16 17
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Contents
FY2017 in Review ................................................... 1
Chairman’s Report ................................................2
Managing Director & CEO’s Report ..............3
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 ...............................103
Glossary .................................................................105
Corporate Information ...................................107
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.
FY2017 in Review
Financial headlines
($M)
Total revenue
EBITDA – underlying
EBIT – underlying
Adjustments – Impairments
– Redundancy costs
EBIT – statutory
NPAT – underlying
NPAT – statutory
Free cash flow (FCF)
Final dividend (cps)
Total dividend (cps)
Earnings per share – underlying (cps)
Return on invested capital (ROIC)
EBITDA margin – underlying (%)
Operating ratio (OR) – underlying (%)
Total Above Rail volumes (mt)
Operations net opex/NTK (excluding access) ($/’000 NTK)
Gearing (net debt/net debt + equity) (%)
Transformation
› $129.0m of benefits delivered, $260.0m
since 1 July 2015. On track for the
$380.0m transformation target. The exit of
Intermodal contributes to transformation by
permanently removing the financial loss
› Benefits to be generated beyond FY2018
with the closure of the Rockhampton
rollingstock workshop to be finalised
CY2018 and changes to Queensland
traincrew operations to be in place by
the end of FY2018.
Highlights
› Underlying EBIT down 4% to $836.0m
• Cyclone Debbie impacted the business by
approximately $89m, $20m in Above Rail
and $69m in Below Rail which is expected
to be recovered in future years
• Above Rail down $33.3m (8%) due to
cyclone and weaker Freight performance
• Below Rail down $15.5m (3%) due to
cyclone offsetting true-up from the
under-recovery of UT4 revenue from
prior years
› Significant increase in FCF to $634.2m from
working capital improvements, reduction
in capital expenditure and the sale of
Moorebank in 1HFY2017
› Final dividend of 8.9cps (100% payout ratio
on underlying NPAT), a decrease of 33%
due to 2H impact of the cyclone. Full year
dividend of 22.5cps down 9%
› $300.0m on market buy–back announced
demonstrating surplus capital will be
distributed to shareholders
› Sale of the Queensland Intermodal business
to a consortium of Pacific National (PN)
and Linfox and sale of the Acacia Ridge
terminal to PN. Total consideration for the
two transactions is $220.0m. The remaining
Intermodal business, outside of Queensland,
will be closed
› Statutory EBIT of ($91.0m) includes $811.2m
of asset impairments and $115.8m of
redundancy costs.
FY2017
3,452.3
1,420.6
836.0
(811.2)
(115.8)
(91.0)
461.0
(187.9)
634.2
8.9
22.5
22.5
8.7%
41.1%
75.8%
259.4
20.7
39.6%
FY2016
VARIANCE %
3,457.9
1,432.3
871.0
(527.6)
-
343.4
510.0
72.4
340.2
13.3
24.6
24.4
8.6%
41.4%
74.8%
270.9
19.9
37.5%
0%
(1%)
(4%)
-
-
-
(10%)
-
86%
(33%)
(9%)
(8%)
0.1ppt
(0.3ppt)
(1ppt)
(4%)
(4%)
(2.1ppt)
Outlook
› Providing earnings guidance for FY2018
is challenging due to the unknown UT5
outcome. Underlying EBIT $900.0m –
$960.0m, key assumptions as follows:
• Above Rail:
– Coal volumes 215 – 225mt
– Bulk losses reduced
–
Intermodal losses and associated
costs excluded due to exit process
• Below Rail:
– Transitional tariffs assumed for
the full year FY2018
– FY2016 revenue cap ($24m
to be repaid to customers)
– $21m cyclone repair costs recovery
• Group: Continued delivery of
transformation benefits in remaining core
business and no major weather impacts.
FY2017 IN REVIEW
1
Chairman’s Report
The Board declared a final dividend of
8.9 cents per share (50% franked), giving
a full-year dividend of 22.5 cents per share.
The total dividend has decreased by 2.1 cents
or 9% compared with the prior year. The final
dividend is paying out 100% of the Company’s
underlying NPAT. The final dividend will be paid
to shareholders on 25 September 2017.
Aurizon is in a strong financial position and,
absent any inorganic growth opportunities,
is entering a phase of good cash flow
generation. As a result, the Board has resolved
to implement a $300 million share buy-back
to be implemented during the next 12 months,
subject to market conditions.
One of the key priorities for the Board this year
was implementing the CEO succession plan to
secure a successor for our inaugural Managing
Director & Chief Executive Officer Lance
Hockridge.
Following an extensive global search process,
in September we announced the appointment
of Andrew Harding as Managing Director &
CEO from 1 December 2016. On behalf of the
Board, I thank Lance for his leadership and
contribution to the Company’s achievements
during his tenure.
Andrew Harding has brought global executive
and operational experience to the Company,
having managed complex and globally-
significant supply chain operations in the
mining sector. Andrew has industry insights
into the market issues facing our customers
and, since starting with Aurizon, has made
significant changes to his leadership team
and organisational structure to increase
accountability and accelerate the Company’s
efficiency and performance.
The Board has supported the CEO’s
implementation of the new business unit
structure and the renewal of his executive
leadership team. Under Andrew’s guidance,
the Board is confident the Company’s
transformation program will enter a new phase
and create more value for shareholders. Having
already seen $260 million of transformation
benefits delivered during the past two years,
the Board will continue its support of the
executive leadership team as they implement
greater efficiencies, improve customer service
and increase productivity.
Sustainability is at the heart of Aurizon’s
mission and an area that the Board is
committed to being involved in. The Board
is proud of the Company’s drive to improve on
its sustainability priorities, which will deliver
lasting value for all of our stakeholders. In our
FY2016 Sustainability Report, our stakeholders
identified safety, future of coal and business
model as their top three important issues.
Safety will always be our number one priority
and in the coming year, we will change the
way we measure our safety performance,
benchmarking our performance against global
and industry leaders in safety to help support
our commitment to ZEROHarm.
Looking ahead, Aurizon has several key
priorities for FY2018. The new regulatory
period for our network asset, UT5, commenced
on 1 July 2017. Despite significant work from
our team on submissions to the QCA and
stakeholder engagement, we have not yet
received a draft decision from the QCA and an
acceptable resolution is of great importance.
The Company will also be focused on resolving
the future of our Intermodal business, improving
the performance of our Bulk business and
achieving our transformation targets.
On the back of the Board’s engagement with
the renewed executive leadership team, we are
confident our team is well equipped to deliver
on the Company’s key priorities and build
future success for the Company.
On behalf of the Board, I would like to thank
our employees for their dedication and hard
work during a difficult year. We are also grateful
to our customers and shareholders for your
ongoing support.
Tim Poole
Chairman
14 August 2017
A message from the Chairman
Dear fellow shareholders,
The 2017 financial year (FY2017) was
challenging for Aurizon. The challenges
stemmed from the major operational and
financial impacts from Cyclone Debbie and the
continuing poor performance of our Bulk and
Intermodal businesses. The Company has
recognised asset impairments of $840.5 million,
largely in relation to these two businesses,
which resulted in Aurizon recording a statutory
Net Loss After Tax of $187.9 million for FY2017.
This is immensely frustrating to the Board
and is not a true reflection of the Company’s
underlying business performance or the
progress that has been made in transforming
the Company.
The decision to exit Aurizon’s Intermodal
business is in response to the continued losses
in this business and market dynamics, with
sale proceeds and future capital able to be
recycled into other profitable parts of the
Company. The exit will allow Aurizon to focus
on creating shareholder value through its core
strengths and capabilities of heavy rail haulage
operations and rail infrastructure management.
The category four tropical cyclone that hit
Queensland during late March/early April
allowed Aurizon to demonstrate its resilience
and expertise in rail infrastructure management
after about 70% of the Company’s asset
base was impacted. For the first time in the
Company’s history all four coal systems that
make up the Central Queensland Coal Network
were closed at the same time.
At Board level, we were impressed with
the commitment and focus employees
demonstrated in both the preparation and
recovery process. While there is a net impact
on earnings, the emphasis on restoring export
supply chains quickly and efficiently for our
customers is testament to Aurizon’s position
as a world-class rail network operator.
The total impact to Aurizon’s Below Rail
business was approximately $69 million,
however this lost revenue and repair costs
are expected to be recovered in future years
through the regulatory mechanisms available
under our Access Undertaking with the
Queensland Competition Authority (QCA).
The impact on earnings for the Above Rail
(haulage) business was approximately
$20 million.
Aurizon’s results for FY2017 are aligned with
the change to guidance announced in April.
The Company’s underlying Earnings Before
Interest and Tax (EBIT) for the year was
$836 million, a decrease of 4% on the
prior year.
2
AURIZON ANNUAL REPORT 2016–17
Managing Director & CEO’s Report
Markets change and while there remains
sustained global demand for the major
products we transport, including high-quality
Australian resources, we operate in a very
competitive market and need to be responsive
to our customers’ demands. Our customers
have a choice in rail operators, so we will
continue to work hard for them and build
sustainable supply chain partnerships.
Our customers rely on our Aurizon trains
each day to deliver their products safely,
reliably and on time.
During the year, I expanded the scope of the
transformation program to include capital
and revenue so that benefits can be realised
beyond the FY2018 cost target. My leadership
team is working across the business to
deliver greater efficiencies, manage costs and
improve productivity, while maintaining our
commitment to customers and safety.
Looking ahead, the continued global
demand for quality Australian resources and
produce will sustain growth in our customers’
businesses, providing strong economic
opportunity for both Australia and our
customers. As a supply chain partner for these
sectors with a simplified portfolio, I am looking
forward to leading Aurizon into its next phase,
delivering for our customers and generating
improved returns for shareholders.
Andrew Harding
Managing Director & CEO
14 August 2017
A message from the
Managing Director & CEO
Dear fellow shareholders,
Since joining Aurizon in December 2016, I have
been consistently impressed by the capability
of our employees and the potential of the
core businesses within the Aurizon portfolio.
Aurizon has a long and proud history, but is in
its infancy as a publicly-listed company.
The underlying value of our business is very
clear to me, so it is disappointing that Aurizon
should report a statutory Net Loss After Tax
of $187.9 million in my first full-year financial
result for the Company. The result underscores
the commercial challenges we are confronted
with and the need to continue transforming
the business. Yet to some degree it also
masks the fundamental strength of our core
businesses, especially Network and Coal, and
the opportunity to create value through the
right decisions and disciplined execution.
Navigating Aurizon to reach its full potential for
customers and for shareholders is an exciting
prospect for me. I knew there would be many
challenges to deal with and many changes
to make. Certainly, the decisions made have
grappled with a number of legacy issues and in
particular the underperforming Intermodal and
Bulk businesses. Following the review of our
Freight business, we have made the decision to
exit Intermodal by closing down our interstate
operations and selling Queensland Intermodal
and Acacia Ridge terminal. Initiatives are in
place to turnaround the performance of our
Bulk business following significant impairments
in July.
Going forward, we will leverage our operational
and commercial capability in heavy haulage
operations and rail infrastructure to create
value and certainty for shareholders.
Within weeks of my arrival, to support my
goals of driving down costs and improving
Aurizon’s competitiveness and efficiency,
I appointed Pam Bains as the Company’s
new Chief Financial Officer. A new business
unit model has been implemented, led by
a renewed executive leadership team who
are responsible and accountable for their
respective business units.
Collectively the new leadership team brings
significant and relevant experience to their
portfolios. In Network for example, Group
Executive Michael Riches has extensive
regulatory and legal experience in Australia.
His first priority will be to finalise our fifth
rail Access Undertaking (UT5) with the
Queensland Competition Authority. Our
Group Executive Coal, Ed McKeiver already
has secured a number of important contracts
for the business, overseen the commissioning
of services for our newest customer in the
Hunter Valley, AGL Macquarie, and brought
a reinvigorated focus to the productivity and
operating cost improvement agenda.
As I travelled around our national operations,
my first impression was that Aurizon has high
quality people – collaborative, diverse thinking
and innovative. In particular the engineering
and technical capability has impressed me
and, as we continue to unlock new and smarter
ways of doing business, it is these smarts
that will drive Aurizon to its next level of
performance. The use of technology, combined
with the hard-work from our people, allowed
us to swiftly recover from the biggest natural
disaster in the Company’s history – Cyclone
Debbie. Despite the weather impacting our
operations this year, we still achieved solid
results, which reflects the quality of our people
and the resilience of our business.
As I met with our people, one of the big stand
outs was how employees live and breathe the
Company’s core value of safety. It is ingrained
within the culture and how people go about
their work. To raise the bar, and to continue to
keep safety at the forefront of our operations,
from next year we will broaden our injury
definitions to be in line with our competitors,
customers and industry leaders throughout
the world.
Aurizon is currently implementing a number
of reforms that are fundamental to improving
customer service, increasing operational
efficiency and reducing costs. We recognise
that some of these changes have been tough
for our employees, their families and the
communities in which they live and work. The
decision to close the Rockhampton workshops
in Central Queensland by the end of 2018 was
not made lightly, but change is necessary if the
Company is to remain competitive and have a
viable long-term future.
MANAGING DIRECTOR & CEO’S REPORT
3
Directors’ Report
Aurizon Holdings Limited
For the year ended 30 June 2017
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 2017 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 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 Poole
(Appointed 1 July 2015)
(Chairman, Independent Non-Executive Director)
A Harding
(Appointed 1 December 2016)
(Managing Director & Chief Executive Officer)
R Caplan
(Appointed 14 September 2010)
(Independent Non-Executive Director)
J Cooper
(Appointed 19 April 2012)
(Independent Non-Executive Director)
K Field
(Appointed 19 April 2012)
(Independent Non-Executive Director)
M Fraser
(Appointed 15 February 2016)
(Independent Non-Executive Director)
S Lewis
(Appointed 17 February 2015)
(Independent Non-Executive Director)
K Vidgen
(Appointed 25 July 2016)
(Independent Non-Executive Director)
During the year Mr Hockridge resigned as
Managing Director & Chief Executive Officer
(1 December 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 2016–17 A Harding
Experience: Mr Harding became the
Managing Director and CEO of Aurizon
on 1 December 2016.
Mr Harding has extensive operational
experience in the resource industry and in
managing supply chains for the world’s largest
integrated portfolio of iron ore assets.
Mr Harding’s 24-year executive career has
been spent with Rio Tinto and in its subsidiary
companies, with his most recent role before
joining Aurizon being the global Chief
Executive Iron ore.
Mr Harding was also the Global Practice Leader,
Asset Management, Technology and Innovation
group of Rio Tinto from 2005 to 2009.
Mr Harding has championed a number of
workplace initiatives including improvements
in safety, a commitment to diversity, and the
strengthening of indigenous and community
relationships.
Mr Harding is a member of the 2012 class of
Henry Crown Fellows at the Aspen Institute.
Qualifications: B.Eng. (Mining Engineering),
MBA.
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.
R Caplan
Experience: Mr Caplan has extensive
international experience in the oil and gas
industry. In a 42-year career with Shell, he held
senior roles in the upstream and downstream
operations, and corporate functions in Australia
and overseas. From 1997 to 2006, he had senior
international postings in the UK, Europe and the
USA. From 2006 to July 2010, he was Chairman
of the Shell Group of Companies in Australia.
Mr Caplan is Chairman of 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,
Governance & Risk Management Committee.
Australian Listed Company Directorships
held in the past three years: Orica Limited
– Non-Executive Director (1 October 2007 –
31 December 2015).
J Cooper
Experience: Mr Cooper has 35 years’
experience in the construction and engineering
sector in Australia and overseas. Mr Cooper
is currently Chairman of Sydney Motorway
Corporation and a Non-Executive Director
of Aurizon Holdings. Mr Cooper’s previous
positions include CEO and Managing Director
of CMPS&F, a design engineering and project
management organisation, and a management
role with the Sydney Olympic Organising
Committee. Mr Cooper has served on the
International Board of Murray and Roberts
Pty Ltd, the Board of NRW Holdings Limited,
as Deputy Chairman of Clough Engineering
Limited and Chairman of Southern Cross
Electrical Engineering Pty Ltd.
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), UGL Limited –
Non-Executive Director (15 April 2015 –
28 October 2016).
DIRECTORS’ REPORT
5
Directors’ Report (continued)
Company Secretary
Mr Dominic Smith was appointed Company
Secretary of the QR Limited Group in
May 2010 and to Aurizon Holdings Limited
upon its incorporation on 14 September 2010.
Mr Smith has over 20 years’ ASX listed
company secretariat, governance, corporate
legal and senior management experience
across a range of industries.
Mr Smith holds a Masters of Laws degree from
the University of Sydney and is a Fellow of
both the Governance Institute of Australia and
the Australian Institute of Company Directors.
Qualifications: BA, LLB, LLM, DipLegS, FGIA,
FCSA, FCIS, FAICD.
Principal activities
The principal activities of entities within the
Group during the year were:
› Integrated heavy haul freight railway operator
› Rail transporter of coal from mine
to port for export markets
› Bulk, general and containerised
freight businesses
› Large-scale rail services activities.
Coal
Transport of coal from mines in Queensland
and New South Wales to end customers
and ports.
Freight
Transport of bulk mineral commodities
(including iron ore), agricultural products,
mining and industrial inputs, and general
freight throughout Queensland and
Western Australia, and containerised
freight throughout Australia.
Network
Provision of access to, and operation and
management of, the Queensland coal network.
Provision of design, construction, overhaul,
maintenance and management services to the
Group, as well as external customers.
K 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 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 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 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, Chairman of
APRA’s Audit Committee and member of
APRA’s Risk Committee, and a Non-Executive
Director and Chairman of the Audit & Risk
Committee of Nine Entertainment Co.
Previously, Ms Lewis was an Assurance &
Advisory partner from 2000 to 2014 with
Deloitte Australia.
Qualifications: BA (Hons) EC, CA, ACA, GAICD.
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), Nine
Entertainment Co. (20 March 2017 – ongoing).
K 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, GAICD.
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 2016–17 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 13.3 cents per fully paid
ordinary share (70% franked) was paid on
26 September 2016 and an interim dividend of
13.6 cents per fully paid ordinary share (70%
franked) was paid on 27 March 2017.
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 8.9 cents per fully paid ordinary share.
The dividend will be 50% franked and is
payable on 25 September 2017.
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 or note 33 of the Financial 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 page 2 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. Aurizon acknowledges the
strong scientific consensus that climate change
is occurring and supports the objective of the
Paris Climate Agreement to find a pathway to
limiting global warming to two degrees.
In response to climate change the Company
has set and is tracking progress toward
its 2020 greenhouse gas (GHG) emissions
intensity target, analysing climate change
policy implications for Australia’s thermal
coal and preparing for, and adapting to,
extreme weather events. In relation to our GHG
emissions intensity target, FY2017 performance
was higher than originally forecast for a
number of reasons. The organisation is working
to ensure it improves its performance in
FY2018 to get back on track to achieving its
2020 target.
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
41 of this Annual Report). The Company’s Risk
and Assurance Function 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 series of risk registers,
with risk profiles and mitigations populated at
the various layers of the organisation. Processes
exist 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 2017
DIRECTOR
T Poole1
A Harding2
L Hockridge3
R Caplan
J Cooper
K Field
M Fraser
S Lewis
K Vidgen4
AURIZON HOLDINGS
BOARD
AUDIT, GOVERNANCE
& RISK MANAGEMENT
COMMITTEE
REMUNERATION
COMMITTEE
SAFETY, HEALTH
& ENVIRONMENT
COMMITTEE
NOMINATION
& SUCCESSION
COMMITTEE
A
17
8
9
17
17
17
17
17
15
B
17
8
8
17
16
17
17
17
15
A
9
-
-
9
-
9
-
9
-
B
9
-
-
9
-
9
-
9
-
A
5
-
-
5
-
-
5
-
3
B
5
-
-
5
-
-
5
-
3
A
5
3
2
-
5
5
-
-
-
B
5
3
2
-
5
5
-
-
-
A
2
-
-
-
2
2
-
-
-
B
2
-
-
-
2
2
-
-
-
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 T Poole and A Harding, and Messrs T Poole and L Hockridge met respectively
on two occasions
2 A Harding commenced as MD & CEO of Aurizon Holdings Ltd on 1 December 2016
3 L Hockridge ceased being MD & CEO of Aurizon Holdings Ltd 1 December 2016
4 K Vidgen was appointed as a Member of the Remuneration Committee on 9 February 2017
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 8 occasions.
Directors’ interests
Directors’ interests are as at 30 June 2017.
TABLE 2 – DIRECTORS’ INTERESTS AS AT 30 JUNE 2017
DIRECTOR
T Poole
A Harding
R Caplan
K Field
J Cooper
S Lewis
M Fraser
K Vidgen
NUMBER OF ORDINARY
SHARES
90,500
Nil
82,132
40,458
85,000
33,025
40,000
40,000
Only Mr Harding, Managing Director & CEO receives performance rights, details set out in the Remuneration Report.
8
AURIZON ANNUAL REPORT 2016–17 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 2017.
Rounding of amounts
The amounts contained in this report and in
the financial statements have been rounded
to the nearest hundred thousand dollars
unless otherwise stated (where rounding is
applicable) under the option available to the
Company under ASIC Corporations (Rounding
in Financial/Directors’ Reports) Instrument
2016/191. The Company is an entity to which
the instrument applies.
Auditor’s Independence Declaration
A copy of the Auditor’s Independence
Declaration, as required under section 307C of
the Corporations Act, is set out on page 37.
The Directors’ Report is made in accordance with
a resolution of the Directors of the Company.
Tim Poole
Chairman
14 August 2017
Non-audit services
During the year the Company’s auditor
PricewaterhouseCoopers (PwC), performed
other services in addition to its audit
responsibilities.
CEO and CFO declaration
The Managing Director & CEO and Chief
Financial Officer (CFO) have provided a written
statement to the Board in accordance with
Section 295A of the Corporations Act.
The Directors are satisfied that the provision of
non-audit services by PwC during the reporting
period did not compromise the auditor
independence requirements set out in the
Corporations Act.
All non-audit services were subject to the
Company’s Non-Audit Services Policy and do
not undermine the general principles relating
to auditor independence set out in APES 110
Code of Ethics for Professional Accountants as
they did not involve reviewing or auditing the
auditor’s own work, acting in a management or
decision-making capacity for the Company, or
jointly sharing risks and rewards.
No officer of the Company was a former
Partner or Director of PwC and a copy of the
auditor’s independence declaration as required
under the Corporations Act 2001 is set out in,
and forms part of, this Directors’ Report.
Details of the amounts paid to the auditor of
the Company and its related practices for non-
audit services provided throughout the year
are as set out below:
OTHER ASSURANCE SERVICES
Total remuneration for
other assurance services
TAXATION SERVICES
Total remuneration
for taxation services
OTHER SERVICES
Total remuneration
for other services
2017
$’000
37
–
718
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 respects 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 IFRS and are therefore termed non-IFRS measures. The
non-IFRS financial information contained within this Directors’ Report and Notes to the Financial Statements has not been audited in accordance with
Australian Auditing Standards. The non-IFRS measures used to monitor Group performance are EBIT (Statutory and Underlying), EBITDA (Statutory
and Underlying), EBITDA margin (Statutory and Underlying), NPAT 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 102.
1. Annual comparison
FINANCIAL SUMMARY
($M)
Total revenue
Operating costs
Employee benefits
Energy and fuel
Track access
Consumables
Other
EBITDA
Depreciation and amortisation
EBIT
Net finance costs
Income tax expense
NPAT
Earnings per share1
- underlying
- statutory
- underlying
- statutory
- underlying
- statutory
- underlying
- statutory
- underlying
- statutory
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 ($)
People (FTE)
OTHER OPERATING METRICS
Revenue/NTK ($/’000 NTK)
Labour costs/Revenue3
NTK/FTE (MNTK)
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
Other
Group
FY2017
3,452.3
(2,031.7)
(849.6)
(268.4)
(263.0)
(573.1)
(77.6)
1,420.6
493.6
(584.6)
836.0
(91.0)
(178.5)
(196.5)
81.6
461.0
(187.9)
22.5
(9.2)
8.7%
75.8%
1,238.4
8.9
39.6%
2.4
5,609
FY2017
50.0
24.5%
12.3
20.7
69.0
259.4
FY2017
490.4
401.7
2,718.2
(2,316.5)
(56.1)
836.0
FY2016
3,457.9
(2,025.6)
(891.4)
(245.4)
(314.7)
(508.8)
(65.3)
1,432.3
904.7
(561.3)
871.0
343.4
(150.5)
(210.5)
(120.5)
510.0
72.4
24.4
3.5
8.6%
74.8%
1,218.2
13.3
37.5%
2.7
6,287
FY2016
48.3
24.6%
11.4
19.9
71.6
270.9
FY2016
505.9
435.0
2,877.8
(2,442.8)
(69.9)
871.0
VARIANCE %
0%
0%
5%
(9%)
16%
(13%)
(19%)
(1%)
(45%)
(4%)
(4%)
-
(19%)
7%
-
(10%)
-
(8%)
-
0.1ppt
(1ppt)
2%
(33%)
(2.1ppt)
(11%)
11%
VARIANCE %
4%
0.1ppt
8%
(4%)
(4%)
(4%)
VARIANCE %
(3%)
(8%)
(6%)
5%
20%
(4%)
1 Calculated on weighted average number of shares on issue – 2,051.7m FY2017 and 2,088.2m 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-
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
3 FY2017 excludes $121.1m redundancy costs (FY2016 excludes $23.7m redundancy costs and $15.7m cost of employee share gift)
10
AURIZON ANNUAL REPORT 2016–17
Group Performance Overview
Underlying EBIT reduced $35.0m (4%) primarily due to the impact of the cyclone, which is estimated to have reduced EBIT by approximately $89m.
Approximately $69m of this impact is in the Below Rail business which is expected to be recovered through established regulatory processes in
future years.
The cyclone, and a deterioration in the financial performance of the Freight business, more than offset the realisation of sustainable transformation
benefits of $129.0m.
Group revenue was flat at $3.45bn with increased Below Rail revenue from the UT4 regulatory true-up offset by lower Above Rail revenue from a 4%
reduction in volumes.
Operating costs remain flat compared to the prior year with the transformation benefits being offset by higher energy and fuel costs, CPI impacts,
recovery costs incurred due to the cyclone and the increased costs to serve in the Freight business.
Depreciation has increased $23.3m (4%) primarily in Below Rail reflecting the high levels of asset renewal activity, new mechanised maintenance plant
and the impact of the completion of the Wiggins Island Rail Project (WIRP) during FY2016.
Return on Invested Capital (ROIC) was stable at 8.7%.
Statutory EBIT was a loss of ($91.0m) reflecting the impact of the $811.2m in asset impairments and $115.8m in redundancy costs as detailed below,
which have been treated as a significant item due to materiality.
Reconciliation to Statutory Earnings
Underlying earnings is a non-statutory measure and is the primary reporting measure used by management and the Group’s chief operating decision
making bodies for the purpose of managing and assessing the financial performance of the business. Underlying earnings is derived by adjusting
statutory earnings for significant items as noted in the following table:
($M)
Underlying EBIT
Significant items
Asset impairments
Intermodal
Freight Management Transformation project
Impairment of assets in exit of contracts
Transformation assets
Bulk
Investment in Associate
Strategic infrastructure projects and assets under construction
Rollingstock
Redundancy costs
Statutory EBIT
Net finance costs
Statutory PBT
Taxation benefit/(expense)
Statutory NPAT
FY2017
836.0
(927.0)
(162.2)
(64.0)
(10.2)
(48.9)
(525.9)
-
-
-
(115.8)
(91.0)
(178.5)
(269.5)
81.6
(187.9)
FY2016
871.0
(527.6)
-
-
-
-
-
(225.9)
(124.7)
(177.0)
-
343.4
(150.5)
192.9
(120.5)
72.4
Aurizon reviewed the carrying value of its assets as at 30 June 2017 and has recognised asset impairments and significant items of $927.0m (pre-tax)
as noted below. A further $29.3m of assets were impaired during the period and are included in underlying earnings.
Significant asset impairments of $811.2m:
› Bulk $525.9m (Bulk East $163.5m and Bulk West $362.4m) due to the ongoing clarity and visibility of financial performance provided by the Freight
Review, the exit of certain contracts, the increase in financial losses in the bulk business and continued challenging market conditions. Following the
impairment, the residual carrying value of the assets of the Bulk business is $254.4m
› Intermodal $162.2m due to trading performance during the year being lower than expectation as disclosed in 1HFY2017
› Freight Management Transformation (FMT) $64.0m as disclosed in 1HFY2017
› Freight Review Contract Exit $10.2m as disclosed in 1HFY2017
› Other transformation assets $48.9m including $30.1m in asset impairments in relation to the closure of the Rockhampton rollingstock workshop, with
the announcement made during the second half of the financial year
Redundancy costs $115.8m, 924 employees were made redundant across the business. This includes $74.2m relating to the ongoing business
transformation, predominately the Operations’ regional restructure that occurred in the first half, $14.3m for the Rockhampton rollingstock workshop
closure and $27.3m in relation to changes in Queensland traincrew operations announced in the second half of the financial year.
DIRECTORS’ REPORT
11
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
2. Other financial information
BALANCE SHEET SUMMARY
($M)
Total current assets
Property, plant & equipment (PP&E)
Other non-current assets
Total Assets
Other current liabilities
Total borrowings
Other non-current liabilities
Total Liabilities
Net Assets
Gearing (net debt/net debt plus equity) (%)
Balance sheet movements
Total current assets decreased by $114.5m largely due to:
30 JUNE 2017
30 JUNE 2016
729.4
8,835.0
281.5
9,845.9
(665.2)
(3,376.2)
(782.4)
(4,823.8)
5,022.1
39.6%
843.9
9,719.2
305.9
10,869.0
(733.3)
(3,490.1)
(932.0)
(5,155.4)
5,713.6
37.5%
› Net decrease in assets held for sale of $93.7m with the disposal of the investment in Moorebank
› Net decrease in inventory of $40.9m due to the impending closure of the Rockhampton site, improved inventory management and outsourcing of
maintenance to Progress Rail
› Net decrease in trade and other receivables of $17.1m due to the collection of FY2016 GAPE fees, lower Bulk Freight trading and improved
collections, partly offset by
• Net increase in tax receivables of $17.8m with a tax refund expected in FY2018
• Net increase in cash held of $19.5m
Total non-current assets decreased by $908.6m largely due to a net decrease in PP&E of $884.2m as a result of asset impairments previously
mentioned and depreciation, offsetting capital expenditure.
Total current liabilities decreased $68.1m due to a reduction in current tax liabilities, reduction in derivative financial instruments, partially offset by
higher provisions relating to redundancies (traincrew and Rockhampton closure).
Total borrowings decreased by $113.9m due to improved cashflow (refer cashflow commentary).
Other non-current liabilities have decreased by $149.6m due to higher derivative financial instruments (additional interest rate swaps) partially offset
by lower land rehabilitation provision (discount rates), lower workers’ compensation provision and lower other liabilities relating to Below Rail Access
Facilitation Deeds.
Gearing (net debt/net debt plus equity) was 39.6% as at 30 June 2017.
12
AURIZON ANNUAL REPORT 2016–17 CASH FLOW SUMMARY
($M)
Statutory EBITDA
Working capital and other movements
Non-cash adjustments asset impairments4
Cash flows from operations
Interest received
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment (PP&E) and associate
Payments for PP&E and intangibles
Interest paid on qualifying assets
Net distributions from investment in associates
Net cash (outflow) from investing activities
Cash flows from financing activities
Net (repayments)/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
Free Cash Flow (FCF)5
FY2017
493.6
76.3
840.5
1,410.4
2.9
(174.9)
1,238.4
112.1
(540.1)
(3.2)
-
(431.2)
(55.3)
(7.5)
(173.0)
(551.9)
(787.7)
19.5
634.2
FY2016
904.7
(85.2)
527.6
1,347.1
2.3
(131.2)
1,218.2
37.4
(771.4)
(11.6)
5.7
(739.9)
442.3
(355.4)
(138.1)
(529.3)
(580.5)
(102.2)
340.2
Cash flow movements
Net cash inflow from operating activities increased by $20.2m (2%) to $1,238.4m, largely due to:
› $63.5m reduction in working capital relating to lower receivables and inventory, in addition to an increase in redundancy provision
› Offset by a $43.7m increase in income taxes paid
Net cash outflow from investing activities decreased by $308.7m (42%) to $431.2m, largely due to:
› $231.3m decrease in capital expenditure
› $74.7m increase in the proceeds from asset sales primarily relating to the sale of Moorebank
Net cash outflow from financing activities increased by $207.2m (36%) to $787.7m with a $497.6m reduction in proceeds from borrowings, higher
interest payments of $34.9m and increased dividends of $22.6m offset by a $347.9m reduction in share buy-back and share based payments.
4 Total asset impairments of $840.5m include $811.2m of significant items excluded from underlying EBIT and $29.3m of other asset impairments included
in underlying EBIT
5 FCF – Defined as net cash flow from operating activities less net cash outflow from investing activities less interest paid.
DIRECTORS’ REPORT
13
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Segment review
Above Rail
‘Above Rail’ combines the Commercial &
Marketing and Operations functions and
represents the haulage operations for Aurizon’s
Coal, Freight and Iron Ore customers. The
Strategy & Business Development function was
managed within the Commercial & Marketing
function during FY2017 however the associated
costs remain within the Other segment, with
attributable costs allocated to Commercial
& Marketing consistent with prior years.
Funding
Aurizon is targeting a gearing level of ~40%
in FY2018.
The Group continues to be committed
to diversifying its debt investor base and
increasing average debt tenor, with Aurizon
Network issuing its second bond in the
Australian debt capital market, a seven year,
$425.0m A$MTN priced in June 2017 with a
coupon of 4% per annum. Proceeds were used
to repay existing bank debt maturing in FY2019.
In respect of FY2017:
› Weighted average debt maturity6 tenor
was 5.0 years. This was lower than FY2016
(5.8 years) due to the majority of the debt
portfolio’s duration reducing by 12 months
› Interest cost on drawn debt was 5.0%
(FY2016 4.7%)
› Liquidity at 30 June 2017 $1.18bn
(undrawn facility + cash)
› Group gearing as at 30 June 2017 was
39.6% (FY2016 37.5%).
Dividend
The Board has declared a final dividend for
FY2017 of 8.9cps (50% franked) based on a
payout ratio of 100% in respect of underlying
NPAT (i.e. after adjusting for significant items,
including asset impairments).
The relevant final dividend dates are:
› 28 August 2017 – ex-dividend date
› 29 August 2017 – record date
› 25 September 2017 – payment date.
Tax
Underlying income tax expense for FY2017 was
$196.5m. The underlying effective tax rate7 for
FY2017 was 29.9%. The underlying cash tax
rate8 for FY2017 was 13.9% which is less than
30% primarily due to accelerated fixed asset
related adjustments.
The underlying effective tax rate for FY2018 is
expected to be in the range of 28-30% and the
underlying cash tax rate is expected to be less
than 25% for the short to medium-term.
Aurizon publishes additional tax information
in accordance with the voluntary Tax
Transparency Code in its sustainability
report. Please refer to www.aurizon.com.au/
sustainability/overview for a copy of Aurizon’s
sustainability report (including
tax transparency disclosures).
($M)
Total revenue
Coal
Above Rail
Track Access9
Freight
Iron Ore
Other
Operating costs
Employee benefits
Energy and fuel
Track access
Consumables
Other
Underlying EBITDA
Depreciation and amortisation
Underlying EBIT
FY2017
2,981.2
1,795.0
1,164.7
630.3
682.7
273.4
230.1
(2,289.2)
(701.7)
(127.5)
(888.9)
(536.4)
(34.7)
692.0
(290.3)
401.7
FY2016
3,146.1
1,881.4
1,147.5
733.9
739.4
311.2
214.1
(2,412.1)
(739.8)
(120.7)
(1,015.6)
(500.0)
(36.0)
734.0
(299.0)
435.0
VARIANCE %
(5%)
(5%)
1%
(14%)
(8%)
(12%)
7%
5%
5%
(6%)
12%
(7%)
4%
(6%)
3%
(8%)
6 Weighted average debt maturity profile does not include working capital facility
7 Underlying effective tax rate = income tax expense excluding the impact of significant items/underlying consolidated profit before tax
8 Underlying cash tax rate = cash tax payable excluding the impact of significant items/underlying consolidated profit before tax
9 An amount equal to Track Access revenue is included in Operation’s costs, reflecting the pass-through nature of tariffs
14
AURIZON ANNUAL REPORT 2016–17 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 ($/’000 NTK)
Freight
Total tonnes hauled (m)
Total TEUs ('000s)
Total NTK (bn)
Total revenue/NTK ($/’000 NTK)
Iron Ore
Total tonnes hauled (m)
Contract utilisation
Total NTK (bn)
Total revenue/NTK ($/’000 NTK)
Average haul length (km)
Total Above Rail tonnes hauled (m)
Above Rail performance overview
FY2017
FY2016
VARIANCE %
198.2
150.5
47.7
96%
89%
47.6
38.6
9.0
240
37.7
24.5
38.5
405.2
12.2
56.0
22.7
100%
9.2
29.7
406
259.4
206.8
163.0
43.8
79%
92%
49.7
41.4
8.3
240
37.9
23.1
40.4
372.6
12.3
60.1
23.7
101%
9.6
32.4
405
270.9
(4%)
(8%)
9%
17ppt
(3ppt)
(4%)
(7%)
8%
0%
(1%)
6%
(5%)
9%
(1%)
(7%)
(4%)
(1ppt)
(4%)
(8%)
0%
(4%)
Underlying EBIT declined $33.3m (8%) to $401.7m, due to the impact of Cyclone Debbie, lower Iron Ore earnings and a deterioration in the
performance of the Freight businesses. Coal continued to improve despite the cyclone, with improved revenue quality and further benefits delivered
from the transformation program. The EBIT impact as a result of the cyclone totalled approximately $20m.
Revenue declined 5% ($164.9m) due to lower pass-through access revenue and a 4% decline in volumes:
› Coal track access revenue declined $103.6m (14%) due to a major customer converting to an End User Access Arrangement (where access charges
are paid direct to Aurizon Network) following the commencement of their new form contract. In addition, a $30.0m credit was received from
Queensland Rail due to the overpayment of access charges on the West Moreton system following the finalisation of the access undertaking. As
access charges are passed through to customers, there is a commensurate reduction in operating costs as noted below
› Coal Above Rail revenue was $17.2m (1%) higher reflecting improved revenue quality offsetting the volume decline due to the cyclone
› Freight revenue was down $56.7m (8%) due to 5% reduction in volumes and a reduction in revenue quality
› Iron Ore revenue declined $37.8m (12%) due to lower volumes and the impact on average freight rates due to rate relief granted to key customer
Karara Mining Limited (KML).
Coal volumes were down 8.6mt (4%) to 198.2mt. Queensland volumes were down 8% at 150.5mt reflecting the ~11mt impact of the cyclone, expiry
of BMA’s GAPE contract and two customers being placed into care and maintenance (Baralaba Coal and Caledon Cook). NSW volumes were 3.9mt
(9%) higher at 47.7mt reflecting increased spot tonnes and the continued ramp-up of the Whitehaven contract. Coal volumes hauled under new form
contracts increased 17ppts to 96%, reflecting the new long-term performance contract for BMA/BMC which commenced 1 July 2016 in the Goonyella
corridor. Coal Above Rail revenue per NTK improved 6% from lower contract utilisation as a result of the cyclone and customer mix benefits. As
contract utilisation improves from increased volumes in FY2018, this is expected to reduce.
Freight volumes declined 1.9mt (5%) to 38.5mt with Bulk volumes down 5% primarily due to the closure of QNI in March 2016 and the Mt Isa Freighter
ceasing in February 2017 partly offset by a 9% increase in Intermodal Twenty-Foot Equivalent Units (TEUs) following the commencement of the K&S
Freighters contract in August 2016. Freight revenue per NTK declined 7% due to growth in Intermodal volumes which are typically longer and lower
yielding hauls and the competitive pricing in the Intermodal market.
DIRECTORS’ REPORT
15
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Iron ore volumes declined 1.0mt (4%) to 22.7mt,
due to lower production from customers. Iron
ore revenue per NTK declined 8% due to the
impact of customer rate relief.
Operating costs reduced $122.9m (5%) in
FY2017. The transformation program continued
to deliver lower costs with $115.0m in FY2017
($94.0m in Above Rail and $21.0m allocated
from support functions) and access costs
reduced by $127.6m with a key customer
directly contracting access in Coal as noted
above and reduced volumes in Bulk Freight.
However, this was offset by other cost
increases including one-off cyclone impacts,
labour and consumables escalation ($34.0m),
fuel price escalation ($10.0m) and costs
associated with the cessation of the FMT
project ($4.4m). In addition, $24.4m in costs
to support growth were incurred in NSW Coal
(ramp up of tonnes), Intermodal (interstate
TEU growth) and Bulk West. In addition,
a change in the mix of work in Aurizon’s
Queensland Coal maintenance depots from
capital works such as wagon overhauls (where
associated costs are capitalised) to more
routine maintenance activities (where costs are
expensed), resulted in less capital recoveries
during FY2017. With less costs to capitalise
this year, labour and consumable expenses
increased by $15.8m. Depreciation reduced
due to the lower fleet values following the
impairment in FY2016.
Operational metrics were impacted by the
cyclone in 2HFY2017 as well as other cost
increases as noted above. Key operating
metrics included a 4% deterioration in net
operating costs per NTK (excluding access)
but there was a 10% improvement in labour
productivity. A detailed analysis of operating
metrics is provided on page 17.
Market update
Coal
Following on from the relaxation of policy that
had previously limited domestic coal production
in China throughout 2016, coal prices retreated
at the start of 2HFY2017 with the hard coking
coal spot price (Peak Downs Region) trading
in March at an average of US$160/t and the
thermal coal spot price (Newcastle) trading
at an average of US$81/t, down 39% and 5%
respectively from three months prior.
Short-term scarcity created by the impact of
the cyclone pushed the hard coking coal spot
price back above US$300/t in April before
the resumption of supply returned the price
to pre-cyclone levels from around mid-May.
The average hard coking coal price in FY2017
was US$192/t (+132% on the previous year) and
the average thermal coal price was US$80/t
(+49% on the previous year), providing
relief to coal producers after subdued prices
throughout FY2016. Australian metallurgical
coal export volume in FY2017 was down 6% (to
177mt) compared to the previous year with the
reduction primarily driven by the impact of the
cyclone. Australian thermal coal export volume
in FY2017 increased by 1% (to 202mt). At a
global seaborne level, downward pressure has
been placed on the Australian market share in
both the metallurgical and thermal coal markets
as increasing coal prices over the past 18 months
have incentivised a resumption of export volume
(higher cost) supply from competing coal
producing nations.
Aurizon’s coal business has a weighted average
remaining contract length as at 30 June 2017 of
9.9 years.
Contract update
› A new agreement was executed with
Carborough Downs Coal Management for
coal haulage from the Carborough Downs
mine in the Goonyella corridor to be hauled
through to Dalrymple Bay Coal Terminal,
with the agreement replacing the previous
contract which expired on 30 June 2017
› Existing customer Yanzhou extended its
contract for the Cameby Downs mine
through to 2026 for volumes of up to
2.25mtpa
› Batchfire Resources executed a long-term
agreement for up to 6.7mtpa from the
Callide mine, which ramps up in volumes
over a period of 10 years, and commenced
on 1 July 2017
› An extension to the existing agreement with
Queensland Alumina Limited was signed
during the year, extending the 1.3mtpa
contract to December 2023
› Commencement of an eight year, 8.7mtpa
contract with AGL Macquarie for the
Bayswater and Liddell power stations
occurred during July 2017.
Iron ore
Iron ore spot prices continued to increase early
in the second half of FY2017, reaching US$95/t
in February, before retreating to US$53/t in early
June and closing at US$63/t on 30 June 2017.
Rising seaborne supply from Australia and Brazil,
and weaker demand from Chinese steel mills due
to increased use of scrap metal (excess supply in
China at lower prices) in blast furnaces, placed
downward pressure on iron ore prices. However,
stronger Chinese steel margins in the short-term
is expected to provide support to iron ore prices.
Aurizon continues to support the long-term
viability of customers by driving efficiencies
in the supply chain to optimise throughput.
Aurizon hauled 22.7mt in FY17, 4% lower than
the previous comparable period primarily due
to lower volumes from Cliffs and Mt Gibson,
partially offset by increased volumes from
Karara. Mt Gibson volumes will continue through
to contract end of December 2018, as Iron Hill
volumes replace Extension Hill volumes. As at
30 June 2017, Aurizon’s Iron Ore customers have
a weighted average contract life of 7.7 years.
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.
As previously noted, due to challenging market
conditions and as a result of the deteriorating
performance in the diversified Bulk business,
combined with the change to the business unit
structure, Aurizon has recognised non-cash
asset impairments of $525.9m relating to the
Bulk business in FY2017.
Contract update Bulk
› Both BP (0.15mtpa) and Caltex (0.1mtpa)
extended their fuel haulage agreements
in Western Australia for 3 years
› Louis Dreyfus (New South Wales) extended
its 0.3mtpa grain haulage contract for
a further 12 months to December 2017.
Intermodal
Aurizon has entered into a binding agreement
with a consortium of PN and Linfox to sell
the Queensland Intermodal business. The
transaction includes the transfer of employee
positions, assets and commercial and
operational arrangements. Aurizon is aiming
to finalise the transaction by end of FY2018
and is subject to approval by the Australian
Competition and Consumer Commission
(ACCC) and the Foreign Investment Review
Board (FIRB). Separately, Aurizon has signed a
binding agreement with PN to sell the Acacia
Ridge Intermodal terminal. This transaction
includes the transfer of employee positions
as well as assets, commercial and operational
arrangements. It is also subject to approval by
the ACCC and FIRB. Total consideration for the
two transactions is $220.0m. The remainder
of Aurizon’s Intermodal business (outside of
Queensland) will be closed. This is expected
to take effect by December 2017, contingent
on finalising transitional and commercial
arrangements with customers.
16
AURIZON ANNUAL REPORT 2016–17 Operations transformation update
OPERATING METRICS
($M)
Operations
Net opex10/ NTK ($/’000 NTK)
Net opex11/ NTK (excluding access) ($/’000 NTK)
Total tonnes hauled (m)
Net tonne kilometres – NTK (bn)
FTE (monthly average)
Labour productivity (NTK/FTE)
Locomotive productivity (‘000 NTK/Active locomotive day)
Active locomotives (as at 30 June)
Wagon productivity (‘000 NTK/Active wagon day)
Active wagons (as at 30 June)
National Payload (tonnes)
Velocity (km/hr)
Fuel consumption (l/d GTK)
FY2017
FY2016
VARIANCE %
33.6
20.7
259.4
69.0
4,393
15.7
371.0
516
14.2
13,504
4,677
29.3
3.11
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
1%
(4%)
(4%)
(4%)
12%
10%
(1%)
(2%)
(3%)
(4%)
0%
(2%)
0%
Transformation initiatives
Aurizon’s Above Rail business delivered $115.0m
in transformation benefits during FY2017.
Productivity and transformation efforts were
impacted by the cyclone in the fourth quarter.
Despite this, significant transformation effort
was undertaken throughout FY2017 in order to
set up a pipeline of initiatives to deliver value
through FY2018 and beyond.
Workforce
Aurizon’s continued workforce rationalisation
through key labour initiatives resulted in a
substantial improvement in labour productivity
(NTK/FTE) of 10% in FY2017 despite lower
tonnes overall. Key labour transformation
initiatives included:
› Execution of Operations’ regionalisation
structure in 1HFY2017
• Changes to the regional management
structure in September 2016 resulted in
the reduction of 143 positions including
leadership and frontline staff, and
reducing the management layer by one
in most areas
› Changes to operating mode
• The introduction of nine hour single
driver only operations in two key areas in
Western Australia
• Consultation with Queensland train crew
commenced in late 2HFY2017 which will
support a move away from traditional
fixed labour models to one that can mirror
fluctuating demand movements. Efforts
will continue through FY2018 on
creating the right balance of fixed
and variable labour
› Centralisation of deployment into Brisbane
• This initiative consolidated the five
Above Rail live run areas into a single
centre in Brisbane. This consolidation has
enabled cross skilling, capability uplift and
stronger redundancy management
Fleet productivity
The cyclone had an impact on rollingstock
productivity metrics in FY2017. Despite this,
Aurizon continued its efforts to improve
overall rollingstock productivity with the
implementation of longer trains in both the
Goonyella (126 wagon consist) and Newlands
(124 wagon consist) corridors.
Active locomotive and wagons numbers
increased 2% and 4% respectively during
FY2017, with wagons being commissioned for
ramp up tonnages for Whitehaven in New South
Wales and an additional two coal consists to
meet demand in Queensland.
Energy and fuel efficiency
FY2017 has seen a continued focus on energy
and fuel efficiency through the nationalisation
of regionally piloted improvements including
trip optimiser, the driver assist system (DAS)
and the substitution of standard for higher
grade fuelling options. A renewed effort was
undertaken in 2HFY2017 which is expected to
realise benefits in FY2018.
Asset maintenance
With continued maintenance reform,
including the deployment of technology
and the outsourcing of heavy haul maintenance
to Progress Rail (PRS), Aurizon announced
the closure of its Rockhampton rollingstock
workshop which will be completed by the
end of 2018. This initiative is expected to deliver
significant cost savings and efficiency
benefits through:
› Net reduction of 140 positions, which will
take place during CY2018
› ~25% efficiency benefit for the 106t wagon
overhaul capital program (overhaul of ~5,500
wagons over 10 years) through more efficient
wagon movements with the program moving
from Rockhampton to Jilalan, due to occur
in FY2019
› Reduction in unit cost of overhauling key
locomotive components with the transition
of activity to PRS
› Reduction in overhead costs once the site is
exited at the end of CY2018.
10 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
11 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)
DIRECTORS’ REPORT
17
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Further transformation continues including:
› The roll out of wayside condition monitoring
(WCM) with the successful deployment of
a super site at Raglan in July 2017 which
provides redundancy for the Blackwater
system and also coverage of the North
Coast Line traffic that passes the site.
Further rollout of WCM is forecast to take
place in the Hunter Valley during 1HFY2018.
Additional condition monitoring technologies
are being trialled in FY2018 with the aim of
enhancing Aurizon’s ability to understand
rollingstock condition and improve the safety
and efficiency of operations
› Shopfloor II has entered the execution phase
with the main phases of delivery and rollout
within the next 12 months. This phase will
integrate the condition monitoring systems
directly with SAP Plant Maintenance enabling
the automated creation of maintenance
activities in SAP
› The Locomotive and Operational Data
Acquisition and Management (LODAM)
project entered the trial phase in 2HFY2017
and rollout is expected across Aurizon’s
fleet commencing in 2018. This project will
deliver a step change in both the quantity
and quality of operational and sensor data in
real-time allowing Aurizon to better optimise
how the fleet is operated and managed.
The harvesting of sensor data will further
enhance Aurizon’s ability to predict and
manage rollingstock faults
› The use of advanced data analytics to deliver
insights into how Aurizon conducts business
has commenced. This initiative is based on
the rich, high quality data sets that have
been or are being delivered by the Shopfloor
II (SAP), WCM and the LODAM projects.
Below Rail
Below Rail refers to the business of Aurizon
Network Pty Ltd (Aurizon Network) 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
40 mines to three ports. The CQCN includes
four major coal systems (Moura, Blackwater,
Goonyella and Newlands) and a connecting link
(Goonyella to Abbot Point Expansion (GAPE)).
BELOW RAIL FINANCIAL SUMMARY
($M)
Total revenue
Access
Services and other
Operating costs
Employee benefits
Energy and fuel
Consumables
Other
Underlying EBITDA
EBITDA margin
Depreciation and amortisation
Underlying EBIT
BELOW RAIL METRICS
($M)
Tonnes (m)
NTK (bn)
Access revenue/NTK ($/’000 NTK)
Maintenance/NTK ($/’000 NTK) (excluding rail renewals)
Opex/NTK ($/’000 NTK)
Average haul length (km)
FY2017
1,262.1
1,199.9
62.2
(484.3)
(118.6)
(140.9)
(196.2)
(28.6)
777.8
61.6%
(287.4)
490.4
FY2017
210.8
53.2
22.6
2.3
14.5
252
FY2016
1,178.4
1,135.9
42.5
(414.8)
(116.7)
(124.7)
(146.9)
(26.5)
763.6
64.8%
(257.7)
505.9
FY2016
225.9
57.1
19.9
2.2
11.8
253
VARIANCE %
7%
6%
46%
(17%)
(2%)
(13%)
(34%)
(8%)
2%
(3.2ppt)
(12%)
(3%)
VARIANCE %
(7%)
(7%)
14%
(5%)
(23%)
0%
18
AURIZON ANNUAL REPORT 2016–17 Below Rail performance overview
Underlying EBIT decreased $15.5m (3%) to
$490.4m in FY2017, with increased revenues
offset by higher consumable costs, mainly due
to the cyclone and higher depreciation expense.
Access revenue increased $64.0m (6%) primarily
due to the UT4 true-up of regulatory revenue
shortfall in FY2014 and FY2015 following the
UT4 final decision issued by the Queensland
Competition Authority (QCA) on 11 October
2016. The true-up amount is collected within
tariffs based on volumes railed and Aurizon
Network estimates it has collected $80.0m of the
$89.0m true-up in FY2017, with the remainder
to be recovered via the revenue cap mechanism
in FY2019. Access revenue also includes GAPE
one-off FY2016 true-up ($5.6m, non-regulated),
one off Access Facilitation Deed (AFD)
rebates ($5.8m), higher revenue attributable to
electric traction, increases in operational and
maintenance allowances and the Moura flood
recovery ($4.5m) from FY2015. This compares to
FY2016 where Aurizon Network over-recovered
$23.6m in regulatory revenues, inclusive of
WACC, which will be repaid in FY2018.
Services and other revenue increased $19.7m
(46%) due to the recognition of the Bandanna
Group’s $15.3m bank guarantee held as security
following the termination for insolvency of its
WIRP Deed and a $6.7m insurance claim recovery.
Operating costs increased $69.5m (17%)
primarily due to a $16.2m increase in energy
and fuel from higher wholesale electricity
prices, and a $49.3m increase in consumables
from the alignment of the corporate cost
allocation ($26.4m) to the UT4 final decision
(FY2014 and FY2015 true-up), and recovery
works undertaken following the cyclone
(approximately $21m).
Depreciation increased $29.7m (12%) reflecting
high levels of asset and rail renewals, increased
ballast undercutting, impact of new mechanised
maintenance plant and the completion of WIRP
in FY2016.
Volumes decreased 15.1mt to 210.8mt principally
due to the impact of the cyclone in March and
April (~16mt). Despite this, FY2017 still achieved
strong railings with four of the twelve months
recording all time monthly records including
the highest ever monthly volume of 20.5mt in
June 2017.
The Regulated Asset Base (RAB) roll-forward
value is estimated to be $5.8bn (excluding
AFDs of $0.4bn) at 30 June 2017, subject to
QCA approval of the FY2016 and FY2017
capital claims.
Regulation update
Access Undertaking 2016 (UT4)
› On 11 October 2016, the QCA approved the
UT4 Access Undertaking
› The approval covers all elements of UT4
including:
• Aurizon Network’s Maximum Allowable
Revenue (MAR) over the UT4 period
(1 July 2013 to 30 June 2017) totalling
$3.9bn
• The way in which Aurizon Network must
provide and manage access to the CQCN.
Access Undertaking 2017 (UT5)
› On 30 November 2016 Aurizon Network
submitted the 2017 Draft Access Undertaking
(UT5), covering the period 1 July 2017 to 30
June 2021 to the QCA for approval
› In February, the QCA received submissions
from interested stakeholders in response to
Aurizon Network’s UT5 submission
› These February submissions were then used
as the basis for collaborative discussions with
stakeholders to seek agreement on positions:
• Aurizon Network was able to successfully
agree positions with industry on eight
policy matters, which were submitted to
the QCA on 17 March 2017
• Agreement with industry on matters
affecting the Maximum Allowable
Revenue was not achieved
› The QCA is currently completing its
detailed assessment of the complete UT5
proposal, taking into consideration the
relevant submissions and agreed positions
with industry
› Aurizon Network’s UT5 draft proposed a
› Timing for the draft decision on UT5 is not
MAR of $4.9bn over the four-year regulatory
period with a proposed 6.78% Vanilla
Nominal Post Tax WACC. Primary MAR
drivers are:
• Inflation at the time of submission
forecast rate was at 1.22% compared to
2.5% in UT4
• Change in equity beta from 0.8 in UT4
to 1.0 affecting the return on capital
building block
• Change in gamma from 0.47 in UT4 to
0.25 affecting the tax building block
• UT5 RAB now includes the majority of the
WIRP capital expenditure with ~$235m
(which relates to the Blackwater system
only) of the ~$260m in capital deferred
during UT4 included in the UT5 RAB for
pricing purposes
› The rate of inflation and risk free rate will be
updated to reflect market based rates. This
will result in both the WACC and the rate of
inflation being updated from 6.78% and 1.22%
to take into account the change in market
based rates
› Aurizon Network has adopted an approach
that prudently reflects the Pricing Principles
of the QCA Act. This includes highlighting
that the inherent risks faced by the
business are higher than what the QCA has
determined in previous Access Undertakings
due to:
• The increasingly volatile operating
environment of the coal industry
• Fragmentation of the RAB by system
which increases the risk of asset stranding
• Revenue deferrals which have resulted in
~$260m of expansion capital excluded
from the RAB for pricing purposes in UT4
as part of WIRP
yet known
Below Rail operational update
Performance
Despite the adverse impact of the cyclone,
compounded by the unseasonably wet
winter in central Queensland, the network
operational performance remained strong and
four monthly railing records were achieved.
Highlights include:
› Effective planning, scheduling and
maintenance programs resulted in a
26% reduction in system closure hours
› Performance to plan declined from 92.1%
to 86.8%, mainly due to the impact of the
cyclone with over 1,000 cancellations in
March and April. The underlying performance
to plan result excluding the impact of the
cyclone was 90.6%
› Cancellations due to the Network remained
low at 1.2%, which is an improvement against
the five year average of 1.7%
› Cycle velocity decreased 2.0% to average
23.5km/h, however remains above the five
year average of 23.3km/h.
Transformation Initiatives delivered
› Tranche 1 of the Network Asset Management
System went live in February 2017,
delivering a core asset management system
for civil assets, supported by a mobile
solution to assist field staff. It is expected
that the system will reduce the level of
reactive maintenance from 51% of our total
maintenance cost to 20%, as we move to
maintaining our system in a more planned
way. The remaining asset classes (control
systems, electrical assets and mechanised
production) will be captured in the second
tranche of the project with go live to be
achieved within 12 months
DIRECTORS’ REPORT
19
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
› APEX – The first phase of Aurizon Network’s
advanced planning, scheduling and day of
operations software went live in January
2017. This phase lead to the digitisation of
train control diagrams
› Interpolation of wayside system data in
particular wheel impact data has been
provided to all Above Rail operators to
enable them to proactively manage their
wheel sets in order to reduce incidents on
the network. This initiative is the primary
factor in achieving a 30% reduction in cycle
time delays related to rail defects
› Advanced monitoring techniques have been
employed for the high voltage transformer
fleet which has enabled more targeted
renewal and life extension works, resulting in
a 22% reduction in unplanned corrective and
emergency maintenance works
› Innovative asset renewal approach to
replacing aged corrugated metal pipe
culverts using PVC spirally wound culvert
liners has resulted in a 63% unit rate
reduction whilst removing the need for
track possessions, as this activity can be
performed under live traffic
› As a result of transformational initiatives in
inventory management, inventory holdings
decreased $12.3m (19% from prior year).
Wiggins Island Rail Project (WIRP)
› The QCA in its UT4 Final Decision applied
a revenue deferral for WIRP customers who
were not expected to rail during the UT4
period resulting in ~$260m of WIRP capital
expenditure being excluded for pricing
purposes from the UT4 MAR, on an NPV
neutral basis
› In its UT5 submission Aurizon Network
proposes that ~$235m of the deferred WIRP
capital expenditure be included in the UT5
RAB for pricing purposes
› Aurizon Network is confident that railings
in the Moura system will increase in the
medium-term to enable the remaining
deferred WIRP capital expenditure to be
included in the RAB for pricing purposes
OTHER SUMMARY
($M)
Total revenue
Operating costs
Employee benefits
Consumables
Other
Underlying EBITDA
Depreciation and amortisation
Underlying EBIT
20
Corporate support functions continue to
deliver transformation initiatives with $35.0m
in savings achieved in FY2017:
› $23.0m labour productivity from a net
FTE reduction of 11% (146 FTEs) driven
by review of management and corporate
services team structures
› $12.0m reduction in discretionary spend
including professional services.
Note: $21.0m of the support transformation
benefits have been allocated to Above Rail
consistent with the allocation of overheads.
The support function continues its drive for
transformation with key initiatives ongoing,
including:
› Ongoing consolidation of the property
portfolio with the closure of South
Townsville Yard
› Outsourcing of the property facility service
centre and contract management activities
with a reduction of 10 FTEs in FY2017
› Continued focus on discretionary spend in
consumables and other procurement reform.
Additional information
Senior management changes
Aurizon announced a change to its structure
in March, moving to a business unit model
effective 1 July 2017.
The move to the business unit model has seen
the formation of the business units Network,
Coal, Bulk and Intermodal with central
support from Technical Services and Planning,
Corporate and Finance and Strategy. As a
result of these changes:
› Ed McKeiver was appointed as the Group
Executive Coal. Ed is well known to Aurizon’s
customers having served in several senior
roles across Aurizon over the past seven
years, including four years running Coal
Service Delivery Operations
› Clay McDonald was appointed as the Group
Executive Freight. This includes the Diversified
Bulk Freight and Iron Ore businesses. Clay has
been with Aurizon for the past nine years and
has served in several senior management roles
including Vice President Network Commercial
and Vice President Network Operations
› Aurizon Network has received notices from
WIRP customers purporting to exercise
a right over the WIRP Deed to reduce
their financial exposure in respect of the
non-regulated relevant component of the
charge payable by them to Aurizon Network.
Aurizon Network maintains its position that
the notices issued by the WIRP customers in
relation to the commercial fee (WIRP fee) are
not valid. As discussions with the customers
failed to deliver a resolution, Aurizon
Network issued proceedings in the Supreme
Court of Queensland on 17 March 2016 to
assert its rights under the WIRP Deed.
The proceedings have been admitted to the
Commercial List of the Supreme Court of
Queensland, and the Court has made orders
to prepare the matter for trial
› Due to the ongoing dispute, no WIRP
commercial fee revenue has been recognised
during the period.
Other
Other includes costs for the Managing Director
& CEO, corporate finance, tax, treasury, internal
audit, risk, governance and strategy. The
percentage of corporate support costs allocated
to the Above Rail and Below Rail businesses in
FY2017 was 78% (FY2016 73%).
Performance Overview
Underlying EBIT improved $13.8m (20%)
due to:
› $25.0m net decrease in operating costs
mainly due to:
• $26.4m benefit from the UT4 corporate
cost allocation true-up as noted in
Below Rail
• $16.0m in favourable non-cash provision
moves due to changes in discount rates
• $10.0m from the transformation program
with lower FTEs and discretionary
spending in all corporate areas, partly
offset by
– $24.9m in asset write offs and minor
inventory impairments
– $8.9m decrease in revenue mainly due
to the sale of a warehouse at
Forrestfield in FY2016.
FY2017
FY2016
VARIANCE %
6.5
(55.7)
(29.3)
(8.6)
(17.8)
(49.2)
(6.9)
(56.1)
15.4
(80.7)
(34.9)
(36.0)
(9.8)
(65.3)
(4.6)
(69.9)
(58%)
31%
16%
76%
(82%)
25%
(50%)
20%
AURIZON ANNUAL REPORT 2016–17 › Michael Riches was appointed as the new
Group Executive Network following the
departure of Alex Kummant in June 2017.
Michael is a very experienced executive with
extensive regulatory and legal experience in
Australia. Most recently he has held several
senior roles at Alinta Energy. Prior to joining
Alinta Energy, Michael spent over six years
at Clayton Utz. Aurizon’s regulated network
business is a key part of the business portfolio
and Michael’s experience in negotiating
regulatory outcomes will assist in driving
reforms for the benefit of Aurizon and
customers
› Mike Carter was appointed as the Group
Executive Technical Services and Planning
which is responsible for the management of
Aurizon’s Above Rail assets and will provide
key enterprise specialist services such as
Engineering, Technology, Supply Chain and
Procurement and Project Management
› Tina Thomas joined Aurizon in March 2017
and was appointed as the Group Executive
Corporate which consists of Human
Resources, Safety, Corporate Affairs, Risk,
Legal and Company Secretary. Tina is an
experienced senior executive having spent
twenty four years with Woodside Petroleum
Limited in Western Australia including
leading both corporate services and human
resources functions
› CFO Pam Bains will lead the Finance and
Strategy team under the new structure
› Andy Jakab continues to lead the Intermodal
business until the completion of the disposal
and shut down.
In April 2017 Executive Vice President
Customer & Strategy Mauro Neves resigned to
pursue a senior leadership role overseas in the
resources sector.
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 confidence in the management
of Aurizon’s key risks however 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.
Increased volatility in the coal and iron ore
markets due to factors such as material
change in government policies or economic
slowdown or the increasing use of renewable
energy may cause fluctuations in demand,
which in turn impact commodity prices,
product volumes, and investment in growth
projects. Aurizon references credible sources
such as the International Energy Agency (IEA)
in evaluating long-term demand for the key
commodities of coal and iron ore. Whilst long-
term demand is predicted to increase, in the
short-term there may by variances in volumes,
contract profitability and growth that impact
on Aurizon’s financial results.
Customer Credit Risk
Aurizon’s earnings are concentrated in
commodity markets across a relatively small
number of customers and may be impacted
by deterioration in counterparty credit
quality, mine sale to a lower tier party, mine
profitability, contract renewals, supply chain
disruptions and/or macro-industry issues.
All coal customers are currently estimated at
positive cash margins. At current spot price
levels, we expect the majority of Aurizon’s
volume is cash margin positive.
Competition Risk
Aurizon may face competition from parties
willing to compete at reduced margins and/or
accept lower returns and greater risk positions
than Aurizon. This may potentially negatively
impact Aurizon’s comparative competitiveness.
Aurizon’s most significant customer contracts
are secured on long-dated terms, however
failure to win or retain customer contracts at
commercial rates will always be a risk to future
financial performance. Increased competition
may be experienced from new entrants to
Aurizon’s core markets in both Above and
Below Rail.
Strategic Risk
Aurizon may adopt a strategy that does not
deliver optimal performance outcomes for
shareholders. Whilst Aurizon is confident in
its strategic planning practices, the nature of
planning for strategy in uncertainty leads to a
possibility of sub-optimal strategic settings.
Capital Investment Plans
When allocating sustaining and growth
capital, Aurizon must predict the rate of
return associated with each opportunity.
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.
Strategic Freight Review
Decisions taken with respect to the Freight
Review (including any potential divestment of
business line) may lead to negative short-term
financial impacts before longer term benefits
are realised.
Asset Impairment
Aurizon’s assets are subject to impairment
testing each year. For rollingstock, there is
potential that reduced haulage volumes or
continued improvements to asset productivity
may require some assets to be impaired. For
the Intermodal and Bulk East cash generating
units (CGU) a change in the market value
of assets could result in a change in the
impairment recorded. For the Western
Australia CGU, should any of the current major
iron ore customers either cease to operate
before the expected end of mine life or be
unable to comply with current contractual
arrangements, then the CGU may become
further impaired.
WIRP Non-Regulated Revenue Dispute
Aurizon has received notices from WIRP
customers purporting to exercise a right
under the WIRP Deed to reduce their financial
exposure in respect of the non-regulated
revenue component of the amounts payable
by them to Aurizon Network. Aurizon Network
maintains its position that the notices issued
by WIRP customers in relation to the WIRP
fee are not valid. Aurizon issued proceedings
in the Supreme Court of Queensland to assert
its contractual rights under the Project Deeds.
The proceedings have been admitted to the
Commercial List of the Supreme Court of
Queensland and the Court has made orders to
prepare the matter for trial. The risk is that the
entire amount of the WIRP Fee is deemed not
payable by the WIRP customers.
Delivery of Transformation Program
Aurizon maintains a pipeline of transformation
initiatives that are expected to deliver step
change improvements in efficiency leading to
reduced costs. Continued focus is required on
these initiatives to ensure benefits are delivered
as planned and flow through to improved
financial performance.
DIRECTORS’ REPORT
21
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
› Increased regulation and/or reduced ‘licence
to operate’ in the community, making various
approvals and licenses more cumbersome
and costly to achieve.
This improvement is driven by targeted
initiatives designed and implemented by
Communities of Competence, groups of
subject matter experts in these key risk areas.
Regulatory Risk of the Access Undertaking
(UT5)
Aurizon continues to work with the Queensland
Competition Authority (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 regulatory and
commercial risks, which could lead to a material
adverse impact on the Aurizon Network business,
operational performance and financial results.
Business Interruption
Aurizon may experience business interruption
and consequential financial impact from a
range of circumstances including, but not
limited to:
› Adverse weather events and climate change
which could impact on Aurizon’s operations,
assets and customers
These considerations are explicitly evaluated
both in strategic planning and in the general
management of risk within Aurizon.
Aurizon’s climate change risks and
opportunities are disclosed annually in
our submission to the CDP (previously
Carbon Disclosure Project) and in Aurizon’s
sustainability report (refer below under
heading ‘Sustainability’ for details of the
release of the FY2017 Sustainability Report).
For example, Aurizon seeks to integrate
consideration of climate change risks and
opportunities in the following ways:
› Business model – understanding policy and
its potential to impact Aurizon’s business
long-term
› Future of coal – assessing greenhouse gas
emission reduction benefits from Australia’s
high quality thermal coal
› Operational efficiency – Aurizon’s progress
in reducing locomotive energy use and
associated greenhouse gas emissions
› Customer partnerships – preparing for, and
adapting to, extreme weather events that
impact the Network and rail haulage business
› Regulatory environment – assessing
greenhouse gas emission reduction benefits
from moving freight from road to rail.
› Cyber security incidents in relation to
Sustainability
Aurizon’s corporate and operational systems
› Operational events such as safety incidents,
industrial action or environmental activism
› 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.
Climate Change Risk
The long-term implications of climate change
may impact Aurizon on several fronts. For
example:
› Increased regularity or severity of weather
events causing disruptions to operations and
significant damage to assets
› Reduced appetite for funding either for
Aurizon and/or for Aurizon’s customers
In October 2016, Aurizon released its third
sustainability report. The report details how
Aurizon takes into account social, environmental
and economic considerations related to its
operations. The FY2017 Sustainability Report
is due to be released in October 2017, and will
incorporate recommendations from the Final
Report: Recommendation of the Task Force on
Climate related Financial disclosures, released in
June 2017.
A brief summary of Aurizon’s performance
in connection with safety, environment and
people is outlined below.
Safety
Aurizon’s commitment to safety ensured
another period of sustained focus on improving
Aurizon’s performance. At 30 June 2017, Total
Recordable Injury Frequency Rate (TRIFR) was
2.69, a 37% improvement on FY2016 however,
Lost Time Injury Frequency Rate (LTIFR) has
risen to 0.59.
Aurizon can also report steady improvement
in operational safety metrics in FY2017.
Running Line Signal Passed at Danger (SPAD)
frequency has improved 31%, while Running
Line Derailment frequency has improved 19%.
22
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.
One such example is the introduction of in
vehicle monitoring across all of Aurizon’s
motor vehicle fleet. This has seen a significant
improvement in the number of motor vehicle
incidents and infringements recorded in FY2017.
In order to continue the journey to becoming
world leading in safety, Aurizon has reviewed
its injury definitions and implemented a new
set of definitions effective 1 July 2017. The key
changes are the inclusion of contractors in all
injury metrics and widening the scope of total
recordable injuries to include all restricted work
injuries. Previously, Aurizon has used a set of
metrics and injury definitions benchmarked
against the rail industry. These new definitions
have been benchmarked against a broader set
of global transport and resource organisations,
including many of Aurizon’s customers.
Environment
Aurizon delivers environmental value
through effective management of material
environmental risks and improved enterprise
environmental performance. We continue
to work with industry peers to progress the
implementation of a voluntary diesel Standard
and Code of Practice recognising that although
our contribution to localised air quality impacts
are small, we have a role to play in ensuring the
communities we operate in maintain their world
class air quality. Our contribution to improving
air quality principally aligns with reducing our
direct emissions at source and through the net
environmental gains realised by the utilisation
of rail freight.
People
Aurizon believes its greatest asset is the
collective capability of its people to safely and
efficiently operate complex supply chains. A
key focus has been the change to a business
unit structure which has enabled a number
of key executive and senior leadership talent
moves building the capability required to
deliver on transformation goals. Leadership,
people-centred change and diversity remain a
focus. For detailed information, please refer to
Aurizon’s 2016 Sustainability Report.
AURIZON ANNUAL REPORT 2016–17 Directors’ Report (continued)
REMUNERATION REPORT
Dear Fellow Shareholders,
On behalf of the Board, we are pleased to present Aurizon’s Financial Year (FY) 2017 Remuneration Report.
The past 12 months have continued to be challenging for Aurizon, with Underlying Earnings Before Interest and Tax (EBIT) again
deteriorating.
Against this backdrop, the Company is undergoing major renewal. The Board’s leadership succession program saw Andrew Harding
commence as Managing Director & CEO on 1 December 2016. Andrew swiftly implemented changes to his Executive Leadership team and
organisation structure and re-invigorated the transformation program to improve customer service, identify revenue opportunities and
reduce costs. The Freight Review was also launched in August 2016 to address the under-performing Intermodal and Bulk businesses.
As foreshadowed last year, Fixed Remuneration for the MD & CEO and new Key Management Personnel appointments have been reduced
compared to their predecessors and more weighting has been given to the Long Term Incentive component of their packages, as
appropriate for a long asset life infrastructure business.
The Company’s FY2017 earnings were affected by significant asset impairments resulting from the Freight Review and the ongoing
transformation program. Earnings were also affected by the impact of Cyclone Debbie throughout our Queensland operations in March and
April. In this regard, the Board commends Aurizon employees for their outstanding efforts in recovery works and in re-establishing vital coal
export supply chains for our customers and for the Queensland coal industry.
In assessing the FY2017 Short Term Incentive, the Board acknowledges the Below Threshold outcomes for the Underlying EBIT and
Transformation components and recognises the continued improvements in Safety and Diversity. We are conscious that this is a new
management team and despite the disappointing financial outcomes, we want to provide some reward to them for their efforts this year in
reshaping Aurizon for future success. Accordingly, the Board has determined to award an STI payment, set just above the Threshold level.
Aurizon’s FY2017 performance resulted in minimal vesting of Long Term Incentive Awards.
In August 2016, 27.5% of the 2013 Award vested. As provided in the Award scheme, the portion that did not vest last year was retested.
No part of the Earnings Per Share or Operating Ratio components vested and these rights lapsed. The relative Total Shareholder Return
(TSR) portion, retested over the period FY2014 – FY2017, ranked at the median and therefore an additional 12.9% will vest in August 2017.
The 2014 Award was tested and no portion of the Return on Invested Capital, Operating Ratio or relative TSR components vested.
Under the terms of this Award, the Board may decide to extend the performance period for one year, with the retest being at higher hurdles.
The Board will consider this matter in FY2018.
The Board considers that these remuneration outcomes strike an appropriate balance between reflecting shareholder outcomes and
recognising the value adding contribution of the new team.
As previously advised to shareholders, the Board has continued to implement improvements to the Remuneration Framework, including the
removal of retesting from the 2016 Award onward.
We will continue to review the Remuneration Framework to ensure it remains effective in driving the required performance.
As always, we are grateful for your ongoing support and we value your feedback. We look forward to welcoming you to our 2017 Annual
General Meeting.
Yours faithfully,
Tim Poole
Chairman
Russell 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 whilst attracting
and retaining Executives with the right
capability to achieve results.
The Remuneration Report for the year ended
30 June 2017 is set out as per Table 1. The
information in this Report has been audited.
2. Directors and Executives
The Key Management Personnel (KMP) of the Group (being those whose remuneration must be
disclosed in this Report) include the Non-Executive Directors and those Executives who have the
authority and responsibility for planning, directing and controlling the activities of Aurizon.
The Non-Executive Directors and Executives that formed part of the KMP for the Financial Year
(FY) as at 30 June 2017 are identified in Table 2.
Table 3 identifies other persons who were KMP at some time during FY2017.
TABLE 2 – KEY MANAGEMENT PERSONNEL
NAME
POSITION
TABLE 1 – TABLE OF CONTENTS
NON–EXECUTIVE DIRECTORS
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 2017
Take Home Pay
Short Term Incentive
Award
Long Term Incentive
Award
Executive Service
Agreements
Non-Executive Director
Remuneration
Executive Remuneration
Financial Year 2017
24
24
24
25
27
28
29
T Poole
R Caplan
J Cooper
M Fraser
K Field
S Lewis
K Vidgen1
EXECUTIVE KMP
A Harding2
P Bains3
M Carter
Chairman, Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Managing Director & Chief Executive Officer
Executive Vice President & Chief Financial Officer
Acting Executive Vice President, Operations
30
E McKeiver4
Acting Executive Vice President, Customer & Strategy
32
33
34
1 K Vidgen was appointed a Director on 25 July 2016
2 A Harding was appointed Managing Director & Chief Executive Officer on 1 December 2016
3 P Bains was appointed Executive Vice President & Chief Financial Officer on 19 December 2016
4 E McKeiver was appointed Acting Executive Vice President, Customer & Strategy on 18 April 2017 and
appointed Group Executive Coal on 1 July 2017 to align with the business unit structure
TABLE 3 – FORMER KEY MANAGEMENT PERSONNEL
NAME
POSITION
FORMER EXECUTIVE KMP
L E Hockridge1
A Kummant2
K Neate³
Managing Director & Chief Executive Officer
Executive Vice President, Network
Executive Vice President & Chief Financial Officer
M Neves De Moraes⁴
Executive Vice President, Customer & Strategy
1 L E Hockridge ceased in the role on 30 November 2016 and with the Company on 16 December 2016
2 A Kummant ceased in the role on 30 June 2017 and with the Company on 28 July 2017
3 K Neate ceased in the role on 16 December 2016 and with the Company on 31 December 2016
4 M Neves De Moraes ceased in the role and with the Company on 13 April 2017
Managing Director & Chief Executive Officer transition
Lance Hockridge ceased as Managing Director & Chief Executive Officer (MD & CEO) and upon
ceasing employment received termination benefits in accordance with the provisions of his
contract of employment as described in Table 14. Mr Hockridge did not receive an STIA payment
for FY2017 and any unvested rights awarded under the LTIA will remain on foot on a pro-rata basis
as described in Table 13. Any outstanding awards will continue to be governed by the performance
conditions and plan rules.
As announced on 2 September 2016, Andrew Harding was appointed MD & CEO on 1 December
2016. Mr Harding’s Fixed Remuneration and Total Potential Remuneration are 13% and 8% less
respectively than his predecessor.
Key Management Personnel from FY2018
During the year a review of the KMP was conducted. Given the change in business unit reporting
from FY2018, the Board determined that from 1 July 2017 the MD & CEO, Chief Financial Officer &
Group Executive Strategy, Group Executive Coal, Group Executive Network and Group Executive
Bulk will fulfil the definition of the KMP.
AURIZON ANNUAL REPORT 2016–17
3. Remuneration Framework
Components
Total Potential Remuneration
Aurizon’s Remuneration Framework for each
Executive comprises three components:
› Fixed remuneration (not ‘at risk’) that
comprises salary and other benefits,
including superannuation
FIGURE 1 – TOTAL POTENTIAL REMUNERATION FINANCIAL YEAR 20171
MD & CEO: CASH COMPONENT: 51%
EQUITY COMPONENT: 49%
27%
24%
16%
33%
NEW EXECUTIVE APPOINTMENTS: CASH COMPONENT: 51%
EQUITY COMPONENT: 49%
30%
21%
14%
35%
› STIA (‘at risk’ component, awarded on the
PREVIOUS EXECUTIVES: CASH COMPONENT: 58%
EQUITY COMPONENT: 42%
achievement of performance conditions over
a 12-month period) that comprises both a
cash component and a component deferred
for 12 months into equity
› LTIA (‘at risk’ component, awarded on the
achievement of performance conditions over
three and four year periods) 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 FY2017 for the MD & CEO and Executive
KMP is set out in Figure 1: Total Potential
Remuneration Financial Year 2017. The diagram
demonstrates the revised remuneration mix for
Executive appointments, which has a greater
proportion of the 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
35%
23%
16%
26%
Fixed Remuneration
STIA
Deferred STIA
LTIA
1 Assumes achievement of the stretch performance hurdle outcomes for STIA, full vesting of the Deferred STIA and
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
Remuneration Framework and objectives Financial Year 2017
As referenced in the FY2016 Remuneration Report, Aurizon has implemented changes to the Remuneration Framework. These changes are
summarised in Figure 3.
FIGURE 3 – REMUNERATION FRAMEWORK AND OBJECTIVES FOR FINANCIAL YEAR 2017
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
M
R
E
T
G
N
O
L
D
R
A
W
A
E
V
T
N
E
C
N
I
I
D
R
A
W
A
E
V
T
N
E
C
N
I
I
PERFORMANCE MEASURE
Considerations:
› Experience and qualifications
› Role and responsibility
› Retain key capability
› Reference to remuneration paid by
similar sized companies in similar
industry sectors
›
Internal and external relativities
› Safety, Environment and Female
Representation (17.5%)
› Enterprise Transformation Program
(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
Other Executive KMP: Target 75% of
Fixed Remuneration and maximum 112.5%
of Fixed Remuneration
› Relative Total Shareholder Return (TSR)
(35%)
› Return on Invested Capital (ROIC) (50%)
› Operating Ratio Improvement (OR) (15%)
Measured over a three-year performance
period. There will be no retesting in
relation to the 2016 Award and subsequent
awards
LTIA at Risk (Maximum):
MD & CEO: 120% of Fixed Remuneration
New Executive appointments: 112.5% of
Fixed Remuneration
Previous Executives: 75% of Fixed
Remuneration
STRATEGIC OBJECTIVES AND
LINK TO PERFORMANCE
FY2017 FRAMEWORK
CHANGES
› To attract and retain Executives with
the right capability to achieve results
The non-financial and financial
performance measures were chosen
because:
› Safety, Environment and Female
Representation captures the need to
continuously improve safety, reduce
our environmental footprint across all
aspects of a heavy industry business
and increase representation of females
› Transformation captures the need for
our people and our assets to operate
more efficiently
› Underlying EBIT delivers direct
financial benefits to shareholders
Note: Participation levels set with
reference to the appropriate levels of
short-term incentive offered by our
peers in the market
› 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
› OR Improvement is a measure of
the profit earned from each dollar of
revenue generated
Note: Minimum shareholding
requirements for Executives encourages
retention of shares and alignment with
shareholder interests
› Transformation measure aligned
to the Enterprise Transformation
Program and identifies annual
cost-out and capital management
saving target
› Safety & Environment measures
adjusted to include Female
Representation
› Reward for Threshold
performance removed for
some Safety & Environment
measures (Total Reportable Injury
Frequency Rate, Environmental
Incidences and Safety
Interactions)
› The weighting of the LTIA within
the remuneration mix has been
increased whilst not increasing
the total potential remuneration
› A greater portion of the award
has been weighted towards ROIC
(from 2016 Award) and relative
TSR (from 2017 Award)
› Property trusts (from 2016
Award) and telecommunications
companies (from 2017 Award) will
no longer be excluded from the
peer group
› Retesting has been removed
(from 2016 Award)
› The performance period will be
extended from three to four years
(from 2017 Award)
Total remuneration
Overall, Executive remuneration is designed to support delivery of superior shareholder returns by placing a significant proportion of an
Executive’s total potential remuneration at risk and awarding a significant portion of at risk pay in equity
AURIZON ANNUAL REPORT 2015–16
26
4. Company Performance
Financial Year 2017
EBIT and Net Profit After Tax (NPAT) were
significantly impacted by the operating
conditions described in the Chairman’s
Report (page 2) and the impact of the asset
impairments. Despite these challenges, Aurizon
has continued to transform and has delivered a
further $129 million in transformation benefits
but did not achieve its internal FY2017 target.
However, Aurizon remains on track to achieve
its three year target of $380 million by FY2018.
By addressing surplus capacity, decreasing
operating footprint, reviewing maintenance
practices, changing business models and
improving efficiency through innovation,
Aurizon has delivered 68% of cost-out targets
in two-thirds of the program timeframe.
Figure 4 shows historical Company
performance across a range of key metrics with
further detail related to performance against
the FY2017 STIA performance measures
provided in Table 5 (page 29). Table 7 (page 30)
provides additional information related to the
LTIA performance outcomes.
A key benefit for Aurizon shareholders is the
share price appreciation since IPO. Figure
5 shows the movement in both the Aurizon
share price and ASX200 index value over the
period from listing date 22 November 2010
to 30 June 2017. 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 $2.45, being the
initial retail share price.
FIGURE 4 – HISTORICAL COMPANY PERFORMANCE
.
0
8
8
.
4
3
8
.
8
9
7
.
7
7
7
.
3
4
7
.
8
4
7
.
8
5
7
0
7
1 9
5
8
1
7
8
6
3
8
4
5
7
4
8
5
3
8
3
4%
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Operating Ratio (%)
Underlying EBIT ($m)
1ppt
8
0
3
.
0
4
2
.
5
9
0
.
8
2
0
.
6
1
.
0
0
0
.
9
5
0
.
4
3
2
2
.
4
1
.
3
1
76%
5
8
5
.
0
8
2
.
1
4
2
.
4
2
4
.
9
6
2
.
37%
FY11
FY12
FY13 FY14
FY15
FY16
FY17
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Lost Time Injury Frequency Rate1
(per million man-hours worked)
Total Recordable Injury Frequency Rate1
(per million man-hours worked)
.
2
0
2
.
3
5
2
.
0
3
2
.
8
5
1
3
.
1
1
.
7
.
6
8
-
.
4
8
2
.
8
9
1
1
.
8
1
.
4
5
1
8
.
1
1
5
3
.
.
2
9
-
FY11
FY12
FY13
FY14
FY15
FY17
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Total Shareholder Return1 (%)
Basic Earnings per Share (cents)
.
0
4
2
.
6
4
2
.
5
2
2
.
5
6
3 1
2
1
.
.
3
8
.
7
3
7
8 9
.
0 8
.
.
7 8
6
.
4
4
.
9%
6
8
.
.
7
8
0.1%
FY11
FY12
FY13 FY14
FY15
FY16
FY17
FY11
FY12
FY13
FY14
FY15
FY16
FY17
Total Dividend per Share (cents)
Return on Invested Capital (%)
1 Unaudited
FIGURE 5 – INVESTMENT RETURN FROM AURIZON HOLDINGS (AZJ) AND ASX200 ACCUMULATION INDEX (22 NOVEMBER 2010 TO 30 JUNE 2017)
$248
$164
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 22/11/16 22/05/17
Aurizon
S&P/ASX200
DIRECTORS’ REPORT
27
Directors’ Report (continued)
REMUNERATION REPORT
5. Take Home Pay
Table 4 identifies the actual remuneration
earned during FY2017.
The table has not been prepared in accordance
with accounting standards but has been
provided to ensure shareholders are able to
clearly understand the remuneration outcomes
for Executive KMP and Former Executive KMP.
Executive remuneration outcomes, which are
prepared in accordance with the accounting
standards, are provided in Section 10 (page 36).
The remuneration outcomes identified in
Table 4 are directly linked to the Company
performance described in Section 6 (page 29)
and Section 7 (page 30).
The actual STIA is dependent on Aurizon
and individual performance as described in
Section 6. Mixed performance across our
key measures is also reflected directly in the
payments for our Executive KMP, which range
from 33% to 42% of their potential maximum.
The actual vesting of the LTIA is dependent on
Aurizon’s performance and the outcomes are
further described in Section 7. The unvested
components of the 2013 Award and all three
components of the 2014 Award were tested
in FY2017.
Aurizon’s performance for FY2017 has resulted
in minimal LTIA vesting outcomes.
No portion of the Return on Invested Capital
(ROIC), Operating Ratio (OR) or relative
Total Shareholder Return (TSR) components
awarded in 2014 (FY2015 – FY2017) vested.
These unvested components may be subject
to a discretionary retest in FY2018 and, in order
for any rights to vest on the later date, stronger
performance is required.
The Board has not yet determined whether the
2014 Award will be retested next year for either
current or former Executives.
The portions of the 2013 Award which did
not vest last year were retested in FY2017.
Relative TSR was retested over the period
FY2014 – FY2017. This portion ranked at the
median and therefore an additional 12.9% will
vest in August 2017. No portion of the Earnings
Per Share (EPS) or OR components vested and
these rights lapsed.
TABLE 4 – REMUNERATION EARNED IN FINANCIAL YEAR 2017
FIXED
REMUNERATION1
$’000
NON-
MONETARY
BENEFITS2
$’000
STIA
CASH3
$’000
STIA
DEFERRED
FROM
PRIOR YEAR4
$’000
LTIA
VESTING5
$’000
SHARE PRICE
APPRECIATION6
$’000
CONTRACTUAL
TERMINATION
BENEFITS
$’000
ACTUAL FY2017
REMUNERATION
OUTCOMES
$’000
NAME
EXECUTIVE KMP
A Harding
P Bains
M Carter
E McKeiver
FORMER EXECUTIVE KMP
L E Hockridge
A Kummant
K Neate
M Neves De Moraes
958
588
860
500
906
860
433
665
-
-
1
-
6
3
1
1
316
152
191
161
-
298
-
-
-
-
-
-
-
-
-
-
-
31
73
37
252
81
71
-
-
6
14
7
47
15
13
-
-
-
-
-
1,950
730
430
-
1,274
777
1,139
705
3,161
1,987
948
666
1 The amount represents FY2017 actual earnings and is not reflective of the period in the KMP role only
2 The amount relates to reportable fringe benefits
3 The amount relates to the cash component (60%) of the FY2017 STIA which will be paid in September 2017. A Kummant’s contract of employment terminated on
28 July 2017 and E McKeiver was not remunerated as an EVP for FY2017 therefore their STIA will be awarded entirely as cash
4 The amount relates to the deferred component (40%) of the FY2016 STIA which would have been awarded in performance rights and become unrestricted in
September 2017. As no FY2016 STIA was made to the Executive KMP there was no component deferred into equity
5 The amount is the number of rights which vest in August 2017 (i.e. a portion of the retested 2013 Award) multiplied by the Aurizon share price at the start of the
performance period (calculation assumes a share price of $4.51)
6 The amount is the number of rights which vest in August 2017 multiplied by the increase in the Aurizon share price over the performance period ended 30 June 2017
(calculation assumes share price appreciation of $0.85)
28
AURIZON ANNUAL REPORT 2016–17
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 Company and
individual 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.
For the MD & CEO, Executive KMP and the
remaining Executive Committee (direct reports
to the MD & CEO) a portion (40%) will be
deferred into equity for a period of 12 months,
subject to the Board’s ability to claw-back.
What are the Company performance
measures?
The performance measures which apply
to all participants are Underlying EBIT,
Transformation, Safety, Environment and
Female Representation. The measures capture
the need to continuously improve safety
across all aspects of the business, reduce
our environmental footprint, strengthen and
grow our current business and the need
to create a more diverse workforce. This is
achieved through a focus on people and
asset efficiencies whilst at the same time,
delivering benefits to shareholders. Individual
performance hurdles relate to each specific
role and measure an individual’s contribution.
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 the 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%; Safety and
Environment (excluding TAR), for which no
payment is made at Threshold) 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 FY2017?
Table 5 identifies the performance measures, relevant weightings and outcomes for FY2017. The FY2017 actual outcomes for Executive KMP are
identified within Table 6.
TABLE 5 – SHORT TERM INCENTIVE AWARD FINANCIAL YEAR 2017 OBJECTIVES
DESCRIPTION
WEIGHTING
TARGET
OUTCOME
EBIT: Underlying EBIT delivers financial benefits to shareholders through growth in
underlying operating earnings
Safety, Environment and Female Representation: The measures capture the need to
continuously improve and maintain safety across all aspects of the Company, reduce
our environmental footprint and to create a more diverse workforce, measured
through equally weighted parameters which included:
› Total accident rate (TAR)
› Total reportable injury frequency rate (TRIFR)
› Total environmental notifiable incidents (ENI)
› Safety interactions per employee per month (SI)
› Aurizon’s female representation
(derailments and rollingstock
collisions)
Transformation: Our priority to transform Aurizon continues to be a strategic imperative.
For FY2017, this objective was aligned to the Enterprise Transformation Program, which
identifies cost-outs and capital management savings targeted over three years
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 FY2017 the MD &
CEO’s individual performance parameters included:
› Support and guidance
to regulatory process
› Review and implement effective organisational
structure and leadership team
35%
17.5%
17.5%
70%
30%
$925m
$836m1
› 10% reduction in TAR
› 30% reduction in TRIFR
› Maintain ENI at 1
› At least 1.48 SI per
employee per month
› Increase female
representation to 20%
Below Threshold
› 45% reduction TAR
› 37% reduction TRIFR
› 2 ENI
› 2.07 SI
› 19.8% female employees
Between Target and
Stretch
$165m
$129m
Individual performance
targets vary for each
specific role
Below Threshold
Personal outcomes
for KMP varied
between Threshold and
Stretch depending on
performance against
individual KPIs
› Strategic review of Intermodal and Bulk
› Transformation
1 The Board has considered and determined that no adjustment for impairments or weather events will be made to the Underlying earnings for remuneration purposes as an
adjustment would not have affected the result. No STIA participant will be rewarded for this component (below Threshold)
TABLE 6 – SHORT TERM INCENTIVE AWARDED IN FINANCIAL YEAR 2017
NAME
EXECUTIVE KMP
A Harding3
P Bains3
M Carter
E McKeiver4
FORMER EXECUTIVE KMP
A Kummant5
TARGET
STIA
$’000
MAXIMUM
POTENTIAL
STIA ($’000)
CASH
COMPONENT
DEFERRED
SHARE
COMPONENT1
TOTAL STIA
PAYMENT
% OF
TARGET
STIA
% OF
MAXIMUM
STIA2
AWARDED FY2017 ($’000)
958
405
645
300
645
1,437
608
968
450
968
316
152
191
161
298
211
102
127
-
-
527
254
318
161
298
55
63
49
54
46
37
42
33
36
31
1 A portion (40%) awarded in the form of rights to shares, which vest on the first anniversary of payment of the cash component subject to Board’s ability to ‘clawback’
2 Executives have forfeited between 58% to 69% of their maximum potential outcome
3 Pro-rata outcomes apply for Executives who were appointed after the performance year commenced (1 July 2016) which take into account variations in Fixed
Remuneration and Target STIA percentages
4 E McKeiver was not remunerated as an EVP for FY2017 therefore his STIA will be awarded entirely as cash
5 A Kummant ceased with the Company on 28 July 2017 and remained eligible for an STIA payment awarded entirely as cash. All other former Executive KMP ceased
prior to the end of the financial year and were therefore not eligible
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), and
the direct reports to the Executive Committee.
How is the LTIA determined?
The number of performance rights issued
under the LTIA to each Executive 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 FY2017 is identified
in Table 7.
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
120% in the case of the MD & CEO, 112.5% for
Executive KMP appointed during FY2017 and
75% for the previous Executive KMP.
What is the performance period?
From the 2017 Award, company hurdles will
be measured over an extended performance
period, increasing from a three-year to a four-
year performance period. In order to manage
the transition on a value neutral basis for the
Company, two LTIA grants will be made in
FY2018. Both grants will be reduced, issued at
75% of the maximum vesting opportunity.
In the event that a 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 – COMPANY PERFORMANCE AGAINST LONG TERM INCENTIVE AWARDS SUBJECT TO TESTING IN FINANCIAL YEAR 2017
COMPANY HURDLE AND
PERFORMANCE MEASUREMENT PERIOD
WEIGHTING
RESULT
%
VESTED
% FOR
RETESTING
%
LAPSED
2013 AWARD: RETEST 01 JULY 2013 – 30 JUNE 2017
Relative TSR:
against peer group
within ASX100 Index
50% of rights vest at the 50th percentile,
up to 100% at the 75th percentile
OR Improvement1
50% of rights will vest with a FY2017 OR
of 73%, up to 100% at 71%
25% Below median
0% 100% of this component
(FY2016)
Between median
& top quartile
(FY2017)
was subject to a single retest
in FY2017
52%
48%
50%
74.8% (FY2016)
55% 45% of this component
75.8% (FY2017)
0%
45%
was subject to a single retest
in FY2017
EPS: average annual
EPS growth from
FY2013 – FY2017
50% of rights vest with an average annual
growth rate of 7.5%, up to 100% at an
average annual growth rate of 10%
25%
-52%
(FY2013 – FY2016)
0% 100% of this component
was subject to a single retest
in FY2017
2014 AWARD: 01 JULY 2014 – 30 JUNE 2017
Relative TSR:
against peer group
within ASX100 Index
30% of rights vest at the 50th percentile,
75% of rights vest at the 62.5th percentile
up to 100% at the 75th percentile
ROIC: average
annual ROIC
FY2015 – FY2017
OR Improvement1
50% of the rights will vest with an average
ROIC of 10.5%, up to 100% at 11.5%
50% of rights will vest with a FY2017 OR
of 73%, up to 100% at 71.5%
-6.6%
(FY2013 – FY2017)
0%
100%
33% Below median
(FY2017)
0% 100% of this component
may be subject to a retest
in FY20183
33%
34%
9%2
0% 100% of this component
may be subject to a retest
in FY20183
75.9%
0% 100% of this component
may be subject to a retest
in FY20183
1 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
2 ROIC for remuneration purposes has been adjusted to reflect asset impairments which have occurred during the performance period, excluding asset impairments driven
by continued efficiency and productivity improvements, and is 8.8%
3 The entire unvested Award is subject to a discretionary retest with more stringent performance levels. The retesting hurdles are 70% for OR in the fourth year, top
quartile performance for relative TSR over the four year period and 12.5% average for ROIC over the four year period. The Board has not yet determined whether
the 2014 Award will be retested next year for either current or former Executives
30 AURIZON ANNUAL REPORT 2016–17
TABLE 8 – LONG TERM INCENTIVE AWARD PERFORMANCE OVERVIEW AND HURDLES
TSR
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 (approximately 70) that are broadly comparable to Aurizon (i.e. with which Aurizon competes for capital and/or capability). Property
trusts (from 2016 Award) and telecommunications companies (from 2017 Award) will no longer be excluded from the comparator group.
Financial, healthcare, biotechnology, casinos and gaming companies are excluded from the comparator 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
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). ROIC for remuneration purposes will be adjusted to reflect asset
impairments which occur during the performance period, excluding asset impairments driven by continued efficiency and productivity
improvements. Hurdles for awards issued in 2017 reflect the latest expected performance of the Above Rail business and assumes the
continued use of the Queensland Competition Authority (QCA) transitional tariffs, which extends UT4 until the approval of UT5.
OR
OR improvement essentially measures the operating cost as a percentage of revenue. Aurizon is committed to reducing OR through further
implementation of transformation initiatives, growth initiatives and continued tight operational and financial discipline. The Board determined
that OR will no longer form part of the LTIA from the 2017 Award. It was always intended that the use of OR had a finite life-span. Whilst OR
will continue to be managed and improved it will no longer be used for remuneration purposes with the balance of future awards weighted
towards TSR and ROIC which are better aligned to a long asset life infrastructure company.
PERFORMANCE PERIOD (01/07/2016 – 30/06/2019)1
2016 AWARD
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
Relative TSR: against peer
group within ASX100 Index2
ROIC: average annual ROIC
FY2017 – FY2019
OR Improvement
35% 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% 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%
15% 50% of the rights will vest with an OR of 70%
100% of the rights will vest with an OR of 68.5%
100% All rights will vest pro-rata on a straight-line basis between the minimum and maximum vesting points
2017 AWARD (3 YEAR)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
Relative TSR: against peer
group within ASX100 Index3
ROIC: average annual ROIC
FY2018 – FY20205
50% 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% 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
PERFORMANCE PERIOD (01/07/2017 – 30/06/2020)1,4
PERFORMANCE PERIOD (01/07/2017 – 30/06/2021)1,4
2017 AWARD (4 YEAR)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
Relative TSR: against peer
group within ASX100 Index3
ROIC: average annual ROIC
FY2018 – FY20215
50% 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% 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 In the event that performance is not achieved, the performance period will not be extended, as retesting no longer forms part of the LTIA from the 2016 Award
2 From the 2016 Award, property trusts were no longer excluded from the peer group
3 From the 2017 Award, telecommunication companies will no longer be excluded from the peer group
4 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. In order to facilitate this transition, two awards will be issued
5 ROIC hurdles have been set with reference to the QCA transitional tariff which extends UT4 to 31 December 2017. The transitional tariffs remain in place until the
approval of UT5. The Board may apply discretion should the UT5 outcome result in a material tariff difference
How does Aurizon utilise Retention awards?
In some circumstances, as approved by the Board, Management may recommend the issuance of retention awards to key Executives where the
services of an individual are considered critical to Aurizon over the short-to-medium term and the existing remuneration arrangements are thought to
be insufficient to retain those services. Retention awards may be time-based or project-based and are governed by stringent performance conditions
and may be cash-based or equity-based.
During FY2017, one equity-based retention and six cash-based awards were issued. Additionally, one equity-based retention award vested and two
project-based awards lapsed. The awards which were issued and vested during the year pertained to two externally targeted Executives whom have
now been appointed to the Executive Committee (CFO & Group Executive Strategy and Group Executive Bulk). The remaining six awards were issued
to retain the services of other management (non KMP) required to complete the Freight Review process. Further information is available in Section 28
of the Financial Report (page 88).
DIRECTORS’ REPORT
31
Directors’ Report (continued)
REMUNERATION REPORT
8. Executive Service Agreements
Executive Service Agreements
Remuneration and other 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 of shares
in the Company
› the MD & CEO to accumulate and maintain
one year’s Fixed Remuneration of shares in
the Company
› the remaining Executive KMP and Executive
Committee to accumulate and maintain 50%
of one year’s Fixed Remuneration of shares
in the Company.
This is to be achieved within six years of
the date of their appointment. This will be
calculated with reference to the Directors’ fees
and Executives’ Fixed Remuneration during the
period divided by the number of years.
Details of KMP shareholdings as at 30 June
2017 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
NAME
EXECUTIVE KMP
A Harding
P Bains
M Carter
E McKeiver4
DURATION OF
SERVICE AGREEMENT
FIXED REMUNERATION AT END
OF FINANCIAL YEAR 20171
BY EXECUTIVE
BY COMPANY3
NOTICE PERIOD2
Ongoing
Ongoing
Ongoing
Ongoing
$1,700,000
$ 700,000
$ 860,000
$ 500,000
6 months
3 months
3 months
3 months
12 months
6 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 will be subject to compliance with the Corporations Act and will not exceed 12 months
4 E McKeiver was appointed acting EVP Commercial & Strategy on 18 April 2017. No adjustment was made to his remuneration package during the acting period
TABLE 10 – KMP SHAREHOLDING AS AT 30 JUNE 2017
NAME
NON–EXECUTIVE DIRECTORS
T Poole
R Caplan2
J Cooper
M Fraser
K Field
S Lewis
K Vidgen
EXECUTIVE KMP
A Harding
P Bains
M Carter2
E McKeiver
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
45,500
82,132
70,000
40,000
40,458
33,025
-
-
1,850
316,990
-
-
-
-
-
-
-
-
-
14,634
82,516
17,562
45,000
-
15,000
-
-
-
40,000
-
-
(225,581)
-
90,500
82,132
85,000
40,000
40,458
33,025
40,000
-
16,484
173,925
17,562
102%
232%
240%
113%
114%
93%
113%
0%
13%
108%
19%
1 Assumes Directors’ fees and Fixed Remuneration as at 30 June 2017 and the calculation assumes a share price of $5.36
2 KMP required to meet the minimum shareholding requirement due to length of service being longer than six years
32 AURIZON ANNUAL REPORT 2016–17
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
FEES1
$’000
NON-
MONETARY
BENEFITS2
$’000
POST-
EMPLOYMENT
BENEFITS
SUPERANNUATION
$’000
TOTAL
REMUNERATION
$’000
NAME
YEAR
NON-EXECUTIVE DIRECTORS3
T Poole
R Caplan
J Cooper
M Fraser
K Field
S Lewis
K Vidgen
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
455
403
174
174
174
174
174
63
174
174
174
174
160
FORMER NON-EXECUTIVE DIRECTORS
J B Prescott AC
J Atkin
G T John AO
G T Tilbrook
Total
2016
2016
2016
2016
2017
2016
80
110
66
110
1,485
1,528
-
-
-
-
-
-
-
-
-
-
-
-
-
24
-
-
-
-
24
20
18
16
16
16
16
16
6
16
16
16
16
15
4
10
6
10
115
118
475
421
190
190
190
190
190
69
190
190
190
190
175
108
120
72
120
1,600
1,670
1 Salary and fees include any salary sacrificed benefits. FY2016 has been restated to be comparable with new
classification in FY2017
2 Non-monetary benefits represent the value of Reportable Fringe Benefits for the respective FBT year ending
31 March
3 Appointment dates for Directors are provided in Table 2 on page 24
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 for the Non-Executive
Directors of the Company is summarised in
Table 12.
DIRECTORS’ REPORT
33
Directors’ Report (continued)
REMUNERATION REPORT
10. Executive Remuneration Financial Year 2017
The table below details the number and value of movements in equity awards during FY2017.
TABLE 13 – RIGHTS GRANTED AS COMPENSATION
INCENTIVE
PLAN
BALANCE AT
BEGINNING
OF YEAR
RIGHTS
AWARDED
DURING THE
YEAR1
VALUE OF
RIGHTS
GRANTED IN
YEAR
VESTED IN
YEAR
EXERCISED
DURING THE
YEAR
FORFEITED IN
YEAR
FORFEITED IN
YEAR
VALUE OF RIGHTS
BALANCE AT END
VALUE PER RIGHT
FORFEITED IN YEAR
OF YEAR
AT GRANT DATE
GRANT
DATE
DATE ON WHICH
GRANT VESTS2
EXPIRY
DATE
WEIGHTED FAIR
NO.
NO.
$’000
%
NO.
NO.
%
$’000
NO.
NAME
EXECUTIVE KMP
A Harding3
P Bains
M Carter
E McKeiver
A Kummant7
K Neate7
M Neves
De Moraes8
FORMER EXECUTIVE KMP
L E Hockridge7
2016
2012
20134
20144
2015
2016 – Ret5
2016
2012
20134
20144
2015 STIAD6
2015
2016
2012
20134
20144
2015
2016
2012
20134
20144
2015 STIAD6
2015
2012
20134
20144
2015 STIAD6
2015
2016
2012
20134
20144
2015 STIAD6
2015
2016
20134
2014
2015 STIAD6
2015
2016
-
1,990
53,216
49,382
46,066
-
-
6,717
124,723
129,630
48,217
120,921
-
3,439
63,859
59,260
55,279
-
23,284
432,373
401,234
152,699
374,280
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
-
463,636
-
-
-
-
25,000
60,776
-
-
-
-
-
139,009
-
-
-
-
64,656
-
-
-
-
-
-
-
-
-
-
139,009
-
-
-
-
-
139,009
-
-
-
-
139,009
1,429
-
-
-
-
119
209
-
-
-
-
-
479
-
-
-
-
223
-
-
-
-
-
-
-
-
-
-
479
-
-
-
-
-
479
-
-
-
-
479
-
-
27.5
-
-
-
-
-
27.5
-
100
-
-
-
27.5
-
-
-
-
27.5
-
100
-
-
27.5
-
100
-
-
-
27.5
-
100
-
-
27.5
-
100
-
-
-
-
(14,634)
-
-
-
-
-
(34,299)
-
(48,217)
-
-
-
(17,562)
-
-
-
-
(118,902)
-
(152,699)
-
-
(38,415)
-
(44,720)
-
-
-
(33,384)
-
(41,386)
-
-
(34,298)
-
(41,357)
-
-
-
(1,990)
-
-
-
-
-
(6,717)
-
-
-
-
-
(3,439)
-
-
-
-
(23,284)
-
(72,222)
-
(190,883)
(7,523)
-
-
-
(120,921)
(139,009)
(3,726)
-
(19,151)
-
(60,460)
(115,841)
(90,424)
(115,740)
-
(107,966)
(139,009)
-
100
-
-
-
-
-
100
-
-
-
-
-
100
-
-
-
-
100
-
18
-
51
100
-
-
-
100
100
100
-
17
-
50
83
73
100
-
100
100
-
4
-
-
-
-
-
14
-
-
-
-
-
7
-
-
-
-
48
-
-
257
763
15
-
-
-
484
479
8
-
68
-
242
399
360
413
-
432
479
463,636
38,582
49,382
46,066
25,000
60,776
90,424
129,630
120,921
139,009
46,297
59,260
55,279
64,656
313,471
329,012
183,397
101,275
129,630
88,013
93,503
60,461
23,168
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$
3.08
2.06
3.74
3.56
4.00
4.74
3.45
2.06
3.74
3.56
5.08
4.00
3.45
2.06
3.74
3.56
4.00
3.45
2.06
3.74
3.56
5.08
4.00
2.06
3.74
3.56
5.08
4.00
3.45
2.06
3.74
3.56
5.08
4.00
3.45
4.07
3.56
5.08
4.00
3.45
-
23-Aug-12
16-Aug-13
18-Aug-14
17-Aug-15
1-Jul-16
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
17-Aug-15
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
1-Jan-14
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
7-Sep-19
23-Aug-16
16-Aug-17
18-Aug-17
17-Aug-18
30-Jun-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
17-Aug-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
31-Dec-19
7-Jan-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
31-Dec-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
1 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’. For remuneration purposes, Aurizon does not use fair value to determine LTI Awards
2 Date on which grant vests will be adjusted for awards eligible for retest. Retesting has been removed from the 2016 Award onwards
3 A Harding grant subject to Shareholder approval at the 2017 Annual General Meeting
4 Details of the vesting outcomes are described in Table 7. As described in Table 7, the Board has not yet determined whether the 2014 Award will be
retested in FY2018 for either current or former Executives
5 Retention Award as described in Section 7
6 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 6 in the FY2015 Remuneration Report
7 Reflects LTIA balance which remains on foot on a pro-rata basis
8 Rights awarded under LTIA lapsed upon resignation
34
AURIZON ANNUAL REPORT 2016–17
INCENTIVE
PLAN
BALANCE AT
BEGINNING
OF YEAR
NO.
RIGHTS
AWARDED
VALUE OF
RIGHTS
EXERCISED
DURING THE
GRANTED IN
VESTED IN
DURING THE
FORFEITED IN
FORFEITED IN
YEAR1
NO.
YEAR
$’000
YEAR
%
YEAR
NO.
YEAR
NO.
YEAR
%
VALUE OF RIGHTS
FORFEITED IN YEAR
BALANCE AT END
OF YEAR
$’000
NO.
-
4
-
-
-
-
-
14
-
-
-
-
-
7
-
-
-
-
48
-
257
-
763
15
-
-
-
484
479
8
-
68
-
242
399
360
413
-
432
479
463,636
-
38,582
49,382
46,066
25,000
60,776
-
90,424
129,630
-
120,921
139,009
-
46,297
59,260
55,279
64,656
-
313,471
329,012
-
183,397
-
101,275
129,630
-
-
-
-
88,013
93,503
-
60,461
23,168
-
-
-
-
-
10. Executive Remuneration Financial Year 2017
The table below details the number and value of movements in equity awards during FY2017.
TABLE 13 – RIGHTS GRANTED AS COMPENSATION
2016 – Ret5
25,000
60,776
119
209
NAME
EXECUTIVE KMP
A Harding3
P Bains
M Carter
E McKeiver
A Kummant7
K Neate7
M Neves
De Moraes8
2015 STIAD6
2016
2012
20134
20144
2015
2016
2012
20134
20144
2015
2016
2012
20134
20144
2015
2016
2012
20134
20144
2015
2012
20134
20144
2015
2016
2012
20134
20144
2015
2016
20134
2014
2015
2016
2015 STIAD6
2015 STIAD6
2015 STIAD6
2015 STIAD6
1,990
53,216
49,382
46,066
6,717
124,723
129,630
48,217
120,921
3,439
63,859
59,260
55,279
23,284
432,373
401,234
152,699
374,280
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
FORMER EXECUTIVE KMP
L E Hockridge7
139,009
479
64,656
223
463,636
1,429
27.5
(14,634)
(1,990)
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27.5
-
100
27.5
-
27.5
100
27.5
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(34,299)
-
(48,217)
(17,562)
-
(118,902)
(152,699)
(38,415)
-
(44,720)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,717)
100
(3,439)
100
(23,284)
100
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(72,222)
(190,883)
(7,523)
(120,921)
(139,009)
(3,726)
(19,151)
(60,460)
(115,841)
(90,424)
(115,740)
(107,966)
(139,009)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
18
-
-
51
100
-
-
-
100
100
100
-
17
-
50
83
73
100
-
100
100
139,009
479
139,009
479
-
139,009
479
27.5
(33,384)
100
(41,386)
27.5
(34,298)
100
(41,357)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 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’. For remuneration purposes, Aurizon does not use fair value to determine LTI Awards
2 Date on which grant vests will be adjusted for awards eligible for retest. Retesting has been removed from the 2016 Award onwards
3 A Harding grant subject to Shareholder approval at the 2017 Annual General Meeting
4 Details of the vesting outcomes are described in Table 7. As described in Table 7, the Board has not yet determined whether the 2014 Award will be
retested in FY2018 for either current or former Executives
5 Retention Award as described in Section 7
7 Reflects LTIA balance which remains on foot on a pro-rata basis
8 Rights awarded under LTIA lapsed upon resignation
6 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 6 in the FY2015 Remuneration Report
WEIGHTED FAIR
VALUE PER RIGHT
AT GRANT DATE
GRANT
DATE
DATE ON WHICH
GRANT VESTS2
EXPIRY
DATE
$
3.08
2.06
3.74
3.56
4.00
4.74
3.45
2.06
3.74
3.56
5.08
4.00
3.45
2.06
3.74
3.56
4.00
3.45
2.06
3.74
3.56
5.08
4.00
2.06
3.74
3.56
5.08
4.00
3.45
2.06
3.74
3.56
5.08
4.00
3.45
4.07
3.56
5.08
4.00
3.45
-
23-Aug-12
16-Aug-13
18-Aug-14
17-Aug-15
1-Jul-16
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
17-Aug-15
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
23-Aug-12
16-Aug-13
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
1-Jan-14
18-Aug-14
21-Sep-15
17-Aug-15
7-Oct-16
7-Sep-19
23-Aug-16
16-Aug-17
18-Aug-17
17-Aug-18
30-Jun-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
17-Aug-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
23-Aug-16
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
16-Aug-17
18-Aug-17
21-Sep-16
17-Aug-18
7-Oct-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
31-Dec-19
7-Jan-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
31-Dec-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
31-Dec-16
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
31-Dec-17
18-Aug-18
21-Sep-16
31-Dec-19
31-Dec-19
DIRECTORS’ REPORT
35
Directors’ Report (continued)
REMUNERATION REPORT
Details of the remuneration paid to Executives are set out below and has 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
SALARY
AND FEES
$’0001
CASH
BONUS
$’000
ANNUAL
LEAVE2
$’000
NON-
MONETARY
BENEFITS3
$’000
OTHER4
$’000
SUPER-
ANNUATION5
$’000
LONG-
SERVICE
LEAVE
$’000
CONTRACTUAL
TERMINATION
BENEFITS
$’000
RIGHTS6
$’000
NAME
YEAR
EXECUTIVE KMP
A Harding
P Bains
M Carter
E McKeiver
20178
20179
2017
201610
201711
FORMER EXECUTIVE KMP
L E Hockridge
A Kummant
K Neate
M Neves De
Moraes
J M Franczak
Total
Executive KMP
compensation
(group)
201712
2016
201713
2016
201714
2016
201715
2016
201616
2017
2016
A
947
321
763
393
90
895
1,931
815
821
422
821
649
723
763
B
316
98
191
-
33
-
-
298
-
-
-
-
-
-
4,902
936
C
19
9
1
(66)
10
(73)
(94)
(5)
21
(6)
33
(11)
-
(20)
(56)
5,452
-
(126)
D
-
-
1
2
-
6
10
3
9
1
5
1
5
2
12
33
E
25
-
-
-
-
11
-
208
106
-
-
79
79
306
323
491
F
11
42
97
25
4
11
18
19
19
11
19
16
19
-
211
100
G
7
7
25
7
3
22
19
(38)
15
(62)
23
(21)
14
(23)
(57)
55
TOTAL
$’000
J
1,712
614
1,529
537
186
I
-
-
-
-
-
1,950
3,855
-
3,198
730
2,206
-
430
-
-
-
1,410
1,193
1,255
720
1,258
H
387
137
451
176
46
1,033
1,314
176
419
397
354
7
418
(13)
750
1,765
2,634
2,668
3,110
12,015
750
9,423
PROPORTION
OF
COMPENSATION
PERFORMANCE
RELATED7
%
(B+H)/J
REMUNERATION
CONSISTING
OF RIGHTS FOR
THE YEAR
%
(H/J)
K
41
38
42
33
42
27
41
21
30
33
28
1
33
(1)
30
28
L
23
22
29
33
25
27
41
8
30
33
28
1
33
(1)
22
28
1 Cash salary and fees include any salary sacrifice benefits. FY2016 has been restated to be comparable with new classification in FY2017
2
Annual leave (C) amount represents annual leave accrued or utilised during the financial year. Negative amounts represent the utilisation of annual leave. Previously
disclosed as non-monetary benefits (D)
3 Non-monetary benefits represent the value of Reportable Fringe Benefits for the respective Fringe Benefits Tax year ending 31 March
4 Other short-term employee benefits include travel benefits, repatriation and relocation assistance
5 Superannuation (F) amounts represent employers’ contribution to superannuation
6 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 28 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 short-term incentives and long-term incentives.
For Former Executives who retained Rights, the future expenses related to those Rights have been accelerated and included in the current year remuneration.
The retained Rights are disclosed in Table 13. No expenses (or Remuneration) was recorded in the current year for the Rights forfeited
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
7
8 Rights (H) to be issued to A Harding are subject to Shareholder approval at the 2017 Annual General Meeting
9 P Bains was appointed EVP & Chief Financial Officer from 19 December 2016. The cash salary and fees (column A) and cash bonus (column B) reflect the salary and
bonus attributable to the EVP & Chief Financial Officer role
10 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
11 E McKeiver was appointed Acting EVP Customer & Strategy from 18 April 2017. The cash salary and fees (column A) and cash bonus (column B) reflect the salary and
bonus attributable to the EVP Customer & Strategy role
12 L E Hockridge ceased in the role of MD & CEO effective 30 November 2016 and continued to receive his normal Fixed Remuneration and contractual benefits until
16 December 2016. Upon cessation L E Hockridge received $1.95m in termination payments. He did not receive any remuneration associated with the FY2017 STIA
13 A Kummant ceased in the role of EVP Network from 30 June 2017 and continued to receive his normal Fixed Remuneration and contractual benefits until 28 July 2017.
Upon cessation A Kummant received $730,000 in termination payments. As he worked for the full financial year he did receive remuneration associated with the FY2017 STIA
14 K Neate ceased in the role of EVP & Chief Financial Officer from 16 December 2016 and continued to receive his normal Fixed Remuneration and contractual benefits
until 31 December 2016. Upon cessation K Neate received $430,000 in termination payments. He did not receive any remuneration associated with the FY2017 STIA
15 M Neves De Moraes resigned from the EVP Customer & Strategy role effective 13 April 2017. Upon cessation M Neves De Moraes received no termination payment and
did not receive any remuneration associated with the FY2017 STIA. The Rights value reflects the forfeitures of awards upon termination
16 J M Franczak ceased in the EVP Operations role effective 31 December 2015 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 forfeiture of awards upon termination
36
AURIZON ANNUAL REPORT 2016–17 Auditor’s Independence Declaration
As lead auditors for the audit of Aurizon Holdings Limited for the year ended 30 June 2017, we declare
that to the best of our knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Aurizon Holdings Limited and the entities it controlled during the
period.
Nadia Carlin
Partner
PricewaterhouseCoopers
Brisbane
14 August 2017
Simon Neill
Partner
PricewaterhouseCoopers
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen 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), and all the
practices outlined in this Statement unless
otherwise stated, have been in place for the full
reporting period.
This Statement was adopted by the Board on
11 August 2017.
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
1.4 Company Secretary
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 appointment.
During the financial year the Board used a professional search firm to assist in appointing a Non-Executive Director
(Kate Vidgen) and Managing Director (Andrew Harding). As part of this search, the Board 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.
The Company Secretary is directly accountable to the Board, through the Chairman, for facilitating and advising
on the Company’s corporate governance processes and on all matters to do with the proper functioning of the
Board. Each Director is entitled to access the advice and services of the Company Secretary. The Board Charter
also sets out the responsibilities of the Company Secretary.
In accordance with the Company’s Constitution, the appointment or removal of the Company Secretary is a matter
for the Board as a whole. Details of the Company Secretary’s experience and qualifications are set out on page 6
of the Annual Report.
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38
AURIZON ANNUAL REPORT 2016–17
RECOMMENDATION
1.5 Diversity & inclusion
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
› Aurizon Holdings has adopted and reviewed its 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.
› The measurable objectives for gender diversity, agreed by the Aurizon Holdings Board for FY2017, are set out
below:
ENTERPRISE MEASURES
FY17 TARGET
FY17 ACTUAL
Female representation on Board
1
Female representation – Enterprise
20%
3
19.8%
Other targets monitored and regularly reported include female representation in leadership roles and
Indigenous representation.
MEASURE
FY17 TARGET
FY17 ACTUAL
Females in leadership
Executive Leadership Team
Manager of Managers
Manager of Others
Indigenous representation
25%
20%
20%
5%
20%
22.5%
20.8%
4.8%
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 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.
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
4 to 6 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 8 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.
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
2.2 Board skills
The skills listed below have been identified as the optimum skills Aurizon Holdings seeks to achieve across its Board
membership. The Aurizon Holdings Board currently possesses a good blend of these skills. During FY2015 and FY2016
the Aurizon Board underwent significant change, including a change in Chairman. During FY2017 one additional
Director was appointed and since that time the Board has been consolidating the recent changes. Whilst comfortable
with the current size, the Board is prepared to expand by one to accommodate a candidate with strong operational
skills in the transport, resources or industrial sector that will complement the skills and experience of the current Board.
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CORPORATE GOVERNANCE STATEMENT
39
Corporate Governance Statement
(continued)
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
General
› Board experience
› Senior management experience
› ASX listed company governance
› Risk management
Industry
› Transport and logistics
› Mining and resources
› Government relations
› Safety, health and environment
Technical
› Finance and accounting
› Regulatory
› Corporate strategy
› Capital allocation including
acquisitions and divestments
› Information and operational technology
› Capital markets
› Engineering
› Human resources
Further details regarding the skills and experience of each
Director are included on pages 4 to 6 of the Report.
2.3 Disclose
independence and
length of service
Details regarding which Directors are considered independent and the length of their service are set out on page 4
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 4 of
the Annual Report.
2.5 Chair independent
The Chairman, Tim 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 4 to 6 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 operational sites to gain an understanding of the Company’s operating environment.
During the year Directors receive accounting policy updates, especially around the time when the Board considers
the half-year and full-year financial statements.
The Board also includes education sessions from time-to-time on legal, accounting, regulation, developments in
communication and human resource management.
Directors are encouraged and given the opportunity to broaden their knowledge of the business by visiting offices
and sites in different locations. During the financial year, Directors made visits to operational sites in Queensland,
Western Australia and Victoria.
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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.
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40
AURIZON ANNUAL REPORT 2016–17 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 4 to 6 of the Annual Report.
In addition to the Audit, Governance & Risk Management Committee members, the Chairman of the Company, the
Managing Director & CEO, CFO, Head of Internal Audit & Enterprise Risk, 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 8 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
announcements to the ASX and our website. Investors can access copies of all announcements to the ASX, notices
of meetings, annual reports, investor presentations, webcasts and/or transcripts of those presentations and a key
event 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 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 the Company’s internal audit group to provide independent assurance on the ffectiveness
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 Head of Internal Audit & Enterprise Risk is a matter for this Committee.
The Head of Internal Audit & Enterprise Risk 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.
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 FY2017, the Company published its second Sustainability Report for the period ended 30 June 2016. A copy
of this report is available in the Sustainability section of the Company’s website, aurizon.com.au.
The Company’s previous 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 FY2017 performance and material economic, environmental
and social sustainability risks.
The Company’s FY2017 Sustainability Report is intended to be released in October 2017. Consistent with the
previous reports, 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 substantially influence assessments and decisions of stakeholders.
42
AURIZON ANNUAL REPORT 2016–17
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 4 to 6 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 8 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 a 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 23 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 the Managing Director & CEO and his direct reports, Directors 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
30 June 2017
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
7.
Trade and other
receivables
14. Capital risk
management
2. Revenue and
other income
3. Expenses
4. Impairment of
non-financial
assets
8. Inventories
15. Dividends
9. Property, plant
and equipment
16. Equity and
reserves
10. Intangible
assets
11. Trade and other
5. Income tax
payables
6. Earnings per
12. Provisions
share
13. Other liabilities
17. Borrowings
18. Financial risk
management
19. 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
31. Contingencies
32. Commitments
33. Events
occurring after
the reporting
period
20. Associates
and joint
arrangements
21. Material
subsidiaries
22. Parent
disclosures
23. Deed of cross
guarantee
24. Reconciliation
of profit after
income tax to
net cash inflow
from operating
activities
25. Assets
classified as
held for sale
26. Related party
transactions
27. Key
Management
Personnel
compensation
28. Share-based
payments
29. Remuneration
of auditors
30. 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
Page 94
Page 95
Page 102
Consolidated income statement
for the year ended 30 June 2017
Revenue from continuing operations
Other income
Total revenue and other income
Employee benefits
Energy and fuel
Track access
Consumables
Depreciation and amortisation
Impairment losses
Other expenses
Operating (loss)/profit
Notes
2(a)
3
3
3
4
Share of net profit of associates and joint venture partnerships accounted for using the equity
method
Impairment loss of investment in associates
20(b)
Share of net loss from associates and joint venture partnerships
accounted for using the equity method after impairment loss
Finance income
Finance expenses
Net finance costs
(Loss)/profit before income tax expense
Income tax benefit/(expense)
(Loss)/profit for the year attributable to owners of Aurizon Holdings Limited
(Loss)/earnings per share for (loss)/profit attributable to the ordinary equity holders of the Company:
Basic (loss)/earnings per share
Diluted (loss)/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 2017
(Loss)/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/(expense) for the year, net of tax
Total comprehensive (expense)/income for the year attributable to owners of Aurizon Holdings Limited
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes
3
5
6
6
Notes
16(b)
5(d)
16(b)
2017
$m
3,452.3
-
3,452.3
(965.4)
(268.4)
(263.0)
(573.1)
(584.6)
(840.5)
(48.2)
(90.9)
(0.1)
-
(0.1)
2.8
(181.3)
(178.5)
(269.5)
81.6
(187.9)
2016
$m
3,457.8
0.1
3,457.9
(891.4)
(245.4)
(314.7)
(508.8)
(561.3)
(301.7)
(78.6)
556.0
13.3
(225.9)
(212.6)
2.3
(152.8)
(150.5)
192.9
(120.5)
72.4
Cents
Cents
(9.2)
(9.2)
3.5
3.5
2017
$m
(187.9)
45.5
(13.5)
-
32.0
(155.9)
2016
$m
72.4
(5.4)
1.6
(1.8)
(5.6)
66.8
45
FINANCIAL REPORT
Consolidated balance sheet
as at 30 June 2017
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Current tax receivables
Prepayments
Assets classified as held for sale
Total current assets
Non-current assets
Inventories
Derivative financial instruments
Property, plant and equipment
Intangible assets
Investments accounted for using the equity method
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
2017
$m
2016
$m
7
8
19
25
8
19
9
10
20
11
17
19
12
13
17
19
5(f)
12
13
16(a)
16(b)
88.7
496.8
111.8
0.1
17.8
6.9
7.3
729.4
35.5
73.6
8,835.0
170.0
2.4
9,116.5
9,845.9
309.7
79.0
0.3
-
314.5
40.7
744.2
69.2
513.9
152.7
0.2
-
6.9
101.0
843.9
36.3
77.0
9,719.2
190.2
2.4
10,025.1
10,869.0
297.2
6.0
27.6
80.0
275.2
53.3
739.3
3,297.2
3,484.1
70.9
426.8
78.7
206.0
4,079.6
4,823.8
5,022.1
1,206.6
3,473.0
342.5
5,022.1
23.0
589.2
93.0
226.8
4,416.1
5,155.4
5,713.6
1,206.6
3,424.7
1,082.3
5,713.6
AURIZON ANNUAL REPORT 2016–17 Consolidated statement of changes in equity
for the year ended 30 June 2017
Attributable to owners of Aurizon Holdings Limited
Balance at 1 July 2015
Profit/(loss) 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
Balance at 1 July 2016
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Share-based payments
16(b)
16(a)
15(a)
16(b)
16(b)
15(a)
16(b)
Contributed
equity
$m
Notes
Reserves
$m
Retained
earnings
$m
1,508.3
3,457.9
1,539.2
-
-
-
(301.7)
-
-
(301.7)
-
(5.6)
(5.6)
(0.3)
-
(27.3)
(27.6)
72.4
-
72.4
-
(529.3)
-
(529.3)
Total
equity
$m
6,505.4
72.4
(5.6)
66.8
(302.0)
(529.3)
(27.3)
(858.6)
1,206.6
3,424.7
1,082.3
5,713.6
1,206.6
3,424.7
-
-
-
-
-
-
-
32.0
32.0
-
16.3
16.3
Balance at 30 June 2017
1,206.6
3,473.0
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes
1,082.3
(187.9)
-
(187.9)
(551.9)
-
(551.9)
342.5
5,713.6
(187.9)
32.0
(155.9)
(551.9)
16.3
(535.6)
5,022.1
47
FINANCIAL REPORT Consolidated statement of cash flows
for the year ended 30 June 2017
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Income taxes paid
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from property, plant and equipment
Payments for intangibles
Interest paid on qualifying assets
Proceeds from sale of an associate
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 increase (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
24
3
25
16(b)
15(a)
2017
$m
3,877.8
(2,467.4)
2.9
(174.9)
1,238.4
2016
$m
3,767.0
(2,419.9)
2.3
(131.2)
1,218.2
(475.9)
(691.6)
13.8
(64.2)
(3.2)
98.3
-
-
37.4
(79.8)
(11.6)
-
(4.0)
9.7
(431.2)
(739.9)
422.1
(477.0)
(0.4)
-
(7.5)
(551.9)
(173.0)
(787.7)
19.5
69.2
88.7
1,278.2
(828.0)
(7.9)
(301.7)
(53.7)
(529.3)
(138.1)
(580.5)
(102.2)
171.4
69.2
48
AURIZON ANNUAL REPORT 2016–17 Notes to the consolidated financial statements
30 June 2017
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
14 August 2017. 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 hundred thousand 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 2016
› Equity account for associates listed at note 20
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 the 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. Details of the following judgements and
estimates which are material to the financial statements can be found
in the following notes:
Revenue
Impairment
Income tax
Depreciation
Associates and joint arrangements
Note
2
4
5
9
20
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 Queensland Competition Authority (QCA) approved the 2016
Access Undertaking (UT4) on 11 October 2016 with a Maximum Allowable
Revenue (MAR) of $1,171.5 million for the year ended 30 June 2017,
which includes true-ups of $89.0 million related to regulatory access
revenue for years ended 30 June 2014 and 30 June 2015 (net of revenue
cap of $31.7 million relating to the year ended 30 June 2015). Revenue
recognised for the year is based on the approved UT4 tariffs, applied to
actual volumes railed.
For the year ended 30 June 2016 regulated access revenue was
recognised in line with the UT4 Final Decision (released April 2016).
(b) Weather event – Cyclone Debbie
As a result of Cyclone Debbie and localised flooding during March and
April 2017, the four coal systems (Newlands, Goonyella, Blackwater and
Moura), which are part of the Central Queensland Coal Network (CQCN)
were closed to rail traffic while inspections and repairs were completed.
Aurizon’s Newlands system (connecting into Abbot Point Coal Terminal)
closed on 28 March and reopened on 13 April. The Goonyella system
(connecting into Dalrymple Bay Coal Terminal and Hay Point Coal
Terminal) experienced significant damage at multiple sites. However, it
reopened on 26 April with speed restrictions and reduced capacity. The
Blackwater system (connecting into the Port of Gladstone) closed on 29
March and reopened on 31 March. However, due to further flooding in
Rockhampton and surrounding areas it closed again – with the exception
of the North Coast Line portion of the system which remained open – on
1 April reopening again on 10 April. The Moura system (connecting into
the Port of Gladstone) closed on 29 March and reopened on 12 April.
Due to the period of time the CQCN was unavailable for haulage, Above
Rail coal tonnes for FY2017 were reduced by approximately 11 million
tonnes. As a result, Earnings Before Interest and Tax (EBIT) in the Above
Rail businesses were impacted by approximately $20 million. This
includes a minor impact to the Bulk and Intermodal business.
49
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2017 (continued)
Freight Management Transformation (FMT) project impairment
Following a review, it was decided to terminate the FMT project and
as a result an impairment charge of $64.0 million was recorded at
31 December 2016. An amount of $26.9 million of the total project
investment of $90.9 million remains capitalised on the balance sheet in
relation to software and licences, which are currently in use.
Transformation – asset impairments
A number of changes to the Queensland operations were announced on
1 June 2017 including the staged closure of the Rockhampton rollingstock
workshop in 2018. This resulted in an asset impairment of $30.1 million
being recorded for the year ended 30 June 2017.
Further, as part of the ongoing transformation program, $15.0 million
of property, plant and equipment was impaired, along with a further
$3.8 million relating to various projects no longer proceeding and assets
identified as surplus to requirements.
(d) Transformation – redundancy costs
As part of the ongoing business transformation 574 employees were
made redundant which predominantly related to Operations resulting
in redundancy expense of $74.2 million.
The staged closure of the Rockhampton rollingstock maintenance
workshops by late 2018 has resulted in redundancy costs of $14.3 million
with a reduction of an estimated 165 roles. Aurizon also announced
changes to the traincrewing operations by the end of FY2018 resulting in
$27.3 million for redundancy costs with a reduction of an estimated 185
permanent traincrew roles.
Total redundancy costs recognised as a significant item for the year
ended 30 June 2017 were $115.8 million.
(e) Business unit restructure
On 23 March 2017 Aurizon announced the transition to a new
organisational structure effective from 1 July 2017. The organisational
structure will move from a functional based model to a business unit
model designed along the core areas of the business – Coal, Bulk
(including Iron Ore), Intermodal and Network, as well as central support
and planning functions. This new structure has not impacted the
segment reporting for the year ended 30 June 2017 as the business was
still managed in line with the old organisational structure for the entire
financial year. However, the new segment structure will be reported from
FY2018, with comparative information restated.
(f) Sale of Moorebank
On 2 August 2016 Aurizon announced the sale of its 33.33% equity
holding in the proposed Moorebank Intermodal Terminal project for
$98.3 million (net of transaction costs) to Qube Holdings Limited group
entities. The sale completed on 22 December 2016 and a $3.0 million
gain on sale was recognised.
Below Rail access revenue in FY2017 was impacted as a result of the
cyclone related volume reduction of 16 million tonnes carried by all rail
operators on the CQCN. This resulted in a reduction of approximately
$48 million of access revenue in FY2017. Under established regulatory
mechanisms any shortfall in access revenue net of Take-or-Pay will be
recovered through the revenue cap process, subject to QCA approval,
in FY2019. Flood repair costs (including losses on disposal of assets)
were approximately $28 million of which approximately $21 million were
classified as operating costs impacting EBIT. The majority of the repair
costs and capital expenditure will be recovered in future years as part
of the established recovery processes, subject to QCA approval. As a
result, EBIT in the Below Rail businesses in FY2017 has been impacted by
approximately $69 million.
The impact to Group EBIT is a reduction of approximately $89 million as
a result of Cyclone Debbie impacts, of which approximately $69 million
will be recovered through regulatory processes in future years, subject to
QCA approval.
Tropical Cyclone Debbie – EBIT impact
Above Rail
Commercial & Marketing
Operations
Total Above Rail
Below Rail
Access revenue
Flood repair costs
Total Below Rail
Total Group
$m
(16)
(4)
(20)
(48)
(21)
(69)
(89)
(c) Impairment (refer to note 4)
Bulk
The implementation of Aurizon’s new business unit structure on
1 July 2017 resulted in the creation of a standalone Bulk business. This
restructure, coupled with changed business practices relating to asset
and cost allocations, resulted in a change to the cash generating units
(CGUs), with Queensland now separated into the Coal Queensland
and Bulk East CGUs. In addition, the ongoing clarity and visibility of
financial performance provided by the Freight Review, the exit of
certain contracts, the increase in financial losses in Bulk and continued
challenging market conditions have led to reassessment of the future
revenues and cashflows. These factors have resulted in an impairment of
$163.5 million for the Bulk East CGU and $362.4 million for the Western
Australia CGU.
Intermodal
An impairment to the carrying value of the Intermodal CGU of $162.2
million was recorded at 31 December 2016 due to trading performance
being lower than expectations.
Contract exit asset impairment
As a result of the decision by Glencore to not renew its existing contract
with Aurizon to haul mine inputs and outputs between Mt Isa and
Townsville, a decision was made to cease to operate this daily multi-
customer freight service from the contract expiry date of 31 January
2017. As a result, $10.2 million of assets including rollingstock, plant and
equipment, and associated facilities were impaired at 31 December 2016.
50
AURIZON ANNUAL REPORT 2016–17 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
Impairment of non-financial assets
5
Income tax
6 Earnings per share
Page 52
Page 54
Page 56
Page 57
Page 59
Page 61
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).
For FY2017, 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 and the
Executive Committee assess the performance of the Group based on the
Underlying Earnings Before Interest and Tax (Underlying EBIT).
Segments from 1 July 2017 will change as a result of the business unit
restructure. The segments will be Network, Coal, Bulk, Intermodal
and Other.
(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 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.
Other
Includes costs for Managing Director & CEO, corporate finance, tax,
treasury, internal audit, risk, governance and strategy.
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 2017 (continued)AURIZON ANNUAL REPORT 2016–17 1 Segment information (continued)
(b) Segment information
Network
$m
Commercial &
Marketing
$m
Operations
$m
Other
$m
Eliminations
$m
Total continuing
operations
$m
2017
External revenue
Internal revenue
Total functional revenue
Functional costs
Employee benefits
Energy and fuel
Track access
Consumables
Other
Total functional costs excluding
depreciation and amortisation
EBITDA (underlying)*
Depreciation and amortisation
632.8
629.3
1,262.1
(118.6)
(140.9)
-
(196.2)
(28.6)
(484.3)
777.8
(287.4)
2,742.4
8.7
2,751.1
(25.5)
-
-
(1.9)
(2.3)
70.6
159.5
230.1
(676.2)
(127.5)
(888.9)
(534.5)
(32.4)
(29.7)
(2,259.5)
2,721.4
(2,029.4)
(3.2)
(287.1)
EBIT (underlying)*
490.4
2,718.2
(2,316.5)
Significant adjustments (note 1(c))
EBIT*
Net finance costs
Loss before income tax
Income tax benefit
Loss for the year
2016
External revenue
Internal revenue
Total functional revenue
Functional costs
Employee benefits
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
* Refer to page 102 for Non-IFRS information
476.4
702.0
1,178.4
(116.7)
(124.7)
-
(146.9)
(26.5)
(414.8)
763.6
(257.7)
505.9
2,924.9
7.1
2,932.0
(29.4)
-
-
(6.4)
(14.2)
(50.0)
2,882.0
(4.2)
41.2
172.9
214.1
(710.4)
(120.7)
(1,015.6)
(493.6)
(21.8)
(2,362.1)
(2,148.0)
(294.8)
2,877.8
(2,442.8)
6.5
-
6.5
(29.3)
-
-
(8.6)
(17.8)
(55.7)
(49.2)
(6.9)
(56.1)
15.4
-
15.4
(34.9)
-
-
(36.0)
(9.8)
(80.7)
(65.3)
(4.6)
(69.9)
-
(797.5)
(797.5)
-
-
625.9
168.1
3.5
797.5
-
-
-
-
(882.0)
(882.0)
-
-
700.9
174.1
7.0
882.0
-
-
-
3,452.3
-
3,452.3
(849.6)
(268.4)
(263.0)
(573.1)
(77.6)
(2,031.7)
1,420.6
(584.6)
836.0
(927.0)
(91.0)
(178.5)
(269.5)
81.6
(187.9)
3,457.9
-
3,457.9
(891.4)
(245.4)
(314.7)
(508.8)
(65.3)
(2,025.6)
1,432.3
(561.3)
871.0
(527.6)
343.4
(150.5)
192.9
(120.5)
72.4
53
Notes to the consolidated financial statements30 June 2017 (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.
Intermodal impairment
Bulk impairment
Contract exit asset impairment
Freight Management Transformation (FMT)
impairment
Transformation – asset impairment
Transformation – redundancy costs
Strategic infrastructure projects and assets
under construction impairment
Aquila impairment
Rollingstock impairment
2017
$m
162.2
525.9
10.2
64.0
48.9
115.8
-
-
-
Total significant adjustments
927.0
2016
$m
-
-
-
-
-
-
124.7
225.9
177.0
527.6
Impairment
For further disclosure on the impairment write-downs for the year ended
30 June 2017 and the comparative period refer to note 4.
Redundancy costs
As part of the ongoing business transformation 924 employees were
made redundant which predominantly related to Operations. This
resulted in a redundancy expense of $115.8 million being recorded for the
year ended 30 June 2017. Refer to key events and transactions for the
reporting period for further details.
(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.
2017
$m
2016
$m
2017
credit rating
2016
credit rating
Customer 1
Customer 2
Total
511.5
413.2
924.7
515.0
384.6
899.6
A
BBB
A
BBB-
2 Revenue and other income
KEEPING IT SIMPLE
Aurizon recognises revenue from the provision of access
to the Central Queensland Coal Network (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 2017 (continued)AURIZON ANNUAL REPORT 2016–17
2 Revenue and other income (continued)
(a) Revenue from continuing operations (continued)
Network
$m
Coal
$m
Iron Ore
Freight
$m
$m
Other
$m
Total
$m
2017
External revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
574.0
-
4.3
54.5
630.3
1,156.8
0.3
-
-
273.4
-
-
0.5
631.4
31.2
18.5
Total revenue from external customers
632.8
1,787.4
273.4
681.6
625.9
-
3.4
629.3
1,262.1
-
1.7
5.9
7.6
-
-
-
-
-
1.1
-
1.1
1,795.0
273.4
682.7
Internal revenue
Services revenue
Track access
Freight transport
Other services
Total internal revenue
Total revenue
Internal elimination
Consolidated revenue and other income
2016
External revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
435.1
-
4.4
36.4
733.9
1,142.5
-
3.7
-
310.9
-
-
Total revenue from external customers
475.9
1,880.1
310.9
Internal revenue
Services revenue
Track access
Freight transport
Other services
Total internal revenue
Total revenue
Other income
Total revenue and other income
Internal elimination
Consolidated revenue and other income
700.8
-
1.2
702.0
1,177.9
0.5
-
-
-
-
1,880.1
1.3
1,178.4
1,881.4
-
-
-
-
310.9
0.3
311.2
0.5
673.1
41.4
16.3
731.3
0.1
7.0
-
7.1
738.4
1.0
739.4
Other services includes $31.2 million (2016: $41.4 million) from the State of Queensland for Transport Service Contracts for regional freight and livestock.
55
-
-
46.4
30.7
77.1
-
0.7
158.8
159.5
236.6
-
-
39.9
19.7
59.6
-
-
172.9
172.9
232.5
(3.0)
229.5
1,204.8
2,061.6
82.2
103.7
3,452.3
625.9
3.5
168.1
797.5
4,249.8
(797.5)
3,452.3
1,169.5
2,126.5
85.7
76.1
3,457.8
700.9
7.0
174.1
882.0
4,339.8
0.1
4,339.9
(882.0)
3,457.9
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT 2 Revenue and other income
3 Expenses
(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 or mine cancellations and is recognised in the year in which
the contractual railings have not been achieved.
Take-or-Pay revenue of $42.3 million has been accrued at 30 June
2017. Take-or-Pay revenue of $3.1 million was accrued at 30 June 2016.
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.
The impacts on revenue have been included within key events and
transactions for the reporting period, (a) Access revenue.
(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.
(Loss)/profit before income tax includes the following specific expenses:
Employee benefits expenses
Defined benefit superannuation
Defined contribution superannuation
Redundancies*
Salaries, wages and allowances including
on-costs
2017
$m
2016
$m
13.3
63.0
121.1
768.0
965.4
17.9
63.5
23.7
786.3
891.4
* $115.8 million of redundancy costs are transformation-related as described in
note 1(c).
Consumables
Repairs and maintenance
Other
Depreciation and amortisation expense
Depreciation
Amortisation of intangibles
Impairment losses*
Inventory
Property, plant and equipment
Intangibles
Other
* Refer to note 4 for impairment information
Finance costs
Interest and finance charges paid/payable
Provisions: unwinding of discount
Amortisation of capitalised borrowing
transaction costs
Counterparty credit risk adjustments
Amount capitalised to qualifying assets
300.3
272.8
573.1
567.9
16.7
584.6
12.6
760.0
67.9
-
313.3
195.5
508.8
550.4
10.9
561.3
29.6
267.1
-
5.0
840.5
301.7
173.5
-
8.0
3.0
184.5
(3.2)
181.3
153.4
0.3
9.9
0.8
164.4
(11.6)
152.8
SIGNIFICANT JUDGEMENTS
The significant judgements in relation to depreciation and impairment
have been explained on page 65 of this report.
56
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
4 Impairment of non-financial assets
Intermodal impairment (i)
Bulk impairment (ii)
Impairment of assets in exit of contracts (iii)
Freight Management Transformation
impairment (iv)
Transformation – asset impairment (v)
Other (vi)
Rollingstock impairment (vii)
Strategic infrastructure projects and assets
under construction impairment (viii)
2017
$m
162.2
525.9
10.2
64.0
48.9
29.3
-
-
840.5
2016
$m
-
-
-
-
-
-
177.0
124.7
301.7
(a) Impairment of non-financial assets
Current period
(i) Intermodal ($162.2 million)
Indicators of impairment were identified for the Intermodal CGU due to
trading performance during the first half being lower than expectations.
As a result an impairment test was completed as at 31 December
2016 and updated at 30 June 2017. The recoverable amount used in
the impairment test was based on a fair value less costs of disposal
(FVLCTD) methodology and has resulted in a pre-tax impairment charge
of $162.2 million. The fair value has been determined by reference to
external valuations for property and internal valuations for rollingstock,
plant and equipment, assets under construction and consideration of the
Intermodal Transaction as set out in note 33. In relation to rollingstock we
have considered the ability to redeploy assets across
the Group when determining the fair value.
The impairment write-down of $162.2 million has been allocated to
rollingstock ($100.3 million), land, buildings and infrastructure ($32.6
million), plant and equipment ($15.5 million), assets under construction
($12.6 million) and intangibles ($1.2 million).
Following the impairment, the residual carrying value of the assets of
the Intermodal business as at 30 June 2017 is $169.9 million.
(ii) Bulk impairment ($525.9 million)
Western Australia ($362.4 million)
The impairment assessment of the Western Australia CGU is dependent
on Iron Ore customers continuing to operate and comply with
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 just beyond the corporate plan
period. The iron ore and bulk market in general remains volatile and
challenging. The low long-term iron ore price together with high cash
operating costs for our customers, the challenging and competitive bulk
markets, deterioration in our operating performance and the changed
business structure resulting in changes in cost allocations have led to a
review of the operating cashflows in particular the terminal year EBITDA.
This review has resulted in a pre-tax impairment charge of $362.4 million.
The recoverable amount used in the impairment test is based on a value
in use methodology based on the Board-approved corporate plan, a
terminal growth rate of 1.5% and a pre-tax discount rate of 11.9%.
The impairment write-down of $362.4 million has been allocated
to rollingstock ($245.1 million), land, buildings and infrastructure
($96.4 million), and plant and equipment ($20.9 million).
Following the impairment, the residual carrying value of the assets of
the Western Australia CGU as at 30 June 2017 is $207.8 million. Should
any of the current major Iron Ore customers either cease to operate
before the expected end of mine life or be unable to comply with current
contractual arrangements then the CGU may become further impaired.
Bulk East ($163.5 million)
Due to the organisational restructure from a functional to a business unit
model, the change to direct allocation of rollingstock assets to business
units and new segments from 1 July 2017, the Group’s CGUs have been
re-assessed with the Queensland CGU now separated into Bulk East
and Coal Queensland. This change in CGU together with operational
performance issues and loss of specific contracts experienced by the
Bulk East CGU has resulted in impairment testing being required to be
completed.
The recoverable amount used in the impairment test is based on a
FVLCTD methodology and has resulted in a pre-tax impairment charge
of $163.5 million. The fair value has been determined by reference to
external valuations for property and internal valuations for rollingstock,
plant and equipment, and assets under construction. In relation to
rollingstock we have considered the ability to redeploy assets across the
Group when determining the fair value.
The impairment write-down of $163.5 million has been allocated
to rollingstock ($124.6 million), land, buildings and infrastructure
($27.0 million), plant and equipment ($6.0 million), and assets under
construction ($5.9 million).
Following the impairment, the residual carrying value of the assets
of the Bulk East CGU as at 30 June 2017 is $46.6 million.
Measurement of fair values for the Bulk East and Intermodal
CGUs
Fair value hierarchy
The non-recurring fair value measurement for the Bulk East and
Intermodal CGUs have been categorised as a Level 3 fair value based on
the inputs to the valuation technique used.
Valuation technique and significant unobservable inputs
Data
Property
Rollingstock
Valuation technique
External valuations of
material Intermodal and Bulk
East land and buildings at key
sites have been completed
under an in use and alternate
use basis
Internal valuations of
rollingstock have been
completed based on highest
and best use of assets given
there is not considered to
be an active market for
rollingstock. Therefore,
rollingstock assets have been
valued based on scrap metal
prices after consideration of
the redeployment of assets
Significant
unobservable inputs
Valuations are based
on comparable market
transactions, market
yield and assume
disposal costs of 5%
› Determination of the
best use of respective
rollingstock assets
across the enterprise
fleet
› Scrap metal prices
obtained from metal
market participants
› Costs of disposal and
scrap values
57
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2017 (continued)
SIGNIFICANT JUDGEMENTS
The Group considers annually whether there have been any indicators
of impairment and then tests whether non-current assets have
suffered any impairment, in accordance with the accounting policy
stated in note 9.
Cash generating units
The recoverable amounts of CGUs for 30 June 2017 have been
determined based on value in use calculations except for Intermodal
and Bulk East, which are valued using FVLCTD. The value in use is
calculated based on a three-year Board-approved corporate plan, a
terminal growth rate of 1.5% per annum (2016: 2.5%) and a pre-tax
discount rate ranging from 11.5% – 11.9% (2016: 11.9% – 12.3%). The
value in use calculations indicate headroom to the carrying value
of CGUs, with the exception of Intermodal, Bulk East and Western
Australia. For the year ended 30 June 2017, the Intermodal, Bulk East
and Western Australia CGUs had indicators of impairment due to
decline in market conditions, and reduced revenue and profitability
compared to the corporate plan.
As a result, an impairment test was completed. The key assumptions
used in the estimation of the recoverable amount of the Intermodal,
Bulk East and Western Australia CGUs are set out in note 4(a)(i-ii).
Following the impairment loss recognised in the Intermodal, Bulk East
and Western Australia CGUs for the year ended 30 June 2017, the
recoverable amount is equal to the carrying amount. For Intermodal
and Bulk East CGUs, a change in assumption regarding the market
values of assets may result in a change to the impairment recorded.
For Western Australia a change in assumption regarding the forecast
cashflows may result in a change to the impairment recorded.
Individual non-current assets
Each period the Group is required to assess the recoverability of non-
current assets. Each period the Enterprise Rollingstock Master Plan
is reviewed. This is a 10-year plan and judgement has been applied to
estimate forecast volumes and productivity, as well as the required
level of contingent fleet, in determining the level of rollingstock
required for the foreseeable future. Any further changes to volumes
and productivity, or a change in management’s view as to the level of
contingent fleet required, could result in further reduction or reversal
of previous impairment required in the future. The application of this
judgement will continue to be assessed at each reporting date.
4 Impairment of non-financial assets
(continued)
(iii) Asset impairment as a result of contract exits ($10.2 million)
As a result of the decision by Glencore to not renew its existing contract
with Aurizon to haul mine inputs and outputs between Mt Isa and
Townsville, a decision was made to cease to operate this daily multi-
customer freight service from the contract expiry date of 31 January
2017. As a result, $10.2 million of assets including rollingstock, plant and
equipment, and associated facilities were impaired at 31 December 2016.
(iv) Freight Management Transformation (FMT) ($64.0 million)
Following a review, it was decided to terminate the project and as a
result an impairment charge of $64.0 million was recorded. An amount
of $26.9 million of the total project investment of $90.9 million remains
capitalised on the balance sheet in relation to software and licences,
which are currently in use.
(v) Transformation – asset impairment ($48.9 million)
As a result of the changes to the Queensland operations an asset
impairment of $30.1 million has been recognised. Further, as part of the
ongoing transformation program, $15.0 million of property, plant and
equipment was impaired, along with a further $3.8 million relating to
various projects no longer proceeding and assets identified as surplus to
requirements.
(vi) Impairment of other assets ($29.3 million)
A number of minor assets and projects which are not expected to
proceed were impaired as a result of normal operations resulting in
$29.3 million of impairment for the year ended 30 June 2017. These
asset impairments were not classified as significant items.
Prior period
(vii) Impairment of rollingstock ($177.0 million)
Due to the continued improvements in rollingstock efficiency and
productivity coupled with a lower volume outlook, the Enterprise
Rollingstock Master Plan, which forecasts the requirements of the
locomotives and wagons for the next 10 years, has been revised.
This review of fleet has 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 $177.0 million to net realisable value.
(viii) Strategic infrastructure projects impairment ($124.7
million)
West Pilbara Infrastructure Project ($82.8 million)
As a result of the uncertainty surrounding the timing of the development
as well as current market conditions, $82.8 million of project costs were
fully impaired. The carrying value of the project is now nil.
Galilee Basin ($29.9 million)
An impairment of $29.9 million was recorded in relation to the brownfield
expansion of the 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.
Other projects ($12.0 million)
Other projects totalling $12.0 million have also been impaired which
primarily relate to CQCN expansion projects that are no longer expected
to proceed.
58 AURIZON ANNUAL REPORT 2016–17
Notes to the consolidated financial statements
30 June 2017 (continued)
5 Income tax
(a) Income tax expense
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.
Current tax
Deferred tax
Current tax relating to prior periods
Deferred tax relating to prior periods
2017
$m
86.2
(166.4)
(9.1)
7.7
(81.6)
2016
$m
122.0
1.4
12.5
(15.4)
120.5
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.
The tax treatment of the impairments is dependent on
the nature of the asset being impaired. As the current
year impairment predominantly relates to tax depreciable
assets (which continue to be used by the business), the
impairment does not result in a tax deduction in the
current year and will only be recognised for tax purposes
when Aurizon disposes of the assets. Accordingly, the
impairment will merely change the temporary difference
(and associated deferred tax asset or liability) recognised
in respect of the impaired asset.
Income tax expense is attributable to:
(Loss)/profit from continuing operations
(81.6)
120.5
Deferred income tax expense included in
income tax expense comprises:
Decrease in deferred tax assets (note 5(e))
Decrease in deferred tax liabilities (note 5(f))
13.4
(172.1)
(158.7)
6.7
(20.6)
(13.9)
(b) Numerical reconciliation of income tax expense/
(benefit) to prima facie tax payable
(Loss)/profit before income tax expense
Tax at the Australian tax rate of 30%
(2016: 30%)
Tax effect of amounts which are not (taxable)
deductible in calculating taxable income:
Entertainment
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
(c) Amounts recognised directly in equity
Aggregate deferred tax arising in the reporting
period and directly credited to equity
2017
$m
(269.5)
2016
$m
192.9
(80.9)
57.9
0.2
(1.6)
0.1
2.0
(1.4)
0.2
(1.8)
(1.1)
0.4
(2.9)
-
(81.6)
67.8
120.5
2017
$m
2016
$m
17.2
1.3
(d) Tax expense/(benefit) relating to items of other
comprehensive income
Cash flow hedges
2017
$m
13.5
2016
$m
(1.6)
59
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2017 (continued)
5 Income tax (continued)
(e) Deferred tax assets
Total deferred tax assets
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax assets
2017
$m
191.6
2016
$m
201.3
(191.6)
(201.3)
-
-
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax assets:
Movements
At 1 July 2015
(Charged)/credited
– to profit or loss
– to other comprehensive income
– directly to equity
At 30 June 2016
At 1 July 2016
(Charged)/credited
– to profit or loss
– to other comprehensive income
– directly to equity
At 30 June 2017
(f) Deferred tax liabilities
Provisions/
accruals
$m
Customer
contracts
$m
Unearned
revenue
$m
Financial
instruments
$m
132.2
45.9
1.3
(6.5)
(13.1)
(1.0)
-
-
125.7
125.7
5.1
-
-
-
-
32.8
32.8
-
-
0.3
0.3
(10.3)
(0.3)
-
-
-
-
-
130.8
22.5
18.8
17.9
1.6
-
38.3
38.3
(0.6)
(13.5)
-
24.2
Other
$m
6.9
Total
$m
205.1
(4.0)
(6.7)
-
1.3
4.2
4.2
(7.3)
-
17.2
14.1
1.6
1.3
201.3
201.3
(13.4)
(13.5)
17.2
191.6
2017
$m
618.4
2016
$m
790.5
(191.6)
(201.3)
426.8
589.2
Total deferred tax liabilities
Set-off of deferred tax assets pursuant to set-off provisions (note 5(e))
Net deferred tax liabilities
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax liabilities:
Non-
current
assets
$m
789.0
(32.7)
756.3
756.3
(168.0)
588.3
Consumables
and spares
$m
Accrued
income
$m
Financial
instruments
$m
11.7
3.3
5.9
Other
$m
1.2
Total
$m
811.1
(1.4)
10.3
10.3
(5.1)
5.2
(3.0)
0.3
0.3
2.3
2.6
17.3
23.2
23.2
(1.1)
22.1
(0.8)
(20.6)
0.4
0.4
790.5
790.5
(0.2)
(172.1)
0.2
618.4
Movements
At 1 July 2015
Charged/(credited)
- to profit or loss
At 30 June 2016
At 1 July 2016
Charged/(credited)
- to profit or loss
At 30 June 2017
6060 AURIZON ANNUAL REPORT 2016–17
AURIZON ANNUAL REPORT 2016–17
Notes to the consolidated financial statements
30 June 2017 (continued)
5 Income tax (continued)
6 Earnings per share
SIGNIFICANT JUDGEMENTS
The deferred tax asset of $67.8 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 substantively enacted by the end of the reporting year
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 (loss)/earnings per share
attributable to the ordinary equity holders of
the Company
2017
Cents
2016
Cents
(9.2)
3.5
(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:
2017
Cents
2016
Cents
(9.2)
3.5
2017
Number
‘000
2016
Number
‘000
2,051,745 2,088,213
Rights
496
3,221
Weighted average number of ordinary
and potential ordinary shares used as the
denominator in calculating diluted EPS
2,052,241 2,091,434
61
FINANCIAL REPORT
Notes to the consolidated financial statements
30 June 2017 (continued)
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.
7 Trade and other receivables
8
Inventories
9 Property, plant and equipment
10 Intangible assets
11 Trade and other payables
12 Provisions
13 Other liabilities
Page 63
Page 63
Page 64
Page 66
Page 67
Page 67
Page 68
62 AURIZON ANNUAL REPORT 2016–17
7 Trade and other receivables
8 Inventories
Current
Trade receivables
Provision for impairment of receivables
Net trade receivables
Other receivables*
2017
$m
2016
$m
350.7
(27.2)
323.5
173.3
496.8
382.5
(30.8)
351.7
162.2
513.9
* Other receivables predominantly relate to accrued revenue.
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 are
as follows:
Up to three months
Three to six months
Over six months
2017
$m
9.4
0.5
1.5
11.4
2016
$m
42.0
1.5
19.5
63.0
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.
Current
Raw materials and stores – at cost
Work in progress – at cost
Provision for inventory obsolescence
Non-current
Raw materials and stores – at cost
Provision for inventory obsolescence
2017
$m
2016
$m
135.8
2.2
(26.2)
111.8
47.4
(11.9)
35.5
169.5
4.6
(21.4)
152.7
52.6
(16.3)
36.3
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.
63
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT
9 Property, plant and equipment
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Total
$m
2017
Opening net book amount
Additions
Transfers between asset classes
Disposals
Impairment (note 3 and 4)
Asset classified as held for sale
Depreciation/amortisation (note 3)
Closing net book amount
Cost or fair value
Accumulated depreciation
Net book amount
Owned
Leased
2016
Opening net book amount
Additions
Transfers between asset classes
385.4
468.3
(634.2)
-
(34.7)
-
-
184.8
184.8
-
184.8
184.8
-
184.8
769.2
652.9
(917.1)
Disposals
-
(2.6)
Impairment (note 3 and 4)
(119.6)
Assets classified as held for sale
Depreciation/amortisation (note 3)
Closing net book amount
Cost
Accumulated depreciation and
impairment
Net book amount
Owned
Leased
-
-
385.4
385.4
-
385.4
385.4
-
385.4
-
1.6
-
160.5
160.5
-
160.5
141.7
18.8
160.5
160.5
340.9
-
1.9
(1.8)
(0.9)
-
-
159.7
159.7
-
32.8
(2.8)
(75.1)
(1.4)
(20.9)
273.5
526.2
-
(252.7)
159.7
135.9
23.8
159.7
273.5
264.4
9.1
273.5
159.8
335.3
-
1.7
-
24.2
(1.2)
-
2.1
(19.5)
340.9
505.3
(164.4)
340.9
331.0
9.9
340.9
389.6
-
117.5
(6.1)
(58.9)
-
(65.1)
377.0
793.4
(416.4)
377.0
377.0
-
377.0
370.1
11.0
64.8
(7.1)
(0.3)
-
(48.9)
389.6
722.0
(332.4)
389.6
389.6
-
389.6
2,823.4
5,619.4
9,719.2
-
193.9
(3.5)
(483.5)
-
(201.1)
2,329.2
5,140.2
(2,811.0)
2,329.2
2,329.2
-
2,329.2
-
468.3
288.1
(8.8)
-
(23.0)
(106.9)
(760.0)
(0.2)
(1.6)
(280.8)
(567.9)
5,510.8
8,835.0
7,266.3
14,070.6
(1,755.5)
(5,235.6)
5,510.8
8,835.0
968.5
4,542.3
5,510.8
4,259.8
4,575.2
8,835.0
3,102.5
5,163.4
9,900.3
-
91.4
(3.7)
(147.2)
-
(219.6)
2,823.4
1.3
665.2
735.0
(18.1)
-
0.2
-
(32.7)
(267.1)
3.9
(262.4)
(550.4)
5,619.4
9,719.2
4,921.3
7,032.9
13,727.4
(2,097.9)
2,823.4
2,823.4
-
2,823.4
(1,413.5)
(4,008.2)
5,619.4
9,719.2
1,047.5
4,571.9
5,619.4
5,118.6
4,600.6
9,719.2
Following a review there has been a reclassification between owned and leased assets of $387.4 million to more accurately reflect the nature of these
assets. This reclassification predominantly relates to infrastructure assets.
64
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17 9 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
Refer to note 4 for the significant judgements relating to impairment.
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 leased to Aurizon Network Pty Ltd at
a rental of $1 per year if demanded. The 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. This has been accounted for as a finance lease.
(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, and 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.
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
7–100 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 cashflows which are largely independent
of the cashflows from other assets or groups of assets (CGUs).
The recoverable amount is the greater of an asset’s FVLCTD and value
in use. In assessing value in use, the estimated future cashflows 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 that suffered impairment are reviewed for possible
reversal of impairment at each reporting period.
65
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT
10 Intangible assets
2017
Opening net book amount
Additions
Transfers
Amortisation expense (note 3)
Impairment charge (note 4)
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
2016
Opening net book amount
Additions
Transfers
Amortisation expense (note 3)
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
Software
$m
Key customer
contracts
$m
Software under
development
$m
61.0
-
79.8
(16.3)
(1.5)
123.0
260.9
(137.9)
123.0
20.9
-
50.3
(10.2)
61.0
177.0
(116.0)
61.0
0.6
1.0
-
(0.4)
(1.2)
-
2.5
(2.5)
-
1.3
-
-
(0.7)
0.6
7.6
(7.0)
0.6
128.6
63.4
(79.8)
-
(65.2)
47.0
47.0
-
47.0
105.2
73.7
(50.3)
-
128.6
128.6
-
128.6
Total
$m
190.2
64.4
-
(16.7)
(67.9)
170.0
310.4
(140.4)
170.0
127.4
73.7
-
(10.9)
190.2
313.2
(123.0)
190.2
Recognition and measurement
(i) Software and software under development
Costs incurred in developing products or systems and costs incurred
in acquiring software and licenses that will contribute to future period
financial benefits through revenue generation and/or cost reduction are
capitalised to software and systems. Costs capitalised include external
direct costs of materials and services, employee costs and an appropriate
portion of relevant overheads.
Software under development costs include only those costs directly
attributable to the development phase and are only recognised following
completion of technical feasibility and where the Group has an intention
and ability to use the asset.
Software has a finite useful life and is carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method
over the estimated useful life which varies from three to 11 years.
(ii) 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.
66
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
11 Trade and other payables
12 Provisions
Current liabilities
Trade payables
Other payables
2017
$m
2016
$m
273.8
35.9
309.7
279.3
17.9
297.2
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.
Current
Employee benefits (a)
Provision for insurance claims
Litigation and workers' compensation provision
Other
Non-current
Employee benefits (a)
Litigation and workers' compensation provision
Decommissioning/make good and other provisions
Land rehabilitation
2017
$m
2016
$m
277.5
2.2
24.6
10.2
314.5
20.7
11.5
6.0
40.5
78.7
250.0
5.3
17.6
2.3
275.2
23.4
18.4
3.5
47.7
93.0
Total provisions
393.2
368.2
(a) Employee benefits
Annual leave
Long service leave
Other*
2017
$m
59.7
127.8
110.7
298.2
2016
$m
65.8
152.0
55.6
273.4
* 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 $95.7
million (2016: $109.5 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.
67
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT
12 Provisions (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 2015 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 QSuper Defined Benefit
Fund. 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 2.7%
(2016: 2.8%).
To measure the estimated costs to remediate contaminated land
an inflation rate of 2.6% (2016: 2.3%) has been applied, based on
remediation dates ranging between five to 40 years. A weighted average
discount rate of 3.2% (2016: 2.3%) has been used in determining present
value, based on the interest rate which reflects 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.
13 Other liabilities
Current
Income received in advance
Other current liabilities
Non-current
Income received in advance
Other non-current liabilities
2017
$m
2016
$m
39.3
1.4
40.7
203.4
2.6
206.0
49.4
3.9
53.3
221.6
5.2
226.8
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.
68 AURIZON ANNUAL REPORT 2016–17
6868 AURIZON ANNUAL REPORT 2015–16
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
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 and 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.
14 Capital risk management
15 Dividends
16 Equity and reserves
17 Borrowings
18 Financial risk management
19 Derivative financial instruments
Page 70
Page 70
Page 70
Page 72
Page 72
Page 78
FINANCIAL REPORT
69
14 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 18 for further details.
(c) Franked dividends
The franked portions of the final dividends recommended after 30 June
2017 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 2018.
Franking credits available for subsequent
reporting periods based on a tax rate of 30%
(2016: 30%)
2017
$m
2016
$m
2.8
91.4
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.
16 Equity and reserves
Notes
2017
$m
2016
$m
17
3,376.2
3,490.1
(88.7)
(69.2)
3,287.5
3,420.9
5,022.1
8,309.6
39.6%
5,713.6
9,134.5
37.5%
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
15 Dividends
(a) Ordinary shares
Interim dividend for the year ended 30 June
2017 of 13.6 cents 70% franked (2016: 11.3 cents
70% franked) per share, paid 27 March 2017
Final dividend for the year ended 30 June 2016
of 13.3 cents 70% franked (2015: 13.9 cents 30%
franked) per share, paid 26 September 2016
2017
$m
2016
$m
279.0
234.4
272.9
551.9
294.9
529.3
(b) Dividends not recognised at the end of the reporting
period
(a) Contributed equity
(i)
Issued capital
2017
Shares
‘000
2016
Shares
‘000
2017
$m
2016
$m
Ordinary shares
– fully paid
2,051,745
2,051,745
1,206.6
1,206.6
(ii) Movements in ordinary share capital
Details
At 1 July 2015
On-market share buy-back
2017
$m
2016
$m
At 30 June 2016
At 30 June 2017
Number
of
shares
‘000
$m
2,122,010
1,508.3
(70,265)
(301.7)
2,051,745
1,206.6
2,051,745
1,206.6
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.
182.6
272.9
Since 30 June 2017, the Directors have
recommended the payment of a final dividend
of 8.9 cents per fully paid ordinary share 50%
franked (2016: 13.3 cents 70% franked). The
aggregate amount of the proposed dividend
expected to be paid on 25 September 2017 out
of retained earnings, but not recognised as a
liability at year end is:
70
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17 16 Equity and reserves (continued)
(b) Reserves
Balance at 1 July 2016
Fair value gains taken to equity
Fair value losses transferred to property, plant and equipment
Deferred tax
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 2017
Share
of an
associate’s
OCI
$m
(1.8)
Notes
-
-
-
-
-
-
-
28(b)
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Total
$m
(34.1)
45.7
(0.2)
(13.5)
32.0
-
-
-
(7.2)
3,467.8
3,424.7
-
-
-
-
6.6
(7.5)
17.2
9.1
-
-
-
-
-
-
-
45.7
(0.2)
(13.5)
32.0
6.6
(7.5)
17.2
3,467.8
3,473.0
(1.8)
(2.1)
Share
of an
associate’s
OCI
$m
Notes
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Total
$m
Balance at 1 July 2015
Fair value losses taken to equity
Fair value losses transferred 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
On-market share buy-back
Share-based payments expense
Employee share trust to employees
Deferred tax
At 30 June 2016
28(b)
-
-
-
-
(1.8)
(1.8)
-
-
-
-
(30.3)
(2.7)
(2.7)
1.6
-
(3.8)
-
-
-
-
(1.8)
(34.1)
20.1
3,468.1
3,457.9
-
-
-
-
-
-
25.1
(53.7)
1.3
(7.2)
-
-
-
-
-
(0.3)
-
-
-
(2.7)
(2.7)
1.6
(1.8)
(5.6)
(0.3)
25.1
(53.7)
1.3
3,467.8
3,424.7
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 19(i). Amounts
are recognised in the income statement when the associated hedged
transaction affects the income statement.
Share-based payments
Share-based payments represent the fair value of share-based
remuneration provided to employees.
Capital reserves
Capital reserves represents capital contributions from Queensland
State Government pre-IPO less cumulative share buy-backs charged
to this account.
71
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT
17 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
2017
$m
2016
$m
79.0
79.0
6.0
6.0
2,441.7
2,085.9
865.0
1,415.0
(9.5)
(16.8)
3,297.2
3,376.2
3,484.1
3,490.1
The Group’s unsecured syndicated facilities contain financial covenants.
Both the syndicated facilities and medium-term notes contain general
undertakings including negative pledge clauses 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.
The Group manages its exposure to interest rate risk as set out in
note 18(a). Risk is managed in accordance with Board-approved
Treasury Policies.
In June 2017 the Group issued a seven-year Australian Medium-Term
Note (AMTN) with a coupon of 4% per annum and a face value of
$425.0 million.
Details of the Group’s financing arrangements and exposure to risks
arising from current and non-current borrowings are set out in note 18(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 less one year, with the expectation that
borrowings will be refinanced within the year prior to maturity.
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, excluding working capital facilities, during the year of 5.0%
(2016: 4.7%).
18 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 is managed by a
central Treasury function within guidelines defined in Board-
approved Treasury Policies. 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 monitors
and 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.
Risk management
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 related foreign
currency principal and interest liability payments with Australian Dollar
principal and interest payments. These cross currency interest rate
swap agreements are designated into cash flow and fair value hedge
relationships.
72
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
18 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 foreign currency payments
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 2017
30 June 2016
Risk management
The Group manages cash flow interest rate risk by using interest rate
swaps. CCIRS 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 87% (2016:
64%) of the variable rate exposure. The weighted average maturity of the
outstanding swaps is approximately 3.8 years (2016: 1.3 years).
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 $27.5 million (2016: loss of $23.2 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 increase/decrease in interest
rates, assuming hedge designations and effectiveness and all other
variables remain constant.
Weighted
average
interest
rate
%
Weighted
average
interest
rate
%
Balance
$m
100 bps movement
in interest rates
100 bps decrease in
interest rates
Balance
$m
100 bps increase in
interest rates
Variable rate
borrowings
Interest rate
swaps (including
debt margins)
Net exposure to
interest rate risk
3.9
2,432.8
3.6
2,909.8
4.9
(2,125.0)
4.8
(1,875.0)
307.8
1,034.8
Effect on profit
(before tax)
Effect on equity
(before tax)
2017
$m
2016
$m
2017
$m
2016
$m
2.2
10.1
(12.2)
(9.4)
(2.3)
(10.1)
11.7
8.6
73
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT 18 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 consolidated balance sheet of the Group is as follows:
Cash flow hedges
Foreign exchange risk
Forward contracts
Forward contracts
Foreign exchange and interest rate risks
CCIRS – EMTN 1
CCIRS – EMTN 2
Interest rate risk
Interest rate swaps
Fair value hedges
Foreign exchange and interest rate risks
CCIRS – EMTN 1
CCIRS – EMTN 2
Notional amount
Carrying amount assets/
(liability) refer to note 19
$m
Change in fair value
used for measuring
ineffectiveness for the year
$m
2017
2016
2017
2016
2017
2016
US$7.4m
US$13.8m
€18.5m
-
€500.0m
€500.0m
€500.0m
€500.0m
(0.2)
(0.2)
(1.2)
(13.0)
(0.2)
-
(9.5)
(9.3)
(0.2)
(0.2)
(0.9)
(1.9)
A$2,125.0m
A$1,875.0m
11.4
(27.5)
11.4
-
-
0.9
(8.8)
15.8
€500.0m
€500.0m
€500.0m
€500.0m
63.1
(57.4)
86.4
(13.3)
(25.9)
(26.4)
76.1
(13.8)
The impact of hedged items designated in hedging relationships on the consolidated balance sheet is as follows:
Cash flow hedges (before tax)
Foreign exchange risk
Firm commitments
Foreign exchange and interest rate risks
EMTN 1
EMTN 2
Interest rate risk
Forecast floating interest payments
Fair value hedges (before tax)
Foreign exchange and interest rate risks
EMTN 1*
EMTN 2*
* Non-current liabilities (borrowings).
Cash flow hedge reserve
$m
Change in fair value used for
measuring ineffectiveness
for the year
$m
2017
2016
2017
2016
0.3
(0.2)
14.4
(11.5)
0.3
14.7
5.9
27.7
Carrying amount**
$m
Accumulated fair value
adjustment
$m
0.3
0.9
1.9
0.3
(0.3)
8.8
(11.4)
(15.8)
Change in fair value
used for measuring
ineffectiveness for the year
$m
2017
2016
2017
2016
2017
2016
(777.2)
(730.4)
(812.0)
(764.4)
(66.6)
47.8
(101.3)
13.8
25.9
26.4
(76.1)
13.8
** Carrying amount also includes effect of discounts being amortised over the life of the CCIRS, less one year.
74
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
18 Financial risk management (continued)
(a) Market risk (continued)
(iv) Effects of hedge accounting on the consolidated balance
sheet and consolidated income statement (continued)
The hedging relationships (on page 74) affected other comprehensive
income as follows:
Hedging gain/(loss)
recognised in comprehensive income
$m
2017
2016
Cash flow hedges (before tax)
Foreign exchange risk
Forward contracts
Interest rate risk
Interest rate swaps
Foreign exchange and interest rate risk
CCIRS
-
39.1
6.4
45.5
(1.1)
15.4
(19.7)
(5.4)
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 in FY16, 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 18(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 or where
appropriate security is held. 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.
75
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT
18 Financial risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in meeting the obligations associated with its financial liabilities. The Group’s approach
to managing liquidity is to ensure, as far as possible, sufficient liquidity is available to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
Financing arrangements
The Group has access to the following arrangements at the end of the reporting period:
Aurizon Finance
Working capital facility
Syndicated facility
Syndicated facility
Aurizon Network
Working capital facility
Syndicated facility
Syndicated facility
AMTN 1
AMTN 2
EMTN 1**
EMTN 2**
Total Group financing arrangements
Security
Maturity
Unsecured
Unsecured
Unsecured
Jun-18
Jul-19
Jul-20
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Jun-18
Jul-18
Jul-21
Oct-20
Jun-24
Sept-24
Jun-26
Utilised*
2017
$m
2016
$m
Facility limit
2017
$m
2016
$m
102.4
300.0
75.0
477.4
6.7
-
490.0
525.0
425.0
710.6
778.2
2,935.5
3,412.9
43.4
200.0
300.0
543.4
7.6
425.0
490.0
525.0
-
710.6
778.2
2,936.4
3,479.8
150.0
300.0
500.0
950.0
100.0
525.0
490.0
525.0
425.0
710.6
778.2
3,553.8
4,503.8
150.0
300.0
500.0
950.0
100.0
525.0
490.0
525.0
-
710.6
778.2
3,128.8
4,078.8
* Amount utilised includes bank guarantees of $30.0 million (2016: $44.9 million) but excludes capitalised borrowing costs of $9.5 million (2016: $16.8 million)
and discounts on medium-term notes of $16.0 million (2016: $15.5 million).
** Amount utilised also excludes accumulated fair value adjustments of $66.6 million (2016: $101.3 million) for EMTN 1 and -$47.8 million (2016: -$13.8 million) for EMTN 2.
Within the working capital facilities, the Group has access to financial accommodation arrangements totalling $250.0 million (2016: $250.0 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 $30.0 million (2016: $44.9 million) for financial bank guarantees.
The Group has complied with externally imposed capital debt covenants during the 2017 and 2016 reporting periods.
The following table (page 77) summarises the contractual timing of undiscounted cash flows, including estimated interest payments, of financial
liabilities and derivative instruments, expressed in Australian dollars. The contractual amount assumes current interest rates and foreign exchange rates
estimated using forward curves applicable at the end of the reporting period.
76
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
Notes to the consolidated financial statements
30 June 2017 (continued)
18 Financial risk management (continued)
(c) Liquidity risk (continued)
Less than 1
year
$m
Between
1 and 5
years
$m
Over 5
years
$m
Total
contractual
cash flows
$m
Carrying
amount
(assets)/
liabilities*
$m
2017
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
- (inflow)
- outflow
2016
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
- (inflow)
- outflow
309.7
223.7
30.0
563.4
5.5
-
(17.0)
17.2
5.7
297.2
163.7
44.9
505.8
26.6
-
(15.5)
15.7
26.8
-
-
309.7
309.7
1,924.4
2,246.3
4,394.4
3,384.7
-
-
30.0
-
1,924.4
2,246.3
4,734.1
3,694.4
(17.8)
-
(20.1)
21.5
(16.4)
-
-
-
-
-
-
-
(12.3)
-
(37.1)
38.7
(10.7)
(11.4)
0.4
-
-
(11.0)
297.2
297.2
2,057.8
2,358.1
4,579.6
3,435.8
-
-
44.9
-
2,057.8
2,358.1
4,921.7
3,733.0
(0.8)
-
(1.6)
1.5
(0.9)
-
-
-
-
-
25.8
-
(17.1)
17.2
25.9
27.6
(0.2)
-
-
27.4
* Borrowings include the effect of CCIRS derivatives which have a carrying amount of $61.9 million (non-current asset) and $70.4 million (non-current liability)
(2016: $76.9 million non-current asset and $22.6 million non-current liability).
(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
› CCIRS.
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 cashflows.
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 CCIRS 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 2017, the borrowing rates were determined to be between 2.6% to
4.8%, depending on the type of borrowing (30 June 2016: 2.8% to 5.8%).
FINANCIAL REPORT
77
18 Financial risk management (continued)
(d) Fair value measurements (continued)
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as follows:
Financial assets
carried at fair value
Foreign exchange
contracts
CCIRS – EMTN 1
Interest rate swaps
Financial assets carried
at amortised cost
Cash and cash
equivalents
Trade and other
receivables
Financial liabilities
carried at fair value
Foreign exchange
contracts
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
Carrying
amount
Notes
2017
$m
2016
$m
Fair value
2017
$m
2016
$m
19
19
19
0.1
61.9
11.7
73.7
0.2
76.9
0.1
77.2
0.1
61.9
11.7
73.7
0.2
76.9
0.1
77.2
88.7
69.2
88.7
69.2
7
496.8
585.5
513.9
583.1
496.8
585.5
513.9
583.1
19
19
19
(0.5)
(0.3)
(70.4)
(71.2)
(0.4)
(27.6)
(22.6)
(50.6)
(0.5)
(0.3)
(70.4)
(71.2)
(0.4)
(27.6)
(22.6)
(50.6)
› 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 2017
Derivative financial
assets
Derivative financial
liabilities
Net financial instruments
measured at fair value
30 June 2016
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
19
19
19
19
-
-
-
-
-
-
73.7
(71.2)
2.5
77.2
(50.6)
26.6
-
-
-
-
-
73.7
(71.2)
2.5
77.2
-
(50.6)
26.6
11
(297.2)
(309.7)
(309.7)
17 (3,376.2) (3,490.1) (3,556.5)
(3,685.9) (3,787.3) (3,866.2)
(297.2)
(3,495.1)
(3,792.3)
19 Derivative financial instruments
-
-
-
-
-
-
-
-
-
-
20.4
281.3
98.0
341.0
9.1
8.0
(30.0)
(44.9)
280.8
402.1
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 18).
On 25 January 2017, as a residual obligation under the project documents
with Moorebank Intermodal Company (MIC) Aurizon provided a Parent
Company Guarantee (PCG) in favour of MIC in relation to 50% of the cost
to complete construction of the Terminal Works and 25% of the contract
sum for design and construction of the Rail Access. The estimated
maximum exposure under the guarantee is $102.0 million, however
Aurizon has obtained a 100% cross indemnity guarantee from Qube
Holdings Ltd in respect of any call under the Aurizon PCG.
78
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
Notes to the consolidated financial statements
30 June 2017 (continued)
19 Derivative financial instruments (continued)
Current assets
Foreign exchange contracts
Non-current assets
Interest rate swaps
CCIRS – EMTN 1
Total derivative financial instrument assets
Current liabilities
Foreign exchange forward contracts
Interest rate swaps
Non-current liabilities
Foreign exchange forward contracts
CCIRS – EMTN 2
Interest rate swaps
Total derivative financial instrument liabilities
2017
$m
2016
$m
0.1
0.2
11.7
61.9
73.7
0.3
-
0.2
70.4
0.3
71.2
0.1
76.9
77.2
0.4
27.2
-
22.6
0.4
50.6
(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 2017 and 30 June 2016. 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
$m
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
2017
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
2016
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
* No financial instrument collateral.
73.7
(71.2)
77.2
(50.6)
-
-
-
-
73.7
(71.2)
77.2
(50.6)
(14.5)
59.2
14.5
(56.7)
(4.5)
4.5
72.7
(46.1)
FINANCIAL REPORT
7979
FINANCIAL REPORT
19 Derivative financial instruments
(continued)
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 on page 79.
Recognition and measurement
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently remeasured 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 cashflows of
recognised assets and liabilities, and highly probable forecast transactions
(cashflow 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 cashflows 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.
Cash flow hedge
(i)
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in other
comprehensive income, and accumulated in reserves in equity limited
to the cumulative change in fair value of the hedged item on a present
value basis from the inception of the hedge. 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.
80
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17 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.
20 Associates and joint arrangements
21 Material subsidiaries
22 Parent disclosures
23 Deed of cross guarantee
Page 82
Page 82
Page 83
Page 84
FINANCIAL REPORT
81
Notes to the consolidated financial statements30 June 2017 (continued) 20 Associates and joint arrangements
SIGNIFICANT JUDGEMENTS
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
Interest in joint ventures (b)
(a) Investments in associates
The Group has an interest in the following associates:
2017
$m
2016
$m
2.4
2.4
Name
Country of
operation
2017
%
2016
%
Principal
activity
Ownership interest
Moorebank
Industrial
Property Trust*
Aquila Resources
Limited**
Australia
Australia
-
15
Land and
potential
intermodal
development
Exploration
and mining
33
15
* Aurizon sold its 33.33% equity holding in the proposed Moorebank Intermodal
Terminal project on 22 December 2016.
** Aquila Resources Limited is accounted for as an associated company because
the Group has significant influence primarily through representation on its Board
of Directors.
(b) Investments in joint ventures
The Group has an interest in the following joint ventures, which are equity
accounted, contributed $0.1 million to the Group results, have net assets
of $2.4 million and are not considered material to the Group.
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
resulted in an impairment of $225.9 million for the year ended
30 June 2016. The impairment provided for all known exposures,
including Aquila’s contractual obligations in respect of power and
port access arrangements, and resulted in Aurizon’s investment
being fully written down.
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 9(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.
21 Material subsidiaries
The Group’s material subsidiaries that were controlled during the
year are set out below.
Ownership interest
Country of
operation
2017
%
2016
%
Principal
activity
Name
CHCQ
China-Hong Kong
Chun Wo/CRGL
China-Hong Kong
KMQR Sdn Bhd
Malaysia
15
17
-
15 Construction
Name of entity
17 Construction
30
Liquidated
Aurizon Operations Limited
Interail Australia Pty Ltd
ARG Risk
Management
Limited
Integrated
Logistics
Company Pty Ltd
Bermuda
50
50
Insurance
Australia Eastern Railroad Pty Ltd
Australia Western Railroad Pty Ltd
Aurizon Network Pty Ltd
Aurizon Property Pty Ltd
Australia
14
14
Consulting
Aurizon Terminal Pty Ltd
Aurizon Finance Pty Ltd
Country of
incorporation
Equity
holding
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
Iron Horse Insurance Company Pte Ltd
Singapore
82
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17
21 Material subsidiaries (continued)
Principles of consolidation
The consolidated financial statements incorporate the assets and
liabilities of all subsidiaries of the Group as at reporting date and the
results of all subsidiaries for the year.
Subsidiaries are all entities (including structured entities) over which
the Group has control. The Group controls an entity when the Group is
exposed to, or has rights to, variable returns from its involvement with
the entity and has the ability to affect those returns through its power to
direct the activities of the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group and de-consolidated from the date that control
ceases. Transactions between continuing and discontinued operations are
treated as external from the date that the operation was discontinued.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated on consolidation.
Changes in ownership interests
When the Group ceases to have control, joint control or significant
influence, any retained interest in the entity is remeasured to its fair
value with the change in carrying amount recognised in the profit or
loss. This fair value becomes the initial carrying amount for the purposes
of subsequently accounting for the retained interest as an associate,
joint venture or financial asset. In addition, any amounts previously
recognised in other comprehensive income in respect of that entity are
accounted for as if the Group had directly disposed of the related assets
or liabilities. This may mean that amounts previously recognised in other
comprehensive income are classified to profit or loss.
If the ownership interest in a joint venture or an associate is reduced
but joint control or significant influence is retained, only a proportionate
share of the amounts previously recognised in other comprehensive
income are reclassified to profit or loss where appropriate.
22 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
2017
$m
15.9
2016
$m
79.9
6,092.6
6,093.6
6,108.5
6,173.5
(14.8)
(79.6)
(1,428.2)
(1,425.8)
(1,443.0)
(1,505.4)
4,665.5
4,668.1
1,206.6
1,206.6
0.9
2.7
3,458.0
3,458.8
4,665.5
4,668.1
Profit for the year
Total comprehensive income
2017
$m
550.1
550.1
2016
$m
532.5
532.5
The parent entity has several employees. All costs associated with these
employees are borne by a subsidiary of the parent entity and are not
included in the above disclosures.
(b) Guarantees entered into by the parent entity
There are cross guarantees given by Aurizon Holdings Limited and its
subsidiaries as listed in note 23.
(c) Contingent liabilities of the parent entity
The parent entity did not have any material contingent liabilities as at 30
June 2017 or 30 June 2016. 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 2017, the parent entity did not have any contractual
commitments for the acquisition of property, plant and equipment
(2016: 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.
(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 standalone 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.
83
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT Statement of comprehensive income
(Loss)/profit for the year
Other comprehensive income
Items that may be reclassified to profit or loss
- Share of other comprehensive income of
2017
$m
2016
$m
(178.0)
77.5
associates and joint ventures
-
(2.0)
- Change in the foreign currency translation
reserve
- Changes in the fair value of cash flow
hedges
- Income tax relating to components
of other comprehensive income
Other comprehensive expense
for the year, net of tax
(0.1)
-
(3.7)
(2.0)
1.1
1.0
(2.7)
(3.0)
Total comprehensive (expense)/income
for the year
(180.7)
74.5
Summary of movements in consolidated retained earnings
Retained earnings at the beginning
of the financial year
(Loss)/profit for the year
Dividends provided for or paid
Retained (losses)/earnings at
the end of the financial year
446.3
(178.0)
898.1
77.5
(551.9)
(529.3)
(283.6)
446.3
22 Parent disclosures (continued)
(ii) Tax consolidation legislation (continued)
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.
23 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 Ltd, 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 ASIC Corporations (Wholly owned Companies) Instrument
2016/785.
(a) Consolidated income statement, statement of
comprehensive income and summary of movements
in consolidated retained earnings
The Aurizon Deed Parties represent the ‘closed group’ for the purposes
of the Class Order, and as there are no other parties to the cross
guarantee that are controlled by Aurizon Holdings Limited, they also
represent the ‘extended closed group’.
Income statement
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 partnerships accounted for using the
equity method
Finance costs
Finance income
(Loss)/profit before income tax
Income tax benefit/(expense)
(Loss)/profit for the year
2017
$m
2016
$m
2,984.1
3,082.4
216.5
273.3
(1,536.8)
(1,610.0)
(843.4)
(774.7)
(298.2)
(304.4)
(835.0)
(293.8)
(28.3)
(51.9)
(0.1)
(21.1)
1.6
(360.7)
182.7
(178.0)
(222.1)
(10.0)
1.2
90.0
(12.5)
77.5
84
Notes to the consolidated financial statements30 June 2017 (continued)AURIZON ANNUAL REPORT 2016–17 23 Deed of cross guarantee (continued)
(b) Consolidated balance sheet
The balance sheet of the parties to the Deed of Cross Guarantee at each reporting date is presented below.
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
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
Other financial assets*
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Other liabilities
Total current liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained (losses)/earnings
Total equity
* Other financial assets represent investments in entities outside of the deed group.
2017
$m
2016
$m
48.7
400.6
76.5
24.4
6.7
60.8
473.1
108.5
6.0
5.7
556.9
654.1
26.6
3.4
21.9
-
3,475.2
4,313.9
89.3
2.4
-
125.2
2.4
61.9
1,222.6
1,222.7
165.5
-
4,985.0
5,748.0
5,541.9
6,402.1
365.8
74.0
246.7
4.7
691.2
314.2
79.5
236.3
9.6
639.6
373.7
497.0
-
70.5
7.7
451.9
56.9
91.2
6.2
651.3
1,143.1
1,290.9
4,398.8
5,111.2
1,206.6
1,206.6
3,475.8
3,458.3
(283.6)
4,398.8
446.3
5,111.2
85
Notes to the consolidated financial statements30 June 2017 (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.
24 Reconciliation of profit after income tax to
net cash inflow from operating activities
25 Assets classified as held for sale
26 Related party transactions
27 Key Management Personnel compensation
28 Share-based payments
29 Remuneration of auditors
30 Summary of other significant accounting policies
Page 87
Page 87
Page 87
Page 87
Page 88
Page 89
Page 89
86 AURIZON ANNUAL REPORT 2016–17
Notes to the consolidated financial statements30 June 2017 (continued) 24 Reconciliation of profit after
income tax to net cash inflow
from operating activities
(Loss)/profit for the year
Depreciation and amortisation
Impairment of non-financial assets
Interest expense
Non-cash employee benefits expense –
share-based payments
Net loss on sale of 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 and other receivables
Decrease in inventories
Decrease in prepayments
2017
$m
(187.9)
584.6
840.5
181.3
6.6
6.2
-
0.1
-
-
17.0
29.1
-
Increase (Decrease) in trade and other
payables
Decrease in other liabilities
(Decrease) Increase in current tax liabilities
Decrease in deferred tax liabilities
Increase (Decrease) in provisions (note 12)
25.8
(33.4)
(97.8)
(158.7)
25.0
2016
$m
72.4
561.3
301.7
152.8
25.1
2.7
0.6
(13.3)
225.9
0.1
26.4
7.4
3.5
(27.4)
(32.0)
4.0
(15.4)
(77.6)
Net cash inflow from operating activities
1,238.4
1,218.2
25 Assets classified as held for sale
Property, plant and equipment
Investment in an associate
2017
$m
7.3
-
7.3
2016
$m
5.7
95.3
101.0
On 2 August 2016 Aurizon announced the sale of its 33.33% equity
holding in the proposed Moorebank Intermodal Terminal project for
$98.3 million (net of transaction costs) to Qube Holdings Limited group
entities. The sale completed on 22 December 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 FVLCTD,
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.
26 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.
27 Key Management Personnel
compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
2017
$’000
2016
$’000
7,602
7,402
326
(57)
3,110
2,634
13,615
218
55
750
2,668
11,093
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.
87
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT
Notes to the consolidated financial statements
30 June 2017 (continued)
28 Share-based payments
KEEPING IT SIMPLE
The share-based payments schemes described in this section
were established by the Board of Directors to provide long-
term incentives to the Group’s senior executives based on
shareholder returns taking into account the Group’s financial
and operational performance. Eligible executives may be
granted rights on terms and conditions determined by the
Board from time to time. The fair value of rights granted
under the schemes is recognised as an employee benefits
expense with a corresponding increase in equity.
(a) Performance rights plan
Performance rights are granted by the Company for nil consideration.
Participation in the plan is at the Board’s discretion so that no individual has
a contractual right to be awarded rights under the plan or to receive any
guaranteed benefits. Each right is a right to receive one fully-paid ordinary
share in Aurizon Holdings Limited at no cost if the vesting conditions are
satisfied. Rights granted under the plan carry no dividend or voting rights.
The Board will determine the exercise price payable on exercise of a vested
right and the exercise period of a right. The Board may, in its discretion,
determine that early vesting of a right will occur if there is a takeover bid,
scheme of arrangement or some other change of control transaction of
the Group. The Board may also accelerate the vesting of some or all of the
rights held by an executive in specified circumstances. These include but
are not limited to death, total and permanent disablement, or cessation
of employment.
The share-based payment schemes are described as follows:
Short Term Incentive Awards (STIA)
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 40% is deferred for a period of one year. 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) and Operating Ratio (OR).
In 2015, the EPS hurdle was replaced with Return on Invested Capital
(ROIC). In the event that company hurdles are 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. Retesting will no longer
form part of the LTIA from the 2016 award.
Retentions
At the Board’s discretion, eligible executives may be granted retention
rights that may vest at the end of the specified retention period or
project 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
2017
STIAD
LTIA
419
-
(419)
-
-
11,922
3,229
(1,127)
(3,562)
10,462
Retentions
125
25
(40)
(85)
25
Total
2016
STIAD
LTIA
Retentions
Total
12,466
3,254
(1,586)
(3,647)
10,487
188
15,931
113
16,232
419
3,714
179
4,312
(188)
-
419
(6,814)
(909)
11,922
(167)
-
125
(7,169)
(909)
12,466
At 30 June 2017, there were no vested but unexercised rights (2016: nil).
The weighted average exercise price of rights granted during the year
was nil (2016: nil), as the rights have no exercise price. The weighted
average share price at the date of exercise for rights exercised during
the period was $4.65 (2016: $5.33). The weighted average remaining
contractual life of share rights outstanding at 30 June 2017 was 1.5 years
(2016: 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 portion of LTIA
rights, that are subject to non-market based performance conditions, was
$4.09 (2016: $4.53), determined by the share price at grant date less an
adjustment for estimated dividends payable during the vesting period.
An additional grant of LTIA rights was made at a fair value of $3.76.
There were no STIA granted in the year (2016: $5.08). 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
2017
LTIA*
LTIA
2016
LTIA
7 Sep 2016
7 Oct 2016
17 Aug 2015
30 Jun 2019
30 Jun 2019
30 Jun 2018
31 Dec 2019
31 Dec 2019
31 Dec 2019
$4.43
$4.79
$5.24
Expected life
3.5 years
3.5 years
3.5 years
Company share
price volatility
Risk free rate
Dividend yield
Fair value
32.75%
32.25%
23.00%
1.45%
5.85%
$1.83
1.65%
5.75%
$2.25
2.00%
5.10%
$2.92
* These rights are subject to shareholder approval at the AGM.
The Company share price volatility is based on the Company’s average
historical share price volatility to the grant date.
88 AURIZON ANNUAL REPORT 2016–17
28 Share-based payments (continued)
30 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) 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 2016
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.
(ii) New accounting standards and interpretations not yet
adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 30 June 2017 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.
AASB 15 “Revenue from Contracts with Customers” is mandatory for
financial year beginning 1 July 2018 and AASB 16 “Leases” is mandatory
for financial year beginning 1 July 2019.
The Group is currently evaluating the impact of these pronouncements.
This work is ongoing and additional impacts may be identified later in the
implementation process.
(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
$6.559 million (2016: $25.133 million).
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.
29 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
2017
$’000
2016
$’000
Audit and other assurance services
Audit and review of financial statements
1,388
1,466
Other assurance services
Other assurance services
37
204
Total remuneration for audit and other
assurance services
Taxation services
Tax advisory services
Other services
Advisory services
Total remuneration of PwC Australia
1,425
1,670
-
91
718
2,143
275
2,036
89
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2017 (continued)
30 Summary of other significant accounting policies (continued)
(a) Basis of preparation (continued)
(ii) New accounting standards and interpretations not yet adopted (continued)
Title of standard
Nature of change
Impact
Mandatory application date
AASB 15 Revenue
from Contracts
with Customers
The AASB has issued a new standard for the recognition of
revenue. This will replace AASB 118 which covers revenue
arising from the sale of goods and the rendering of services,
and AASB 111 which covers construction contracts. The
new standard is based on the principle that revenue is
recognised when control of a good or service transfers to a
customer. The standard permits either a full retrospective or
a modified retrospective approach for the adoption.
AASB 16 Leases
AASB 16 was issued in February 2016. It will result in
almost all leases being recognised on the balance sheet,
as the distinction between operating and finance leases is
removed. Under the new standard, an asset (the right to
use the leased item) and a financial liability to pay rentals
are recognised. The only exceptions are short-term and
low-value leases.
Management is currently
assessing the effects of
applying the new standard
on the Group’s financial
statements. Work to date
has focused on Coal, Iron
Ore and Network contracts
as these together account
for 78% of the Group’s sales
revenue. In FY18, further
review of contracts will
be undertaken across all
business units. To date,
no material measurement
differences have been
identified between AASB
118 and AASB 15.
Management is currently
assessing the effects of
applying the new standard
on the Group’s financial
statements. Work to date
has focused on system
requirements to capture
required data.
Mandatory for financial years
commencing on or after 1
January 2018, but available for
early adoption. Expected date of
adoption by the Group: 1 July 2018
for FY19.
Mandatory for financial years
commencing on or after 1
January 2019, but available for
early adoption. Expected date of
adoption by the Group: 1 July 2019
for FY20.
(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 at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign
currencies at year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to 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.
90 AURIZON ANNUAL REPORT 2016–17
90 AURIZON ANNUAL REPORT 2015–16
Notes to the consolidated financial statements
30 June 2017 (continued)
(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 attributable transaction costs. Subsequent to initial
recognition, these liabilities are measured at amortised cost using the
effective interest method.
(f) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of
associated GST, unless the amount of GST incurred is not recoverable
from the Australian Taxation Office (ATO). In this case, the GST is
recognised as part of the cost of acquisition of the asset or as part of
the expense.
Receivables and payables are stated inclusive of the amount of GST
receivable or payable. The net amount of GST recoverable from, or
payable to, the ATO is included with other receivables or payables in the
balance sheet.
Cash flows are presented in the cash flow statement on a gross basis.
The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the ATO, are
presented as operating cash flows.
The Company and its subsidiaries are grouped for GST purposes.
Therefore, any intercompany transactions within the Group do not
attract GST.
30 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; and
› 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.
FINANCIAL REPORT
91
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.
31 Contingencies
32 Commitments
33 Events occurring after the reporting period
Page 93
Page 93
Page 93
92 AURIZON ANNUAL REPORT 2016–17
Notes to the consolidated financial statements30 June 2017 (continued) 33 Events occurring after the
reporting period
Closure and sale of Intermodal
On the 14th August 2017, Aurizon Holdings Limited (Aurizon) announced
the intention to exit its Intermodal business through a combination of
closure and sale.
Subsequent to year end, Aurizon signed a binding agreement with Pacific
National to sell its Acacia Ridge Intermodal Terminal. That transaction
includes the transfer of approximately 30 employee positions, as well as
assets, commercial and operational arrangements.
Subsequent to year end, Aurizon signed a binding agreement to sell
its Queensland Intermodal business to a consortium of Linfox and
Pacific National. The transaction includes the transfer of approximately
350 employee positions as well as assets, commercial and operational
arrangements to the Linfox and Pacific National consortium.
Aurizon is aiming to finalise the transactions by the end of FY2018,
subject to:
› Approval by the Australian Competition & Consumer Commission; and
› Approval by the Foreign Investment & Review Board.
Total consideration for the two transactions is $220.0 million. If the
Acacia Ridge transaction is not complete within six months then Pacific
National will pay Aurizon an additional $5.0 million.
The remainder of Aurizon’s Intermodal business (outside of Queensland)
will be closed. This is expected to take effect by December 2017,
contingent on finalising transitional and commercial arrangements with
customers. Approximately 250 employee positions will be affected by the
closure of the interstate business.
The financial impacts of the transactions are currently being worked
through.
On-market share buy-back
On 14 August 2017, Aurizon announced an on-market share buy-back of
60 million shares or approximately $300 million, over a 12-month period.
This is equivalent to 3% of its issued share capital.
31 Contingencies
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.
(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, including Moorebank parent company
guarantee, and letters of credit given by the Group, refer to note 18(d).
(b) Contingent assets
Guarantees and letters of credit
For information about guarantees given to the Group, refer to note 18(d).
32 Commitments
(a) Capital commitments
Property, plant and equipment
Within one year
(b) Lease commitments
Commitments for minimum lease payments in
relation to non-cancellable operating leases
are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
2017
$m
2016
$m
131.7
76.5
2017
$m
2016
$m
55.9
85.6
38.7
180.2
47.2
92.3
63.6
203.1
The above commitments flow primarily from operating leases of property
and machinery. These leases, with terms mostly ranging from one to
10 years, generally provide the Group with a right of renewal at which
times the lease terms are renegotiated. The lease payments comprise a
base amount, while the property leases also contain a contingent rental,
which is based on either the movements in the Consumer Price Index or
another fixed percentage as agreed between the parties.
93
Notes to the consolidated financial statements30 June 2017 (continued)FINANCIAL REPORT Directors’ Declaration
30 June 2017
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 93 are in accordance with the Corporations Act 2001, including:
(i) complying with Accounting Standards and other mandatory professional reporting requirements as detailed above, and the
Corporations Regulations 2001,
(ii) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2017 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 23 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 23.
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 Poole
Chairman
Brisbane
14 August 2017
94
AURIZON ANNUAL REPORT 2016–17
Independent auditor’s report
To the shareholders of Aurizon Holdings Limited
Report on the audit of the financial report
Our opinion
In our opinion:
The accompanying financial report of Aurizon Holdings Limited (the Company) and its controlled
entities (together the Group) is in accordance with the Corporations Act 2001, including:
(a)
giving a true and fair view of the Group's financial position as at 30 June 2017 and of its financial
performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
•
•
•
•
•
•
•
the consolidated balance sheet as at 30 June 2017
the consolidated income statement for the year then ended
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
95
FINANCIAL REPORT Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial report as a whole, taking into account the geographic and management structure of the
Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
•
•
•
•
For the purpose of our audit we
used overall Group materiality of
$32 million, which represents
approximately 5% of the Group’s
adjusted profit before tax.
• We applied this threshold, together
with qualitative considerations, to
determine the scope of our audit
and the nature, timing and extent of
our audit procedures and to
evaluate the effect of misstatements
on the financial report as a whole.
• We chose Group profit before tax
because, in our view, it is a
benchmark against which the
performance of the Group is
commonly measured. To calculate
materiality, we adjusted profit
before tax for significant unusual
items, such as impairment. These
adjustments were tested separately
using a specific materiality level.
• We selected 5% based on our
professional judgement, noting it is
within the range of commonly
acceptable profit related thresholds.
Our audit focused on where
the Group made subjective
judgements; for example,
significant accounting
estimates involving
assumptions and inherently
uncertain future events.
The Group is a large rail-
based freight operator and
transports coal, iron ore and
other bulk commodities
across Australia with a
centralised accounting
function in Brisbane. The
Group also owns and
operates a coal rail network
made up of approximately
2,670 kilometres in central
Queensland.
Our audit work was
performed predominantly at
the Group’s corporate office
in Brisbane along with site
visits to Rockhampton and
Forrestfield depots to
perform audit procedures on
inventory.
•
Amongst other relevant
topics, we communicated
the following key audit
matters to the Audit
Governance and Risk
Management Committee
(AGRMC):
− Impairment assessment
of the Western Australian
cash generating unit
(CGU)
− Impairment assessment
of the Intermodal CGU
− Impairment assessment
of the Bulk East CGU
− Recoverability of
rollingstock
•
These are further described
in the Key audit matters
section of our report.
96
AURIZON ANNUAL REPORT 2016–17 Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial report for the current period. The key audit matters were addressed in the
context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. Further, any commentary on the outcomes of a
particular audit procedure is made in that context.
Key audit matter
Impairment assessment of the Western
Australian (WA) Cash Generating Unit (CGU)
The WA CGU markets are volatile and a number of
customers have experienced and continue to face high
operating costs and low forecast long term iron ore
prices.
This is an indicator of impairment and the Group
therefore performed an impairment assessment of the
carrying value of the WA CGU.
This resulted in a pre-tax impairment of $362.4
million with the remaining carrying value of the WA
CGU ($207.8 million) determined using a Value in
Use (VIU) methodology utilising a discounted
cashflow model (the model).
The key judgements by the Group in determining the
remaining carrying value and the quantum of the
impairment mainly related to:
•
•
•
•
Iron ore customers continuing to operate to the
end of expected mine life.
No change to current contractual arrangements
with current customers.
Locomotives remaining in service post cessation
of major contracts will remain within the WA
CGU.
The terminal year EBITDA and cashflows
reflecting the impact of the cessation of the
contracts aligned to the expected end of mine
lives.
Given these judgements and the magnitude of the
impairment, we considered this to be a key audit
matter.
Refer to Note 4 Impairment of non-financial assets in
the consolidated annual financial report for further
details.
How our audit addressed the key audit
matter
To evaluate the Group’s assessment of the recoverable
amount of the WA CGU, we performed a number of
procedures including the following:
•
•
•
•
•
•
Assessing whether the carrying value of the WA
CGU included all assets, liabilities and cash flows
directly attributable to the CGU and an
appropriate allocation of overheads.
Considering if VIU was the highest basis upon
which to infer the value of the CGU.
Comparing the forecast financial performance in
the model to the financial performance in 2017
and budget and considering the historical
accuracy of actual results compared to historical
budgets.
Evaluating terminal value EBITDA and cashflow
assumptions in the model including considering
the impact of cessation of certain customer
contracts with reference to externally available
information such as mine lives.
Evaluating the forecast revenue in the model for
selected significant customers with reference to
contractual terms and long term forecasts of
commodity prices.
Evaluating the assumptions on the highest and
best use of rollingstock post cessation of certain
customer contracts in the model.
• With assistance from PwC valuation experts,
assessing the forecast long term growth rate of
1.5% in the model to economic forecasts; the
discount rate applied of 11.8% (pre-tax nominal)
in the model; and checking the mathematical
accuracy of the model.
97
FINANCIAL REPORT How our audit addressed the key audit
matter
To evaluate the Group’s assessment of the recoverable
amount of the Intermodal CGU, we performed a
number of procedures including the following:
•
•
•
•
•
•
•
Assessing whether the carrying value of the
Intermodal CGU included all assets and
liabilities directly attributable to the CGU.
Considering if estimating FVLCD was the
highest basis upon which to infer the value of
the CGU.
Assessing the competency of the external valuer
and evaluating the external property valuations
obtained by the Group by assessing the key
assumptions used in the valuations in
determining the fair values assigned to the
individual property assets.
Evaluating the Group’s determination of the
highest and best use of rollingstock by assessing
the Group’s plan for asset re-deployment within
the CGUs.
Assessing the Group’s internal valuation of
rollingstock that would not be re-deployed to
other CGUs.
Comparing the Group’s estimates of costs of
disposal to recent market transactions. We
assessed whether the resulting fair value
included the transaction costs associated with
the disposal of the individual assets of the
Intermodal CGU.
Considering the carrying value with reference to
the post balance date decisions to:
·
·
close the Intermodal business; and
accept binding offers to divest the
Acacia Ridge Intermodal Terminal and
Queensland Intermodal business.
Key audit matter
Impairment assessment of the Intermodal
CGU
During the first half of 2017, the Group’s Intermodal
CGU experienced lower than forecast operational
performance, which adversely affected the forecast
assumptions and outlook to FY2020.
This is an indicator of impairment and the Group
therefore performed an impairment assessment of the
carrying value of the CGU.
This resulted in a pre-tax impairment of $162.2
million with the remaining carrying value of the CGU
($169.9 million) determined using a fair value less
cost of disposal (FVLCD) methodology.
The key judgements by the Group in determining the
remaining carrying value and the quantum of the
impairment mainly related to:
•
•
Determining fair values of individual assets
within the CGU based on external and internal
valuations. Individual assets were valued on a
highest and best use basis, assisted by external
valuations for property assets and internal
valuations for rollingstock, plant and equipment
and assets under construction assets.
Identifying the ability to redeploy assets within
the Group in relation to rollingstock. The highest
and best use of rollingstock was determined using
a combination:
·
·
consideration of the best use of
locomotives within the Group’s
rollingstock fleet
scrap value for rollingstock assets for
which there is no secondary market.
Since balance date the Group decided to exit the
Intermodal business through a combination of closure
and sale. The Group entered into agreements to
dispose of the Acacia Ridge Intermodal Terminal and
Queensland Intermodal business for an aggregate
amount of $220.0 million. The remainder of the
Intermodal business will be closed.
Given these judgements and the magnitude of the
impairment, we considered this to be a key audit
matter.
Refer to Note 4 Impairment of non-financial assets
and Note 33 Events occurring after the reporting
period in the consolidated annual financial report for
further details.
98
AURIZON ANNUAL REPORT 2016–17 Key audit matter
How our audit addressed the key audit
matter
Impairment assessment of the Bulk East CGU
Due to the organisational restructure from a
functional model to a business unit model, the change
to direct allocation of rollingstock assets to CGUs and
new segments from 1 July 2017, the Group’s CGUs
have been re-assessed and aligned with the business
units.
This change in CGUs together with operational
performance issues and loss of specific contracts
experienced by the Bulk East CGU has resulted in an
impairment of $163.5 million.
The Group’s key judgement in determining the
recoverable amount of the Bulk East CGU under a
FVLCD methodology and quantum of the impairment
recognised related to:
•
•
•
determining fair values of individual assets
within the CGU based on external and internal
valuations.
Individual assets were valued on a highest and
best use basis, assisted by external valuations
for property assets and internal valuations for
rollingstock, plant and equipment and assets
under construction.
Rollingstock assets were valued based on scrap
value where there is no secondary market.
Given these judgements and the magnitude of the
impairment, we considered this to be a key audit
matter.
Refer to Note 4 Impairment of non-financial assets in
the consolidated annual financial report for further
details.
Recoverability of rollingstock
The Group continually reviews its Enterprise
Rollingstock Master Plan (ERSMP) which compares
rollingstock assets ($2.32 billion at 30 June 2017,
consisting of locomotives and wagons) and their
haulage capacity against forecast volume demand over
a 10 year period.
Developing the ERSMP and assessing recoverability
of rollingstock involves significant judgement by the
Group in:
We assessed the Group’s new CGUs in light of the
operating restructure from 1 July 2017 as well as the
allocation of rollingstock assets within the Group by:
•
•
•
Evaluating whether the new CGUs generate
largely independent cash flows under the new
operating model
Considering the basis and methodology of direct
asset allocation to CGUs
Assessing the specific assets and associated
carrying values (on a sample basis) allocated to
the respective CGUs.
To evaluate the Group’s assessment of the recoverable
amount of the Bulk East CGU, we performed a
number of procedures including the following:
•
•
•
•
•
Assessing whether the carrying value of the Bulk
East CGU included all assets, liabilities and cash
flows directly attributable to the CGU.
Considering if estimating FVLCD was the
highest basis upon which to infer the value of
the CGU.
Assessing the competency of the external valuer
and evaluating the external property valuations
obtained by the Group by assessing the key
assumptions used in the valuations in
determining the fair values assigned to the
individual property assets.
Evaluating the Group’s internal valuation of
rollingstock based on external scrap metal
prices, given no active secondary market exists
for the sale of rollingstock.
Comparing the Group’s estimates of costs of
disposal to recent market transactions.
We developed an understanding of the Group’s
ERSMP process, including the:
•
•
•
stakeholders involved
sources of inputs used
process for determining surplus assets and the
subsequent review and approval of those assets.
This involved discussions with management of the
Group in the divisions of fleet planning, engineering
and maintenance, service design, procurement and
supply chain.
99
FINANCIAL REPORT Key audit matter
•
•
•
estimating future haulage demand for the next
10 years;
determining on-going productivity
improvements and the resulting impact on the
rollingstock fleet requirements; and
considering the required level of contingent fleet
to maintain operational performance.
Given these judgements, the assessment of the
recoverability of the carrying value of rollingstock is
considered to be a key audit matter.
Refer to Note 4 Impairment of non-financial assets in
the consolidated annual financial report for further
details.
How our audit addressed the key audit
matter
To assess the recoverability of rollingstock, we
performed a number of procedures including the
following:
•
•
•
•
Comparing the forecast volume growth used in
the ERSMP to external industry reports.
Comparing the forecast haulage demand and
rollingstock requirements included in the
ERSMP to the board approved corporate plan.
Evaluating the level of contingent fleet and
previously impaired rollingstock retained in
service included in the ERSMP.
Comparing the key assumptions used in the
CGU impairment assessments regarding the
fleet requirements including the highest and
best use of rollingstock to the assumptions in
the ERSMP.
Other information
The directors are responsible for the other information. The other information comprises the FY2017 in
Review, Chairman’s Report, Director’s Report, Corporate Governance Statement, Non-IFRS
information, Shareholder Information, Glossary and Corporate Information included in the Group’s
annual report for the year ended 30 June 2017 but does not include the financial report and our auditor’s
report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with
the financial report or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of the directors 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 gives a true and fair view and is free from material misstatement, whether due to fraud or
error.
In preparing the financial report, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
100
AURIZON ANNUAL REPORT 2016–17 going concern basis of accounting unless the directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial report
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our
auditor's report.
Report on the remuneration report
Our opinion 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 2017.
In our opinion, the remuneration report of Aurizon Holdings Limited for the year ended 30 June 2017
complies with section 300A of the Corporations Act 2001.
Responsibilities
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.
PricewaterhouseCoopers
PricewaterhouseCoopers
Nadia Carlin
Partner
Brisbane
14 August 2017
Simon Neill
Partner
101
FINANCIAL REPORT Non-IFRS Financial Information
in 2016-17 Annual Report
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 12-month underlying EBIT
divided by the average invested capital. The average invested capital is
calculated by taking the rolling 12-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.
(Loss)/profit before income tax
Finance costs (net)
EBIT – Statutory
Notes
2017
$m
(269.5)
178.5
2016
$m
192.9
150.5
(91.0)
343.4
Significant adjustments:
1(c)
- Intermodal impairment
- Bulk impairment
- Contract exit asset impairment
- Freight Management Transformation
(FMT) impairment
- Transformation – asset impairment
- Transformation – redundancy costs
- Impairment of investment
in associates
- Strategic infrastructure project
and assets under construction
impairment
- Rollingstock impairment
EBIT – Underlying
Depreciation and amortisation
EBITDA – Underlying
Operating Ratio
Average invested capital
ROIC
Borrowings – Current
Borrowings – Non-current
Total borrowings
Cash and cash equivalents
162.2
525.9
10.2
64.0
48.9
115.8
-
-
-
836.0
584.6
-
-
-
-
-
-
225.9
124.7
177.0
871.0
561.3
1,420.6
1,432.3
75.8%
74.8%
9,650
10,086
8.7%
8.6%
79.0
6.0
3,297.2
3,484.1
3,376.2
3,490.1
(88.7)
(69.2)
3,287.5 3,420.9
39.6%
37.5%
These above-mentioned measures are commonly used by management,
investors and financial analysts to evaluate company performance.
Net debt
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.
Net gearing ratio
102 AURIZON ANNUAL REPORT 2016–17
Shareholder Information
RANGE OF FULLY PAID ORDINARY SHARES AS AT 7 AUGUST 2017
RANGE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Total
UNMARKETABLE PARCELS
TOTAL HOLDERS
UNITS % OF ISSUED CAPITAL
19,514
24,182
2,953
2,044
111
48,804
12,399,579
53,269,848
21,374,459
40,775,228
1,923,926,371
2,051,745,485
0.60
2.60
1.04
1.99
93.77
100.00
UNITS
18,261
Minimum $500.00 parcel at $5.18 per unit
MINIMUM PARCEL SIZE
97
HOLDERS
623
The number of shareholders holding less than the marketable parcel of shares is 623 (shares: 18,261).
SUBSTANTIAL HOLDERS OF 5% OR MORE OF FULLY PAID ORDINARY SHARES AS AT 7 AUGUST 2017*
NOTICE DATE
18 May 2016
21 June 2017
15 July 2015
18 May 2017
28 May 2017
SHARES
151,013,818
149,582,908
112,207,436
106,022,934
105,643,028
NAME
HSBC Holdings
JP Morgan Chase & Co. and its affiliates
TCI Fund Management Limited
UBS Group AG and its related bodies corporate
Blackrock Group
* As disclosed in substantial shareholder notices received by the Company.
INVESTOR CALENDAR
2017 DATES
12 February 2018
26 March 2018
13 August 2018
DETAILS
Half Year results and interim dividend announcement
Interim dividend payment date
Full Year results and final dividend announcement
24 September 2018
Final dividend payment date
18 October 2018
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
Investor Relations
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
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.
FINANCIAL REPORT 103
TOP 20 HOLDERS OF FULLY PAID ORDINARY SHARES AS AT 7 AUGUST 2017
NAME
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
BNP PARIBAS NOMINEES PTY LTD
NATIONAL NOMINEES LIMITED
QUEENSLAND TREASURY HOLDINGS PTY LTD
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMS PTY LTD
BNP PARIBAS NOMINEES PTY LTD
WARBONT NOMINEES PTY LTD
BRISPOT NOMINEES PTY LTD
ECAPITAL NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
CITICORP NOMINEES PTY LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD
BUTTONWOOD NOMINEES PTY LTD
AMP LIFE LIMITED
SHARE DIRECT NOMINEES PTY LTD <10026 A/C>
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (Total)
Total Remaining Holders Balance
UNITS
% OF UNITS
726,623,297
378,556,519
315,506,025
122,494,955
93,341,462
54,926,186
50,745,022
25,252,736
18,372,100
16,641,661
15,404,220
14,115,751
11,076,497
5,977,264
5,554,463
5,400,093
5,386,011
5,200,000
4,780,827
3,500,000
1,878,855,089
172,890,396
35.41
18.45
15.38
5.97
4.55
2.68
2.47
1.23
0.90
0.81
0.75
0.69
0.54
0.29
0.27
0.26
0.26
0.25
0.23
0.17
91.57
8.43
104 AURIZON ANNUAL REPORT 2016–17
Glossary
Some terms and abbreviations
used in this document, together
with industry specific terms, have
defined meanings.
These terms and abbreviations are
set out in this glossary and are used
throughout this document.
A reference to dollars, $ or cents
in this document is a reference
to Australian currency unless
otherwise stated. Any reference
to a statute, ordinance, code or
other law includes regulations and
any other instruments under it
and consolidations, amendments,
re-enactments or replacements
of any of them. Any reference to
Annual Report is a reference to
this document.
ABN
Australian Business Number
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
Constitution
The constitution of Aurizon Holdings Limited
Corporations Act
Corporations Act 2001 (Cth)
CPS
Cents Per Share
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
GLOSSARY
105
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
GAPE
Goonyella to Abbot Point Expansion
GAAP
Generally Accepted Accounting Principles
IBNR
Incurred But Not Reported
IFRS
International Financial Reporting Standards
km
Kilometre
LTIA
Long Term Incentive Awards
LTIFR
Lost Time Injury Frequency Rate, being a
measure of the number of lost time injuries per
million hours worked over a 12-month period
M
Million
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
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
106 AURIZON ANNUAL REPORT 2016–17
Corporate Information
Aurizon Holdings Limited
ABN 14 146 335 622
Directors
Tim Poole
Andrew Harding
Russell Caplan
John Cooper
Karen Field
Michael Fraser
Samantha Lewis
Kate 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
Tel: 1800 776 476
(or +61 3 9938 4376)
CORPORATE INFORMATION
107
108 AURIZON ANNUAL REPORT 2016–17
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ecoStar is an environmentally responsible paper made Carbon Neutral. The greenhouse gas emissions of the
manufacturing process including transportation of the finished product to BJ Ball Papers Warehouses has been
measured by the Edinburgh Centre for Carbon Neutral Company and the fibre source has been independently
certified by the Forest Stewardship Council (FSC). ecoStar is manufactured from 100% Post Consumer Recycled
paper in a Process Chlorine Free environment under the ISO 14001 environmental management system.
109
FINANCIAL REPORT
Aurizon Holdings Limited
ABN 14 146 335 622
110
FINANCIAL REPORT