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ANNUAL REPORT
Contents
FY2016 in Review ................................................... 1
Chairman’s Report ................................................2
Directors’ Report ...................................................4
– Operating and Financial Review ...............10
– Remuneration Report ....................................23
Auditor’s Independence Declaration .........37
Corporate Governance Statement ............. 38
Financial Report ..................................................44
Shareholder Information ................................96
Glossary .................................................................. 98
Corporate Information ..................................100
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: Customers are at the heart of our business.
We consistently deliver what we promise.
Excellence: We create value through collaboration and
innovation. Our hallmarks are clear accountability, continuous
improvement and disciplined execution.
FY2016 in Review
Financial headlines
($M)
Total revenue
EBITDA – underlying
EBIT – underlying
Adjustments – asset impairments
EBIT – statutory
NPAT – underlying
NPAT – statutory
Free cash flow (FCF)
Final dividend (cps)
Total dividend (cps)
Earnings per share – underlying (cps)
Return on invested capital (ROIC)
EBITDA margin – underlying (%)
Operating ratio (OR) (%)
Total Above Rail volumes (mt)
Operations net opex/NTK (excluding access ) ($/’000 NTK)
Gearing (net debt/net debt + equity)
FY2016
FY2015
VARIANCE %
3,458
1,432
871
(528)
343
510
72
478
13.3
24.6
24.4
8.6%
41.4%
74.8%
270.9
19.9
37.4%
3,780
1,489
970
-
970
604
604
355
13.9
24.0
28.4
9.7%
39.4%
74.3%
281.2
21.5
30.2%
(9%)
(4%)
(10%)
-
(65%)
(16%)
(88%)
35%
(4%)
3%
(14%)
(1.1ppt)
2ppt
(0.5ppt)
(4%)
7%
(7.2ppt)
Highlights
› 35% increase in free cash flow to
$478 million (m) due to a reduction in
capex and more efficient capital allocation
› Final FY2016 dividend of 13.3cps (100%
payout ratio applied to underlying NPAT),
total dividend of 24.6cps, an increase of 3%
› $830m of cash distributed to shareholders
for the year including $301m share buy back
› The share buyback has been stopped to
manage near term balance sheet capacity
for possible growth opportunities, noting
also that free cash flow is expected to
increase significantly during the next few
years as capex is reduced and additional
transformation savings are realised
› Below Rail underlying EBIT up $22m (5%) on
record volumes and finalisation of UT4 tariffs
› Above Rail underlying EBIT down $117m (21%)
• $123m transformation benefits delivered,
ahead of target
• $111m reduction in Freight net revenue as
a result of lower volumes (9%), lower TSC
payments ($70m) and the sale of CRT
• $46m impact from non-recurring
FY2015 asset sales (Redbank) and
contract expiry (QR)
• $43m impact from lower volumes in
Coal (2%) and Iron Ore (7%)
• One off cost for QNI bad debt ($20m)
› Coal revenue down $13m (1%) on full year
volumes of 206.8mt
› OR and ROIC 74.8% (up 0.5ppts) and 8.6%
(down 1.1ppts) respectively
› Statutory EBIT $343m includes $528m of
asset impairments
Transformation
› Transformation program continues to deliver
Outlook
› FY2017 guidance: revenue $3.35bn-$3.55bn,
sustainable value:
• $131m benefits delivered in FY2016 and
$383m of cumulative benefits over the
last three years
• All operating metrics were favourable to
FY2015 despite lower volumes, including
a 7% improvement in Operations net opex
per NTK (excluding access)
• FY2016-2018 transformation target
remains at least $380m with
increasing confidence of delivery
underlying EBIT $900m-$950m, key
assumptions as follows:
• Above Rail: volumes 255-275mt, including
Coal 200-212mt. Stable pricing with
exception of Iron Ore for customer Karara
• Below Rail: Flat EBIT (pre corporate
overhead allocation) despite $73m
one-off true up from revenue under
collection in FY2014 and FY2015
– Step up in Maximum Allowable
Revenue (MAR) excluding true-up
offset by prior year adjustments
– $50m-$60m increase in depreciation
(full year impact of WIRP
commissioning and rail renewal
capitalisation) and operating and
energy costs due to inflation and
higher electricity charges
• Continued delivery of transformation
benefits consistent with enterprise target
but excluding significant restructuring
costs, expected to be more than $100m
in FY2017
• No major weather impacts
› FY2018 OR target remains 70% but
achievement dependent on:
• Above Rail volume growth and delivery
of transformation targets
• UT5 outcome
• Outcome of Freight performance review
FY2016 IN REVIEW
1
Chairman’s Report
A message from the Chairman
Dear fellow shareholders,
The 2016 financial year (FY2016) was a
challenging year for Aurizon. Market conditions
in the resources sector were not conducive
for new developments and the Company
decided to significantly reduce activity on
several growth projects. The asset impairments
that partly flowed from these decisions were
disappointing and we need to improve our
approach to capital allocation in the future.
Aurizon’s transformation journey continued
during FY2016. Our team has an excellent track
record at delivering transformation benefits
and we are confident this will be an area of
ongoing shareholder value creation for many
years. Our leadership team articulated new
transformation targets during the year and
a dedicated internal team was established to
manage the delivery.
A very significant part of Aurizon’s value sits
in our regulated network asset, approximately
2,700 kilometres of railway track in
Queensland’s coal supply chain. I have been
impressed by how we maintain and operate
this asset whilst continually looking for
opportunities to improve efficiency and add
capacity without the need for new capital.
A milestone during FY2016 was the UT4
draft final decision from the QCA (which
sets Aurizon’s risk and return profile for the
network asset for a four year period). Whilst
we are unhappy with many aspects of the
final decision, we accepted the decision in
the interests of providing certainty to our
customers after a protracted process. Our team
has subsequently moved into preparing our
submission for UT5 which will be a key area of
focus during FY2017. During the UT5 process
Aurizon will vigorously pursue enhancements
to the UT4 outcome to ensure the Company
is adequately compensated for the risks we
are accepting.
Overview of results
Underlying Earnings Before Interest and Tax
(EBIT) for the year decreased 10 percent on
FY2015 to $871 million, in line with the market
guidance provided in February. Statutory Net
Profit After Tax for the year was $72 million,
down 88%, and Statutory Earnings Before
Interest and Tax was $343 million, a 65%
decrease over the prior year. Revenue for the
Group was down 9% to $3.5 billion (FY2015:
$3.8 billion).
The financial result was impacted by significant
impairments totalling $528 million. Largely
these were associated with the Company’s
investment in Aquila Resources and the West
Pilbara Iron Ore Project, with further work on
feasibility studies stopped due to unfavourable
conditions in the iron ore market. The value
of the Company’s national rollingstock fleet
was also written down in light of lessening
demand and our continuing success with asset
productivity improvements.
The Board declared a final dividend of 13.3 cents
per share (70% franked), giving a full-year
dividend of 24.6 cents per share. It represents
an increase of 0.6 cents, or 3% over FY2015,
with the final dividend to be paid to
shareholders on 26 September 2016.
The Company’s share price experienced
volatility in FY2016, closing 6% lower for the
year. Over the timeframe since Aurizon’s Initial
Public Offer (IPO) and listing of shares on the
Australian Securities Exchange (ASX) however,
Total Shareholder Return (TSR) is more than
110%, compared to 45% for the ASX 200
accumulation index as a whole.
The share buyback continued throughout
the year, with the Company buying back and
cancelling 70.3 million of its shares at a cost
of $301 million, following the announcement
in FY2015 to buy back up to 5% of issued
share capital over a 12 month period. The
share buyback has been stopped to manage
near term balance sheet capacity for possible
growth opportunities, noting also that free cash
flow is expected to increase significantly during
the next few years as capex is reduced and
additional transformation savings are realised.
Performance overview
A record 225.9 million tonnes (mt) of coal
passed through the Company’s Central
Queensland Coal Network, slightly ahead of
last year (225.7mt). As noted, this regulated
Network business is central to Aurizon’s value
proposition to investors.
Total volumes in the above rail operations
were down on the prior year at 207mt (FY2015:
211mt). In Queensland, demand was down
by 5mt at 163mt, and in New South Wales
tonnages rose slightly due to the ramp up of
operations by a major Hunter Valley customer.
Productivity metrics in both Aurizon’s
above and below rail coal businesses have
consistently improved since IPO, validating the
major transformation work that has reduced
costs, increased efficiencies and facilitated the
introduction of new innovation and technology.
The freight businesses remain challenged, with
subdued market demand impacting iron ore,
bulk and intermodal volumes. Overall tonnes
hauled was 40mt, a reduction to the previous
financial year’s result of 44mt. In response
to deteriorating conditions and performance
levels well below expectations, the Company
has commenced a performance review of the
intermodal and bulk businesses.
A comprehensive overview of Aurizon’s
performance in FY2016 is detailed in the
Directors’ Report on pages 10 to 22.
Transformation
The continuation of Aurizon’s customer
and market-driven transformation was a
focal point for management during FY2016.
Transformational benefits of $131 million were
delivered in FY2016, lifting the total over the
past three years to $383 million.
Major changes are underway to flatten
Aurizon’s organisational structure, significantly
reducing middle and senior management,
along with a range of other operational
reforms. Approximately 300 surplus positions
have been identified through the streamlining
of the Operations structure. A consolidation
of corporate support functions is also planned
following a reduction in direct reports to the
Managing Director and Chief Executive Officer
from seven to five. The Company expects in
excess of $100 million of restructuring costs
to be incurred during FY2017, with sustainable
benefits for FY2018 and beyond.
2
AURIZON ANNUAL REPORT 2015–16 Acknowledgements
In my first year as Chairman I have had the
privilege to observe first-hand the calibre of
Aurizon’s people and the quality of our assets.
Five financial years post the IPO, Aurizon is
a far safer, more productive, profitable and
customer-focused organisation. However, the
external environment is considerably more
challenging than could have been foreseen
at the time of the IPO, which underscores the
urgency of Aurizon’s continued reform if we are
to compete effectively in a changing and more
competitive market place.
I am confident Aurizon has the key attributes
needed for continued transformation, market
success and value creation for shareholders,
even in difficult market conditions.
On behalf the Board, I express my deepest
gratitude to our employees Australia-wide,
and also extend my thanks to our customers,
communities and shareholders for your
ongoing support.
Tim Poole
Chairman
15 August 2016
A target has been set for a minimum of
$380 million in transformation benefits from
FY2016 to FY2018. Aurizon has a strong track
record in its ability to deliver major reform
and cost-outs. Optimising the Company’s cost
structure and workforce size will be critical to
achieving these targets.
Sustainability
Aurizon may be creating a leaner and more
agile business but safety will always remain
the highest priority. The Lost Time Injury
Frequency Rate (LTIFR) for FY2016 was zero,
a first for the Company. However, a significant
deterioration in the Total Recordable Injury
Frequency Rate (TRIFR) underscores a
need for greater focus and discipline on our
commitment to ZEROHarm.
During FY2016 Aurizon received recognition for
the transparency of our sustainability reporting
by the Australian Council for Superannuation
Investors (ACSI), who for the second
consecutive year ranked us as at the level of
‘Leading’ in the 2016 ‘Sustainability Report
Practices of S&P/ASX200 Companies’.
In addition, during the year Aurizon was added
to the FTSE4Good sustainability indexes (the
FTSE4Good Global Index and FTSE4Good
Australia 30 Index), which measure the
performance of companies demonstrating
strong Environmental, Social and Governance
(ESG) practices. Inclusion in these indices
broadens the Company’s investor appeal by
enabling investors who track this index to
invest in Aurizon.
Culturally Aurizon continues to evolve and
diversify. The composition of our workforce
has changed considerably since the IPO. More
than a third of our workforce is new to the
Company since 2010, the percentage of women
has increased to 17.4% and the percentage
of Indigenous employees has increased to
4.3%. We are more diverse, due to an active
focus on recruiting, developing and retaining
talented women and Indigenous employees.
This work resulted in a number of external
acknowledgements during the year, including
the UN Women’s Empowerment Principles CEO
Award, AHRI Gender Equity in the Workplace
Award, Queensland Reconciliation Award
(business), and Bronze tier award for Australian
Workplace Equality Index.
Our commitments and progress in the areas
of safety, environment, community and people
are discussed in our FY2016 Sustainability
Report, which will be available on our website
in October.
Board
On 1 September 2015 John Prescott AC retired
as Chairman of the Board and a Director of
the Company. During John’s tenure Aurizon
transformed from a government enterprise
to Australia’s largest ASX listed rail transport
business. John’s leadership around improving
safety, driving down the Company’s operating
ratio and improving customer service has
been central to the Company’s strong TSR
outcome since the IPO. I acknowledge and
thank John for his tremendous contribution to
the Company.
Long-serving Directors Graeme John AO,
John Atkin and Gene Tilbrook also retired from
the Aurizon Board of Directors during FY2016.
Graeme, John and Gene joined the Board in
April 2010, prior to the Company’s IPO. I thank
them for their contribution to the Company
during a period of significant change where
their skills and experience were of great value.
Aurizon’s Board was enhanced this year
by the appointments of Michael Fraser and
Kate Vidgen. On behalf of my fellow Directors
I welcome Michael and Kate, whose varied
experience and perspective spanning energy,
resources, infrastructure, regulation, finance
and law has already been highly valuable to
Board discussions.
Looking ahead
Market conditions, particularly in the resources
sector, are likely to remain challenging in
FY2017. Despite the medium-term challenges,
Aurizon is in a strong financial position with
stable and long-term contractual arrangements
with major customers.
In FY2017 the Company expects to
report an increase in underlying EBIT to
between $900 and $950 million (excluding
the significant restructuring costs),
underpinned by the extraction of ongoing
transformation benefits, an anticipated
stable volume environment and no major
weather impacts.
The delivery of the UT5 Access Undertaking
is a critical piece of work for the Company,
with engagement now in progress between
the Company, the Queensland Competition
Authority, our customers and other industry
stakeholders. The new UT5 regulatory period
is due to commence on 1 July 2017.
The Company’s 70% Operating Ratio
(30% EBIT margin) target by FY2018 remains,
however this will be dependent on above
rail volume growth, the delivery of the
transformation target, the UT5 outcome and
the outcome of the freight performance review.
CHAIRMAN’S REPORT
3
Directors’ Report
Aurizon Holdings Limited
For the year ended 30 June 2016
The Directors of Aurizon Holdings Limited
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 2016 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.
T M Poole
Experience: Mr Poole began his career in
1990 at PricewaterhouseCoopers before a
long and successful period (1995 to 2007)
helping to build Hastings Fund Management,
where he became Managing Director in 2005.
Hastings is a global investor in unlisted assets,
predominantly equity and debt issued by
infrastructure companies.
Qualifications: BCom, Member of the Institute
of Chartered Accountants Australia.
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:
Chairman of Lifestyle Communities Limited
(19 November 2007 – ongoing) and McMillan
Shakespeare Limited (17 December 2013 –
ongoing). Non-Executive Director of Reece
Limited (28 July 2016 – ongoing). Formerly
Non-Executive Director of Newcrest Mining
Limited (14 August 2007 – 30 July 2015) and
Japara Healthcare Limited (19 March 2014 –
1 September 2015).
Board of Directors
The following people are Directors of the
Company, or were Directors during the
reporting period:
T M Poole
(Appointed 1 July 2015)
(Chairman, Independent Non-Executive Director)
L E Hockridge
(Appointed 14 September 2010)
(Managing Director & Chief Executive Officer)
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)
M A Fraser
(Appointed 15 February 2016)
(Independent Non-Executive Director)
S L Lewis
(Appointed 17 February 2015)
(Independent Non-Executive Director)
During the year, Mr J Prescott AC (September
2015), Mr G John AO (November 2015),
Mr J Atkin (February 2016) and Mr G Tilbrook
(February 2016) resigned as Non-Executive
Directors. Ms K E Vidgen was appointed as
an Independent Non-Executive Director on
25 July 2016.
Details of the experience, qualifications, 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.
4
AURIZON ANNUAL REPORT 2015–16 R R Caplan
Experience: Mr Caplan has extensive
international experience in the oil and gas
industry. In a 42-year career with Shell, he held
senior roles in the upstream and downstream
operations, and corporate functions in Australia
and overseas. From 1997 to 2006, he had senior
international postings in the UK, Europe and the
USA. From 2006 to July 2010, he was Chairman
of the Shell Group of Companies in Australia.
J D Cooper
Experience: Mr Cooper has more than 35 years’
experience in the construction and engineering
sector in Australia and overseas. Currently,
Mr Cooper is a Non-Executive Director of UGL
Limited and Sydney Motorway Corporation.
Mr Cooper is a former Chairman and Non-
Executive Director of Southern Cross Electrical
Engineering Limited and a former Non-
Executive Director for NRW Holding Limited.
Mr Caplan is Chairman of the Melbourne and
Olympic Parks Trust. He is a former Non-
Executive Director of Woodside Petroleum
Limited and former Chairman of Orica Limited
and the Australian Institute of Petroleum.
Qualifications: LLB, FAICD, FAIM.
Special Responsibilities: Chairman of
Remuneration Committee. Member of Audit,
& Risk Management Committee.
Australian Listed Company Directorships
held in the past three years: Orica Limited
– Non-Executive Director (1 October 2007 –
31 December 2015).
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 Director (30 October
2007 – 5 May 2015), NRW Holdings Limited
– Non-Executive Director (29 March 2011 –
23 November 2015), Neptune Marine Services
Ltd – Non-Executive Director (4 April 2012 –
25 June 2013), UGL Limited – Non-Executive
Director (15 April 2015 – ongoing).
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 in Australia in a decade.
He has led a business-wide transformation
program to deliver world-leading safety
performance, customer service excellence, and
superior operational and commercial capability.
The Company’s safety performance is now at
benchmark levels and Aurizon has received
international recognition for its diversity and
inclusion programs as it seeks to build high-
calibre capability across its workforce.
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.
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.
He is a Federal Government Ambassador for
Equal Pay, a founding member of Queensland’s
“Male Champions of Change”, Deputy Chair
of the Queensland Premier’s Domestic and
Family Violence Task Force, and a business
representative of the Gender Equity Advisory
Board for the Australian armed services.
On behalf of Aurizon, Mr Hockridge is a
signatory of the United Nation’s Empowerment
Principles (WEP), which have been signed
by over 960 companies worldwide and only
26 companies in Australia. In March 2016,
Mr Hockridge was awarded the United Nations
CEO Leadership WEP Award for championing
cultural change and gender equality in the
workplace. He was the first Australian CEO to
receive the award.
He is also the Chairman of The Salvation
Army’s 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.
DIRECTORS’ REPORT
5
Directors’ Report (continued)
K L Field
Experience: Mrs Field has more than three
decades of 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.
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).
M A Fraser
Experience: Mr Fraser has more than 30 years’
experience in the Australian energy industry.
He has held various executive positions at AGL
Energy culminating in his role as Managing
Director and Chief Executive Officer for a
period of seven years until February 2015.
Mr Fraser is currently a Non-Executive Director
of the ASX listed APA Group.
Mr Fraser is former Chairman of the Clean
Energy Council, Elgas Limited, ActewAGL and
the NEMMCo Participants Advisory Committee,
as well as a former Director of Queensland
Gas Company Limited, the Australian
Gas Association and the Energy Retailers
Association of Australia.
Qualifications: BComm, FCPA, FTIA, MAICD.
Special Responsibilities: Chairman of
Aurizon Network Pty Ltd. Member of
Remuneration Committee.
Australian Listed Company Directorships
held in the past three years:
APA Group – Non-Executive Director
(1 September 2015 – ongoing), AGL Energy
Limited – Managing Director & CEO
(22 October 2007 – 11 February 2015).
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 and Chairman
of APRA’s Audit Committee and member of
APRA’s Risk Committee. Previously, Ms Lewis
was an Assurance & Advisory partner from
2000 to 2014 with Deloitte Australia.
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:
Qualifications: BA (Hons) EC, CA, ACA, GAICD.
› 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 Queensland coal network.
Provision of design, construction, overhaul,
maintenance and management services to the
Group, as well as external customers.
Special Responsibilities: Chairman of
Audit, Governance & Risk Management
Committee. Non-Executive Director of Aurizon
Network Pty Ltd.
Australian Listed Company Directorships held
in the past three years: Orora – Non-Executive
Director (1 March 2014 – ongoing).
K E Vidgen
Experience: Ms Vidgen began her career
as a banking, finance and energy lawyer at
Malleson Stephen Jacques and in 1998 started
in the Infrastructure advisory team within
the Macquarie Group. During her time at
Macquarie, Ms Vidgen has traversed a number
of sectors with a focus on infrastructure,
energy and resources. Ms Vidgen has also
held a number of roles including heading
up Macquarie Capital’s coal advisory team
in Australia and being Global Co-Head of
Resources Infrastructure. Ms Vidgen remains
an Executive Director at Macquarie Capital
and is currently the Global Head of Principal
in Resources. Ms Vidgen is also the Founding
Chair of Quadrant Energy, a privately held oil
and gas producer and explorer which is the
single largest domestic gas supplier in the
Western Australian market.
Qualifications: LLB (Hons), BA, MAICD.
Special Responsibilities: Non-Executive
Director of Aurizon Network Pty Ltd. Member
of Remuneration Committee.
Australian Listed Company Directorships held
in the past three years: Nil.
6
AURIZON ANNUAL REPORT 2015–16 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 22
of this report.
Dividends
A final dividend of 13.9 cents per fully paid
ordinary share (30% franked) was paid on
28 September 2015 and an interim dividend
of 11.3 cents per fully paid ordinary share
(70% franked) was paid on 29 March 2016.
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 13.3 cents per fully paid ordinary share.
The dividend will be 70% franked and is
payable on 26 September 2016.
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 2 to 3
of this report. In the opinion of the Directors,
disclosure of any further information would
be likely to result in unreasonable prejudice to
the Group.
Environmental regulation and
performance
Aurizon 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 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.
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 identifying
and managing risk in the Company (see page 42
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 2016
DIRECTOR
AURIZON HOLDINGS
BOARD
AUDIT, GOVERNANCE
& RISK MANAGEMENT
COMMITTEE
REMUNERATION
COMMITTEE
SAFETY, HEALTH
& ENVIRONMENT
COMMITTEE
NOMINATION
& SUCCESSION
COMMITTEE
T M Poole
J B Prescott AC2
L E Hockridge
J Atkin3
R R Caplan
J D Cooper
K L Field
M A Fraser4
G T John AO5
S L Lewis
G T Tilbrook6
A
161
41
161
121
16
161
16
4
7
161
12
B
16
4
16
12
16
16
16
4
0
16
11
A
-
-
-
-
8
-
8
-
-
8
2
B
-
-
-
-
8
-
8
-
-
8
2
A
8
-
-
5
8
-
-
8
-
-
5
B
8
-
-
5
8
-
-
8
-
-
4
A
4
-
4
-
-
4
4
-
1
-
-
B
4
-
4
-
-
4
4
-
0
-
-
A
5
1
-
-
-
5
5
-
3
-
-
B
5
1
-
-
-
5
5
-
0
-
-
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 Messrs J B Prescott and L E Hockridge and Messrs T M Poole and L E Hockridge met
respectively on two occasions
2 Mr J B Prescott AC resigned as Chairman and Non-Executive Director of Aurizon Holdings Limited effective 1 September 2015
3 Mr J Atkin resigned as a Non-Executive Director of Aurizon Holdings Limited effective 12 February 2016
4 Mr M Fraser was appointed a Non-Executive Director of Aurizon Holdings Limited and a Non-Executive Director and Chairman of Aurizon Network Pty Ltd on
15 February 2016
5 Mr G T John AO resigned as Non-Executive Director of Aurizon Holdings Limited effective 12 November 2015, and was granted a Leave of Absence due to illness for one
Safety, Health & Environment Committee meeting, three Nomination & Succession Committee meetings and seven Aurizon Holdings Board meetings
6 Mr G T Tilbrook ceased being Chair of the AGRM Committee on 1 September 2015 and resigned as a Non-Executive Director of Aurizon Holdings Limited effective
12 February 2016 and was granted leave of absence for one Aurizon Holdings Board meeting and one Remuneration Committee meeting
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 above.
During the year, the Aurizon Network Pty Ltd
Board met on nine occasions.
Directors’ interests
Directors’ interests are as at 30 June 2016.
TABLE 2 – DIRECTORS’ INTERESTS AS AT 30 JUNE 2016
DIRECTOR
T M Poole
L E Hockridge
R R Caplan
K L Field
J D Cooper
S L Lewis
M A Fraser
NUMBER OF ORDINARY
SHARES
45,500
1,819,778
82,132
40,458
70,000
33,025
40,000
Only Mr Hockridge, Managing Director & CEO receives performance rights, details set out in the
Remuneration Report
8
AURIZON ANNUAL REPORT 2015–16 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.
Remuneration Report
The Remuneration Report is set out on pages
23 to 36 and forms part of the Directors’
Report for the financial year ended
30 June 2016.
Rounding of amounts
The Group is within the class specified in ASIC
Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191 dated 24 March
2016 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
Corporations (Rounding in Financial/Directors’
Reports) Instrument 2016/191, 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. The
Directors’ Report is made in accordance with a
resolution of the Directors of the Company.
Tim Poole
Chairman
15 August 2016
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
Total remuneration for other
assurance services
TAXATION SERVICES
Total remuneration for
taxation services
OTHER SERVICES
Total remuneration for
other services
2016
$’000
204
91
275
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 the
Company may indemnify any person who is,
or has been, an officer of the Group, including
the Directors and Company Secretary, against
liabilities incurred whilst acting as such officers
to the maximum extent permitted by law.
The Company has entered into a Deed of
Access, Indemnity and Insurance with each of
the Company’s Directors. No Director or officer
of the Company has received benefits under an
indemnity from the Company during or since
the end of the year.
The Company has paid a premium for
insurance for officers of the Group. This
insurance is against a liability for costs and
expenses incurred by officers in defending civil
or criminal proceedings involving them as such
officers, with some exceptions. The contract of
insurance prohibits disclosure of the nature of
the liability insured against and the amount of
the premium paid.
Proceedings against the Company
The Directors are not aware of any current
or threatened civil litigation proceedings,
arbitration proceedings, administration appeals,
or criminal or governmental prosecutions of
a material nature in which Aurizon Holdings
is directly or indirectly concerned which are
likely to have a material adverse effect on the
business or financial position of the Company.
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 95.
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
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 ($)
OTHER OPERATING METRICS
Revenue/NTK ($/’000 NTK)
Labour costs/Revenue3
- underlying
- statutory
- underlying
- statutory
- underlying
- statutory
- underlying
- statutory
- underlying
- statutory
NTK/FTE (MNTK)
Operations net opex/NTK ($/’000 NTK)
Operations net opex/NTK (excluding access ) ($/’000 NTK)
NTK (bn)
Tonnes (m)
UNDERLYING EBIT BY SEGMENT
($M)
Below Rail – Network
Above Rail
Commercial & Marketing
Operations
Corporate Overhead (Unallocated)
Group
FY2016
3,458
(2,026)
(891)
(245)
(315)
(509)
(66)
1,432
904
(561)
871
343
(150)
(211)
(121)
510
72
24.4
3.4
8.6%
74.8%
1,218
13.3
37.4%
2.7
FY2016
48.3
24.6%
11.4
34.1
19.9
71.6
270.9
FY2016
506
435
2,878
(2,443)
(70)
871
FY2015
VARIANCE %
3,780
(2,291)
(1,009)
(291)
(328)
(614)
(49)
1,489
1,489
(519)
970
970
(135)
(231)
(231)
604
604
28.4
28.4
9.7%
74.3%
1,516
13.9
30.2%
3.0
FY2015
52.2
25.7%
10.5
34.9
21.5
72.4
281.2
FY2015
484
552
3,079
(2,527)
(66)
970
(9%)
12%
12%
16%
4%
17%
(35%)
(4%)
(39%)
(8%)
(10%)
(65%)
(11%)
9%
48%
(16%)
(88%)
(14%)
(88%)
(1.1ppt)
(0.5ppt)
(20%)
(4%)
(7.2ppt)
(10%)
VARIANCE %
(7%)
1.1ppt
9%
2%
7%
(1%)
(4%)
VARIANCE %
5%
(21%)
(7%)
3%
(6%)
(10%)
1 Calculated on weighted average number of shares on issue – 2,129m in FY2015 and 2,088m in FY2016
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 redundancy costs in FY2015 and $24m in FY2016, and employee share gift of $16m in FY2016
10
AURIZON ANNUAL REPORT 2015–16
Group performance overview
Revenue declined $322m (9%) primarily due to a 4% reduction in Above Rail volumes, the impact from the sale of Redbank ($43m) and CRT ($38m)
in FY2015, the end of the QR maintenance contract ($60m) and lower payments for TSC ($70m). These impacts were mostly realised in Freight (down
$180m) with Coal revenue only down $13m (1%) on 2% lower volumes. Below Rail revenue increased $71m driven by record volumes of 225.9mt and
finalisation of UT4 tariffs.
Underlying EBIT fell $99m (10%), with the revenue reduction, and a $43m increase in Below Rail depreciation associated with the commissioning of
WIRP and capitalisation of rail renewals, partially offset by a reduction in operating costs of $265m (12%). This reduction in operating costs was driven
by $131m in sustainable benefits from the ongoing transformation program and lower costs associated with the reduction in volumes and the impact of
CRT, QR and TSC. The reduction in labour costs principally from transformation has resulted in labour costs as a proportion of revenue falling to 24.6%,
a 1.1ppt improvement.
FY2016 operating ratio (OR) and return on invested capital (ROIC) were 74.8% (up 0.5ppts) and 8.6% (down 1.1ppts) respectively.
Statutory EBIT was $343m reflecting the impact of $528m in asset impairments for the year as detailed below.
Reconciliation to Statutory Earnings
Underlying earnings is a non-statutory measure and is the primary reporting measure used by Management and the Group’s chief operating decision
making bodies for the purpose of managing and assessing financial performance of the business. Underlying earnings is derived by adjusting statutory
earnings for significant items as noted in the following table:
($M)
Underlying EBIT
Significant Items – impairments
Investment in Associates
Rollingstock
Strategic infrastructure projects
Statutory EBIT
Net finance costs
Statutory PBT
Income tax expense
Statutory NPAT
FY2016
871
(528)
(226)
(177)
(125)
343
(150)
193
(121)
72
FY2015
970
-
-
-
-
970
(135)
835
(231)
604
Aurizon reviewed the carrying value of its asset portfolio as at 30 June 2016 and has recognised a total impairment of $528m as noted below:
› Investment in associate $226m – impairment to the carrying value of the investment in Aquila Resources Limited (Aquila) to reflect the current
market outlook. Aurizon has no remaining financial exposure to Aquila
› Rollingstock $177m – reduction in rollingstock due to surplus fleet and inventory arising from productivity and efficiency improvements and a lower
volume outlook
› Strategic infrastructure investment $125m – $83m greenfield feasibility study costs for the West Pilbara Infrastructure Project (WPIP), $30m Galilee
Basin brownfield expansion feasibility costs for the expansion of the CQCN and $12m of other costs. The value of both projects remaining on the
balance sheet is nil
2. Other financial information
BALANCE SHEET SUMMARY
($M)
Total current assets
Property, plant & equipment (PP&E)
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)
30 JUNE 2016
30 JUNE 2015
844
9,719
305
10,868
(732)
(3,490)
(932)
(5,154)
5,714
37.4%
934
9,900
502
11,336
(845)
(2,983)
(1,002)
(4,830)
6,506
30.2%
DIRECTORS’ REPORT
11
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Balance sheet movements
Total current assets have decreased by $90m largely due to:
› Reduction in cash and cash equivalents of $102m
› Reduction in trade and other receivables of $29m which predominantly relates to an increase in the provision for doubtful debt for QNI
› Reduction in inventory of $36m predominantly due to the impairment of rollingstock inventory
› Increase in assets held for sale of $80m following the announcement of the sale of Moorebank ($95m) offset by other disposals ($15m) during
the year
Total Property, Plant and Equipment has decreased by $181m due to $267m of impairments for rollingstock and strategic projects more than offsetting
a net increase in fixed assets.
Other non-current assets have decreased $197m due to impairing the Aquila investment ($226m) and reclassification of the investment in Moorebank
to assets held for sale ($95m) offset by an increase in derivative financial instruments ($58m) relating to cross currency interest rate swaps and an
increase in intangible assets ($63m) relating to software development costs.
Other current liabilities have decreased $113m due to a decrease in trade and other payables of $71m, a decrease in provisions of $72m reflecting
improved leave management under the new EAs, lower FTE and lower bonus and redundancy provisions, offset by an increase in derivative financial
instruments ($28m) relating to interest rate swaps.
Total borrowings increased by $507m principally due to an increase in the on market share buyback and higher dividend payments.
Other non-current liabilities decreased by $70m mainly due to the decrease in deferred tax liabilities ($17m), derivative financial instruments ($20m)
and income in advance ($30m).
Gearing (net debt/net debt plus equity) is 37.4% as at 30 June 2016.
CASH FLOW SUMMARY
($M)
Statutory EBITDA
Working capital and other movement
Non-cash adjustments – impairments
Cash from operations
Interest received
Income taxes (paid)/refunded
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
Free cash flow (FCF)
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
12
FY2016
904
(85)
528
1,347
2
(131)
1,218
38
(772)
(12)
6
(740)
478
442
(355)
(138)
(529)
(580)
(102)
FY2015
1,489
7
-
1,496
9
11
1,516
170
(1,083)
(28)
(220)
(1,161)
355
103
(81)
(128)
(396)
(502)
(147)
AURIZON ANNUAL REPORT 2015–16 Tax
Underlying income tax expense for FY2016
was $211m. The underlying effective tax rate¹
for FY2016 was 29.3%. The underlying cash tax
rate² for FY2016 was 18.6% which is less than
30% primarily due to accelerated fixed asset
related adjustments.
The underlying effective tax rate for FY2017 is
expected to be in the range of 28-30% and the
underlying cash tax rate is expected to be in
the range of 17-22%.
Statutory income tax expense for FY2016 was
$121m. The statutory effective tax rate was
62.1%, due to the tax treatment of the Aquila
impairment. No deferred tax benefit has been
recognised in relation to the impairment of the
Aquila investment, however the impairment
loss for tax purposes will be recognised as a
deferred tax asset when Aurizon disposes of its
interest in Aquila.
Cash flow movements
Net cash inflow from operating activities
decreased by $298m (20%) to $1,218m largely
due to:
› $92m reduction in underlying EBITDA and an
increase in working capital relating to lower
employee related provisions
› $142m increase in income taxes paid due to
lower taxes payable in FY2015
Net cash outflow from investing activities
decreased by $421m (36%) to $740m, largely
due to:
› $327m decrease in capital expenditure
› $214m decrease in investments in associates,
reflecting the Aquila acquisition in FY2015,
partly offset by
› $132m reduction in proceeds on sale
of assets
Net cash outflow from financing activities
increased by $78m to $580m, with a $339m
increase in borrowings, an increase of $274m
for share buy-back and share based payments,
and a $133m increase in dividend payments in
the year.
Share buy-back
Since the commencement of the on-market
buy-back program, the company has acquired
85.5m shares at a total consideration of
$370m of which 70.3m shares were acquired
at a total consideration of $301m during
FY2016. The share buyback has been stopped
to manage near term balance sheet capacity
for possible growth opportunities, noting also
that free cash flow is expected to increase
significantly during the next few years as
capex is reduced and additional transformation
savings are realised.
Funding
During the period the Group continued to
focus on diversifying funding sources and
lengthening tenor through the following
funding activities:
› Re-priced and extended the existing Aurizon
Network $490m bank debt facility in
December 2015, with maturity extended to
FY2022
› Re-priced and extended the existing Aurizon
Finance $300m bank debt facility in April
2016, with maturity extended to FY2021 and
tranche size increased to $500m
› Aurizon Network issued its second bond in
the European debt capital markets, with a
10 year Euro 500m EMTN priced in May 2016
with a coupon of 3.125% per annum. After
swapping into A$, proceeds were used to
partially repay existing bank debt maturing
in FY2019
In respect of FY2016:
› Interest cost on drawn debt is now 4.7%
(FY2015 - 4.9%)
› Liquidity as at 30 June 2016 was $0.7bn
(undrawn facilities plus cash)
› Weighted average debt maturity profile
average tenor increased to 5.8 years
(FY2015 - 4.3 years)
› Approximately 64% of interest rate exposure
is fixed to align with the Below Rail
regulatory period
1 Underlying effective tax rate = income tax expense excluding the impact of significant items/underlying consolidated profit before tax
2 Underlying cash tax rate = cash tax payable excluding the impact of significant items/underlying consolidated profit before tax
DIRECTORS’ REPORT
13
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Segment review
Above Rail summary
‘Above Rail’ combines the Commercial & Marketing and Operations functions and represents the haulage operations for Aurizon’s Coal, Freight and
Iron Ore customers. It also includes an allocation of attributable corporate costs.
($M)
Total Revenue
Coal
Above Rail
Track Access¹
Freight
Iron Ore
Other
Operating Costs
Employee benefits expense
Energy and fuel
Track Access
Consumables
Other expenses
EBITDA
Depreciation and amortisation expense
Underlying EBIT
FY2016
FY2015
VARIANCE %
3,146
1,881
1,147
734
739
311
215
(2,413)
(739)
(120)
(1,016)
(501)
(37)
733
(298)
435
3,483
1,894
1,187
707
919
338
332
(2,631)
(834)
(184)
(973)
(633)
(7)
852
(300)
552
(10%)
(1%)
(3%)
4%
(20%)
(8%)
(35%)
8%
11%
35%
(4%)
21%
-
(14%)
1%
(21%)
1 An amount equivalent to Track Access revenue is included in Operations’ costs, reflecting the pass through nature of access tariffs
ABOVE RAIL REVENUE METRICS
($M)
Coal
Total tonnes hauled (m)
Queensland
NSW
% Volumes under new form contracts
Contract utilisation
Total NTK (bn)
Queensland
NSW
Average haul length (km)
Total revenue/NTK ($/’000 NTK)
Above rail revenue/NTK ($/’000 NTK)
Freight
Total tonnes hauled (m)
Total NTK (bn)
Total revenue/NTK ($/’000 NTK)
Total Intermodal TEUs (‘000)
Iron Ore
Total tonnes hauled (m)
Contract utilisation
Total NTK (bn)
Average haul length (km)
Total revenue/NTK ($/’000 NTK)
14
FY2016
FY2015
VARIANCE %
206.8
163.0
43.8
79%
92%
49.7
41.4
8.3
240
37.8
23.0
40.4
12.3
60.1
372.6
23.7
101%
9.6
382
32.4
211.2
168.3
42.9
64%
92%
49.1
42.0
7.1
233
38.6
24.2
44.4
12.9
71.2
372.0
25.6
106%
10.4
405
32.5
(2%)
(3%)
2%
15ppt
-
1%
(1%)
17%
3%
(2%)
(5%)
(9%)
(5%)
(16%)
-
(7%)
(5ppt)
(8%)
(6%)
-
AURIZON ANNUAL REPORT 2015–16 Above Rail performance overview
Revenue declined 10% ($337m) partly due
to a 4% decline in volumes. Freight was
down $180m (20%) as a result of lower TSC
payments ($70m), the sale of CRT ($38m) and
lower Bulk volumes, while Iron Ore revenues
were down $27m due to lower volumes. Coal
revenues declined $13m (1%) as a result of
2% lower volumes, which was partly offset by
higher track access revenue. Revenue across
all commodity groups was impacted by $53m
due to lower fuel revenue (pass through) as a
result of the decline in fuel price. Other revenue
declined $117m (35%) due to the end of the
QR maintenance contract ($60m), lower non-
core maintenance revenue (including internal
services to Below Rail), and lower asset sales.
Coal volumes were down 4.4mt or 2% to
206.8mt. Queensland volumes were down 3%
at 163mt reflecting the 1HFY2016 ramp-up of
BMA Rail, with volumes stable in 2HFY2016.
NSW volumes were 2% higher at 43.8mt
reflecting the ramp-up of the Whitehaven
contract. Coal volumes hauled under new form
contracts increased 15ppts to 79%, reflecting
the commencement of the BMA Blackwater
contracts and early conversion of the Anglo
Dawson contract. Coal above rail revenue
per NTK was 5% lower due to a reduction in
incentives from customers actively managing
their contracts, a reduction in fuel revenue
and a change in customer mix. Excluding
the impact of fuel (pass through), above rail
revenue per NTK was down 3%.
Despite the challenging macro environment,
Aurizon’s coal business remains resilient with
investment grade counterparties comprising
62% of Above Rail FY2016 volumes and
a weighted average remaining contract
length as at 30 June 2016 of 10.5 years. No
material haulage contracts are due to expire
until FY2022.
Freight volumes declined 4mt or 9% to 40.4mt
with Bulk volumes down 8% and Intermodal
volumes down 24% partly due to the CRT
disposal. Twenty-Foot Equivalent Units (TEUs)
were flat for the year as they are not impacted
by the CRT disposal. Bulk volumes were
impacted by the closure of QNI and lower
mineral volumes, reflecting the challenging
commodity price environment, as well as
lower agricultural throughput, particularly
wheat and livestock. Freight revenue per NTK
declined 16% due to the impact of lower TSC
payments, the sale of CRT and a reduction in
fuel revenue and the impact of challenging
market conditions on customer health and new
contract pricing.
Iron Ore volumes declined 1.9mt or 7%, due to
lower production from Karara and the end of
the Mineral Resources contract in FY2015.
Above Rail underlying EBIT decreased $117m
(21%) to $435m, with the revenue decline offset
by a $218m (8%) reduction in operating costs.
This reduction in operating costs was driven
primarily by $123m of transformation benefits
($110m in Operations and $13m allocated from
Support functions), the impact of CRT, QR and
lower non-core maintenance services and lower
fuel costs due to a $54m reduction in average
fuel price. Excluding the impact of CRT, TSC
and QR maintenance, underlying EBIT was
down 6%.
Underlying EBIT also included a $20m bad
debt provision for QNI, as well as the impact
from the 4% wage uplift from the new
Enterprise Agreements.
The operational transformation program
continues to drive efficiencies, with
improvements in all key operating metrics
including a 7% improvement in net opex/NTK
(excluding access) and a 7% improvement
in labour productivity. A detailed analysis of
operating metrics is provided on page 16.
Market update
Coal
As at July 2016, Aurizon estimates that 90%
of volume hauled by Aurizon is sold on a cash
positive basis, an improvement of 16ppts from
December 2015. Market conditions showed some
improvement in the second half as coal prices
improved, customers continued to lower unit
costs and supply chain efficiencies were realised.
Contract update
There are no material haulage contracts due to
expire until FY2022, with the weighted average
remaining contract length as at 30 June 2016
now 10.5 years (QLD 10.6, NSW 10.2). 79% of
volumes railed in FY2016 were under new form
contracts, with 96% of contracts expected to
be new form by FY2018 (based on contracted
volumes). Developments include:
› A seven year contract extension with BHP
Billiton for its Mt Arthur Coal mine in the
Hunter Valley to June 2028. The contract
allows for volumes of up to 26mtpa
(currently 18mtpa) and delivers a modern
and flexible agreement for both parties
› A new agreement with Syntech Resources
extends our relationship with the Yancoal-
operated Cameby Downs mine by up to four
years with volumes of 1.7mtpa. An extension
at the Yancoal-owned Duralie mine sees the
contract extended for a further 1.5 years for
up to 2.6mtpa
› Sojitz Minerva extended its coal haulage
agreement of 2.4mtpa for up to five years
› A short-term contract renewal was executed
with Vale for the Carborough Downs coal
mine through to June 2017. Volumes of up to
1.8mt will be hauled during the term, which
commenced in July 2016
› The new long-term performance-based
contract with BMA/BMC (signed in March
2013) commenced on 1 July 2016 for the
Goonyella corridor mines, representing
approximately two thirds of the BMA/BMC
portfolio volumes. The Blackwater corridor
mines commenced under this new form
contract on 1 July 2015, with the overall
agreement extending for up to 12 years from
the previous legacy agreement
Freight
Aurizon’s Freight business includes haulage
of bulk commodities including base metals,
minerals, grains and livestock in Queensland,
New South Wales (East) and Western Australia
(West) and Intermodal containerised freight
and logistical solutions across Australia.
Commodity prices continue to be depressed
for a number of commodities that Aurizon
hauls and with increased competition from
surplus road capacity, market conditions
remain challenging. Despite a 20% reduction
in operating costs over the last two years,
a 28% reduction in revenue over the same
period has resulted in an EBIT loss for the
year, and a performance review is underway to
determine options to achieve appropriate risk
adjusted returns for both Bulk and Intermodal.
Bulk
The Company’s focus has been on ensuring
the sustainability of Aurizon’s operations by
securing contracts that support freighter
services in addition to the continued drive for
transformation of the cost base and improved
operational efficiency. A number of new
contracts were executed during FY2016:
› Five year contract with Australian Gold
Reagents (AGR), a joint venture between
CSBP and Coogee Chemicals
› Five year agreement with Cockburn Cement
Limited (CCL) for their lime and cement
volumes into the Goldfields
› Five year contract with BHP Billiton Nickel
West (NiW), where Aurizon has taken on an
additional road haulage and silo operation
and maintenance activities, in addition to
existing rail haulage
› Five year contract for pit-to-port services
with Lynas, who mine a world-class rare
earths deposit near Laverton in the north-
east Goldfields
DIRECTORS’ REPORT
15
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Intermodal
While conditions in the Queensland market remain difficult there was solid growth through the Melbourne to Brisbane rail corridor, with volume growth
of 9% driven by improvement in customer service and on time performance. In June 2016 Aurizon established a new intermodal terminal at Enfield in
Sydney which improves the national footprint and service offering and provides an opportunity to grow volumes to and from Sydney. While overall
volumes were lower, they were stable on a TEU basis.
Iron Ore
Aurizon continued to support the long-term viability of its Iron Ore customers by driving efficiencies in the supply chain to optimise throughput during
challenging market conditions, including a mutually beneficial contract adjustment with Karara. Aurizon hauled 23.7mt during FY2016, with record
tonnes for Mount Gibson’s Extension Hill operations. Cliffs volumes were marginally lower and volumes for Karara were down as they transitioned to
100% magnetite production with Direct Shipping Ore (DSO) mining ceasing during the December quarter.
Operations transformation update
OPERATING METRICS
($M)
Net opex¹/NTK ($/’000 NTK)
Operations net opex²/NTK (excluding access) ($/’000 NTK)
Total tonnes hauled (m)
Net tonne kilometers – NTK (bn)
FTE (monthly average)
Labour productivity (NTK/FTE)
Loco productivity (‘000 NTK/Active loco day³)
Active locos (as at 30 June)
Wagon productivity (‘000 NTK/Active wagon day³)
Active wagons (as at 30 June)
National Payload (tonnes)
Velocity (km/hr⁴)
Fuel consumption (l/d GTK)
FY2016
FY2015
VARIANCE %
34.1
19.9
270.9
71.6
5,013
14.3
375.7
508
14.7
13,008
4,659
29.8
3.10
34.9
21.5
281.2
72.4
5,403
13.4
339.5
567
14.3
13,960
4,538
29.5
3.19
2%
7%
(4%)
(1%)
7%
7%
11%
10%
3%
7%
3%
1%
3%
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 For FY2016, the calculation basis for NTK/active loco and NTK/active wagon has changed to be calculated on a per day basis from a monthly basis, as it allows for a
more accurate comparison between different time periods and will no longer be influenced by the number of days in a month (i.e. short months to long months)
4 As average turnaround time can be influenced by the mix of hauls and mine/port combinations, in FY2016 Aurizon transitioned to report velocity (train speed)
Transformation initiatives
Continued focus on productivity improvements
through the transformation program resulted
in improvements to all key operating
metrics, despite the reduction in volumes.
These programs delivered $123m in gross
transformation benefits in FY2016 and a 7%
improvement in Net opex per NTK (excluding
access charges).
Workforce
Operations continued to drive productivity
with a 7% reduction in FTE compared to
FY2015, leading to a 7% improvement in
labour productivity.
Labour productivity improvements have
been achieved under the two new Enterprise
Agreements executed in 1HFY2016 for
Queensland operational staff, with full ramp
of benefits expected over the next two years.
These improvements have been achieved
through improved flexibility and an ability to
align resources with demand through tools
such as:
› Ability to direct crew on leave through
periods of low demand
› Demarcation of roles
› Removal of the no forced redundancy clause
to enable Operations to react more quickly
to market downturns
› Improved day of operations rostering
flexibility through lift up and lay
back provisions
Benefits delivered to date include:
› Reduction in overtime spend for train
crew (23% Queensland, 17% nationally)
and maintenance workers (23%) compared
to FY2015
› 10% improvement in annual leave
management
› Reduction in train crew cancellations in
Queensland (5%) and nationally (3%)
› 9% reduction in hours spent transferring train
crew by car to train location
16
AURIZON ANNUAL REPORT 2015–16
Capital programs
In addition to productivity improvement
programs, Operations have focused on the
delivery of its key capital programs:
› Continued deployment of the Freight
Management Transformation (FMT)
program, with the delivery of re-engineered
customer ordering, pricing and invoicing
functions, as well as enhanced reporting and
analytics tools
› Implementation and roll out of Shopfloor, a
SAP standardised system for maintenance
management across all maintenance depots,
delivering consistent, integrated and
efficient business processes and improving
information quality and analytics
› Relocation of Intermodal operations in
Sydney from Yennora to Enfield, to enable
growth opportunities in the interstate
business and to take advantage of Port
shuttle services
› Consolidation of the Intermodal operations
terminal into Stuart, allowing the closure of
the South Townsville facility and enabling
significant operational efficiencies, FTE
reductions and safety improvements
Further efficiencies will be realised in 1HFY2017
through a reduction of management positions
and flattening of the leadership structure
across Operations, together with proposals to
better align labour resources across Operations
and the Below Rail business. These include:
› The proposed reduction of approximately
120 leadership positions in Operations,
representing approximately 20% of
management roles. This is primarily middle
and senior management, aiming to simplify
and improve service delivery and ensure
accountability at the regional level
› The realignment of resources with forecast
demand through the introduction of
efficient work practices and new technology
and revised work processes to reduce
approximately 180 roles. The initiatives
cover train crewing and yard operations,
maintenance depots, and infrastructure
production and maintenance
Fleet productivity
Locomotive and wagon productivity improved
11% and 3% respectively compared to FY2015.
Benefits realised include a 3% increase in
national payloads through longer, heavier
trains, and a 1% improvement in average
velocity through improvements in train
design, availability and reliability as well as
improvements in Below Rail Performance to
Plan (see Below Rail commentary).
Energy and fuel efficiency
Fuel consumption improved by 3% through
the continual focus on both driver behaviour
programs (supported by improved data
and analytics, for example driver assist
and driver methodology programs) and
technology improvements (for example trip
optimiser). Further savings are expected over
future periods.
Engineering and Maintenance
Engineering and Maintenance continued to
focus on key technology investments to deliver
more efficient and safer operations, combined
with a focus on labour productivity, footprint
consolidation, and the outsourcing of
non-core work.
› The roll out of wayside condition monitoring
(WCM) and on train repair (OTR) programs
continued across key yards in Central
Queensland and Hexham in Newcastle.
WCM has now been implemented across
all four CQCN systems, while OTR has been
implemented in Jilalan, Blackwater and
Hexham, with Pring to come in 1HFY2017.
This program has continued to deliver
significant maintenance savings including:
• Reduction in both planned and unplanned
maintenance interventions
• Extension of planned inspection and
maintenance events for coal wagons;
reliability examinations on 106T coal
wagons have been extended from
21 days to 42 days in the Goonyella and
Blackwater systems, while L1 inspections
on these wagons now occur every
two years, rather than annually
• Reduction in wheel consumption, with
consumption in Central Queensland down
51% in FY2016 relative to FY2015
• Significant reduction in serious
operational events such as a 77%
reduction in train partings
› In August 2016 Aurizon entered into a
long-term maintenance and parts supply
agreement with Progress Rail Services,
a global locomotive original equipment
manufacturer (OEM), to out-source non-core
maintenance work. This will be undertaken
at the workshop facilities at Redbank. This
agreement will deliver significant cost
savings and productivity enhancements over
the term of the contract, which runs until
October 2024
› Engineering and Maintenance continued to
consolidate its maintenance footprint and
focus on rightsizing the labour force. During
FY2016 the Rockhampton Locomotive Depot
and Townsville Heavy Maintenance facility
were both closed, with work consolidated
into other workshops and depots, while
headcount within the division reduced 20%
to 1,168 FTE
DIRECTORS’ REPORT
17
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Below Rail
Below Rail refers to Aurizon’s Network business which operates the 2,670km Central Queensland Coal Network (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 (Moura, Blackwater, Goonyella and Newlands) and a connecting link to GAPE.
BELOW RAIL FINANCIAL SUMMARY
($M)
Total revenue
Access
Services and Other
Operating costs
Employee benefits expense
Energy and fuel
Consumables
Other expenses
EBITDA
EBITDA margin
Depreciation and amortisation expense
Underlying EBIT
Operating ratio
BELOW RAIL OPERATING METRICS
($M)
Tonnes (m)
NTK (bn)
Access revenue/NTK ($/’000 NTK)
Maintenance/NTK ($/’000 NTK)
Maintenance/NTK ($/’000 NTK) (excluding rail renewals)
Opex/NTK ($/’000 NTK)
FY2016
FY2015
VARIANCE %
1,179
1,136
43
(415)
(117)
(125)
(147)
(26)
764
64.8%
(258)
506
57.1%
FY2016
225.9
57.1
19.9
2.7
2.2
11.8
1,108
1,048
60
(409)
(121)
(107)
(165)
(16)
699
63.1%
(215)
484
56.3%
6%
8%
(28%)
(1%)
3%
(17%)
11%
(63%)
9%
1.7ppt
(20%)
5%
(0.8ppt)
FY2015
VARIANCE %
225.7
56.2
18.6
2.5
2.1
11.1
-
2%
7%
(8%)
(5%)
(6%)
Below Rail performance overview
Revenue increased $71m (6%) due to regulatory revenue being recognised and aligned to the May 2016 DAAU approved by the Queensland
Competition Authority (QCA) on 23 June 2016. The May 2016 DAAU FY2016 tariffs closely align to the tariffs implicit in Final Decision for UT4 (FD)
issued by the QCA in April 2016 aside from revenues attributable to the regulatory revenue shortfall in FY2014 and FY2015, which have been excluded
from these tariffs. Aurizon Network expects the final UT4 FY2017 tariffs will recover these regulatory revenue shortfalls through the inclusion of
approximately $73m of revenue true ups.
Volumes increased 0.2mt to 225.9mt establishing a new CQCN record, principally due to improvement from the Goonyella System whilst the volumes
from the Blackwater and Moura systems reduced in line with the increase in Wiggins Island Rail Project (WIRP) tonnages. Record monthly volumes
were achieved in seven of the twelve months, with June 2016 establishing an all-time monthly record. Performance to Plan improved 2.9ppts to
92.1% underpinned by successful execution of transformation initiatives which resulted in reduced speed restrictions, delays and Below Rail caused
cancellations. The increase in NTKs (2%) primarily reflects longer average haul lengths.
Underlying EBIT increased $22m (5%) to $506m in 2016, with the increased revenues partly offset by higher depreciation.
18
AURIZON ANNUAL REPORT 2015–16 Operating costs were broadly flat with higher
fuel and energy costs from an increase in
electricity prices offset by lower costs from the
capitalisation of rail renewals. During FY2016
the accounting policy for Rail Renewals was
changed to capitalise rail renewal spend, as
proposed by the QCA under UT4. While this
change resulted in a $12m net reduction in
operating costs (from lower consumables and
labour only partly offset by losses on asset
disposal and higher depreciation) there is
a lower regulatory revenue allocation of an
equivalent amount. This change has the effect
of Rail Renewal spend being recovered over
a longer period on a Net Present Value (NPV)
neutral basis.
Depreciation increased $43m reflecting the
capitalisation of rail renewals, increased
ballast undercutting and the completion of the
$0.9bn WIRP during the year. The final stage
commissioned in December 2015, creating
27mt of additional capacity through the Moura
and Blackwater systems to the Wiggins Island
Coal Export Terminal (WICET).
The QCA Regulated Asset Base (RAB)
roll-forward1 value is estimated to be $5.6bn2
(excluding AFDs of $0.4bn) by the end
of FY2016, inclusive of $0.6bn in WIRP,
representing an 81% increase since IPO. The
QCA has currently chosen to defer $260m of
the WIRP capital.
Below Rail operational update
Performance:
The Below Rail business set a number of
operational and performance records in the
delivery of a new railings record of 225.9mt and
a 2% increase in NTKs for FY2016, highlighting
the efficiency of Below Rail planning and
scheduling as well as the maintenance
program. Highlights include:
› 2.9ppts improvement in the key metric
‘performance to plan’ (number of
scheduled services that arrived on target at
their destination)
› 62% reduction in the number of train
cancellations from below rail causes over the
four year period FY2013-FY2016 against a
24% increase in railings
› 6.0% reduction in Below Rail delay impact
› 2.4% increase in cycle velocity
› 0.7% reduction in system closure hours
and a 35% reduction in Below Rail
cancellation impact
Transformation initiatives:
› Installation of Wheel Impact Load Detectors
in the Goonyella and Blackwater systems
which resulted in significant reductions in
rail high alarms and medium defects. This
information is immediately provided to above
rail operators enabling them to proactively
manage their wheel maintenance and
mitigating derailments due to wheel failures
› Improved rail lubrication strategy and a focus
on rail stressing and welding which has led
to material improvements in key rail health
measures, including an 85% reduction in rail
weld defects and a 33% reduction in track
buckles from FY2015
› The first stage of the Network Asset
Management System (NAMS) is being rolled
out across the business with completion of
Stage 1 expected in 1HFY2017. NAMS will
deliver a new generation asset management
system enabling a more efficient and
effective maintenance and renewal regime,
which will underpin enhanced reliability and
availability of the CQCN
› The Possession Alignment & Capacity
Evaluation (PACE) project, a software
application to optimise network closure
regimes, reached practical completion in
June 2016. PACE will allow Network to fully
design, test and evaluate the requirements
for network outages and provide multiple
strategies for track access. This project is
the catalyst to redesign the Maintenance
Access Regime and Closure plan for FY2017,
resulting in a reduction of 12% in system
closure hours
› Roll out of Movement Planner, part of the
APEX (Advanced Planning and Execution)
program will be finalised in 1HFY2017. This
technology provides real time, predictive
data to train controllers to enable optimised
train movements
Sustaining capital
During FY2016 75kms of rail renewals was
executed, an increase of 29kms (63%) from
FY2015, primarily targeting the replacement of
rail in the Goonyella and Blackwater systems.
This rail was installed in the 1980s and is
coming to the end of its operating life.
Access Undertaking 2013 (UT4)
› The QCA released the FD for UT4 on
28 April 2016
› To ensure that FY2016 regulatory tariffs were
finalised and FY2017 regulatory tariffs were
in place over the interim period until UT4
takes effect, Aurizon Network consulted
with customers and lodged a May 2016
Draft Amending Access Undertaking (May
DAAU). The QCA approved the May DAAU
on 23 June 2016 and it will remain in place
until the earlier of approval by the QCA of
Aurizon Network’s UT4 Access Undertaking
or 30 September 2016. The tariffs embedded
in the May DAAU align with the final decision
tariffs aside from the FY2014 and FY2015
true-ups which have been entirely allocated
to FY2017 regulatory tariffs
Access Undertaking 2017 (UT5)
› On 11 May 2016, the QCA issued an initial
undertaking notice to Aurizon Network
requiring the submission of a draft access
undertaking (DAU) known as UT5 to the
QCA by 9 September 2016 for the period
commencing 1 July 2017 to 30 June 2021
Wiggins Island Rail Project (WIRP)
› In the UT4 FD, the QCA has applied a
revenue deferral for WIRP customers who
are not expected to rail during the FY2014 to
FY2017 regulatory period
› WIRP regulatory revenues remain socialised
within the existing Blackwater and
Moura systems
› The revenue deferral has been achieved
through deferring the inclusion of
approximately $260m in WIRP capex for
pricing purposes, which aligns with the non-
railing customers’ share of the WIRP capex.
The QCA has stated that the revenue deferral
is enacted on a NPV neutral basis
› As the railings increase Aurizon Network
can seek QCA approval to earn a regulatory
return on the deferred RAB
› Aurizon Network still maintains its position
that the notices issued by the WIRP
customers in relation to the commercial
fee are not valid. Regrettably, discussions
with the customers did not produce a
resolution and on 17 March 2016 Aurizon
issued proceedings in the Supreme Court
of Queensland to assert its rights under
the Project Deeds
1 The RAB roll-forward value may include items on which regulatory revenues has been deferred for pricing purposes
2 Estimate subject to QCA Approval of RAB roll-forward and approval of FY2016 Capital Claim
DIRECTORS’ REPORT
19
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Other
Other includes miscellaneous activities such as non-rollingstock asset sales and corporate
overheads that have not been allocated to the Below Rail or the Above Rail businesses. The
percentage of support costs allocated to these functions in FY2016 was 73% (FY2015 70%).
OTHER SUMMARY
($M)
Total revenue
Operating costs
Employee benefits expense
Consumables
Other expenses
EBITDA
Depreciation and amortisation expense
Underlying EBIT
Support functions performance overview
The corporate support functions continue to
deliver transformation initiatives, with a further
$21m in savings achieved in FY2016.
› $13m improvement in labour productivity
from a net 16% reduction in FTEs since
30 June 2015
› $8m reduction in discretionary spend
including professional services
Note: $13m of the Support transformation
benefits above have been allocated to
Above Rail, consistent with the allocation of
corporate overheads.
FY2016
FY2015
VARIANCE %
15
(80)
(35)
(35)
(10)
(65)
(5)
(70)
46
(108)
(54)
(25)
(29)
(62)
(4)
(66)
(67%)
26%
35%
(40%)
66%
(5%)
(25%)
(6%)
The Support functions remain focussed on
achieving transformation targets by continuing
efforts in the following activities:
› Further reduction in FTEs
› Reduction in layers and increases in
spans of control across support functions,
including the merging of four functions into
two and the reduction of two Executive
Vice President (EVP) and other senior
management roles
› Ongoing consolidation and rationalisation
of the property portfolio
› Process and resourcing efficiencies driven
through investment in technology
Unallocated Support Costs Variance Analysis
Underlying EBIT decreased $4m (6%) to
($70m) due to:
› $31m decrease in revenue, due primarily
to lower asset sales with the Redbank sale
completed in FY2015 ($43m)
› $28m net decrease in operating costs due to:
• $19m reduction in employee costs from
16% reduction in FTEs and lower bonuses
• $9m lower costs including a reduction in
Strategy & Business Development (S&BD)
project spend
20
AURIZON ANNUAL REPORT 2015–16 OTHER ACTIVITIES
Senior Management changes
On 4 July 2016 Aurizon announced that four
EVP roles would be merged into two, with
the Commercial and Marketing function to
be combined with Strategy and Business
Development (effective immediately), and
Human Resources combined with Enterprise
Services (effective end of calendar year 2016).
The merging of functions and reduction in
senior management will help to deliver greater
efficiencies in Aurizon’s drive to continued
improvement in financial performance.
As a result of these changes:
› EVP Commercial and Marketing Mauro Neves
will lead the new Customer and Strategy
Function and will assume the responsibilities
of both existing functions. David Welch, the
current Acting EVP for Strategy and Business
Development will report into Mauro as Vice
President Market Development
› EVP Enterprise Services Jennifer Purdie left
Aurizon at the end of July 2016, and EVP
Human Resources John Stephens will depart
at the end of calendar year 2016. During the
transition to the new structure, Steve Mann
will act in the role of EVP Enterprise Services.
A recruitment search, including internal
candidates, will be undertaken for the new
role leading the merged function
As previously advised, Mike Franczak departed
the company in March 2016. Michael Carter
continues to act as EVP Operations while a
global recruitment process, including internal
candidates, is undertaken to fill this role.
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. The
Board has full confidence in the management
of Aurizon’s key risks and acknowledges that
internal and external factors can influence
financial results.
The most significant factors relating to future
financial performance are:
Product demand, commodity prices and
general economic conditions
Aurizon’s customers in core markets are
reliant on demand from large export markets
such as Japan, China, South Korea and India.
Fluctuations in demand in turn impacts
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 volumes, contract
profitability and growth that have been
experienced in the recent past.
Customer credit risk
Aurizon’s earnings are concentrated in
commodity markets across a relatively small
number of customers. Issues relating to
deterioration in counterparty credit quality
and/or mine profitability, contract renewals,
supply chain disruptions or macro-industry
issues may have a material adverse impact on
Aurizon’s financial performance.
Capital expenditure plans
When deciding which opportunities for
expansion and improvement to pursue, Aurizon
must predict the rate of return associated with
each project. Calculations are based on certain
estimates and assumptions that may not be
realised. Accordingly, the calculation of a
potential rate of return may not be reflective of
the actual returns.
Asset impairment
Aurizon’s assets are subject to impairment
testing each year. With a large portfolio of
fixed assets, there is the potential that reduced
haulage volumes or continued improvements
to asset productivity may require some assets
to be impaired.
WIRP non-regulated revenue dispute
Aurizon has received notices from seven
WIRP customers purporting to exercise a
right under the relevant agreements to reduce
their financial exposure in respect to the
non-regulated revenue component. Aurizon
issued proceedings in the Supreme Court of
Queensland to assert its contractual rights
under the Project Deeds.
Aurizon credit rating
Aurizon’s increased business risk profile, as a
result of its significant exposure to coal and
iron ore, combined with the related increase
in Aurizon’s customer credit risk profile, could
adversely impact Aurizon’s credit rating.
The implications of a lower credit rating are
increased cost of borrowing and in addition it
may impact on the ability to borrow additional
debt or refinance existing debt.
Delivery of technology transformation projects
Aurizon is investing in important operational
and information technology programs that are
expected to deliver step change improvements
in efficiency leading to reduced costs.
Continued focus is required on these projects
to ensure benefits are delivered and flow
through to support cost-out targets.
Regulatory risk of the Access
Undertaking (UT5)
Aurizon continues to work with the QCA and
industry stakeholders to secure acceptable
and sustainable 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. In particular
Aurizon Network’s Maximum Allowable revenue
(MAR) and the nominal (vanilla) Weighted
Average Cost of Capital (WACC) used in
deriving Aurizon Network’s MAR is typically
reset every four years as part of the access
undertaking approval process with the QCA
and the reference tariffs are reset annually
based on projected system volumes and other
variables. The WACC decided by the QCA may
not adequately compensate Aurizon Network
for its business and operational risks which
could lead to a material adverse impact on
the Aurizon Network business, operational
performance and financial results.
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
21
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Organisational capability
To support our transformation opportunities
Aurizon is growing the capability of its people
through leadership, people-centred change
and diversity and inclusion.
Aurizon continues to recognise the importance
of building a diverse workforce, knowing
it will deliver organisational performance
outcomes as well as meet important social
responsibilities. Aurizon has met a number of
targets which support the achievement of our
ambitious target of 30% women by the end of
the decade.
Overall in FY2016 we improved the percentage
of women in the workforce from 15.2% to
17.4% at 30 June 2016 (the largest single year
increase since we started our diversity journey),
while the percentage of Indigenous employees
increased from 3.1% to 4.1%. FY2016 gender and
cultural diversity achievements include:
› 3 out of 8 (38%) female Non-Executive
Directors as of 25 July 2016 (against a target
of at least one)
› 17.4% women in Aurizon (target 17%)
› 31.6% women in the Management Leadership
Team (target 31%)
› 63% women in trainee, apprentice and
graduate intakes (target 60%)
› Recruitment of 51 Indigenous employees
(target 33)
Competitor activity and customer contracts
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, carbon
reduction, 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 profitability and business in general
as well as Aurizon’s customers.
Sustainability
Aurizon is committed to building a long-term
sustainable business that delivers lasting value
for its shareholders, customers, employees
and communities. In November 2015, Aurizon
released its second Sustainability Report,
Delivering for the Long Haul. Please refer
to www.aurizon.com.au/sustainability for
a detailed analysis of material sustainability
priorities. Aurizon’s 2016 Sustainability Report
is intended to be released in October 2016.
Central to the reporting process is the process
the Global Reporting Initiatives (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 ensured
another period of sustained focus on improving
Aurizon’s performance. At 30 June 2016,
Aurizon’s Lost Time Injury Frequency Rate
(LTIFR) was ZERO. The Total Recordable
Injury Frequency Rate (TRIFR) was 4.24, a 76%
deterioration on FY2015.
Aurizon remains committed to ZEROHarm with
significant focus on line management visibility
through Safety Pauses, Safety Interactions,
Efficiency Testing, High Consequence Activity
monitoring, and intensifying the STOP, Take
Time & Switch On safety initiative. Aurizon
is also enhancing its efforts on integrating
robust safety controls by improving the work
processes through the use of technology,
standardisation and lean principles.
FY2016 key enterprise milestones include:
› Achieving a Lost Time Injury free financial
year now continuous since November 2014
› Winning the Regional Asia Pacific Award for
Excellence in Safety in the DuPont Global
Safety & Sustainability Awards. The DuPont
awards are arguably the most prestigious
and recognised safety awards in the world.
This award recognises companies with the
most significant, innovative safety projects
that deliver sustained and substantial safety
improvements. It is an acknowledgement
that our safety performance and culture are
considered to be amongst the world’s best
› Record low Running Line Derailment rate
of 0.32
Environmental management
Aurizon has continued to focus on delivering
environmental value through superior
environmental performance. This has
included setting a five year greenhouse gas
(GHG) emissions intensity target for the
organisation’s locomotive fleet. The target
covers approximately 90% of Aurizon’s Scope
1 and Scope 2 emissions with the organisation
aiming to achieve a 15% GHG reduction in our
locomotive fleet by 2020 from a 2015 baseline.
Aurizon has also undertaken a detailed
sensitivity analysis to understand exposure
to the Emissions Reduction Fund Safeguard
Mechanism, which has been introduced by
the Federal Government and commences
on 1 July 2016, to ensure Aurizon is able to
demonstrate compliance.
Aurizon’s Environment Community of
Competence continues to govern the
management of key environmental issues
including coal dust, diesel emissions and the
Safeguard Mechanism.
22
AURIZON ANNUAL REPORT 2015–16 Directors’ Report (continued)
REMUNERATION REPORT
Dear Fellow Shareholders,
On behalf of the Board, we are pleased to present Aurizon’s Financial Year (FY) 2016 Remuneration Report.
The past 12 months have been challenging for Aurizon. The tough environment for our customers impacted earnings and, despite the
transformation program delivering a further $131 million in sustainable cost savings and operating efficiencies, Underlying Earnings Before
Interest and Tax (EBIT) deteriorated in FY2016.
Earnings were further affected by the impairments announced in FY2016, writing off $528 million on the West Pilbara and other strategic projects
and on further rollingstock rationalisation. On the other hand, Aurizon has reached many milestones this year including a Lost Time Injury
Frequency Rate of zero.
Consequently, despite continued credible underlying performance, including against several of the Short Term Incentive (STI) Key Performance
Indicators (KPIs), the Board has exercised its discretion and determined not to award any STI to the Managing Director and Chief Executive
Officer (MD & CEO) or to his direct reports for FY2016.
The 2013 Long Term Incentive (LTI) Award was tested in FY2016 and the remaining portion of the relative Total Sharehold Return (TSR)
component of the 2012 Award was retested.
With an Operating Ratio (OR) of 74.8%, that component of the 2013 Award vested to 55% of maximum. Given Aurizon’s earnings performance
over the applicable periods, the Earnings Per Share (EPS) component did not vest. Relative TSR performance was tested over three years for the
2013 Award and four years for the 2012 Award. The relative TSR for the four year period (FY2012-FY2016) against our peer group rated between
the median and top quartile. However, given that the relative TSR was lower than the original performance period (FY2012-FY2015), no portion
of the 2012 relative TSR vested. Relative TSR for the 2013 Award (FY2013-FY2016) did not vest as our performance against our peer group rated
below the median. Those parts of the 2013 Award which did not vest will be subject to a single retest in FY2017.
The Board considers these remuneration outcomes to be reflective of shareholder outcomes.
During the past year we have engaged with stakeholders on executive remuneration and reviewed market practice. Accordingly, the Board has
determined to make several changes going forward to ensure the Remuneration Framework continues to be effective in driving performance and
rewarding the creation of long-term shareholder value.
The changes will begin to take effect from FY2017 and will be reflected in next year’s remuneration report. In summary, the weighting of the LTI
Award within the remuneration mix will be increased, the performance period of the LTI Award will be increased to four years, the portion of the
LTI Award depending on Return on Invested Capital (ROIC) will be increased and retesting will be removed from future LTI Awards.
Having regard to prevailing economic and market conditions and the competitiveness of the Company’s current remuneration levels, the Board
has determined not to increase Fixed Remuneration for the MD & CEO, which will be the fifth year since an increase was awarded.
As always, we are grateful for your ongoing support and we value all feedback. We look forward to welcoming you to our 2016 Annual
General Meeting.
Yours faithfully
Tim Poole
Chairman
Russell R Caplan
Chairman, Remuneration Committee
DIRECTORS’ REPORT
23
Directors’ Report (continued)
REMUNERATION REPORT
1.
Remuneration Report
Introduction
Aurizon’s remuneration practices are aligned
with the Company’s strategy of providing
Executive rewards that drive and reflect the
creation of shareholder value.
The Remuneration Report for the year ended
30 June 2016 is set out as per Table 1. The
information in this Report has been audited.
TABLE 1 – TABLE OF CONTENTS
SECTION CONTENTS
PAGE
1
2
3
4
5
6
7
8
9
10
Remuneration Report
Introduction
Directors and Executives
Remuneration
Framework Components
Company Performance
Financial Year 2016
Take Home Pay
Short Term
Incentive Award
Long Term
Incentive Award
Executive Service
Agreements
Non-Executive Director
Remuneration
Executive Remuneration
Financial Year 2016
24
24
25
27
28
29
30
32
33
34
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 Financial Year
(FY) ended 30 June 2016 are identified in Table 2.
TABLE 2 – KEY MANAGEMENT PERSONNEL
NAME
POSITION
NON–EXECUTIVE DIRECTORS
T M Poole1
R R Caplan
J D Cooper
M A Fraser2
K L Field
S L Lewis
EXECUTIVE KMP
L E Hockridge
M Carter3
A Kummant
K Neate
Chairman, Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Managing Director & Chief Executive Officer
Acting Executive Vice President, Operations
Executive Vice President, Network
Executive Vice President and Chief Financial Officer
M Neves De Moraes
Executive Vice President, Commercial & Marketing
1 T M Poole was appointed a Director on 1 July 2015 and Chairman on 1 September 2015
2 M A Fraser was appointed a Director on 15 February 2016
3 M Carter was appointed Acting Executive Vice President Operations on 1 January 2016
As announced on 9 May 2016, K E Vidgen was appointed a Director of Aurizon and commenced on
25 July 2016.
Table 3 identifies other persons who were KMP at some time during FY2016.
TABLE 3 – FORMER KEY MANAGEMENT PERSONNEL
NAME
POSITION
FORMER NON-EXECUTIVE DIRECTORS
J B Prescott AC1
J Atkin2
G T John AO³
G T Tilbrook⁴
FORMER EXECUTIVE KMP
Chairman, Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
J M Franczak⁵
Executive Vice President, Operations
1 J B Prescott AC ceased in the role on 1 September 2015
2 J Atkin ceased in the role on 12 February 2016
3 G T John ceased in the role on 13 November 2015
4 G T Tilbrook ceased in the role on 12 February 2016
5 J M Franczak ceased in the role on 31 December 2015 and with the Company on 31 March 2016
24
AURIZON ANNUAL REPORT 2015–16
3. Remuneration Framework
Components
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 FY2016 for the Managing Director & Chief
Executive Officer (MD & CEO) and Executive
KMP is set out in Figure 1: Total Potential
Remuneration Financial Year 2016.
From FY2017, new Executive appointments
will have a greater proportion of their total
potential remuneration weighted towards
the LTIA.
Executive Remuneration Governance
Figure 2 represents Aurizon’s Remuneration
Governance Framework. 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 www.aurizon.com.au.
Remuneration Framework and
objectives Financial Year 2016
Figure 3 summarises the Remuneration
Framework and objectives for FY2016.
FIGURE 1 – TOTAL POTENTIAL REMUNERATION FINANCIAL YEAR 20161
MD & CEO: CASH COMPONENT: 54%
EQUITY COMPONENT: 46%
29%
25%
17%
29%
EXECUTIVE KMP: CASH COMPONENT: 58%
EQUITY COMPONENT: 42%
35%
23%
16%
26%
Fixed Remuneration
STIA
Deferred 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
25
Directors’ Report (continued)
REMUNERATION REPORT
FIGURE 3 – REMUNERATION FRAMEWORK AND OBJECTIVES FOR FINANCIAL YEAR 2016
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, 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
› Operating Ratio (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 capability
and experience 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
26
AURIZON ANNUAL REPORT 2015–16
4. Company Performance
Financial Year 2016
Underlying EBIT and Net Profit After Tax
(NPAT) deteriorated in FY2016 reflecting
the operating conditions described in the
Chairman’s letter (page 23) and the impact of
the impairments announced during FY2016.
In spite of the difficult external environment
Aurizon has continued to transform and has
reached many milestones throughout FY2016,
highlights of which include:
› Achieved a Lost Time Injury Frequency Rate
of zero
› Maintained an Operating Ratio (OR) below
75% in a deteriorating environment
› Secured a long-term contract extension with
BHP Billiton for its Mt Arthur coal mine to
June 2028
› Delivered over $131 million in transformation
benefits (cost reductions and efficiency
improvements) and resolved the Enterprise
Agreements which will improve the
momentum of change and transformation
› Commissioned the Wiggins Island Rail
Project (WIRP) and implemented a number
of key operational technology initiatives
including wayside condition monitoring, an
automated advanced scheduling system and
the first stage of the Freight Management
Technology (FMT) project
Further detail related to performance against
the FY2016 STIA performance measures is
provided in Table 5 (page 29) whilst Table 8
(page 31) provides additional information
related to the LTIA performance outcomes.
A key benefit for Aurizon shareholders is the
share price appreciation since IPO. In spite of
the sharp share price decrease immediately
after the impairments were announced
in December 2015, Aurizon continues to
outperform the ASX200. Figure 5 shows the
movement in both the Aurizon share price
and ASX200 index value over the period from
listing date 22 November 2010 to 30 June 2016.
The diagram assumes that a shareholder starts
with an initial investment of $100 in each of
Aurizon and the ASX200 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 $2.45, being the initial retail share price
at listing.
FIGURE 4 – HISTORICAL COMPANY PERFORMANCE
.
0
8
8
.
4
3
8
.
8
9
7
.
7
7
7
.
3
4
7
.
8
4
7
0
7
1 9
5
8
1
7
8
4
5
7
4
8
5
3
8
3
10%
FY11 FY12 FY13 FY14
Operating Ratio (%)
FY15
FY16
FY11 FY12 FY13 FY14
Underlying EBIT ($m)
FY15
FY16
0.5ppt
8
0
3
.
0
4
2
.
5
9
0
.
100%
8
2
0
.
6
1
.
0
0
0
.
4
3
2
2
.
4
1
.
3
1
5
8
5
.
0
8
2
.
1
4
2
.
76%
4
2
4
.
76%
FY12 FY13 FY14
FY11
Lost Time Injury Frequency Rate1
(per million man-hours worked)
FY16
FY15
FY12 FY13 FY14
FY11
Total Recordable Injury Frequency Rate1
(per million man-hours worked)
FY16
FY15
.
2
0
2
.
3
5
2
.
0
3
2
3
.
1
221%
1
.
67
8
-
.
.
4
8
2
.
8
9
1
1
.
8
1
.
4
5
1
8
.
1
1
88%
4
3
.
FY11 FY12 FY13 FY14
FY15
FY16
Total Shareholder Return1 (%)
FY11 FY12 FY13 FY14
Basic Earnings per Share (cents)
FY15
FY16
.
0
4
2
.
6
4
2
.
5
6
3 1
2
1
.
.
3
8
.
7
3
7
8 9
.
0 8
.
.
7 8
6
.
4
4
.
6
8
.
1.1ppt
FY11 FY12 FY13 FY14
Total Dividend per Share (cents)
FY15
FY16
FY11 FY12 FY13 FY14
FY15
Return on Invested Capital (%)
FY16
3%
1 Unaudited
FIGURE 5 – INVESTMENT RETURN FROM AURIZON HOLDINGS (AZJ)
AND ASX200 ACCUMULATION INDEX (22 NOVEMBER 2010 TO 30 JUNE 2016)
$211
$145
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 22/11/15 22/05/16
Aurizon
ASX200 Accumulation Index
DIRECTORS’ REPORT
27
Total Shareholder Return - Aurizon vs S&P/ASX200 Index
$217
$217
$144
$144
11/22/2010
22/11/10
22/11/10
4/22/2011
22/05/11
22/05/11
9/22/2011
22/11/11
22/11/11
2/22/2012
22/05/12 22/11/12 22/05/13 22/11/13 22/05/14 22/11/14 22/05/15
22/05/14 22/11/14 22/05/15
22/05/12 22/11/12
22/05/13
22/11/13
7/22/2012
12/22/2012
5/22/2013
10/22/2013
3/22/2014
11/22/2015
8/22/2014
1/22/2015
6/22/2015
4/22/2016
Aurizon
AZJ
AZJ
S&P/ASX200
ASX200 Accumulation Index
ASX200 Accumulation Index
Directors’ Report (continued)
REMUNERATION REPORT
5. Take Home Pay
Table 4 identifies the actual remuneration
earned during FY2016 and Figure 6 represents
the proportion of FY2016 actual and forfeited
remuneration for the MD & 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 Section
6. Although some credible performance
outcomes were achieved across many
categories, the Board has decided not to
award an STIA to the MD & CEO and his direct
reports. The Board considers this outcome
to be reflective of the shareholder outcomes
during FY2016.
The actual vesting of the LTIA is dependent on
Aurizon performance and the outcomes are
further described in Section 7. The relative
TSR component of the 2012 Award and all
three components of the 2013 Award were
tested in FY2016.
Aurizon’s earnings performance and relative
TSR performance for FY2016 has significantly
impacted the vesting outcomes of the Awards.
As the OR was 74.8%, the OR component of
the 2013 Award vested to 55% of maximum.
Given Aurizon’s earnings performance over
the applicable periods, no portion of the EPS
component vested.
Relative TSR was tested over the period
FY2013-FY2016 and ranked below the median.
The 2013 Award, therefore, did not vest. This
and the other unvested components of the
2013 Award will be subject to a single retest
next year.
The portion of the Relative TSR component for
the 2012 Award, which did not vest last year,
was retested this year over the period FY2012-
FY2016. This portion ranked below the rank of
the original test and will therefore lapse.
TABLE 4 – REMUNERATION EARNED IN FINANCIAL YEAR 2016
NAME
EXECUTIVE KMP
L E Hockridge
M Carter
A Kummant
K Neate
M Neves De Moraes
FIXED
REMUNERATION
$’000
NON-
MONETARY
BENEFITS1
$’000
STIA CASH2
$’000
STIA DEFERRED
FROM
PRIOR YEAR³
$’000
LTIA VESTING4
$’000
ACTUAL FY2016
REMUNERATION
OUTCOMES
$’000
1,950
840
840
840
750
10
2
116
4
84
-
-
-
-
-
736
232
216
199
199
573
165
185
161
165
3,269
1,239
1,357
1,204
1,198
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 FY2016 STIA which would have been paid in September 2016
3 The amount relates to the deferred component (40%) of the FY2015 STIA which was awarded in performance rights and will become unrestricted
in September 2016 (calculation assumes a share price of $4.82). As no FY2016 STIA was made there will be no component deferred into equity next year
4 The amount is the value of rights which vest after the end of FY2016 (i.e. a portion of the 2013 Award) (calculation assumes a share price of $4.82)
FIGURE 6 – PROPORTIONAL REMUNERATION OUTCOMES FOR FINANCIAL YEAR 20161
Managing Director & CEO
Illustrative Executive KMP example
21%
2%
8%
Fixed Remuneration
7%
28%
STIA: FY16 Actual (0%)
20%
34%
STIA: FY16 Forfeited
LTIA: 2012 Award Forfeited
1%
41%
LTIA: 2013 Award
LTIA: 2013 Award
(Subject to retest)
38%
Fixed Remuneration
STIA: FY16 Actual (0%)
STIA: FY16 Forfeited
LTIA: 2012 Award Forfeited
LTIA: 2013 Award
LTIA: 2013 Award
(Subject to retest)
1 Remuneration outcomes are shown as a proportion of Total Potential Remuneration, addressed with reference to Company Performance and vesting outcomes
of the FY2016 STIA (including the cash and deferral component), the 2012 Award and 2013 Award (calculation assumes a Share Price of $4.82). The proportional
remuneration outcome does not include the deferral component of the FY2015 STIA
28
AURIZON ANNUAL REPORT 2015–16
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.
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.
What are the outcomes for FY2016?
Table 5 identifies the performance measures, relevant weightings and outcomes for FY2016. Despite the performance against the established KPIs,
the Board has determined that no STIA will be made to the MD & CEO and his direct reports to reflect the impairments and financial performance in
FY2016. The FY2016 actual outcomes for Executive KMP are identified within Table 6.
TABLE 5 – SHORT TERM INCENTIVE AWARD FINANCIAL YEAR 2016 OBJECTIVES
DESCRIPTION
EBIT: Underlying EBIT delivers financial benefits to shareholders through growth in
underlying operating earnings
WEIGHTING TARGET
35%
$980m
OUTCOME
$871m1
Below Threshold
Safety & 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 per employee per month (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 FY2016 the
transformation projects included:
› Customer focus
› Specific commercial
› Operational & productivity 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 FY2016 the MD & CEO’s individual
performance parameters included:
› Stakeholder and external
relationship management
› Measured growth and operational improvement
› Capital management
17.5%
70%
30%
10% reduction in
TAR and TRIFR.
Maintain ENI at 2
and at least one SI
per employee per
month
12% reduction TAR;
76% increase TRIFR;
1 ENI; 1.47 SI
Between
Target and Stretch
Overall below Stretch but
well above Target
Substantial
transformation
having regard
to specified
milestones and
outcomes
Between Target & Stretch
Between Threshold & Target2
Varies by individual
Personal outcomes
varied between
Threshold and
Stretch depending
on performance
against individual
KPIs
1 Underlying earnings for remuneration purposes has been adjusted to deduct the FY2016 impairments and is $343m ($871m less $528m). No STIA participants will be
rewarded for this component
2 The overall outcome for the STIA has been adjusted for all participants to take into consideration the overall financial performance during FY2016
TABLE 6 – SHORT TERM INCENTIVE AWARDED IN FINANCIAL YEAR 2016
NAME
EXECUTIVE KMP
L E Hockridge
M Carter
A Kummant
K Neate
M Neves De Moraes
TARGET STIA
$’000
MAXIMUM
POTENTIAL
STIA ($’000)
CASH
COMPONENT
DEFERRED
SHARE
COMPONENT
TOTAL STIA
PAYMENT
% OF
TARGET STIA
% OF
MAXIMUM
STIA
AWARDED FY2016 ($’000)
1,950
630
630
630
563
2,925
945
945
945
844
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
DIRECTORS’ REPORT
29
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 employee is calculated
by dividing their respective LTIA potential
remuneration (expressed as a percentage of
Fixed Remuneration) by the five day Volume
Weighted Average Price (VWAP) of Aurizon
shares at the time of their award.
Each performance right is a right to receive
one share in Aurizon upon vesting. The number
of performance rights that vest is determined
by performance outcomes compared with
predetermined 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 Executive at no cost to
the Executive.
Company Performance against LTIA subject to
testing in FY2016 is identified in Table 8.
What is the amount that 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 in relation to
the 2014 and 2015 Awards, 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. There
will be no retesting in relation to the 2016 and
subsequent Awards.
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%, FY2018 of 70% and FY2019 of 68.5% is considered by the Board to be very challenging in light of the
macroeconomic outlook 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).
2015 AWARD
OR Improvement
Relative TSR:
Against peer group
within ASX100 Index
ROIC:
Average annual ROIC
FY2016 – FY2018
PERFORMANCE PERIOD (01/07/2015 – 30/06/2018)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
34%
33%
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
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
30
AURIZON ANNUAL REPORT 2015–16 TABLE 7 – CONTINUED
2016 AWARD1
OR Improvement
Relative TSR:
Against peer group
within ASX100 Index2
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
PERFORMANCE PERIOD (01/07/2016 – 30/06/2019)3
15%
35%
50% of the rights will vest with an OR
of 70%
100% of the rights will vest with an OR
of 68.5%
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
FY2017 – FY2019
50%
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%
100%
All rights will vest pro-rata on a straight-line basis between the minimum and maximum vesting points
1 The company hurdles for the 2016 LTIA will be measured over a three year performance period. In the event that performance is not achieved the performance
period will not be extended, as retesting will no longer form part of the LTIA from the 2016 Award
2 From the 2016 Award, property trusts will no longer be excluded from the peer group
3 From the 2017 Award, company hurdles will be measured over an extended performance period, increasing from a three year performance period to a four year
performance period
TABLE 8 – COMPANY PERFORMANCE AGAINST LONG TERM INCENTIVE AWARDS SUBJECT TO TESTING IN FINANCIAL YEAR 2016
COMPANY HURDLE AND PERFORMANCE MEASUREMENT PERIOD WEIGHTING RESULT
%
VESTED
% FOR
RETESTING
% LAPSED
2012 AWARD: RETEST 01 JULY 2012 – 30 JUNE 2016
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%
12% of this
component was
subject to a single
retest in FY2016
12%
88%
0%
Between
median and
top quartile
(as at
FY2015)
Between
median and
top quartile
(Retest as
at FY2016)1
2013 AWARD: 01 JULY 2013 – 30 JUNE 2016
OR Improvement
50% of rights will vest with a FY2016 OR of
75%, up to 100% at 73% (with rights vesting
pro-rata on a straight-line basis)
50%
74.8%2
55%
EPS: Average annual
EPS growth from
FY2013 –FY2016
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)
25%
-52%
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)
25%
0%
Below
median
(as at
FY2016)
45% of this
component will
be subject to a
single retest in
FY20173
100% of this
component will
be subject to a
single retest in
FY20173
100% of this
component will
be subject to a
single retest in
FY20173
1 Given the relative TSR performance was lower than the original performance period (FY2012-FY2015), the remaining portion of the relative TSR component
has lapsed
2 OR targets set after the change in accounting policy in FY2013 have been set consistent with the current accounting policy with diesel fuel rebate offset against
the diesel fuel costs
3 The retesting hurdles are 71% (maximum) to 73% (minimum) for OR in the fourth year, EPS growth and relative TSR as per the original test but over the four
year period
DIRECTORS’ REPORT
31
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’ Total Fixed Remuneration
during the period divided by the number
of years.
Details of KMP shareholdings as at
30 June 2016 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 AGREEMENTS
DURATION OF
SERVICE AGREEMENT
FIXED REMUNERATION AT END
OF FINANCIAL YEAR 20161
BY EXECUTIVE
BY COMPANY3
NOTICE PERIOD2
EXECUTIVE KMP
L E Hockridge
M Carter
A Kummant
K Neate
M Neves De Moraes
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
$1,950,000
$ 840,000
$ 840,000
$ 840,000
$ 750,000
6 months
3 months
3 months
3 months
3 months
12 months
6 months
12 months
6 months
6 months
1 Fixed remuneration includes a superannuation component
2 Post employment restraints 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 SHAREHOLDING AS AT 30 JUNE 2016
NAME
NON–EXECUTIVE DIRECTORS
T M Poole
R R Caplan2
J D Cooper
M A Fraser
K L Field
S L Lewis
EXECUTIVE KMP
L E Hockridge2
M Carter2
A Kummant
K Neate
M Neves De Moraes
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
% OF FIXED
REMUNERATION1
-
82,132
45,000
-
14,245
14,600
943,679
268,507
200,000
82,204
100,000
N/A
N/A
N/A
N/A
N/A
N/A
876,099
226,502
202,403
137,005
75,000
45,500
-
25,000
40,000
26,213
18,425
-
(178,019)
(70,000)
-
(50,000)
45,500
82,132
70,000
40,000
40,458
33,025
1,819,778
316,990
332,403
219,209
125,000
46%
208%
178%
101%
103%
84%
450%
182%
191%
126%
80%
1 Assumes Directors fees and Fixed Remuneration as at 30 June 2016 and a share price of $4.82
2 KMP required to achieve the minimum shareholding requirement by November 2016
32
AURIZON ANNUAL REPORT 2015–16 9. Non-Executive Director
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?
$2.5 million. The cap does not include
remuneration for performing additional or
special duties for Aurizon at the request of the
Board or reasonable travelling, accommodation
and other expenses of Directors in attending
meetings and carrying out their duties.
The current annual base fees for the Non-
Executive Directors are set out in Table 11.
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.
TABLE 11 – DIRECTORS’ FEES
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 DIRECTORS2
T M Poole
R R Caplan
J D Cooper
M A Fraser
K L Field
S L Lewis
2016
2016
2015
2016
2015
2016
2016
2015
2016
2015
403
174
174
174
174
63
174
174
174
63
FORMER NON-EXECUTIVE DIRECTORS2
J B Prescott AC 2016
J Atkin
G T John AO
A J P Staines
G T Tilbrook
P Zito
Total
2015
2016
2015
2016
2015
2015
2016
2015
2015
2016
2015
60
447
110
174
66
174
131
110
174
53
1,508
1,738
-
-
-
-
-
-
-
-
-
-
24
4
-
-
-
-
-
-
-
-
24
4
18
16
16
16
16
6
16
16
16
6
24
28
10
16
6
16
21
10
16
21
138
172
421
190
190
190
190
69
190
190
190
69
108
479
120
190
72
190
152
120
190
74
1,670
1,914
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 Appointment and cessation dates for Directors and Former Directors are provided in Table 2 and Table 3
on page 24
DIRECTORS’ REPORT
33
Directors’ Report (continued)
REMUNERATION REPORT
10. Executive Remuneration Financial Year 2016
The table below details the number and value of movements in LTIA equity awards during FY2016.
TABLE 13 – 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
NO.
NO.
$’000
%
NO.
NO.
%
VALUE OF RIGHTS
BALANCE AT END
FORFEITED IN YEAR
OF YEAR
GRANT
DATE
DATE ON WHICH
GRANT VESTS
EXPIRY
DATE
FAIR VALUE PER
RIGHT AT GRANT
DATE
$
NAME
EXECUTIVE KMP
L E Hockridge
M Carter
A Kummant
K Neate
M Neves
De Moraes
2011
2012
2013
2014 STIAD
2014
2015 STIAD
2015
2011
2012
2013
2014 STIAD
2014
2015 STIAD
2015
2012
2013
2014 STIAD
2014
2015 STIAD
2015
2011
2012
2013
2014 STIAD
2014
2015 STIAD
2015
2013
2014-Ret B
2014
2015 STIAD
2015
FORMER EXECUTIVE KMP
J M Franczak
2012
2013
2014 STIAD
2014
2015 STIAD
2015
247,093
582,090
432,373
70,200
401,234
-
-
45,785
167,910
124,723
19,524
129,630
-
-
188,059
139,690
21,867
129,630
-
-
29,070
93,152
121,397
18,509
112,654
-
-
124,722
75,000
115,740
-
-
223,880
166,298
26,419
154,321
-
-
-
-
-
-
-
152,699
374,280
-
-
-
-
-
48,217
120,921
-
-
-
-
44,720
120,921
-
-
-
-
-
41,386
120,921
-
-
-
41,357
107,966
-
-
-
-
55,630
143,954
-
-
-
-
-
776
1,497
-
-
-
-
-
245
484
-
-
-
-
227
484
-
-
-
-
-
210
484
-
-
-
210
431
-
-
-
-
283
576
100
96
-
100
-
-
-
100
96
-
100
-
-
-
96
-
100
-
-
-
100
96
-
100
-
-
-
-
100
-
-
-
96
-
100
-
-
-
(247,093)
(558,806)
-
(70,200)
-
-
-
(45,785)
(161,193)
-
(19,524)
-
-
-
(180,536)
-
(21,867)
-
-
-
(29,070)
(89,426)
-
(18,509)
-
-
-
-
(75,000)
-
-
-
(214,924)
-
(26,419)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(13,304)
-
(154,321)
-
(143,954)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
-
100
-
100
-
401,234
3.57
$’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50
-
550
-
576
NO.
-
23,284
432,373
-
152,699
374,280
-
6,717
124,723
-
129,630
48,217
120,921
7,523
139,690
-
129,630
44,720
120,921
-
3,726
121,397
-
112,654
41,386
120,921
124,722
-
115,740
41,357
107,966
8,956
152,994
-
-
-
55,630
2.11
2.88
3.74
4.65
5.08
4.00
2.11
2.88
3.74
4.65
3.57
5.08
4.00
2.88
3.74
4.65
3.57
5.08
4.00
2.11
2.88
3.74
4.65
3.57
5.08
4.00
4.07
4.89
3.57
5.08
4.00
3.25
3.74
4.65
3.57
5.08
4.00
22-Aug-11
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
22-Aug-11
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
22-Aug-11
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
1-Jan-14
1-Jan-14
18-Aug-14
21-Sep-15
17-Aug-15
04-Apr-13
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
22-Aug-14
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
22-Aug-14
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
22-Aug-14
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
16-Aug-16
1-Jan-16
18-Aug-17
21-Sep-16
17-Aug-18
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
31-Dec-15
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-15
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-15
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-17
1-Jan-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
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 (5 day VWAP) at the time of the award, that is, ‘face value’
34
AURIZON ANNUAL REPORT 2015–16
10. Executive Remuneration Financial Year 2016
The table below details the number and value of movements in LTIA equity awards during FY2016.
TABLE 13 – RIGHTS GRANTED AS COMPENSATION
NAME
EXECUTIVE KMP
L E Hockridge
M Carter
A Kummant
K Neate
M Neves
De Moraes
152,699
374,280
776
1,497
2014 STIAD
2015 STIAD
2014 STIAD
2015 STIAD
2014 STIAD
2015 STIAD
2014 STIAD
2015 STIAD
2014-Ret B
2015 STIAD
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
2012
2013
2014
2015
2011
2012
2013
2014
2015
2013
2014
2015
2012
2013
2014
2015
2014 STIAD
2015 STIAD
247,093
582,090
432,373
70,200
401,234
45,785
167,910
124,723
19,524
129,630
188,059
139,690
21,867
129,630
29,070
93,152
121,397
18,509
112,654
124,722
75,000
115,740
223,880
166,298
26,419
154,321
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
48,217
120,921
44,720
120,921
41,386
120,921
41,357
107,966
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
245
484
227
484
210
484
210
431
-
-
EXERCISED
YEAR
NO.
(247,093)
(558,806)
-
(70,200)
-
(45,785)
(161,193)
-
(19,524)
-
(180,536)
-
(21,867)
-
(29,070)
(89,426)
-
(18,509)
-
-
(75,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
YEAR
%
100
96
-
100
100
96
-
100
96
100
100
96
-
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
100
YEAR
NO.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
YEAR
%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
8
-
100
-
100
FORMER EXECUTIVE KMP
J M Franczak
55,630
143,954
283
576
96
(214,924)
100
(26,419)
-
-
-
(13,304)
-
(154,321)
(143,954)
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 (5 day VWAP) at the time of the award, that is, ‘face value’
INCENTIVE
PLAN
BALANCE AT
BEGINNING
OF YEAR
NO.
RIGHTS
AWARDED
VALUE OF
RIGHTS
YEAR
NO.
YEAR1
$’000
DURING THE
GRANTED IN
VESTED IN
DURING THE
FORFEITED IN
FORFEITED IN
VALUE OF RIGHTS
FORFEITED IN YEAR
BALANCE AT END
OF YEAR
FAIR VALUE PER
RIGHT AT GRANT
DATE
$’000
NO.
$
GRANT
DATE
DATE ON WHICH
GRANT VESTS
EXPIRY
DATE
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
50
-
550
-
576
-
23,284
432,373
-
401,234
152,699
374,280
-
6,717
124,723
-
129,630
48,217
120,921
7,523
139,690
-
129,630
44,720
120,921
-
3,726
121,397
-
112,654
41,386
120,921
124,722
-
115,740
41,357
107,966
8,956
152,994
-
-
55,630
-
2.11
2.88
3.74
4.65
3.57
5.08
4.00
2.11
2.88
3.74
4.65
3.57
5.08
4.00
2.88
3.74
4.65
3.57
5.08
4.00
2.11
2.88
3.74
4.65
3.57
5.08
4.00
4.07
4.89
3.57
5.08
4.00
3.25
3.74
4.65
3.57
5.08
4.00
22-Aug-11
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
22-Aug-11
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
22-Aug-11
23-Aug-12
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
1-Jan-14
1-Jan-14
18-Aug-14
21-Sep-15
17-Aug-15
04-Apr-13
16-Aug-13
22-Sep-14
18-Aug-14
21-Sep-15
17-Aug-15
22-Aug-14
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
22-Aug-14
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
22-Aug-14
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
16-Aug-16
1-Jan-16
18-Aug-17
21-Sep-16
17-Aug-18
23-Aug-15
16-Aug-16
22-Sep-15
18-Aug-17
21-Sep-16
17-Aug-18
31-Dec-15
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-15
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-15
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-17
1-Jan-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-16
31-Dec-17
22-Sep-15
18-Aug-18
21-Sep-16
31-Dec-19
DIRECTORS’ REPORT
35
Directors’ Report (continued)
REMUNERATION REPORT
Details of the remuneration paid to Executives are set out below and have been prepared in accordance with the accounting standards.
TABLE 14 – EXECUTIVE REMUNERATION
SHORT-TERM EMPLOYEE BENEFITS
POST-
EMPLOYMENT
BENEFITS
LONG-TERM
BENEFITS
EQUITY-
SETTLED
SHARE-
BASED
PAYMENTS
CASH
BONUS
$’000
NON-
MONETARY
BENEFITS1
$’000
OTHER2
$’000
SUPER-
ANNUATION
$’000
LONG-
SERVICE
LEAVE
$’000
TERMIN-
ATION
BENEFITS
$’000
RIGHTS3
$’000
TOTAL
$’000
C
(84)
42
(64)
72
6
38
(5)
5
3
(18)
(24)
(51)
22
D
-
-
-
106
86
-
-
79
38
306
175
491
299
E
34
35
69
19
19
34
35
19
16
-
-
175
105
F
19
82
7
15
13
23
6
14
5
G
H
I
-
-
-
-
-
-
-
-
-
1,314
3,198
2,242
5,480
176
419
699
354
531
418
772
537
1,410
1,944
1,255
1,578
1,258
1,872
(23)
14
55
120
750
-
750
-
(13)
1,765
784
2,373
2,668
9,423
5,028 13,247
CASH
SALARY
AND
FEES
$’000
A
1,915
1,915
349
779
780
806
695
723
723
763
1,000
5,335
B
-
1,164
-
-
341
-
316
-
315
-
424
-
5,113
2,560
NAME
YEAR
EXECUTIVE KMP
L E Hockridge
M Carter
A Kummant
K Neate
M Neves De
Moraes
2016
2015
20165
2016
2015
2016
2015
2016
2015
FORMER EXECUTIVE KMP
J M Franczak
20166
2015
2016
2015
Total
Executive KMP
compensation
(group)
PROPORTION
OF
COMPENSATION
PERFORMANCE
RELATED4
%
(B+H)/I
REMUNERATION
CONSISTING
OF RIGHTS FOR
THE YEAR
%
(H/I)
J
41
62
33
30
53
28
54
33
58
(1)
51
28
57
K
41
41
33
30
36
28
34
33
41
(1)
33
28
38
1 Non-monetary benefits represent the value of Reportable Fringe Benefits for the respective Fringe Benefits Tax year ending 31 March, the estimated value of car parking
provided, motor vehicle lease payments and annual leave accrued or utilised during the financial year. Negative amounts represent the utilisation of annual leave
2 Other short-term employee benefits include travel benefits, repatriation and relocation assistance
3 The accounting expense recognised in relation to rights granted in the year is the fair value independently calculated at grant date using an expected outcome
model. This was consistent with the Monte-Carlo simulation conducted in the prior year and resulted in similar outcomes. This amount is progressively expensed
over the vesting period. Refer to note 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. This includes the cost of deferred STIA and LTIA
4 The short-term incentives (cash bonus), deferred short-term incentives and long-term incentives (equity-settled share-based payments) represent the at risk
performance-related remuneration
5 M Carter was appointed Acting EVP Operations from 1 January 2016. The cash salary and fees (column A) reflect the salary attributable to the EVP Operations role
6 J M Franczak resigned from the EVP Operations role effective 31 December 2016 and continued to receive his normal fixed remuneration and contractual benefits
until 31 March 2016. Upon cessation J M Franczak received $750,000 in termination payments in addition to repatriation costs from Australia to Canada. He did not
receive any remuneration associated with the FY2016 STIA. The Rights value reflects the forfeitures of awards upon cessation
36
AURIZON ANNUAL REPORT 2015–16 Auditor’s Independence Declaration
As lead auditors for the audit of Aurizon Holdings Limited for the year ended 30 June 2016, we declare
that to the best of our knowledge and belief, there have been:
1.
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
2.
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
15 August 2016
Simon Neill
Partner
PricewaterhouseCoopers
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.
AUDITOR’S INDEPENDENCE DECLARATION
37
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
12 August 2016.
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).
1.2 Information
regarding election and
re-election of Director
candidates
1.3 Written contracts of
appointment
The Charter also provides an overview of the roles of the Chairman, individual Directors, the Managing Director &
CEO and the Company Secretary.
A copy of the Charter is available in the Governance section of the Company’s website, aurizon.com.au.
Aurizon carefully considers the character, experience, education, 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 appointing 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 on page 32 of the
Annual Report.
1.4 Company Secretary
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 the Annual Report.
P
P
P
P
38
AURIZON ANNUAL REPORT 2015–16
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
1.5 Diversity & inclusion Aurizon Holdings has adopted a Diversity Policy which sets out its objectives and reporting practices with respect
to diversity and inclusion 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 FY2016, are set
out below:
› At least one female Director at all times
› 17% overall women in the workforce
The outcomes and a comparative of Aurizon Holdings’ female employees between 30 June 2015 and 30 June 2016
is set out below and illustrates the Company’s progress towards achieving its objectives:
› 25% (2/8) of the Board at 30 June 2016 (22% at FY15)
› 17.4% overall women in the workforce at 30 June 2016 (15.3% FY15)
Other targets monitored are set out below:
› 31% of women in the Management Leadership Team (MLT)
› 22% Women in Manager of Managers group
› 17% Women in Managers of Others group
› 60% Women as a percentage of Trainees, Apprentices & Graduates (TAGs)
The progress made against the above other targets are as follows:
› 32% of MLT at 30 June 2016 (27% at FY15)
› 15.8% of women in Managers of Managers group at 30 June 2016 (15.4% at FY15)
› 16.9% of women in Managers of Others at 30 June 2016 (14.1% at FY15)
› 63% of TAGs at 30 June 2016 (51% at FY15)
1.6 Board reviews
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.
1.7 Management
reviews
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, sets 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 25 of the Annual Report.
Principle 2: Structure the Board to add value
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
2.1 Nominations
committee
The Nomination & Succession Committee comprises three 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
39
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.
General
› Other Board experience
› Senior management expertise including partnering
and joint venture
Governance
› Understanding of legal, ethical and fiduciary duties
› Governance committee experience
› Risk management
Behavioural
› Communication
› Analytical
› Strategic
Further details regarding the skills and experience of each
Director are included on pages four to six of the Report.
Technical
› Finance and accounting
› Regulatory
› Technology
› Corporate strategy
› Capital allocation including acquisitions and
divestments
› Information technology
› Capital markets
› 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
› Language other than English
2.3 Disclose
independence and
length of service
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 the Annual Report.
2.4 Majority of
Directors independent
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 the Annual Report.
2.5 Chair independent
The Chairman, Mr Poole, 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.
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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40
AURIZON ANNUAL REPORT 2015–16 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 three members, 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 the
Annual Report.
In addition to the Audit, Governance & Risk Management Committee members, the Chairman of the Company, 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 the Annual 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 to ensure 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 the ASX, notices of meetings, annual reports and
financial statement investor presentations, webcasts and/or transcripts of those presentations and a key events
calendar via the ‘Investors’ tab. Investors 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
41
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 Company 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 controlled 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.
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The Company’s sustainability aspiration is to deliver world-leading 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 FY2016, the Company published its second Sustainability Report for the period ending 30 June 2015.
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 and 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 FY2016 performance and material economic, environmental
and social sustainability risks.
The Company’s FY2016 Sustainability Report is intended to be released in October 2016. 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.
42
AURIZON ANNUAL REPORT 2015–16
Principle 8: Remunerate fairly and responsibly
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
8.1 Remuneration
Committee
Aurizon Holdings’ remuneration function is performed by the Remuneration Committee, comprising
four members 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 the Annual Report.
8.2 Disclosure of
Executive and
Non-Executive
Director remuneration
policy
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 the Annual 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 performing 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 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.
Further details regarding remuneration and share retention policies and the remuneration of Executive and
Non-Executive Directors, are set out on pages 28 to 36 of the Annual Report.
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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.
P
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.
CORPORATE GOVERNANCE STATEMENT
43
Financial Report
for the year ended 30 June 2016
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
— Significant judgements and estimates
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 45
Page 45
Page 46
Page 47
Page 48
Page 49
Page 49
Page 49
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 2015-16 Annual Report
Page 92
Page 93
Page 95
44
AURIZON ANNUAL REPORT 2015–16 Consolidated income statement
for the year ended 30 June 2016
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
Operating profit
Share of net profit of associates and joint venture partnerships
accounted for using the equity method
Impairment loss of investment in associates
Share of net (loss)/profit from associates and joint venture partnerships
accounted for using the equity method after impairment loss
Finance income
Finance expenses
Net finance costs
Profit before income tax expense
Income tax expense
Profit for the year attributable to owners of Aurizon Holdings Limited
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 2016
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
Share of other comprehensive income of an associate using equity account method
Other comprehensive income for the year, net of tax
Total comprehensive income for the year attributable to owners of Aurizon Holdings Limited
Notes
2(a)
2(b)
3
3
3
3
19
19(a)
3
4
5
5
Notes
15(b)
4(c)
15(b)
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
2016
$m
3,458
-
3,458
(891)
(245)
(315)
(509)
(561)
(302)
(79)
556
13
(226)
(213)
2
(152)
(150)
193
(121)
72
2015
$m
3,732
48
3,780
(1,009)
(291)
(328)
(614)
(519)
(20)
(43)
956
14
-
14
9
(144)
(135)
835
(231)
604
Cents
Cents
3.4
3.4
28.4
28.3
2016
$m
72
(6)
2
(2)
(6)
66
2015
$m
604
(17)
6
-
(11)
593
45
FINANCIAL REPORT
Consolidated balance sheet
as at 30 June 2016
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
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
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
46
Notes
2016
$m
2015
$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)
69
514
153
-
7
101
844
36
77
9,719
190
2
-
10,024
10,868
297
6
28
80
274
53
738
3,484
23
589
93
227
4,416
5,154
5,714
1,207
3,425
1,082
5,714
171
543
189
1
9
21
934
37
19
9,900
127
318
1
10,402
11,336
368
59
-
76
346
55
904
2,924
43
606
97
256
3,926
4,830
6,506
1,508
3,459
1,539
6,506
AURIZON ANNUAL REPORT 2015–16 Consolidated statement of changes in equity
for the year ended 30 June 2016
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
Balance at 30 June 2015
Balance at 1 July 2015
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Buy-back of ordinary shares
Dividends provided for or paid
Share-based payments
Balance at 30 June 2016
Attributable to owners of Aurizon Holdings Limited
Contributed
equity
$m
Notes
Reserves
$m
Retained
earnings
$m
15(b)
15(b)
14(a)
15(b)
15(b)
15(a)
14(a)
15(b)
1,508
3,534
-
-
-
-
-
-
-
1,508
1,508
-
-
-
(301)
-
-
(301)
1,207
-
(11)
(11)
(69)
-
5
(64)
3,459
3,459
-
(6)
(6)
-
-
(28)
(28)
3,425
1,331
604
-
604
-
(396)
-
(396)
1,539
1,539
72
-
72
-
(529)
-
(529)
1,082
Total
equity
$m
6,373
604
(11)
593
(69)
(396)
5
(460)
6,506
6,506
72
(6)
66
(301)
(529)
(28)
(858)
5,714
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
47
FINANCIAL REPORT Consolidated statement of cash flows
for the year ended 30 June 2016
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Income taxes (paid)/received
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) 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)
2016
$m
3,767
(2,420)
2
(131)
1,218
2015
$m
4,170
(2,674)
9
11
1,516
(692)
(1,013)
38
(80)
(12)
(4)
10
(740)
1,278
(828)
(8)
(301)
(54)
(529)
(138)
(580)
(102)
171
69
170
(70)
(28)
(226)
6
(1,161)
1,142
(1,035)
(4)
(69)
(12)
(396)
(128)
(502)
(147)
318
171
48
AURIZON ANNUAL REPORT 2015–16 Notes to the consolidated financial statements
30 June 2016
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
15 August 2016. 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 ASIC Corporations
(Rounding in Financial/Directors’ Reports) Instrument 2016/191 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
› Adopt 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 2015
› Equity account 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
Income tax
Depreciation
Impairment
Associates and joint arrangements
Note
2
4
8
8
19
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:
(a) Access Revenue
Access Undertaking
The original term of the 2010 Access Undertaking (UT3) expired
on 30 June 2013 and Aurizon Network submitted a series of Draft
Amending Access Undertakings (DAAUs) which extended the term of
UT3 and established transitional tariffs for the intervening period until
the finalisation and approval of Aurizon Network’s 2014 Draft Access
Undertaking (UT4).
The Queensland Competition Authority (QCA) issued its Draft
Decision on the Maximum Allowable Revenue component of UT4
on 30 September 2014. An Initial Draft Decision (Policy and Pricing)
followed on 30 January 2015. After a detailed consultation process, a
Consolidated Draft Decision was issued on 16 December 2015 and a Final
Decision on 28 April 2016.
On 23 June 2016 the QCA approved the UT3 extension DAAU for the
year ended 30 June 2016 to finalise transitional tariffs, system volume
forecasts and system allowable revenues based on the Final Decision,
with the main exception being true-ups of regulatory access revenue
for the years ended 30 June 2014 and 30 June 2015 approximating
$73 million (net of revenue cap relating to the year ended 30 June 2015).
The true-ups are subject to final QCA approval and will be included in
revenue for the year ending 30 June 2017.
An annual adjustment charge of $21 million (2015: nil), representing
the net shortfall between the 2015/16 transitional tariffs and final tariffs
applied to actual volumes, has been accrued as at 30 June 2016. In
addition, there is an estimated over recovery of revenue in the year
ended 30 June 2016 of $20 million which will be adjusted against tariffs
in FY18.
On 7 July 2016, Aurizon Network submitted an amended Draft Access
Undertaking (DAU) in response to the Final Decision to the QCA
for approval.
Regulatory access revenue for the year ended 30 June 2015 was based
on transitional tariffs approved for that year applied to actual volumes.
49
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2016 (continued)
(b) Impairment
During the year, the following impairment losses have been recognised.
At 31 December 2015 an impairment of $153 million for Aquila
was recorded.
Strategic infrastructure projects
and assets under construction (i)
Aquila impairment (ii)
Rollingstock (iii)
Assets classified as held for sale
2016
$m
125
226
177
-
528
2015
$m
19
-
-
1
20
(i) Strategic Projects
West Pilbara Iron Ore Project
The +/-15% non-binding tariffs were submitted on 30 November 2015.
The CEOs of the participating companies met in December 2015 to
review the progress of the West Pilbara Iron Ore Project (WPIOP). While
the CEOs received reports on considerable progress in areas such as the
capital and operating costs of the mine and infrastructure, the current
market conditions and uncertainty about future supply and demand were
central to the CEOs’ considerations.
The participants are committed to consolidating the high quality work
to date and minimising project costs. However, no material further work
will be undertaken on the definitive feasibility studies. Aurizon’s period
of exclusivity to develop the integrated infrastructure solution expired on
30 April 2016.
As a result of the above decisions and uncertainty surrounding the timing
of the development as well as current market conditions, $83 million of
project costs were fully impaired at 31 December 2015. The carrying value
of the project is now nil.
Galilee Basin
At 31 December 2015 an impairment of $30 million was recorded
in relation to the brownfield expansion of the Central Queensland
Coal Network (CQCN). The amount represents directly attributable
development costs such as engineering designs, environmental and
building approvals, which could be recovered through the regulatory
process at a future date. However, a decision has been made to impair
these costs due to uncertainty surrounding the project’s timing and the
current market outlook. The carrying value of the project is now nil.
(ii) Investment in Aquila Resources Limited
In July 2014, Aurizon completed the acquisition of 15% interest in Aquila
Resources Limited (Aquila) for $226 million. Following the acquisition,
Aurizon equity accounts for its share of Aquila’s assets, liabilities and
profit or loss.
At 31 December 2015 Aurizon performed a review of the value of the
individual projects within the Aquila investment. The results of this review
are summarised below:
› The Aquila Board carried out a strategic review of the South African
manganese and iron ore projects and decided to place the projects
into care and maintenance while a divestment program was initiated.
As a result, all South African assets were written down to nil
› A supplementary scoping study of the Eagle Downs project was
initiated and the timing of full development is uncertain after the
termination of a major contract for the project. As a result, the value of
Eagle Downs was impaired to $8 million given Aquila’s expectation that
the mine will continue to be developed
› All other Queensland coal assets were written down to nil based on the
current market outlook and given that no substantial expenditure was
planned for 2016
› As outlined in (i) above, due to the uncertainty surrounding the
timing of the WPIOP development, current market conditions and the
agreement that no further material work will be undertaken, the asset
was fully written down
A further review was completed at 30 June 2016 which resulted in
additional impairment of $73 million. The total impairment for Aquila
at 30 June 2016 was $226 million. This follows further deferral in the
timing of the development of its Queensland coal assets and reflects
the material reduction in the long term hard coking coal price of 15%
since the date of the last review on 31 December 2015. The impairment
provides for all known exposures, including Aquila’s contractual
obligations in respect of power and port access arrangements, and
results in Aurizon’s investment being fully written down.
(iii) Rollingstock
Due to the continued improvements in rollingstock efficiency and
productivity coupled with a lower volume growth outlook, the
Enterprise Rollingstock Master Plan, which forecasts the requirements
of locomotives and wagons based on estimated volume demand for the
next 10 years, was revised. This review of fleet resulted in 121 locomotives
and 1,641 wagons being identified as surplus to the current requirements
of the Group. Rollingstock identified as surplus and associated
inventory has been impaired by $177 million to net realisable value (of
which $148 million was recognised at 31 December 2015) representing
approximately 6% of the carrying value of the rollingstock fleet.
(c) Funding Activities
Debt refinancing
In December 2015, Aurizon Network Pty Ltd refinanced $490 million of
its syndicated debt facility extending the maturity date to 1 July 2021.
In April 2016, Aurizon Finance Pty Ltd refinanced a $300 million
tranche of its bank debt, increasing the tranche size by $200 million to
$500 million and extending the maturity date to 1 July 2020.
Issuance of Euro 500 million medium-term note
On 23 May 2016, Aurizon Network Pty Ltd issued a 10-year Euro Medium-
Term Note (EMTN) with a coupon of 3.125% raising €500 million. Cross
currency interest rate swaps were executed concurrently to fully swap
the issuance back to Australian dollar (A$) floating rate debt. Aurizon
Network Pty Ltd used the proceeds to repay and cancel $775 million of
its syndicated debt facilities.
(d) On-Market Share Buy-Back Scheme
On 11 November 2014, the Company announced an on-market buy-back
program. The Company has acquired 70.3 million shares at a cost of
$301 million during the year ended 30 June 2016. Since commencement
of this program, the Company has acquired 85.5 million shares at a total
cost of $370 million.
(e) Enterprise Agreement (EA)
On 3 September 2015, the Fair Work Commission (FWC) approved
Aurizon’s final outstanding Enterprise Agreement (EA), the Aurizon
Train Crew and Transport Operations EA. The approval by the FWC
finalised the EA. It covers approximately 1,700 employees in Queensland
and came into effect on 10 September 2015. Employees will receive a
4% pay rise annually for three years along with more contemporary
employment conditions that will underpin significant productivity and
efficiency improvements.
This follows the approval of the Aurizon Construction and Maintenance
EA on 21 August 2015, and the Aurizon Staff EA which was approved
and implemented in January 2015. As a result of the three EA approvals,
approximately 5,000 Queensland based employees will be rewarded
with pay increases and competitive conditions, while providing Aurizon
with the productivity enhancements and workplace flexibility that the
Company needs to sustain and grow its business.
50
AURIZON ANNUAL REPORT 2015–16 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 52
Page 55
Page 56
Page 57
Page 59
FINANCIAL REPORT
5151
FINANCIAL REPORT 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 functional
basis reflecting 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
earnings before interest and tax (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 Network (CQCN). 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.
Intersegment transactions
Sales between segments are carried out at arm’s length and are
eliminated on consolidation. Revenue from external customers is
measured in the same way as in the consolidated income statement.
52
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 1 Segment information (continued)
(b) Segment information
Network
$m
Commercial &
Marketing
$m
Operations
$m
Other
$m
Eliminations
$m
Total continuing
operations
$m
2016
External revenue
Internal revenue
Total functional revenue
Functional costs
Employee benefits expense
Energy and fuel
Track Access
Consumables
Other
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
2015
External revenue
Internal revenue
Total functional revenue
Functional costs
Employee benefits expense
Energy and fuel
Track Access
Consumables
Other
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
477
702
1,179
(117)
(125)
-
(147)
(26)
(415)
764
(258)
506
458
650
1,108
(121)
(107)
-
(165)
(16)
(409)
699
(215)
484
2,924
7
2,931
(29)
-
-
(6)
(14)
(49)
2,882
(4)
42
173
215
(710)
(120)
(1,016)
(495)
(23)
(2,364)
(2,149)
(294)
2,878
(2,443)
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)
15
-
15
(35)
-
-
(35)
(10)
(80)
(65)
(5)
(70)
46
-
46
(54)
-
-
(25)
(29)
(108)
(62)
(4)
(66)
-
(882)
(882)
-
-
701
174
7
882
-
-
-
-
(857)
(857)
-
-
645
209
3
857
-
-
-
* Refer to page 95 for a reconciliation of Non-IFRS information
3,458
-
3,458
(891)
(245)
(315)
(509)
(66)
(2,026)
1,432
(561)
871
(528)
343
(150)
193
(121)
72
3,780
-
3,780
(1,009)
(291)
(328)
(614)
(49)
(2,291)
1,489
(519)
970
-
970
(135)
835
(231)
604
53
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT 1 Segment information (continued)
(c) Significant adjustments
The Group’s underlying results differ from the statutory results. The
exclusion of certain items permits a more appropriate and meaningful
analysis of the Group’s underlying performance on a comparative basis.
There were no significant adjustments in the prior period. The significant
adjustments for the current period are:
Strategic infrastructure projects and assets under
construction impairment (i)
Aquila impairment (ii)
Rollingstock impairment (iii)
Total significant adjustments
2016
$m
125
226
177
528
(i) Strategic infrastructure projects impairment ($125 million)
The impairment of strategic infrastructure projects relates to West
Pilbara Infrastructure Project ($83 million), Galilee Basin ($30 million)
and other projects ($12 million). For details of the West Pilbara
Infrastructure Project and Galilee Basin impairment refer to page 50 of
this report. Other projects totalling $12 million have also been impaired
which primarily relate to CQCN expansion projects that are no longer
expected to proceed.
(ii) Impairment of the investment in Aquila ($226 million)
The impairment of Aurizon’s investment in Aquila has been explained on
page 50 of this report.
(iii) Impairment of rollingstock ($177 million)
The impairment of rollingstock has been explained on page 50 of
this report.
(d) Customer disclosure
The nature of the Group’s business is that it enters into long-term
contracts with key customers. Two customers each contribute more than
10% of the Group’s total revenue as detailed below.
2016
$m
2015
$m
2016
credit rating
2015
credit rating
Customer 1
Customer 2*
Total
515
385
900
571
352
923
A
BBB-
A+
BBB
* Total revenue from Customer 2 was below 10% of the Group revenue in the
prior year
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
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 Queensland and New
South Wales to end customers and ports.
Iron Ore revenue: Transport of iron ore from mines in Western Australia
to ports.
Freight revenue: Transport of bulk mineral commodities, agricultural
products, mining and industrial inputs and general freight throughout
Queensland, New South Wales and Western Australia and containerised
freight throughout Australia.
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.
54
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
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
2016
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
Total internal revenue
Total revenue
Other income (note 2(b))
Total revenue and other income
Internal elimination
Consolidated revenue and other income
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
Total internal revenue
Total revenue
Other income (note 2(b))
Total revenue and other income
Internal elimination
Consolidated revenue and other income
435
-
4
37
476
701
-
1
702
1,178
1
1,179
403
-
8
45
456
645
-
5
650
1,106
2
1,108
734
1,143
-
3
1,880
-
-
-
-
1,880
1
1,881
-
311
-
-
311
-
-
-
-
311
-
311
707
1,182
-
5
-
338
-
-
1,894
338
-
-
-
-
1,894
-
1,894
-
-
-
-
338
-
338
-
672
41
18
731
-
7
-
7
738
1
739
-
787
111
17
915
-
3
-
3
918
1
919
1
-
41
18
60
-
-
173
173
233
(3)
230
-
-
43
86
129
-
-
204
204
333
45
378
1,170
2,126
86
76
3,458
701
7
174
882
4,340
-
4,340
(882)
3,458
1,110
2,307
162
153
3,732
645
3
209
857
4,589
48
4,637
(857)
3,780
Other services includes $41 million (2015: $111 million) from the State of Queensland for Transport Service Contracts for Regional Freight and Livestock.
55
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT 2 Revenue and other income
(continued)
SIGNIFICANT JUDGEMENTS
Take or pay revenue
The calculation of access 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
(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 $3 million has been accrued for the Moura
system (2015: $33 million for the Goonyella Abbot Point Expansion
(GAPE) system).
Access undertaking
The QCA is currently finalising 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 DAAUs which have extended the
term of UT3 and established transitional tariffs for the intervening
period until the finalisation and approval of UT4. UT3 was extended
until the earlier of 30 September 2016 or the date a QCA approved
replacement undertaking takes effect. This submission was approved
by the QCA on 23 June 2016. 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:
(i) Track Access
Track Access revenue includes revenue from regulated rail access
services and non-regulated services.
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,
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.
During the transitional period, revenue is determined based on the most
relevant and reliable information available.
(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
Net foreign exchange gains
2016
$m
2015
$m
-
-
-
47
1
48
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
Redundancies
Salaries, wages and allowances
Other employment expenses including on-costs
Consumables
Repairs and maintenance
Other
Depreciation and amortisation expense
Depreciation
Amortisation of intangibles
2016
$m
2015
$m
18
63
24
478
308
891
314
195
509
550
11
561
19
67
36
532
355
1,009
357
257
614
512
7
519
56
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
3 Expenses (continued)
(a) Income tax expense
Impairment losses*
Assets classified as held for sale
Inventory – rollingstock
Property, plant and equipment
Other
2016
$m
2015
$m
Current tax
Deferred tax
Current tax relating to prior periods
Deferred tax relating to prior periods
-
30
267
5
302
1
-
19
-
20
2016
$m
2015
$m
122
1
13
(15)
121
127
118
(15)
1
231
* Refer to note 1(c) and note 8 for impairment information
Finance costs
Interest and finance charges paid/payable
153
153
Amortisation of capitalised borrowing
transaction costs
Counterparty credit risk adjustments
Amount capitalised to qualifying assets
Total finance costs
10
1
164
(12)
152
20
(1)
172
(28)
144
SIGNIFICANT JUDGEMENTS
The significant judgements in relation to depreciation and impairment
have been explained on page 63 of this report.
4 Income tax
KEEPING IT SIMPLE
This note provides an analysis of the Group’s income tax
expense/benefit (including a reconciliation of income tax
expense to accounting profit), deferred tax balances and
income tax recognised directly in equity.
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 multiplied 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.
The Group recognises a significant net deferred tax liability
and a current cash tax position significantly lower than
the applicable tax rate. This is primarily due to accelerated
fixed asset tax depreciation and is common for entities
operating in a capital intensive environment.
Income tax expense is attributable to:
Profit from continuing operations
121
231
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))
7
(21)
(14)
3
116
119
(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% (2015: 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
Impairment of an associate for which no
deferred tax asset is recognised
2016
$m
193
58
2015
$m
835
251
(2)
(1)
-
(2)
68
121
(2)
(9)
5
(14)
-
231
(c) Tax expense/(benefit) relating to items of other
comprehensive income
Cash flow hedges
2016
$m
(2)
2015
$m
(6)
57
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
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
2016
$m
201
2015
$m
205
(201)
(205)
-
-
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax assets:
Provisions/
accruals
$m
Customer
contracts
$m
Unearned
revenue
$m
Financial
instruments
$m
Other
$m
129
3
-
132
132
(6)
-
-
126
59
(13)
-
46
46
(13)
-
-
33
3
(2)
-
1
1
(1)
-
-
-
8
5
6
19
19
17
2
-
38
3
4
-
7
7
(4)
-
1
4
2016
$m
790
(201)
589
Non-current
assets
$m
Consumables
and spares
$m
Accrued
income
$m
Financial
instruments
$m
Other
$m
670
119
789
789
(33)
756
21
(9)
12
12
(1)
11
3
-
3
3
(3)
-
-
6
6
6
17
23
1
-
1
1
(1)
-
(21)
790
Total
$m
202
(3)
6
205
205
(7)
2
1
201
2015
$m
811
(205)
606
Total
$m
695
116
811
811
Total deferred tax liabilities
Set-off of deferred tax assets pursuant to set-off provisions (note 4(d))
Net deferred tax liabilities
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax liabilities:
Movements
At 1 July 2014
(Charged)/credited
– to profit or loss
– to other comprehensive income
At 30 June 2015
At 1 July 2015
(Charged)/credited
– to profit or loss
– to other comprehensive income
– directly to equity
At 30 June 2016
(e) Deferred tax liabilities
Movements
At 1 July 2014
Charged/(credited)
– to profit or loss
At 30 June 2015
At 1 July 2015
Charged/(credited)
– to profit or loss
At 30 June 2016
58
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
Notes to the consolidated financial statements
30 June 2016 (continued)
4 Income tax (continued)
5 Earnings per share
SIGNIFICANT JUDGEMENTS
The deferred tax asset of $68 million, attributable to the impairment
of the investment in an associate has not been recognised as it is
not considered probable that it will be recovered in the foreseeable
future. The recoverability of the deferred tax asset is dependent on
the sale of shares in the associate.
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 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
2016
Cents
2015
Cents
3.4
28.4
(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
(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:
2016
Cents
2015
Cents
3.4
28.3
2016
Number
‘000
2015
Number
‘000
2,088,213
2,129,414
Rights
3,221
9,255
Weighted average number of ordinary
and potential ordinary shares used as the
denominator in calculating diluted EPS
2,091,434 2,138,669
59
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 61
Page 61
Page 62
Page 65
Page 66
Page 66
Page 67
60
AURIZON ANNUAL REPORT 2015–16 Notes to the consolidated financial statements
30 June 2016 (continued)
6 Trade and other receivables
7 Inventories
Current
Trade receivables
Provision for impairment of receivables
Net trade receivables
Other receivables *
2016
$m
2015
$m
383
(31)
352
162
514
361
(8)
353
190
543
Current
Raw materials and stores – at cost
Work in progress – at cost
Non-current
Raw materials and stores – at cost
* Other receivables predominantly relate to accrued revenue
Provision for inventory obsolescence
2016
$m
2015
$m
148
5
153
44
(8)
36
185
4
189
43
(6)
37
Past due but not impaired
These trade receivables relate to a number of customers for whom there
is no recent history of default and there is no expectation that they will
default. The ageing of past due but not impaired trade receivables is
as follows:
Up to three months
Three to six months
Over six months
2016
$m
2015
$m
42
2
20
64
43
-
4
47
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. Trade receivables have
not had a significant increase in credit risk since they were originated.
On 18 January 2016, Aurizon customer Queensland Nickel (QNI) was
placed into voluntary administration. The $22 million owed by QNI
has been fully provided for. Other than this one-off event, the lifetime
expected loss assessment of the Group remains unchanged.
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.
61
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
144
-
2
(3)
-
2
-
145
145
-
145
145
-
145
351
-
24
(1)
-
2
(19)
357
521
(164)
357
328
29
357
142
366
-
17
(1)
-
(14)
(17)
351
500
-
2
-
-
-
-
144
144
-
144
144
-
144
370
3,103
5,163
9,900
11
65
(7)
-
-
(49)
390
722
(332)
390
377
13
390
272
10
141
(11)
(1)
9
(50)
370
635
-
91
(4)
(147)
-
(220)
2,823
4,921
(2,098)
2,823
2,823
-
2,823
3,122
-
206
(4)
-
4
(225)
3,103
1
735
(18)
-
-
(262)
5,619
665
-
(33)
(267)
4
(550)
9,719
7,033
13,727
(1,414)
(4,008)
5,619
1,448
4,171
5,619
4,663
-
727
(7)
-
-
(220)
5,163
9,719
5,506
4,213
9,719
9,441
1,027
-
(36)
(19)
(1)
(512)
9,900
4,998
6,373
13,419
(149)
(265)
351
319
32
351
370
357
13
370
(1,895)
3,103
3,103
-
3,103
(1,210)
5,163
1,130
4,033
5,163
(3,519)
9,900
5,822
4,078
9,900
2016
Opening net book amount
Additions
Transfers between asset classes
Disposals
Impairment (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
2015
Opening net book amount
Additions
Transfers between asset classes
Disposals
Impairment (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
769
653
(917)
-
(120)
-
-
385
385
-
385
385
-
385
876
1,017
(1,093)
(13)
(18)
-
-
769
769
-
769
769
-
769
62
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 8 Property, plant and equipment
(continued)
SIGNIFICANT JUDGEMENTS
(i) Depreciation
The Group 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. The
Group 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. Any change in useful lives and residual values of
property, plant and equipment is accounted for prospectively.
(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 this note.
Cash generating units: For the year ended 30 June 2016, the
Queensland, Intermodal and Western Australia cash generating
units (CGUs) had indicators of impairment due to decline in market
conditions and reduced revenue and profitability compared to the
corporate plan. The recoverable amounts of CGUs for 30 June 2016
have been determined based on value in use calculations. The value
in use is calculated based on a three-year Board approved corporate
plan, a terminal growth rate of 2.5% (2015: 2.7%) and a pre-tax
discount rate ranging from 11.8% – 12.2% (2015: 12.5% – 12.9%). The
value in use calculations indicate headroom to the carrying value
of the respective CGUs, therefore no impairment expense has been
recognised. However, the Intermodal and Western Australia CGUs are
sensitive to key assumptions and are discussed further below.
Intermodal: The key judgement in the impairment assessment for
the Intermodal CGU is that the Group can achieve the corporate
plan for FY17 to FY19. The corporate plan includes a range of cost
out initiatives largely within the control of Aurizon and revenue
opportunities that will deliver improved earnings over the plan period
to FY19. The achievement of cost out initiatives is critical to achieving
the corporate plan. As at 30 June 2016, the carrying value of the
Intermodal assets was $248 million, which is comprised of $155 million
of rollingstock, $43 million of land, buildings and infrastructure,
and other assets of $50 million. If FY19 EBITDA was 10% below
corporate plan then this may result in an impairment of approximately
$26 million. Alternatively, if a 1% higher discount rate was used this
may result in an impairment of approximately $14 million.
Western Australia: The impairment assessment of the Western
Australian CGU is critically dependent on iron ore customers
continuing to operate and comply with all current contractual
arrangements. The terminal year EBITDA used in the impairment
model calculation has been adjusted for iron ore customers whose
mines are expected to close beyond the three-year corporate
plan period. As at 30 June 2016, the carrying value of the Western
Australian CGU was $638 million, which is comprised of $367 million
of rollingstock, $217 million of land, buildings and infrastructure, and
other assets of $54 million. The iron ore market in general remains
volatile and challenging and a number of miners are facing significant
financial and operating challenges. Should any of the current major
iron ore customers either cease to operate before expected end of
mine life or be unable to continue to comply with current contractual
arrangements then the CGU may become partially impaired.
Strategic infrastructure projects: The long lead time in developing
major rail infrastructure projects and the significant levels of work
undertaken on design and approvals before the physical construction
commences, requires judgement to be exercised in relation to
the timing and nature of cost capitalisation, the probability of
the project being completed and the recoverability of capitalised
costs. Judgement has been applied in determining the level of
uncertainty surrounding the timing of development of these projects
and assessing the current market outlook. Due to the ongoing
uncertainty surrounding the timing of the development of WPIOP
and the brownfield expansion of the CQCN (Galilee Basin) capitalised
project costs of $83 million and $30 million respectively have been
fully impaired. Judgement will continue to be applied in relation
to capitalisation of project development costs. For further details,
refer to the key events and transactions for reporting period note (i)
Strategic Projects on page 50 of this report.
Individual non-current assets: The Group is required to assess the
recoverability of non-current assets at each reporting period. During
the period, the Enterprise Rollingstock Master Plan has been revised
as a result of continued improvements in rollingstock efficiency and
productivity coupled with a lower volume growth outlook. This has
resulted in an impairment of $177 million recorded for the year (of
which $148 million was recognised at 31 December 2015) representing
approximately 6% of the carrying value of the rollingstock fleet.
As at 30 June 2016, the balance of rollingstock is $2,823 million.
Judgement has been applied to estimate the forecast volumes and
productivity improvements from technological advancements, as
well as the required level of contingent fleet, in determining the
level of rollingstock required for the foreseeable future. However, in
the absence of tonnage growth exceeding the rate of productivity
improvement, it is anticipated that there may be further fleet
reductions required in the future. The application of this judgement
will continue to be re-assessed.
63
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
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. Gains and losses on disposals are determined by comparing
proceeds with the carrying amount and are recognised in the
income statement.
(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 of
disposal 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.
8 Property, plant and equipment
(continued)
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 expire 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 Lessor). 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 method (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.
64
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 8 Property, plant and equipment (continued)
Change in accounting policies
Rail renewal
The Group has voluntarily changed the accounting policy in relation to rail renewal. Rail renewal is the replacement of a section of worn track due to
fatigue defects. The new accounting policy is to capitalise and componentise all costs of rail renewal as separate identifiable assets as the rail renewal
restores the rail profile, reduces wheel wear costs, optimises the wheel/rail interaction and most importantly extends the useful life of the track and
hence maximises the value from the rail asset. Rail has a useful life of 7-50 years. This change in policy also necessitates a re-estimation of the useful
life of the rail and sleepers (which is the remaining component of the track asset).
The previous accounting policy was to expense rail renewal expenditure as incurred. The new accounting policy was adopted on 1 July 2015
prospectively as the retrospective impact is not material. The impact of this change in accounting policy for the current year was a net reduction in
operating costs of $12 million. The change in useful life for rail and sleepers has also been adopted on the same date since it is inextricably related to
the change in accounting policy.
The revised policy will now align with global industry practice, is consistent with regulatory treatment and hence makes benchmark comparisons with
industry peers more relevant and meaningful.
9 Intangible assets
2016
Opening net book amount
Additions
Transfers
Amortisation expense (note 3)
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
2015
Opening net book amount
Additions
Transfers
Amortisation expense (note 3)
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
Recognition and measurement
(i) Software and software under development
Software
$m
Key customer
contracts
$m
Software under
development
$m
21
-
50
(10)
61
177
(116)
61
14
1
12
(6)
21
127
(106)
21
1
-
-
(1)
-
7
(7)
-
2
-
-
(1)
1
7
(6)
1
105
74
(50)
-
129
129
-
129
48
69
(12)
-
105
105
-
105
Total
$m
127
74
-
(11)
190
313
(123)
190
64
70
-
(7)
127
239
(112)
127
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 eleven years.
(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.
65
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
9 Intangible assets (continued)
11 Provisions
Recognition and measurement (continued)
(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.
10 Trade and other payables
Current
Employee benefits (a)
Provision for insurance claims
Litigation and workers' compensation provision
Land rehabilitation
Non-current
Employee benefits (a)
Litigation and workers' compensation provision
Decommissioning/make good and other provisions
Land rehabilitation
2016
$m
2015
$m
250
5
17
2
274
23
18
4
48
93
316
9
19
2
346
33
21
5
38
97
Total provisions
367
443
Current liabilities
Trade payables
Other payables
2016
$m
2015
$m
(a) Employee benefits
279
18
297
341
27
368
Annual leave
Long service leave
Other*
2016
$m
2015
$m
66
151
56
273
78
159
112
349
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.
* Included in other employee benefits are bonuses, retirement allowances,
termination benefits and payroll tax on leave
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
$109 million (2015: $147 million) 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.
66
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
11 Provisions (continued)
Details of employee benefits (continued)
(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 the group decides to terminate
the employment, 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 termination 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.
(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 at least every three years. 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 2.8%
(2015: 3.4%).
To measure the estimated costs to remediate contaminated land an
inflation rate of 2.3% (2015: 2.7%) has been applied, based on remediation
dates ranging between 10 to 40 years. A weighted average discount rate
of 2.3% (2015: 3.7%) 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.
A provision for onerous contracts is recognised by the Group when the
unavoidable costs of meeting the obligations under the contract exceed
the expected economic benefits to be received. It is measured at the
present value of management’s best estimate of the expenditure required
to settle the present obligation at the end of the reporting period.
12 Other liabilities
Current
Income received in advance
Other current liabilities
Non-current
Income received in advance
Other non-current liabilities
2016
$m
2015
$m
49
4
53
222
5
227
52
3
55
252
4
256
Income received in advance primarily represents amounts received
from customers as prepayment of future rentals under agreements for
customer specific rail infrastructure. These amounts are deferred and
earned over the term of the agreements.
67
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
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 69
Page 69
Page 69
Page 71
Page 71
Page 77
68 AURIZON ANNUAL REPORT 2015–16
Notes to the consolidated financial statements
30 June 2016 (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 and financial risk management
during the year. Refer to note 17 for further details.
(c) Franked dividends
The franked portions of the final dividends recommended after
30 June 2016 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 2017.
Franking credits available for subsequent
reporting periods based on a tax rate of 30%
(2015: 30%)
2016
$m
2015
$m
91
76
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.
15 Equity and reserves
Notes
2016
$m
16
3,490
(69)
3,421
5,714
9,135
37.4%
2015
$m
2,983
(171)
2,812
6,506
9,318
30.2%
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.
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
14 Dividends
(a) Ordinary shares
Interim dividend for the year ended 30 June
2016 of 11.3 cents 70% franked (2015: 10.1 cents
unfranked) per share, paid 29 March 2016
Final dividend for the year ended 30 June 2015
of 13.9 cents 30% franked (2014: 8.5 cents,
unfranked) per share, paid 28 September 2015
(a) Contributed equity
(i)
Issued capital
2016
$m
2015
$m
2016
Shares
‘000
2015
Shares
‘000
2016
$m
2015
$m
234
214
Ordinary shares
– fully paid
2,051,745
2,122,010
1,207
1,508
295
529
182
396
(ii) Movements in ordinary share capital
(b) Dividends not recognised at the end of the
reporting period
Since 30 June 2016, the directors have
recommended the payment of a final dividend
of 13.3 cents per fully paid ordinary share 70%
franked (2015: 13.9 cents, 30% franked). The
aggregate amount of the proposed dividend
expected to be paid on 26 September 2016
out of retained earnings, but not recognised as
a liability at year end is:
2016
$m
2015
$m
273
295
Details
At 1 July 2014
On-market share buy-back
At 30 June 2015
On-market share buy-back
At 30 June 2016
Number
of shares
‘000
2,137,285
(15,275)
$m
1,508
-
2,122,010
1,508
(70,265)
(301)
2,051,745
1,207
The on-market share buy-back has been paid out of Issued Capital for
the year ended 30 June 2016. In the prior year, the on-market share
buy-back was 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.
FINANCIAL REPORT
69
15 Equity and reserves (continued)
(b) Reserves
Share of an
associate’s
OCI
$m
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Notes
(30)
20
3,469
-
-
-
-
(2)
(2)
-
-
-
27(b)
(3)
(3)
2
-
(4)
-
-
-
-
-
-
-
-
-
-
-
-
(19)
(22)
5
6
(11)
-
-
-
(30)
27(b)
-
-
-
-
-
25
(54)
1
(8)
-
-
-
-
-
17
(12)
20
(2)
(34)
3,469
3,425
Share of an
associate’s
OCI
$m
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Notes
15
3,538
Total
$m
3,459
(3)
(3)
2
(2)
(6)
25
(54)
1
Total
$m
3,534
(22)
5
6
(11)
(69)
17
(12)
-
-
-
-
-
-
-
-
-
-
-
-
(69)
-
-
3,469
3,459
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 charged to
this account.
Balance at 1 July 2015
Fair value losses taken to equity
Transfers to property, plant and equipment
Deferred tax
Share of an associate's other comprehensive income
Other comprehensive income
Transactions with owners in their capacity as owners
Share-based payments expense
Employee share trust to employees
Deferred tax
At 30 June 2016
Balance at 1 July 2014
Fair value losses taken to equity
Transfers to property, plant and equipment
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 employees
At 30 June 2015
Nature and purpose of reserves
Cash flow hedges
The hedging reserve is used to record gains or losses on hedging
instruments that are designated cash flow hedges and 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.
70
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
16 Borrowings
KEEPING IT SIMPLE
The Group borrows money through bank debt facilities and
through the issuance of debt securities in capital markets.
The carrying amount of the Group’s borrowings is as follows:
Current – Unsecured
Working capital facilities
Non-current – Unsecured
Medium-term notes
Syndicated facilities
Capitalised borrowing costs
Total borrowings
2016
$m
2015
$m
6
6
59
59
2,086
1,415
1,250
1,690
(17)
(16)
3,484
3,490
2,924
2,983
In December 2015, Aurizon Network Pty Ltd refinanced $490 million of
its syndicated debt facility extending the maturity date to 1 July 2021.
In April 2016, Aurizon Finance Pty Ltd refinanced a $300 million tranche
of its bank debt. For further details please refer to note 17(c).
On 23 May 2016, Aurizon Network Pty Ltd issued a 10-year Euro
Medium-Term Note (EMTN) with a coupon of 3.125% raising €500
million. Cross currency interest rate swaps were executed concurrently
to fully swap the issuance back to Australian dollar (A$) floating rate
debt. Aurizon Network Pty Ltd used the proceeds to repay and cancel
$775 million of its syndicated debt facilities.
The Group uses floating-for-fixed interest rate swaps to manage its
exposure to interest rate risk set out in note 17(a). Risk is managed in
accordance with Board approved Treasury Policies.
The unsecured syndicated facilities contain financial covenants. Both
the syndicated facilities and medium-term notes contain general
undertakings including negative pledges which restrict the amount of
security that the Group can provide over assets in certain circumstances.
The Group has complied with all required covenants and undertakings
throughout the reporting period.
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 related borrowing.
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.
Borrowings are removed from the balance sheet when the obligation
specified in the contract is discharged, cancelled or expired.
(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 4.7% (2015: 4.9%).
17 Financial risk management
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.
(a) Market risk
Market risk is the risk that adverse movements in foreign exchange and/
or 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 exposure relates largely to the Euro (€) denominated
medium-term note borrowings issued in September 2014 (EMTN 1) and
May 2016 (EMTN 2). The Group also has exposure to movements in
foreign currency exchange rates through anticipated purchases of parts
and equipment.
Cross currency interest rate swap agreements
To mitigate the risk of adverse movements in foreign exchange and
interest rates in relation to borrowings denominated in foreign currency,
the Group enters into cross currency interest rate swap (CCIRS)
agreements through which it replaces the foreign currency principal and
interest liability with an AUD principal and interest liability. These cross
currency interest rate swap agreements are designated in cash flow and
fair value hedge relationships.
71
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
17 Financial risk management (continued)
(a) Market risk (continued)
(i) Foreign exchange risk (continued)
Foreign exchange contracts
The Group uses forward contracts to manage its foreign exchange
risk arising from anticipated purchases of parts and equipment. These
contracts are hedging highly probable forecast foreign currency
exposures and are denominated in the same currency as the highly
probable future purchases. The forward 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.
As at the reporting date, the Group’s exposure to foreign exchange risk
after taking into consideration hedges of foreign currency borrowings
and forecast foreign currency transactions is not considered material.
(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
which expose the Group to cash flow interest rate risk.
At the reporting date, the Group has exposure to the following variable
rate borrowings and interest rate swaps.
30 June 2016
30 June 2015
Weighted
average
interest
rate
%
Weighted
average
interest
rate
%
Balance
$m
Balance
$m
3.6
2,910
4.3
2,460
4.8
(1,875)
4.9
(1,725)
1,035
735
Variable rate
borrowings
Interest rate
swaps (include
debt margins)
Net exposure to
interest rate risk
Risk management
The Group manages cash flow interest rate risk by using floating-for-
fixed interest rate swaps. 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 issuances.
Interest rate swaps currently in place cover approximately 64%
(2015: 70%) of the variable loan principal outstanding. The weighted
average maturity of the outstanding swaps is approximately 1.3 years
(2015: 1.9 years).
The settlement dates coincide with the dates on which interest is
payable on the underlying debt. The International Swaps and Derivatives
Association (ISDA) 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 $23 million (2015: loss of $17 million) as a
result of market interest rates closing lower than the average hedged
rate. The total realised loss represents the effective portion of the hedges
which 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 borrowings and 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)
2016
$m
2015
$m
2016
$m
2015
$m
11
11
(40)
(37)
(11)
(11)
38
36
100 bps movement
in interest rates
100 bps decrease in
interest rates
100 bps increase in
interest rates
72
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 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 on the statement of financial position of the Group is as follows:
Notional amount
Carrying amount assets/
(liability) refer to Note 18
$m
Change in fair value
used for measuring
ineffectiveness for the year
$m
2016
2015
2016
2015
2016
2015
Cash flow hedges
Foreign exchange risk
Forward contracts
Forward contracts
Forward contracts
Forward contracts
Forward contracts
Foreign exchange and interest rate risks
CCIRS — EMTN 1
CCIRS — EMTN 2
Interest rate risk
Interest rate swaps
Fair value hedge
US$10m
US$24m
US$3m
US$1m
-
-
€500m
€500m
US$5m
US$3m
€5m
€3m
€500m
-
-
-
-
-
-
(9)
(9)
1
-
-
-
-
5
-
A$1,875m
A$1,725m
(28)
(43)
Foreign exchange and interest rate risks
CCIRS — EMTN 1
CCIRS — EMTN 2
€500m
€500m
€500m
-
86
(14)
14
-
The impact of hedged items designated in hedging relationships on the consolidated balance sheet is as follows:
-
-
-
-
-
1
(9)
16
76
(14)
1
-
-
-
-
-
-
(16)
25
-
Cash flow hedge reserve
$m
Change in value used for
measuring ineffectiveness
during the year
$m
2016
2015
2016
2015
-
21
28
(1)
1
43
-
9
(16)
(1)
-
17
Carrying amount
$m
Accumulated fair value
adjustment
$m
Change in fair value
used for measuring
ineffectiveness for the year
$m
2016
2015
2016
2015
2016
2015
Cash flow hedges (before tax)
Foreign exchange risk
Firm commitments
Foreign exchange and interest rate risk
EMTNs
Interest rate risk
Forecast floating interest payments
Fair value hedge
Foreign exchange and interest rate risk
Non-current liabilities (borrowings) — EMTNs
(1,576)
(736)
(87)
(25)
(62)
(25)
73
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
17 Financial risk management (continued)
(a) Market risk (continued)
(iv) Effects of hedge accounting on the consolidated balance
sheet and consolidated income statement (continued)
The above hedging relationships affected other comprehensive income
as follows:
Hedging gain or (loss)
recognised in comprehensive income
$m
2016
2015
Cash flow hedges
Foreign exchange risk
Forward contracts
Interest rate risk
Interest rate swaps
Foreign exchange and interest rate risk
CCIRS
(1)
15
(20)
(6)
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.
(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.
Historically, there has been no significant change in customers’ credit
risk. Other than the one-off event in relation to QNI, the lifetime expected
loss assessment of the Group remains unchanged. The Group considers
the probability of default upon initial recognition of asset and whether
there has been a significant increase in credit risk on an ongoing basis
throughout the reporting period. To assess whether there is a significant
increase in credit risk, the Group compares the risk of a default
occurring on the asset as at the reporting date with the risk of default
as at the date of initial recognition. It considers available reasonable
and supportive forward-looking information. The following indicators
are considered:
› External credit rating (as far as available)
› Actual or expected significant adverse changes in business, financial or
economic conditions that are expected to cause a significant change to
the borrower’s ability to meet its obligations
› Significant changes in the value of the collateral supporting the
obligation or in the quality of third-party guarantees or credit
enhancements
› The financial position of customers, past experience and other factors
(macroeconomic information)
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’s exposure to financial institutions by credit rating band.
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
Australian medium-term note
EMTN 1**
EMTN 2**
Total Group financing arrangements
Security
Unsecured
Unsecured
Unsecured
Maturity
Jun-17
Jul-20
Jul-19
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Jun-17
Jul-21
Jul-18
Oct-20
Sept-24
Jun-26
Utilised*
2016
$m
43
300
200
543
8
490
425
525
711
778
2,937
3,480
2015
$m
101
-
-
101
6
490
1,200
525
711
-
2,932
3,033
Facility limit
2016
$m
150
500
300
950
2015
$m
150
300
300
750
100
490
525
525
711
778
3,129
4,079
100
490
1,300
525
711
-
3,126
3,876
* Amount utilised includes bank guarantees of $45 million (2015: $48 million) but excludes capitalised borrowing costs of $17 million (2015: $16 million) and discounts
on medium-term notes of $15 million (2015: $11 million)
** Amount utilised also excludes accumulated fair value adjustments of $101 million (2015: $25 million) for EMTN 1 and -$14 million for EMTN 2 (2015: nil)
74
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
17 Financial risk management (continued)
(c) Liquidity risk (continued)
Within the working capital facilities, the Group has access to financial accommodation arrangements totalling $250 million (2015: $250 million) which
may be utilised in the form of short-term working capital funding and the issuance of bank guarantees. At the end of the reporting period, the Group
utilised $45 million (2015: $48 million) for financial bank guarantees.
The Group has complied with externally imposed capital debt covenants during the 2016 and 2015 reporting periods.
The following table summarises the contractual timing of undiscounted cash flows, including estimated interest payments, of financial liabilities and
derivative instruments, expressed in AUD. The contractual amount assumes current interest rates and foreign exchange rates estimated using forward
curves applicable at the end of the reporting period.
2016
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
- (inflow)
- outflow
2015
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
- (inflow)
- outflow
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
297
164
43
504
27
-
(15)
16
28
368
191
48
607
22
-
(47)
46
21
-
-
2,058
2,358
-
-
2,058
2,358
(1)
-
(2)
2
(1)
-
2,078
-
2,078
21
-
(7)
7
21
-
-
-
-
-
-
1,412
-
1,412
-
-
-
-
-
297
4,580
43
4,920
26
-
(17)
18
27
368
3,681
48
4,097
43
-
(54)
53
42
297
3,436
-
3,733
28
-
-
-
28
368
2,965
-
3,333
43
(1)
-
-
42
* Borrowings include the effect of cross currency interest rate swap derivatives which have a carrying amount of $77 million (non-current asset) and
$23 million (non-current liability) (2015: $19 million non-current asset)
(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:
› Forward foreign exchange contracts
› Interest rate swaps
› Cross currency interest rate swaps
75
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
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 2016
Derivative financial
assets
Derivative financial
liabilities
Net financial instruments
measured at fair value
30 June 2015
Derivative financial
assets
Derivative financial
liabilities
Net financial instruments
measured at fair value
Notes
Level 1
$m
Level 2
$m
Level 3
$m
Total
$m
18
18
18
18
-
-
-
-
-
-
77
(51)
26
20
(43)
(23)
-
-
-
-
-
-
77
(51)
26
20
(43)
(23)
17 Financial risk management (continued)
(d) Fair value measurements (continued)
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 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 for both forward foreign exchange contracts and interest
rate swaps.
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.
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 2016, the borrowing rates were determined to
be between 2.8% to 5.8%, depending on the type of borrowing
(30 June 2015: 2.8% to 4.9%).
Carrying
amount
Notes
2016
$m
2015
$m
Fair value
2016
$m
2015
$m
Financial assets carried
at fair value
Foreign exchange
contracts
CCIRS — EMTN 1
Financial assets carried
at amortised cost
Cash and cash equivalents
Trade and other
receivables
Financial liabilities
carried at fair value
Interest rate swaps
CCIRS — EMTN 2
Financial liabilities
carried at amortised cost
Trade and other
payables
Borrowings
Off-balance sheet
Unrecognised financial assets
Third party guarantees
Bank guarantees
Insurance company guarantees
Unrecognised financial
liabilities
Bank guarantees
76
18
18
6
18
18
-
77
77
1
19
20
-
77
77
1
19
20
69
171
69
171
514
583
543
714
514
583
543
714
(28)
(23)
(51)
(43)
-
(43)
(28)
(23)
(51)
(43)
-
(43)
10
(297)
16 (3,490)
(3,787)
(368)
(297)
(2,983) (3,495)
(3,351)
(3,792)
(368)
(3,091)
(3,459)
-
-
-
-
-
-
-
-
-
-
98
341
8
97
339
9
(45)
402
(48)
397
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
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
Foreign exchange contracts
Non-current assets
CCIRS — EMTN 1
Total derivative financial instrument assets
Current liabilities
Interest rate swaps
Non-current liabilities
Interest rate swaps
CCIRS — EMTN 2
Total derivative financial instrument liabilities
2016
$m
2015
$m
-
77
77
28
-
23
51
1
19
20
-
43
-
43
(a) Offsetting derivative financial instruments
The following table presents the recognised financial instruments that are offset, or subject to enforceable master netting arrangements and other
similar agreements but not offset, as at 30 June 2016 and 30 June 2015. The column ‘net amount’ shows the impact on the Group’s balance sheet if all
set-off rights were exercised.
Effects of offsetting on the balance sheet
Related amounts not offset
Gross amounts
Gross amounts
set off in the
balance sheet
$m
Net amounts
presented in the
balance sheet
$m
Amounts subject
to master netting
arrangements
$m
Net amount*
$m
2016
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
2015
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
* No financial instrument collateral
77
(51)
20
(43)
-
-
-
-
77
(51)
20
(43)
(5)
5
-
-
72
(46)
20
(43)
Master netting arrangement
Derivative transactions are administered under ISDA Master Agreements. Under the terms of these agreements, where certain credit events occur
(such as default), the net position owing/receivable to a single counterparty in the same currency will be taken as owing and all the relevant
arrangements terminated. As the Group does not presently have a legally enforceable right of set-off between different transaction types, these
amounts have not been offset in the balance sheet, but have been presented separately in the table above.
77
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT 18 Derivative financial instruments
(continued)
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). The Group has established a 100%
hedge relationship against the identified exposure, therefore the hedge
ratio is 1:1.
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. Hedge effectiveness is determined at the inception of the hedge
relationship, and through periodic prospective effectiveness assessments
to ensure that an economic relationship exists between the hedged
item and hedging instrument. The Group enters into hedge relationships
where the critical terms of the hedging instrument match exactly
with the terms of the hedged item, and so a qualitative assessment of
effectiveness is performed. If changes in circumstances affect the terms
of the hedged item such that the critical terms no longer match exactly
with the critical terms of the hedging instrument, the Group uses the
hypothetical derivative method to assess effectiveness.
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.
(i)
Cash flow hedge
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in other
comprehensive income, and accumulated in reserves in equity limited
to the cumulative change in fair value of the hedged item on a present
value basis from the inception of the hedge. Ineffectiveness is recognised
on a cash flow hedge where the cumulative change in the designated
component value of the hedging instrument exceeds on an absolute
basis the change in value of the hedged item attributable to the hedged
risk. Ineffectiveness may arise where the timing of the transaction
changes from what was originally estimated or differences arise between
credit risk inherent within the hedged item and the hedging instrument.
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.
78
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 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 80
Page 81
Page 82
Page 82
79
FINANCIAL REPORT 19 Associates and joint arrangements
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.
Non-current assets
Investment in associates (a)
Interest in joint ventures (b)
2016
$m
2015
$m
-
2
2
317
1
318
(a) Investments in associates
The Group has an interest in the following associates:
Name
Country of
operation
2016
%
2015
%
Principal
activity
Ownership interest
Moorebank
Industrial
Property Trust
Aquila Resources
Limited*
Australia
Australia
33
15
Land and
potential
intermodal
development
Exploration
and mining
33
15
(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
Net assets
Revenue
Share of net profit/(loss)
from associates
2016
$m
53
20
73
(4)
(69)
(73)
-
9
3
Impairment loss
(226)
Share of net (loss)/profit
from associates after
impairment loss
Other comprehensive
income
(223)
(2)
Total comprehensive income
(225)
Distributions received
(Aurizon's share)
-
(iii) Contingent liabilities of associates
2015
$m
65
200
265
(2)
(38)
(40)
225
3
(1)
-
(1)
-
(1)
-
2016
$m
2015
$m
2
93
95
-
-
-
95
11
9
-
9
-
9
10
1
92
93
(1)
-
(1)
92
15
14
-
14
-
14
6
* Aquila Resources Limited is accounted for as an associated company because
the Group has significant influence primarily through representation on its
Board of Directors
There are no contingent liabilities relating to liabilities of the associate for
which the Group is severally liable.
(i)
Movement in carrying values
Aquila
Moorebank
Opening balance
Additional
investments
Share of profit/
(losses) in associates
Share of other
comprehensive
income
Dividends received
Impairment loss
Reclassification to
assets held for sale
(note 24)
Closing balance
2016
$m
225
-
3
(2)
-
(226)
-
-
2015
$m
-
226
(1)
-
-
-
-
225
2016
$m
92
2015
$m
83
4
9
-
(10)
-
(95)
-
1
14
-
(6)
-
-
92
SIGNIFICANT JUDGEMENTS
Investment in associates
The recoverable amount of the Group’s 15% interest in Aquila is
dependent on the development and viability of Aquila’s mining
projects. Key judgements applied in determining the recoverable
amount of the investment in Aquila include the long-term iron ore
and metallurgical coal prices, the timing of the development of
these projects, discount rates and foreign exchange rates. This has
resulted in an impairment of $226 million (of which $153 million
was recognised at 31 December 2015). As at 30 June 2016 the
carrying value of the investment in Aquila is nil. For further details
of impairment in Aquila, refer to note (ii) on page 50 of this report.
80
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16
19 Associates and joint arrangements
(continued)
(b) Investments in joint ventures
The Group has an interest in the following joint ventures, which are equity
accounted, contributed $1 million to the Group results, have net assets of
$2 million and are not considered material to the Group.
Ownership
interest
Name of entity
Aurizon Operations Limited
Interail Australia Pty Ltd
20 Material subsidiaries
The Group’s material subsidiaries that were controlled during the year
and prior years are set out below.
Name
CHCQ
China–Hong Kong
Chun Wo/CRGL
China–Hong Kong
KMQR Sdn Bhd
Malaysia
ARG Risk
Management
Limited
Integrated
Logistics
Company Pty Ltd
Country of
operation
2016
%
2015
%
Principal
activity
Australia Eastern Railroad Pty Ltd
Australia Western Railroad Pty Ltd
15
17
30
15 Construction
17 Construction
30
Consulting
Aurizon Network Pty Ltd
Aurizon Property Pty Ltd
Aurizon Terminal Pty Ltd
Aurizon Finance Pty Ltd
Australia
50
50
Insurance
Iron Horse Insurance Company Pte Ltd
Aurizon Moorebank Unit Trust
Australia
14
14
Consulting
Country of
incorporation
Equity
holding
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Singapore
Australia
100
100
100
100
100
100
100
100
100
100
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
judgements made in relation to the long-term foreign exchange rates,
metallurgical coal and iron ore prices.
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.
81
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
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
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Contributed equity
Retained earnings
Reserves
Total equity
2016
$m
80
6,093
6,173
(80)
(1,425)
(1,505)
4,668
2015
$m
75
6,122
6,197
(75)
(1,126)
(1,201)
4,996
1,207
1,508
3
3,458
4,668
-
3,488
4,996
The parent entity has several employees. All costs associated with these
employees are borne by a subsidiary of the parent entity and are not
included in the above disclosures.
Profit for the year
Total comprehensive income
532
532
396
396
(b) Guarantees entered into by the parent entity
There are cross guarantees given by Aurizon Holdings Limited and its
subsidiaries as 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 2016 or 30 June 2015. 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 2016, the parent entity did not have any contractual
commitments for the acquisition of property, plant and equipment
(2015: 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.
82
(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.
These tax funding arrangements result in the head entity recognising
a current inter-entity receivable/payable equal in amount to the tax
liability/asset assumed.
The tax sharing agreement limits the joint and several liability of the
wholly-owned entities in the case of a default by the head entity.
(iii) Employee benefits – share-based payments
The grant by the Company of rights over its equity instruments to the
employees of 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.
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 (b) Consolidated balance sheet
The balance sheet of the parties to the Deed of Cross Guarantee at each
reporting date is presented below.
22 Deed of cross guarantee (continued)
Comparative information in this note has been restated to conform with
changes in presentation in the current year. As a result, $760 million has
been reclassified between revenue and consumables.
(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’.
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Prepayments
Assets classified as held for sale
Total current assets
Non-current assets
Inventories
Property, plant and equipment
Intangible assets
Investments accounted for using the equity
method
Other receivables
Other financial assets*
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
Current tax liabilities
Provisions
Other liabilities
2016
$m
2015
$m
3,083
268
(1,610)
(775)
(304)
(294)
(52)
(222)
(10)
1
85
(13)
72
3,385
300
(1,718)
(888)
(304)
(18)
(33)
-
(8)
8
724
(120)
604
72
604
Total current liabilities
(2)
(2)
1
(3)
69
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
-
-
1
1
605
Equity
Contributed equity
Reserves
2016
$m
2015
$m
61
467
109
-
6
5
30
460
139
1
9
21
648
660
22
4,314
125
2
62
1,223
5,748
6,396
314
-
80
236
9
639
497
57
91
6
651
1,290
5,106
1,207
3,458
441
5,106
25
4,558
87
226
71
1,222
6,189
6,849
329
57
37
311
8
742
-
106
96
8
210
952
5,897
1,508
3,488
901
5,897
Income statement
Revenue from continuing operations
Other income
Consumables
Employee benefits expense
Depreciation and amortisation expense
Impairment losses
Other expenses
Share of net profits of associates and joint
venture partnership accounted for using the
equity method
Finance costs
Finance income
Profit before income tax
Income tax expense
Profit for the year
Statement of comprehensive income
Profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
- Share of other comprehensive income of
associates and joint ventures
- 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
Summary of movements in consolidated retained earnings
Retained earnings at the beginning of the
financial year
Total comprehensive income for the year
901
69
688
605
Retained earnings
Total equity
Dividends provided for or paid
(529)
(396)
* Other financial assets represent investments in entities outside of the
Removal of CRT Group
Retained earnings at the end of the
financial year
-
4
deed group
441
901
83
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT 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 85
Page 85
Page 85
Page 85
Page 86
Page 87
Page 87
84
AURIZON ANNUAL REPORT 2015–16
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
Non-cash tax adjustment on share based
payment
Share of profits of associates and joint venture
partnership
Impairment loss of investment in associate
Net exchange differences
Change in operating assets and liabilities:
Decrease in trade debtors
Decrease in inventories
Decrease in other operating assets
2016
$m
72
561
267
152
25
3
1
(13)
226
-
29
36
3
2015
$m
604
519
20
144
17
(47)
-
(14)
-
(1)
60
30
14
Decrease in trade and other payables
(25)
(82)
(Decrease) Increase in other operating
liabilities
Increase in provision for income taxes
payable
(Decrease) Increase in deferred tax
liabilities
Decrease in other provisions (note 11)
(31)
4
(16)
(76)
10
123
119
-
Net cash inflow from operating activities
1,218
1,516
24 Assets classified as held for sale
Property, plant and equipment
Investment in an associate
2016
$m
2015
$m
6
95
101
21
-
21
On 2 August 2016 Aurizon announced the sale of its 33.33% equity
holding in the proposed Moorebank Intermodal Terminal project for
$98 million (net of transaction costs) to Qube Holdings Limited group
entities. The sale is expected to be completed in August 2016.
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.
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
2016
$’000
2015
$’000
7,307
9,735
313
55
750
2,668
11,093
277
120
-
5,028
15,160
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.
85
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT
27 Share-based payments
Retentions
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:
Short Term Incentive Awards (STIA)
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 and subsequent years. The
rights will vest after one year and become exercisable provided that the
executive remains employed by the Group at the vesting date, unless
otherwise determined by the Board.
Long Term Incentive Award (LTIA)
Performance rights are granted to senior executives as part of the
Group’s LTIA. The first grant of LTIA rights was in November 2010.
The rights are subject to employment service conditions and satisfying
market based performance hurdles of Total Shareholder Return (TSR),
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). In the event that performance hurdles are not achieved
the performance period for the 2014 and 2015 Award may be extended
for an additional year, at the discretion of the Board.
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
188
419
(188)
-
419
15,931
3,714
(6,814)
(909)
11,922
Grant
Date
2016
STIAD
LTIA
Retentions
113
179
(167)
-
125
Total
2015
STIAD
LTIA
Retentions
16,232
4,312
(7,169)
(909)
12,466
635
13,267
393
188
4,321
25
(628)
(1,531)
(305)
(7)
188
(126)
15,931
-
113
Total
14,295
4,534
(2,464)
(133)
16,232
At 30 June 2016, there were no vested but unexercised rights
The weighted average exercise price of rights granted during the year
was nil (2015: 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 $5.33 (2015: $5.03). The weighted average remaining
contractual life of share rights outstanding at 30 June 2016 was 1.0 year
(2015: 1.0 year).
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, were $5.08 and $4.53 (2015: $4.65 for STIAD and $4.31 for
LTIA) respectively, 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
Share price at grant date
Expected life
Company share price volatility
Risk free rate
Dividend yield
Fair value
2016
LTIA
2015
LTIA
17 Aug 2015
18 Aug 2014
17 Aug 2018
18 Aug 2017
31 Dec 2019
31 Dec 2018
$5.24
3.5 years
$4.88
3.5 years
23%
2.0%
5.1%
$2.92
15%
2.75%
4.3%
$2.05
The Company share price volatility is based on the Company’s average
historical share price volatility to the grant date.
86
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 27 Share-based payments (continued)
29 Summary of other significant
accounting policies
Other significant accounting policies adopted in the preparation of these
consolidated financial statements are set out below. These policies have
been consistently applied to all the years presented, unless otherwise
stated. Where necessary, comparative information has been restated to
conform with changes in presentation in the current year.
(a) Basis of preparation
(i) Change in accounting policies
Rail renewal
The Group has voluntarily changed the accounting policy in relation to
rail renewal. The change in accounting policy has been explained on
page 65 of this report.
(ii) New and amended standards adopted by the Group
None of the new standards and amendments to standards that are
mandatory for the first time for the financial year beginning 1 July 2015
materially affect the amounts recognised in the current period or any
prior period and are not likely to affect future periods. The Group has not
early adopted any amendments, standards or interpretations that have
been issued but are not yet effective in the current year.
The Group early adopted AASB 9 Financial Instruments in the year ended
30 June 2015.
(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
$25 million (2015: $17 million), which included a $16 million cost for
shares gifted to employees in recognition of the Group achieving an
operating ratio of 75%.
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 and its related practices:
PwC Australia
Audit and other assurance services
2016
$’000
2015
$’000
Audit and other assurance services
Audit and review of financial statements
1,466
1,690
Other assurance services
Other assurance services
204
153
Total remuneration for audit and other
assurance services
Taxation services
Tax advisory services
Other services
Advisory services
Total remuneration of PwC Australia
1,670
1,843
91
50
275
2,036
329
2,222
87
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT 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 2016 reporting periods
and have not been early adopted by the Group, other than AASB 9 as outlined above. The Group’s assessment of the impact of these
new standards and interpretations is set out below.
Title of standard
Nature of change
Impact
Mandatory application date
AASB 15 Revenue
from Contracts
with Customers
AASB 16 Leases
AASB 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 AASB 118 Revenues, AASB 111
Construction Contracts and related Interpretations. The
core principle is that an entity recognises revenue to depict
the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods
or services. This standard also allows costs associated with
obtaining a contract to be capitalised and amortised over
the life of the new contract.
AASB 16 Leases addresses the recognition, measurement,
presentation and disclosures of leases. This standard
provides a single lessee accounting model, requiring
lessees to recognise assets and liabilities for all leases
unless the lease term is 12 months or less or the
underlying asset has a low value. Lessors continue to
classify leases as operating or finance, with AASB 16’s
approach to lessor accounting substantially unchanged
from its predecessor, AASB 117.
Management is considering
the impact of the
new standard.
Must be applied for financial years
commencing on or after 1 January
2018. Early adoption is permitted.
Expected date of adoption by the
Group: 1 July 2018 for FY2019.
Management is considering
the impact of the
new standard.
Must be applied for financial years
commencing on or after 1 January
2019. Early adoption is permitted.
Expected date of adoption by the
Group: 1 July 2019 for FY2020.
(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.
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.
88
Notes to the consolidated financial statements30 June 2016 (continued)AURIZON ANNUAL REPORT 2015–16 (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.
29 Summary of other significant
accounting policies (continued)
(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.
(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.
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.
(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.
89
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT 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 91
Page 91
Page 91
90
AURIZON ANNUAL REPORT 2015–16 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, but due to current uncertainty, do
not qualify for recognition.
On 2 August 2016 Aurizon announced the sale of its 33.33% equity
holding in the proposed Moorebank Intermodal Terminal project for
$98 million (net of transaction costs) to Qube Holdings Limited group
entities. The sale is expected to be completed in August 2016.
(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
disclosure 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
There are no capital commitments beyond 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
2016
$m
2015
$m
77
141
2016
$m
2015
$m
50
97
64
211
36
57
25
118
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.
91
Notes to the consolidated financial statements30 June 2016 (continued)FINANCIAL REPORT Directors’ Declaration
30 June 2016
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 44 to 91 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 2016 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 49 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.
T M Poole
Chairman
Brisbane
15 August 2016
92
AURIZON ANNUAL REPORT 2015–16
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 2016, 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 (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,
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.
93
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
2016 and of its performance for the year ended on that date; and
complying with Australian Accounting Standards 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 23 to 36 of the directors’ report for the
year ended 30 June 2016. 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 2016
complies with section 300A of the Corporations Act 2001.
PricewaterhouseCoopers
John Yeoman
Partner
Brisbane
15 August 2016
Simon Neill
Partner
94
AURIZON ANNUAL REPORT 2015–16 Non-IFRS Financial Information
in 2015-16 Annual Report
Profit before income tax
Finance costs (net)
EBIT – Statutory
Significant adjustments:
– Impairment of investment in associates
– Strategic infrastructure project and
assets under construction impairment
– Rollingstock impairment
EBIT – Underlying
Depreciation and amortisation
2016
$m
193
150
343
226
125
177
871
561
2015
$m
835
135
970
-
-
-
970
519
EBITDA – Underlying
1,432
1,489
Operating Ratio
Average invested capital
ROIC
Borrowings – Current
Borrowings – Non-current
Total borrowings
Cash and cash equivalent
Net debt
74.8%
10,086
8.6%
6
3,484
3,490
(69)
3,421
74.3%
10,035
9.7%
59
2,924
2,983
(171)
2,812
Net Gearing Ratio
37.4%
30.2%
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, NPAT – 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.
NPAT – Underlying represents the underlying EBIT less finance costs less
tax expense excluding tax impact of significant adjustments.
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 underlying EBIT
divided by the average invested capital. The average invested capital
is calculated by taking the rolling twelve month 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.
95
FINANCIAL REPORT Shareholder Information
RANGE OF FULLY PAID ORDINARY SHARES AS AT 8 AUGUST 2016
RANGE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 – 999,999,999
1,000,000,000 – 9,999,999,999
Rounding
Total
UNMARKETABLE PARCELS
TOTAL HOLDERS
UNITS % OF ISSUED CAPITAL
20,996
25,111
3,259
2,359
140
0
13,138,535
55,908,868
23,694,084
46,752,579
1,912,251,419
0
0.64
2.72
1.15
2.28
93.20
0
0.01
51,865
2,051,745,485
100.00
Minimum $500.00 parcel at $5.15 per unit
MINIMUM PARCEL SIZE
98
HOLDERS
599
UNITS
17805
The number of shareholders holding less than the marketable parcel of shares is 599 (shares: 17,805)
SUBSTANTIAL HOLDERS OF 5% OR MORE OF FULLY PAID ORDINARY SHARES AS AT 8 AUGUST 2016*
NAME
HSBC Holdings
JP Morgan Chase & Co. and its affiliates
TCI Fund Management Limited
UBS Group AG and its related bodies corporate
The Vanguard Group Inc
NOTICE DATE
18 May 2016
5 January 2016
15 July 2015
10 August 2016
1 July 2016
SHARES
151,013,818
127,444,497
112,207,436
107,640,748
105,111,167
* As disclosed in substantial shareholder notices received by the Company
INVESTOR CALENDAR
2017 DATES
13 February 2017
27 March 2017
14 August 2017
25 September 2017
20 October 2017
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.
96 AURIZON ANNUAL REPORT 2015–16
TOP 20 HOLDERS OF FULLY PAID ORDINARY SHARES AS AT 8 AUGUST 2016
NAME
ADDRESS
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
GPO BOX 5302, SYDNEY NSW, 2001
UNITS
680,290,342
J P MORGAN NOMINEES AUSTRALIA LIMITED
LOCKED BAG 20049, MELBOURNE VIC, 3001
408,896,690
% OF
UNITS
33.16
19.93
GPO BOX 764G, MELBOURNE VIC, 3001
307,963,344
15.01
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
QUEENSLAND TREASURY HOLDINGS PTY LTD
GPO BOX 1406, MELBOURNE VIC, 3001
PO BOX R209, ROYAL EXCHANGE NSW, 1225
C/- QUEENSLAND TREASURY, CORPORATION,
GPO BOX 1096, BRISBANE QLD, 4001
BNP PARIBAS NOMS PTY LTD
PO BOX R209, ROYAL EXCHANGE NSW, 1225
NATIONAL NOMINEES LIMITED
GPO BOX 1406, MELBOURNE VIC, 3001
CS FOURTH NOMINEES PTY LIMITED
AMP LIFE LIMITED
BNP PARIBAS NOMINEES PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
C/O HSBC CUSTODY NOMINEES, (AUSTRALIA)
LIMITED, GPO BOX 5302, SYDNEY NSW, 2001
PO BOX R209, ROYAL EXCHANGE NSW, 1225
PO BOX R209, ROYAL EXCHANGE NSW, 1225
GPO BOX 5302, SYDNEY NSW, 2001
ECAPITAL NOMINEES PTY LIMITED
GPO BOX 3804, SYDNEY NSW, 2001
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA GPO BOX 5302, SYDNEY NSW, 2001
GPO BOX 5430, SYDNEY NSW, 2001
RBC INVESTOR SERVICES AUSTRALIA NOMINEES
PTY LIMITED
CITICORP NOMINEES PTY LIMITED
CPU SHARE PLANS PTY LTD
GPO BOX 1501, SYDNEY NSW, 2001
NAVIGATOR AUSTRALIA LTD
LEVEL 5, 700 BOURKE STREET,
DOCKLANDS VIC, 3008
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
GPO BOX 5302, SYDNEY NSW, 2001
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD
Totals: Top 20 holders of Fully Paid Ordinary Shares Only
Total Remaining Holders Balance
GPO BOX 5430, SYDNEY NSW, 2001
GPO BOX 764G, MELBOURNE VIC, 3001
6,132,715
160,150,615
57,593,382
54,926,186
50,011,270
37,514,245
21,149,990
19,331,609
11,405,000
9,321,939
8,683,414
8,336,993
7,342,809
3,135,638
3,062,433
3,028,103
2,999,773
7.81
2.81
2.68
2.44
1.83
1.03
0.94
0.56
0.45
0.42
0.41
0.36
0.30
0.15
0.15
0.15
0.15
1,861,276,490
190,468,995
90.72
9.28
FINANCIAL REPORT 97
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.
98 AURIZON ANNUAL REPORT 2015–16
ABN
Australian Business Number
CPS
Cents Per Share
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
CAPEX
Capital Expenditure
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
CQCN
Central Queensland Coal Network
CQIRP
Central Queensland Integrated Rail Project
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
FMT
Freight Management Transformation
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
Constitution
The constitution of Aurizon Holdings Limited
LTIA
Long Term Incentive Awards
Corporations Act
Corporations Act 2001 (Cth)
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
RAB
Regulated Asset Base the value of the asset
base on which pricing is determined by the
price regulator
ROIC
Return on Invested Capital
Share
A fully paid ordinary share in Aurizon Holdings
STIA
Short Term Incentive Award
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 Export Terminal
WIRP
Wiggins Island Rail Project
MTIFR
Medically Treated Injury Frequency Rate, being
a measure of the number of medically treated
injuries per million hours worked over a 12
month period
MAR
Maximum Allowable Revenue that Aurizon
Network Pty Ltd is entitled to earn from
the provision of coal carrying train services
in the CQCN across the term of an access
undertaking
mt
Millions of tonnes
mtpa
Millions of tonnes per annum
Network
Aurizon Network Pty Ltd (ACN 132 181 116) a
wholly-owned subsidiary of Aurizon Holdings
NGER
National Greenhouse Energy Reporting
NGER Act
National Greenhouse Energy Reporting
Act 2007 (Cth)
ntk
Net tonne kilometre, unit of measure
representing the movement over a distance
of one kilometre of one tonne of contents
excluding the weight of the locomotive
and wagons
OP – Operating Ratio
1 – EBIT margin, expressed as a percentage
OPEX
Operating Expense including depreciation
and amortisation
PPT
Percentage Point
QCA
Queensland Competition Authority
Queensland Rail
Queensland Rail Limited (ACN 132 181 090) –
this entity is owned by the State and operates
the core public rail passenger business
GLOSSARY
99
Corporate Information
Aurizon Holdings Limited
ABN 14 146 335 622
Directors
Tim Poole
Lance E Hockridge
Russell R Caplan
John D Cooper
Karen L Field
Michael A Fraser
Samantha L Lewis
Kate E Vidgen
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)
100 AURIZON ANNUAL REPORT 2015–16
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