succession Committee.
Australian Listed Company Directorships held
in the past three years: Sipa Resources Limited
– Non-Executive Director (16 September 2004
– ongoing), MACA Limited (27 May 2011 –
1 May 2012), Perilya Limited (16 August 2007 –
5 February 2009).
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 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 (3 December 2008 –
12 November 2014).
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 Chairman and Non-Executive
Director of GPT Metro Office Fund, a Non-
Executive Director of IPH Limited and 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), 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 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 held
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.
Qualifications: LLB, FAICD, FAIM.
Special Responsibilities: Chairman of
Remuneration Committee. Member of Audit,
Governance & Risk Management Committee.
Australian Listed Company Directorships held
in the past three years: Orica Limited –
Non-Executive Director (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 also holds Non-Executive
Directorships with NRW Holdings Limited
and UGL 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.
Member of Nomination & Succession
Committee.
Australian Listed Company Directorships
held in the past three years: Southern Cross
Electrical Engineering Limited – Chairman
and Non-Executive Limited (30 October 2007).
Flinders Mines Limited – Non-Executive
Director (13 September 2010 – 18 December
2012), NRW Holdings Limited – Non-Executive
Director (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), UGL
Limited – Non-Executive Director (15 April 2015
– ongoing).
K L Field
Experience: Mrs Field has more than three
decades’ experience 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.
DIRECTORS’ REPORT
5
Directors’ Report (continued)
S L Lewis
Experience: Ms Lewis has extensive financial
experience, including as a lead auditor of a
number of major Australian listed entities.
Ms Lewis has significant experience working
with clients in the manufacturing, consumer
business and energy sectors, and in addition
to external audits, has provided accounting
and transactional advisory services to other
major organisations in Australia. Ms Lewis’
expertise includes accounting, finance,
auditing, risk management, corporate
governance, capital markets and due diligence.
Ms Lewis is currently a Non-Executive Director
and Chairman of the Audit & Compliance
Committee of Orora Limited. Previously,
Ms Lewis was an Assurance & Advisory partner
from 2000 to 2014 with Deloitte Australia.
Qualifications: BEcon, Member of the Institute
of Chartered Accountants Australia, England
and Wales, GAICD.
Special Responsibilities: Non-Executive
Director of Aurizon Network Pty Ltd. Member
of Audit, Governance & Risk Management
Committee.
Australian Listed Company Directorships held
in the past three years: Orora – Non-Executive
Director (1 March 2014 – ongoing).
T M Poole
Experience: Mr Poole began his career in
1990 at Price Waterhouse before a long and
successful period (1995 to 2007) helping to
build Hastings Fund Management where he
became Managing Director in 2005.
Mr Poole is currently Chairman of the investment
committee of AustralianSuper, Chairman of
Westbourne Credit Management Limited, and
Lifestyle Communities Limited. He was also a
Non-Executive Director of McMillan Shakespeare
Limited and Japara Healthcare Limited.
He was formerly Chairman of Asciano Limited
(2007 to 2009) and formerly a Non-Executive
Director of Newcrest Mining Limited (2007 to
2015) and Victoria Racing Club Limited
(2006 to 2014).
Qualifications: BCom, Member of the Institute
of Chartered Accountants Australia.
Special Responsibilities: On the 14th
August 2015, Mr Poole was appointed to
the Nomination & Succession Committee,
Remuneration Committee and the Safety,
Health and Environment Committee.
Australian Listed Company Directorships held
in the past three years: Lifestyle Communities
Limited – Non-Executive Chairman (19 November
2007 – ongoing), Newcrest Mining Limited –
Non-Executive Director (14 August 2007 –
30 July 2015), McMillan Shakespeare Limited
– Non-Executive Director (17 December 2013
– ongoing), Japara Healthcare Limited – Non-
Executive Director (19 March 2014 – ongoing).
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 Woodside Petroleum, 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 Committee.
Australian Listed Company Directorships held
in the past three years: Orica Limited –
Non-Executive Director (14 August 2013 –
ongoing), GPT Group Limited – Non-Executive
Director (11 May 2010 – ongoing), Woodside
Petroleum – Non-Executive Director
(13 November 2014 – ongoing), Transpacific
Industries Group Ltd – Non-Executive Chairman
(3 September 2009 – 1 March 2013), Fletcher
Building Limited – Non-Executive Director
(1 September 2009 – 21 April 2015).
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,
FCSA, 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.
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 and operation and
management of, the CQCN. Provision of design,
construction, overhaul, maintenance and
management services to the Group, as well as
to external customers.
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 10 to 24
of this report.
6
AURIZON ANNUAL REPORT 2014–15 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
performance are set out in the Sustainability
Report on the Aurizon website
aurizon.com.au/sustainability
Environmental prosecutions
There have been no environmental
prosecutions during this financial year.
Dividends
An unfranked final dividend of 8.5 cents
per fully paid ordinary share was paid on
22 September 2014, and an unfranked interim
dividend of 10.1 cents per fully paid ordinary
share was paid on 23 March 2015. Further
details of dividends provided for or paid are
set out in note 14 to the Consolidated Financial
Statements.
Since the end of the financial year, the
Directors have declared to pay a final dividend
of 13.9 cents per fully paid ordinary share.
The dividend will be 30% franked and is
payable on 28 September 2015.
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
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 two
to three 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.
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 46 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
Managing Director & CEO and the Board.
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. A focus
on the key organisational controls 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’ REPORT
7
Directors’ Report (continued)
TABLE 1 – DIRECTORS’ MEETINGS AS AT 30 JUNE 2015
DIRECTOR
AURIZON HOLDINGS
BOARD
AUDIT, GOVERNANCE
& RISK MANAGEMENT
COMMITTEE
REMUNERATION
COMMITTEE
SAFETY, HEALTH
& ENVIRONMENT
COMMITTEE
NOMINATION
& SUCCESSION
COMMITTEE
J B Prescott AC
L E Hockridge
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO5
S L Lewis4
A J P Staines2
G T Tilbrook6
P Zito3
A
141
141
14
14
14
14
14
4
11
14
5
B
14
14
14
14
14
14
11
4
11
13
5
A
-
-
-
9
-
9
-
2
7
9
4
B
-
-
-
9
-
9
-
2
7
8
4
A
7
-
7
7
-
-
-
-
5
7
-
B
7
-
7
7
-
-
-
-
5
6
-
A
4
4
-
-
4
4
4
-
-
-
-
B
4
4
-
-
4
4
2
-
-
-
-
A
13
-
-
-
13
13
13
-
-
-
-
B
13
-
-
-
13
13
10
-
-
-
-
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 Ms A Staines resigned as Non-Executive Director of Aurizon Holdings Limited effective 15 April 2015.
3 Mr P Zito resigned as Non-Executive Director of Aurizon Holdings Limited effective 24 October 2014.
4 Ms S L Lewis was appointed Non-Executive Director of Aurizon Holdings Limited and Director of Aurizon Network Pty Ltd on 17 February 2015.
5 Mr G T John was granted a Leave of Absence for three Nomination & Succession Committee, two Safety, Health & Environment Committee and two Aurizon Holdings
Board meetings and was an apology for one Aurizon Holdings Board meeting.
6 Mr G T Tilbrook was granted a Leave of Absence for one Remuneration Committee meeting, one Audit, Governance & Risk Management Committee meeting and one
Aurizon Holdings Board meeting.
During the year, the Aurizon Network Pty Ltd Board met on eight occasions with no apologies recorded.
On the 23 October 2014, the Remuneration, Nomination & Succession Committee was split into two separate Committees, one being a Remuneration Committee and the
other being a Nomination & Succession Committee.
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 in Table 1 above.
During the year, the Aurizon Network Pty
Ltd Board met on eight occasions with no
apologies recorded.
Directors’ interests
Directors’ interests are as at 30 June 2015.
As set out in Table 2.
TABLE 2 – DIRECTORS’ INTERESTS AS AT 30 JUNE 2015
DIRECTOR
J B Prescott AC
L E Hockridge
J Atkin
R R Caplan
G T John AO
G T Tilbrook
K L Field
J D Cooper
S L Lewis
NUMBER OF ORDINARY
SHARES
220,981
943,679
35,072
82,132
57,132
49,112
14,245
45,000
14,600
Only Mr Hockridge Managing Director & CEO receives performance rights, details set out in the
Remuneration Report.
8
AURIZON ANNUAL REPORT 2014–15 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 and Financial
Report have been rounded off to the nearest
million 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 39.
The Directors’ Report is made in accordance
with a resolution of the Directors of
the Company.
John B Prescott AC
Chairman
17 August 2015
Non-audit services
During the year the Company’s auditor
PricewaterhouseCoopers (PwC) performed
other services in addition to its audit
responsibilities.
CEO and CFO declaration
The Managing Director & CEO, and Chief
Financial Officer (CFO) have provided a written
statement to the Board in accordance with
Section 295A of the Corporations Act.
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:
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
2015
$’000
153
153
50
50
329
329
With regard to the financial records and
systems of risk management and internal
compliance in this written statement, the
Board received assurance from the Managing
Director & 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 the Company 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 25 to 38 and forms part of the
Directors’ Report for the financial year
ended 30 June 2015.
DIRECTORS’ REPORT
9
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Consolidated results
The Group’s financial performance is explained using measures that are not defined under International Financial Reporting Standards (IFRS) and are
therefore termed non-IFRS measures. The non-IFRS financial information contained within the 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 97.
- underlying
- statutory
- underlying
- statutory
- underlying
- underlying
- statutory
- underlying
- statutory
1. Annual comparison
FINANCIAL SUMMARY
($M)
Total revenue
Operating costs
Employee benefits expense
Energy and fuel
Track access
Consumables
Other expenses
EBITDA
Depreciation and amortisation expense
EBIT
Net finance costs
Income tax expense
NPAT
Earnings per share1 (Basic)
Return on Invested Capital (ROIC)2
Operating Ratio
Cash flow from operating activities
Final dividend per share (cps)
Gearing (net debt/net debt + equity)
Net tangible assets per share ($)
OTHER OPERATING METRICS
Revenue/NTK ($/’000NTK)
Labour costs/Revenue3
NTK/FTE (MNTK)
Operations net opex/NTK ($/’000 NTK)
NTK (bn)
Tonnes (m)
UNDERLYING EBIT BY SEGMENT
($M)
Network
Commercial and Marketing
Operations
Corporate Overhead
Group
FY2015
FY2014
VARIANCE %
3,780
(2,291)
(1,009)
(291)
(328)
(614)
(49)
1,489
1,489
(519)
970
970
(135)
(231)
604
604
28.4
28.4
9.7%
74.3%
1,516
13.9
30.2%
3.0
3,822
(2,472)
(1,035)
(383)
(328)
(679)
(47)
1,350
964
(499)
851
465
(112)
(216)
523
253
24.5
11.8
8.8%
77.7%
1,191
8.5
28.4%
3.0
(1%)
7%
3%
24%
0%
10%
(4%)
10%
54%
(4%)
14%
109%
(21%)
(7%)
15%
139%
16%
141%
0.9ppt
3.4ppt
27%
64%
(1.8ppt)
-
FY2015
FY2014
VARIANCE %
52.2
25.7%
10.5
34.9
72.4
282.8
51.7
27.1%
9.8
35.2
73.9
286.6
1%
1.4ppt
7%
1%
(2%)
(1%)
FY2015
FY2014
VARIANCE %
484
3,079
(2,527)
(66)
970
412
3,134
(2,599)
(96)
851
17%
(2%)
3%
31%
14%
1 Calculated on weighted average number of shares on issue – 2,129m in FY2015 and 2,137m in FY2014.
2 ROIC is defined as underlying rolling twelve month 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 investments accounted for using the equity method plus
current assets less cash, less current liabilities plus net intangibles.
3 Excludes $36m of Voluntary Redundancy Program (VRP) costs in FY2015 (and $69m in FY2014).
10
AURIZON ANNUAL REPORT 2014–15
› A net benefit of $103m from transformation
initiatives (refer to section 4 for additional
detail)
• $99m from Operations including labour
and fleet productivity improvements,
reductions in rollingstock maintenance
transformation, consumable savings and
improved fuel efficiency
• $24m from Support including reductions
in labour, professional services, lease
costs and travel; partly offset by
• $20m one-off costs to deliver
transformation (excluding VRP costs)
› A net increase of $43m in operating costs
and other expenses including:
• $20m increase in depreciation due
to additional capital spend and part
commissioning of WIRP in March 2015
• $15m due to escalation in volume related
consumables (excluding fuel and access
charges)
• $14m due to escalation of employee
benefits and rate increases relating to
contract employees, staff awards and
other non-Queensland based awards
• $9m increase in costs associated with
the derailment at Broadlea in the
Goonyella system in December 2014;
partly offset by:
– $9m decrease in volume related
operating costs (excluding fuel
and access charges) in Iron Ore
– $7m increase in share of net profit
from Moorebank
Additional information on the increase in
underlying EBIT is below:
› A net increase of $96m in Network revenue
reflecting the increase in transitional tariffs
(indexation) applied to record uncapped
volumes and commencement of Wiggins
Island Rail Project (WIRP) railings. As noted
previously, access revenues were not capped
in FY2015
› A net decrease of $25m from lower volumes
(net of access and fuel):
• $33m decrease in Iron Ore revenue
due to a 14% reduction in volumes
• $5m decrease in Bulk revenue due
to customer mix; partly offset by
• $10m increase in Intermodal revenue
despite a 6% reduction in volumes,
due to customer mix
• $3m increase in Coal revenue on
flat volumes
› A net increase of $3m in revenue quality
as follows:
• $10m benefit from Coal revenue despite
a $25m decrease in performance
bonuses due to flat volume environment
• $8m benefit in Freight reflecting
improved pricing, partly offset by a
• $15m decrease in payments due to a
reduction in contracted services under
the TSC
› A net $15m negative impact from
notable items:
• $36m of VRP costs
• $15m non-cash impairment relating
to Galilee Basin greenfield expansion
project costs
• $3m loss on sale of CRT; partly offset by
• $36m net benefit on sale of the Redbank
maintenance facility
• $3m benefit from non-cash provision
adjustments due to changes in
bond yields
Variance analysis – annual
Underlying EBIT increased $119m or
14% to $970m, principally due to a $72m
increase in Network earnings together with
a reduction in operating costs from the
ongoing transformation program and a $36m
net benefit from the sale of the Redbank
maintenance facility. This was partly offset
by $36m in VRP costs and a $15m non-cash
impairment relating to Galilee Basin greenfield
expansion project costs. VRP costs and
non-cash impairments were both treated as
significant items in the comparative year.
The Company realised sustainable transformation
benefits of $123m in the period, with $20m of
one-off costs (excluding VRP) to deliver these
benefits. Underlying EBIT was also adversely
affected by a 1% reduction in overall volumes.
With no underlying adjustments in FY2015,
statutory EBIT was also $970m with the 109%
growth reflecting the improved earnings
together with the impact of $386m ($69m in
VRP costs and $317m in asset impairments)
of underlying adjustments in the prior
corresponding period.
Network EBIT increased 17% or $72m due to
access revenue being uncapped in FY2015,
whereas it was capped in FY2014. Volumes
(excluding Goonyella to Abbot Point Expansion
- GAPE) were 9% higher than the regulatory
forecast with total system volumes of 225.7mt,
representing a new annual record.
Commercial and Marketing revenues decreased
4% due to a 1% decline in overall volumes
and lower pass through fuel revenue:
› Coal volumes were flat principally due to the
loss of the German Creek contract ending
30 November 2014, the ramp-up of a third
operator in the Central Queensland Coal
Network (CQCN) and the impact of severe
weather events in NSW and Queensland in
2HFY2015, offset by the ramp-up in GAPE
volumes and Whitehaven in NSW
› Iron Ore volumes declined 14% as previously
advised due to the end of two customer
contracts
› Freight volumes declined 1% with the
disposal of CRT and weaker Intermodal
volumes partly offset by 3% growth in Bulk
DIRECTORS’ REPORT
11
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Reconciliation to statutory earnings
Underlying earnings is a non-statutory measure and is the primary reporting measure used by Management and the Group’s chief operating decision
making bodies for the purpose of managing and assessing financial performance of the business. Underlying earnings is derived by adjusting statutory
earnings for significant items as noted in the following table:
($M)
Underlying EBIT
Significant Items
Voluntary Redundancy Program (VRP)
Transformation related asset impairments
Other impairments
Statutory EBIT
Net finance costs
Statutory Profit Before Tax (PBT)
Taxation expense
Statutory NPAT
2. Other financial information
CASH FLOW SUMMARY1
($M)
Statutory EBITDA
Working capital and other movement
Cash from operations
Interest received
Income taxes refunded/(paid)
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment (PP&E)
Payments for PP&E & intangibles
Interest paid on qualifying assets
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
Interest paid
Dividends paid to Company shareholders
Net cash (outflow) from financing activities
Net increase/(decrease) in cash
FY2015
970
FY2014
851
-
-
-
970
(135)
835
(231)
604
FY2015
1,489
7
1,496
9
11
1,516
170
(1,083)
(28)
(220)
(1,161)
103
(81)
(128)
(396)
(502)
(147)
(69)
(190)
(127)
465
(112)
353
(100)
253
FY2014
964
342
1,306
9
(124)
1,191
37
(871)
(34)
4
(864)
343
(24)
(90)
(346)
(117)
210
1 Cash flow summary has changed from prior periods with interest paid on qualifying assets now classified as an investing activity and interest paid now classified as
a financing activity. Both were previously classified as an operating activity.
12
AURIZON ANNUAL REPORT 2014–15
Cash flow movements
Net cash inflow from operating activities
increased by $325m (27%) to $1,516m largely
due to:
› $190m (15%) growth in cash from operations
due to $525m (54%) increase in statutory
EBITDA, party offset by a:
• $317m reduction in non-cash impairments
and $37m reduction in net benefit on
asset sales which is included in proceeds
on asset sales in investing activities
› $135m reduction in income taxes paid primarily
due to lower tax payable as a result of the
treatment of impairments in FY2014 and a
$28m refund (received in FY2015) relating to
an adjustment to Aurizon’s tax depreciation
charge. Since IPO, Aurizon’s tax depreciation
charge for a portion of its PP&E was
conservative as it was based on an announced
but un-enacted change in the tax law. This
position was reversed following the Federal
Government announcement in December 2013
that the previously announced change in tax
law would not proceed
BALANCE SHEET SUMMARY
($M)
Total current assets
Property, plant and equipment
Other non-current assets
Total Assets
Total current liabilities
Total borrowings
Other non-current liabilities
Total Liabilities
Net Assets
Gearing (net debt/net debt plus equity)
Balance sheet movements
Total current assets have decreased by
$380m largely due to:
› Reduction in cash and cash equivalents
of $147m after the acquisition of Aquila in
July 2014
› Reduction in trade and other receivables
of $60m
› Reduction in assets classified as held for
sale of $90m, following the disposal of
Redbank, CRT and rollingstock in the year
› Reduction in inventories of $26m due
to improvements in inventory control
Total non-current assets have increased by
$768m largely due to:
› $459m net increase in PP&E reflecting
capital spend on major projects including
WIRP, Rolleston electrification and Hexham
› $235m increase in investments principally
relating to acquisition of minority interest
in Aquila ($225m) in July 2014
Dividend
› The Board has increased Aurizon’s dividend
payout ratio range to 70-100% of NPAT
› In respect of the current year, and taking
into account the forecast reduction in
capex, continued improvements in operating
performance, and investment decisions
regarding strategic growth projects not
expected until late Calendar Year (CY) 2016,
the Board has declared a final dividend of
13.9 cents (30% franked) based on a payout
ratio of 100%
› Based on current expectations, the interim
FY2016 dividend will be franked between
30%-60%
The relevant final dividend dates are:
› 28 August 2015 – ex-dividend date
› 1 September 2015 – record date
› 28 September 2015 – payment date
Net cash outflow from investing activities
increased by $297m (34%) to $1,161m, largely
due to:
› $187m increase in capital expenditure for
WIRP, Hexham, Whitehaven, Rolleston
electrification and Network sustaining capital
› $225m acquisition (inclusive of transaction
costs) of Aurizon’s share of Aquila completed
in July 2014, partly offset by proceeds of
asset sales including the sale of Redbank,
rollingstock and CRT
Net cash outflow from financing activities
increased by $385m to $502m due to:
› $69m invested in the on-market share
buy-back of 15.3m shares
› Increase in dividend payments
› Increase in interest paid reflecting
increased borrowings
30 JUNE 2015
30 JUNE 2014
934
9,900
502
11,336
(845)
(2,983)
(1,002)
(4,830)
6,506
30.2%
1,314
9,441
193
10,948
(852)
(2,841)
(882)
(4,575)
6,373
28.4%
Share Buy-back
On 11 November 2014, Aurizon announced
an opportunistic on-market buy-back of up
to 5% of its issued share capital, a maximum
of 107 million shares, over a 12 month period.
Additional details are as follows:
› Commenced 27 November 2014
› 15.3m shares were bought back and
subsequently cancelled in FY2015, at a total
cost of $69m
› Impact of buy-back will be excluded from
calculation of EPS for remuneration purposes
DIRECTORS’ REPORT
13
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Corporate support cost review
Solid progress has been made on the structural
reform of the corporate support functions, with
a further $12m reduction achieved in 2HFY2015
($24m for FY2015), bringing the cumulative
savings since 1 July 2013 to $57m. Savings
are accelerating in FY2016, with the following
activities already commenced to achieve the
targeted saving of $100m by FY2016:
› Reduction in layers and increases in spans of
control across support functions
› Centralisation of administrative and support
resources
› Ongoing consolidation and rationalisation of
the property portfolio
› Implementation of alternative service
delivery models, including outsourcing
› Right sizing of remuneration levels
› Process and resourcing efficiencies driven
through investment in technology
Consultation on restructuring has already
commenced in Human Resources, Enterprise
Real Estate and Safety Health and Environment
with other areas to follow.
FY2016-FY2018
Having achieved the 75% OR target for FY2015,
Aurizon is seeking to leverage the strength
of its safety, operational and commercial
transformation into the next phase of its journey
to drive shareholder value. Aurizon’s OR targets
for the next three years are as follows:
FY2016 – 73.0%, FY2017 - 71.5% and FY2018
- 70.0%. Aurizon’s ROIC target is a minimum
average of 10.5% over the same period.
FY2015 delivered $123m in transformation
benefits, with a net cost to deliver $56m ($36m
VRP; $20m non-VRP).
› Operations – $99m
• $42m in labour productivity – reflects
a 5% reduction in average FTEs,
productivity improvements driven
by rostering changes and removal
of deployment inefficiencies in turn
reducing overtime and allowances,
progressive depot consolidation for
maintenance and Intermodal operations
• $25m in fleet productivity – ongoing
rationalisation and standardisation of
fleet through running longer denser
trains, and improved turnaround time
and reliability, resulting in the cascade
of assets to replace old inefficient fleet
and minimising leasing costs through
increased asset utilisation
• $17m in rollingstock transformation
reflecting revised maintenance
schedules, reduction in wheel
consumption and technology
enhancements including on train repair
and condition monitoring
• $9m in other initiatives including lower
consumable spend through better
procurement, reduced requirements and
improved safety performance
• $6m in fuel and energy due to a 2%
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
› Support – $24m
• $15m reduction in professional
services, lease costs, travel and other
discretionary spend resulting from
centralisation of activities, consolidation
and rationalisation of the property
portfolio, prioritisation for support of
services and projects including improved
utilisation of internal resources
• $9m improvement in labour productivity
following functional reviews addressing
support activity effectiveness and
efficiency which enabled a net reduction
of FTEs
Funding
During the period the Group further diversified
funding sources with a debut issuance in the
European debt capital markets. Aurizon Network
issued a 10 year Euro 500m EMTN in September
2014 with coupon of 2.0% per annum. When
swapped back into Australian dollars, this
equates to a floating rate of 183 basis points over
the Australian 90-day bank bill swap rate. The
proceeds were used to repay existing bank debt
maturing in 2016. Remaining bank debt facilities
were re-priced and extended during the period.
Other points to note about funding include:
› Strong cash flow resulted in repayment of
Group level revolving debt facilities, with
all long-term debt currently held in Aurizon
Network
› Debt maturity profile average tenor
increased to 4.3 years (FY2014 – 3.5 years)
› Liquidity at 30 June 2015 $1bn (undrawn
facility + cash + working capital)
› Credit ratings unchanged at BBB+/Baa1
› Interest cost on drawn debt was flat at 4.9%
› Group gearing increased to 30.2% (FY2014
– 28.4%)
Tax
Income tax expense for FY2015 was $231m,
representing an effective tax rate of 27.7%.
The cash tax rate for FY2015 was 13.5%, which
is less than 30% primarily due to IPO related
tax adjustments and accelerated fixed asset
related adjustments, including accelerated
tax depreciation and capitalised deductible
expenditure e.g. interest during construction and
tax deductible repair and maintenance costs.
The effective tax rate for FY2016 is expected to
be in the range of 28-30% and the cash tax rate
is expected to be in the range of 18-23%.
3. Operating Ratio update
FY2015
Aurizon delivered on its target to achieve
a 75% OR (25% EBIT margin) in respect of
FY2015 despite above rail volumes being
well below IPO estimates.
The OR for FY2015 was 74.3%, a 1.0ppt
improvement from 1HFY2015 (75.3%) and a
3.4ppt improvement from FY2014 (77.7%).
Supporting the achievement of the 74.3% OR
was the generation of $252m of sustainable
cost out and productivity improvements
between 1 July 2013 and 30 June 2015:
› Operations delivered $195m in
transformation against a FY2015 target range
of $160m-$200m
› Support delivered $57m in transformation,
with $43m required to meet the FY2016
target of $100m
14
AURIZON ANNUAL REPORT 2014–15 Growth opportunities
Aurizon will continue to pursue growth
opportunities which are consistent with,
or adjacent to, today’s business to enable
long-term, sustainable growth in shareholder
returns.
Aurizon is aiming to diversify our portfolio by
leveraging our capabilities into new bulk and
general freight opportunities.
Over the past five years, Aurizon has had
success in transferring its capabilities and
diversifying its portfolio into new markets.
For example, we have launched greenfield
start-ups in NSW Hunter Valley Coal and WA
Iron Ore and have also completed acquisitions
such as WA Diversified Bulk Freight.
Aurizon is seeking to build on this success
through the disciplined pursuit of existing
growth opportunities and the identification,
evaluation and execution of new opportunities
where our capabilities and services, either
alone or in partnership, can create value.
Examples of these include the West Pilbara Iron
Ore Project, Moorebank and the Galilee Basin
Rail and Abbot Point Port Project.
Customer focus
Helping Aurizon’s customers prosper and
grow is a priority and is essential if Aurizon
is to do the same. Aurizon is driving changes
throughout our business to enhance the
customer experience and consistently deliver
on what we promise. By collaborating with
our customers, and taking an ‘integrated
supply chain’ mindset, we will create win-win
outcomes for our customers and Aurizon.
Aurizon’s key priorities under customer
focus are:
› Delivering great service
› Innovating commercial approaches
› Deepening relationships
Productivity improvement
Aurizon’s productivity improvement drive is
about doing more with less. Aurizon takes a
national approach to our operations and is
redesigning and standardising our practices
to ensure a safe and efficient operation that
delivers consistent and optimal outcomes
across the supply chain. This is supported by
people and technology investments that will
enable higher levels of asset productivity and
supply chain performance.
Aurizon’s key priorities under productivity
improvement are:
› Embedding safe, efficient and effective
processes
› Driving disciplined execution
› Optimising assets and capital
› Implementing enabling technologies
› Growing people, diversity and capabilities
› Facilitating supply chain coordination
Aurizon Blueprint
Building on the achievements since IPO, Aurizon
has evolved its long-term strategic direction.
The ‘Aurizon Blueprint’ articulates our refreshed
Vision, Mission, Strategy and Values.
Aurizon’s vision is to be a world leading rail-
based transport business that partners with
customers for growth. As a company we aspire
to be recognised for our exceptional capabilities
and performance within our industry.
Aurizon’s mission defines our purpose as a
business and highlights our focus on delivering
sustainable value for all of our stakeholders.
Aurizon achieves this by applying a long-term
focus and balanced approach to our decision-
making. Aurizon is Australia’s largest rail-freight
company and has played a defining role in the
development of the Australian rail industry.
Aurizon’s mission is to combine this strong
legacy and proven track record with a global
orientation to bring new opportunities, ideas
and innovation into the markets that we serve.
Aurizon’s values of safety, people, integrity,
customer and excellence express what we stand
for and guide how we will achieve our vision,
live our mission and execute our strategy.
Aurizon’s strategy
Aurizon’s strategy is to develop and operate
multi-customer, rail-based, integrated supply
chains. This strategy leverages capability in the
development of rail-based infrastructure and
operation of sophisticated rail-based supply
chains for multiple customers transporting a
range of freight types.
Aurizon’s foremost priority is to strengthen and
grow our current business across all freight
markets. Substantial progress has been made
since our IPO in 2010 and we will continue
the momentum of our safety, operational and
commercial transformation into a world leading
rail-based company.
Aurizon’s strategy focuses Aurizon on three
key themes to drive value creation: customer
focus, productivity improvement and growth
opportunities.
DIRECTORS’ REPORT
15
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 three ports. The CQCN includes four major coal systems the Moura, Blackwater,
Goonyella and Newlands.
FY2015
$M
FY2014
$M
VARIANCE %
1,108
1,048
60
(409)
(121)
(107)
(165)
(16)
699
63.1%
(215)
484
56.3%
FY2015
225.7
56.2
18.6
2.5
11.1
1,012
951
61
(402)
(125)
(111)
(148)
(18)
610
60.3%
(198)
412
59.3%
9%
10%
(2%)
(3%)
3%
4%
11%
11%
15%
2.8ppt
(9%)
17%
3.0ppt
FY2014
VARIANCE %
214.5
54.2
17.5
2.5
11.1
5%
4%
6%
-
-
› Successfully deployed the first stage
of the mechanised fleet upgrade program
comprising two high production tampers
and regulators and 24 ballast spoil wagons
› Commissioned the first stage of WIRP on
time and under budget, enabling first export
coal to be shipped through the Wiggins
Island Coal Export Terminal (WICET) on
20 May 2015
› Rolleston branch line electrification
commissioned in December 2014 with first
railings on 15 December 2014
NETWORK FINANCIAL SUMMARY
Total revenue
Access
Services/Other
Operating costs
Employee benefits expense
Energy and fuel
Consumables
Other expenses
EBITDA
EBITDA margin
Depreciation and amortisation expense
Underlying EBIT
Operating Ratio
NETWORK OPERATING METRICS
Tonnes (m)
NTK (bn)
Access revenue/NTK ($/000 NTK)
Maintenance/NTK ($/000 NTK)
Opex/NTK ($/’000 NTK)
Network performance overview
Underlying EBIT increased $72m to $484m,
driven by an increase of $96m in total
revenues partially offset by a $24m increase in
depreciation and operating expenditure.
The Network business established new
performance records in FY2015, including
record railings across the CQCN of 225.7mt,
a 5% increase, whilst setting a number of
operational and performance records:
As Access Undertaking 2013 (UT4) was not
finalised during FY2015, transitional tariffs
remained in place for the entire year and
were the basis on which access revenue was
recognised.
In addition, access revenue was not capped
in FY2015 unlike FY2014, therefore revenue
growth of 9% exceeded volume growth of 5%.
This resulted in a 6% increase in access revenue
per NTK. Transitional revenue earned during
FY2015 was broadly consistent with the QCA’s
Draft UT4 Maximum Allowable Revenue (MAR)
decision, as transitional tariffs were applied
to actual volumes (refer Network operational
update for further details).
› Reliability benchmarks set in FY2014 were
maintained whilst successful execution of
efficiency initiatives underpinned the delivery
of a 4% increase in NTKs, including:
• FY2015 CQCN volumes increased 11mt
(5%) with average payloads increasing
1.7% with longer trains delivering an
additional ~3mt or 30% of volume
growth. A 20% reduction in closure
hours was also a key enabler for the
delivery of an additional ~8mt or 70% of
volume growth
• Network delays improved 3% to 20.7
from 21.3 (measured as below rail delays
excluding crossings greater than 15
minutes per train service)
• Network caused cancellations as a
percentage of completed services
reduced 5ppt from FY2014
• New CQCN railing records were set in
11 of the 12 months
16
AURIZON ANNUAL REPORT 2014–15 Network variance analysis
The $72m increase in underlying EBIT was
attributable to:
› A net increase in revenue of $96m principally
due to:
• $89m increase in underlying access
revenue:
– The transitional MAR (excluding
GAPE) agreed for FY2014 was rolled
forward into FY2015, adjusted for CPI
and revenue cap, resulting in a $38m
uplift to the FY2015 MAR to $777m
– FY2015 Network revenues were
uncapped i.e. the transitional tariff
was applied to actual volumes railed
which exceeded the volume forecast
of 193.7mt (ex. GAPE). The FY2014
MAR revenue was capped and
based on forecast volumes of 186mt
(excluding GAPE) with a resulting
$70m over collection due to higher
railings returned to customers at the
end of FY2014
• $12m of revenue relating to the 2013
flood claim of $18m. The remaining $6m
will be collected in FY2016
• $6m access revenue from WIRP which
commenced railing in May 2015, at the
approved transitional Blackwater and
Moura tariffs; partly offset by
• $10m reduction in Electric Charge (EC)
revenue due to a stepped reduction in
the EC rate resulting from the removal of
the carbon tax
› A net increase in operating costs of $7m
(2%), despite a 5% increase in volumes due to
tighter cost control and lower traction costs
› A net increase in depreciation of $17m mainly
relating to ballast, asset renewals, completion
and commissioning of various WIRP
segments (Rocklands to Stanwell duplication,
Dingo to Bluff and Balloon Loop) and the
Rolleston electrification
Network operational update
Access Undertaking 2013 (UT4)
› The Queensland Competition Authority
(QCA) has split its draft decision with
respect to UT4 into two parts:
• Draft Decision on MAR released on
30 September 2014
• Draft Decision on UT4 Policy and Pricing
Matters released on 30 January 2015
› To enable the continuation of existing 2010
Access Undertaking (UT3) until finalisation
of UT4, Aurizon Network on 23 March 2015
submitted a third extension Draft Amending
Access Undertaking (DAAU) to the QCA
for approval. Subsequent addendums were
provided to this DAAU on 15 April 2015 and
11 May 2015, following the announcement
by the QCA on 4 May 2015 of a delay to
the issuance of a final UT4 decision to
October 2015
› The DAAU proposed to extend the
terminating date for UT3 to the earlier of
29 February 2016 or the date on which the
undertaking is withdrawn in accordance with
the QCA Act
Transitional tariff arrangements
› In June 2014, a ‘Transitional Tariffs’ 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 MAR for FY2015 of $777m, inclusive of
the FY2013 revenue cap (including Weighted
Average Cost of Capital – WACC) of circa $35m,
but excluding 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
› On 10 June 2015, the QCA approved the
March 2015 DAAU, which set the FY2016
transitional tariffs to align with the QCA’s
Draft UT4 MAR decision and finalised the
FY2015 transitional tariffs, System Volume
Forecasts and System Allowable Revenues
(SAR). The true-up of the FY2014 and FY2015
MAR between the actual FY2014 and FY2015
revenue is to be determined by the QCA in its
final UT4 decision expected in FY2016
› The DAAU approved in June 2015 also
confirmed an increase of $12m to the FY2015
allowable revenue (and tariffs) for Blackwater
($9m) and Moura ($3m) relating to the 2013
Flood event. The remaining $6m is to be
recovered in FY2016
Standard User Funding Agreements (SUFA)
› The SUFA framework provides customers
with an alternative mechanism for funding
the expansion and growth of the CQCN,
should Aurizon Network elect not to fund
such an expansion
› The QCA issued its draft decision on
31 October 2014 and requested parties
provide submissions on the matters raised
by 16 January 2015
› Aurizon Network lodged a submission in
response to the draft decision to the QCA
by the due date
› The QCA expects to have issued a final SUFA
decision in August 2015 with inclusion of the
applicable provisions in the final UT4 Access
Undertaking
Growth
› Wiggins Island Rail Project (WIRP)
• WIRP links the mines in the Southern
Bowen Basin with the new WICET at the
Port of Gladstone and increases the total
capacity of the Moura and Blackwater
systems by 27mtpa, or approximately 30%
• The rail works required for the first
coal shipments were commissioned
progressively to align to the
commencement of WICET’s operations
and were completed in March 2015
• The WIRP fee (those earnings above
the regulated fee) and ramp-up of
regulated earnings will commence in
FY2016, and are based on the total
cost of the project of $818m (excluding
capitalised interest and $13m of Wiggins
Island Balloon Loop electrification and
Callemondah Feeder Station costs)
• On 31 July 2015 the QCA issued a
Supplementary Draft Pricing Decision
for WIRP Reference Tariffs. The QCA
proposes WIRP Moura and Blackwater
revenues be socialised within their
existing systems with the Moura and
Rolleston WIRP traffic being subject to
a system premium, and all other WIRP
traffic paying the respective system tariff.
The QCA proposes that WIRP regulatory
revenues ramp up in line with the WIRP
customer access contracts. The final
outcome on WIRP pricing will be decided
as part of the UT4 final decision
› Hay Point Terminal expansion
• Construction of the Goonyella system
expansion to support the Hay Point
Coal Terminal upgrade (a further 11mtpa,
lifting the Goonyella system capacity to
140mtpa) has been completed
• Commissioning of this infrastructure
was reliant on the commissioning of
the Wotonga Feeder Station which
was completed in June 2014 and was
connected to the Powerlink Network in
July 2015
• The Hay Point Coal Terminal expansion
is expected to be commissioned in
September 2015
• The project was delivered under budget
at $121m
› Rolleston Electrification Project
• Electrification of the existing 107km
Rolleston spur line commenced in July
2013 and was completed in December
2014, at a total cost of $150m
• First electric railings commenced on
15 December 2014
DIRECTORS’ REPORT
17
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Commercial & Marketing
The Commercial & Marketing function is the key interface between customers and Aurizon, responsible for the management of Coal, Freight and
Iron Ore customer relationships. Also included was the incubated CRT Industrials business until that business was divested on 1 December 2014.
COMMERCIAL & MARKETING SUMMARY
Total revenue
Coal
Above Rail
Below Rail1
Freight
Iron Ore
Operating Costs
Employee benefits expense
Energy and fuel
Consumables
Other expenses
EBITDA
Depreciation and amortisation expense
Underlying EBIT
FY2015
$M
FY2014
$M
VARIANCE %
3,151
1,894
1,187
707
919
338
(67)
(47)
(1)
(29)
10
3,084
(5)
3,079
3,271
1,864
1,215
649
1,029
378
(126)
(60)
(4)
(63)
1
3,145
(11)
3,134
(4%)
2%
(2%)
9%
(11%)
(11%)
47%
22%
75%
54%
> 100%
(2%)
55%
(2%)
1 An amount equivalent to below rail revenue is included in Operations’ costs, reflecting the pass through nature of access tariffs.
COMMERCIAL & MARKETING OPERATING METRICS
FY2015
FY2014
VARIANCE %
Coal
Total tonnes hauled (m)
Queensland
NSW
% Volumes under new form contracts
Contract utilisation
Total NTK (bn)
Queensland
NSW
Total revenue/NTK ($/’000 NTK)
Above rail revenue/NTK ($/’000 NTK)
Below rail revenue/NTK ($/’000 NTK)
Above rail revenue/GCNTK ($/’000 NTK)
Freight
Total tonnes hauled (m)
Total NTK (bn)
Total revenue/NTK ($/’000 NTK)
Iron Ore
Total tonnes hauled (m)
Contract utilisation
Total NTK (bn)
Total revenue/NTK ($/’000 NTK)
18
211.2
168.3
42.9
64%
92%
49.1
42.0
7.1
38.6
24.2
14.4
21.7
46.0
12.9
71.2
25.6
106%
10.4
32.5
210.4
169.9
40.5
53%
91%
49.2
42.8
6.4
37.9
24.7
13.2
22.5
46.3
12.5
82.3
29.9
100%
12.2
31.0
0%
(1%)
6%
11.0ppt
1.0ppt
0%
(2%)
11%
2%
(2%)
9%
(4%)
(1%)
3%
(13%)
(14%)
6.0ppt
(15%)
5%
AURIZON ANNUAL REPORT 2014–15 Commercial & Marketing
performance overview
Underlying EBIT decreased 2% to $3,079m
from $3,134m due to a $120m (4%) decrease
in revenue partly offset by $65m reduction in
operating costs and depreciation.
Coal volumes were marginally up 0.8mt to
211.2mt, with Queensland volumes down 1% at
168.3mt reflecting the closure of Peabody’s
Wilkie Creek mine, the end of Rio Tinto’s Hail
Creek contract in the prior year and Cyclone
Marcia in February 2015. NSW volumes were
6% higher at 42.9mt reflecting the ramp-up of
the Whitehaven contract which commenced
1 March 2015, partly offset by severe weather
in April 2015. Coal volumes hauled under new
form contracts increased 11ppts to 64% with
contract utilisation increasing 1ppt to 92%.
While total Coal revenues increased, above rail
revenue decreased due to a $25m reduction
in annual performance bonuses, reflecting the
flat volume environment as well as a $27m
reduction in pass through fuel revenues due to
the fall in diesel prices, with above rail revenue/
NTK decreasing 2% and above rail revenue/
GCNTK decreasing 4%. Below rail revenue
increased 9% due to increased access revenue
from uncapped Network revenues and higher
transitional tariffs, resulting in below rail
revenue/NTK increasing 9%.
Freight volumes declined 1% (0.3mt) to 46.0mt
with Bulk up 3% and Intermodal down 6%
(excluding CRT). Bulk volumes increased
due to improvements in nickel (impact of
Indonesian embargo in prior corresponding
period), fertiliser, alumina, grain and sugar
volumes partly offset by the expiry of two
Queensland contracts. Intermodal tonnages
were impacted by the severe weather in NSW
which closed the North-South rail line for 18
days in April and May, as well as continuing
soft market conditions impacting the broader
market.
Iron Ore volumes decreased 14% due to the
end of the Mineral Resources 4mtpa and
Mt Gibson’s Tallering Peak 3mpta contracts as
previously advised.
Partly offsetting the lower revenue was a
reduction in operating costs of $59m (47%)
and depreciation of $6m (55%) largely due to
the disposal of CRT.
Commercial & Marketing
variance analysis
The $55m (2%) decrease in underlying EBIT
can be attributed to:
› Coal revenue increased by $30m (2%)
despite flat volumes
• Below rail revenue increased $58m
(9%) due to uncapped Network revenue
(revenue was capped in FY2014)
together with indexation of transitional
tariffs, partly offset by lower take-or-pay
pass through revenue
• Above rail revenue decreased $28m
(2%) principally reflecting:
– $27m reduction in pass through
fuel revenue
– $25m reduction in annual
performance bonuses; partly offset
by a
– $24m increase from escalation of
freight rates ($18m) and marginal
volume growth ($6m)
› Freight revenue declined by $110m (11%)
due to:
• $68m decrease in CRT revenue to $38m
following the disposal of the business on
1 December 2014
• $32m decrease in pass through fuel
revenue
• $15m decrease in TSC revenue reflecting
lower contracted services; partly offset
by a
• $5m increase in Intermodal revenue due
to changes in customer and product mix
more than offsetting the 6% decline in
volumes
› Iron Ore revenue declined by $40m (11%) due
to the 14% volume decrease noted above and
reduced pass through fuel revenue
› Operating costs and depreciation reduced
by $65m (47%) principally reflecting the
disposal of CRT in December 2014
Customer update
The current environment continues to be
challenging for our customers across most
commodities due to depressed commodity
prices. Aurizon has worked diligently with
customers throughout the year, employing a
range of logistical and commercial strategies
in response to the market conditions.
Coal
Aurizon’s contracts
› 96% of contracts expected to be new form
by FY2018 (based on forecast contracted
volumes)
› Weighted average remaining contract
length as at 30 June 2015 was 7.5 years
(QLD 7.3 years, NSW 7.9 years)
› FY2015 above rail revenue – 53% fixed:
47% variable
Major developments for FY2015:
› Reached agreement with Anglo American
and Mitsui to renew the haulage agreement
for the Dawson and Callide mines on the
Moura corridor, effective 1 July 2015. This
involved a 10 year agreement for significant
coal volumes, on a performance-based, new
form contract
› Executed a long-term, performance-
based contract with Caledon Coal, for up
to 4mtpa from the Cook mine to WICET
on the Blackwater corridor. The new form
agreement is for 11 years through to June
2026, and replaces the previous 0.5mtpa
agreement
› Yancoal’s Yarrabee mine converted to a
new form contract on 1 July 2014. Volumes
increased to 3.2mt for a term of 10 years
and are contracted to include haulage to
WICET once complete
› Haulage for Whitehaven’s Maules Creek
mine commenced 1 January 2015 under
an existing spot contract. The long-term
haulage contract commenced 1 March 2015
at 6.4mtpa, and Whitehaven has nominated
an increased annual tonnage from 6.4mtpa
to 7.2mtpa commencing 1 April 2016
› The Anglo American German Creek 2mtpa
contract ended on 30 November 2014 and
was not renewed
› The new long-term performance-based
contract with BMA/BMC commenced on
1 July 2015 for its Blackwater corridor mines,
representing approximately a third of the
BMA/BMC portfolio volumes. Goonyella
corridor mines commence under the new
agreement on 1 July 2016. This new form
contract replaces the previous 2005/06
legacy agreement, providing a flexible,
performance-based contract for BMA/BMC
for up to 12 years
DIRECTORS’ REPORT
19
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Operations
The Operations function is responsible for the
national delivery of all coal and freight haulage
services. This includes yard operations, fleet
maintenance, operations engineering and
technology, program delivery and safety, health
and environment. Operations also deliver below
rail engineering, project management and
maintenance services to the Network business
as well as external customers.
Operations is comprised of six divisions that
leverage Aurizon’s key operational capabilities,
including Operations Planning, Engineering and
Maintenance, Service Delivery Coal Markets,
Service Delivery Freight, Program Delivery and
Safety, Health and Environment.
Freight
Aurizon’s Freight business includes haulage
of Bulk commodities in Queensland (East)
and Western Australia (West) and Intermodal
containerised freight and logistical solutions
across Australia.
Bulk
Bulk accounts for 88% of Freight railings with
Alumina, Bauxite, Nickel and Sugar making up
over half of the bulk commodities railed in QLD
and WA.
The volume environment remains challenging
in the medium-term due to competition from
road and lower commodity prices. A number
of key customer contracts expired during the
year and were not renewed primarily due to
unviable operations at current commodity
prices including Glencore Bulk concentrates,
Cement Australia in QLD and Griffin Coal and
Rosslyn Hill (lead carbonate) in WA.
Given this, a key focus for Bulk has been on
improving revenue quality, by transforming
legacy agreements to new form commercial
arrangements. Aurizon remains on target
for 80% of volumes to be under new form
contracts by FY2017 with examples of
contracts converted during the year detailed
below. In addition to improving revenue
quality, Aurizon remains focussed on cost
control, improving operational efficiencies and
exploring new revenue opportunities.
FY2015 legacy agreements transformed to
new form:
› Queensland Nickel import (10 years)
› BHPB Cannington (seven years)
› Cement Australia Mt Isa (three years) with
option to extend by one year
› Murrin Operations Pty Ltd (Minara) – sulphur,
ammonia, nickel (10 years)
FY2015 new agreements and renewals:
› Queensland Nickel Glen Geddes domestic -
one year with opportunity for an additional
12 months – 1.3mt
› The General Freight Transport Services
Contract (TSC) which was due to expire on
30 June 2015 is currently operating under
a short-term extension. Aurizon is in the
process of negotiating extended commercial
arrangements for both the General Freight
and Livestock services. FY2016 TSC Revenue
is expected to reduce by approximately
$65m (60%)
Intermodal
Growth in the Australian economy remained
below average throughout FY2015 which
has translated into challenging conditions in
the domestic containerised freight market.
While growth in some categories of Australian
retailing such as household durable goods has
improved, volume growth in Australian food
retailing and North Queensland construction
remains particularly subdued.
Aurizon continued to focus on unique
segments of the market by targeting beneficial
freight owners (BFO) who require direct
collaboration with rail provider. BFO customers
now account for 68% of volumes. This strategy
is expected to drive moderate volume and
revenue growth.
Aurizon is seeing above trend growth in
the Melbourne to Brisbane corridor driven
by a new service offering implemented in
October 2014 and supported by materially
improved reliability. The new scheduling has
increased capacity by up to ~14%, with growth
continuing into FY2016 with the signing of
some key customers converting from road
to rail. Ongoing fleet upgrades will further
enhance capacity management, reduce lease
costs and maximise reliability of services.
Aurizon will continue to focus on this corridor
during FY2016 with the aim of implementing
a seamless Melbourne to Cairns (East Coast)
supply chain.
Iron Ore
Iron Ore railings account for 9% of Aurizon’s
total railings, operating solely in Western
Australia. The US dollar iron ore spot price
fell 37% in FY2015 creating a challenging
environment for Aurizon’s customers. However,
a 19% decline in the Australian dollar against
the US dollar in FY2015 has somewhat reduced
the impact.
Total volumes in FY2015 were 25.6mt with
average contract utilisation at 105% and a
weighted average contract life of 6.5 years at
30 June 2015. Significant commodity price
reductions in FY2015 has created a challenging
operating environment for our customers and
Aurizon is having some active discussions
regarding near-term contract adjustments
offset by long-term security including future
exclusivity and extended tenures.
20
AURIZON ANNUAL REPORT 2014–15 OPERATIONS SUMMARY
Total revenue
Total operating costs
Employee benefits expense
Energy and fuel
Track access
Consumables
Other expenses
EBITDA
Depreciation and amortisation expense
Underlying EBIT
Underlying EBIT (excluding access)
OPERATIONS OPERATING METRICS
Net opex1/NTK ($/’000 NTK)
Net opex2/NTK (excluding access) ($/’000 NTK)
Total tonnes hauled (m)
Net tonne kilometres - NTK (bn)
FTE (monthly average)
NTK/FTE
NTK/Active loco
Active locos (as at 30 June)
NTK/Active wagon
Active wagons (as at 30 June)
Average payload coal (tonnes)
Turnaround time3 – CQCN (hrs)
Fuel consumption (l/d GTK)
FY2015
$M
332
(2,564)
(787)
(183)
(973)
(604)
(17)
(2,232)
(295)
(2,527)
(1,554)
FY2014
$M
336
(2,648)
(790)
(268)
(916)
(641)
(33)
(2,312)
(287)
(2,599)
(1,683)
VARIANCE %
(1%)
3%
0%
32%
(6%)
6%
48%
3%
(3%)
3%
8%
FY2015
FY2014
VARIANCE %
34.9
21.5
282.8
72.4
5,403
13.4
10.33
567
0.43
13,960
8,188
25.10
3.19
35.2
22.8
286.6
73.9
5,666
13.0
9.59
597
0.41
14,264
7,920
25.43
3.27
1%
6%
(1%)
(2%)
5%
3%
8%
5%
5%
2%
3%
1%
2%
1 Net opex/NTK is calculated as Operations Underlying EBIT/NTK (i.e. this metric represents operational expenditure net of revenue). Net expenditure is used to
measure above rail productivity, as Operations revenue includes intercompany revenue for services provided (and therefore costs incurred) for Network.
In addition, Operations also incurs expenditure in generating revenue on commercial rollingstock and infrastructure maintenance contracts.
2 Net opex/NTK (excluding access) excludes track access costs in order to measure productivity net of access costs which are generally passed through to above
rail customers (and shown in Commercial & Marketing revenue).
3 As average turnaround time can be influenced by the mix of hauls and mine/port combinations, in FY2016 Aurizon will transition to report velocity (train speed).
DIRECTORS’ REPORT
21
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Operations performance overview
Underlying EBIT improved 3% in FY2015, as
a result of productivity improvements driven
by the ongoing transformation program and
by lower pass through diesel fuel costs, partly
offset by an increase in track access costs.
Operations delivered total volumes of 282.8mt
in FY2015, a decrease of 1% on the prior year.
Volumes were impacted by:
› Lower Iron Ore volumes as expected due
to the end of two customer contracts
› Lower Coal volumes in the Goonyella
system with the operational ramp-up
of a third above rail operator
› Severe weather event in NSW and
Cyclone Marcia in QLD affecting Coal
and Freight volumes
Transformation benefits totalling $99m
were delivered during the period with key
components being labour productivity
($42m), fleet productivity ($25m), rollingstock
transformation ($17m), consumables savings
($9m) and fuel efficiency ($6m). In addition, a
further $16m of transformation benefits were
realised in Support and allocated to operations
through labour productivity ($6m) and
consumables savings ($10m).
Operations variance analysis
The $72m or 3% improvement in underlying
EBIT was largely due to:
› A net decrease in revenue of $4m, due
to reduced volume of Queensland Rail
rollingstock maintenance works (including
Townsville workshop contract ceasing
30 June 2014), offset by profits on disposal
of excess rollingstock
› Overall operating costs (excluding track
access but including depreciation) reduced
by $133m:
• Employee benefits expense - decreased
$3m largely driven by transformational
savings of $48m (inclusive of Support
transformation allocations) including
FTE reduction, overtime and contractor
reductions offset by VRP costs of $30m,
wage escalation and lower performance
pay in prior corresponding period of $13m
• Energy and fuel – $85m reduction driven
by $70m benefit from lower diesel fuel
prices, $9m from lower volumes, and
transformation initiatives delivering a
2.3% improvement in fuel efficiency
(l/DGTK), saving $6m
• Consumables and other expenses –
majority of the $53m savings were
realised through transformation
programs ($61m) including rollingstock
maintenance transformation and fleet
productivity benefits partly offset by
cost escalation
• Depreciation – higher depreciation of
$8m driven by new capital investment
including the new Whitehaven fleet as
well as bulk wagon overhauls
› Track access – the $57m (6%) increase
reflects the impact of uncapped Network
revenues in FY2015, whereas revenues were
capped in FY2014. This resulted in coal
customers paying access costs for every
tonne railed in FY2015, unlike FY2014 where
access costs above the capped level were
refunded (refer Commercial & Marketing
commentary)
Operational update
People
› Aurizon achieved significant milestones
in reform across the industrial relations
landscape after two years of negotiations.
This breakthrough will enable the next
phase of the continuous improvement
journey to continue
› FTE reduced 5% from FY2014 to 5,403.
Employee productivity (NTK/Employee)
improved 3% driven by the reduction in FTEs
from the following initiatives:
• Ongoing organisational structural
reform in technical, office, support
and project-based roles focussed
on alignment of accountabilities,
conversion of contractors to FTEs, and
continued focus on driving productivity
improvements
• Reduction in 191 maintenance employees
associated with the partial closure of
the Redbank and Townsville workshops
resulting from the termination of the
Queensland Rail contracts
• National scale advantages leveraged
through relocation of employees on
temporary and permanent basis (WA
and Toowoomba) into Coal, reducing
recruitment and training requirements
Fleet productivity
FY2015 saw ongoing increases in locomotive
and wagon productivity of 8% and 5%
respectively driven through improvements
in train design. Benefits realised include
reduction in dwell time and train starts, fleet
standardisation, improvement in availability
and reliability, increased train lengths, densities
and velocities, exit of rollingstock leases and
further disposals of surplus fleet.
Energy and fuel efficiency
Uplift in fuel efficiency of 2% against FY2014
was realised, driven by improved train
design in WA, Intermodal and CQCN as well
as driver behaviour. Continued operational
improvements have also been made through
rollout of new technology and use of higher
grade fuel. The Driver Advisory System (DAS)
continues to be rolled out in CQCN as well as a
progressive rollout of trip optimiser technology
from FY2016. Electricity consumption intensity
improved 6% in FY2015 driven by regenerative
braking technology initiatives introduced in the
Blackwater and Goonyella corridors.
Engineering and maintenance
Transformation continued with ongoing focus
on safe, reliable, low cost operations. A strong
systematic approach to maintenance, together
with integrated planning and execution has
resulted in locomotive and wagon availability
improving 2% and 3% to 92% and 94%
respectively.
Consolidation of the maintenance footprint has
continued in line with the reduction of non-core
external services carried out at the heavy
maintenance facilities:
› The contract for the maintenance of the
Queensland Rail (QR) passenger fleet
expired on 30 June 2015. Accordingly, these
services have now ceased, with an estimated
revenue impact of $60m in FY2016. External
maintenance services to QR in the form of
scheduled maintenance and compliance
certifications will continue at Redbank as
contracted until 31 December 2016
› The Redbank locomotive and wheel shop for
Aurizon’s locomotive fleet will continue to
operate until 30 June 2017 when the facility
will then close. Work under the QR contract
in Townsville ceased on 30 June 2014, with
only the wheel shop remaining open in
Townsville during FY2015
› The restructure of both the Redbank and
Townsville shops resulted in a reduction of
191 employees in FY2015 through voluntary
redundancies and attrition, with an additional
80 employees leaving in early FY2016
Wayside condition monitoring technology
allows the electronic inspection for assessing
rollingstock condition and is an enabler for
future transformation of the maintenance
business. Key benefits include the removal
of reliability examinations and physical
inspection tasks, with a focus on large and
consistent fleets. Regulatory approval was
received enabling timing of physical reliability
examinations to increase from 21 to 42 days in
the Goonyella system following the successful
installation of equipment at supersites in
Blackwater and Goonyella during 2HFY2015.
22
AURIZON ANNUAL REPORT 2014–15 Condition monitoring has enabled a number
of other initiatives including the on-train
repair (OTR) program. OTR will deliver the
infrastructure and systems required to safely
and sustainably deliver unit train maintenance,
reducing requirements to break trains and
shunt. On-train wheel change processes are
now in operation within Jilalan in the wagon
yard. Key benefits include running components
to full life, eliminating unscheduled
maintenance and utilising reliability
examinations to perform maintenance tasks.
Operations capital programs
Aurizon Operations continue to focus on
growth and transformational projects.
Significant project updates are as follows:
› The construction of the Hexham Train
Support Facility (TSF) was completed on
time and budget of $186m. Operational
benefits are being delivered through
dedicated provisioning facilities and on-site
maintenance allowing for increased capacity,
decreased operational cost and improved
turn-around times. The site is a key enabler in
allowing Aurizon to meet its commitments to
Whitehaven’s Maules Creek mine
› The Whitehaven Implementation Project has
focussed on the delivery and testing of new
rollingstock for the start-up of Whitehaven’s
Maules Creek mine. Three new consists were
commissioned and progressively introduced
into service in 2HFY2015. The second tranche
of investment in 88 new wagons has been
ordered and is anticipated to be in service in
2HFY2016. Future investment is contingent
on mine and contract ramp-up
› The Freight Management Transformation
(FMT) involves upgrading core business
applications and re-engineering
our processes to drive step change
improvements through optimising
scheduling, billings, yard operations and
train operations at a total capital cost of
$100m. FMT is due to go-live with the first of
three national deployments in late CY2015.
Financial benefits will be realised through
improved operating methodology and
improved billings systems which are aligned
to operating requirements
Other
Other includes miscellaneous activities such
as non-rollingstock asset sales and corporate
overheads that have not been allocated
to Network, Commercial & Marketing and
Operations. The percentage of support costs
allocated to these functions in FY2015 was
70% (FY2014 69%).
OTHER SUMMARY
Total revenue
Operating costs
Employee benefits expense
Consumables
Other expenses
EBITDA
Depreciation and amortisation expense
Underlying EBIT
OTHER METRICS
FTE
Operating costs /Revenue
Variance analysis
Underlying EBIT improved $30m (31%) to
($66m) due to:
› A net increase in revenue of $29m
comprising the net benefit from asset sales
including the Redbank maintenance facility
and CRT
› A net decrease in operating costs and
depreciation of $1m principally due to
$11m relating to lower project costs and
tighter discretionary spend and $8m in
transformation benefits
› Offset by $15m non-cash impairment relating
to the Galilee Basin Greenfield expansion
project costs and $3m increase in VRP costs
Other activities
Senior management changes
Dr Jennifer Purdie commenced in the role of
Executive Vice President (EVP) Enterprise
Services on 1 August 2015. Jennifer will have
responsibility for Information Technology,
Group Legal and General Counsel, Office of the
Company Secretary, National Policy and Safety,
Health and Environment.
Risk
Aurizon operates a mature system of risk
management that is focussed on delivering
objectives and is aligned to international
standards. Aurizon’s Board is actively engaged
in setting the tone and direction of risk
management, with a clear articulation of risk
appetite aligned to the company strategy
and risk management practices that support
consistent delivery of expected outcomes.
Aurizon has full confidence in the management
of Aurizon’s key risks and acknowledge that
internal and external factors can influence
financial results.
The most significant factors relating to future
financial performance are set out in the
following commentary.
FY2015
$M
FY2014
$M VARIANCE %
46
(108)
(54)
(25)
(29)
(62)
(4)
(66)
17
(110)
(60)
(46)
(4)
(93)
(3)
(96)
171%
2%
10%
46%
> (100%)
33%
(33%)
31%
FY2015
FY2014 VARIANCE %
528
3.0%
671
3.0%
21%
0.0ppt
Product demand, commodity prices and
general economic conditions
Aurizon’s customers in core markets are
reliant on demand from large export markets
such as China, Japan, South Korea and
India. Fluctuations in demand in turn impact
commodity prices, product volumes and
investment in growth projects. Whilst Aurizon
has confidence in the long-term prospects for
the key commodities of coal and iron ore, in
the short-term Aurizon’s core markets may not
deliver the same levels of growth that have
been experienced in the recent past.
Major growth projects
Aurizon’s involvement in significant projects in
the West Pilbara and Galilee Basin, if proceeding
to execution, will involve large-scale capital
investment. We retain optionality regarding final
investment decisions on these projects and will
only proceed once satisfied on key commercial
terms such as financial viability, execution risk
and funding options. Capitalised costs may be
impaired should projects not proceed.
Regulatory risk of the Access Undertaking (UT4)
Aurizon is continuing to work with the
QCA and industry stakeholders to secure
acceptable regulatory outcomes for the
CQCN in accordance with the processes set
out in the relevant legislation. Not attaining
appropriate pricing and policy regulatory
settings may negatively impact revenue,
operational complexity, capital investment and
administrative overhead.
Adverse weather events
Aurizon’s business is exposed to extreme
weather events in core markets that, if
experienced, could have a material impact
on customers, supply chains and Aurizon’s
operational performance. Each of these
factors in turn may impact Aurizon’s financial
performance. Weather can also have an impact
on bulk haulage volumes for agricultural
commodities such as grain, sugar and fertiliser.
DIRECTORS’ REPORT
23
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Competitor activity and customer contracts
Aurizon’s competitors may adopt irrational
pricing when bidding for contestable contracts,
new competitors may emerge or Aurizon’s
competitive position may become weakened
over time. Aurizon’s most significant customer
contracts are secured on long-dated terms
however failure to win or retain customer
contracts will always be a risk to future
financial performance.
General regulatory risk
Aurizon’s operations and financial performance
are subject to legislative and regulatory
oversight. Unfavourable changes may be
experienced with respect to access regimes,
safety accreditation, taxation, environmental
and industrial (including occupational health
and safety) regulation, government policy and
approval processes. These changes may have a
material adverse impact on project investment,
Aurizon’s business in general and Aurizon’s
customers.
Asset impairment
Aurizon’s assets are subject to impairment
testing each year. With a large portfolio of fixed
assets, there is the potential that if we were to
experience reduced haulage volumes, some
assets may become impaired.
Concentration of key customers and markets
Aurizon’s earnings are concentrated in coal
and iron ore markets across a relatively small
number of customers. Issues relating to
contract renewals, supply chains disruptions
or macro-industry issues may have a material
adverse impact on Aurizon’s financial
performance.
Enterprise Agreement (EA) update
During the year, Aurizon made significant
progress towards negotiating replacement
Enterprise Agreements that are fair,
competitive and commercially sustainable.
The 14 Queensland legacy agreements that
cover ~4,500 staff represented by six unions
expired in December 2013 and Aurizon has
been bargaining with unions since April 2013.
› The Staff Enterprise Agreement covering
~1400 non-operational and some supervisory
employees was approved by the Fair
Work Commission and implemented on
28 January 2015
› The proposed Construction and Maintenance
(C&M) EA covering ~1,500 employees received
a positive vote by employees on 15 July 2015
› The proposed Train Crew and Transport
Operations (TC&TO) EA covering ~1,700
received a positive vote by employees on
27 July 2015
These two outstanding agreements have
been subsequently lodged with the Fair Work
Commission (FWC) and will be in force seven
days after approval.
Sustainability
Aurizon is committed to building a long-term
sustainable business that delivers lasting value
for its shareholders, customers, employees
and communities. In November 2014, Aurizon
released its inaugural Sustainability Report
relating to FY2014. Please refer to
aurizon.com.au/sustainability for a detailed
analysis of material sustainability priorities.
Aurizon’s FY2015 Sustainability Report will
be released in November 2015. Central to
the reporting process is the process the
Global Reporting Initiative (GRI) describes
as ‘identifying material aspects’, being those
issues that reflect the organisation’s significant
economic, environmental and social impacts or
issues that substantively influence assessments
and decisions of stakeholders.
For consistency with prior reporting, a
brief summary of Aurizon’s performance
in connection with Safety, Environmental
Management and Organisational Capability is
outlined below.
Safety
Aurizon’s commitment to safety has ensured
another year of significant improvement in
our performance. Lost Time Injury Frequency
Rate (LTIFR) improved 43% to 0.16 and Total
Reportable Injury Frequency Rate (TRIFR)
improved 14% to 2.41. Between 30 June 2010
and 30 June 2015, Aurizon has now achieved a
97% reduction in LTIFR and a 92% reduction in
TRIFR. These results demonstrate that Aurizon
is a world leading organisation where safety
is the core value and intrinsic in our decision-
making processes.
FY2015 will always be remembered for the
terrible incident at Stanwell in which two of
our colleagues and a contractor were killed
in what was a most tragic road accident.
The accident irrevocably affected the lives
of family, colleagues and friends, and at an
organisational level, such a tragedy reinforces
Aurizon’s commitment to safety - all injuries
can be prevented. As a result of this incident,
our first obligation was to redouble our
efforts to avoid any repeat and to continue
the journey of safety improvement that we’ve
pursued in recent years. Aurizon is working
with Queensland Police, the Department of
Transport & Main Roads and industry partners
to improve rail corridor safety by upgrading
level crossings and working with communities
and school children.
Aurizon remains committed to ZEROHarm.
Key enabling initiatives include: refinement of
critical training, further process re-engineering,
operational technology solutions and yard
terminal optimisation.
FY2015 key enterprise milestones include:
› A Total Reportable Injury free year in each of
the Service Delivery Bulk North, Rollingstock
Maintenance Heavy Maintenance and
Network Operations Maintenance South
operational businesses
› A Lost Time Injury free year in 11 other
operational businesses
Environmental management
Aurizon has continued to focus on improving
environmental performance. To achieve this,
Aurizon focuses on environmental reporting,
governance of environmental matters and
environmental issues relating to major projects.
In order to facilitate the governance of
environmental matters, Aurizon’s Environment
Community of Competence continues to
govern the management of key environmental
issues such as coal dust, noise and diesel
emissions.
Organisational capability
In FY2015, diversity was embedded as part of
Aurizon’s refreshed Enterprise values sending a
strong message on the importance of diversity
to Aurizon’s workforce. A particular focus is
gender diversity with an Enterprise target
to increase the number of female employees
across the company to 30% from a base of
14.2% within five years. As at 30 June 2015,
the percentage of female employees across
the company was 15.3%.
The measurable objectives for gender diversity,
agreed by the Aurizon Board for FY2015,
(along with the FY2015 outcomes) are:
› At least one female Director at all times
(two out of nine or 22%)
› Minimum of 27% females in the Management
Leadership Team (27%)
› Minimum of 35% of females in middle
management roles (32% )
› Minimum of 33% females of trainees,
apprentices and graduates (52%)
Aurizon is committed to growing its Indigenous
employee population which sits at 3.3% as at
30 June 2015. As a signatory to the Australian
Employment Covenant, Aurizon is expanding
opportunities for Indigenous employment
with 48 new Indigenous recruits employed in
FY2015.
More information on Organisational Capability
at Aurizon will be included in Aurizon’s FY2015
Sustainability Report.
24
AURIZON ANNUAL REPORT 2014–15 Directors’ Report (continued)
REMUNERATION REPORT
Dear Fellow Shareholders,
On behalf of the Board, we are pleased to present Aurizon’s Financial Year (FY) 2015 Remuneration Report.
Over the past 12 months, Aurizon has continued its record of strong performance against our corporate targets, both financial and non-financial.
This capitalises on our successful transition from a government-owned corporation to an ASX top 50 company. Aurizon has continued to provide
solid returns for shareholders, with Total Shareholder Return (TSR) delivering a compound annual growth rate (CAGR) of 18.3% over the past five
years, compared to a CAGR of 8.2% for our ASX200 peers.
Management’s focus on cost and productivity has enabled Aurizon to outperform its key financial target, the 75% Operating Ratio (OR). By the
end of the FY2015, the Company’s OR performance was better than target at 74.3%.
In addition to this milestone achievement, Underlying Earnings Before Interest and Tax (EBIT) improved by 14% in FY2015, TSR was 7.1% and
Earnings Per Share (EPS) increased substantially.
The 2012 Long Term Incentive (LTI) Award was tested in FY2015. In accordance with its terms, the EPS component of the 2011 Award was also
eligible for retesting. Given the strong earnings performance over the applicable periods, the EPS components of both Awards vested in full.
As the Company outperformed the OR target of 75%, the OR component of the 2012 Award also vested in full. The third performance measure,
relative TSR, vested to 88% of maximum, as Aurizon’s relative TSR performance over the three year performance period (FY2012 - FY2015)
against our peer group rated between the median and top quartile. The remaining portion of this award will be subject to a single retest in
FY2016 (over the longer four year period from its initial grant).
The Board considers these remuneration outcomes to be reflective of shareholder outcomes.
Strong performance across most of the Company’s key measures is also reflected directly in the Short Term Incentive (STI) payments for our
Key Management Personnel (KMP), which range from 60% to 66% of their potential maximum. Despite the Company’s impressive continued
improvement in overall safety performance, the year was overshadowed by three fatalities in a road accident in Stanwell in October 2014. As
such the Board has exercised discretion so Executives have not been rewarded for any STI component related to the Total Reportable Injury
Frequency Rate.
At the Company’s Annual General Meeting in November 2014, 93% of the total vote received from shareholders supported the FY2014
Remuneration Report, indicating strong support for the changes to the Remuneration Framework implemented for FY2015. Over the past
year we have continued our proactive engagement with internal and external stakeholders and the Board believes the current Remuneration
Framework remains effective in driving performance and rewarding the creation of long-term shareholder value.
Having regard to prevailing economic and market conditions and the competitiveness of the Company’s current remuneration levels, the Board
and management have agreed not to increase Fixed Remuneration for KMP for the third consecutive year, with the exception of those Executives
who have been promoted, those with changed duties and those whose remuneration level is clearly anomalous.
The Board recognises its responsibility to maintain shareholder confidence in Aurizon’s leadership and remuneration practices. We assure you
the Company is focussed on delivering value for our shareholders, and the Directors are committed to maintaining an Executive Remuneration
Framework aligned to this objective.
While we have made some changes to our disclosure in this year’s Remuneration Report, the substance of the Company’s Remuneration Policy
and approach remains unchanged from the one that received endorsement in 2014. As always, we are grateful for your ongoing support and
value all feedback.
We look forward to welcoming you to our 2015 Annual General Meeting.
Yours faithfully
John B Prescott AC
Chairman
Russell Caplan
Chairman, Remuneration Committee
DIRECTORS’ REPORT
25
Directors’ Report (continued)
REMUNERATION REPORT
Remuneration Report Introduction
1.
Aurizon’s remuneration practices are aligned
with the Company’s strategy of providing
Executive rewards that drive and reflect the
creation of shareholder value.
The Remuneration Report for the year ended
30 June 2015 is set out as per Table 1. The
information in this Report has been audited.
2. Directors and Executives
The Key Management Personnel (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 (FY) ended 30 June 2015 are identified in Table 2.
TABLE 2 – KEY MANAGEMENT PERSONNEL
NAME
POSITION
TABLE 1 – TABLE OF CONTENTS
NON–EXECUTIVE DIRECTORS
SECTION CONTENTS
PAGE
J B Prescott AC
Chairman, Independent Non–Executive Director
1
2
3
4
5
6
7
8
9
10
Remuneration Report
Introduction
Directors and Executives
Remuneration
Framework Components
Company Performance
Financial Year 2015
Take Home Pay
Short Term Incentive
Award
Long Term Incentive
Award
Executive Service
Agreements
Non-Executive Director
Remuneration
Executive Remuneration
Financial Year 2015
26
26
27
29
30
31
32
34
35
36
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO
S L Lewis1
G T Tilbrook
EXECUTIVE KMP
L E Hockridge
J M Franczak
A Kummant
K Neate
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
Managing Director and Chief Executive Officer
Executive Vice President, Operations
Executive Vice President, Network
Executive Vice President and Chief Financial Officer
M Neves De Moraes
Executive Vice President, Commercial and Marketing
1 S L Lewis was appointed a Director on 17 February 2015.
As announced on 3 June 2015, Mr T M Poole was appointed a Director of Aurizon on 1 July 2015.
It is intended that Mr Poole will assume the Chairmanship on the retirement of the present
Chairman, Mr J B Prescott AC, on 1 September 2015.
Table 3 identifies other persons who were KMP at some time during FY2015.
TABLE 3 – FORMER KEY MANAGEMENT PERSONNEL
NAME
POSITION
FORMER NON-EXECUTIVE DIRECTORS
A J P Staines1
P Zito2
Independent Non–Executive Director
Independent Non–Executive Director
1 A J P Staines ceased in the role on 15 April 2015.
2 P Zito ceased in the role on 24 October 2014.
26 AURIZON ANNUAL REPORT 2014–15
3. Remuneration Framework
FIGURE 1 – TOTAL POTENTIAL REMUNERATION FINANCIAL YEAR 20151
Components
MD & CEO: CASH COMPONENT: 54%
EQUITY COMPONENT: 46%
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
› LTIA (‘at risk’ component, awarded on the
achievement of performance conditions
over, in general, a three year period) that
comprises only 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 Executive
KMP is set out in Figure 1: Total Potential
Remuneration Financial Year 2015.
Executive remuneration governance
Figure 2 represents Aurizon’s remuneration
governance framework. During FY2015,
the Board commissioned an independent
review of the structure and operation of the
remuneration governance framework and has
implemented a number of changes.
Details on the composition of the
Remuneration Committee (Committee)
are set out on page 8 of this report.
The Committee’s Charter is available in
the Governance section of the Company’s
website at aurizon.com.au
Remuneration Framework and
objectives FY2015
Figure 3 summarises the Remuneration
Framework and objectives for FY2015.
29%
25%
17%
29%
EXECUTIVE KMP: CASH COMPONENT: 58%
EQUITY COMPONENT: 42%
35%
23%
16%
26%
Fixed Remuneration
STIA
Deferred STIA
LTIA
1 Assumes achievement of the stretch performance hurdle outcomes for STIA, full provision of Deferred STIA in
future and vesting of the LTIA at a value equal to the original award, i.e. assuming no share price appreciation.
FIGURE 2 – 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 the Executive Committee based on the
recommendations of the MD & CEO
REMUNERATION COMMITTEE
The Remuneration 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
› Executive incentive arrangements
MANAGEMENT
› Provides information relevant to remuneration
decisions and makes recommendations to the
Remuneration Committee
› Obtains remuneration information from external
advisors to assist the Remuneration 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 Committee
may from time to time
appoint and engage
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
Committee processes
DIRECTORS’ REPORT
27
Directors’ Report (continued)
REMUNERATION REPORT
FIGURE 3 – REMUNERATION FRAMEWORK AND OBJECTIVES FOR FINANCIAL YEAR 2015
PERFORMANCE MEASURE
STRATEGIC OBJECTIVES AND
LINK TO PERFORMANCE
I
N
O
T
A
R
E
N
U
M
E
R
D
E
X
F
I
M
R
E
T
T
R
O
H
S
D
R
A
W
A
E
V
T
N
E
C
N
I
I
M
R
E
T
G
N
O
L
D
R
A
W
A
E
V
T
N
E
C
N
I
I
Considerations:
› Experience and qualifications
› Role and responsibility
› Retain key talent
› Reference to remuneration paid by similar sized companies
in similar industry sectors
›
Internal and external relativities
› Safety and Environment (17.5%)
› Transformation (17.5%)
› Underlying EBIT (35%)
›
Individual (30%)
Measured over a one year performance period
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
› OR Improvement (34%)
› Relative Total Shareholder Return (TSR) (33%)
› Return on Invested Capital (ROIC) (33%)
Measured over a three year performance period
In the event that the company hurdle is not achieved,
a stronger hurdle is set and the performance period may be
extended for a further year at the discretion of the Board
LTIA at Risk:
MD & CEO: Maximum 100% of Fixed Remuneration
Remaining Executive KMP: Maximum 75% of Fixed
Remuneration
› To attract and retain Executives with the right talent to
achieve results
› 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 and Environment captures the need to
continuously improve safety and reduce our environmental
footprint across all aspects of a heavy industry business
› Transformation captures the need to strengthen and grow
our current business through a focus on our customers
and by improving productivity
› Underlying EBIT delivers direct financial benefits
to shareholders
› OR Improvement 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 is a measure of the return generated for
Aurizon’s shareholders over the performance period
relative to a peer group of companies (ASX100)
› ROIC reflects 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 encourages 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
28
AURIZON ANNUAL REPORT 2014–15
4. Company Performance Financial
FIGURE 4 – HISTORICAL COMPANY PERFORMANCE
Year 2015
Aurizon has reached many key milestones
throughout FY2015, highlights of which include:
.
0
8
8
.
4
3
8
.
8
9
7
.
7
7
7
.
3
4
7
-3.4ppt
1
5
8
4
5
7
0
7
9
+14%
4
8
5
3
8
3
› Beating the OR target in a deteriorating
environment
› A 14% improvement in Underlying EBIT,
a 0.9ppt increase in ROIC and 7% total
shareholder return
› Continued operational productivity
improvements such as the introduction of
Aurizon’s longest ever train at 136 wagons
with 11,000 tonnes of coal
› Delivery of Stage 1 of WIRP (on time, on
budget) that supports an extra 27mtpa of
coal to the new WICET, Gladstone, with new
revenue streams for the Network business
and rail haulage services
› The successful joint bid for Aquila Resources
and the subsequent establishment of the
preliminary stages of West Pilbara Iron
Ore Project
› The commencement of the phased closure
of Redbank and Townsville Rollingstock
Workshops, which are planned to continue
until 2017
› The release of Aurizon’s inaugural
Sustainability Report
› Attainment of four diversity awards
including the Australasian Industry Awards
– Workplace Diversity; Australian Human
Resources Institute – Gender Equality in
the Workplace; Inaugural Hunter Diversity
Awards – Gender Equity Champion Australian
Workplace Equity Index – Bronze award for
LGBTIQ inclusiveness
Further detail related to performance against
the FY2015 Short Term Incentive Award (STIA)
performance measures is provided in Table 5
(page 31) whilst Table 8 (page 33) provides
additional information related to the Long Term
Incentive Award (LTIA) performance outcomes.
A key benefit for Aurizon shareholders is the
share price appreciation since IPO. Figure 5
shows the movement in both the Aurizon
share price and ASX200 Accumulation Index
value over the period from listing date
22 November 2010 to 30 June 2015. The
diagram assumes that a shareholder starts
with an initial investment of $100 in each of
Aurizon and the ASX200 Accumulation Index
and shows the change in the value of those
investments over the period assuming dividend
reinvestment. For Aurizon, the diagram
assumes a starting price of $2.45, being the
initial retail share price at listing.
FY11
FY12
FY13
FY14
FY15
FY11
FY12
FY13
FY14
FY15
Operating Ratio (%)
Underlying EBIT ($m)
8
0
3
.
0
4
2
.
5
9
0
.
8
2
0
.
-43%
6
1
.
0
4
3
2
2
.
4
1
.
3
1
5
8
5
.
0
8
2
.
-14%
1
4
2
.
FY11
FY12
FY13
FY14
FY15
FY11
FY12
FY13
FY14
FY15
Lost Time Injury Frequency Rate1
(per million man-hours worked)
Total Reportable Injury Frequency Rate1
(per million man-hours worked)
.
2
0
2
.
3
5
2
.
0
3
2
3
.
1
1
.
7
1
.
8
1
.
8
9
1
.
4
5
1
.
4
8
2
8
.
1
1
141%
FY11
FY12
FY13
FY14
FY15
FY11
FY12
FY13
FY14
FY15
Total Shareholder Return1 (%)
Basic earnings per share
.
0
4
2
.
3
2
1
.
5
6
1
45%
8
8
.
0
8
.
.
7
9
+0.9ppt
.
7
6
4
4
.
.
3
8
.
7
3
FY11
FY12
FY13
FY14
FY15
Total Dividend per share (cents)
1 Unaudited.
FY11
FY12
Return on Invested Capital (ROIC)
FY13
FY14
FIGURE 5 – INVESTMENT RETURN FROM AURIZON HOLDINGS (AZJ)
AND ASX200 ACCUMULATION INDEX (22 NOVEMBER 2010 TO 30 JUNE 2015)
FY15
$217
$144
22/11/10
22/05/11
22/11/11
22/05/12 22/11/12 22/05/13 22/11/13 22/05/14 22/11/14 22/05/15
AZJ
ASX200 Accumulation Index
DIRECTORS’ REPORT
29
Directors’ Report (continued)
REMUNERATION REPORT
5. Take home pay
Table 4 identifies the actual remuneration
earned during FY2015 and Figure 6 represents
the proportion of FY2015 actual and forfeited
remuneration for the Managing Director & CEO
and an illustrative Executive KMP member. The
sections shown in stripes in Figure 6 indicate
potential awards either forfeited or subject
to retesting.
The table and diagram have not been prepared
in accordance with accounting standards but
have been provided to ensure shareholders are
able to clearly understand the remuneration
outcomes for Executive KMP. Executive
remuneration outcomes which are prepared in
accordance with the accounting standards are
provided in Section 10.
The remuneration outcomes identified in
Table 4 and in Figure 6 are directly linked
to the Company performance described in
Section 6 and Section 7.
The actual STIA is dependent on Aurizon and
individual performance as described in
Table 5.
Strong performance across most of our key
measures is also reflected directly in the STI
payments for our Executive KMP, which range
from 60% to 66% of their potential maximum.
The actual vesting of the LTIA is dependent on
Aurizon performance and the outcomes are
further described in Table 8.
TABLE 4 – REMUNERATION EARNED IN FINANCIAL YEAR 2015
The EPS component of the 2011 Award and
all three components of the 2012 Award were
tested in FY2015.
Given Aurizon’s earnings performance over the
applicable periods, the EPS components of
both awards vested in full. As OR outperformed
the target of 75%, the OR component of the
2012 Award also vested in full.
Relative TSR vested to 88% of maximum,
as relative TSR performance over the three year
performance period against the peer group
rated between the median and top quartile.
NAME
EXECUTIVE KMP
L E Hockridge
J M Franczak
A Kummant
K Neate
M Neves De Moraes
FIXED
REMUNERATION
$’000
NON-
MONETARY
BENEFITS1
$’000
STIA CASH2
$’000
STIA DEFERRED3
$’000
LTIA VESTING4
$’000
ACTUAL FY2015
REMUNERATION
OUTCOMES
$’000
1,950
1,000
840
730
750
9
179
136
4
43
1,164
424
341
316
315
360
136
112
95
-
4,134
1,103
926
608
-
7,617
2,842
2,355
1,753
1,108
1 The amount relates to reportable fringe benefits (car parking, motor vehicle lease payments and travel benefits).
2 The amount relates to the cash component (60%) of the FY2015 STIA which will be paid in September 2015.
3 The amount relates to the deferred component (20%) of the FY2014 STIA which was awarded in performance rights which will become unrestricted in
September 2015 assuming a share price of $5.13. The deferral component (40%) of the FY2015 STIA is not included within the table as it will become unrestricted
in September 2016.
4 The amount is the value of rights which vest after the end of FY2015 (i.e. the retested 2011 Award and the 2012 Award) assuming a share price of $5.13.
FIGURE 6 – PROPORTIONAL REMUNERATION OUTCOMES FOR FINANCIAL YEAR 20151
Illustrative Executive KMP example
1%
Managing Director & CEO
1%
32%
21%
Fixed Remuneration
STIA: Actual FY15
STIA: Forfeited FY15
21%
LTIA: 2011 Award
LTIA: 2012 Award
21%
7%
14%
11%
LTIA: 2012 Award
(Subject to single retest)
14%
24%
Fixed Remuneration
33%
STIA: Actual FY15
STIA: Forfeited FY15
LTIA: 2011 Award
LTIA: 2012 Award
LTIA: 2012 Award
(Subject to single retest)
1 Remuneration outcomes are shown as a proportion of Total Potential Remuneration, addressed with reference to Company performance and vesting outcomes
of the FY2015 STIA (including the cash and deferral component), the 2011 Award and 2012 Award assuming a share price of $5.13. The proportional remuneration
outcome does not include the deferral component of the FY2014 STIA.
30
AURIZON ANNUAL REPORT 2014–15
6. Short Term Incentive Award
What is the STIA and who participates?
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 an
improvement on historical achievement or
a business improvement targeted outcome,
in both cases in line with relevant corporate
plans and budgets
› Stretch, which is materially better than Target
The STIA applies in a similar manner to all
non-enterprise agreement employees.
What are the company performance
measures?
The performance measures which apply
to all participants are Underlying EBIT,
Transformation, Safety and Environment.
The measures capture the need to continuously
improve safety across all aspects of the
business, reducing our environmental
footprint and the need to strengthen and
grow our current business. This is achieved
through a focus on our customers and by
improving productivity whilst at the same
time, delivering 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 5 identifies the
performance measures, relevant weightings
and outcomes for FY2015.
What is the amount that participants
can earn through an STIA?
The 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. FY2015 actual outcomes for
Executive KMP are identified within Table 6.
TABLE 5 – SHORT TERM INCENTIVE AWARD FINANCIAL YEAR 2015 OBJECTIVES
DESCRIPTION
EBIT: Underlying EBIT delivers financial benefits to shareholders through growth in
underlying operating earnings
WEIGHTING TARGET
35%
$1,016m
OUTCOME
$970m
Safety and Environment: Captures the need to continuously improve across all aspects of
the Company, measured through:
17.5%
› Total Accident Rate (TAR)
(derailments and rollingstock
collisions)
› Total Reportable Injury Frequency Rate (TRIFR)
› Total environmental notifiable incidents (ENI)
› Safety interactions (SI)
Transformation: Our priority to transform Aurizon continues to be a strategic imperative.
Our priority is to strengthen and grow our current business through a relentless focus on
our customers and by improving productivity. 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 Committee of the level of achievement in relation to each transformation
project, considering pre-determined levels of expected achievement. For FY2015 the
transformation projects included:
› Customer focus
› Specific commercial
› Operational improvements
› Market initiatives
› People initiatives
objectives
Aggregate Enterprise Outcome (Sub-total)
Individual: 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 FY2015 the MD & CEO’s individual
performance parameters included:
› Stakeholder and external
relationship management
› Management and organisational effectiveness
› Measured growth and operational improvement
› Capital management
17.5%
70%
30%
Between Threshold and
Target
19% TAR; 0% TRIFR;
2 ENI; 1.48 SI
Between
Target and Stretch1
Overall below Target but
well above Threshold
Between Threshold &
Target
Just below Target
Varies by individual
20% reduction in
TAR and TRIFR.
25% reduction in
ENI and greater
than one SI per
employee per
month
Substantial
transformation
having regard
to specified
milestones and
outcomes
Personal outcomes
varied between
Threshold and
Stretch depending
on performance
against individual
KPIs
1 The outcome for the Safety and Environment component of the STIA has been adjusted to take into consideration the fatalities which occurred during the year.
Whilst Total Reportable Injury Frequency Rate improved by 14%, Executives will not be rewarded for this metric.
TABLE 6 – SHORT TERM INCENTIVE AWARDED IN FINANCIAL YEAR 2015
NAME
EXECUTIVE KMP
L E Hockridge
J M Franczak
A Kummant
K Neate
M Neves De Moraes
TARGET STIA
$’000
MAXIMUM
POTENTIAL
STIA ($’000)
CASH
COMPONENT
DEFERRED
SHARE
COMPONENT1
TOTAL STIA
PAYMENT
% OF
TARGET STIA
% OF
MAXIMUM
STIA2
AWARDED FY2015 STIA ($’000)
1,950
750
630
548
563
2,925
1,125
945
821
844
1,164
424
341
316
315
775
283
227
210
210
1,939
707
568
526
525
99%
94%
90%
96%
93%
66%
63%
60%
64%
62%
1 A portion awarded in the form of rights to shares, which vest on the first anniversary of payment of the cash component subject to Board’s ability to ‘clawback’.
The deferred component has increased from 20% in FY2014 to 40% in FY2015.
2 Executives have forfeited between 34% to 40% of their maximum potential outcome.
DIRECTORS’ REPORT
31
Directors’ Report (continued)
REMUNERATION REPORT
7. Long Term Incentive Award
What is the LTIA and who participates?
The LTIA is the component of Total Potential
Remuneration linked to providing long term
incentives for selected Executives whom
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 remaining
Executive Committee (direct reports to the
MD & CEO), the direct reports to the Executive
Committee and a small number of other
management employees.
How is the LTIA determined?
The number of performance rights issued
under the LTIA to each participant 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 company
hurdles as described in Table 7 and Table 8.
What happens when performance
rights vest?
Performance rights awarded under the LTIA
vest subject to the satisfaction of company
hurdles. Rights vest and the resulting shares
are transferred to the participant at no cost to
the participant. Company performance against
LTIA subject to testing in FY2015 is identified
in Table 8.
What is the amount Executives can
earn through an LTIA?
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.
What is the performance period?
The company hurdles for the LTIA are
measured over a three year period. In
the event that the company 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.
TABLE 7 – LONG TERM INCENTIVE AWARD PERFORMANCE HURDLES
OR
TSR
ROIC
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 FY2017 of 71.5% and FY2018 of 70% is considered by the Board to be very challenging and the rate of improvement may
not be maintained in the longer-term.
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. 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.
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 divided by invested capital. 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).
2014 AWARD
OR Improvement
Relative TSR:
against peer group
within ASX100 Index
PERFORMANCE PERIOD (01/07/2014 – 30/06/2017)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
34%
33%
50% of the rights will vest with an
OR of 73%
100% of the rights will vest with an
OR of 71.5%
30% of the rights
will vest at the 50th
percentile
75% of the rights
will vest at the 62.5th
percentile
100% of the rights
will vest at the 75th
percentile
ROIC Average annual ROIC
FY2015 – FY2017 1
33%
50% of the rights will vest with an
average ROIC of 10.5%
100% of the rights will vest with an
average ROIC of 11.5%
RETESTING
(01/07/2014 –
30/06/2018)
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
100%
All rights will vest pro-rata on a straight-line basis between the
minimum and maximum vesting points
1
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
during the performance period). Subsequent to the acquisition of the investment in Aquila Resources Limited, invested capital in the ROIC definition has been revised
to include investments accounted for using the equity method. In addition, gross intangibles has been replaced with net intangibles to better reflect the nature of
these assets. The revision of the definition does not impact the ROIC targets for remuneration purposes and management will not benefit from this change.
32
AURIZON ANNUAL REPORT 2014–15 2015 AWARD
OR Improvement
Relative TSR:
against peer group
within ASX100 Index
PERFORMANCE PERIOD (01/07/2015 – 30/06/2018)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
34%
33%
50% of the rights will vest with an
OR of 71.5%
100% of the rights will vest with an
OR of 70%
30% of the rights
will vest at the 50th
percentile
75% of the rights
will vest at the 62.5th
percentile
100% of the rights
will vest at the 75th
percentile
ROIC Average annual ROIC
FY2016 – FY2018
33%
50% of the rights will vest with an
average ROIC of 10.5%
100% of the rights will vest with an
average ROIC of 11.5%
RETESTING
(01/07/2015 –
30/06/2019)
100% of the rights will vest
at or below an OR of 69%.
0% will vest with an OR
above 69%
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
100%
All rights will vest pro-rata on a straight-line basis between the
minimum and maximum vesting points
TABLE 8 – COMPANY PERFORMANCE AGAINST LONG TERM INCENTIVE AWARDS SUBJECT TO TESTING IN FINANCIAL YEAR 2015
COMPANY HURDLE AND PERFORMANCE MEASUREMENT PERIOD
WEIGHTING RESULT
% VESTED
2011 AWARD: RETEST 01 JULY 2012 – 30 JUNE 2015 (EPS)
50%
0%
-17.4%
(as at
FY2014)
% FOR
RETESTING % LAPSED
100% of this
component
was subject
to a single
retest in
FY2015
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
EPS: IPO Offer
Document FY2011
EBIT plus average
annual EPS growth
from FY2012 –
FY2014
Retest: Average
annual EPS growth
from FY2012 –
FY2015
2012 AWARD: 01 JULY 2012 – 30 JUNE 2015
OR Improvement2
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)
EPS: Average annual
EPS growth from
FY2012 –FY2015
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)
100%
N/A
0%
18.9%
(Retest in
FY2015)1
33%
75%
100%
0%
33%
18.9% 1
100%
0%
0%
0%
Relative TSR: against
peer group within
ASX100 Index
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)
33%
88%
Between
median and
top quartile
12% of this
component
will be
subject to a
single retest
in FY2016
1 If all the share buy backs are ignored and the original number of shares is used to calculate EPS the result is an average annual growth of 15.3%. This exceeds the
hurdle of 10% average annual growth.
2 OR for FY2015 was 74.3%. The OR improvement hurdle for the purposes of remuneration is measured against the ratio calculated by including any diesel fuel rebate
in revenue. OR with this adjustment is 74.96%.
DIRECTORS’ REPORT
33
Directors’ Report (continued)
REMUNERATION REPORT
8. Executive Service Agreements
Executive Service Agreements
Remuneration and other term terms of
employment for the MD & CEO and Executive
KMP are formalised in a Service Agreement as
summarised in Table 9.
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 worth of
shares in the Company
› The remaining Executive KMP and Executive
Committee to accumulate and maintain 50%
of one year’s Fixed Remuneration worth 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 and Executives’ Fixed Remuneration
during the period divided by the number
of years.
Details of KMP shareholdings as at 30 June
2015 are set out in Table 10.
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.
TABLE 9 – SERVICE AGREEMENT SUMMARY
DURATION OF SERVICE
AGREEMENT
FIXED REMUNERATION AT END OF
FINANCIAL YEAR 20151
BY EXECUTIVE
BY COMPANY3
NOTICE PERIOD2
EXECUTIVE KMP
L E Hockridge
J M Franczak
A Kummant
K Neate
M Neves De Moraes
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
$1,950,000
$1,000,000
$ 840,000
$ 730,000
$ 750,000
6 months
3 months
3 months
3 months
3 months
12 months
12 months
12 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.
TABLE 10 – KMP SHAREHOLDINGS AS AT 30 JUNE 2015
NAME
BALANCE AT THE START
OF THE YEAR
RECEIVED DURING THE
YEAR ON VESTING
OTHER CHANGES
DURING THE YEAR
BALANCE AT THE END
OF THE YEAR
NON-EXECUTIVE DIRECTORS
J B Prescott AC
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO
S L Lewis1
G T Tilbrook
EXECUTIVE KMP
L E Hockridge
J M Franczak
A Kummant
K Neate
M Neves De Moraes
220,981
35,072
82,132
40,000
14,245
57,132
-
49,112
1,196,586
100,000
200,000
36,567
75,000
1 S L Lewis was appointed a Director on 17 February 2015.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
247,093
100,000
-
45,637
75,000
-
-
-
5,000
-
-
14,600
-
(500,000)
(200,000)
-
-
(50,000)
220,981
35,072
82,132
45,000
14,245
57,132
14,600
49,112
943,679
-
200,000
82,204
100,000
34
AURIZON ANNUAL REPORT 2014–15
9. Non-Executive Director
TABLE 11 – DIRECTORS’ FEES
Remuneration
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.
What are the aggregate fees approved
by shareholders?
$2.5m. 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.
The current annual base fees for the Non-
Executive Directors are set out in Table 11:
Directors’ Fees. There has been no increase
applied to the Directors’ fees since 1 July 2012.
How are individual fees determined?
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.
The actual remuneration outcomes for the
Non-Executive Directors of the Company are
summarised in Table 12.
DIRECTORS
Chairman
TERM
Directors’ fees (inclusive of all
responsibilities and superannuation)
Other Non-Executive
Directors
Directors’ fees (inclusive of all
responsibilities and superannuation)
TABLE 12 – NON-EXECUTIVE DIRECTORS’ REMUNERATION
SERVICE
AGREEMENT
SUMMARY
$475,000
$190,000
SHORT-TERM
EMPLOYEE BENEFITS
SALARY
AND
FEES
$’000
NON-
MONETARY
BENEFITS1
$’000
POST-
EMPLOYMENT
BENEFITS
SUPERANNUATION
$’000
TOTAL
REMUNERATION
$’000
NAME
YEAR
NON-EXECUTIVE DIRECTORS
J B Prescott AC 2015
J Atkin
R R Caplan
J D Cooper
K L Field
G T John AO
S L Lewis2
G T Tilbrook
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
2015
2014
447
447
174
174
174
174
174
174
174
174
174
174
63
174
174
FORMER NON-EXECUTIVE DIRECTORS
A J P Staines3
P Zito4
Total
2015
2014
2015
2014
2015
2014
131
174
53
72
1,738
1,737
4
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4
4
28
28
16
16
16
16
16
16
16
16
16
16
6
16
16
21
16
21
38
172
178
479
479
190
190
190
190
190
190
190
190
190
190
69
190
190
152
190
74
110
1,914
1,919
1 Non-monetary benefits represent the value of Reportable Fringe Benefits for the respective FBT year
ending 31 March and consist of the estimated value of car parking provided.
2 S L Lewis was appointed a Director on 17 February 2015.
3 A J P Staines ceased in the role on 15 April 2015.
4 P Zito was appointed a Director on 1 December 2013 and ceased in the role on 24 October 2014.
DIRECTORS’ REPORT
35
Directors’ Report (continued)
REMUNERATION REPORT
10. Executive remuneration FY2015
Details of the remuneration paid to Executives are set out below and have been prepared in accordance with the accounting standards.
TABLE 13 – EXECUTIVE REMUNERATION
EQUITY-
SETTLED
SHARE-
BASED
PAYMENTS
PROPORTION
OF
COMPENSATION
PERFORMANCE
RELATED
REMUNERATION
CONSISTING
OF RIGHTS FOR
THE YEAR
SHORT-TERM EMPLOYEE BENEFITS
CASH
SALARY
AND
FEES
$’000
CASH
BONUS1
$’000
NON-
MONETARY
BENEFITS2
$’000
OTHER
$’0003
NAME
YEAR
POST-
EMPLOYMENT
BENEFITS
LONG-TERM
BENEFITS
SUPER-
ANNUATION
LONG-
SERVICE
LEAVE
TERMIN-
ATION
BENEFITS
$’000
$’000
$’000
$’000
$’000
(B+H)/I
RIGHTS4
TOTAL
%
EXECUTIVE KMP
L E Hockridge
J M Franczak
A Kummant
K Neate
M Neves De
Moraes
Total
Executive KMP
compensation
(group)
A
1,915
1,915
1,000
1,000
780
781
695
705
723
369
B
1,164
1,306
424
491
341
407
316
344
315
-
2015
2014
2015
2014
2015
2014
2015
2014
2015
2014
2015
5,113
2,560
C
42
200
(24)
29
6
141
(5)
21
3
30
22
D
-
-
175
-
86
129
-
-
38
563
299
E
35
35
-
-
19
18
35
25
16
-
F
82
99
14
7
13
6
6
21
5
3
105
120
20145
4,770
2,548
421
692
78
136
G
H
I
-
-
-
-
-
-
-
-
-
-
-
-
2,242 5,480
1,566
5,121
784
2,373
1,253
2,780
699
482
531
325
772
725
1,944
1,964
1,578
1,441
1,872
1,690
5,028 13,247
4,351
12,996
J
62
56
51
63
53
45
54
46
58
43
57
53
%
(H/I)
K
41
31
33
45
36
25
34
23
41
43
38
33
1 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 and FY2015 represents 60% STIA.
2 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.
3 Other short-term employee benefits include sign on bonus, relocation assistance and travel benefits.
4 The accounting expense recognised for the deferred STIA and LTIA rights granted in the year, is based on fair value at grant date. This is independently calculated using
standard Monte-Carlo simulation techniques and progressively expensed over the vesting period. Refer to note 27 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.
5 Total Executive KMP compensation for FY2014 has been adjusted to ensure a direct comparison of the KMP peer group. Total Executive KMP compensation
(Group) as disclosed in FY2014 is $19,451,000 and as disclosed in FY2014 includes remuneration for three Executives who no longer met the definition of KMP
as at 1 July 2014 given the change in functional segment reporting.
36
AURIZON ANNUAL REPORT 2014–15 The table below details the number and value of movements in equity awards during FY2015.
TABLE 14 – RIGHTS GRANTED AS COMPENSATION
INCENTIVE PLAN
BALANCE
AT
BEGINNING
OF YEAR
RIGHTS
AWARDED
DURING
THE YEAR
VALUE OF
RIGHTS
GRANTED
IN YEAR1
VESTED
IN YEAR
EXERCISED
DURING
THE YEAR
FORFEITED
IN YEAR
FORFEITED
IN YEAR
VALUE OF
RIGHTS
FORFEITED
IN YEAR
BALANCE
AT END OF
YEAR
NO.
NO.
$’000
%
NO.
NO.
%
$’000
NO.
NAME
EXECUTIVE KMP
L E Hockridge
2011
2012
2013
494,186
582,090
432,373
-
-
-
-
-
70,200
401,234
J M Franczak
2014 STIAD
2014
2012
223,880
2013 – Ret B
100,000
2013
166,298
A Kummant
K Neate
M Neves
De Moraes
-
-
26,419
154,321
188,059
139,690
-
-
-
-
21,867
129,630
2014 STIAD
2014
2012
2013
2014 STIAD
2014
2011
2012
2012 STIAD
2014 STIAD
2014
2013
58,140
93,152
16,567
2013
121,397
-
-
18,509
112,654
124,722
2014 – Ret A&B
150,000
2014
-
115,740
-
-
-
-
-
-
-
-
-
-
-
-
326
1,431
-
-
-
123
550
-
-
102
462
-
-
-
-
86
402
-
-
413
50
(247,093)
-
-
-
-
-
-
-
-
-
-
100
(100,000)
-
-
-
-
-
-
-
50
-
15
-
-
-
-
50
-
-
-
-
-
-
-
-
(29,070)
-
(16,567)
-
-
-
-
(75,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
247,093
582,090
432,373
70,200
401,234
223,880
-
166,298
26,419
154,321
188,059
139,690
21,867
129,630
29,070
93,152
-
121,397
18,509
112,654
124,722
75,000
115,740
1 For remuneration purposes, Aurizon does not use fair value to determine LTI Awards. The number of performance rights awarded, as described in Section 7, is a
function of the market price (five day VWAP) at the time of the award, that is, ‘face value’. The ‘fair’ value reported in Table 15 is disclosed to allow for an estimate
of the value of awards yet to vest, in accordance with the accounting standards.
DIRECTORS’ REPORT
37
Directors’ Report (continued)
REMUNERATION REPORT
10. Executive Remuneration Financial Year 2015 (continued)
Details of the assumptions and grant information for outstanding equity awards are set out below.
TABLE 15 – FAIR VALUE ASSUMPTIONS FOR RIGHTS GRANTED AS COMPENSATION
FAIR VALUE PER
RIGHT AT GRANT
DATE1
EXERCISE PRICE
INCENTIVE PLAN
DATE GRANTED
2011 – TSR
2011 – EPS
2012 – TSR
2012 – EPS
2012 – OR
2012 STIAD
2013 – TSR
2013 – EPS
2013 – OR
2013 – Ret B
2014 – Ret A
2014 – Ret B
2014 – TSR
2014 – OR
2014 – ROIC
2014 STIAD
22-Aug-11
22-Aug-11
23-Aug-12
23-Aug-12
23-Aug-12
10-Oct-12
16-Aug-13
16-Aug-13
16-Aug-13
4-Apr-13
1-Jan-14
1-Jan-14
18-Aug-14
18-Aug-14
18-Aug-14
22-Sept-14
$
5.08
4.73
4.92
$
1.28
2.93
2.06
3.29
3.29
3.46
2.78
4.07
4.07
4.01
4.89
4.89
2.05
4.31
4.31
4.65
DATE ON WHICH
GRANT VESTS
EXPIRY DATE
22-Aug-14
22-Aug-14
23-Aug-15
23-Aug-15
23-Aug-15
10-Oct-14
16-Aug-16
16-Aug-16
16-Aug-16
28-Jan-15
1-Jan-15
1-Jan-16
18-Aug-17
18-Aug-17
18-Aug-17
31-Dec-15
31-Dec-15
31-Dec-16
31-Dec-16
31-Dec-16
10-Oct-14
31-Dec-17
31-Dec-17
31-Dec-17
4-Apr-16
1-Jan-17
1-Jan-17
18-Aug-18
18-Aug-18
18-Aug-18
22-Sept-15
22-Sept-15
1 For remuneration purposes, Aurizon does not use fair value to determine LTI Awards. The number of performance rights awarded, as described in Section 7, is a
function of the market price (five day VWAP) at the time of the award, that is, ‘face value’. The ‘fair’ value reported in Table 15 is disclosed to allow for an estimate
of the value of awards yet to vest, in accordance with the accounting standards.
38
AURIZON ANNUAL REPORT 2014–15
Auditor’s Independence Declaration
As lead auditor for the audit of Aurizon Holdings Limited for the year ended 30 June 2015, 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
17 August 2015
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.
DIRECTORS’ REPORT
39
Sustainability
Sustainability represents
resilience over time –
a sustainable business is
one which has long-term
focus and a balanced
approach to decision-
making which takes
into account economic,
social and environmental
considerations.
Our sustainability commitments
Our approach to sustainability is underpinned
by three sustainability commitments:
› Long-term Focus: We are committed
to building a long-term sustainable
business that delivers lasting value for our
shareholders, customers, employees and
communities
› Efficiency: We aim to take the safest,
most efficient and least resource-intensive
approach to the services we provide
› Balanced Approach: We apply a
balanced view when assessing risk and
making decisions, encompassing social,
environmental and economic considerations
It is also reflected in Aurizon’s new mission
statement:
“We are an Australian rail-based transport
business with a global orientation that
creates value sustainably for our customers,
shareholders, employees and the communities
in which we operate.”
Sustainability governance
In response to the introduction of
Recommendation 7.4 of the Corporate
Governance Principles, Aurizon produced its
inaugural Sustainability Report in November
2014. Aurizon also implemented a sustainability
governance framework leveraging tiered
strategic forums to:
› Identify the material economic, environmental
and social sustainability risks we face
› Determine our response to those risks
› Set appropriate benchmarks against which
we will measure and report performance
Aurizon’s Sustainability Steering Committee
provides strategic direction in relation to
sustainability, assessment of key trends and
risks, and ensures appropriate reporting across
the organisation. The Committee is comprised
of senior executives from each of our business
functions. The Aurizon Holdings Limited Board
sits at the apex of Aurizon’s sustainability
governance framework.
FIGURE 1 – SUSTAINABILITY GOVERNANCE AT AURIZON
Aurizon Board
Aurizon Board Safety, Health
& Environment Committee
Audit, Governance &
Risk Management Committee
CEO Forum
Aurizon Central
Safety, Health & Environment Committee
Sustainability
Steering Committee
District Safety
Improvement
Teams
Function and
Sub-Function Central
Safety Committees
Aurizon
Communities
of Competence
40
AURIZON ANNUAL REPORT 2014–15 Our reporting approach
Aurizon’s Sustainability Report seeks to
address the requirements of Recommendation
7.4 of the Corporate Governance Principles.
We are committed to producing a Sustainability
Report on an annual basis not only to comply
with Recommendation 7.4, but in order to:
› Define and discuss the issues which we
perceive as being material to the long-term
sustainability of our business
› Highlight the sustainability initiatives we have
undertaken during the financial year and
our planned initiatives to build on our past
performance
Our Sustainability Report is prepared in
accordance with the Global Reporting
Initiative’s (GRI) Sustainability Reporting
Guidelines (G4 Reporting Guidelines). Aurizon’s
Sustainability Report on the FY2015 period will
be published in November 2015.
In accordance with the G4 Reporting Guidelines,
our reporting cycle begins and ends with
internal and external stakeholder engagement
as illustrated in Figure 2. Stakeholder feedback
procured through our engagement process
is used in concert with other information,
such as internal risk assessments and a senior
management review, to inform our assessment
of those issues of greatest importance to our
stakeholders and greatest potential to impact
our business (i.e. our materiality assessment).
As illustrated in Figure 3, last year this process
led to the identification of nine key issues as
depicted in the chart 2014 Material Priority Areas.
For more information on sustainability at
Aurizon, please see:
aurizon.com.au/sustainability
FIGURE 2 – SUSTAINABILITY REPORTING CYCLE
Stakeholder
Engagement
Sustainability
Initiatives
Sustainability
Report
Identify/
Confirm
Sustainability
Priorities
Sustainability
Business
Planning
FIGURE 3 – 2014 MATERIAL PRIORITY AREAS
Key issues in FY2014
High
l
s
r
e
d
o
h
e
k
a
t
s
o
t
e
c
n
a
t
r
o
p
m
I
Environmental
Management
Safety
Community
Engagement
Operational
Efficiency
Future of Coal
Customer
Partnerships
Regulatory
Environment
Business
Model
Organisational
Capability
Low
Low
Impact to business
High
SUSTAINABILITY
41
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.
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.
The Board has adopted a suite of charters and
key corporate governance documents which
articulate the policies and procedures followed
by Aurizon Holdings.
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), published on
27 March 2014.
This Statement was adopted by the Board on
14 August 2015.
Principle 1: Lay solid foundations for management and oversight
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
1.1 Role of Board and
management
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 &
CEO and the Company Secretary.
1.2 Information
regarding election and
re-election of Director
candidates
1.3 Written contracts of
appointment
1.4 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, skill set 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 professional search firms to assist in employing two additional Directors, and as
part of the search, received assurance on the background of the Directors who were subsequently appointed to
the Board.
Aurizon has appropriate procedures in place to ensure 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 who are Key Management Personnel can be found in this Report on page 34.
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 six
of this Report.
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42
AURIZON ANNUAL REPORT 2014–15 Corporate Governance Statement
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
1.5 Diversity
Aurizon Holdings has adopted a Diversity Policy which sets out its objectives and reporting practices with respect
to diversity and is available in the Governance section of the Company’s website, aurizon.com.au
P
The measurable objectives for gender diversity, agreed by the Aurizon Holdings Board for FY2015, are set out
below:
› At least one female Director at all times
› 27% of female representation on the Management Leadership Team (MLT)
› 35% of female representation in middle management
› 33% of female representation of combined Trainees, Apprentices and Graduates (TAGs)
The outcomes and a comparative of Aurizon Holdings’ female employees between 30 June 2014 and 30 June 2015
is set out below and illustrates the Company’s progress towards achieving its objectives:
› 22% (2/9) of the Board at 30 June 2015 (20% at 30 June 2014)
› 27% (19/71) of MLT at 30 June 2015 (26% at 30 June 2014)
› 32% (162/513) of middle management roles at 30 June 2015 (34% at 30 June 2014)
› 51% (57/111) of TAGs at 30 June 2015 (27% as 30 June 2014)
› 15.3% of total employees at 30 June 2015 (13.8% at 30 June 2014)
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 Board 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 internal assessment process described above.
Each year the Board sets financial, operational, management and individual targets for the Managing Director
& CEO. The Managing Director & CEO (in consultation with the Board) in turn, set targets for 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 27 of the Remuneration Report.
1.6 Board reviews
1.7 Management
reviews
Principle 2: Structure the Board to add value
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
2.1 Nominations
committee
The Nomination & Succession Committee comprises four members (including the Chairman), all of whom are
Independent Non-Executive Directors. Details of the membership of the Nomination & Succession Committee,
including the names and qualifications of the Committee members, are set out on pages four to six of the
Annual Report.
The number of meetings held and attended by each member of the Nomination & Succession Committee during the
financial year are set out on page eight of the Directors’ Report within the Annual Report.
The Charter governing the conduct of the Nomination & Succession Committee is reviewed annually and is available
in the Governance section of the Company’s website, aurizon.com.au
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CORPORATE GOVERNANCE STATEMENT
43
Corporate Governance Statement
(continued)
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
2.2 Board skills matrix
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 a very
good blend of these skills and diversity attributes.
P
General
› Other Board experience
› Management expertise including partnering and joint venture
Governance
› Understanding of legal, ethical and fiduciary duties
› Governance committee experience
› Risk management
Behavioural
› Communication
› Analytical
› Strategic
Technical
› Financial qualifications
› Legal
› Engineering, including transport, railway and port, infrastructure and operations
› Human resources
Industry/experience
› Global/international
› Transport and engineering
› Mining and resources
› Government
Diversity
› Female
› Male
› International
› 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 four to six of this Report.
In accordance with the Board Charter, the majority of Directors are independent. Only the Managing Director & CEO
is not considered independent, by virtue of the role being an Executive of the Company.
Details regarding which Directors are considered independent and the length of their service are set out on page
four of this Report.
2.4 Majority of
Directors independent
In accordance with the Board Charter and as disclosed against Recommendation 2.3, the majority of Directors are
independent. Only the Managing Director & 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 pages four to six of the Annual Report.
2.5 Chair independent
The Chairman, Mr Prescott, is an Independent Non-Executive Director. The role of CEO is performed by
another Director.
2.6 Induction
and professional
development
Further details regarding the Directors are set out on pages four to six of 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 Aurizon Holdings’ operations to gain an understanding of our 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 educative sessions from time to time 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.
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44
AURIZON ANNUAL REPORT 2014–15 Principle 3: Act ethically and responsibly
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
3.1 Code of Conduct
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
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
4.1 Audit Committee
The Audit, Governance & Risk Management Committee comprises four 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
four to six of this Report.
In addition to the Audit, Governance & Risk Management Committee members, the Managing Director & CEO, CFO,
Chief Internal Auditor, external auditors and Company Secretary regularly attend the 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 eight of this Report.
The Audit, Governance & Risk Management Committee Charter is reviewed annually and is available on the Aurizon
Holdings website, aurizon.com.au
4.2 CEO and CFO
certification of
financial statements
The Board has obtained a written assurance from the Managing Director & 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.
4.3 External auditor
at AGM
Aurizon Holdings’ external audit function is performed by PricewaterhouseCoopers (PwC). Representatives of PwC
will attend the Annual General Meeting (AGM) and be available to answer shareholder questions regarding the audit.
Principle 5: Make timely and balanced disclosure
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
5.1 Disclosure and
Communications
Policy
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 with complying
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
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
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 keeps investors informed of its corporate governance, financial performance and prospects via its
website. Investors can access copies of all announcements to ASX, notices of meeting, 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 market briefings including interim and full year results announcements, investor
days, site visits, and also 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 to investors and analysts at these events, with separate one-on-one or group meetings
offered whenever possible.
The presentation material provided at these events is sent to the ASX prior to commencement and subsequently
posted on Aurizon Holdings’ Investor Centre website, including the webcast and transcript if applicable.
Aurizon Holdings uses technology to facilitate the participation of security holders in meetings including webcasting
of the AGM.
Shareholders are encouraged to participate 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.
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CORPORATE GOVERNANCE STATEMENT
45
Corporate Governance Statement
(continued)
Principle 7: Recognise and manage risk
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
7.1 Risk committee
7.2 Annual risk review
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
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.
Internal audit conducted its review during the financial year, utilising a specialist third party and concluded that
controls over risk management processes were adequate and effective.
7.3 Internal audit
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 appointment or
removal of the Chief Internal Auditor is a matter for this Committee.
The Chief Internal Auditor provides ongoing internal 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 Chief Internal Auditor provides regular reports to the Audit, Governance & Risk Management Committee on
control environment matters as well as an annual assessment of the adequacy and effectiveness of the Company’s
internal controls and risk management processes.
7.4 Sustainability risks Aurizon Holdings identifies and manages material exposures to economic, environmental and social sustainability
risks in accordance with its enterprise risk management framework incorporating the Board-approved risk appetite.
P
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The Company’s sustainability aspiration is to deliver world-class performance underpinned by three sustainability
commitments:
› The Company is committed to building a long-term sustainable business that delivers lasting value for our
shareholders, customers, employees and communities
› The Company aims to take the safest, most efficient and least resource-intensive approach to the services
we provide
› The Company applies a balanced view when assessing risk and making decisions, encompassing social,
environmental and economic considerations
In our operations, we continue to make progress on a number of sustainability aspects, 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.
During FY2015, the Company published its inaugural Sustainability Report for the period ending 30 June 2014.
A copy of this report is available in the Sustainability section of the Company’s website, aurizon.com.au
The Company’s inaugural Sustainability Report identified areas of focus and priority that relate to the Company’s
ability to create or preserve value for shareholders over the short, medium or long-term and outlined how the
Company manages or intends to manage the material risks identified. The Company has set appropriate benchmarks
against which we will measure and report FY2015 performance and material economic, environmental and social
sustainability risks.
The Company’s FY2015 Sustainability Report will be released in November 2015. Consistent with the inaugural
report, it will be based on the GRI G4 Sustainability Reporting Guidelines and will describe the impact of the
Company’s operations against the core elements of economic, environmental, social and governance performance.
It will also identify those issues that reflect the organisation’s significant economic, environmental and social
impacts or that substantively influence assessments and decisions of stakeholders.
46
AURIZON ANNUAL REPORT 2014–15
Principle 8: Remunerate fairly and responsibly
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
8.1 Remuneration
Committee
8.2 Disclosure of
Executive and
Non-Executive
Director remuneration
policy
Aurizon Holdings’ remuneration function is performed by the Remuneration Committee, comprising four
members (including the Chairman), all of whom are Independent Non-Executive Directors. Details of the
membership of the Remuneration Committee, including the names and qualifications of the Committee
members, are set out on pages four to six of this Report.
The number of meetings held and attended by each member of the Remuneration, Committee during the
financial year are set out on page eight of this Report.
The Charter governing the conduct of the Remuneration Committee is reviewed annually and is available in the
Governance section of the Company’s website, aurizon.com.au
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.
The Company has in place a Share Holding and Retention Policy which applies to Non-Executive Directors,
the Managing Director & CEO and the direct reports of the Managing Director & CEO, Key Management Personnel.
Further details regarding remuneration and share retention policies and the remuneration of Executive and
Non-Executive Directors, are set out on pages 31 to 38 of the Remuneration Report.
8.3 Policy on hedging
equity incentive
schemes
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 Company’s Securities Dealing Policy
which is available on the Governance section of the website, aurizon.com.au
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CORPORATE GOVERNANCE STATEMENT
47
Financial Report
for the year ended 30 June 2015
FINANCIAL STATEMENTS
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
About this report
Key events and transactions for reporting period
Results for
the year
Operating assets
and liabilities
Capital and
financial risk
management
1.
Segment
information
6. Trade and other
receivables
13. Capital risk
management
2. Revenue and
other income
3. Expenses
4. Income tax
5. Earnings per
7.
Inventories
14. Dividends
8. Property, plant
and equipment
15. Equity and
reserves
9. Intangible
assets
share
10. Trade and other
payables
11. Provisions
12. Other liabilities
16. Borrowings
17. Financial risk
management
18. Derivative
financial
instruments
Page 49
Page 49
Page 50
Page 51
Page 52
Page 53
Page 53
Group
structure
Other
information
Unrecognised
items
30. Contingencies
31. Commitments
32. Events
occurring after
the reporting
period
19. Associates
and joint
arrangements
20. Material
subsidiaries
21. Parent
disclosures
22. Deed of cross
guarantee
23. Reconciliation
of profit after
income tax to
net cash inflow
from operating
activities
24. Assets
classified as
held-for-sale
25. Related party
transactions
26. Key
Management
Personnel
compensation
27. Share-based
payments
28. Remuneration
of auditors
29. Summary
of other
significant
accounting
policies
SIGNED REPORTS
Directors’ declaration
Independent auditor’s report to the members of Aurizon Holdings Limited
ASX INFORMATION
Non-IFRS Financial Information in 2014-15 Annual Report
Page 94
Page 95
Page 97
48 AURIZON ANNUAL REPORT 2014–15
48
AURIZON ANNUAL REPORT 2014–15 Consolidated income statement
for the year ended 30 June 2015
Revenue from continuing operations
Other income
Total revenue and other income
Employee benefits expense
Energy and fuel
Track access
Consumables
Depreciation and amortisation
Impairment losses
Other expenses
Share of net profit of associates and joint venture partnerships accounted for using the equity method
Operating profit
Finance income
Finance expenses
Net finance costs
Profit before income tax expense
Income tax expense
Profit for the year
Earnings per share for profit attributable to the ordinary equity holders of the Company:
Basic earnings per share
Diluted earnings per share
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 2015
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
Notes
2(a)
2(b)
3
3
3
3
3
4
5
5
Notes
15(b)
4(c)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
2015
$m
3,732
48
3,780
(1,009)
(291)
(328)
(614)
(519)
(20)
(43)
14
970
9
(144)
(135)
835
(231)
604
2014
$m
3,812
10
3,822
(1,104)
(383)
(328)
(679)
(499)
(317)
(54)
7
465
10
(122)
(112)
353
(100)
253
Cents
Cents
28.4
28.3
11.8
11.8
2015
$m
604
(17)
6
(11)
593
2014
$m
253
(27)
8
(19)
234
49
FINANCIAL REPORT Consolidated balance sheet
as at 30 June 2015
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Current tax receivables
Prepayments
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 receivables
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
Derivative financial instruments
Current tax liabilities
Provisions
Other liabilities
Liabilities directly associated with assets classified as held-for-sale
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Provisions
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.
50
Notes
2015
$m
2014
$m
6
7
18
24
7
18
8
9
19
10
16
18
11
12
16
18
4(e)
11
12
15(a)
15(b)
171
543
189
1
–
9
21
934
37
19
9,900
127
318
1
10,402
11,336
368
59
–
76
346
55
–
904
318
603
215
1
47
19
111
1,314
41
–
9,441
64
83
5
9,634
10,948
461
42
2
–
340
42
7
894
2,924
2,799
43
606
97
256
3,926
4,830
6,506
1,508
3,459
1,539
6,506
27
493
103
259
3,681
4,575
6,373
1,508
3,534
1,331
6,373
AURIZON ANNUAL REPORT 2014–15 Consolidated statement of changes in equity
for the year ended 30 June 2015
Attributable to owners of Aurizon Holdings Limited
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
Balance at 30 June 2014
Balance at 1 July 2014
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
Contributed
equity
$m
Notes
Reserves
$m
Retained
earnings
$m
1,508
3,563
1,424
15(b)
14(a)
15(b)
15(b)
14(a)
15(b)
–
–
–
–
–
–
1,508
1,508
–
–
–
–
–
–
–
–
(19)
(19)
–
(10)
(10)
3,534
3,534
–
(11)
(11)
(69)
–
5
(64)
3,459
253
–
253
(346)
–
(346)
1,331
1,331
604
–
604
–
(396)
–
(396)
1,539
Balance at 30 June 2015
1,508
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Total
equity
$m
6,495
253
(19)
234
(346)
(10)
(356)
6,373
6,373
604
(11)
593
(69)
(396)
5
(460)
6,506
51
FINANCIAL REPORT Consolidated statement of cash flows
for the year ended 30 June 2015
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Income taxes received (paid)
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of business/property, plant and equipment
Payments for intangibles
Interest paid on qualifying assets
Payments for investment in associates
Distributions received from associates
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payment of transaction costs related to borrowings
Payments for share buy-back
Payments for shares acquired for share based payments
Dividends paid to Company’s shareholders
Interest paid
Net cash (outflow) from financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at the end of the financial year
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
Notes
23
3
15(b)
14(a)
2015
$m
4,170
(2,674)
9
11
1,516
(1,013)
170
(70)
(28)
(226)
6
(1,161)
1,142
(1,035)
(4)
(69)
(12)
(396)
(128)
(502)
(147)
318
171
2014
$m
4,162
(2,856)
9
(124)
1,191
(826)
37
(45)
(34)
(2)
6
(864)
845
(500)
(2)
–
(24)
(346)
(90)
(117)
210
108
318
52
AURIZON ANNUAL REPORT 2014–15 Notes to the consolidated financial statements
30 June 2015
About this report
Aurizon Holdings Limited is a company limited by shares, incorporated
and domiciled in Australia and is a for-profit entity for the purposes
of preparing the financial statements. 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.
The financial statements were approved for issue by the Directors on
17 August 2015. The Directors have the power to amend and reissue the
financial statements.
The financial statements are general purpose financial statements which:
› Have been prepared in accordance with the requirements of the
Corporations Act 2001, Australian Accounting Standards and
Interpretations issued by the Australian Accounting Standards Board
(AASB) and International Financial Reporting Standards (IFRS) issued
by the International Accounting Standards Board (IASB)
› Have been prepared under the historical cost convention, as modified
by the revaluation of financial assets and liabilities (including derivative
instruments) at fair value
› Are presented in Australian dollars, with all amounts in the financial
report being rounded off in accordance with Class Order 98/100 to the
nearest million dollars, unless otherwise indicated
› Where necessary, comparative information has been restated to
conform with changes in presentation in the current year
› Adopts all new and amended Accounting Standards and Interpretations
issued by the AASB that are relevant to the operations of the Group
and effective for reporting periods beginning on or after 1 July 2014
› Equity accounts for associates listed at note 19
The notes to the financial statements
The notes include information which is required to understand the
financial statements and is material and relevant to the operations,
financial position and performance of the Group. Information is
considered material and relevant if, for example:
› The amount in question is significant because of its size or nature
› It is important for understanding the results of the Group
› It helps to explain the impact of significant changes in the Group’s
business – for example, acquisitions and impairment write downs
› It relates to an aspect of the Group’s operations that is important to its
future performance
Significant and other accounting policies that summarise the measurement
basis used and are relevant to an understanding of the financial statements
are provided throughout the notes to the financial statements.
KEEPING IT SIMPLE
The ‘keeping it simple’ explanations are designed to provide a
high level overview of the accounting treatment of the more
complex sections of the financial statements. Disclosures in
the notes to the financial statements provide information
required by accounting standards or ASX Listing Rules.
The notes provide explanations and additional disclosure
to assist readers’ understanding and interpretation of the
financial statements.
SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the process of applying the Group’s accounting policies,
management has made a number of judgements and applied
estimates of future events. Judgements and estimates which are
material to the financial statements include:
Revenue
Depreciation
Impairment
Property, plant and equipment
Note
2
3
3
8
Key events and transactions for
reporting period
The financial position and performance of the Group was particularly
affected by the following events and transactions during the
reporting period:
Issuance of Euro 500 million medium-term note
On 12 September 2014, Aurizon Network Pty Ltd diversified its funding
sources by issuing a 10-year €500m Medium-term Note (EMTN) in the
European market. The proceeds of the issue were used to repay existing
bank debt. This EMTN marks a step forward in diversifying funding
sources and lengthening the debt maturity profile. Cross currency
interest rate swaps were executed concurrently to fully swap the issuance
back to Australian dollar (A$) floating rate debt. The Aurizon Group uses
interest rate swaps to convert its floating rate debt to fixed rate debt.
Change in accounting policy – early adoption of AASB 9
Financial Instruments
The Group early adopted AASB 9 Financial Instruments with a date of
initial application of 1 July 2014. Please see note 29(a)(ii) for further details.
Acquisition of Aquila Resources Limited
In July 2014, Aurizon completed the acquisition of 15% interest in Aquila
Resources Limited (Aquila) for $225m. Following the acquisition, Aurizon
equity accounts for its share of Aquila’s assets, liabilities and profit or loss.
On-market share buy-back scheme
On 11 November 2014, the Company announced an on-market buy-back
program. Since commencement of this program, the Company has
acquired 15 million shares and the total cost of the on-market buy-back
program was $69m.
Disposal of non-core assets
During the year, the sale of CRT Group (CRT) Pty Ltd (a wholly-owned
subsidiary of Aurizon) to Qube Logistics (Aust) Pty Limited and the
disposal of the Redbank facility were completed for total consideration
of $118m.
53
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2015 (continued)
Enterprise Agreement (EA)
During the year, Aurizon made significant progress towards negotiating
replacement EAs that are fair, competitive and commercially sustainable.
The 14 QLD EAs that cover approximately 4,500 staff represented by six
unions expired in December 2013 and Aurizon has been bargaining with
unions since April 2013.
In April 2014, Aurizon applied to the FWC under s.225 of the Fair Work
Act 2009 (Cth) to terminate the 14 QLD EAs. This was heard by a Full
Bench of the FWC in November 2014. As previously disclosed, the staff
EA, which comprised two of the 14 expired EAs, covering approximately
1,400 non-operational and some supervisory employees was approved
by the FWC and implemented on 28 January 2015.
On 22 April 2015, the FWC ruled in favour of the application to
terminate the 12 remaining expired EAs which covered 3,500 employees
including train drivers, rail operations employees, and construction and
maintenance employees. Termination was effected on 18 May 2015.
As a result, the terms of employment are currently governed by the Rail
Industry Award 2010, National Employment Standards and Individual
contracts of employment. Aurizon provided an undertaking to maintain
a number of the current terms and conditions including base wages,
superannuation and leave accruals for a period of six months ending
18 November 2015. Following the termination, immediate changes for
affected employees included the ‘no forced redundancy’ clause ceasing
to operate and removal of some allowances.
As at 30 June 2015, Aurizon had proposed EAs – Train Crew and
Transport Operations EA and Construction and Maintenance EA to
govern the employment conditions of approximately 3,600 QLD based
Aurizon employees.
On 15 July 2015, Aurizon received a positive vote by employees on the
proposed Construction and Maintenance Enterprise Agreement (C&M EA).
On 27 July 2015, the proposed Train Crew and Transport Operations EA
received a positive vote by employees. Once the C&M EA and the Train
Crew and Transport Operations EA are approved by the FWC, along with
the staff EA, these will cover approximately 5,000 QLD based Aurizon
employees.
Key events and transactions for
reporting period (continued)
Access Undertaking
The Queensland Competition Authority (QCA) is currently considering
Aurizon Network Pty Ltd’s latest 2014 Draft Access Undertaking (UT4).
Given that the original term of the 2010 Access Undertaking (UT3)
expired on 30 June 2013, Aurizon Network Pty Ltd has submitted a series
of Draft Amending Access Undertakings (DAAU) which have extended
the UT3 period and established transitional tariffs for the intervening
period until the finalisation and approval of UT4. The most recent DAAU
further extends UT3 to the earlier of finalisation of UT4 or February 2016,
finalises the transitional tariffs for the 2015 financial year and establishes
transitional tariffs for the FY2016. This submission was approved by the
QCA on 5 June 2015.
The MAR for the year ended 30 June 2014 was capped with $70m
returned to customers during the current year. The transitional MAR for
the year ended 30 June 2015 was uncapped.
During the course of the 2015 financial year, the QCA issued two draft
decisions pertaining to UT4. The first issued in September 2014 was
the Draft MAR decision, to which Aurizon Network Pty Ltd responded
in December 2014. The second draft decision was the Policy Decision
to which Aurizon Network Pty Ltd responded on 17 April 2015.
On 4 May 2015, the QCA issued a revised UT4 timetable and indicated
their intention to issue a final UT4 Decision by 30 October 2015.
Access revenue recognised in these financial statements is based on
approved transitional tariffs applied to actual volumes.
Strategic projects – West Pilbara Iron Ore Project (WPIOP)
Aurizon delivered to the mine participants an initial, non-binding +/- 25%
tariff for the mine-to-ship supply chain services in accordance with the
Infrastructure Framework Agreement, at the end of March 2015. Aurizon
and the mine participants are committed to continuing the technical and
commercial stages of WPIOP, on the basis that it is most likely to deliver
a competitive overall cost position compared with other major Pilbara
producers. A key driver of this competitive cost position is the significant
reduction in the 2012 capital cost estimates, which is expected to be
achievable given the anticipated subdued market for major capital activity.
Senior executives of Aurizon and mine participants have made an
in-principle decision that further Project governance measures be
implemented to allow for ‘whole of project’ (mine and infrastructure)
oversight and program management, including the holding of assessment
stage gates.
Final Investment Decisions by all participants are currently contemplated
to occur in late calendar year 2016.
54
AURIZON ANNUAL REPORT 2014–15 Results for the year
IN THIS SECTION
Results for the year provides segment information and a
breakdown of individual line items in the consolidated income
statement that the Directors consider most relevant, including a
summary of the accounting policies, judgements and estimates
relevant to understanding these line items.
1 Segment information
2 Revenue and other income
3 Expenses
4
Income tax
5 Earnings per share
Page 56
Page 58
Page 60
Page 61
Page 63
FINANCIAL REPORT
55
1 Segment information
KEEPING IT SIMPLE
Segment reporting requires presentation of financial
information based on the information that is internally
provided to the Managing Director and the Executive
Committee (chief operating decision makers).
Aurizon determines and presents operating segments on a function basis
as this is how the results are reported internally and how the business is
managed. The Managing Director & CEO and the Executive Committee
assess the performance of the Group based on the underlying EBIT.
(a) Description of segments
The following summary describes the operations in each of the Group’s
reportable segments:
Network
Provision of access to, operation and management of the Central
Queensland Coal Rail Network. Provision of overhaul and maintenance of
rail network assets.
Commercial & Marketing
The key interface between customers and Aurizon (excluding Network
access customers), responsible for the commercial negotiation of sales
contracts and customer relationship management.
Operations
Responsible for the national delivery of all coal, iron ore, bulk and
intermodal haulage services. This includes yard operations, fleet
maintenance, operations, engineering and technology, engineering
program delivery and safety, health and environment. Responsible for the
maintenance of rollingstock fleet assets.
Other
Corporate costs including costs in respect of the Managing Director &
CEO, corporate finance, tax, treasury, internal audit, risk, governance and
strategic projects.
56
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) 1 Segment information (continued)
(b) Segment information
Network
$m
Commercial &
Marketing
$m
Operations
$m
Other
$m
Eliminations
$m
Total continuing
operations
$m
2015
External revenue
Internal revenue
Total functional revenue
Functional costs
Employee benefits expense
Energy and fuel
Track access
Consumables
Other expenses
Total functional costs excluding
depreciation and amortisation
EBITDA (underlying)*
Depreciation and amortisation
EBIT (underlying)*
Significant adjustments (note 1(c))
EBIT*
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
2014
External Revenue
Internal Revenue
Total functional revenue
Functional costs
Employee benefits expense
Energy and fuel
Track access
Consumables
Other expenses
Total functional costs excluding
depreciation and amortisation
EBITDA (underlying)*
Depreciation and amortisation
EBIT (underlying)*
Significant adjustments (note 1(c))
EBIT*
Net finance costs
Profit before income tax
Income tax expense
Profit for the year
458
650
1,108
(121)
(107)
–
(165)
(16)
(409)
699
(215)
484
422
590
1,012
(125)
(111)
–
(148)
(18)
(402)
610
(198)
412
3,148
3
3,151
(47)
(1)
–
(29)
10
(67)
3,084
(5)
128
204
332
(787)
(183)
(973)
(604)
(17)
(2,564)
(2,232)
(295)
3,079
(2,527)
3,263
8
3,271
(60)
(4)
–
(63)
1
(126)
3,145
(11)
3,134
120
216
336
(790)
(268)
(916)
(641)
(33)
(2,648)
(2,312)
(287)
(2,599)
46
–
46
(54)
–
–
(25)
(29)
(108)
(62)
(4)
(66)
17
–
17
(60)
–
–
(46)
(4)
(110)
(93)
(3)
(96)
–
(857)
(857)
–
–
645
209
3
857
–
–
–
–
(814)
(814)
–
–
588
219
7
814
–
–
–
* Refer to page 97 for a reconciliation of non-IFRS information.
3,780
–
3,780
(1,009)
(291)
(328)
(614)
(49)
(2,291)
1,489
(519)
970
–
970
(135)
835
(231)
604
3,822
–
3,822
(1,035)
(383)
(328)
(679)
(47)
(2,472)
1,350
(499)
851
(386)
465
(112)
353
(100)
253
57
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) (v) Rollingstock impairment
Last year, the Group completed its annual Enterprise Rollingstock Master
Plan which forecasts requirements for locomotives and wagons for the
next 10 years. The strategy was 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 identified as surplus to
the requirements of the Group. Rollingstock and associated inventory
identified as surplus were decommissioned and written down to net
realisable value resulting in an impairment of $170m, relating to inventory
of $15m and property, plant and equipment of $155m recognised in 2014.
(d) Customer disclosure
The nature of the Group’s business is that it enters into long-term
contracts with key customers. One customer with an A+ credit rating
contributes more than 10% and represents approximately $571m
(2014: $554m) of the Group’s total revenue.
2 Revenue and other income
KEEPING IT SIMPLE
Aurizon recognises revenue from the provision of access
to the CQCN and the provision of freight haulage services
across Australia.
(a) Revenue from continuing operations
The revenue by commodity is as follows:
Network revenue: Provision of access to, and operation and management
of the CQCN.
Coal revenue: Transport of coal from mines in QLD and NSW to end
customers and ports.
Iron Ore revenue: Transport of iron ore from mines in WA to ports.
Freight revenue: Transport of bulk mineral commodities, agricultural
products, mining and industrial inputs and general freight throughout
QLD, NSW and WA and containerised freight throughout Australia.
Other revenue: Items of revenue 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.
1 Segment information (continued)
(c) Significant adjustments
In order to provide a more meaningful analysis of the underlying
operational performance of the Group, it is necessary to adjust the
statutory financial performance of the Group for a number of significant
items that have affected the financial results. In the current year, there
have been no significant adjustments. The significant adjustments related
to the prior period were:
Voluntary redundancy schemes (i)
Assets impairment (ii)
Assets under construction impairment (iii)
Strategic infrastructure project impairment (iv)
Rollingstock impairment (v)
Total significant adjustments
2014
$m
69
20
54
73
170
386
Voluntary redundancy schemes
(i)
A voluntary redundancy scheme carried out during 2014 affected 910
employees at a total cost of $69m.
(ii) Assets impairment
Review of the Freight business carried out in 2014 resulted in an
impairment of non-core assets of $20m.
(iii) Assets under construction impairment
The market conditions and the longer-term outlook within the global and
domestic resources sector had seen many capital projects either deferred
or cancelled. As a direct consequence, two projects under development
by Aurizon Network Pty Ltd, Dudgeon Point and Wiggins Island Project
Phase Two, were 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 remained fully committed to the
Wiggins Island Project Phase One, the current and forecast demand did
not support the continued development or investment in incremental
capacity in respect of Phase Two. As a result, the Group recognised an
impairment charge in 2014 of $54m.
(iv) Strategic infrastructure project impairment
A strategic infrastructure project review carried out in 2014 resulted in
an impairment of assets under construction of $73m. An impairment
was 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 was
being put on hold. Costs associated with an alternative Galilee Basin
rail development were 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 recognised
an impairment on the East Pilbara Independent Rail (EPIR) project due
to the project becoming less probable 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 Ltd.
58
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) 2 Revenue and other income (continued)
(a) Revenue from continuing operations (continued)
Network
$m
Coal
$m
Iron Ore
$m
Freight
$m
Other
$m
Total
$m
2015
External revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Total revenue from external customers
Internal revenue
Services revenue
Track access
Freight transport
Other services
Other revenue
Total internal revenue
Total revenue
Other income (note 2(b))
Total revenue and other income
Internal elimination
Consolidated revenue and other income
2014
External revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Total revenue from external customers
Internal revenue
Services revenue
Track access
Freight transport
Other services
Other revenue
Total internal revenue
Total revenue
Other income (note 2(b))
Total revenue and other income
Internal elimination
Consolidated revenue and other income
403
–
8
45
456
645
–
5
–
650
1,106
2
1,108
363
–
15
44
422
588
–
2
–
590
1,012
–
1,012
707
1,182
–
5
–
338
–
–
1,894
338
–
–
–
–
–
1,894
–
1,894
649
1,211
–
3
–
–
–
–
–
338
–
338
–
378
–
–
–
787
111
17
915
–
3
–
–
3
918
1
919
1
873
126
16
1,863
378
1,016
–
–
–
–
–
1,863
1
1,864
–
–
–
–
–
378
–
378
–
8
–
–
8
1,024
5
1,029
–
–
43
86
129
–
–
204
–
204
333
45
378
–
–
46
87
133
–
–
216
–
216
349
4
353
1,110
2,307
162
153
3,732
645
3
209
–
857
4,589
48
4,637
(857)
3,780
1,013
2,462
187
150
3,812
588
8
218
–
814
4,626
10
4,636
(814)
3,822
Other services (external) includes $111m (2014: $126m) from the State of Queensland for Transport Service Contracts for Regional Freight and Livestock.
59
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) 2 Revenue and other income
(continued)
SIGNIFICANT JUDGEMENTS
(i) Take or pay revenue
The calculation of take or pay revenue 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. The estimate of take or pay revenue is based on management’s
judgement of below rail cause versus above rail operator/mine
cancellations and is recognised in the year in which the contractual
railings have not been achieved.
Take or pay revenue of $33m has been accrued for the Goonyella
Abbot Point Expansion (GAPE) reflecting the GAPE contractual
arrangements.
(ii) Access undertaking
The QCA is currently considering Aurizon Network’s latest 2014 Draft
Access Undertaking (UT4). Given that the original term of the 2010
Access Undertaking (UT3) expired on 30 June 2013, Aurizon Network
has submitted a series of Draft Amending Access Undertakings
(DAAU) which have extended the UT3 period and established
transitional tariffs for the intervening period until the finalisation and
approval of UT4. The most recent DAAU further extends UT3 to the
earlier of finalisation of UT4 or February 2016, finalises the transitional
tariffs for the 2015 financial year and establishes transitional tariffs for
the 2016 financial year. This submission was approved by the QCA on
5 June 2015. Access revenue recognised in these financial statements
is based on the approved transitional tariffs applied to actual volumes.
Recognition and measurement
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 using the
methods outlined below:
(ii) 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.
(b) Other income
Net gain on disposal of property, plant and
equipment
Foreign exchange gains (net)
2015
$m
2014
$m
47
1
48
10
–
10
Recognition and measurement
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.
3 Expenses
Profit before income tax includes the following specific expenses:
Employee benefits expenses
Defined benefit superannuation expense
Defined contribution superannuation expense
Voluntary redundancies
Salaries, wages and allowances
Other employment expenses including on-costs
Consumables
Repairs and maintenance
2015
$m
2014
$m
19
67
36
635
252
1,009
357
257
614
330
182
7
519
19
68
69
691
257
1,104
327
352
679
322
171
6
499
(i) Track access
Track access revenue includes revenue from regulated rail access services
and non-regulated services.
Other
Depreciation and amortisation expense
Depreciation
Amortisation of leased assets
Amortisation of intangibles
Access revenue generated from the regulated rail network, the CQCN,
is recognised as services are provided and is calculated on a number
of operating parameters, including the volume hauled and regulator
approved tariffs. The tariffs are determined by the total allowable
revenue, applied to the regulatory approved annual volume forecast for
each system.
Where annual actual volumes railed are less than the regulatory forecast,
an annual take or pay may become operative. Take or pay is recognised
in the year that the contractual railings were not achieved.
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. A revenue cap event results in the under or
over recovery of regulatory access revenues (net of take or pay revenue)
for a financial year being recognised in the accounting revenues in the
second financial year following the event.
60
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued)
3 Expenses (continued)
4 Income tax
2015
$m
2014
$m
Impairment losses*
Assets classified as held-for-sale
Inventory – rollingstock
Property, plant and equipment
1
–
19
20
* Refer to note 1(c) for 2014 impairment information and note 8 for 2015
impairment information.
Finance costs
Interest and finance charges paid/payable
Provisions: unwinding of discount
Amortisation of capitalised borrowing
transaction costs
Amount capitalised to assets under
construction
Finance costs expensed
152
–
20
172
(28)
144
18
15
284
317
135
1
20
156
(34)
122
SIGNIFICANT JUDGEMENTS
(i) 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 8 for details of current
depreciation rates used.
(ii) Impairment
The Group considers annually whether there have been any indicators
of impairment and then tests whether non-current assets have
suffered any impairment, in accordance with the accounting policy
stated in note 8. For the year ended 30 June 2015, the Intermodal
and WA cash generating units (CGU) had indicators of impairment
due to decline in market conditions. The recoverable amounts of
CGU’s for 30 June 2015 have been determined based on value-in-
use calculations. The value-in-use is calculated based on a 3-year
board approved corporate plan, a terminal growth rate of 2.7% and a
pre-tax discount rate of 12.9%. The value-in-use calculations indicate
headroom to the carrying value of the respective CGUs, therefore no
impairment expense has been recognised.
The recoverable amount of the investment in Aquila is dependent
on judgement made in relation to the long-term foreign exchange
rates, metallurgical coal price, iron ore price and capital costs.
No impairment losses were recognised in respect of our investment
in Aquila.
Refer to note 8 and note 9 for further details on the carrying amounts
of non-current assets subject to impairment testing.
KEEPING IT SIMPLE
This note provides an analysis of the Group’s income tax
expense/benefit and deferred tax balances, including a
reconciliation of income tax expense to accounting profit.
Differences between Australian tax law and Australian
accounting standards result in non-temporary (permanent)
and temporary (timing) differences between tax and
accounting income. Income tax expense is equal to net
profit before tax times by the applicable tax rate, adjusted
for non-temporary differences. Temporary differences do
not adjust income tax expense as they reverse over time.
Until they reverse, a deferred tax asset or liability must be
recognised on the balance sheet. This note also includes
details of income tax recognised directly in equity.
(a) Income tax expense
Current tax
Deferred tax
Current tax relating to prior periods
Deferred tax relating to prior periods
Income tax expense is attributable to:
Profit from continuing operations
Deferred income tax expense included in
income tax expense comprises:
Decrease (increase) in deferred tax assets
(note 4(d))
Increase (decrease) in deferred tax liabilities
(note 4(e))
(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% (2014: 30%)
Tax effect of amounts which are not (taxable)
deductible in calculating taxable income:
Research and development
Non-assessable income
Other
Adjustments for tax of prior periods
835
251
(2)
(9)
5
(14)
231
(c) Tax expense/(benefit) relating to items of other
comprehensive income
Cash flow hedges
2015
$m
(6)
2014
$m
(8)
61
2015
$m
2014
$m
127
118
(15)
1
231
231
3
116
119
12
88
(5)
5
100
100
26
67
93
353
106
(2)
(6)
2
–
100
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued)
4 Income tax (continued)
(d) Deferred tax assets
Total deferred tax assets
Set-off of deferred tax liabilities pursuant to set-off provisions
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
2015
$m
205
2014
$m
202
(205)
(202)
–
104
101
205
–
102
100
202
Total
$m
220
(26)
8
202
Total
$m
202
(3)
6
205
2014
$m
695
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax assets:
Movements
At 1 July 2013
(Charged)/credited
– to profit or loss
– to other comprehensive income
At 30 June 2014
At 1 July 2014
(Charged)/credited
– to profit or loss
– to other comprehensive income
At 30 June 2015
(e) Deferred tax liabilities
Total deferred tax liabilities
Provisions/
accruals
$m
Customer
contracts
$m
Unearned
revenue
$m
Cash flow
hedges
$m
Other
$m
130
(1)
–
129
75
(16)
–
59
5
(2)
–
3
–
–
8
8
10
(7)
–
3
Provisions/
accruals
$m
Customer
contracts
$m
Unearned
revenue
$m
Cash flow
hedges
$m
Other
$m
129
3
–
132
59
(13)
–
46
3
(2)
–
1
8
5
6
19
3
4
–
7
2015
$m
811
Set-off of deferred tax assets pursuant to set-off provisions (note 4(d))
Net deferred tax liabilities
Deferred tax liabilities expected to be settled after more than 12 months
(205)
(202)
606
811
493
695
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax liabilities:
Movements
At 1 July 2013
Charged/(credited)
– to profit or loss
At 30 June 2014
At 1 July 2014
Charged/(credited)
– to profit or loss
At 30 June 2015
62
Property,
plant and
equipment
$m
Consumables
and spares
$m
Accrued
income
$m
Cash flow
hedges
$m
Other
$m
600
70
670
670
119
789
20
1
21
21
(9)
12
5
(2)
3
3
–
3
–
–
–
–
6
6
3
(2)
1
1
–
1
Total
$m
628
67
695
695
116
811
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) Notes to the consolidated financial statements
30 June 2015 (continued)
4 Income tax (continued)
5 Earnings per share
(e) Deferred tax liabilities (continued)
Recognition and measurement
The income tax expense 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 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. 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.
KEEPING IT SIMPLE
Earnings Per Share (EPS) is the amount of post-tax profit
attributable to each share.
(a) Basic earnings per share
Basic EPS is calculated by dividing the profit attributable to owners
of the Company by the weighted average number of ordinary shares
outstanding.
Total basic EPS attributable to the ordinary
equity holders of the Company
2015
Cents
2014
Cents
28.4
11.8
(b) Diluted earnings per share
Diluted EPS is calculated by dividing the profit attributable to owners
of the Company by the weighted average number of ordinary shares
outstanding after adjustment for the effects of all dilutive potential
ordinary shares.
Total diluted EPS attributable to the ordinary
equity holders of the Company
2015
Cents
2014
Cents
28.3
11.8
(c) Weighted average number of shares used
as denominator
Weighted average number of ordinary shares
used as the denominator in calculating basic
earnings per share
Adjustments for calculation of diluted EPS:
2015
Number
‘000
2014
Number
‘000
2,129,414
2,137,285
Rights
9,255
4,619
Weighted average number of ordinary
and potential ordinary shares used as the
denominator in calculating diluted EPS
2,138,669 2,141,904
63
FINANCIAL REPORT
Operating assets and liabilities
IN THIS SECTION
Operating assets and liabilities provides information about
the working capital of the Group and major balance sheet items,
including the accounting policies, judgements and estimates
relevant to understanding these items.
6 Trade and other receivables
7
Inventories
8 Property, plant and equipment
9
Intangible assets
10 Trade and other payables
11 Provisions
12 Other liabilities
Page 65
Page 65
Page 66
Page 68
Page 69
Page 69
Page 70
64 AURIZON ANNUAL REPORT 2014–15
Notes to the consolidated financial statements
30 June 2015 (continued)
6 Trade and other receivables
7 Inventories
Current
Trade receivables
Provision for impairment of receivables
Net trade receivables
Other receivables
2015
$m
2014
$m
361
(8)
353
190
543
376
(9)
367
236
603
Current
Raw materials and stores – at cost
Work in progress – at cost
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 past due but not impaired
trade receivables are as follows:
Non-current
Raw materials and stores – at cost
Provision for inventory obsolescence
2015
$m
2014
$m
185
4
189
210
5
215
2015
$m
2014
$m
43
(6)
37
48
(7)
41
Up to three months
Three to six months
Over six months
2015
$m
2014
$m
43
–
4
47
48
2
7
57
Recognition and measurement
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.
The Group applies the simplified approach to providing for expected
credit losses prescribed by AASB 9, which requires the use of the lifetime
expected loss provision for all trade receivables.
Recognition and measurement
Inventories include infrastructure and rollingstock items held in
centralised stores, workshops and depots. Inventories are measured
at the lower of cost and net realisable value. 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.
65
FINANCIAL REPORT
8 Property, plant and equipment
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Total
$m
876
1,017
(1,093)
(13)
(18)
–
–
769
769
–
769
769
–
769
142
366
–
2
–
–
–
–
144
144
–
144
144
–
144
–
17
(1)
–
(14)
(17)
351
500
272
10
141
(11)
(1)
9
(50)
370
635
(149)
(265)
351
319
32
351
370
357
13
370
3,122
–
206
(4)
–
4
(225)
3,103
4,998
(1,895)
3,103
3,103
–
3,103
4,663
–
727
(7)
–
–
(220)
5,163
9,441
1,027
–
(36)
(19)
(1)
(512)
9,900
6,373
13,419
(1,210)
5,163
1,130
4,033
5,163
(3,519)
9,900
5,822
4,078
9,900
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Total
$m
857
872
(727)
–
(126)
–
–
876
876
–
876
876
–
876
151
–
4
(2)
–
(11)
–
142
142
–
142
142
–
142
414
–
8
–
(3)
(32)
(21)
366
502
(136)
366
329
37
366
299
7
70
(3)
–
(47)
(54)
272
530
3,388
–
120
(10)
(155)
(6)
(215)
3,122
4,756
4,350
9,459
2
525
(9)
–
(2)
(203)
4,663
881
–
(24)
(284)
(98)
(493)
9,441
5,672
12,478
(258)
(1,634)
(1,009)
(3,037)
272
272
–
272
3,122
3,122
–
3,122
4,663
963
3,700
4,663
9,441
5,704
3,737
9,441
2015
Opening net book amount
Additions
Transfers between asset classes
Disposals
Impairment (note 3)
Asset classified as held-for-sale
Depreciation/amortisation (note 3)
Closing net book amount
Cost
Accumulated depreciation
and impairment
Net book amount
Owned
Leased
2014
Opening net book amount
Additions
Transfer between asset classes
Disposals
Impairment loss (note 3)
Assets classified as held-for-sale
Depreciation/amortisation (note 3)
Closing net book amount
Cost
Accumulated depreciation
and impairment
Net book amount
Owned
Leased
66
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) 8 Property, plant and equipment
(continued)
SIGNIFICANT JUDGEMENTS
Strategic infrastructure projects
During the period, work continued on various significant strategic
infrastructure projects in relation to above and below rail
development in West Pilbara and brownfield expansion of CQCN.
As at 30 June 2015, $73m (2014: $45m) of costs were capitalised,
of which $43m (2014: nil) relates to West Pilbara and $30m (2014:
$45m) relates to brownfield expansion of CQCN. The development
costs relate to directly attributable expenditure predominantly
on engineering design, environmental and building approvals and
project management. Management’s judgement has been applied
to the extent to which capitalisation of these development costs is
appropriate. During the year $15m of costs were impaired in respect
of the Galilee basin, due to uncertainty surrounding the timing of the
development. 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.
Recognition and measurement
(i)
Initial recognition and measurement
Land, buildings, plant and equipment, rollingstock and assets
under construction
Buildings, plant and equipment, and rollingstock are carried at cost less
accumulated depreciation. Non-corridor land owned by the Group and
assets under construction are carried at cost. 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. Costs attributable to 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. 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.
Corridor land owned by the State is sub-leased to Aurizon Network Pty
Ltd at a rental of $1 per year if demanded. The sub-leases expires on
30 June 2109.
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 wholly-
owned subsidiary. The term of each lease is 99 years (at a rate of $1 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.
(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.
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.
The depreciation and amortisation rates used during the year were based
on the following range of useful lives:
– Owned and leased infrastructure
– Buildings
– Rollingstock
– Plant and equipment
– Leased property
8–100 years
10–40 years
8–35 years
3–20 years
3–40 years
The depreciation and amortisation rates are reviewed annually and
adjusted if appropriate. 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.
(iv) Derecognition
An item of property, plant and equipment is derecognised when it is
disposed of or no future economic benefits are expected from its use
or disposal.
(v) Impairment of assets
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 (CGUs).
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 CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to CGUs 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.
67
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued)
9 Intangible assets
2015
Opening net book amount
Additions
Transfers
Amortisation expense
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
2014
Opening net book amount
Additions
Amortisation expense
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
Recognition and measurement
(i) Software and software under 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 under 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 has a finite useful life and is carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method
over the estimated useful life which varies from three to 11 years.
Software
$m
Key customer
contracts
$m
Software
under
development
$m
14
1
12
(6)
21
127
(106)
21
2
–
–
(1)
1
12
(11)
1
48
69
(12)
–
105
105
–
105
Software
$m
Key customer
contracts
$m
Software
under
development
$m
9
10
(5)
14
111
(97)
14
2
1
(1)
2
12
(10)
2
14
34
–
48
48
–
48
Total
$m
64
70
–
(7)
127
244
(117)
127
Total
$m
25
45
(6)
64
171
(107)
64
(ii) Key customer contracts
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 costs can be measured reliably. The expenditure capitalised
comprises all directly attributable costs, including costs of materials,
services and direct labour. Other development costs 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.
68
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) 10 Trade and other payables
Current liabilities
Trade payables
Other payables
2015
$m
2014
$m
341
27
368
434
27
461
For the year ended 30 June 2014, included in trade payables was an
amount of $70m reflecting access revenue derived being greater than
the agreed Transitional Allowance Revenue under the transitional tariffs.
There has been no adjustment required for the current year.
Recognition and measurement
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.
11 Provisions
KEEPING IT SIMPLE
A provision is recognised when a present legal or
constructive obligation exists as a result of a past event
and it is probable that a future outflow of cash or other
benefit will be required to settle the obligation, the timing or
amount of which is uncertain.
Current
Employee benefits (a)
Provision for insurance claims
Litigation and workers’ compensation provision
Decommissioning/make good and other provisions
Non-current
Employee benefits (a)
Litigation and workers’ compensation claim
Decommissioning/make good and other provisions
Land rehabilitation
Total provisions
(a) Employee benefits
Annual leave
Long service leave
Other
2015
$m
2014
$m
316
9
19
2
317
7
16
–
346
340
33
21
5
38
97
443
39
25
4
35
103
443
2015
$m
2014
$m
78
159
112
349
85
169
102
356
The current provision for employee benefits includes accrued annual
leave, leave loading, retirement allowances, long service leave,
bonuses and redundancy provision. 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
$171m (2014: $190m) that is not expected to be taken or paid within
the next 12 months.
Details of 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 retirement allowance, long service leave and annual
leave that are not expected to be settled wholly within 12 months
after the end of the period in which the employees render the related
service, are 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.
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) Bonus plans
The Group recognises a liability for bonuses based on a formula that takes
into consideration the Group and individual key performance indicators.
The Group recognises a provision where contractually obliged or where
there is a past practice that has created a constructive obligation.
(iv) Termination benefits
Termination benefits are payable when employment is terminated before
the 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 Group
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.
69
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued)
11 Provisions (continued)
12 Other liabilities
Current
Income received in advance
Other current liabilities
Non-current
Income received in advance
Other non-current liabilities
2015
$m
2014
$m
52
3
55
35
7
42
2015
$m
2014
$m
252
4
256
256
3
259
Income received in advance primarily represents amounts received
from customers as prepayment of future rentals under agreements for
customer specific infrastructure. These amounts are deferred and earned
over the term of the agreements.
(v) 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 indemnity is subject to Aurizon not taking
any unilateral action, other than with the approval of the State that
causes a significant increase in unfunded liabilities.
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.
Recognition and measurement
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 weighted average pre-tax discount rates for
employee benefits are based on Australian corporate bond rates of
3.4%. In the prior year, the weighted average pre-tax discount rate for
employee benefits was based on the government bond rate of 3.3%.
To measure the estimated costs to remediate contaminated land
an inflation rate of 2.7% (2014: 2.9%) has been applied, based on
remediation dates ranging between 10 to 40 years. A weighted average
discount rate of 3.7% (2014: 4.3%) has been used in determining present
value, based on the interest rate which reflect the maturity profile of the
liability. The increase in the provision resulting from the passage of time
is recognised in finance costs.
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.
A provision is made for the estimated liability for workers’ compensation
and litigation claims. Claims are assessed separately for common law,
statutory and asbestos claims. 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 are also included in the estimate.
70
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) Capital and financial risk management
IN THIS SECTION
Capital and financial risk management provides information
about the capital management practices of the Group and
shareholder returns for the year, discusses the Group’s
exposure to various financial risks, explains how these affect
the Group’s financial position and performance and what
the Group does to manage these risks.
13 Capital risk management
14 Dividends
15 Equity and reserves
16 Borrowings
17 Financial risk management
18 Derivative financial instruments
Page 72
Page 72
Page 72
Page 74
Page 74
Page 80
FINANCIAL REPORT
71
Notes to the consolidated financial statements30 June 2015 (continued) 13 Capital risk management
KEEPING IT SIMPLE
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 Company 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 total equity 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
14 Dividends
(a) Ordinary shares
Notes
2015
$m
16
2,983
(171)
2,812
6,506
9,318
30.2%
2014
$m
2,841
(318)
2,523
6,373
8,896
28.4%
2015
$m
2014
$m
(c) Franked dividends
The franked portions of the final dividends recommended after 30 June
2015 will be franked out of existing franking credits or out of franking
credits arising from the payment of income tax in the period ending
30 June 2016.
Franking credits available for subsequent
reporting periods based on a tax rate of 30%
(2014: 30%)
2015
$m
2014
$m
76
(47)
The above amounts are calculated from the balance of the franking
account as at the end of the reporting period, adjusted for franking
credits that will arise from the payment of the amount of the provision
for income tax.
The consolidated amounts include franking credits that would be
available to the parent entity if distributable profits of subsidiaries were
paid as dividends.
15 Equity and reserves
KEEPING IT SIMPLE
Issued capital represents the amount of consideration received
for securities issued by Aurizon.
When the Company purchases its own shares, as a result
of the share-based payment plans and share buy-back,
the consideration paid, including any directly attributable
incremental costs (net of income taxes),
is recognised directly in equity.
Interim dividend for the year ended 30 June
2015 of 10.1 cents unfranked (2014: 8.0 cents,
80% franked) per share, paid 23 March 2015
Final dividend for the year ended 30 June 2014
of 8.5 cents unfranked (2013: 8.2 cents, 90%
franked) per share, paid 22 September 2014
214
171
(i)
Issued capital
(a) Contributed equity
182
396
175
346
Ordinary shares
– fully paid
2015
Shares
‘000
2014
Shares
‘000
2015
$m
2014
$m
2,122,010
2,137,285
1,508
1,508
(b) Dividends not recognised at the end of the
reporting period
KEEPING IT SIMPLE
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.
(ii) Movements in ordinary share capital
Details
Opening balance 1 July 2013
Balance 30 June 2014
Opening balance 1 July 2014
On-market share buy-back
Number
of shares
‘000
2,137,285
2,137,285
2,137,285
(15,275)
$m
1,508
1,508
1,508
–
Since 30 June 2015, the Directors have
recommended the payment of a final dividend
of 13.9 cents per fully paid ordinary share,
30% franked (2014: 8.5 cents, unfranked).
The aggregate amount of the proposed
dividend expected to be paid on 28 September
2015 out of retained earnings, but not
recognised as a liability at year end is:
2015
$m
2014
$m
295
182
Balance 30 June 2015
2,122,010
1,508
The On-market share buy-back has been paid out of Capital reserves,
refer note 15(b).
Ordinary shares have no par value and the Company 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.
72
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) 15 Equity and reserves (continued)
(b) Reserves
Balance at 1 July 2014
Fair value gains (losses) taken to equity
Other transfers – transfer to property, plant and equipment (gross)
Deferred tax
Other comprehensive income
Transactions with owners in their capacity as owners
On-market share buy-back
Share-based payments expense
Employee share trust to employee
At 30 June 2015
Cash flow
hedges
$m
Share-
based
payments
$m
Notes
(19)
(22)
5
6
(11)
–
–
–
(30)
15
–
–
–
–
–
17
(12)
20
27(b)
Capital
reserves
$m
3,538
–
–
–
–
(69)
–
–
Total
$m
3,534
(22)
5
6
(11)
(69)
17
(12)
3,469
3,459
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Notes
25
3,538
Balance at 1 July 2013
Fair value gains (losses) taken to equity
Other transfers – transfer to property, plant and equipment (gross)
Deferred tax
Other comprehensive income
Transactions with owners in their capacity as owners
Share-based payments expense
Employee share trust to employee
Deferred tax
At 30 June 2014
–
(26)
(1)
8
(19)
–
–
–
(19)
27(b)
–
–
–
–
13
(24)
1
15
Total
$m
3,563
(26)
(1)
8
(19)
13
(24)
1
–
–
–
–
–
–
–
3,538
3,534
Nature and purpose of reserves
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 18(i). 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.
Capital reserves
Capital reserves represents capital contributions from Queensland State
Government Pre-IPO less cumulative share buy-backs.
73
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued)
16 Borrowings
17 Financial risk management
KEEPING IT SIMPLE
The Group borrows money through bank debt facilities and
through the issuance of debt securities in capital markets.
Current – Unsecured
Working capital facility
Non-current – Unsecured
Medium-term notes
Bank facilities
Capitalised borrowing costs
2015
$m
2014
$m
59
59
1,250
1,690
(16)
42
42
518
2,310
(29)
2,924
2,799
In September 2014, Aurizon Network Pty Ltd issued a 10 year Euro
Medium-Term Note (EMTN) raising €500m with a coupon of 2.0% per
annum and repaid and cancelled $710m of its existing term loan facility.
Cross currency interest rate swaps were executed concurrently to fully
swap the issuance back to Australian dollars floating rate debt. The
Aurizon Group uses interest rate swaps to convert its floating rate debt to
fixed rate debt.
The unsecured bank facilities and medium-term notes restrict the
amount of security that the Group 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 17(c).
Recognition and measurement
(i) Borrowings
Borrowings are initially recognised at 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.
Establishment costs have been capitalised and are amortised over the life
of the facilities and the term of the medium-term notes.
Borrowings are removed from the balance sheet when the obligation
specified in the contract is discharged, cancelled or expired.
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 construction of a
qualifying asset are capitalised during the period of time that is required
to complete the asset for its intended use. The capitalisation rate used
to determine the amount of borrowing costs to be capitalised is the
weighted average interest rate applicable to the Group’s outstanding
borrowings during the year of 4.9% (2014: 4.9%).
74
KEEPING IT SIMPLE
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
Treasury Policies is monitored on an ongoing basis through
regular reporting to the Board. The early adoption of AASB
9 on 1 July 2014 has no significant impact to the Group. Refer
to note 29(a)(ii) for further details.
(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 Group’s functional currency. The Group’s foreign exchange risk
relates largely to the US dollar (US$) and the Euro (€).
In September 2014, Aurizon Network Pty Ltd issued €500m EMTN.
To remove the foreign exchange risk, cross currency interest rate swaps
were executed concurrently to fully swap the issuance back to Australian
dollars debt. There is no other material foreign exchange risk exposure
for the Group.
Risk management
In order to protect against foreign exchange movements, the Group
enters into forward foreign exchange contracts and cross currency
interest rate swaps. These contracts are hedging highly probable forecast
foreign currency exposures and are designated in either cash flow
or fair value hedge relationships as appropriate. The forward foreign
exchange contracts are designated as cash flow hedges and are timed
to mature when payments for major shipments of component parts
are scheduled to be made. 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. The foreign exchange contracts
are denominated in the same currency as the highly probable future
purchases, therefore the hedge ratio is 1:1.
(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 at variable rates expose the Group’s cash flow to interest
rate risk.
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued)
17 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 2015
30 June 2014
Weighted
average
interest
rate
%
4.3
3.4
Weighted
average
interest
rate
%
4.2
3.4
Balance
$m
2,460
(1,725)
735
Balance
$m
2,352
(1,725)
627
Variable rate
borrowings
Interest rate
swaps
Net exposure to
interest rate risk
Risk management
The Group manages cash flow interest rate risk by using floating-for-
fixed interest rate swaps. During the year, cross currency interest rate
swaps have been put in place to remove any exposure to Euro interest
rates and associated foreign exchange from the EMTN issuance.
Interest rate swaps currently in place cover approximately 70%
(2014: 73%) of the variable loan principal outstanding. The weighted
average maturity of the outstanding swaps is approximately 1.9 years
(2014: 2.9 years).
The contracts require settlement of net interest receivable or payable
each month where possible. The settlement dates coincide with the dates
on which interest is payable on the underlying debt. The International
Swaps and Derivatives Association agreements held with counterparties
allow for the netting of payments and receipts with respect to
settlements for interest rate swap transactions.
During the year, the net realised loss arising from interest rate hedging
activities for the Group was $17m (2014: loss of $8m) 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
have been recognised in interest expense.
(iii) Sensitivity on interest rate risk
The following table summarises the gain/(loss) impact of interest rate
changes, relating to existing financial instruments, on net profit and
equity before tax. For the purpose of this disclosure, sensitivity analysis
is isolated to a 100 basis points (bps) increase/decrease in interest rates,
assuming hedge designations and effectiveness and all other variables
remain constant.
Effect on profit
(before tax)
Effect on equity
(before tax)
2015
$m
2014
$m
2015
$m
2014
$m
100 bps movement
in interest rates
100 bps decrease in
interest rates
100 bps increase in
interest rates
11
21
(37)
(48)
(11)
(21)
36
47
75
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) 17 Financial risk management (continued)
(a) Market risk (continued)
(iv) Effects of hedge accounting on the consolidated balance sheet and consolidated income statement
The impact of hedging instruments designated in hedging relationships as at 30 June 2015 on the statement of financial position of the Group is as follows:
Notional
amount
Carrying
amount
$m
Line item in
the consolidated
balance sheet
Change in fair value
used for measuring
ineffectiveness for the year
$m
Cash flow hedges
Foreign exchange risk – forward foreign
exchange contracts
Foreign exchange and interest rate risk –
cross currency interest rate swaps
Interest rate risk – interest rate swaps
Fair value hedge
Foreign exchange and interest rate risk –
cross currency interest rate swaps
US$24m
US$5m
US$3m
€5m
€3m
€500m
A$1,725m
1
–
–
–
–
5
Current assets
Non-current assets
Current liabilities
Current assets
Current liabilities
Non-current assets
(43)
Non-current liabilities
€500m
14
Non-current assets
The impact of hedged items designated in hedging relationships as at 30 June 2015 on the consolidated balance sheet is as follows:
1
–
–
–
–
–
(16)
25
Cash flow hedge reserve
$m
Change in value used
for measuring
ineffectiveness
$m
(1)
1
43
(1)
–
17
Carrying
amount
$m
Accumulated fair
value adjustment
$m
Line item in
the consolidated
balance sheet
Change in fair value
used for measuring
ineffectiveness for the year
$m
Cash flow hedges
Foreign exchange risk
Firm commitments
Foreign exchange and interest rate risk
EMTN
Interest rate risk
Forecast interest payments
Fair value hedge
Foreign exchange and interest rate risk
EMTN
(736)
(25) Non-current liabilities – borrowings
(25)
The above hedging relationships affected other comprehensive income as follows:
Cash flow hedges
Foreign exchange risk
Forward foreign exchange contracts
Interest rate risk
Pay fixed/receive variable interest rate swaps
Foreign exchange and interest rate risk
Cross currency interest rate swaps
Hedging gain
or (loss) recognised in
comprehensive income
$m
2
(18)
(1)
(17)
There was no material ineffectiveness related to cash flow hedges and fair value hedges recognised in the consolidated income statement during the year.
76
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued)
17 Financial risk management (continued)
(b) Credit risk
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
received from certain parties. Refer to note 17(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 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 17(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- . The Policy 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.
(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:
Aurizon Finance
Working capital facility
Syndicated facility
Syndicated facility
Aurizon Network
Working capital facility
Syndicated facility
Syndicated facility
Medium-term note
European medium-term note**
Total Group financing arrangements
Security
Maturity
Unsecured
Jun-16
Unsecured
Unsecured
Jul-17
Jul-19
Unsecured
Jun-16
Unsecured
Unsecured
Jul-16
Jul-18
Unsecured
Oct-20
Unsecured
Sept-24
Utilised*
Facility limit
2015
$m
101
–
–
101
6
490
1,200
525
711
2,932
3,033
2014
$m
54
300
25
379
47
1,200
785
525
–
2,557
2,936
2015
$m
150
300
300
750
100
490
1,300
525
711
3,126
3,876
2014
$m
150
300
300
750
100
1,200
1,300
525
–
3,125
3,875
* Amount utilised includes bank guarantees but excludes capitalised borrowing costs and discounts on medium-term notes.
** Amount utilised excludes capitalised borrowing costs, discounts and the accumulated fair value adjustment of $25m.
Within the working capital facilities, the Group has access to financial
accommodation arrangements totalling $250m (2014: $250m) which
may be utilised in the form of short-term working capital funding and the
issuance of bank guarantees and performance guarantees. At the end of
the reporting period, the Group utilised $48m (2014: $60m) for financial
bank guarantees.
The following table summarises the contractual timing of undiscounted
cash flows, including estimated interest payments, of financial liabilities
and derivative instruments, expressed in Australian dollars. The
contractual amount assumes current interest rates and foreign exchange
rates estimated using forward curves applicable at the end of the
reporting period.
The Group has complied with externally imposed capital debt covenants
during the 2015 and 2014 reporting periods.
77
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued)
17 Financial risk management (continued)
(c) Liquidity risk (continued)
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
2015
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps used for hedging (net settled)
Foreign exchange contracts used for hedging
– (inflow)
– outflow
368
191
48
607
22
–
(47)
46
21
–
2,078
–
2,078
21
–
(7)
7
21
–
1,412
–
1,412
–
–
–
–
–
* Borrowings include the effect of cross currency interest rate swap derivatives which have a carrying amount of $19m (non-current asset).
2014
Non-derivatives
Trade payables
Borrowings
Financial guarantees
Derivatives
Interest rate swaps used for hedging (net settled)
Foreign exchange contracts used for hedging
– (inflow)
– outflow
461
171
60
692
14
–
(43)
44
15
–
2,614
–
2,614
16
–
–
–
16
–
570
–
570
–
–
–
–
–
368
3,681
48
4,097
43
–
(54)
53
42
461
3,355
60
3,876
30
–
(43)
44
31
368
2,965
–
3,333
43
(1)
–
–
42
461
2,841
–
3,302
27
1
–
–
28
(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 available and rely as little as possible
on entity specific estimates. If all significant inputs required to fair value
an instrument 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:
The fair value of interest rate swaps 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 cross currency interest rate swaps has been determined
as the net present value of contracted cash flows. The future probable
exposure method is applied to the estimated future cash flows to reflect
the credit risk of the Group and relevant counterparties.
› Forward foreign exchange contracts
› Interest rate swaps
The fair value of forward foreign exchange contracts has been
determined as the unrealised gain/loss at balance date by reference
to market rates.
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 ended
30 June 2015, the borrowing rates were determined to be between 2.8% to
4.9%, depending on the type of borrowing (30 June 2014: 3.4% to 5.0%).
78
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (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)
› Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs)
During the year, there were no transfers between Level 1, Level 2 and
Level 3 fair value hierarchies.
30 June 2015
Derivative financial
assets
Derivative financial
liabilities
Net financial instruments
measured at fair value
30 June 2014
Derivative financial
assets
Derivative financial
liabilities
Net financial instruments
measured at fair value
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
–
–
–
20
(43)
(23)
–
–
–
20
(43)
(23)
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
–
–
–
1
(29)
(28)
–
–
–
1
(29)
(28)
17 Financial risk management
(continued)
(d) Fair value measurements (continued)
Carrying amount
Fair value
2015
$m
2014
$m
2015
$m
2014
$m
Financial assets carried
at fair value
Forward exchange
contracts (note 18)
Cross currency interest
rate swaps
Financial assets carried
at amortised cost
Cash and cash
equivalents
Trade and other
receivables (note 6)
Financial liabilities
carried at fair value
Forward exchange
contracts (note 18)
Interest rate swaps
Financial liabilities
carried at amortised cost
Trade and other
payables (note 10)
1
19
20
1
–
1
1
19
20
1
–
1
171
318
171
318
543
714
603
921
543
714
603
921
–
(43)
(43)
(2)
(27)
(29)
–
(43)
(43)
(2)
(27)
(29)
(368)
(461)
(368)
(461)
Borrowings (note 16)
(2,983)
(2,841)
(3,091)
(2,910)
(3,351)
(3,302)
(3,459)
(3,371)
Off-balance sheet
Unrecognised
financial assets
Third party guarantees
Bank guarantees
Insurance company
guarantees
Unrecognised financial
liabilities
Bank guarantees
–
–
–
–
–
–
–
–
–
–
97
339
9
30
244
8
(48)
397
(60)
222
79
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) 18 Derivative financial instruments
KEEPING IT SIMPLE
A derivative is a type of financial instrument typically used
to manage risk. A derivative’s value changes over time in
response to underlying variables such as exchange rates
or interest rates and is entered into for a fixed period.
The Group holds derivative financial instruments to
economically hedge its foreign currency and interest rate
exposures in accordance with the Group’s financial risk
management policy (refer to note 17).
Current assets
Forward exchange contracts – cash flow hedges
Non-current assets
Cross-currency interest rate swaps
Total derivative financial instrument assets
Current liabilities
Forward exchange contracts – cash flow hedges
Non-current liabilities
Interest rate swap contracts – cash flow hedges
Total derivative financial instrument liabilities
2015
$m
2014
$m
1
19
20
–
43
43
1
–
1
2
27
29
Recognition and measurement
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; the risk management objective; and
the strategy for undertaking various hedge transactions. The Group, at
inception and on an ongoing basis, documents its assessment of whether
the derivatives 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 derivative financial instruments used for hedging
purposes are disclosed in this section. 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.
Cash flow hedge
(i)
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 limited to
the cumulative change in fair value of the hedged item on a present value
basis from the inception of the hedge. 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.
If the hedge ratio for risk management purposes is no longer optimal
but the risk management objective remains unchanged and the hedge
continues to qualify for hedge accounting, the hedge relationship will be
rebalanced by adjusting either the volume of the hedging instrument or the
volume of the hedged item so that the hedge ratio aligns with the ratio used
for risk management purposes. Any hedge ineffectiveness is calculated and
accounted for at the time of the hedge relationship rebalancing.
(ii) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify
as fair value hedges are recorded in the profit or loss, together with
any changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk.
The gain or loss relating to the effective portion of interest rate swaps
hedging fixed rate borrowings is recognised in profit or loss within finance
costs, together with changes in the fair value of the hedged fixed rate
borrowings attributable to interest rate risk. The gain or loss relating to the
ineffective portion is recognised in the profit or loss within other income
or other expenses. If the hedge no longer meets the criteria for hedge
accounting, the adjustment to the carrying amount of a hedged item for
which the effective interest method is used is amortised to the profit or
loss over the period to maturity using a recalculated effective interest rate.
(iii) 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 the profit or loss in
other income or expense.
80
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) Group structure
IN THIS SECTION
Group structure provides information about particular
subsidiaries and associates and how changes have affected
the financial position and performance of the Group.
19 Associates and joint arrangements
20 Material subsidiaries
21 Parent disclosures
22 Deed of cross guarantee
Page 82
Page 83
Page 84
Page 84
FINANCIAL REPORT
81
Notes to the consolidated financial statements30 June 2015 (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:
Aquila
Moorebank
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
2015
$m
65
199
264
(2)
(38)
(40)
224
3
(1)
–
(1)
2014
$m
2015
$m
2014
$m
–
–
–
–
–
–
–
–
–
–
1
91
92
(1)
–
(1)
91
15
14
–
14
2
81
83
(1)
–
(1)
82
8
7
–
7
(iii) Contingent liabilities of associates
There are no contingent liabilities relating to liabilities of the associate for
which the Group is severally liable.
(b) Investments in joint ventures
The Group has an interest in the following joint ventures, which are equity
accounted, contributed $1m to the Group results, have net assets of $3m
and are not considered material to the Group.
Ownership interest
2015
%
2014
%
Principal
activity
15
17
30
50
–
15 Construction
17 Construction
30
Consulting
50
Insurance
50 Deregistered
Name
CHCQ
Chun Wo/CRGL
Country of
operation
China–Hong
Kong
China–Hong
Kong
KMQR Sdn Bhd
Malaysia
ARG Risk
Management
Limited
QLM Pty Ltd
Integrated
Logistics
Company Pty Ltd
Australia
Australia
Australia
14
14
Consulting
19 Associates and joint arrangements
Non-current assets
Investment in associates (a)
Interest in joint ventures (b)
(a) Investments in associates
2015
$m
2014
$m
315
3
318
82
1
83
KEEPING IT SIMPLE
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 after initially being
recognised at cost.
The Group has an interest in the following associates:
Name
Country of
operation
2015
%
2014
%
Principal
activity
Ownership interest
Moorebank
Industrial
Property Trust
Aquila Resources
Limited*
Australia
Australia
33
15
Land and
potential
intermodal
development
Exploration
and mining
33
–
* Aquila Resources Limited is accounted for as an associated company because
the Group has significant influence primarily through representation on its
Board of Directors.
(i)
Movement in carrying values
Opening balance
Additional
investments
Share of profit
(losses) in associates
Dividends received
Closing balance
Aquila
Moorebank
2015
$m
–
225
(1)
–
224
2014
$m
–
–
–
–
–
2015
$m
82
2014
$m
79
1
14
(6)
91
2
7
(6)
82
On 5 May 2014, Baosteel Resources Australia Pty Ltd and Aurizon’s
wholly-owned subsidiary, Aurizon Operations Limited announced their
intention to make a joint off-market takeover offer to acquire 100% of the
ordinary shares in Aquila Resources Limited (Aquila). The offer closed on
25 July 2014 and on completion Aurizon acquired 15% of Aquila’s ordinary
shares on issue.
82
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) Principles of consolidation
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.
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.
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 the 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.
19 Associates and joint arrangements
(continued)
Recognition and measurement
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.
The carrying amount of equity-accounted investments is tested for
impairment in accordance with the policy described in note 8(v).
The recoverable amount of the investment in Aquila is dependent on
judgement made in relation to the long-term foreign exchange rates,
metallurgical coal price, iron ore price and capital costs.
20 Material subsidiaries
The Group’s material subsidiaries that were controlled during the year
and prior years are set out below.
Name of entity
Aurizon Operations Limited
Aurizon Intermodal Pty Ltd
Interail Australia Pty Ltd
Logistics Australasia Pty Ltd
Aurizon Resource Logistics Pty Limited
Australia Eastern Railroad Pty Ltd
Australia Western Railroad Pty Ltd
Aurizon Network Pty Ltd
Aurizon Property Pty Ltd
Aurizon Terminal Pty Ltd
Aurizon Finance Pty Ltd
Iron Horse Insurance Company Pte Ltd
Aurizon Moorebank Unit Trust
Country of
incorporation
Equity
holding
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
83
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued)
21 Parent disclosures
The parent and ultimate parent entity within the Group is Aurizon
Holdings Limited.
(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
Reserves
Total equity
2015
$m
75
6,122
(75)
2014
$m
61
6,107
(75)
(1,126)
(1,032)
4,996
5,061
1,508
3,488
4,996
1,508
3,553
5,061
(ii) Tax consolidation legislation
Aurizon and its wholly-owned Australian entities elected to form a
tax consolidation group with effect from 22 November 2010 and are
therefore taxed as a single entity. The head entity of the tax consolidated
group is Aurizon Holdings Limited.
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 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.
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.
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.
Profit for the year
Total comprehensive income
396
396
346
346
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.
(b) Guarantees entered into by the parent entity
There are cross guarantees given by Aurizon Holdings Limited and its
subsidiaries are listed in note 22.
(c) Contingent liabilities of the parent entity
The parent entity did not have any material contingent liabilities as at
30 June 2015 or 30 June 2014. For information about guarantees given
by the parent entity, please see above.
(d) Contractual commitments for the acquisition of
property, plant and equipment
As at 30 June 2015, the parent entity did not have any contractual
commitments for the acquisition of property, plant and equipment (2014: nil).
Recognition and measurement
The financial information for the parent entity, Aurizon Holdings Limited,
has been prepared on the same basis as the consolidated financial
statements, except as set out below.
(i)
Investments in subsidiaries, associates and joint
venture entities
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.
(iii) Employee benefits – share-based payments
The grant by the Company of rights over its equity instruments to the
employees of subsidiaries are treated as a capital contribution to that
subsidiary. 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 the corresponding subsidiaries.
22 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, Interail
Australia Pty Ltd, Australian Rail Pty Ltd, Australia Eastern Railroad Pty
Ltd, Australia Western Railroad Pty Ltd and Australian Railroad Group
Employment Pty Ltd are parties to a Deed of Cross Guarantee, under
which each company guarantees the debts of the others. By entering
into the cross guarantee, the wholly-owned entities have been relieved
from the requirement to prepare separate financial and Directors’ reports
under Class Order 98/1418 (as amended) by the Australian Securities and
Investment Commission.
Aurizon Network Pty Ltd was released from its obligations under the Deed
by executing Revocation Deeds which became operative on 16 January
2014. On 1 December 2014, CRT Group Pty Ltd was disposed of and
ceased to be a member of the closed group. From these dates, the
financial results of both Aurizon Network Pty Ltd and CRT Group 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.
84
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) (b) Consolidated balance sheet
The balance sheet of the parties to the Deed of Cross Guarantee at each
reporting date is presented below.
Property, plant and equipment
4,552
4,399
Intangibles
Investments accounted for using the equity
method
Other financial assets
Total non-current assets
Revenue from continuing operations
2,626
3,330
Assets classified as held-for-sale
22 Deed of cross guarantee (continued)
(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’.
Income statement
2015
$m
2014
$m
Other income
Consumables
Employee benefits expense
Depreciation and amortisation expense
Impairment losses
Other expenses
Finance costs
Finance income
Profit before income tax
Income tax expense
Profit for the year
300
(958)
(888)
(302)
(18)
(33)
(9)
9
727
(126)
601
157
(1,274)
(1,041)
(395)
(254)
(38)
(65)
–
420
(83)
337
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Other assets
Tax receivables
Total current assets
Non-current assets
Other assets
Inventories
Statement of comprehensive income
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 components of
other comprehensive income
Other comprehensive income for the year,
net of tax
Total comprehensive income for the year
2015
$m
2014
$m
Total assets
Current liabilities
601
337
Borrowings
Trade and other payables
Current tax liabilities
Provisions
Other liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
(5)
–
(5)
332
2014
$m
Provisions
Other liabilities
–
1
1
602
2015
$m
Summary of movements in consolidated retained earnings
Total non-current liabilities
Retained earnings at the beginning of the
financial year
Profit for the year
Dividends provided for or paid
Removal of Aurizon Network Pty Ltd
Retained earnings at the end of the
financial year
675
601
(396)
–
1,422
337
(346)
(738)
880
675
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2015
$m
2014
$m
30
457
139
1
9
21
–
316
593
160
1
19
111
56
657
1,256
69
25
57
15
87
226
1,225
6,184
6,841
329
57
45
311
9
751
–
103
96
13
212
963
5,878
1,508
3,490
880
5,878
43
1
1,215
5,730
6,986
403
–
–
318
20
741
320
79
102
10
511
1,252
5,734
1,508
3,551
675
5,734
85
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) Other information
IN THIS SECTION
Other information provides information on other items
which require disclosure to comply with Australian
Accounting Standards and other regulatory pronouncements
however are not considered critical in understanding
the financial performance or position of the Group.
23 Reconciliation of profit after income tax to
net cash inflow from operating activities
24 Assets classified as held-for-sale
25 Related party transactions
26 Key Management Personnel compensation
27 Share-based payments
28 Remuneration of auditors
29 Summary of other significant accounting policies
Page 87
Page 87
Page 87
Page 87
Page 88
Page 89
Page 89
86 AURIZON ANNUAL REPORT 2014–15
Notes to the consolidated financial statements30 June 2015 (continued)
25 Related party transactions
(a) Transactions with Directors and Key
Management Personnel
There were no Key Management Personnel (KMP) related party
transactions during the year.
(b) Transactions with other related parties
There were no transactions with other related parties during the year.
(c) Terms and conditions of transactions with related parties
other than Key Management Personnel or entities
related to them and intra group transactions
All other transactions 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.
26 Key Management Personnel
compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
2015
$’000
2014
$’000
9,735
13,738
277
120
–
5,028
15,160
447
63
1,276
5,846
21,370
During the year the Group has reviewed the determination of KMP.
Due to the corporate re-organisation to a functional structure the roles
and responsibilities of the EVPs of support functions (excluding CFO)
no longer meet the definition of KMP as they do not control activities and
directions of the group. From 1 July 2014, the support function EVPs are
no longer included in the disclosures above.
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.
23 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
Interest expense
Non-cash employee benefits expense –
share-based payments
Net (gain) loss on sale of non-current assets
Share of profits of associates and joint venture
partnership
Net exchange differences
Change in operating assets and liabilities:
Decrease (Increase) in trade debtors
Decrease (Increase) in inventories
Decrease (Increase) in other
operating assets
(Decrease) increase in trade and
other payables
Increase in other operating liabilities
Increase (Decrease) in provision for
income taxes payable
Increase in deferred tax liabilities
Increase in other provisions
Net cash inflow from operating activities
2015
$m
604
519
20
144
17
(47)
(14)
(1)
60
30
14
(82)
10
123
119
–
1,516
2014
$m
253
499
302
122
14
(10)
(7)
–
(35)
(26)
(13)
113
5
(116)
84
6
1,191
24 Assets classified as held-for-sale
Property, plant and equipment
Trade and other receivables
Inventories
2015
$m
2014
$m
21
–
–
21
98
12
1
111
Recognition and measurement
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.
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.
87
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) 27 Share-based payments
KEEPING IT SIMPLE
The share-based payments schemes described in this section
were 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. Eligible executives may be
granted rights on terms and conditions determined by the
Board from time to time. The fair value of rights granted
under the schemes is recognised as an employee benefits
expense with a corresponding increase in equity.
(a) Performance rights plan
Performance rights are granted by the Company for nil consideration.
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. 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.
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.
The share-based payment schemes are described as follows:
Deferred Short-Term Incentive Award (STIAD)
The STIAD was implemented in the 2011 financial year under which
rights to the value of 50 per cent of the cash 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.
From financial year 2014 a portion of any STIA for the Managing Director &
CEO as well as the executive management team will be awarded in rights to
ordinary shares and deferred for a period of one year. This was 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.
Grant
Date
2015
STIAD
LTIA
Retentions
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
635
188
13,267
4,321
(628)
(1,531)
(305)
(7)
188
(126)
15,931
–
113
Retentions
393
25
Total
2014
STIAD
LTIA
Retentions
Total
14,295
4,534
(2,464)
(133)
16,232
2,278
13,476
355
16,109
–
(1,361)
(282)
635
4,816
330
5,146
(3,694)
(1,331)
13,267
(282)
(10)
393
(5,337)
(1,623)
14,295
At 30 June 2015, there were no vested but unexercised rights.
The weighted average exercise price of rights granted during the year
was nil (2014: 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 $5.03 (2014: $4.73). The weighted average remaining
contractual life of share rights outstanding at 30 June 2015 was 1.0 year
(2014: 1.5 years).
Fair value of rights granted
In determining the fair value, 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, was $4.31 (2014: $4.07) 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:
Scheme
Grant date
Vesting date
Expiry date
2015
LTIA
2014
LTIA
18 Aug 2014
16 Aug 2013
18 Aug 2017
16 Aug 2016
31 Dec 2018
31 Dec 2017
$4.88
$4.57
3.5 years
3.5 years
15%
2.75%
4.3%
$2.05
20%
2.9%
3.9%
$2.78
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 employment service conditions and satisfying market based
performance hurdles of Total Shareholder Return (TSR) and non-market
based Earnings Per Share (EPS) targets and Operating Ratio (OR). In 2015,
the EPS hurdle was replaced with Return on Invested Capital (ROIC). The
LTIA is subject to retest in the fourth year at the discretion of the Board.
Share price at grant date
Expected life
Company share price volatility
Risk free rate
Dividend yield
Fair value
88
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) 27 Share-based payments (continued)
29 Summary of other significant
(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
$17m (2014: $13m).
Recognition and measurement
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.
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-market vesting
conditions. It recognises the impact of the revision to original estimates,
if any, in profit or loss, with a corresponding adjustment to equity.
Share-based compensation is settled by making on-market purchases of
the Company’s ordinary shares.
28 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:
(a) PwC Australia
(i) Audit and other assurance services
2015
$’000
2014
$’000
Audit and other assurance services
Audit and review of financial statements
1,690
2,167
Other assurance services
Other assurance services
153
481
Total remuneration for audit and other
assurance services
Taxation services
Tax advisory services
Other services
Advisory services
Total remuneration of PwC Australia
(b) Non-PwC Australia related audit firms
1,843
2,648
50
79
329
2,222
242
2,969
2015
$’000
2014
$’000
Audit and other assurance services
Audit and review of financial statements
–
9
accounting policies
Other significant accounting policies adopted in the preparation of these
consolidated financial statements are set out in relevant sections of the
notes and 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.
(a) Basis of preparation
New and amended standards adopted by the Group
(i)
The Group has applied the following standards and amendments for the
first time in their annual reporting period commencing 1 July 2014:
› AASB 2013-3 Amendments to AASB 136 – Recoverable Amount
Disclosures for Non-Financial Assets
› AASB 9 Financial Instruments
(ii) Change in accounting policies
The Group has early adopted AASB 9 Financial Instruments effective
1 July 2014.
The accounting policy was changed to comply with AASB 9 Financial
Instruments as issued in December 2014. This version of AASB 9
replaces the provisions of AASB 139 that relate to the recognition and
measurement, impairment, derecognition and general hedge accounting.
While AASB 9 is not required to be applied until 1 January 2018, the
Group has decided to adopt it early from 1 July 2014. AASB 9 requires
financial assets to be classified into two measurement categories:
those measured at fair value and those measured at amortised cost.
The classification is made at initial recognition and depends on the
entity’s business model for managing its financial instruments and the
contractual cash flow characteristics of the instrument.
The Group did not have any financial assets in the balance sheet that
were previously designated as available for sale or fair value through
profit or loss. Neither did it designate any financial asset at fair value
through the profit or loss on initial application of AASB 9.
There was no difference between the previous carrying amount and
the revised carrying amount of the financial assets at 1 July 2014 to be
recognised in opening retained earnings and there was no change in
classification of the financial assets.
The adoption of the revised AASB 9 did not affect the Group’s accounting
for its financial liabilities, as the new requirements only affect the
accounting for financial liabilities that are designated at fair value through
the profit or loss and the Group does not have any such liabilities.
The Group elected to apply the hedge accounting in Chapter 6 of AASB 9
prospectively. The Group’s management has assessed the existing hedging
relationships in accordance with the qualifying criteria in AASB 9 at 1 July
2014. The hedging relationships continue to meet the requirement under
AASB 9 and are regarded as continuing hedging relationships. No hedge
ratio rebalancing is required at the initial application of AASB 9.
The impairment model in AASB 9 is based on the premise of providing
for expected losses. The change in the impairment model has no
significant impact to the Group’s impairment policy.
89
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) 29 Summary of other significant accounting policies (continued)
(a) Basis of preparation (continued)
(iii) New accounting standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2015 reporting periods and have not
been early adopted by the Group. There are no other accounting standards that are not yet effective and that would be expected to have a material
impact on the Group in the current and future reporting periods and on foreseeable future transactions. The Group’s assessment of the impact of these
new standards and interpretations is set out below.
Title of standard Nature of change
Impact
Management is considering the
impact of the new standard.
Mandatory application date
Must be applied for financial years
commencing on or after 1 January
2018. Early adoption is permitted.
IFRS 15 Revenue
from Contracts
with Customers
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.
(b) Cash and cash equivalents
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.
(c) 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.
(ii) Transactions and balances
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.
90
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.
(d) Leases
Operating 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.
AURIZON ANNUAL REPORT 2014–15Notes to the consolidated financial statements30 June 2015 (continued) 29 Summary of other significant
accounting policies (continued)
For trade receivables, the Group applies the simplified approach
permitted by AASB 9, which requires expected lifetime losses to be
recognised from initial recognition of the receivables.
(e) Financial instruments
(i) Non-derivative financial assets
The Group initially recognises financial assets on the trade date at
which the Group becomes a party to the contractual provisions of
the instrument. 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.
Financial assets are initially measured at fair value. If the financial asset
is not subsequently accounted for at fair value through profit or loss,
then the initial measurement includes transaction costs that are directly
attributable to the asset’s acquisition or origination. On initial recognition,
the Group classifies its financial assets as subsequently measured at
either amortised cost or fair value, depending on its business model
for managing the financial assets and the contractual cash flow
characteristics of the financial assets.
(ii) Financial assets measured at amortised cost
A financial asset is subsequently measured at amortised cost, using
effective interest method and net of any impairment loss, if:
› The asset is held within the business model whose objective is to hold
assets in order to collect contractual cash flows
› The contractual terms of the financial asset give rise, on specified
dates, to cash flows that are solely payments of principal and interest
The Group assesses at each reporting date whether there is objective
evidence that a financial asset (or group of financial assets) is impaired.
(iii) Non-derivative liabilities
The Group initially recognises loans and debt securities issued on the date
when they are originated. Other financial liabilities are initially recognised
on the trade date. The Group derecognises a financial liability when its
contractual obligations are discharged or cancelled or expire.
Non-derivative financial liabilities are initially recognised at fair value
less any directly distributable transaction costs. Subsequent to initial
recognition, these liabilities are measured at amortised cost using the
effective interest method.
(f) 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.
The Company and its subsidiaries are grouped for GST purposes.
Therefore, any inter-company transactions within the Group do not
attract GST.
91
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) Notes to the consolidated financial statements
30 June 2015
Unrecognised items
IN THIS SECTION
Unrecognised items provide information about items that are
not recognised in the financial statements but could potentially
have a significant impact on the Group’s financial position
and performance.
30 Contingencies
31 Commitments
32 Events occurring after the reporting period
Page 93
Page 93
Page 93
92 AURIZON ANNUAL REPORT 2014–15
30 Contingencies
32 Events occurring after the
reporting period
KEEPING IT SIMPLE
Contingencies relate to the outcome of future events and
may result in an asset or liability, however due to current
uncertainty do not qualify for recognition.
As disclosed on page 54, the final two outstanding QLD EAs were
approved by employees in July 2015. On 15 July 2015, Aurizon received
a positive vote by employees on the proposed Construction and
Maintenance Enterprise Agreement (C&M EA).
On 27 July 2015, the proposed Train Crew and Transport Operations EA
received a positive vote by employees. Once the C&M EA and the Train
Crew and Transport Operations EA are approved by the FWC, then,
along with the staff EA, these will cover approximately 5,000 QLD based
Aurizon employees.
(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.
Guarantees and letters of credit
For information about guarantees and letters of credit given by the
Group, refer to note 17(d).
(b) Contingent assets
Guarantees and letters of credit
For information about guarantees given to the Group, refer to note 17(d).
31 Commitments
(a) Capital commitments
Property, plant and equipment
Within one year
(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
2015
$m
2014
$m
141
291
2015
$m
2014
$m
36
57
25
118
37
42
6
85
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.
93
FINANCIAL REPORTNotes to the consolidated financial statements30 June 2015 (continued) Directors’ Declaration
30 June 2015
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 48 to 93 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 2015 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 22 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 22.
Page 53 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
17 August 2015
94
AURIZON ANNUAL REPORT 2014–15
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 2015, the consolidated income
statement and 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 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 the Notes to
the consolidated financial statements, 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.
95
FINANCIAL REPORT Auditor’s opinion
In our opinion:
(a)
the financial report of Aurizon Holdings Limited is in accordance with the Corporations Act
2001, including:
(i)
(ii)
giving a true and fair view of the consolidated entity's financial position as at 30 June
2015 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards (including the Australian Accounting
Interpretations) and the Corporations Regulations 2001.
(b)
the financial report and notes also comply with International Financial Reporting Standards as
disclosed in the Notes to the consolidated financial statements.
Report on the Remuneration Report
We have audited the remuneration report included in pages 25 to 38 of the directors’ report for the
year ended 30 June 2015. 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 2015
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
John Yeoman
Partner
Brisbane
17 August 2015
96
AURIZON ANNUAL REPORT 2014–15 Non-IFRS Financial Information
in 2014-15 Annual Report
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
EBIT – Underlying
Depreciation and amortisation
2015
$m
835
135
970
–
–
–
–
–
970
519
2014
$’m
353
112
465
69
20
54
73
170
851
499
EBITDA – Underlying
1,489
1,350
Operating Ratio
Average invested capital
ROIC
Borrowings – Current
Borrowings – Non-current
Total borrowings
Cash and cash equivalent
Net debt
Net Gearing Ratio
74.3%
10,035
9.7%
59
2,924
2,983
77.7%
9,633
8.8%
42
2,799
2,841
(171)
(318)
2,812
30.2%
2,523
28.4%
In addition to using profit as a measure of the Group and its segments’
financial performance, Aurizon uses EBIT (Statutory and Underlying),
EBITDA (Statutory and 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.
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 can differ from EBIT
– Statutory due to 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 of the Group’s operating performance because
they approximate the underlying operating cash flow by eliminating
depreciation and/or amortisation.
Operating Ratio is defined as one less underlying EBIT divided by
total revenue. 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 Key Management Personnel.
ROIC is defined as underlying rolling twelve month 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 investments
accounted for using the equity method plus current assets less cash, less
current liabilities plus net intangibles. This measure is intended to ensure
there is alignment between investment in infrastructure and superior
returns for shareholders.
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 ratio 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 companies’ 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. 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.
97
FINANCIAL REPORT Shareholder Information
RANGE OF FULLY PAID ORDINARY SHARES AS AT 12 AUGUST 2015
RANGE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 999,999,999
Rounding
Total
UNMARKETABLE PARCELS
TOTAL HOLDERS
UNITS % OF ISSUED CAPITAL
21,684
26,152
3,655
2,848
135
13,614,631
58,709,759
26,724,587
57,227,643
1,965,733,839
54,474
2,122,010,459
0.64
2.77
1.26
2.70
92.64
-0.01
100.00
UNITS
17,402
Minimum $500.00 parcel at $5.01 per unit
MINIMUM PARCEL
SIZE
100
HOLDERS
579
The number of shareholders holding less than the marketable parcel of shares is 579 (shares: 17,402).
SUBSTANTIAL HOLDERS OF 5% OR MORE OF FULLY PAID ORDINARY SHARES AS AT 12 AUGUST 2015*
NAME
HSBC Holdings
UBS Group AG and its related bodies corporate
TCI Fund Management Limited
JPMorgan Chase & Co. and its affiliates
* As disclosed in substantial shareholder notices received by the Company.
NOTICE DATE
24 December 2013
4 March 2015
15 July 2015
13 November 2014
SHARES
132,953,567
120,554,547
112,207,436
106,867,103
INVESTOR CALENDAR
2016 DATES
15 February 2016
28 March 2016
15 August 2016
21 September 2016
10 November 2016
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
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.
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
To request information relating to Investor
Relations please contact our Investor
Relations team on +61 7 3019 1127 or email:
investor.relations@aurizon.com.au
98
AURIZON ANNUAL REPORT 2014–15
TOP 20 HOLDERS OF FULLY PAID ORDINARY SHARES AS AT 12 AUGUST 2015
NAME
ADDRESS
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
GPO BOX 5302, SYDNEY NSW, 2001
J P MORGAN NOMINEES AUSTRALIA LIMITED
LOCKED BAG 20049, MELBOURNE VIC, 3001
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
GPO BOX 764G, MELBOURNE VIC, 3001
GPO BOX 1406, MELBOURNE VIC, 3001
BNP PARIBAS NOMS PTY LTD
PO BOX R209, ROYAL EXCHANGE NSW, 1225
QUEENSLAND TREASURY HOLDINGS PTY LTD
C/- QUEENSLAND TREASURY,
CORPORATION, GPO BOX 1096,
BRISBANE QLD, 4001
UNITS
564,947,089
475,700,633
336,292,514
251,624,921
57,599,791
54,926,186
GPO BOX 764G, MELBOURNE VIC, 3001
22,607,199
CITICORP NOMINEES PTY LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED
AMP LIFE LIMITED
BNP PARIBAS NOMINEES PTY LTD
GPO BOX 5430, SYDNEY NSW, 2001
GPO BOX 5430, SYDNEY NSW, 2001
PO BOX R209, ROYAL EXCHANGE NSW, 1225
PO BOX R209, ROYAL EXCHANGE NSW, 1225
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
GPO BOX 5302, SYDNEY NSW, 2001
NATIONAL NOMINEES LIMITED
GPO BOX 1406, MELBOURNE VIC, 3001
SHARE DIRECT NOMINEES PTY LTD <10026 A/C>
LOCKED BAG 22, AUSTRALIA SQUARE NSW, 1215
BNP PARIBAS NOMINEES PTY LTD
PO BOX R209, ROYAL EXCHANGE NSW, 1225
SBN NOMINEES PTY LIMITED <10004 ACCOUNT>
LOCKED BAG 22, AUSTRALIA SQUARE NSW, 1215
6,906,000
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CS FOURTH NOMINEES PTY LTD
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY
LIMITED
UBS NOMINEES PTY LTD
GPO BOX 5302, SYDNEY NSW, 2001
C/-CREDIT SUISSE EQTS AUST LTD,
ATT: CORRINNA JOHNS, 41/101
COLLINS STREET, MELBOURNE VIC, 3000
GPO BOX 5430, SYDNEY NSW, 2001
LEVEL 16, CHIFLEY TOWER, 2 CHIFLEY SQUARE,
SYDNEY NSW, 2000
6,491,470
6,423,576
4,968,867
4,817,173
17,728,769
14,930,474
13,875,194
13,298,300
11,548,654
10,957,689
10,670,198
9,431,167
% OF
UNITS
26.62
22.42
15.85
11.86
2.71
2.59
1.07
0.84
0.70
0.65
0.63
0.54
0.52
0.50
0.44
0.33
0.31
0.30
0.23
0.23
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (TOTAL)
Total Remaining Holders Balance
1,895,745,864
226,264,595
89.34
10.66
SHAREHOLDER INFORMATION
99
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.
100
ABN
Australian Business Number
CQIRP
Central Queensland Integrated Rail Project
above rail
Rollingstock – including locomotives and
wagons and associated infrastructure
(e.g. maintenance and operational depots)
ACN
Australian Company Number
ASIC
Australian Securities and Investments
Commission
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
CAGR
Compound annual growth rate, expressed
as a percentage per year
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
Corporations Act
Corporations Act 2001 (Cth)
CPS
Cents Per Share
CQCN
Central Queensland Coal Network
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)
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
LTI
Long Term Incentive
LTIA
Long Term Incentive Award
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
AURIZON ANNUAL REPORT 2014–15 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
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
mtpa
Millions of tonnes per annum
ROIC
Return on Invested Capital
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)
NPAT
Net Profit After Tax
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/OR
1 – EBIT margin, expressed as a percentage
OPEX
Operating expense including depreciation and
amortisation
PPT
Percentage point
QCA
Queensland Competition Authority
share
A fully paid ordinary share in Aurizon Holdings
STI
Short term Incentive
STIA
Short term Incentive Award
TRIFR
Total Reportable Injury Frequency Rate
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
GLOSSARY
101
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104
AURIZON ANNUAL REPORT 2014–15 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
Samantha Lewis
Gene Tilbrook
Timothy Poole
Company Secretary
Dominic D Smith
Registered Office
Level 17, 175 Eagle Street
Brisbane QLD 4000
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)
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ANNUAL REPORT 2014-15
Aurizon Holdings Limited
ABN 14 146 335 622