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Contents
FY2018 in Review ................................................... 1
Chairman’s Report ................................................2
Managing Director & CEO’s Report ..............3
Directors’ Report ...................................................4
– Operating and Financial Review ...............10
– Remuneration Report ....................................25
Auditors’ Independence Declaration ........ 39
Corporate Governance Statement .............40
Financial Report ..................................................46
Shareholder Information ...............................107
Glossary ................................................................ 109
Corporate Information ..................................... 111
Purpose
Growing regional Australia by delivering bulk
commodities to the world.
Vision
The first choice for bulk commodity transport
solutions.
Values
Safety: We have a relentless focus
towards ZEROHarm.
People: We seek diverse perspectives.
Integrity: We have the courage to do
the right thing.
Customer: We strive to be the first choice
for customers.
Excellence: We set and achieve ambitious goals.
FINANCIAL REPORT FY2018 in Review
Result Highlights (Underlying continuing operations)
($M)
Total revenue
EBITDA
EBIT
Adjustments – Cliffs contract exit
– Impairments
– Redundancy costs
EBIT – statutory
NPAT
NPAT – statutory
Free cash flow (FCF)
Final dividend (cps)
Total dividend (cps)
Earnings per share (cps)
Return on invested capital (ROIC)
EBITDA margin (%)
Operating ratio (OR) (%)
Above Rail Tonnes (m)
Above Rail opex/NTK (excluding access) ($/’000 NTK)
Gearing (net debt/net debt + equity) (%)
FY2018
3,112.7
1,466.1
940.6
34.5
(31.7)
22.9
966.3
542.1
560.1
669.4
13.1
27.1
26.9
10.9%
47.1%
69.8%
267.1
18.5
42.3%
FY2017
VARIANCE %
3,142.5
1,451.5
884.2
–
(649.0)
(110.8)
124.4
494.7
(37.2)
703.7
8.9
22.5
24.1
9.3%
46.2%
71.9%
256.5
19.2
39.6%
(1%)
1%
6%
–
nm
nm
677%
10%
nm
(5%)
47%
20%
12%
1.6ppt
0.9ppt
2.1ppt
4%
4%
(2.7ppt)
Highlights
› EBIT up 6% to $940.6m
• Coal up $8.6m (2%) with 7% higher
volumes and transformation benefits
partly offset by higher operating costs
due to price escalation and costs
associated with installing capacity
to deliver additional volumes
• Bulk up $64.5m due to transformation
benefits and lower depreciation from
prior year impairments, partly offset by
lower volumes
• Network flat at $480.6m with operating
cost savings offset by non-recurrence of
UT4 true-ups in prior year
› FCF decreased $34.3m with a 3% increase in
net cash from operations more than offset by
lower proceeds from asset sales
› $300m buy-back completed in 2HFY2018,
distributing surplus capital to investors
› Final dividend of 13.1cps, 60% franked (100%
payout of underlying NPAT for continuing
operations), an increase of 47% against
prior year
Major items
› Achievement of three-year transformation
target of $380m with $133.6m in benefits
delivered during FY2018, including the
removal of Intermodal’s FY2017 losses, which
principally relate to Intermodal Interstate
› Interstate Intermodal closed during the
year. Australian Competition and Consumer
Commission (ACCC) has blocked the sale
transactions for the Queensland Intermodal
business and Acacia Ridge Terminal and
has commenced proceedings in the Federal
Court. Aurizon will defend these proceedings
and seek clearance of the sale of the Acacia
Ridge Terminal
› UT5 draft response strategy in execution
across multiple pathways being regulatory,
commercial and legal activity
› Enterprise strategy re-set in June to
provide framework for continued delivery
of Enterprise strategic outcomes
Outlook
› Underlying EBIT guidance for above rail
business $390m–$430m.
Key assumptions as follows:
• Coal – flat outlook with higher volumes
(215-225mt) offset by increased
maintenance and operating costs
• Bulk – cessation of Cliffs and Mt Gibson
contracts ~$50m impact in FY2019
• Continued delivery of transformation
in the remaining core business
• No major weather impacts
• Excludes redundancy costs
› Providing EBIT guidance for Network
is challenging due to the uncertain
UT5 outcome with a $130m range.
Transitional tariffs currently in place
until 31 December 2018
FY2018 IN REVIEW
1
Chairman’s Report
A message from the Chairman
Dear fellow shareholders
Against the backdrop of regulatory uncertainty,
I am pleased to report Aurizon’s solid financial
performance for the 2018 financial year.
Underlying Earnings Before Interest and Tax
(EBIT) were $941 million, which was an increase
of 6% from FY2017, and within the guidance
communicated to shareholders in August 2017.
The growth in Underlying EBIT stems from
transformation initiatives and improved
earnings in the Coal and Bulk businesses.
The Board commends our team for exceeding
the $380 million three-year transformation
target, with $134 million of benefits delivered
this financial year. The Board supports
management’s commitment to the ongoing
delivery of transformation benefits through
building a culture of continuous improvement.
Returning capital to shareholders remains
a priority for the Board. Since March 2017,
we have distributed more than $1 billion to
shareholders through dividend payments
and share buybacks. This year, the Board
declared a final dividend of 13.1 cents per
share 60% franked, giving a full-year dividend
of 27.1 cents per share. The total dividend
has increased by 20% when compared
with the prior year. The final dividend is
paying out 100% of the Company’s underlying
continuing NPAT, and will be paid to
shareholders on 24 September 2018.
As I reflect on my message from last year’s
Annual Report, I had identified four key priorities
for Aurizon for the 2018 financial year. The first
was to receive an acceptable draft decision from
the Queensland Competition Authority in relation
to the access undertaking of our regulated
Network business. The second was to focus on
resolving the future of our Intermodal business
and the final two priorities were to improve the
performance of our Bulk business and to achieve
our transformation targets.
While we have delivered on priorities three and
four, regulatory decisions have continued to be
significant challenges for Aurizon and a source
of uncertainty for customers, shareholders and
those employees in Network and Intermodal.
As we enter FY2019, we remain committed to
pursuing commercially sustainable outcomes
for both the Network access undertaking and
the exit of the Queensland Intermodal business.
At the time of writing, these issues were
subject to regulatory and legal review but
nonetheless remain key priorities for the
Board and our senior team. With respect to
the Central Queensland Coal Network, in the
longer term, we will continue to advocate
for a regulatory framework that is simpler,
commercially-oriented to provide certainty and
stability that will support continued investment
in and growth of, the Queensland coal sector.
In June 2018, we released Strategy in Action, a
strategic framework that focuses on Aurizon’s
core strengths in delivering transport solutions
for customers with bulk commodities. This
represents a re-setting of our strategy that has
been shaped by major initiatives undertaken
during the past year, such as implementing
outcomes from a review of our freight
operations and the Business Unit restructure.
By concentrating our efforts on what we
do well, and in growing markets where we
can leverage the capability and talents of
our employees, we know we can deliver
strong customer and shareholder outcomes.
The strategy embodies a commitment to
continuous improvement in all parts of the
Aurizon business, with the aim of being
more efficient, responsive and agile in the
markets we choose to compete in. Our
Managing Director & CEO Andrew Harding
and his leadership team are now driving the
implementation of Strategy in Action, engaging
with employees across the organisation.
Integral to this is creating a values-driven
safety and performance culture, where the
safety of our people and our operations
remains the highest priority. The Board will take
a close and active interest in a new program of
work that is being implemented to renew the
Company‘s focus on safety.
In re-setting Company strategy, extensive
analysis was undertaken on bulk commodity
markets to understand future demand
scenarios. For example, we track construction
activity for thermal coal-fired power generation
in Asia and steel capacity growth. These are
long-life assets with strong demand profiles
for high quality Australian coal.
More than 95% of Australian thermal coal
exports are delivered to Asia. In key South East
Asian nations, there is 17 gigawatts of coal-
fired capacity considered under construction,
in 22 locations. India is expected to be the
single largest driver of seaborne demand for
metallurgical coal over coming decades, and
with Australia supplying around 90% of its
imports this is positive for our customers and
for the supply chain.
The Bulk business serves customers with
industrial, mining, agricultural and fertiliser
products that are in high demand. This includes
commodities that are fuelled by growth in
the demand for batteries, electric vehicles,
computers, telecommunications and improving
living standards overseas.
At Board level we are committed to providing
oversight and strategic direction to the
Company’s social, environmental and economic
risks and to ensuring appropriate disclosure of
these risks through our annual Sustainability
Report. In June 2018, the Australian Council of
Superannuation Investors recognised Aurizon
as one of 35 companies in the ASX200 that
has consistently outperformed in sustainability
disclosure over the past four years.
To support the best outcomes for the
Company, our Board members have diverse
skills and experience, with each member
making significant contributions during a
challenging year. In November last year,
Marcelo Bastos joined Aurizon’s Board as
an Independent Non-Executive Director.
Marcelo has more than 30 years’ experience
in the global mining industry and an excellent
understanding of our business, our customers
and our future opportunities.
On behalf of the Board, I would like to thank
our dedicated group of employees for their
hard work and for constantly looking at better
and more innovative ways to do their jobs
and to deliver for customers. The Board also
acknowledges the efforts and contribution of
our senior team under Andrew’s leadership,
during a year of major change and regulatory
challenge. The momentum achieved in
continuously improving business outcomes is
reflected in the solid FY2018 financial results.
Finally, thank you to our customers and
shareholders for your ongoing support as we
re-shape our Company and our strategy to
deliver better outcomes for all our stakeholders.
Tim Poole
Chairman
12 August 2018
2
AURIZON ANNUAL REPORT 2017–18
Managing Director & CEO’s Report
A message from the
Managing Director & CEO
Dear fellow shareholders
Navigating Aurizon to reach its full potential for
customers and for shareholders is an exciting
prospect for me. These are the words I shared in
the Annual Report last year and, despite some
challenges, I remain just as enthusiastic about
the opportunities for us to deliver improved
value for shareholders, customers and within the
communities in which we operate.
To lead the Company to the next phase of
performance improvement and growth, there
were significant changes to make. We need
to work smarter and be more responsive to
customers in highly-competitive markets.
Changing the operating model was one change
that I moved quickly on. Under the previous
structure, accountability for the commercial
outcomes of the business was not clearly
defined. A new organisational structure was
implemented in July 2017, designed along the
core customer-facing businesses – Bulk, Coal
and Network – with streamlined central support
and planning functions. Concurrently, the
leadership teams were renewed to ensure we
had the management experience and capability
to deliver performance improvements.
I am pleased we are starting to see some
good results.
The Coal business has secured 10% growth in
contracted haulage volumes since 2017, with
a number of major wins with customers in
Queensland and New South Wales.
The Bulk business is well on track with its
turnaround plan, returning to profitability
in FY2018 through a disciplined program
to lift efficiency, reduce costs and prioritise
customer service.
While the turnaround plan is expected to
take a number of years to fully implement,
the improvements to date demonstrate our
underlying capability in bulk commodity markets.
Another outcome from a review of our
freight operations was the decision to exit our
under-performing Intermodal business through
a combination of closure and sale. In December
2017, we ran the final services of our interstate
(outside of Queensland) operations before
business closure. This had a major benefit by
negating the losses we had been incurring in
this part of our business.
We also announced in August 2017 the sale
of the Queensland Intermodal business to
a consortium of Linfox and Pacific National,
and the sale of the Acacia Ridge Terminal to
Pacific National, subject to regulatory approval.
In July 2018, the Australian Competition and
Consumer Commission (ACCC) decided to
oppose both transactions and commenced
proceedings against Pacific National and
Aurizon in the Federal Court of Australia.
We refute the allegations in the ACCC decision,
and while the matter is currently before
the courts, we acknowledge this provides
uncertainty for our employees, customers and
shareholders. We remain committed to the exit
of Intermodal to ensure greater focus on our
core strengths in bulk commodities.
In the Network business, we are also faced
with regulatory challenges as we seek a better
outcome with the UT5 Access Undertaking
from the Queensland Competition Authority.
Without this, we will be constrained in investing
in the Central Queensland Coal Network
and delivering the level of performance our
customers expect on one of Australia’s most
important supply chains.
Again, it is important we stay the course in
achieving a better outcome with UT5, and in
pressing for long-term regulatory reform.
With the business operating model now
established, we are focused on delivering on
our Strategy in Action, which was launched
in June 2018. Much of the work that has been
done over the past year laid the foundation
for the strategy, which articulates our role in
growing regional Australia by delivering bulk
commodities to the world.
As part of this strategy we are committed
to locating more employees closer to our
operations and the customers we serve.
Building on the 75% of our workforce already
living and working in regional Australia, during
the year our Coal and Bulk Group Executives
relocated to Mackay and Perth respectively
to ensure key decision makers have stronger
day-to-day connection with their businesses.
Over the coming years, we will move more
metropolitan-based roles to regional areas to
support our business in regional Australia.
While markets we operate in offer attractive
growth opportunities, we are conscious of the
changing landscape in the rail haulage industry
with existing and emerging competitors vying
for business, haulage contracts regularly
changing hands and margins constantly under
pressure. Our future success depends on us
being smarter, more efficient and agile. This
includes investment in technology to increase
safety, reliability and productivity and to
reduce our costs.
In the three years to June 2018, we delivered
more than $380 million of transformation
benefits through reduced costs and improved
productivity. We are now focused on achieving
further transformation benefits by seeking
opportunities to continuously improve
business outcomes.
While our business strategy has been refined,
safety remains our core value and we remain
committed to achieving ZEROHarm. We have
been operating under revised injury metrics for
one year now and changing injury definitions
was the first step in a broader program of work
in safety. This coming financial year, we will be
introducing a new program of work to enhance
our safety systems and procedures and
improve our safety leadership and culture.
While the year has not been without significant
challenges, the changes we have made within
the business have been important to support
delivery of our strategy. We have a great team
of people with diverse skills and expertise, and
I continue to be energised and focused on the
exciting opportunities ahead.
Andrew Harding
Managing Director & CEO
12 August 2018
MANAGING DIRECTOR & CEO’S REPORT
3
Directors’ Report
Aurizon Holdings Limited
For the year ended 30 June 2018
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 2018 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
was a global investor in unlisted assets,
predominantly equity and debt issued by
infrastructure companies
Qualifications: BCom.
Special Responsibilities: Chairman of
Nomination & Succession Committee.
Member of Audit, Governance & Risk
Management 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)
M Bastos
(Appointed 15 November 2017)
(Independent Non-Executive Director)
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)
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 2017–18 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 & Human Resources 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).
A Harding
Experience: 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: Managing Director &
CEO of Aurizon, Director of Aurizon subsidiary
companies including 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.
M Bastos
Experience: Mr Bastos has more than 30 years’
of experience globally in the mining industry.
He has extensive experience in major project
development, operations, logistics and senior
leadership in most of the major sectors of the
mining industry including iron ore, gold, copper,
nickel, zinc and coal.
Previously Marcelo was the Chief Operating
Officer of MMG Limited with responsibility for
the business in four continents and a member
of many of the company Boards. Before MMG
he spent seven years with BHP Billiton where he
served as President Nickel Americas, President
Nickel West (based in Perth), and Chief
Executive Officer and President of BHP Billiton
Mitsubishi Alliance (based in Brisbane).
Marcelo also had a 19-year career with Vale in
a range of senior management and operational
positions in Brazil, including General Manager
of Iron Ore and also Director of Non Ferrous –
Copper business.
Marcelo is currently a Non-Executive Director
of Iluka Resources Limited and an External
Director (Non-Executive Independent) of
Golder Associates.
Qualifications: B.Eng. Mechanical (Hons),
MBA (FDC-MG), MAICD
Special Responsibilities: Non-Executive
Director of Aurizon Network Pty Ltd.
Member of Safety, Health & Environment
Committee.
Australian Listed Company Directorships
held in the past three years: Iluka Resources
Limited – Non-Executive Director (February
2014 – current)
DIRECTORS’ REPORT
5
Directors’ Report (continued)
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. Holdings
Limited. 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.
Member of Remuneration & Human Resources
Committee. Member of Nomination &
Succession Committee.
Australian Listed Company Directorships held
in the past three years: Orora – Non-Executive
Director (1 March 2014 – ongoing), Nine
Entertainment Co. Holdings Limited
(20 March 2017 – ongoing).
J Cooper
Experience: Mr Cooper has over 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, FIML.
Special Responsibilities: Non-Executive
Director of Aurizon Network Pty Ltd. Member
of Remuneration & Human Resources
Committee. 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) and Windlab Limited –
Non-Executive Director (28 July 2017 –
ongoing).
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 a Non-Executive Director of
Sipa Resources and has held Non-Executive
Directorships with the Water Corporation
(Deputy Chairman), Centre of Sustainable
Resource Processing, Electricity Networks
Corporation (Western Power), MACA Limited
and Perilya Limited. In addition, Mrs Field is
a Director of a number of community-based
organisations including the University of
Western Australia’s Centenary Trust for Women
and Perth College Anglican School for Girls
(Chair of Foundation).
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 Chairman and 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 &
Human Resources Committee.
Australian Listed Company Directorships
held in the past three years:
APA Group – Chairman and Non-Executive
Director (1 September 2015 – ongoing).
6
AURIZON ANNUAL REPORT 2017–18 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 Oil
and Gas. 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 & Human Resources
Committee.
Australian Listed Company Directorships held
in the past three years: Nil.
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.
Review of operations
A review of the Group’s operations for
the financial year and the results of those
operations, are contained in the Operating and
Financial Review as set out on pages 10 to 24
of this report.
Dividends
A final dividend of 8.9 cents per fully paid
ordinary share (50% franked) was paid on
25 September 2017 and an interim dividend
of 14.0 cents per fully paid ordinary share
(50% franked) was paid on 26 March 2018.
Further details of dividends provided for or
paid are set out in note 15 to the consolidated
financial statements.
Since the end of the financial year, the
Directors have declared to pay a final dividend
of 13.1 cents per fully paid ordinary share.
The dividend will be 60% franked and is
payable on 24 September 2018.
State of affairs
In the opinion of the Directors, other than
the intention to exit its Intermodal business
announced during the year and as set out in
note 24 of the Financial Report, 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 34 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 objectives of the Paris Agreement,
to find a pathway to limiting global warming to
below two degrees Celsius. Notably, since 2017,
the Company has adopted the Financial Stability
Board’s (FSB) Final Report: Recommendations
of the Task Force on Climate-Related Financial
Disclosures (TCFD).
As part of Aurizon’s climate change strategy
the Company has set and is tracking progress
toward its 2020 greenhouse gas (GHG)
emissions intensity target, it analyses climate
change policy implications for Australia’s
thermal coal and has processes for preparing
and adapting to severe weather events. In
relation to the company’s GHG emissions
intensity target, FY2018 performance
demonstrated an overall reduction in emissions
intensity, with a 7% reduction achieved against
our 2015 baseline. The Company is continuing
to focus on improving the emissions intensity
performance of its locomotive fleet.
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.
At the close of the first Emissions Reduction
Fund Safeguard Mechanism (Safeguard)
compliance period (ending June 30, 2017),
three of Aurizon’s NGER facilities were
captured. Through effective management
of the Company’s emissions, it achieved full
compliance with the Safeguard and as such, was
not required to purchase or generate Australian
Carbon Credit Units for the reporting period.
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.
DIRECTORS’ REPORT
7
Directors’ Report (continued)
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 44 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.
TABLE 1 – DIRECTORS’ MEETINGS AS AT 30 JUNE 2018
DIRECTOR
AURIZON HOLDINGS
BOARD
AUDIT, GOVERNANCE
& RISK MANAGEMENT
COMMITTEE
REMUNERATION &
HUMAN RESOURCES
COMMITTEE
SAFETY, HEALTH
& ENVIRONMENT
COMMITTEE
NOMINATION
& SUCCESSION
COMMITTEE
T Poole1
A Harding
M Bastos2
R Caplan
J Cooper3
K Field
M Fraser
S Lewis
K Vidgen
A
18
18
9
18
18
18
18
18
18
B
18
18
9
18
16
18
18
18
18
A
6
–
–
9
–
9
–
9
–
B
6
–
–
9
–
9
–
9
–
A
4
–
–
10
6
–
–
6
10
B
4
–
–
10
3
–
–
6
10
A
5
5
3
–
5
5
–
–
–
B
5
5
3
–
5
5
–
–
–
A
1
–
–
–
1
1
–
0
–
B
1
–
–
–
1
1
–
0
–
A Number of meetings held while appointed as a Director or Member of a Committee.
B Number of meetings attended by the Director while appointed as a Director or Member of a Committee.
1 In addition to the meetings above, a Committee of the Board comprising of T Poole and A Harding met respectively on two occasions.
2 M Bastos was appointed a Non-Executive Director on 15 November 2017 and attended all meetings as a Non-Executive Director.
3 J Cooper was granted a Leave of Absence for two Aurizon Holdings Board meetings and was granted a Leave of Absence for two Remuneration & Human Resources
Meeting and was an apology for one Remuneration & Human Resources Committee Meeting since being appointed to the Committee on 24 November 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 11 occasions.
Directors’ interests
Directors’ interests are as at 30 June 2018.
TABLE 2 – DIRECTORS’ INTERESTS AS AT 30 JUNE 2018
DIRECTOR
T Poole
A Harding
M Bastos
R Caplan
J Cooper
K Field
M Fraser
S Lewis
K Vidgen
NUMBER OF ORDINARY
SHARES
90,500
10,000
11,400
82,132
95,000
40,458
40,000
33,025
40,000
Only Mr Harding, Managing Director & CEO receives performance rights, details set out in the Remuneration Report
8
AURIZON ANNUAL REPORT 2017–18 Remuneration Report
The Remuneration Report is set out on pages 25
to 38 and forms part of the Directors’ Report for
the financial year ended 30 June 2018.
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 39. The
Directors’ Report is made in accordance with a
resolution of the Directors of the Company.
Tim Poole
Chairman
12 August 2018
Non-audit services
During the year the Company’s auditor
PricewaterhouseCoopers (PwC), performed
other services in addition to its audit
responsibilities.
The Directors are satisfied that the provision of
non-audit services by PwC during the reporting
period did not compromise the auditor
independence requirements set out in the
Corporations Act.
All non-audit services were subject to the
Company’s Non-Audit Services Policy and do
not undermine the general principles relating
to auditor independence set out in APES 110
Code of Ethics for Professional Accountants as
they did not involve reviewing or auditing the
auditor’s own work, acting in a management or
decision-making capacity for the Company, or
jointly sharing risks and rewards.
No officer of the Company was a former
Partner or Director of PwC and a copy of the
auditor’s independence declaration as required
under the Corporations Act 2001 is set out in,
and forms part of, this Directors’ Report.
Details of the amounts paid to the auditor of
the Company and its related practices for non-
audit services provided throughout the year
are as set out below:
OTHER ASSURANCE SERVICES
Total remuneration for
other assurance services
OTHER SERVICES
Total remuneration
for other services
2018
$’000
122
282
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.
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
civil litigation proceedings, arbitration
proceedings, administration appeals, or
criminal or governmental prosecutions of a
material nature which are not set out in this
report or note 24 of the Financial Report 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 (Underlying continuing operations unless stated)
The Group’s financial performance is explained using measures that are not defined under IFRS and are therefore termed non-IFRS measured. 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 105. Unless otherwise noted, the Operating and Financial
Review information excludes discontinued operations being Intermodal.
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)/benefit
NPAT
Loss after tax from discontinued operations
NPAT (group)
Earnings per share1
Earnings per share1 (group)
- statutory
- statutory
- statutory
- statutory
- statutory
- statutory
- statutory
- statutory
Return on invested capital (ROIC)2
Return on invested capital (ROIC)2 (group)
Operating ratio
Net cashflow from operating activities
Final dividend per share (cps)
Gearing (net debt/net debt + equity) (%) (group)
Net tangible assets per share ($) (group)
People (FTE)
OPERATING METRICS
Above Rail3 Revenue/NTK ($/’000 NTK)
Labour costs4/Revenue
NTK/FTE (MNTK)
Above Rail opex/NTK (excluding access) ($/’000 NTK)
Above Rail NTK (bn)
Above Rail Tonnes (m)
FY2018
3,112.7
FY2017
3,142.5
(774.6)
(252.4)
(191.4)
(348.4)
(79.8)
1,466.1
1,491.8
(525.5)
940.6
966.3
(165.0)
(233.5)
(241.2)
542.1
560.1
(77.1)
483.0
26.9
27.8
25.7
24.0
10.9%
10.4%
69.8%
1,307.7
13.1
42.3%
2.3
4,835
FY2018
38.1
24.4%
13.2
18.5
63.8
267.1
(781.8)
(236.5)
(204.2)
(392.9)
(75.6)
1,451.5
691.7
(567.3)
884.2
124.4
(178.6)
(210.9)
17.0
494.7
(37.2)
(150.7)
(187.9)
24.1
(1.8)
22.5
(9.2)
9.3%
8.7%
71.9%
1,273.2
8.9
39.6%
2.4
5,024
FY2017
38.7
24.7%
12.5
19.2
63.0
256.5
VARIANCE %
(1%)
1%
(7%)
6%
11%
(6%)
1%
116%
7%
6%
677%
8%
(11%)
nm
10%
nm
49%
nm
12%
nm
14%
nm
1.6ppt
1.7ppt
2.1ppt
3%
47%
(2.7ppt)
(4%)
4%
VARIANCE %
(2%)
0.3ppt
6%
4%
1%
4%
1 Calculated on weighted average number of shares on issue – 2,013.4m FY2018 and 2,051.7m FY2017
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 Above Rail includes both Coal above rail revenue and Bulk freight transport revenue
4 FY2018 excludes $16.5m redundancy costs (FY2017 excludes $5.1m redundancy costs)
10
AURIZON ANNUAL REPORT 2017–18
EBIT BY SEGMENT
($M)
Coal
Bulk
Network
Other
Group (Continuing operations)
FY2018
428.6
50.1
480.6
(18.7)
940.6
FY2017
420.0
(14.4)
480.9
(2.3)
884.2
VARIANCE %
2%
nm
–
(713%)
6%
Group Performance Overview
EBIT increased $56.4m or 6% due to increased earnings in Bulk resulting from transformation benefits and lower net depreciation. Earnings in Coal
increased due to higher volumes and transformation benefits, while Network was flat due to the non-recurrence of UT4 true-ups received in FY2017.
Both Coal and Network delivered record tonnages in the year at 212.4mt (7% increase) and 229.6mt (9% increase) respectively. The deterioration in
Other EBIT was principally due to the non-recurrence of the UT4 corporate cost true-up from the prior year.
Aurizon has achieved its three-year transformation target of $380m with total Group transformation benefits of $133.6m being delivered in the year,
including the removal of Intermodal’s FY2017 losses, which principally relate to Intermodal Interstate.
Group revenue decreased $29.8m or 1% largely because of the prior period UT4 adjustments more than offsetting a 4% improvement in above rail
volumes to 267.1mt.
Operating costs decreased $44.4m or 3% with transformation benefits and lower operating costs in Network and Bulk partly offset by higher costs in
Coal relating to increased volumes and cost escalation. Depreciation has decreased $41.8m or 7% largely due to the impact of impairments in FY2017 in
Bulk.
ROIC has improved 1.6ppt to 10.9% reflecting both the improvement in EBIT and the full year impact of the impairments taken in FY2017.
Statutory EBIT improved $841.9m to $966.3m reflecting the significant items recognised during the year totalling $25.7m namely, asset impairments of
$31.7m offset by the net benefit of the Cliffs contract termination of $34.5m and the release of $22.9m of redundancy provision against total significant
items of $759.8m recognised in the prior period.
Reconciliation to Statutory Earnings
Underlying earnings is a non-statutory measure, and is the primary reporting measure used by management and the Group’s chief operating decision
making bodies for the purpose of managing and assessing the financial performance of the business. Underlying earnings is derived by adjusting
statutory earnings for significant items as noted in the following table:
($M)
Underlying EBIT (Continuing operations)
Significant items (Continuing operations)
Bulk contract exit — termination payment
Bulk contract exit — costs
Asset impairments
Freight Management Transformation project
Impairment of assets in exit of contracts
Transformation — assets
Bulk
Redundancy costs
Statutory EBIT (Continuing operations)
Net finance costs
Statutory PBT (Continuing operations)
Taxation (expense)/benefit
Statutory NPAT (Continuing operations)
Underlying EBIT (Discontinued operations)
Significant items (Discontinued operations)
Intermodal
Net finance cost (Discontinued operation)
Income Tax Benefit (Discontinued operation)
Statutory NPAT
FY2018
940.6
25.7
66.3
(31.8)
(31.7)
–
–
–
(31.7)
22.9
966.3
(165.0)
801.3
(241.2)
560.1
(24.0)
(74.7)
(74.7)
–
21.6
483.0
FY2017
884.2
(759.8)
–
–
(649.0)
(64.0)
(10.2)
(48.9)
(525.9)
(110.8)
124.4
(178.6)
(54.2)
17.0
(37.2)
(48.2)
(167.2)
(167.2)
0.1
64.6
(187.9)
OPERATING AND FINANCIAL REVIEW
11
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Reconciliation to Statutory Earnings (continued)
Significant items for the continuing operations of $25.7m were recognised in FY2018 including:
› Cliffs contract termination $34.5m — On 29 June 2018 Cliffs issued a contract termination notice to Aurizon effective 30 June 2018. An early
termination payment of $66.3m (ex GST) was payable and recognised as other income. As a consequence of the contract termination, asset
impairments of $27.9m have been recognised. In addition, a closure provision of $3.9m has been recognised which includes a redundancy provision
of $3.5m for 63 FTEs
› Asset impairment $31.7m — As a result of the Cliffs contract early termination an impairment review of the Western Australia CGU was
undertaken and a write down of $31.7m has been recognised in FY2018. Following the impairment, the residual carrying value of the Western
Australia CGU is $170.7m
› Redundancy costs $22.9m — A provision for train crew redundancy, recorded as a significant item in FY2017, has been released in FY2018 with the
planned transition to a flexible workforce not being implemented at this time due to operational requirements and stronger coal demand
2. Other financial information
BALANCE SHEET SUMMARY
($M)
Assets classified as held for sale
Other current assets
Total current assets
Property, plant & equipment (PP&E)
Other non-current assets
Total non-current assets
Total Assets
Liabilities classified as held for sale
Other current liabilities
Total borrowings
Other non-current liabilities
Total Liabilities
Net Assets
Gearing (net debt/net debt + equity) (%)
Balance sheet movements
Total current assets increased by $68.4m largely due to:
30 JUNE 2018
30 JUNE 2017
108.0
689.8
797.8
8,659.9
315.7
8,975.6
9,773.4
(12.7)
(727.2)
(3,501.9)
(801.5)
(5,043.3)
4,730.1
42.3%
7.3
722.1
729.4
8,835.0
281.5
9,116.5
9,845.9
–
(665.2)
(3,376.2)
(782.4)
(4,823.8)
5,022.1
39.6%
› Net increase in assets held for sale of $100.7m due to the assets relating to the sale and closure of the Intermodal business being included as assets
held for sale
› An increase in trade and other receivables of $34.1m due to the recognition of the Cliffs contract termination payment ($66.3m), partly offset by
reduction in other receivables
These increases in current assets were partly offset by:
› Reduction in cash and cash equivalents at 30 June 2018 compared to the prior period
› Reduction in current tax receivable to a current tax payable position at 30 June 2018
Total non-current assets decreased by $140.9m largely due to a net decrease in PP&E of $175.1m, including the reclassification of PP&E to assets
held for sale, depreciation and impairments, partly offset by capital expenditure and a $37.2m increase in derivative financial instruments
(favourable valuation).
Other current liabilities, excluding borrowings, increased by $62.0m due to the recognition of a current tax liability position at balance date
and the $45.0m ($35.0m non-refundable) deposit received in relation to the sale transactions for the Queensland Intermodal business and
Acacia Ridge terminal.
Total borrowings increased by $125.7m due to the revaluation of medium term notes and net proceeds from borrowings facilities during the year.
Other non-current liabilities have increased by $19.1m due to lower derivative financial instruments (favourable valuations) and other liabilities,
offset by recognition of lease incentives that are deferred and will be recognised over the lease term.
Gearing (net debt/net debt plus equity) was 42.3% as at 30 June 2018.
12
AURIZON ANNUAL REPORT 2017–18 CASH FLOW SUMMARY
($M)
Statutory EBITDA (Continuing operations)
Working capital and other movements
Non-cash adjustments – asset impairments5
Cash flows from Continuing operations
Interest received
Income taxes paid
Net cash inflow from operating activities from Continuing operations
Net operating cashflows from Discontinued operations
Net operating cash flows
Cash flows from investing activities
Proceeds from sale of property, plant and equipment (PP&E) and associate
Payments for PP&E and intangibles
Net cash (outflow) from investing activities from Continuing operations
Net investing cashflows from Discontinued operations
Net investing cashflows
Cash flows from financing activities
Net proceeds/(repayments) from borrowings
Payment for share buy-back and share based payments
Interest paid
Dividends paid to Company shareholders
Net cash (outflow) from financing activities from Continuing operations
Net financing cashflows from Discontinued operations
Net financing cashflows
Net increase/(decrease) in cash from Continuing operations
Net increase/(decrease) in cash from Discontinued operations
Free Cash Flow (FCF)6 from Continuing operations
Free Cash Flow (FCF)6 from Discontinued operations
FY2018
1,491.8
(146.9)
70.0
1,414.9
2.9
(110.1)
1,307.7
(25.1)
1,282.6
19.0
(501.5)
(482.5)
54.6
(427.9)
12.2
(302.9)
(155.8)
(462.1)
(908.6)
–
(908.6)
(83.4)
29.5
669.4
29.5
FY2017
691.7
75.2
678.3
1,445.2
2.8
(174.8)
1,273.2
(34.8)
1,238.4
111.4
(507.9)
(396.5)
(34.7)
(431.2)
(55.3)
(7.5)
(173.0)
(551.9)
(787.7)
–
(787.7)
89.0
(69.5)
703.7
(69.5)
Cash flow movements
Net cash inflow from operating activities for continuing operations increased by $34.5m (3%) to $1,307.7m largely due to a $64.7m reduction in income
taxes paid as FY2017 included a significant final tax payment relating to the tax liability for FY2016. This is partly offset by a net increase in working
capital due to lower trade and other payables and an increase in trade and other receivables with the recognition of the Cliffs termination payment
($66.3m) at 30 June 2018.
Net cash outflow from investing activities for continuing operations increased by $86.0m (22%) largely due to $98.3m proceeds from the sale of the
Moorebank investment in the prior year.
Net cash flow from investing activities for discontinued operations increased by $89.3m due to FY2018 including the deposit received for the sale
transactions for the Queensland Intermodal business and Acacia Ridge terminal and proceeds from the sale of plant and equipment as part of the
closure of Intermodal Interstate.
Net cash outflow from financing activities for continuing operations increased by $120.9m (15%) to $908.6m due to the on-market share buy-back
of $300.0m, partly offset by a reduction in dividends paid and net proceeds from borrowings in FY2018.
5 Total asset impairments of $10.4 million included in underlying EBIT in FY2018
6 FCF — Defined as net cash flow from operating activities less net cash outflow from investing activities less interest paid
OPERATING AND FINANCIAL REVIEW
13
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Funding
Aurizon has a target gearing level of ~40%.
The Group continues to be committed
to diversifying its debt investor base and
increasing average debt tenor. Network
repriced and extended an existing $525m
bank facility in November 2017, with maturity
extended to FY2023 and tranche size
decreased to $500m. In respect of FY2018:
› Weighted average debt maturity tenor
was 4.7 years. This was lower than FY2017
(5.0 years) due to the majority of the debt
portfolio’s duration reducing by 12 months
which offset the extension of the facility
noted above
› Group interest cost on drawn debt decreased
to 4.5% (FY2017 5.0%) due to the rolling off
of interest rate hedges in June 2017
› Available liquidity (undrawn facilities plus
cash) at 30 June 2018 was $0.9bn
› Group gearing (net debt/(net debt + equity))
as at 30 June 2018 was 42.3% (FY2017
39.6%)
› Network gearing (net debt/RAB (excl AFDs))
as at 30 June 2018 was 62.4% (FY2017 54.1%)
› Network gearing (net debt/RAB (incl AFDs))
as at 30 June 2018 was 57.9% (FY2017
50.2%)
› Credit rating remains unchanged for Network
and Aurizon Holdings at BBB+/Baa1
Share Buy-Back
As part of its commitment to return surplus
capital to shareholders, on 14 August 2017
Aurizon announced the intention to undertake
an on-market buy-back of $300 million. The
buy-back was completed on 1 March 2018,
with 61.6 million shares bought back and
subsequently cancelled.
Dividend
The Board has declared a final dividend for
FY2018 of 13.1cps (60% franked) based on a
payout ratio of 100% in respect of underlying
NPAT for continuing operations.
The relevant final dividend dates are:
› 27 August 2018 — ex-dividend date
› 28 August 2018 — record date
› 24 September 2018 — payment date
Tax
Income tax expense for continuing operations
for FY2018 was $241.2m and for the continuing
and discontinued operations was $219.6m. The
Group effective tax rate7 for FY2018 was 30.1%
which is greater than 30% due to permanent
differences in the fixed asset adjustments
and a decrease in expenditure eligible for the
research and development tax incentive. The
cash tax rate8 for FY2018 was 23.9%, which
is less than 30% primarily due to accelerated
fixed asset related adjustments.
The effective tax rate for FY2019 is expected
to be in the range of 30% to 32% and the 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).
Discontinued Operations
On 14 August 2017 Aurizon announced the
intention to exit the Intermodal business
through a combination of closure and sale.
Aurizon’s Interstate Intermodal business has
been closed with the last operational service
occurring on 23 December 2017.
Aurizon signed a binding agreement with Pacific
National (PN) to sell its Acacia Ridge terminal.
Aurizon signed a separate binding agreement
to sell its Queensland Intermodal business to a
consortium of Linfox and PN. The transactions
have been subject to regulatory approval.
The ACCC decision was announced on 19
July 2018. The ACCC decided to oppose both
transactions and commenced proceedings against
PN and Aurizon in the Federal Court of Australia.
The ACCC has sought declarations, pecuniary
penalties, orders restraining the existing sale
transactions from proceeding and costs. The
ACCC has also sought an injunction to prevent
Aurizon from closing its Queensland Intermodal
business while proceedings are on foot.
Aurizon refutes the ACCC’s allegations and
will defend the proceedings, including seeking
clearance of the Acacia Ridge transaction.
On 12 August 2018 Aurizon provided PN
with a notice to terminate the Business Sale
Agreement for the Queensland Intermodal
business, with effect from 13 August 2018. It
is Aurizon’s intention to not contest clearance
of the transaction through the Federal
Court and to exit the business. As clearance
has not been obtained for the sale of the
Queensland Intermodal business, $10m of the
consideration received for the transactions
to date (recognised as a liability at 30 June
2018) will be refunded to PN. The Business
Sale Agreement for the Acacia Ridge Terminal
remains in place while Aurizon seeks clearance
of that transaction, and the remainder of the
consideration received for the transactions to
date ($35m) is not refundable.
On 10 August 2018 the Federal Court of
Australia heard an application from the ACCC
for an interlocutory injunction to require
Aurizon to continue to operate the Queensland
Intermodal business in the ordinary and usual
course. The Court reserved judgement on the
matter, and judgement is currently expected to
be handed down on 13 August 2018.
For the year ended 30 June 2018 the Intermodal
business is disclosed as discontinued with
Acacia Ridge and Queensland Intermodal
assets classified as assets held for sale. Financial
information relating to discontinued operations
is set out on page 21.
BUSINESS UNIT REVIEW
COAL
Aurizon’s Coal business provides a critical link
in Australia’s major coal chain systems for the
majority of Australia’s coal producers. The
coal transport operation links mines in the
Newlands, Goonyella, Blackwater, Moura and
West Moreton systems in Queensland and the
Hunter Valley, including Ulan and Gunnedah
coal systems, in New South Wales to domestic
customers and coal export terminals.
7 Underlying effective tax rate = income tax expense excluding the impact of significant items/underlying consolidated profit before tax
8 Underlying cash tax rate = cash tax payable excluding the impact of significant items/underlying consolidated profit before tax
14
AURIZON ANNUAL REPORT 2017–18 ($M)
Revenue
Above Rail
Track Access
Other
Total revenue
Operating costs
EBITDA
Depreciation and amortisation
EBIT
METRICS
Total tonnes hauled (m)
CQCN
NSW & SEQ
Contract utilisation
Total NTK (bn)
CQCN
NSW & SEQ
Average haul length (km)
Total revenue/NTK ($/’000 NTK)
Above Rail Revenue/NTK ($/’000 NTK)
Operating Ratio (%)
Opex/NTK ($/’000 NTK)
Opex/NTK (excluding access costs) ($/’000 NTK)
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)
Payload (tonnes)
Velocity (km/hr)
Fuel Consumption (l/d GTK)
FY2018
FY2017
VARIANCE %
1,207.8
598.1
7.3
1,813.2
(1,202.0)
611.2
(182.6)
428.6
1,156.8
630.3
7.9
1,795.0
(1,191.3)
603.7
(183.7)
420.0
4%
(5%)
(8%)
1%
(1%)
1%
1%
2%
FY2018
FY2017
VARIANCE %
212.4
152.5
59.9
93%
50.4
38.3
12.1
237
36.0
24.0
76.4%
27.5
15.4
1,729
29.1
462.8
308
16.4
8,568
7,447
23.2
2.91
198.2
143.5
54.7
89%
47.6
36.8
10.8
240
37.7
24.3
76.6%
28.9
15.3
1,698
28.0
468.0
288
16.3
8,251
7,430
23.6
2.90
7%
6%
10%
4ppt
6%
4%
12%
(1%)
(5%)
(1%)
0.2ppt
5%
(1%)
(2%)
4%
(1%)
7%
1%
4%
–
(2%)
–
Coal Performance Overview
Underlying EBIT increased $8.6m (2%) to $428.6m, with increased volumes and ongoing benefits delivered from the transformation program more
than offsetting an increase in operating costs due to price escalation and costs associated with installing capacity to deliver additional volumes.
Volumes increased by 14.2mt (7%) to 212.4mt reflecting the FY2017 volume impact of Cyclone Debbie, the commencement of new contracts and the
continued strength in coal prices resulting in high levels of customer demand, partly offset by lower network availability in the Central Queensland
Coal Network (CQCN) in 2HFY2018. In NSW and South-East Queensland (SEQ), volumes increased by 5.2mt (10%) to 59.9mt driven largely by the
commencement of the AGL Macquarie contract in July. Across CQCN, volumes increased by 9.0mt (6%) to 152.5mt, reflecting the FY2017 volume
impact of Cyclone Debbie and the commencement of new contracts in late FY2017 and FY2018.
Coal revenue increased $18.2m (1%) to $1,813.2m driven by the growth in volumes offset by lower access revenue.
› Above rail revenue increased $51.0m (4%) compared to FY2017 reflecting the 7% increase in volumes as outlined above
› Coal track access revenue decreased $32.2m (5%). This decrease is largely driven by customers on the Blackwater and West Moreton corridor
converting to an End User Access Agreement (where access charges are paid direct to Network or Queensland Rail). As access charges are generally
passed through to customers, there is a decrease in track access costs as noted below. This reduction was partly offset by a $29.8m credit from
Queensland Rail received in 1HFY2017 following the approval of the access undertaking for the West Moreton system (SEQ) which lowered track
access revenue in the prior year. Excluding the impact of this credit, coal track access in CQCN decreased by $62.0m
OPERATING AND FINANCIAL REVIEW
15
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Coal Performance Overview (continued)
Total operating costs (including depreciation) increased $9.6m (1%) to $1,384.6m. The transformation program continues to deliver savings, with
$46.5m realised in FY2018 across labour, maintenance and overheads. This was offset by an increase in other operating costs with the major drivers
noted below:
› Higher labour, fuel and maintenance costs totalling $78.6m including costs to meet additional volumes, wages and consumables escalation, fuel price
increase, higher maintenance relating to reinstated fleet capacity in the CQCN, redundancies and other costs
› Track access costs reduced by $35.6m (6%), largely due the impacts discussed above, including Blackwater and West Moreton Corridor
customers moving to End User Agreements and one off impacts of higher take or pay expenses offset by the impact of the 1HFY2017 credit
from Queensland Rail
› With the transfer of locomotives from Intermodal Interstate to Coal and the commissioning of new wagons in the Hunter Valley, depreciation
modestly increased in 2HFY2018
Key operating metrics remain broadly in line with prior year:
› During the period, labour productivity increased 4% with the additional volumes being delivered with a 2% increase in average FTEs
› Average payloads remained broadly flat from 7,430t to 7,447t
› Average velocity reduced slightly from 23.6km/hr to 23.2km/hr due to increased supply chain constraints and higher NSW volumes
› Average NTK per locomotive fell 1% due to the additional consists installed in both NSW and CQCN in order to meet growth volumes
Market update
The average hard coking coal price in FY2018 was US$204/t (+7% on the previous year), driven by continued growth in steel production in China and India.
In the 12 months to June 2018, China crude steel production achieved a record 870mt, increasing by +6%. India recorded its 29th consecutive month in June
2018 of year-on-year growth in steel production. Given a structural deficiency of high quality coking coal, growth in Indian steel production flows directly
to seaborne markets. Australia supplies around 90% of India’s imported metallurgical coal and was the number one destination of Australian metallurgical
coal exports in FY2018. India is expected to be the single largest driver of seaborne demand for metallurgical coal over the next decades. The Newcastle
benchmark thermal coal price in FY2018 was US$99/t (+24% on the previous year), primarily driven by increased import demand from China, the largest
importing nation of thermal coal. China’s imports of thermal and lignite coal lifted +9%yr as domestic coal production remained flat (+1%yr) in conjunction
with increased domestic thermal power generation (+6%yr).
From a supply perspective, Australian metallurgical and thermal coal exports reached 179mt (+1%yr) and 202mt (+1%yr) in FY2018 respectively. Given
upward pressure on coal prices, opportunistic supply from the United States and Indonesia continued to be incentivised to the market. In the 12 months
to May 2018, metallurgical coal exports from the United States lifted +33% and total coal export volume from Indonesia (almost entirely thermal coal)
increased by +7% against the same period of the prior year.
Contract update
› Baralaba Coal Company entered an agreement for coal haulage from the Baralaba North Mine to the RG Tanna Coal Terminal for 2mtpa. Haulage is
expected to commence 1HFY2019 for a term of up to 10 years
› Aurizon’s 2.6mtpa haulage agreement with Yancoal’s Duralie mine ended on 31 August 2017
› Aurizon entered into an agreement with MACH Energy for coal haulage of 8mtpa from the Mount Pleasant Mine to Newcastle ports as well as
domestic power stations. The haul is expected to commence late 1HFY2019, for a contract term of 10 years
› Aurizon extended its relationship with the QCoal Group to include coal haulage of up to 10mtpa (5.0mtpa initially) from the greenfield Byerwen Mine
to Abbott Point Coal Terminal, for a period of 10 years, which commenced January 2018
› Bounty Mining commenced railings in March 2018 under a new agreement with Aurizon, following its acquisition of the Cook Colliery which was
completed during 3QFY2018.
BULK
Aurizon’s Bulk business supports a range of customers nationally for bulk materials and commodities (including iron ore), agricultural products and
mining and industrial inputs.
($M)
Revenue
Freight Transport
Other
Total revenue
Operating costs
EBITDA
Depreciation and amortisation
EBIT
16
FY2018
FY2017
VARIANCE %
592.1
26.0
618.1
(542.9)
75.2
(25.1)
50.1
622.3
22.9
645.2
(586.1)
59.1
(73.5)
(14.4)
(5%)
14%
(4%)
7%
27%
66%
nm
AURIZON ANNUAL REPORT 2017–18 METRICS
Total tonnes hauled (m)
Total NTK (bn)
Average haul length (km)
Total revenue/NTK ($/’000 NTK)
Operating Ratio (%)
Opex/NTK ($/’000 NTK)
Opex/NTK (excluding access) ($/’000 NTK)
FTE (monthly average)
Labour productivity (NTK/FTE)
Order Fulfilment (%)
Fuel Consumption (l/d GTK)
Bulk Financial Performance Overview
EBIT increased $64.5m to $50.1m, due to
benefits from the transformation program and
lower net depreciation from the impairments in
FY2017 partly offset by lower volumes.
Revenue decreased $27.1m (4%) to $618.1m
with a 6% reduction in volumes (13% in NTK
terms):
› Iron Ore revenue decreased $3.9m (1%)
predominately due to lower Cliffs volumes
› Bulk revenue decreased $23.2m (6%) due
to the cessation of the Mt Isa Freighter in
January 2017 and lower QLD/NSW grain
volumes due to dry conditions and supply
being directed to the domestic market (all
Aurizon volumes are export). This was offset
marginally by growth in bauxite volumes
and the commencement of the Minerals and
Metals Group Limited (MMG) contract on the
Mt Isa corridor
Bulk revenue per NTK increased 10%
predominately due to lower contract utilisation
and the commencement of new contracts in
Bulk East.
Total costs (including depreciation) decreased
$91.6m (14%) driven by transformation
savings and lower depreciation expense. The
transformation program continued to deliver
savings with $31.6m realised in FY2018. Rail
access costs reduced by $18.4m due to the
lower volumes, principally the cessation of the
Mt Isa Freighter and lower Cliffs volumes. The
direct cost savings from the cessation of the
Mt Isa Freighter service were $14.5m through a
reduction in crewing maintenance and terminal
services costs. Depreciation expense reduced
by $48.4m due to the bulk impairment in
FY2017, with $10.4m of capital expenditure
written off in FY2018 and included in operating
costs resulting in a net benefit of $38.0m.
Partly offsetting this were other cost increases
including labour and consumables escalation
and redundancy costs ($10.9m).
FY2018
FY2017
VARIANCE %
54.7
13.4
245
46.1
91.9%
42.4
30.3
904
14.8
98.0%
3.01
58.3
15.4
264
41.9
102.2%
42.8
31.1
1,066
14.4
98.2%
3.06
(6%)
(13%)
(7%)
10%
10.3ppt
1%
3%
15%
3%
(0.2ppt)
2%
Market update
Iron Ore
The average iron ore price in FY2018 was
US$69.0/t, remaining relatively flat against
the previous year’s average of US$69.4/t.
China, the world’s largest steel producer
(and importer of iron ore) continued to drive
demand, with hot metal production growing
+2% in the 12 months to June 2018, against a
backdrop of supply ramping up from Vale’s
S11D project in Brazil and Roy Hill in the Pilbara.
China’s demand shift towards higher grade
iron ore continued during FY2018, with prices
for lower grade iron ore products remaining
at historically lower levels compared to the
62% Fe benchmark price. Supported by higher
steel prices and a pursuit for productivity,
Chinese steel mills have an incentive to use
better quality iron ore (and hard coking coal)
to maximise efficiencies in steel production. In
addition, China’s increasing focus on reducing
pollution and environmental regulation is
favouring the use of higher grade ores.
Freight
Aurizon’s Bulk business includes haulage
of bulk commodities including base metals,
minerals, grains and livestock in Queensland,
New South Wales (East) and Western Australia
(West). Despite stronger prices across the year
for a number of commodities that Aurizon
hauls, the ongoing challenge of market
competitiveness remains.
Contract update
› Executed a contract extension for IPL’s acid
and fertiliser hauls on the Mt Isa corridor,
commencing January 2020
› Executed a 10-year contract extension for the
Cement Australia East End to Fisherman’s
Landing limestone haul which commenced
January 2018
› Commenced a 7.4-year contract with MMG
for the transport of zinc deposits on the Mt
Isa corridor during November 2017
› Executed a 2+2 year contract extension
for the Queensland Rail services contract,
covering both infrastructure trains and
supporting the Inlander passenger train
› Executed a short-term extension with Alcoa
to rail additional bauxite export volumes into
the Kwinana Bulk Terminal
› Contract variation for Mt Gibson Mining to
rail additional volumes under the existing
Rail Haulage Agreement. This contract will
end in December 2018 in line with the end of
mine life
› Cliffs Asia Pacific Iron Ore Pty Ltd (Cliffs)
terminated its rail haulage agreement with
Aurizon on 30 June 2018. This resulted in the
closure of Aurizon’s Esperance operations
and triggered an early termination payment
of $66.3m, which was subsequently received
in July 2018. As a consequence of the
contract termination, asset impairments of
$27.9m have been recognised. In addition,
a closure provision of $3.9m has been
recognised which includes a redundancy
provision of $3.5m for 63 FTEs
› Aurizon was unsuccessful in recontracting
the existing QLD Graincorp contract from
December 2019
OPERATING AND FINANCIAL REVIEW
17
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
NETWORK
Network refers to the business of Aurizon Network Pty Ltd (Network) which operates the 2,670km CQCN. The open access network is the largest
coal rail network in Australia and one of the country’s most complex, connecting multiple customers from more than 40 mines to five export terminals
located at three ports. The CQCN includes four major coal systems (Moura, Blackwater, Goonyella and Newlands) and a connecting link (Goonyella to
Abbot Point Expansion (GAPE)).
FINANCIAL SUMMARY
($M)
Revenue
Track Access
Services and other
Total revenue
Operating costs
EBITDA
Depreciation and amortisation
EBIT
METRICS
Tonnes (m)
NTK (bn)
Operating Ratio (%)
Maintenance/NTK ($/’000 NTK) (excluding rail renewals)
Opex/NTK ($/’000 NTK)
Cycle Velocity (km/hr)
System Availability (%)
Average haul length (km)
FY2018
FY2017
VARIANCE %
1,167.1
51.6
1,218.7
(430.1)
788.6
(308.0)
480.6
1,199.9
62.2
1,262.1
(481.7)
780.4
(299.5)
480.9
(3%)
(17%)
(3%)
11%
1%
(3%)
–
FY2018
FY2017
VARIANCE %
229.6
56.9
60.6%
2.2
13.0
23.5
82.0%
247.7
210.8
53.2
61.9%
2.3
14.7
23.5
83.7%
252.3
9%
7%
1.3ppt
4%
12%
–
(1.7ppt)
(2%)
Network Financial Performance Overview
EBIT declined marginally to $480.6m in FY2018,
with reductions in operating costs ($51.6m)
offset by decreased revenue ($43.4m), mainly
due to the non-recurrence of the UT4 true-up
of regulatory revenue in FY2017 and increased
depreciation ($8.5m).
Track access revenue decreased $32.8m (3%).
Regulatory access revenue in FY2018 is based
on transitional tariffs pending approval of the
UT5 Access Undertaking. This is lower than
the FY2017 Allowable Revenue which included
approximately $90m of regulatory revenue
pertaining to the UT4 true-up for FY2014
to FY2015 which was recognised in FY2017
following the UT4 final decision. In addition,
FY2017 also included non-recurring true-ups
in relation to GAPE (non-regulated revenue)
and AFD rebates totalling $11.4m. Volumes
in FY2018 were higher than Cyclone Debbie
impacted FY2017 resulting in approximately
$53m additional revenue.
FY2018 also included higher Electric Charge
(EC) revenue of $30.1m (there is an increase in
EC operating expenses) and flood cost recovery
of $18.4m mainly relating to Cyclone Debbie.
This was partially offset by a $21.6m negative
Revenue Cap Adjustment Amount relating to
FY2016 which was repaid to Access Holders via
tariffs.
Services and other revenue decreased $10.6m
(17%) mainly due to the recognition of the
Bandanna Group’s $15.3m bank guarantee and
a $6.0m insurance claim recovery in FY2017,
partly offset by the recognition of $10.0m for
the Caledon WIRP Deed bank guarantee held
as security in FY2018.
Operating costs decreased $51.6m (11%) with a
$45.6m reduction in consumables, mainly due
to the non-recurrence of the FY2017 UT4 true-
up for corporate costs ($26.4m), and reduced
maintenance costs ($12.8m) which were
impacted by Cyclone Debbie in the prior year.
This was partially offset by higher energy
and fuel costs ($2.4m) from an increase in
EC expense ($24.4m) from higher wholesale
electricity prices and environmental rates,
offset by lower electric connection expense
($20.2m) and increased fuel rebates ($1.8m).
Labour costs increased $8.8m (7%) primarily
due to salary escalation and higher headcount.
Other expenses decreased $17.3m (59%)
due to the prior period impacts of inventory
obsolescence, asset disposals and write offs.
Depreciation increased $8.5m (3%) mainly
from Ballast.
The Regulated Asset Base (RAB) roll-forward
value is estimated to be $5.8bn (including all
deferred capital but excluding AFDs of $0.4bn)
at 1 July 2018.
18
AURIZON ANNUAL REPORT 2017–18 Regulation Update
› Transitional tariffs are in place for the whole
of FY2018 and the first half of FY2019 using
the UT4 tariffs with appropriate one-off
adjustments
› On 15 December 2017, the QCA released its
Draft Decision on Network’s UT5 proposal
› The QCA’s Draft Decision proposes a MAR
of $3.893bn over the four-year period with
a proposed 5.41% Vanilla Nominal Post Tax
WACC (2.97% Vanilla Real Post Tax WACC),
using an averaging period of 20 days up to
30 June 2017. Primary drivers behind the
reduction from Network’s MAR proposal are:
• A risk free rate of 1.90% based on the 4
year government bond rate
• An inflation rate of 2.37% applying an
inflation methodology using a geometric
average of the RBA forecasting
methodology
• Reduction in equity beta to 0.73 (with an
asset beta of 0.42)
• Significantly higher Gamma with only a
0.01 reduction from UT4 to 0.46
• A reduction in maintenance and operating
expenditure allowances of $104m and
$112m respectively over the four-year
regulatory period
› The UT5 Draft Decision issued by the QCA is
extremely disappointing in its current form,
causing damage to Network, customers and
the Queensland economy. The QCA view
of return and allowances for maintenance
and operating costs has resulted in Network
implementing changes to its business
decisions and operating practices in order
to align with the position advocated by the
QCA and its consultants in the UT5 Draft
Decision. Network has estimated that the net
impact of the changes implemented to date
could be a reduction of system throughput of
approximately 20 million tonnes annually.
› Network submitted a detailed response
to the QCA’s UT5 Draft Decision on
12 March 2018. This submission proposed an
updated MAR of $4.75bn over the four-year
regulatory period with a proposed 7.03%
Vanilla Nominal Post Tax WACC (4.62%
Vanilla Real Post Tax WACC). Primary drivers
behind the revised MAR include:
• Change in the risk free rate from 2.13%
at the time of the November 2016
submission, to 2.76% at the time of the
submission in response to the Draft
Decision. This change reflects a change
in market rates at the time of submitting
its response. Inflation however changed
from 1.22% to 2.30%. This change reflects
changes in market conditions and a
revised methodology that better aligns
the risk free rate and inflation calculations
to derive a realistic real risk free return
• Change in gamma from 0.25 in the
November 2016 submission to 0.31.
This change reflects using the QCA
methodology but updated to reflect the
appropriate and latest ATO tax statistics
at the time of the submission
• An increase from the QCA’s Draft
Decision Maintenance Allowance of
$111m to $928m, to reflect the change
in the QCA’s base year to FY2017 whilst
addressing anomalies omitted from
the Draft Decision, providing a more
appropriate mechanised plant allowance
and removal of the QCA’s proposed
efficiency factor applied to General
Maintenance activities
• Inclusion of the WIRP deferred capital
across the Moura system as well as all
the deferred WIRP capital across the
Blackwater system due to known forecast
railings in the Moura system that will
utilise that capital.
› On 29 May 2018, the QCA published a
Consultation Paper on Network’s UT5
Maintenance Allowances and Practices.
The Consultation Paper provided a
preliminary view from the QCA that it was
‘favourably disposed’ to accepting Network’s
Draft Decision response on maintenance
costs. Recognition of the correctness
of Network’s maintenance allowance is
important, however Network has outlined
concerns to the QCA that viewing the
maintenance allowance independently
of the other components of its operation
(and the consequent build-up of the MAR)
remains a flawed regulatory practice. There
are inherent and interdependent linkages
between the maintenance allowance, the
WACC and operating costs. A lower WACC
will generally drive lower investment likely
resulting in greater reactive maintenance
and hence even higher maintenance costs.
Network’s revised maintenance allowance
was part of an overall maximum allowable
revenue submission. The maintenance
regime underlying the allowance was based
on the other components of its submission
being approved as those components
supported the maintenance regime as part
of Network’s operating business model.
Different outcomes in those components will
necessarily require changes to the overall
operations of the Network business and a
subsequent impact on maintenance. Network
has impressed on the QCA that it cannot
consider critical components of business
operations in isolation.
› The QCA is yet to confirm the timing for
a final decision on UT5.
OPERATING AND FINANCIAL REVIEW
19
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Operational Update
Performance
During FY2018 the network operational performance remained strong
and five monthly railing records were achieved. Highlights include:
› Tonnes delivered over the CQCN increased 18.8mt (9%) from the
Cyclone Debbie affected FY2017 to a record 229.6mt. Five new
monthly records were achieved during FY2018 with each new record
being over 19.0mt while June 2018 achieved 20.6mt, the highest ever
monthly volume
› Performance to plan improved 3.5ppt to 90.3%
› Cancellations due to the Network increased marginally from 1.5%
to 1.7%
› Cycle velocity averaged 23.5km/h and remains unchanged from the
prior year
Following the release of the QCA’s Draft Decision on Network’s UT5 Draft
Access Undertaking in December 2017, and in order to reduce costs,
Network changed some of its operating practices and business decisions
to align with a) the position effectively advocated by the QCA through its
adoption in the Draft Decision of the maintenance allowance proposed
by its consultants based on applying different maintenance regimes and
b) the maintenance and operating cost allowances and WACC proposed
by the QCA in its Draft Decision. This is because when the QCA’s Final
Decision on UT5 is released, it will apply retrospectively from 1 July 2017
(when the UT5 regulatory period commenced). At this time the Draft
Decision is the best reflection of the Final Decision and therefore the
appropriate basis for Network to modify its operating practices and
business decisions to recognise the application of the Final Decision from
1 July 2017.
Key changes included:
› Prioritised adherence to the initially formulated plan for planned
maintenance and capital works
› Network has proposed in its response to the UT5 Draft Decision that
the remaining deferred WIRP capital expenditure relating to Moura be
included in the RAB for pricing purposes. This is subject to the QCA’s
UT5 Final Decision
› The legal proceedings continue in relation to the notices received
by Network from the WIRP customers purporting to exercise a right
under their WIRP Deeds to reduce their financial exposure in respect
of payment of the non-regulated component of the WIRP fee. Network
maintains its position that the notices issued by the WIRP customers
are invalid and the full non-regulated component of the WIRP fee
is payable. Network issued proceedings in the Supreme Court of
Queensland on 17 March 2016 to assert its rights in respect of the
payment of the full non-regulated component of the WIRP fee. A trial
is scheduled to commence in the Supreme Court of Queensland on
10 September 2018
› The Customers have initiated other disputes under their respective
WIRP Deeds which will be the subject of an expert determination in
November 2018. Those disputes go to various matters relating to the
completion of the WIRP construction works and have the potential to
impact recovery of the portion of WIRP non-regulated revenue payable.
These disputes relate to the same component of WIRP revenue as the
Supreme Court proceedings and should not impact recovery of the
regulated access charge component of WIRP capital expenditure
› Due to the ongoing dispute, no WIRP fee revenue in respect of
the non-regulated component of the WIRP fee has been recognised
in FY2018
OTHER
Other includes the provision of maintenance services (e.g. rail grinding)
to internal and external customers and central costs not allocated such
as the Board, Managing Director & CEO, Investor Relations, Strategy and
Company Secretariat.
› Modified rail defect maintenance practices to reduce Network’s risk
($M)
FY2018
FY2017
VARIANCE %
on long-term track reliability and productivity
› Major maintenance activities being provided over longer production
blocks
Transformation initiatives delivered:
› Tranche 2 of the Network Asset Management System went live in
December 2017, delivering a core asset management system for the
control systems, electrical assets and mechanised production activities
› Contractor management initiatives including the setting up of
pre-approved panel members for wet hire and vegetation management
activities. This has delivered improved safety performance and
cost benefits
› A variety of initiatives in relation to electric traction which will deliver
significant cost benefits through FY2019 and beyond
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 approximately $260m of WIRP capital expenditure
being excluded for pricing purposes from the UT4 MAR, on an NPV
neutral basis
› The UT5 Draft Decision issued by the QCA now includes approximately
$235m of the WIRP capital expenditure deferred during UT4 in the UT5
RAB for pricing purposes
Total revenue
Operating costs
EBITDA
Depreciation and amortisation
EBIT
90.8
(99.7)
(8.9)
(9.8)
(18.7)
107.0
(98.7)
8.3
(10.6)
(2.3)
(15%)
(1%)
nm
8%
(713%)
Performance Overview
EBIT decreased $16.4m mainly due to:
› Non-recurrence of $26.4m benefit from the UT4 corporate cost
allocation true-up included in FY2017
› $16.2m reduction in other revenue predominantly due to external
construction work of $7.0m, and sale of workshop inventories of
$9.0m that both took place in FY2017
This was partly offset by:
› $20.9m of asset write offs and minor inventory impairments in FY2017
(nil in FY2018)
› Reduction in central support costs including $7.5m of transformation
benefits
20
AURIZON ANNUAL REPORT 2017–18 INTERMODAL – DISCONTINUED OPERATIONS
Rockhampton Rollingstock Workshop
The Rockhampton Workshop closed for production on 29 June 2018 in
line with the original announcement in June 2017 and reflects the staged
closure of Locomotive, Brake, Wheel and Wagon Shops throughout
FY2018. The successful transition of Aurizon’s heavy haul maintenance
activities from in-source to outsource maintenance providers throughout
Australia has been enabled through Aurizon’s investment in technologies
such as condition monitoring equipment and Shopfloor II (rollingstock
maintenance planning and scheduling tool) and process improvements to
its in-bound supply chain and procurement processes. A small team will
remain on site during the next six months to decommission the facility
and site master planning is underway to determine its future use.
Asset Maintenance
A key dependency for the achievement of Aurizon’s strategy and
an enabler for the Optimise and Excel strategic levers is continued
investment in technology. Aurizon continues to advance its condition
monitoring program. These advances allow Aurizon to automate routine
maintenance inspections, predict when components will fail, thereby
reducing cost and increase reliability to keep assets in productive use for
longer. Developments in these key initiatives include:
› Approval has now been received from ARTC for the installation of
a wayside condition monitoring (WCM) super site in the Hunter
Valley. Construction has commenced and the site is expected to be
operational by December 2018. The deployment will support the
extension of maintenance inspection intervals for wagons in the
Hunter Valley and is the foundation step in moving the NSW predictive
maintenance capability in line with CQCN
› iTrigger technology – has been deployed across two terminals
in the CQCN. This technology is part of the suite of predictive
maintenance initiatives and identifies the lead indicator of door
faults in wagons which contributes to around 14% of cancellations
by wagons in the CQCN
› Treadview technology - this provides a full 3D model of a wheel profile
and will be deployed across the WCM supersites in Blackwater and
Goonyella during FY2019. This technology will fundamentally change
the way Aurizon manages wheel health by examining the entire surface
of the wheel rather than just its profile, and is an enabler for the
extension of rollingstock reliability examinations from 42 to 84 days
› On train repair facilities are now in place across the CQCN and Hexham
in the Hunter Valley. This allows key maintenance activities on wagons
(e.g. wheel change outs) to be performed without breaking trains,
requiring spare rollingstock or shunting of consists
($M)
Total revenue
Operating Costs
EBITDA
Depreciation and amortisation
EBIT
Significant Items
Net Finance Cost
Income Tax Benefit
NPAT (Discontinued
operations)
Total TEUs (‘000s)
Performance Overview
FY2018
FY2017
VARIANCE %
225.4
309.8
(247.1)
(340.7)
(21.7)
(2.3)
(24.0)
(74.7)
–
21.6
(30.9)
(17.3)
(48.2)
(167.2)
0.1
64.6
(77.1)
(150.7)
266.0
405.2
(27%)
27%
30%
87%
50%
55%
–
(67%)
49%
(34%)
EBIT loss improved $24.2m mainly due to:
› $9.2m reduction in operating losses with the closure of Intermodal
Interstate in December 2017
› $15.0m reduction in depreciation due to the Intermodal impairment
in FY2017
Significant items for the discontinued operation of ($74.7m) were
recognised in FY2018 relating to the closure of Intermodal Interstate
and includes:
› Contract, lease and supplier exit costs
› Redundancy costs for 168 employees
› Asset impairments
TRANSFORMATION UPDATE
Aurizon achieved its three-year transformation target by delivering
$133.6m in transformation benefits during FY2018, resulting in total
transformation since July 2015 of $393.6m including Intermodal’s FY2017
losses, which principally relate to Intermodal Interstate, removed. The exit
of the Intermodal business contributed to transformation by permanently
removing the financial losses. The continuing operations generated
$85.6m in benefits in FY2018. Further examples of transformation
initiatives are detailed below:
Precision Railroading Operations
This initiative is focused on driving precision planning and disciplined
delivery with the objective to improve on time departure and arrival of
above rail services across CQCN. Centred around three principles; plan
with precision, disciplined delivery and continuous improvements, this
initiative will be a multiyear journey that will target ways to improve on
time running performance. This initiative is targeted to deliver at least
$50m in financial benefits by FY2021.
Restructure of Support Areas
Aurizon continues its transformation agenda focusing on support areas
by providing innovative, flexible and lower cost services. Commencing in
2HFY2018 and continuing into FY2019 is the restructure of the Technical
Services and Planning business unit. This restructure will focus on
reducing headcount, further footprint consolidation and the transfer of
certain functions to the Coal and Bulk business units where appropriate.
It is expected that this initiative will deliver around $20m in cost
reductions by FY2021.
OPERATING AND FINANCIAL REVIEW
21
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Asset Maintenance (continued)
› The Locomotive and Operational Data
Acquisition and Management project
(LODAM) is now being initiated across the
coal locomotive fleet. LODAM will deliver a
step change in both the quality and quantity
of operational and sensor data, allowing
Aurizon to better optimise and standardise
how the fleet is operated and managed.
LODAM will provide real time visibility of
train handling and equipment performance,
improved fleet performance, reliability and
energy consumption and in cab monitoring.
LODAM sensor data will allow locomotive
failures to be predicted earlier and further
improve our maintenance strategies
› Shopfloor II is now fully deployed across
all rollingstock maintenance facilities. The
project was completed ahead of time
and under budget. The key benefits to be
delivered as part of this project include
increased maintenance planning capability
and accuracy, supply chain integration,
warranty management, serialisation and
lifecycle management of major components
and improved operational efficiency through
standardising business processes and metrics
ADDITIONAL INFORMATION
Risk
Aurizon promotes a risk-aware culture with
an emphasis on frontline accountability for
effective risk management. The consideration
of risk features heavily in Aurizon’s thinking,
from the framing of strategy through to
informing decision making. Aurizon’s Enterprise
Risk Management Framework is based on the
international standard for risk management
(AS/NZS ISO 31000:2009) and supports the
identification, assessment and reporting of risk
across the business, and includes both financial
and non-financial risks.
Risks to the delivery of strategy have been
categorised into the three strategic levers
of Optimise (accelerate the competitiveness
of Aurizon), Excel (achieve regulatory reform,
secure contract wins, and gain competitive
advantage through asset efficiency) and
Extend (position Aurizon for growth,
value creation and the next phase of
Enterprise evolution).
Optimise Strategic Lever
Queensland Intermodal and Acacia Ridge
Terminal Sale Transactions
The ACCC has opposed the sale of Aurizon’s
Queensland Intermodal business to a
consortium of Linfox and Pacific National,
and the sale of its Acacia Ridge Terminal to
Pacific National and commenced proceedings
against Pacific National and Aurizon in the
Federal Court of Australia. The ACCC has
sought declarations, pecuniary penalties,
orders restraining the existing sale transactions
from proceeding and costs. The ACCC has also
sought an injunction to prevent Aurizon from
closing its Queensland Intermodal business
while proceedings are on foot. While Aurizon
refutes the ACCC’s allegations and will defend
the proceedings, including seeking clearance
of the Acacia Ridge transaction, there is a
risk that the Acacia Ridge transaction will be
prevented from completing and/or Aurizon
incurs orders for pecuniary penalties and
costs. There is also the risk that, in the interim
whilst the matter is being determined by the
Court, Aurizon is injuncted from closing the
Queensland Intermodal business.
Delivery of Optimise Initiatives
Aurizon maintains a pipeline of transformation
initiatives that are expected to deliver a
cost effective and customer aligned model.
Continued focus is required on these initiatives
to ensure benefits are delivered as planned
and flow through to improved financial
performance.
Operational Agility
A lack of operational agility would result
in Aurizon’s inability to flex operations and
support an alignment between costs and
revenue. If operational agility is not achieved
it may result in missed revenue during market
upturns due to a lag in accessing the required
resources, or static costs during downturns
eroding financial performance.
Enterprise Agreement Renegotiations
Enterprise Agreement renegotiations are
underway to support sustainable business
transformation. There are risks that prolonged
industrial action impacts Aurizon’s critical
operations or final agreements do not support
business objectives.
Business Interruption
Aurizon may experience business interruption
and consequential financial impact from a
range of circumstances including but not
limited to:
› Road Vehicle Fatality - death or injuries to
our people from operating road vehicles
› Process Safety Fatality - major process safety
event leading to fatality or loss of licence to
operate
› Adverse weather events and climate change
which could impact on Aurizon’s operations,
assets, customers and employees
› Cyber security incidents in relation to
Aurizon’s corporate and operational systems
Excel Strategic Lever
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 Queensland Competition Authority Act
1997 (Qld). In particular, Network’s Maximum
Allowable Revenue (MAR) and the nominal
(vanilla) WACC used in deriving 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. Not attaining
appropriate pricing and policy regulatory
settings will adversely impact revenue, and
may have an adverse effect on operational
flexibility, capital investment and recovery
of operational and administrative costs. The
WACC of 5.41% proposed by the QCA in its
UT5 Draft Decision, together with the proposed
UT5 maintenance and operational expenditure
allowances, if reflected in its Final Decision,
will not adequately compensate Network for
its regulatory and commercial risks, which
will lead to a material adverse impact on the
Network business, operational performance
and financial results.
22
AURIZON ANNUAL REPORT 2017–18 Adverse Basin, Corridor Economics and
General Economic Conditions
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.
Aurizon’s customers in core and adjacent
markets are reliant on demand from large
export markets such as China, India, Japan and
South Korea. Increased volatility in coal and
bulk commodity 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 volume and investment in
growth projects. Although Aurizon develops
its own long-term outlook for seaborne coal
demand, it also considers the best known and
most widely used Sustainable Development
Scenario produced by the International Energy
Agency (IEA) through the annual release of
the World Energy Outlook (WEO). Whilst
long term demand is expected to increase,
there may be variances in volumes, contract
profitability and growth that impact on
Aurizon’s financial results.
Extend Strategic Lever
Competition in New Markets
Extending expertise into adjacent activities
including strategic partnerships with road
operators, new target basins, and optimisation
of the supply chain may not deliver the
expected benefits. Competition from
incumbents in these markets has the
potential to reduce the expected returns as
they respond to a new entrant. In addition,
market dynamics may change and reduce
the attractiveness of these activities prior
or during the extension period.
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 Network. 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 have been set down for a 10-
day hearing commencing in FY2019. 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.
Inability to Delivery Adjacencies
The strategy of leveraging expertise to
adjacent assets and activities may not be
delivered as planned due to:
› The infrequency of investment opportunities
— only a limited number of assets are
adjacent to the existing Aurizon markets, and
they may not be made available for sale
› Aurizon’s potential inability to construct a
deal – many factors such as access to capital
markets, agreement with consortium or joint
venture partners, or other legal restrictions
may prohibit the execution of an acceptable
transaction
› Competitor valuations – available adjacencies
are infrastructure assets which are currently
in demand from institutional funds. These
funds or other competitors may pay a higher
price than Aurizon, resulting in limited
opportunities for growth
Further risks arising from UT5 include:
› The network business’s immediate response
to implementing the Draft UT5 determination
may materially impact above rail volumes
and EBIT plus damage relationships with
key stakeholders which may impact future
contracts, transformation and reform
› The network business credit rating may be
downgraded due to insufficient cashflows
based on the Draft UT5 determination
› The network business may be unable to
achieve regulatory reform beyond UT5,
impacting future company performance
› The network business unsuccessfully adopts
a new operating model and the final ruling is
unchanged from the draft
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.
Aurizon is also exposed to the risk of material
regulatory breaches resulting in the loss of
operating licences and financial penalties. In
the event of a loss of licence, critical business
operations may not be supplied to customers,
impacting profitability and reputation.
Regulatory approval is a prerequisite to
support the Extend strategy, including growth
opportunities with adjacent assets. In the
event regulatory approval is not forthcoming,
Aurizon’s ability to deliver the strategy and
associated value will be limited.
Competition in Current Markets
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 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, and includes existing customers in-
sourcing Aurizon’s services.
OPERATING AND FINANCIAL REVIEW 23
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Climate Change Risk
The long term implications of climate change
may impact Aurizon on several fronts. For
example:
› Demand for thermal coal is subject to energy
policy and regulation of Green House Gas
(GHG) emissions (including carbon pricing)
› Investor concern over climate related risks
may impact the ability to access capital
for Aurizon and its customers for funding
coal mining, transport and coal fired power
projects
› Carbon liability under the Safeguard
Mechanism Rule and potential penalties for
inappropriate carbon reporting under the
National Greenhouse and Energy Reporting
(NGER) Act
› Current and future disruption arising
from increased severity and/or frequency
of extreme weather events (higher
temperatures, strong winds, flooding and
associated erosion, bushfires and others)
Climate change risks and opportunities are
disclosed annually in our submission to the
CDP and in Aurizon’s sustainability report.
Sustainability
Aurizon’s Sustainability Report details how
Aurizon takes account of social, environmental
and economic considerations related to
its operations. In October 2017, Aurizon
released its fourth Sustainability Report. This
report contributed to Aurizon maintaining
a Leading rating by the Australian Council
of Superannuation Investors (ACSI) in June
2018. This was the fourth consecutive year of
recognition and resulted in Aurizon being one
of 35 ASX200 companies being considered a
Leader by ACSI.
This year will be the second reporting period in
which we have incorporated recommendations
from the Financial Stability Board’s (FSB) Final
Report: Recommendation of the Task Force on
Climate-related Financial Disclosures (TCFD),
released in June 2017. Aurizon acknowledges
that climate change is affecting a wide range
of industries around the world, resulting in
financial implications. Transition risks, related
to energy policy, regulation, technology and
market shifts (that are necessary to achieve the
transition to a low-carbon economy) will affect
the demand for the commodities that Aurizon
hauls. Physical risks related to extreme weather
events will also continue to affect Aurizon
through supply chain disruptions.
Aurizon’s 2018 Sustainability Report will be
published in October 2018.
A brief summary of Aurizon’s performance
in connection with safety, environment and
people is outlined below.
Safety
As reported in 1HFY2018 results, Aurizon’s
commitment to safety is continuing with the
company introducing a revised set of injury
definitions on 1 July 2017. The key changes
were the inclusion of contractors in all injury
metrics and widening the scope of total
recordable injuries to include all restricted work
injuries. Previously, Aurizon had 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.
FY2018 saw a deterioration in performance
in the early part of the financial year, which
was disappointing but a focus on newly
identified areas for improvement has seen
positive changes towards the latter part of
FY2018, resulting in a Total Recordable Injury
Frequency Rate (TRIFR) for FY2018 of 10.02,
a reduction of 3% against the 1HFY2018 result.
However, the full year performance was still a
deterioration against FY2017 which was 7.12.
Changing injury definitions is the first step
in a broader program that is underway to
create a learning safety culture. This journey
will require an underlying shift in beliefs
from a control orientated environment
towards interdependence and self-sustaining
behaviours. To make this shift a program of
work is being developed that will focus on:
› development of leadership behaviours and
capabilities for our frontline leaders
› updating systems, processes, governance
and tools to better support frontline
operations
› clarification of accountabilities for
operational and support roles
Environment
Aurizon delivers environmental value
through effective management of material
environmental risks and improved enterprise
environmental performance. In recognition of
our efforts, in November 2017 Aurizon received
the results for its 2017 CDP (formally carbon
disclosure project) submission which confirmed
that Aurizon had retained a Management B
score. This reflects Aurizon’s ongoing efforts to
improve visibility and transparency on issues
relating to climate change.
Aurizon has continued progress against its
Board endorsed locomotive greenhouse gas
(GHG) emissions intensity target, achieving
in FY2018 a 7% emissions intensity reduction
compared with FY2015. This represents
a 1% improvement on performance when
compared with FY2017 which was hampered
by challenges associated with severe weather
events and above average mean temperatures.
In November 2017, the Rail Safety and
Standards Board approved and published a
Code of Practice (COP) on the Management
of Locomotive Exhaust Emissions. This COP
was developed by Australian rail freight
operators (including Aurizon) as an industry
led approach to improving locomotive
diesel emissions. This industry led approach
prioritises both particulate matter and
greenhouse gas emissions, while being careful
not to decrease fuel efficiency in pursuit
of nitrogen oxide reductions (which was
highlighted as a potentially negative impact by
a locomotive upgrade trial undertaken by the
New South Wales Environmental Protection
Authority in 2015). The COP will form part of
Aurizon’s continuing efforts to improving air
quality which also includes reducing diesel
consumption, using cleaner diesel, operating
electric locomotives and promoting rail over
road freight.
In June 2018, Aurizon had two notifiable
environmental incidents involving the spillage
of hydrocarbons. The remediation of the two
incidents is underway and is expected to be
completed, with no long term environmental
impact, during 1QFY2019.
People
At Aurizon our values (Safety, People, Integrity,
Customer and Excellence) guide our people’s
work in delivering bulk commodities to the
world. Our areas of focus to develop the
capability of our people include:
› continuing to make Aurizon a more inclusive
and diverse workplace, where everyone can
work to their full potential
› improving our people, processes and systems
(performance and succession) to achieve
exceptional performance and build capability
› continuing to increase our employee
presence through regional Australia
24
AURIZON ANNUAL REPORT 2017–18 Directors’ Report (continued)
REMUNERATION REPORT
Dear Fellow Shareholders,
On behalf of the Board, we are pleased to present Aurizon’s Financial Year (FY) 2018 Remuneration Report.
Aurizon’s financial performance for FY2018 has been solid. Underlying Earnings Before Interest and Tax (EBIT) for continuing operations
increased 6% to $941m, within the guidance range of $900-$960m. The transformation program continued to deliver benefits and the
company achieved the three-year transformation target of $380 million (including the removal of Intermodal losses, which principally relate
to Intermodal Interstate).
The Company reported safety outcomes, under the revised metrics, saw disappointing results in safety performance over the year. Changing
injury definitions was the first step in a broader program of work in safety that is being implemented to renew the Company’s focus on
safety. The Board will take an active interest in monitoring outcomes and were pleased to see improvements emerging in the second half.
Performance outcomes for the FY2018 Short Term Incentive have been mixed. Above Target performance was achieved for Underlying
EBIT and Enterprise Transformation Program however Safety performance was below Threshold. The Board has determined that an overall
outcome above Target will be awarded.
During FY2018, the 2015 Long Term Incentive (LTI) Award and unvested 2014 LTI Award were subject to testing however Aurizon’s
performance resulted in no components of these Awards vesting. Under the terms of the 2015 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 FY2019.
The Board considers that these remuneration outcomes strike an appropriate balance between reflecting shareholder outcomes and
recognising the value-adding contribution of the new Leadership team.
The Board commends Andrew, the Executive Committee and all Aurizon employees on their achievements in the ongoing transformation of
Aurizon. Reaching the three-year savings target is not the end of the transformation journey, rather, it is the foundation for Aurizon’s strategy
of continuing to optimise, excel and extend the business.
The Board is committed to ensuring the remuneration framework supports the strategic objectives of the Company whilst rewarding and
retaining Executives and delivering shareholder returns. In FY2018 the remuneration framework changes foreshadowed last year were
implemented including a greater proportion of the LTIA weighted towards relative TSR and the performance period extended to four years.
As disclosed last year, the Total Fixed Remuneration of new Executive KMP appointments was reduced compared to predecessors and more
weighting was given to the Long Term Incentive component of their packages, as appropriate for a long asset life infrastructure business.
We will continue to review the Executive remuneration framework in FY2019 to ensure it remains effective in driving the required
performance.
A market review of the Non-Executive Director remuneration framework resulted in changes to the reward structure – the first since 2012.
The Chairman’s fee was increased marginally and the remaining Non-Executive Directors transitioned from an ‘all-in-one’ to a ‘base plus
committee’ fee structure effective from 1 January 2018.
As always, we are grateful for your ongoing support and we value your feedback. We look forward to welcoming you to our 2018 Annual
General Meeting.
Yours faithfully,
Tim Poole
Chairman
Russell Caplan
Chairman, Remuneration and Human Resources Committee
REMUNERATION REPORT
25
Directors’ Report (continued)
REMUNERATION REPORT
1.
Remuneration Report Introduction
Aurizon’s remuneration practices are aligned
with the Company’s strategy of providing
rewards that drive and reflect the creation
of shareholder value whilst attracting and
retaining Directors and Executives with the
right capability to achieve results.
The Remuneration Report for the year ended
30 June 2018 is set out as per Table 1. The
information in this Report has been audited.
TABLE 1 – TABLE OF CONTENTS
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.
As previously identified a review of the KMP was conducted in FY2017. Given the change in
Business Unit reporting from FY2018 the Board determined that from 1 July 2017 the Managing
Director & Chief Executive Officer (MD & CEO), Chief Financial Officer & Group Executive Strategy,
Group Executive Bulk, Group Executive Coal and Group Executive Network fulfil the definition of
the KMP.
The Non-Executive Directors and Executives that formed part of the KMP for the Financial Year
(FY) as at 30 June 2018 are identified in Table 2.
SECTION CONTENTS
PAGE
TABLE 2 – KEY MANAGEMENT PERSONNEL
1
2
3
4
5
6
7
8
9
10
Remuneration Report
Introduction
Directors and Executives
Remuneration
Framework Components
Company Performance
Financial Year 2018
Take Home Pay
Short Term Incentive
Award
Long Term Incentive
Award
Executive Service
Agreements
Non-Executive Director
Remuneration
Executive Remuneration
Financial Year 2018
26
26
27
29
30
31
32
34
35
36
NAME
POSITION
NON–EXECUTIVE DIRECTORS
T Poole
M Bastos1
R Caplan
J Cooper
K Field
M Fraser
S Lewis
K Vidgen
EXECUTIVE KMP
A Harding
P Bains
C McDonald2
E McKeiver3
M Riches4
Chairman, Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Independent Non–Executive Director
Managing Director & Chief Executive Officer
Chief Financial Officer & Group Executive Strategy
Group Executive Bulk
Group Executive Coal
Group Executive Network
1 M Bastos was appointed a Director on 15 November 2017
2 C McDonald was appointed Group Executive Bulk on 1 July 2017
3 E McKeiver was appointed Group Executive Coal on 1 July 2017
4 M Riches was appointed Group Executive Network on 24 July 2017
26
AURIZON ANNUAL REPORT 2017–18
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
› STIA (‘at risk’ component, awarded on the
achievement of performance conditions over
a 12-month period) that comprises both a
cash component and a component deferred
for 12 months into equity
› LTIA (‘at risk’ component, awarded on the
achievement of performance conditions over
a four-year period (excluding the 2017 Award
three-year transitional arrangement)) 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 FY2018 for the MD & CEO and Executive
KMP is set out in Figure 1: Total Potential
Remuneration Financial Year 2018. This diagram
demonstrates the revised remuneration mix for
appointments, implemented in FY2017, where
a greater proportion of the total potential
remuneration is weighted towards the LTIA.
Executive Remuneration Governance
Figure 2 represents Aurizon’s remuneration
governance framework. Details on the
composition of the Remuneration and
Human Resources 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
FIGURE 1 – TOTAL POTENTIAL REMUNERATION FINANCIAL YEAR 20181
MD & CEO: CASH COMPONENT: 51%
EQUITY COMPONENT: 49%
27%
24%
16%
33%
EXECUTIVE KMP: CASH COMPONENT: 51%
EQUITY COMPONENT: 49%
30%
21%
14%
35%
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 maximum opportunity of the original award i.e. assuming no share price appreciation
and excluding the 2017 Award three-year transitional arrangement
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,
MD & CEO and Executive Committee (direct reports
to the MD & CEO) 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 AND
HUMAN RESOURCES COMMITTEE
The Remuneration and Human Resources 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 the MD & CEO and Executive Committee
› Executive incentive arrangements
MANAGEMENT
› Provides information relevant to remuneration decisions
and makes recommendations to the Remuneration and
Human Resources Committee
› Obtains remuneration information from external advisors
to assist the Remuneration and Human Resources
Committee (i.e. market data, 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
Remuneration and Human
Resources 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
Committee 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
Board and Remuneration
and Human Resources
Committee processes
REMUNERATION REPORT
27
Directors’ Report (continued)
REMUNERATION REPORT
Remuneration Framework and objectives Financial Year 2018
The Board is conducting a comprehensive review of Aurizon’s remuneration framework which may be implemented from FY2020. The review is being
conducted to ensure the framework continues to deliver against our remuneration principles and remains effective in driving strong performance. In
the interim, and as referenced in the FY2017 Remuneration Report, further changes implemented in FY2018 are summarised in Figure 3.
FIGURE 3 – REMUNERATION FRAMEWORK AND OBJECTIVES FOR FINANCIAL YEAR 2018
PERFORMANCE MEASURE
STRATEGIC OBJECTIVES AND
LINK TO PERFORMANCE
FY2018 FRAMEWORK
CHANGES
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
Considerations:
› Experience, qualifications
› Role and responsibility
› Retain key capability
› Reference to remuneration paid by
similar sized companies in similar
industry sectors
›
Internal and external relativities
› Underlying EBIT (40%)
› Enterprise Transformation Program (20%)
› Safety (10%)
›
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)
(50%)
› Return on Invested Capital (ROIC) (50%)
Measured over a four-year performance
period (excluding the 2017 Award three-year
transitional arrangement). Retesting was
removed from the 2016 Award and has not
formed part of any subsequent awards
LTIA at Risk (Maximum):
MD & CEO: 120% of Fixed Remuneration
New Executive appointments: 112.5% of Fixed
Remuneration
› To attract and retain Executives
with the right capability to achieve
results
The financial and non-financial
performance measures were
chosen because:
› Underlying EBIT delivers direct
financial benefits to shareholders
› Enterprise Transformation Program
captures the need for our people and
our assets to operate more efficiently
› Safety captures the need to
continuously improve safety and
embed safe, efficient and effective
processes across all aspects of a
heavy industry business
Note: Participation levels are 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
Note: Minimum shareholding
requirements for Executive KMP and the
remainder of the Executive Committee
encourages retention of shares and
alignment with shareholder interests
› A greater proportion of the
Award has been weighted
towards Underlying EBIT and
Transformation
Safety measures have been
adjusted to:
› Include Rail Process Safety
› Remove Environmental
Incidents, Safety Interactions
and Female Representation
› Provide reward for Threshold
performance
› Definition of Safety measure
(TRIFR) revised
From the 2017 Award:
› A greater portion of the award
has been weighted towards
relative TSR
› Company hurdles are measured
over an extended performance
period, increasing from a three
to four-year performance period
› Telecommunications companies
will no longer be excluded from
the peer group
The 2017 Award included a
transition award offered to ensure
there is no gap in LTIA vesting
opportunity
Total remuneration
Overall, Executive remuneration is designed to support the 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
28
AURIZON ANNUAL REPORT 2017–18
4. Company Performance
Financial Year 2018
Results for performance metrics have been
mixed. Aurizon delivered a solid underlying
EBIT outcome of $941m for continuing
operations – a 6% increase on last year.
The Enterprise Transformation program
delivered $86m in benefits in FY2018. In
addition Operating Ratio has also continued
to improve, achieving 69.8% for continuing
operations and 72.5% at the Group level in
FY2018. However, safety outcomes were
disappointing.
Figure 4 shows historical Company
performance across a range of key metrics.
Detail related to performance against the
FY2018 STIA performance measures is
provided in Table 4 (page 31). Table 6
(page 32) provides additional information
related to the LTIA performance outcomes.
FIGURE 4 – HISTORICAL COMPANY PERFORMANCE
0
7
9
1
5
8
1
7
8
4
8
8
1
4
9
.
7
7
7
.
3
4
7
.
8
4
7
9
.
1
7
.
8
9
6
FY14
FY15
FY16
Underlying EBIT ($m)1
FY17
FY18
FY15
FY16
FY14
Operating Ratio (%)1
FY17
FY18
6%
2.1ppt
2
0
0
1
.
3
4
8
.
0
8
2
.
1
4
2
.
8
8
9
.
4
2
4
.
2
1
.
7
9
6
2
.
.
0
3
2
41%
1
.
7
.
6
8
-
FY14
FY15
FY16
FY17
FY18
FY14
FY15
FY16
FY17
Total Recordable Injury Frequency Rate (TRIFR)2
(per million man-hours worked)
.
0
4
2
.
6
4
2
.
5
2
2
1
.
7
2
.
5
6
1
Total Shareholder Return (%)
.
7
9
8
8
.
.
3
9
6
8
.
.
8
5
1
186%
.
6
3
1
-
FY18
FY17
.
9
0
1
FY14
FY15
FY16
FY17
FY18
FY14
FY15
FY16
FY17
FY18
Total Dividend per Share (cents)
Return on Invested Capital (%)1
20%
1.6ppt
1 Continuing operations
2 From FY2018, TRIFR definition has been redefined and contractor statistics have been included. Historical
performance has been restated to include the extended definition for FY2015 – FY2017. FY2014 has not
been restated. Performance unaudited prior to FY2018. The line diagram depicts the historical performance
under the previous definition
REMUNERATION REPORT
29
Directors’ Report (continued)
REMUNERATION REPORT
5. Take Home Pay
Table 3 identifies the actual remuneration
earned during FY2018 for Executive KMP.
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. Remuneration outcomes,
which are prepared in accordance with the
accounting standards, are provided in Section
10 (page 36).
The remuneration outcomes identified in
Table 3 are directly linked to the Company
performance described in Section 6 (page 31)
and Section 7 (page 32).
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 79% to 85%
of their potential maximum.
TABLE 3 – REMUNERATION EARNED IN FINANCIAL YEAR 2018
The actual vesting of the LTIA is dependent on
Aurizon’s performance and the outcomes are
further described in Section 7.
During FY2018, the 2015 Award and unvested
2014 Award were subject to testing.
However, Aurizon’s performance resulted
in no components of these Awards vesting.
FIXED
REMUNERATION
$’000
NON-
MONETARY
BENEFITS1
$’000
STIA
CASH2
$’000
STIA
DEFERRED FROM
PRIOR YEAR3
$’000
LTIA
VESTING4
$’000
SHARE PRICE
DEPRECIATION5
$’000
ACTUAL FY2018
REMUNERATION
OUTCOMES $’000
1,700
700
600
640
632
109
1,257
2
58
69
12
389
344
352
339
211
102
64
–
–
–
–
–
–
–
(29)
(14)
(9)
–
–
3,248
1,179
1,057
1,061
983
NAME
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches6
1 The amount relates to travel benefits and relocation assistance
2 The amount relates to the cash component (60%) of the FY2018 STIA which will be paid in September 2018
3 The amount relates to the deferred component (40%) of the FY2017 STIA which was awarded in performance rights and will become unrestricted in September 2018
(calculation assumes a share price of $5.01)
4 The amount is the number of rights which would have vested in August 2018. As the performance hurdles were not met no rights vested
5 The amount is the number of rights which vest in September 2018 multiplied by the decrease in the Aurizon share price over the period ended 30 June 2018
(calculation assumes share price depreciation of $0.68)
6 Pro-rata outcomes apply for Executives who were appointed after the performance year commenced (1 July 2017)
30
AURIZON ANNUAL REPORT 2017–18
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 aligns to relevant
corporate plans and budgets, a business
improvement targeted outcome or reflects
an improvement on historical achievement
› 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, Enterprise
Transformation and Safety. The measures
capture the need to continuously improve
safety across all aspects of the business,
strengthen and grow our current business
whilst continuing to transform the Enterprise.
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%) 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 FY2018?
Table 4 identifies the performance measures, relevant weightings and outcomes for FY2018. The FY2018 actual outcomes for Executive KMP are
identified within Table 5.
TABLE 4 – SHORT TERM INCENTIVE AWARD FINANCIAL YEAR 2018 OBJECTIVES1
DESCRIPTION
WEIGHTING
TARGET
OUTCOME
EBIT: Underlying EBIT delivers financial benefits to shareholders through growth in
underlying operating earnings
Enterprise Transformation: Our priority to transform Aurizon continues to be
a strategic imperative. For FY2018, this objective was aligned to the Enterprise
Transformation Program, which identifies cost-outs and capital management savings
targeted over three years (FY2016 - FY2018)
Safety: The measures capture the need to continuously improve and maintain safety
across all aspects of the Company measured through equally weighted parameters
which included:
› Total reportable injury frequency rate (TRIFR)
› Rail Process Safety (Total Accident Rate and Signals Passed at Danger)
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 FY2018 the MD &
CEO’s individual performance parameters included:
› Redefine Enterprise
› Regulatory process
strategic plan
› Implement strategic review outcomes relating to Intermodal,
Bulk and support areas
1 Company performance hurdles relate to continuing operations
TABLE 5 – SHORT TERM INCENTIVE AWARDED IN FINANCIAL YEAR 2018
40%
20%
10%
70%
30%
$931m
$80m
$941m
Between Target and
Stretch
$86m
Between Target and
Stretch
› 15% reduction in TRIFR
› 10% improvement in Rail
› 57% increase TRIFR
› 75% increase in Rail
Process Safety
Process Safety
Below Threshold
Individual performance
targets vary for each
specific role
Personal outcomes for MD
& CEO and Executive KMP
varied between Target
and Stretch depending
on performance against
individual KPIs
NAME
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches3
TARGET
STIA
$’000
MAXIMUM
POTENTIAL
STIA ($’000)
CASH
COMPONENT
DEFERRED
SHARE
COMPONENT1
TOTAL STIA
PAYMENT
% OF
TARGET
STIA
% OF
MAXIMUM
STIA2
AWARDED FY2018 ($’000)
1,700
525
450
480
474
2,550
788
675
720
711
1,257
389
344
352
339
838
260
229
234
226
2,095
649
573
586
565
123
124
127
122
119
82
82
85
81
79
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 ‘claw-back’
2 Executives have forfeited between 15% to 21% of their maximum potential outcome
3 Pro-rata outcomes apply for Executives who were appointed after the performance year commenced (1 July 2017)
REMUNERATION REPORT
31
Directors’ Report (continued)
REMUNERATION REPORT
7. Long Term Incentive Award
What is the LTIA and who participates?
The LTIA is the component of Total Potential
Remuneration linked to providing long-term
incentives for selected Executives whom the
Board has identified as being able to contribute
directly to the generation of long-term
shareholder returns. This includes the MD &
CEO, Executive KMP, the remaining Executive
Committee (direct reports to the MD & CEO), and
key 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 6 and Table 7.
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. Value of the award will be
subject to movements in the Aurizon share
price over the performance period. Company
performance against LTIA subject to testing in
FY2018 is identified in Table 6.
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 and 112.5%
for the remaining Executive KMP.
What is the performance period?
From the 2017 Award, company hurdles are
measured over an extended performance
period, which increased from a three to a four-
year performance period. In order to manage
the transition on a value neutral basis for
the Company, two LTIA grants were made in
FY2018. Both grants were issued at 75% of the
maximum vesting opportunity. The 2018 Award
(to be issued in FY2019) will contain one grant
at 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.
Retesting was removed from the 2016 Award and
has not formed part of any subsequent awards.
TABLE 6 – COMPANY PERFORMANCE AGAINST LONG TERM INCENTIVE AWARDS SUBJECT TO TESTING IN FINANCIAL YEAR 2018
COMPANY HURDLE AND PERFORMANCE MEASUREMENT PERIOD
WEIGHTING RESULT
%
VESTED
% FOR
RETESTING
%
LAPSED
2014 AWARD: RETEST 01 JULY 2014 – 30 JUNE 2018
Relative TSR:
against peer group
within ASX100 Index
Initial: 30% of rights vest at the 50th
percentile, 75% at the 62.5th percentile up
to 100% at the 75th percentile
OR Improvement
ROIC: average annual ROIC
Initial: FY2015 – FY2017
Retest: FY2015 – FY2018
Retest: 100% of rights vest at the 75th
percentile. 0% will vest below the 75th
percentile
Initial: 50% of rights vest with a FY2017 OR
of 73%, up to 100% at or below 70%
Retest: 100% of rights vest at or below
70%. 0% will vest with an OR above 70%
Initial: 50% of rights vest with an average
ROIC of 10.5%, up to 100% at 11.5%
Retest: 100% of rights vest with an average
ROIC of 12.5%. 0% below 12.5%
2015 AWARD: 01 JULY 2015 – 30 JUNE 2018
Relative TSR:
against peer group
within ASX100 Index
OR Improvement
30% of rights vest at the 50th percentile,
75% of rights vest at the 62.5th percentile
up to 100% at the 75th percentile
50% of rights will vest with a FY2018 OR of
71.5%, up to 100% at 70%
ROIC: average annual
ROIC FY2016 – FY2018
50% of the rights will vest with an average
ROIC of 10.5%, up to 100% at 11.5%
33% Below median
(FY2017)
0% 100% of this component
was subject to a single
retest in FY2018
Below top
quartile (FY2018)
0%
100%
34% 75.8% (FY2017)
0% 100% of this component
was subject to a single
retest in FY2018
72.5%1 (FY2018)
0%
100%
33%
8.8%2
0% 100% of this component
was subject to a single
retest in FY2018
9.0%2
0%
100%
33% Below median
0% 100% of this component may be
subject to a retest in FY20193
34%
72.5%1 (FY2018)
33%
8.7%2
0% 100% of this component may be
subject to a retest in FY20193
0% 100% of this component may be
subject to a retest in FY20193
1 OR for remuneration purposes has been adjusted to include Intermodal (until the divestment is completed or the business is closed). This adjustment ensures the
definition used is consistent with when the performance hurdles were set. OR for continuing operations is 69.8%
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. Reported ROIC is 9% for the 2014 Award (FY2015 – FY2017), 9.5% for the 2014 Award (Retest FY2015 – FY2018)
and 9.4% for the 2015 Award (FY2016 – FY2018)
3 The retesting hurdles are 69% 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 2015 Award will be retested next year for either current or former Executives
32
AURIZON ANNUAL REPORT 2017–18 TABLE 7 – 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) are no longer 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 verified 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 (add-back depreciation charge and invested capital) to reflect asset impairments which
occur during the performance period, excluding asset impairments driven by continued efficiency and productivity improvements.
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.
In August 2017, Aurizon announced its intention to exit the Intermodal business. Accordingly, the entire Intermodal business has been treated
as a discontinued item for reporting purposes. Shareholders have been unable to realise the benefit of fully exiting the Intermodal business in
FY2018. As a result the Board have determined that OR for remuneration purposes will be adjusted to include Intermodal (until the divestment
is completed or the business is closed). This adjustment ensures the definition used is consistent with when the performance hurdles were set.
2017 AWARD (3 YEAR)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
Relative TSR: against peer
group within ASX100 Index
ROIC: average annual ROIC
FY2018 – FY20203
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)1,2
2017 AWARD (4 YEAR)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
Relative TSR: against peer
group within ASX100 Index
ROIC: average annual ROIC
FY2018 – FY20213
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 – 30/06/2021)1,2
PERFORMANCE PERIOD (01/07/2018 – 30/06/2022)1
2018 AWARD (4 YEAR)
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
Relative TSR: against peer
group within ASX100 Index
ROIC: average annual ROIC
FY2019 – FY2022
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 9%
100% of the rights will vest with
an average ROIC of 10%
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 2017 Award, company hurdles are measured over an extended performance period, which increased from a three-year performance period to a four-year
performance period. In order to facilitate this transition two awards were issued at 75% of the maximum vesting opportunity in FY2018
3 ROIC hurdles for the 2017 Awards have been set with reference to the QCA transitional tariff which extended 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 issuing retention awards 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 FY2018, no equity-based awards were issued however one equity-based award vested. This award pertained to the retention of the CFO
& Group Executive Strategy as disclosed in FY2017. Further information is available in note 29 of the Financial Report (page 91). Additionally,
28 cash-based awards were issued. One award was linked to the retention of a critical employee leading a key strategic program and vested in FY2018.
Two awards, which may vest in FY2019, were issued as a pre-emptive defence against the external targeting of Executives. The remaining awards
were issued to key employees required to complete the Intermodal closure and sale process totalling approximately $660,000. Performance periods
and conditions were tailored to the individual’s role and therefore resulted in varying outcomes. A majority of the awards pertaining to the Intermodal
process vested in FY2018.
REMUNERATION REPORT
33
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 8.
Minimum shareholding policy
for Executives
To align KMP and the Executive Committee
(direct reports to the MD & CEO) with
shareholders, the Company requires:
› Non-Executive Directors to accumulate and
maintain one year’s Total Directors’ fees
(consisting of Directors’ fee plus applicable
Committee fee/s) 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 Total Directors’
fees and Executives’ Fixed Remuneration
during the period divided by the number
of years.
Details of KMP shareholdings as at 30 June
2018 are set out in Table 9.
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 8 – SERVICE AGREEMENTS
NAME
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
DURATION OF
SERVICE AGREEMENT
FIXED REMUNERATION AT
END OF FINANCIAL YEAR
20181
NOTICE PERIOD2
BY EXECUTIVE
BY COMPANY3
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
$1,700,000
$700,000
$600,000
$640,000
$675,000
6 months
3 months
3 months
3 months
3 months
12 months
6 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
TABLE 9 – KMP SHAREHOLDINGS AS AT 30 JUNE 2018
NAME
NON–EXECUTIVE DIRECTORS
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
T Poole
M Bastos
R Caplan2
J Cooper2
K Field2
M Fraser
S Lewis
K Vidgen
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
90,500
–
82,132
85,000
40,458
40,000
33,025
40,000
–
16,484
57,972
48,6923
–
–
–
–
–
–
–
–
–
–
6,864
47,722
8,237
–
–
11,400
–
10,000
–
–
–
–
10,000
–
–
–
–
90,500
11,400
82,132
95,000
40,458
40,000
33,025
40,000
10,000
23,348
105,694
56,929
–
80%
25%
171%
198%
84%
83%
69%
87%
3%
14%
76%
39%
0%
1 Assumes Total Directors’ fees and Fixed Remuneration as at 30 June 2018 and the calculation assumes a share price of $4.33
2 KMP required to meet the minimum shareholding requirement due to length of service in a KMP role being longer than six years
3 Restated from FY2017
34
AURIZON ANNUAL REPORT 2017–18 TABLE 10 – DIRECTORS’ FEES
DIRECTORS
Chairman
TERM
Directors’ fees (inclusive of all
responsibilities and superannuation)
SERVICE AGREEMENT
SUMMARY
FROM
1 JANUARY
2018
PRIOR FEE
$490,000
$475,000
Other Non-Executive
Directors
Directors’ fees (inclusive of all
responsibilities and superannuation)
$170,000
$190,000
TABLE 11 – COMMITTEE FEES
NETWORK
BOARD
$30,000
$20,000
AUDIT
AND RISK
COMMITTEE
$30,000
$20,000
REMUNERATION
AND HUMAN
RESOURCES
COMMITTEE
SAFETY,
HEALTH AND
ENVIRONMENT
COMMITTEE
$17,500
$8,750
$17,500
$8,750
Chairperson
Member
TABLE 12 – NON-EXECUTIVE DIRECTORS’ REMUNERATION
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
M Bastos
R Caplan
J Cooper
M Fraser
K Field
S Lewis
K Vidgen
Total
2018
2017
2018
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
461
455
109
181
174
181
174
181
174
181
174
181
174
177
160
1,652
1,485
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20
20
10
17
16
17
16
17
16
17
16
17
16
17
15
132
115
481
475
119
198
190
198
190
198
190
198
190
198
190
194
175
1,784
1,600
1 Salary and fees include any salary sacrificed benefits
2 Non-monetary benefits represent the value of Reportable Fringe Benefits for the respective
FBT year ending 31 March
3 Appointment dates for new Directors are provided in Table 2 on page 26
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.
Remuneration for Non-Executive Directors
is reviewed by the Committee and set by
the Board, taking into account external
benchmarking. 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 does not
participate in any discussions relating to the
determination of his own remuneration.
FY2018 Review Outcome
This year’s review has resulted in changes to
the remuneration of the Chairman and Non-
Executive Directors – the first since 2012.
The Chairman’s fee continues to be inclusive
of fees for Committee memberships, however,
at a higher rate.
For the other Non-Executive Directors, there
has been a change to the structure to a ‘base
plus Committee’ fee from an ‘all-in-one’ fee.
This change has resulted in a decrease to the
base Directors’ fee. In addition to the base
Directors’ fee, other Non-Executive Directors
will receive the applicable fee components for
Committee chairperson and/or membership
responsibilities.
The base Directors’ fee continues to include
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 pay.
This change was effective from 1 January 2018
and is detailed in Tables 10 and 11. The actual
remuneration outcomes for the Non-Executive
Directors of the Company is summarised in
Table 12. Details of the Non-Executive Director
membership is disclosed on page 4.
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.
REMUNERATION REPORT
35
Directors’ Report (continued)
REMUNERATION REPORT
10. Executive Remuneration Financial Year 2018
The table below details the number and value of movements in equity awards during FY2018.
TABLE 13 – RIGHTS GRANTED AS COMPENSATION
NAME
EXECUTIVE KMP
A Harding3
P Bains
C McDonald
E McKeiver
M Riches
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.
2016
2017 STIAD6
2017 (3 year)
2017 (4 year)
2013
20143
20153
2016 – Ret4
2016
2017 STIAD6
2017 (3 year)
2017 (4 year)
2013
20143
2015 – Ret5
20153
2016
2017 STIAD6
2017 (3 year)
2017 (4 year)
2013
20143
20153
2016
2017 (3 year)
2017 (4 year)
2017 (3 year)
2017 (4 year)
463,636
–
–
–
38,582
49,382
46,066
25,000
60,776
–
–
–
43,403
55,555
40,000
51,824
60,776
–
–
–
46,297
59,260
55,279
64,656
–
–
–
–
–
42,076
295,938
295,938
–
–
–
–
–
20,279
114,241
114,241
–
–
–
–
–
12,774
97,921
97,921
–
–
–
–
104,449
104,449
110,161
110,161
–
211
914
885
–
–
–
–
–
102
363
351
–
–
–
–
–
64
311
301
–
–
–
–
332
321
350
339
–
–
–
–
18%
–
–
–
–
–
–
–
18%
–
100%
–
–
–
–
–
18%
–
–
–
–
–
–
–
–
–
–
–
(6,864)
–
–
–
–
–
–
–
(7,722)
–
(40,000)
–
–
–
–
–
(8,237)
–
–
–
–
–
–
–
–
–
–
–
(31,718)
–
–
–
–
–
–
–
(35,681)
–
–
–
–
–
–
–
(38,060)
–
–
–
–
–
–
–
–
–
–
–
82%
–
–
–
–
–
–
–
82%
–
–
–
–
–
–
–
82%
–
–
–
–
–
–
–
121
136
145
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
463,636
42,076
295,938
295,938
–
49,382
46,066
25,000
60,776
20,279
114,241
114,241
55,555
51,824
60,776
12,774
97,921
97,921
–
–
–
59,260
55,279
64,656
104,449
104,449
110,161
110,161
$
3.49
5.01
3.09
2.99
3.62
3.57
4.00
4.74
3.45
5.01
3.18
3.07
3.62
3.57
5.07
4.00
3.45
5.01
3.18
3.07
3.62
3.57
4.00
3.45
3.18
3.07
3.18
3.07
18–Oct–17
18–Sept–17
18–Oct–17
18–Oct–17
16–Aug–13
18–Aug–14
17–Aug–15
1–Jul–16
7–Oct–16
18–Sept–17
6–Oct–17
6–Oct–17
16–Aug–13
18–Aug–14
01–Oct–15
17–Aug–15
7–Oct–16
18–Sept–17
6–Oct–17
6–Oct–17
16–Aug–13
18–Aug–14
17–Aug–15
7–Oct–16
6–Oct–17
6–Oct–17
6–Oct-17
6–Oct-17
7–Sept–19
18–Sept–18
18–Oct–20
18–Oct–21
16–Aug–17
18–Aug–17
17–Aug–18
30–Jun–18
7–Oct–19
18–Sept–18
6–Oct–20
6–Oct–21
16–Aug–17
18–Aug–17
30–Jun–17
17–Aug–18
7–Oct–19
18–Sept–18
6–Oct–20
6–Oct–21
16–Aug–17
18–Aug–17
17–Aug–18
7–Oct–19
6–Oct–20
6–Oct–21
6–Oct–20
6–Oct–21
31–Dec–19
31–Dec–18
31–Dec–20
31–Dec–21
31–Dec–17
31–Dec–18
31–Dec–19
7–Jan–19
31–Dec–19
31–Dec–18
31–Dec–20
31–Dec–21
31–Dec–17
31–Dec–18
31–Dec–17
31–Dec–19
31–Dec–19
31–Dec–18
31–Dec–20
31–Dec–21
31–Dec–17
31–Dec–18
31–Dec–19
31–Dec–19
31–Dec–20
31–Dec–21
31–Dec-20
31–Dec-21
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 Details of the vesting outcomes are described in Table 6. As described in Table 6, the Board has not yet determined whether the 2015
Award will be retested in FY2019 for either current or former Executives
4 Retention Award as described in Section 7
5 Retention Award as described in Section 7 in the FY2017 Remuneration Report
6 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 6 in the FY2017 Remuneration Report
3636
AURIZON ANNUAL REPORT 2017–18 10. Executive Remuneration Financial Year 2018
The table below details the number and value of movements in equity awards during FY2018.
TABLE 13 – RIGHTS GRANTED AS COMPENSATION
NAME
INCENTIVE
PLAN
EXECUTIVE KMP
A Harding3
2016
463,636
P Bains
18%
(6,864)
(31,718)
82%
C McDonald
18%
(7,722)
(35,681)
82%
100%
(40,000)
2017 STIAD6
2017 (3 year)
2017 (4 year)
2013
20143
20153
2016 – Ret4
2016
2017 STIAD6
2017 (3 year)
2017 (4 year)
2015 – Ret5
2013
20143
20153
2016
2017 STIAD6
2017 (3 year)
2017 (4 year)
2017 (3 year)
2017 (4 year)
2017 (3 year)
2017 (4 year)
38,582
49,382
46,066
25,000
60,776
43,403
55,555
40,000
51,824
60,776
–
–
–
–
–
–
–
–
–
–
–
–
–
2013
20143
20153
2016
46,297
59,260
55,279
64,656
–
–
–
–
–
–
–
–
–
42,076
295,938
295,938
–
20,279
114,241
114,241
–
12,774
97,921
97,921
–
–
–
–
104,449
104,449
110,161
110,161
–
211
914
885
–
102
363
351
–
–
–
–
–
–
–
–
–
64
311
301
–
–
–
–
332
321
350
339
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18%
(8,237)
(38,060)
82%
–
E McKeiver
M Riches
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 Details of the vesting outcomes are described in Table 6. As described in Table 6, the Board has not yet determined whether the 2015
Award will be retested in FY2019 for either current or former Executives
4 Retention Award as described in Section 7
5 Retention Award as described in Section 7 in the FY2017 Remuneration Report
6 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 6 in the FY2017 Remuneration Report
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.
–
–
–
–
121
–
–
–
–
–
–
–
136
–
–
–
–
–
–
–
145
–
–
–
–
–
–
–
463,636
42,076
295,938
295,938
–
49,382
46,066
25,000
60,776
20,279
114,241
114,241
–
55,555
–
51,824
60,776
12,774
97,921
97,921
–
59,260
55,279
64,656
104,449
104,449
110,161
110,161
WEIGHTED FAIR
VALUE PER RIGHT
AT GRANT DATE
GRANT
DATE
DATE ON WHICH
GRANT VESTS2
EXPIRY
DATE
$
3.49
5.01
3.09
2.99
3.62
3.57
4.00
4.74
3.45
5.01
3.18
3.07
3.62
3.57
5.07
4.00
3.45
5.01
3.18
3.07
3.62
3.57
4.00
3.45
3.18
3.07
3.18
3.07
18–Oct–17
18–Sept–17
18–Oct–17
18–Oct–17
16–Aug–13
18–Aug–14
17–Aug–15
1–Jul–16
7–Oct–16
18–Sept–17
6–Oct–17
6–Oct–17
16–Aug–13
18–Aug–14
01–Oct–15
17–Aug–15
7–Oct–16
18–Sept–17
6–Oct–17
6–Oct–17
16–Aug–13
18–Aug–14
17–Aug–15
7–Oct–16
6–Oct–17
6–Oct–17
6–Oct-17
6–Oct-17
7–Sept–19
18–Sept–18
18–Oct–20
18–Oct–21
16–Aug–17
18–Aug–17
17–Aug–18
30–Jun–18
7–Oct–19
18–Sept–18
6–Oct–20
6–Oct–21
16–Aug–17
18–Aug–17
30–Jun–17
17–Aug–18
7–Oct–19
18–Sept–18
6–Oct–20
6–Oct–21
16–Aug–17
18–Aug–17
17–Aug–18
7–Oct–19
6–Oct–20
6–Oct–21
6–Oct–20
6–Oct–21
31–Dec–19
31–Dec–18
31–Dec–20
31–Dec–21
31–Dec–17
31–Dec–18
31–Dec–19
7–Jan–19
31–Dec–19
31–Dec–18
31–Dec–20
31–Dec–21
31–Dec–17
31–Dec–18
31–Dec–17
31–Dec–19
31–Dec–19
31–Dec–18
31–Dec–20
31–Dec–21
31–Dec–17
31–Dec–18
31–Dec–19
31–Dec–19
31–Dec–20
31–Dec–21
31–Dec-20
31–Dec-21
REMUNERATION REPORT
37
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
NAME
YEAR
CASH
SALARY
AND
FEES
$’0001
CASH
BONUS
$’000
ANNUAL
LEAVE2
$’000
NON-
MONETARY
BENEFITS3
$’000
SUPER-
ANNUATION4
$’000
LONG-
SERVICE
LEAVE
$’000
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
Total
Executive KMP
compensation
(group)
2018
2017
2018
20177
20188
2018
20179
201810
2018
2017
A
B
1,680
1,257
947
621
321
580
620
90
612
316
389
98
344
352
33
339
4,113
2,681
1,358
447
C
(4)
19
24
9
18
24
10
11
73
38
D
109
25
2
–
58
69
–
12
250
25
E
20
11
79
42
20
20
4
19
158
57
F
10
7
15
7
14
53
3
4
96
17
CONTRACTUAL
TERMINATION
BENEFITS
$’000
H
–
–
–
–
–
–
–
–
–
–
RIGHTS5
$’000
G
1,012
387
399
137
307
293
46
148
2,159
570
TOTAL
$’000
I
4,084
1,712
1,529
614
1,341
1,431
186
1,145
9,530
2,512
PROPORTION OF
COMPENSATION
PERFORMANCE
RELATED6
%
(B+G)/I
REMUNERATION
CONSISTING
OF RIGHTS FOR
THE YEAR
%
(G/I)
J
56
41
52
38
49
45
42
43
51
40
K
25
23
26
22
23
20
25
13
23
23
1 Cash salary and fees include any salary sacrifice benefits
2 Annual leave amount represents annual leave accrued or utilised during the financial year. Negative amounts represent the utilisation of annual leave
3 Non-monetary benefits includes travel benefits and relocation assistance
4 Superannuation amounts represent employers’ contribution to superannuation
5 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 29 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.
6 The short-term incentives (cash bonus), deferred short-term incentives and long-term incentives (equity-settled share-based payments) represent the at-risk
7
performance related remuneration
P Bains was appointed EVP & Chief Financial Officer from 19 December 2016. The cash salary and fees and cash bonus reflect the salary attributable to the EVP Chief
Financial Officer role
8 C McDonald was appointed Group Executive Bulk on 1 July 2017
9 E McKeiver was appointed Acting EVP Customer & Strategy from 18 April 2017. The cash salary and fees and cash bonus reflect the salary attributable to the EVP
Customer & Strategy role
10 M Riches was appointed Group Executive Network on 24 July 2017
38
AURIZON ANNUAL REPORT 2017–18 Auditors’ Independence Declaration
As lead auditors for the audit of Aurizon Holdings Limited for the year ended 30 June 2018, 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
12 August 2018
Tim Allman
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.
AUDITORS’ INDEPENDENCE DECLARATION
39
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 10 August 2018.
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
(Mr Marcelo Bastos). As part of this search, the Board received assurance on the background of the Director who
was 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, termination rights and
entitlements.
Contract details of senior executives who are Key Management Personnel can be found on page 26 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 7
of the Annual Report.
P
P
P
P
40
AURIZON ANNUAL REPORT 2017–18
RECOMMENDATION
1.5 Diversity & inclusion
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
› Aurizon Holdings has had a Diversity Policy since 2011 which is reviewed annually and which sets out its
objectives and reporting practices with respect to inclusion and diversity and is available in the Governance
section of the Company’s website, aurizon.com.au.
› The measurable objectives and outcomes for diversity, agreed by the Aurizon Holdings Board for FY2018, are
set out below:
ENTERPRISE MEASURES
FY18 TARGET
FY18 ACTUAL
Gender representation on Board
Minimum 30% (each gender)
33% women/67% men
Representation of women in
Aurizon
Representation of Aboriginal and
Torres Strait Islander men and
women in Aurizon
22.0%
5.5%
21.0%
5.0%
In addition, Aurizon’s representation of women in senior executive positions (Group Executives and their direct
reports) has increased to 22% in FY18 up from 20% in FY17.
Further details on the Company’s inclusion and 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. Periodically the
Board 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 and each Board
Committee was conducted in accordance with the internal assessment process described above.
1.6 Board reviews
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 four members (including the Chairman), all of whom are
Independent Non-Executive Directors. Details of the membership of the Nomination & Succession Committee,
including the names and qualifications of the Committee members, are set out on pages 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 possesses a good blend of these skills. During FY2015 and FY2016 the
Aurizon Board underwent significant change, including a change in Chairman. During FY2018 one additional Director
was appointed and since that time the Board has been consolidating the recent changes.
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 and construction
› Human resources
Further details regarding the skills and experience of each
Director are included on pages 4 to 7 of the Report.
P
P
P
P
P
P
CORPORATE GOVERNANCE STATEMENT
41
Corporate Governance Statement
(continued)
Principle 2: Structure the Board to add value (continued)
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
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 7 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 the Board considers the
half-year and full-year financial statements.
The Board also includes briefings from time-to-time on legal, accounting, regulation, developments in communication
and human resource management and technology.
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 and
Western Australia.
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. The Company’s Code of Conduct,
amongst other things, articulates and discloses the Company’s core values. Those core values are Safety, People,
Integrity, Customer and Excellence. A description of those values is set out in the Company’s Code of Conduct.
The Company also has a Whistleblower Policy, a copy of which is available in the Governance section of the
Company’s website, aurizon.com.au and the Board, through the Audit, Governance and Risk Management
Committee reviews and reports on concerns raised under the Whistleblower Policy.
P
P
P
P
P
42
AURIZON ANNUAL REPORT 2017–18 Principle 4: Safeguard integrity in corporate reporting
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
4.1 Audit Committee
The Audit, Governance & Risk Management Committee comprises four members, 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 7 of the Annual Report.
In addition to the Audit, Governance & Risk Management Committee members, the Managing Director & CEO, CFO,
Head of Risk & Assurance, external auditors and Company Secretary 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. Amongst other things, the Audit, Governance & Risk Management Committee
reviews the processes that validate the Director’s Report and the Annual Report. The Board, as a whole, has oversight
of other corporate reporting, such as investor presentations.
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. The Board, as a whole, receives a copy of all announcements under
Listing Rule 3.1 immediately prior to those announcements being made to the ASX.
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 ‘Company, ‘What we deliver’ 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. All resolutions put to shareholders are determined by Poll.
Aurizon provides its investors the option to receive communications from, and send communications to, the
Company and the share registry electronically.
P
P
P
P
P
P
P
P
CORPORATE GOVERNANCE STATEMENT
43
Corporate Governance Statement
(continued)
Principle 7: Recognise and manage risk
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
7.1 Risk committee
Aurizon Holdings’ Audit, Governance & Risk Management Committee oversees the process for identifying and
managing material risks in the Company in accordance with the Aurizon Risk Management Policy (Risk Policy).
A copy of the Risk Policy is available in the Governance section of the Company’s website, aurizon.com.au.
7.2 Annual risk review
7.3 Internal audit
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 effectiveness
of the Company’s risk management practices and report periodically its findings to the Audit, Governance & Risk
Management Committee. The purpose of the assurance 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 has considered the operation of the Company’s risk management framework through the delivery of its
audit program and have concluded that it is adequate and effective.
The Company has an internal audit function that operates under a Board-approved Internal Audit Charter.
The internal audit function is independent of management and the external auditor and is overseen by the Audit,
Governance & Risk Management Committee. In accordance with the Committee Charter, the appointment or
removal of the Head of Risk & Assurance is a matter for this Committee.
The Head of Risk & Assurance 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.
P
P
P
P
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 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 FY2018, the Company published its third Sustainability Report for the period ended 30 June 2017. 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 FY2018 performance and material economic, environmental
and social sustainability risks.
The Company’s FY2018 Sustainability Report is intended to be released in October 2018. 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
44
AURIZON ANNUAL REPORT 2017–18
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 & Human Resources 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 & Human Resources
Committee during the financial year are set out on page 8 of the Annual Report.
The Charter governing the conduct of the Remuneration & Human Resources 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.
The fee structure was changed during FY18. Further detail is set out in the Remuneration Report on page 35.
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 25 to 38 of the Annual Report. The Company also has in place a
Related Party Transaction Policy. The policy and disclosures under that policy is reviewed annually by the Board.
During the year there were no agreements entered into for the provision of consulting or similar services by a
Director or Senior Executive or by a related party or a Director or Senior Executive.
P
P
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 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
45
Financial Report
for the year ended 30 June 2018
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 47
Page 47
Page 48
Page 49
Page 50
Page 51
Page 51
Page 51
Group
structure
Other
information
Unrecognised
items
20. Associates
and joint
arrangements
21. Material
subsidiaries
22. Parent
26. Notes to the
consolidated
statement of
cash flows
27. Related party
transactions
32. Contingencies
33. Commitments
34. Events
occurring after
the reporting
period
disclosures
28. Key
23. Deed of cross
guarantee
24. Discontinued
operation
25. Assets
classified as
held for sale
Management
Personnel
compensation
29. Share-based
payments
30. Remuneration
of auditors
31. 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 98
Page 99
Page 105
46
AURIZON ANNUAL REPORT 2017–18
Consolidated income statement
for the year ended 30 June 2018
Revenue from continuing operations
Other income
Total revenue and other income
Employee benefits expense
Energy and fuel
Track access
Consumables
Depreciation and amortisation
Impairment losses
Other expenses
Share of net profit/(loss) of associates and joint venture partnerships
accounted for using the equity method
Operating profit
Finance income
Finance expenses
Net finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) from continuing operations after tax
Loss from discontinued operation after tax
Profit/(loss) for the year attributable to owners of Aurizon Holdings Limited
Basic earnings/(loss) per share for profit attributable to the ordinary equity holders of the Company:
– continuing and discontinued operations
– continuing operations
Diluted earnings/(loss) per share for profit attributable to the ordinary equity holders of the Company:
– continuing and discontinued operations
– continuing operations
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 2018
Profit/(loss) 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
Notes
2
2
3
3
3
4
3
5
24
6
6
Notes
16(b)
5(d)
Other comprehensive (expense)/income for the year, net of tax
Total comprehensive income/(expense) 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.
2018
$m
3,112.7
66.3
3,179.0
(755.2)
(252.4)
(191.4)
(348.4)
(525.5)
(70.0)
(70.6)
0.8
966.3
3.3
(168.3)
(165.0)
801.3
(241.2)
560.1
(77.1)
483.0
2017
$m
3,142.5
–
3,142.5
(892.6)
(236.5)
(204.2)
(392.9)
(567.3)
(678.3)
(46.2)
(0.1)
124.4
2.7
(181.3)
(178.6)
(54.2)
17.0
(37.2)
(150.7)
(187.9)
Cents
Cents
24.0
27.8
24.0
27.8
2018
$m
483.0
(13.0)
3.9
(9.1)
473.9
(9.2)
(1.8)
(9.2)
(1.8)
2017
$m
(187.9)
45.5
(13.5)
32.0
(155.9)
47
FINANCIAL REPORT
Consolidated balance sheet
as at 30 June 2018
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
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
48
Notes
2018
$m
2017
$m
7
8
19
25
8
19
9
10
20
11
17
19
12
13
24
17
19
5(f)
12
13
16(a)
16(b)
34.8
530.9
118.1
1.3
–
4.7
108.0
797.8
29.1
110.8
88.7
496.8
111.8
0.1
17.8
6.9
7.3
729.4
35.5
73.6
8,659.9
8,835.0
172.6
3.2
8,975.6
9,773.4
275.8
100.0
–
61.2
312.2
78.0
12.7
839.9
3,401.9
21.3
479.5
82.2
218.5
4,203.4
5,043.3
4,730.1
906.6
3,460.1
363.4
4,730.1
170.0
2.4
9,116.5
9,845.9
309.7
79.0
0.3
–
314.5
40.7
–
744.2
3,297.2
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
AURIZON ANNUAL REPORT 2017–18 Consolidated statement of changes in equity
for the year ended 30 June 2018
Attributable to owners of Aurizon Holdings Limited
Contributed
equity
$m
Notes
Reserves
$m
Retained
earnings
$m
Balance at 1 July 2017
Profit for the year
Other comprehensive expense
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 2018
Balance at 1 July 2016
Loss for the year
Other comprehensive income
Total comprehensive expense for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Share-based payments
1,206.6
3,473.0
–
–
–
(300.0)
–
–
(300.0)
906.6
–
(9.1)
(9.1)
(0.3)
–
(3.5)
(3.8)
3,460.1
1,206.6
3,424.7
–
–
–
–
–
–
–
32.0
32.0
–
16.3
16.3
16(b)
16(a)
15(a)
16(b)
16(b)
15(a)
16(b)
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.
342.5
483.0
–
483.0
–
(462.1)
–
(462.1)
363.4
1,082.3
(187.9)
–
(187.9)
(551.9)
–
(551.9)
342.5
Total
equity
$m
5,022.1
483.0
(9.1)
473.9
(300.3)
(462.1)
(3.5)
(765.9)
4,730.1
5,713.6
(187.9)
32.0
(155.9)
(551.9)
16.3
(535.6)
5,022.1
49
FINANCIAL REPORT Consolidated statement of cash flows
for the year ended 30 June 2018
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 from continuing operations
Net cash (outflow) from operating activities from discontinued operations
Net cash inflow from operating activities
Cash flows from investing activities
Payments for property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for intangibles
Interest paid on qualifying assets
Proceeds from sale of an associate
Notes
2018
$m
2017
$m
3,474.9
(2,060.0)
2.9
(110.1)
1,307.7
(25.1)
1,282.6
3,533.9
(2,088.7)
2.8
(174.8)
1,273.2
(34.8)
1,238.4
(467.7)
(443.4)
19.0
(31.0)
(2.8)
–
13.1
(61.3)
(3.2)
98.3
26
24(b)
3
Net cash (outflow) from investing activities from continuing operations
(482.5)
(3((((396.5))
Net cash inflow (outflow) from investing activities from discontinued operations
24(b)
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 shares bought back
Payments of transaction costs related to shares bought back
Dividends paid to Company's shareholders
Payments for shares acquired for share based payments
Interest paid
16(a)
15(a)
16(b)
Net cash (outflow) from financing activities from continuing operations
Net cash inflow (outflow) from financing activities from discontinued operations
24(b)
Net cash (outflow) from financing activities
Net (decrease) increase in cash and cash equivalents from continuing operations
Net increase (decrease) in cash and cash equivalents from discontinued operations
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.
54.6
(427.9)
291.0
(275.0)
(3.8)
(300.0)
(0.4)
(462.1)
(2.5)
(155.8)
(908.6)
–
(908.6)
(83.4)
29.5
88.7
34.8
(34.7)
(431.2)
422.1
(477.0)
(0.4)
–
–
(551.9)
(7.5)
(173.0)
(787.(787.7)
–
(787.7)
89.0
(69.5)
69.2
88.7
50
AURIZON ANNUAL REPORT 2017–18 Notes to the consolidated financial statements
30 June 2018
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
12 August 2018. 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 2017
› 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
Discontinued operation
Note
2
4
5
9
24
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) Closure and sale of Intermodal
On 14 August 2017 the Group announced its intention to exit the
Intermodal business through a combination of closure and sale.
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 agreements.
Aurizon signed a separate binding agreement to sell its Queensland
Intermodal business to a consortium of Linfox and Pacific National
(QI BSA). The transaction includes the transfer of approximately
330 employee positions, as well as assets, commercial and operational
arrangements to the Linfox and Pacific National consortium.
The transactions are subject to:
› Approval by the Australian Competition & Consumer Commission
(ACCC); and
› Approval by the Foreign Investment & Review Board (FIRB)
Total consideration for the two transactions is $225.0 million of which
$45.0 million has been received to date.
The ACCC decision was announced on 19 July 2018. The ACCC decided
to oppose both transactions and commenced proceedings against
Pacific National and Aurizon in the Federal Court of Australia. The ACCC
has sought declarations, pecuniary penalties, orders restraining the
existing sale transactions from proceeding and costs. The ACCC has also
sought an injunction to prevent Aurizon from closing its Queensland
Intermodal business while proceedings are on foot. While Aurizon refutes
the ACCC’s allegations and will defend the proceedings including seeking
clearance of the Acacia Ridge transaction, there is a risk that the Acacia
Ridge transaction will be prevented from completing and/or Aurizon
incurs orders for pecuniary penalties and costs. There is also the risk that,
in the interim whilst the matter is being determined by the Court, Aurizon
is injuncted from closing the Queensland Intermodal business.
51
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2018 (continued)
Key events and transactions for
reporting period (continued)
(a) Closure and sale of Intermodal (continued)
On 12 August 2018 Aurizon provided Pacific National with a notice to
terminate the Business Sale Agreement for the Queensland Intermodal
business, with effect from 13 August 2018. It is Aurizon’s intention to
not contest clearance of that transaction through the Federal Court and
to exit the business. As clearance has not been obtained for the sale of
the Queensland Intermodal business, $10 million of the consideration
received for the transactions to date (recognised as a liability at 30 June
2018) will be refunded to Pacific National. The Business Sale Agreement
for the Acacia Ridge Terminal remains in place while Aurizon seeks
clearance of that transaction, and the remainder of the consideration
received for the transactions to date ($35 million) is not refundable.
Notwithstanding this Aurizon remains committed to exiting the
Intermodal business and on this basis has continued to classify the
Acacia Ridge and Queensland Intermodal business assets as held for sale
and discontinued operations at 30 June 2018.
On 10 August 2018 the Federal Court of Australia heard an application
from the ACCC for an interlocutory injunction to require Aurizon to
continue to operate the Queensland Intermodal business in the ordinary
and usual course. The Court reserved judgement on the matter, and
judgement is currently expected to be handed down on 13 August 2018.
Aurizon’s Interstate Intermodal business has been closed with the last
operational service occurring on 23 December 2017. Approximately
160 employee positions were affected by the closure of the Interstate
business.
The closure of Interstate Intermodal has resulted in $74.7 million of
significant items being recognised in the year ended 30 June 2018.
Significant Interstate Intermodal items include $61.0 million for contract,
lease and supplier exit costs, $9.1 million in redundancy costs and asset
write downs of $4.6 million.
(b) Access revenue
On 15 December 2017 the Queensland Competition Authority (QCA)
issued a draft decision pertaining to Aurizon Network’s 2017 Draft
Access Undertaking (UT5). The draft decision has proposed that Aurizon
Network’s overall Maximum Allowable Revenue (MAR) for the regulatory
period (FY18 to FY21) of the Undertaking is $3.893 billion, including a
weighted average cost of capital of 5.41%.
In May 2018, the QCA approved transitional tariffs for the year ended
30 June 2018, set transitional tariffs for the period 1 July 2018 to
31 December 2018 and extended the 2016 Access Undertaking (UT4)
to the earlier of 31 December 2018 or the date a replacement
Undertaking takes effect.
Access revenue recognised in these financial statements is based on
the transitional tariffs applying from 1 July 2017. Allowable revenue
for the year ended 30 June 2018 on which the transitional tariffs were
based may be different than the final approved UT5 revenue and will
impact future year’s revenue. The true-up of revenues is expected to
be dealt with as part of the final approval of UT5 and is dependent
on future railings.
Revenue recognised for the year ended 30 June 2017 was based on the
approved UT4 Undertaking tariffs, applied to actual volumes railed and
included $89 million of prior years’ UT4 regulatory access true-ups (net
of revenue cap of $31 million relating to the year ended 30 June 2015).
(c) Bulk contract exit
The Group had an iron ore Rail Haulage Agreement with Cliffs Asia
Pacific Iron Ore Pty Ltd (Cliffs) that was due to expire 31 January 2022.
The contract provided for haulage of up to 11mtpa and during the year
ended 30 June 2018 the Group transported 7.8mt.
Cliffs formally advised the Group that it would be closing its Western
Australia mining operations by 30 June 2018 including the ceasing of all
rail services. On 29 June 2018, Cliffs issued a contract termination notice
to the Group effective 30 June 2018. As a result, an early termination
payment of $66.3 million (excluding GST) has been recognised as other
income for the year ended 30 June 2018.
Aurizon has considered the financial impact of the contract termination
and as a result an asset impairment of $27.9 million has been recognised
for the year ended 30 June 2018. In addition, closure provisions of
$3.9 million have been recognised which include a redundancy
provision of $3.5 million in relation to 63 FTEs that serviced the Cliffs
contract. The net contract exit benefit before cash generating unit (CGU)
impairment is $34.5 million for the year ended 30 June 2018. Refer to
(d) below.
(d) Impairment
Western Australia
An impairment charge of $362.4 million under a value in use (VIU)
methodology was recorded at 30 June 2017 for the Western Australia
CGU as a result of the low long-term iron ore price, high cash operating
costs for our customers, challenging and competitive bulk markets and
deterioration in our operating performance. As a result of the loss of the
Cliffs iron ore contract earlier than expected during the year, a further
impairment charge of $31.7 million (in addition to (c) above) has been
recognised for the Western Australia CGU at 30 June 2018.
Bulk East
At 30 June 2017, an impairment charge of $163.5 million was recorded in
respect of the Bulk East business using a fair value less costs of disposal
(FVLCD) methodology. Additional sustaining capital has been incurred
during the year ended 30 June 2018 which has resulted in a further
impairment of $10.4 million.
(e) On-market share buy-back scheme
On 14 August 2017 the Company announced its intention to undertake
an on-market buy-back of approximately $300.0 million, over a 12-month
period. The on-market buy-back program was completed in March 2018
and the Company has acquired 61.6 million shares at a total consideration
of $300.0 million.
(f) Debt refinancing
In November 2017 Aurizon Network Pty Ltd (a wholly owned subsidiary
of the Group) replaced $525.0 million of its revolving bank debt facility
with a 5 year $500.0 million revolving bank debt facility extending the
maturity date to 20 October 2022.
(g) Business unit restructure
From 1 July 2017 the organisational structure moved from a functional
based model to a business unit model along the core areas of the
business – Coal, Bulk (including Iron Ore), Network and Intermodal,
as well as central support and planning functions. To reflect this
reorganisation Aurizon changed its segment disclosure for financial
year 2018 and the comparative period has also been restated.
52
AURIZON ANNUAL REPORT 2017–18 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 54
Page 57
Page 58
Page 58
Page 60
Page 62
FINANCIAL REPORT
53
FINANCIAL REPORT 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 & CEO and the
Executive Committee (chief operating decision makers).
As announced on 23 March 2017 Aurizon implemented the business unit
structure on 1 July 2017. To reflect this reorganisation Aurizon changed
its financial disclosure for financial year 2018 and the comparative period
has also been restated. All future financial results will be disclosed under
the new operating segments (Network, Coal, Bulk and Other) as it
represents the operating structure of the Group. The Managing Director &
CEO and the Executive Committee assess the performance of the Group
based on the underlying EBIT.
Unless otherwise noted, the segment reporting information excludes
discontinued operations, which represents the Intermodal business.
Refer to note 24 for further details.
(a) Description of segments
The following summary describes the operations in each of the Group’s
reportable segments:
Network
Provision of access to, and operation of, the Central Queensland
Coal Network (CQCN). Provision of maintenance and renewal of
Network assets.
Coal
Transport of coal from mines in Queensland and New South Wales to end
customers and ports.
Bulk
Transport of bulk mineral commodities (including iron ore), agricultural
products, mining and industrial inputs, and general freight throughout
Queensland and Western Australia.
Other
Includes provision of maintenance services to internal and external
customers and central costs not allocated such as Board, Managing
Director & CEO, company secretary and investor relations.
54
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18 1 Segment information (continued)
(b) Segment information
Network
$m
Coal
$m
Bulk
$m
Other
$m
Total continuing
operations
$m
2018
External revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Total revenue from external customers
Internal revenue
Services revenue
Track access
Freight transport
Other services
Total internal revenue
Total revenue
Other income
Total revenue and other income
Internal elimination
Consolidated revenue and other income
Continuing EBITDA (Underlying)*
Depreciation and amortisation
Continuing EBIT (Underlying)*
Significant adjustments (note 1(c))
EBIT*
Net finance costs
Profit before income tax from continuing operations
* Refer to page 105 for Non-IFRS information
581.5
–
7.3
37.7
626.5
585.6
–
6.6
592.2
1,218.7
–
1,218.7
598.1
1,207.8
0.2
0.6
1,806.7
–
–
6.5
6.5
1,813.2
–
1,813.2
788.6
(308.0)
480.6
611.2
(182.6)
428.6
–
590.5
24.9
0.4
615.8
–
1.6
0.7
2.3
618.1
–
618.1
75.2
(25.1)
50.1
–
–
36.9
26.8
63.7
–
–
27.1
27.1
90.8
–
90.8
(8.9)
(9.8)
(18.7)
1,179.6
1,798.3
69.3
65.5
3,112.7
585.6
1.6
40.9
628.1
3,740.8
–
3,740.8
(628.1)
3,112.7
1,466.1
(525.5)
940.6
25.7
966.3
(165.0)
801.3
55
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT
1 Segment information (continued)
Network
$m
Coal
$m
Bulk
$m
Other
$m
Total continuing
operations
$m
2017
External revenue
Revenue from external customers
Services revenue
Track access
Freight transport
Other services
Other revenue
Total revenue from external customers
Internal revenue
Services revenue
Track access
Freight transport
Other services
Total internal revenue
Total revenue
Other income
Total revenue and other income
Internal elimination
Consolidated revenue and other income
Continuing EBITDA (Underlying)*
Depreciation and amortisation
Continuing EBIT (Underlying)*
Significant adjustments (note 1(c))
EBIT*
Net finance costs
Loss before income tax from continuing operations
* Refer to page 105 for Non-IFRS information
574.0
–
4.3
54.5
632.8
625.9
–
3.4
629.3
1,262.1
–
1,262.1
630.3
1,156.8
0.3
–
1,787.4
–
1.7
5.9
7.6
1,795.0
–
1,795.0
–
622.3
19.9
3.0
645.2
–
–
–
–
645.2
–
645.2
780.4
(299.5)
480.9
603.7
(183.7)
420.0
59.1
(73.5)
(14.4)
–
–
46.4
30.7
77.1
–
0.7
29.2
29.9
107.0
–
107.0
8.3
(10.6)
(2.3)
1,204.3
1,779.1
70.9
88.2
3,142.5
625.9
2.4
38.5
666.8
3,809.3
–
3,809.3
(666.8)
3,142.5
1,451.5
(567.3)
884.2
(759.8)
124.4
(178.6)
(54.2)
56
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18 1 Segment information (continued)
(d) Customer disclosure
(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.
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
–
(10.2)
Customer 1
Customer 2
Total
2018
$m
487.3
424.7
912.0
2017
$m
2018
credit rating
2017
credit rating
511.5
413.2
924.7
A
BBB+
A
BBB
–
2 Revenue and other income
(525.9)
(64.0)
(48.9)
(110.8)
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.
2018
$m
66.3
(27.9)
(3.9)
(31.7)
–
–
22.9
Bulk contract exit termination payment
Bulk contract exit asset impairment
Bulk contract exit – redundancy
and closure costs
Bulk WA impairment
Freight Management Transformation (FMT)
impairment
Transformation – asset impairment
Transformation – redundancy costs
Total significant adjustments
(continuing operations)
25.7
(759.8)
The Group derives the following types of revenue:
Bulk contract exit
Cliffs formally advised the Group that it would be closing its Western
Australian mining operations by 30 June 2018 including the ceasing of all
rail services. On 29 June 2018, Cliffs issued a contract termination notice
to the Group effective 30 June 2018. As a result, an early termination
payment of $66.3 million (excluding GST) has been recognised as other
income for the year ended 30 June 2018.
Aurizon has considered the financial impact of the contract termination
and as a result an asset impairment of $27.9 million has been recognised
for the year ended 30 June 2018. In addition, closure provisions of
$3.9 million have been recognised which include redundancy of
$3.5 million in relation to 63 FTEs that serviced the Cliffs contract.
The net contract exit benefit before CGU impairment is $34.5 million
for the year ended 30 June 2018.
Impairment
For further disclosure on the impairment write downs for the year
ended 30 June 2018 and the comparative period refer to note 4.
Redundancy costs
A provision for train crew redundancy of $22.9 million that was recorded
as a significant item in the year ended 30 June 2017 has been released in
the year ended 30 June 2018 as the planned transition of those positions
to a flexible workforce has not been implemented at this time due to
operational requirements and stronger coal demand.
For disclosure on the significant items relating to discontinued operations
refer to note 24.
Services revenue
Track access
Freight transport
Other services
Other revenue
2018
$m
2017
$m
1,179.6
1,798.3
69.3
65.5
1,204.3
1,779.1
70.9
88.2
Total revenue from continuing operations
3,112.7
3,142.5
Other income
66.3
–
Total revenue and other income from
continuing operations
3,179.0
3,142.5
Other income includes $66.3 million in relation to contract termination
payments that have been recorded as a significant item for the year
ended 30 June 2018.
SIGNIFICANT JUDGEMENTS
Take-or-Pay revenue
The calculation of access Take-or-Pay revenue included in track access
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 and force majeure events. The estimate of
Take-or-Pay revenue is based on management’s judgement of below rail
cause versus above rail operator/mine cancellations and is recognised in
the year in which the contractual railings have not been achieved.
Take-or-Pay revenue of $27.1 million has been recognised at 30 June
2018. Take-or-Pay revenue of $42.3 million was accrued at 30 June 2017.
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.
57
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT
2018
$m
2017
$m
505.0
20.5
525.5
1.1
68.9
–
70.0
160.3
0.4
2.9
7.5
171.1
(2.8)
168.3
551.2
16.1
567.3
12.6
599.0
66.7
678.3
173.5
–
8.0
3.0
184.5
(3.2)
181.3
2018
$m
2017
$m
42.1
27.9
–
–
–
525.9
10.2
64.0
48.9
29.3
70.0
678.3
4.6
74.6
162.2
840.5
2 Revenue and other income (continued)
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 actual volumes railed are less than the regulatory forecast,
Take-or-Pay may trigger. Take-or-Pay is recognised in the year that the
contractual railings were not achieved.
Depreciation and amortisation expense
Depreciation
Amortisation of intangibles
Impairment losses•
Inventory
Property, plant and equipment
Intangibles
* Refer to note 4 for impairment information.
Finance costs
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.
Interest and finance charges paid/payable
Provisions: unwinding of discount
Amortisation of capitalised borrowing
transaction costs
Counterparty credit risk adjustments
Profit/(loss) before income tax from continuing operations includes the
following specific expenses:
Freight Management Transformation
impairment (iii)
During the transitional period, revenue is determined based on the
most relevant and reliable information available. The basis of revenue
recognition for 30 June 2018 is disclosed within the Key events and
transactions for reporting period section.
(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.
3 Expenses
Employee benefits expenses
Defined benefit superannuation expense
Defined contribution superannuation expense
Redundancies*
Salaries, wages and allowances including on-costs
2018
$m
2017
$m
12.6
55.3
(3.9)
691.2
755.2
13.3
58.7
115.9
704.7
892.6
* $19.0 million of redundancy costs recognised offset by $22.9 million of
redundancy costs provided for in the year ended 30 June 2017 which were
released in the year ended 30 June 2018 as described in note 1(c).
Consumables
Repairs and maintenance
Other
248.2
100.2
348.4
269.5
123.4
392.9
58
Amount capitalised to qualifying assets
4 Impairment of non-financial assets
Continuing operations
Bulk impairment (i)
Impairment of assets in exit of contracts (ii)
Transformation – asset impairment (iv)
Other (v)
Discontinued operations
Intermodal impairment (vi)
Total impairment of non-financial assets
(a) Impairment of non-financial assets
Current period
(i) Bulk impairment ($42.1 million)
Western Australia ($31.7 million)
Indicators of impairment were identified for the Western Australia CGU
due to the cessation of the Cliffs iron ore contract earlier than expected
during the year. As a result, an impairment test was completed.
The recoverable amount used in the impairment test is based on a VIU
methodology based on the Board approved corporate plan, a terminal
growth rate of 2.2% and a pre-tax discount rate of 11.7%.
The impairment write-down of $31.7 million has been allocated to
rollingstock ($28.0 million), plant and equipment ($2.6 million) and land,
buildings and infrastructure ($1.1 million).
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
4 Impairment of non-financial assets
(continued)
Following the impairment, the residual carrying value of the assets of the
Western Australia CGU as at 30 June 2018 is $170.7 million. The segment
has a small number of customers and the VIU is sensitive to changes in
customer contractual arrangements. Should any major contracts not be
renewed or any remaining 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 ($10.4 million)
At 30 June 2017, an impairment charge of $163.5 million was recorded in
respect of the Bulk East business using a FVLCD methodology. Additional
sustaining capital has been incurred during the year which has resulted
in a further impairment of $10.4 million. This was not classified as a
significant item.
Impairment of assets in exit of contracts ($27.9 million)
(ii)
As a result of Cliffs closing mining operations in Western Australia and
the early termination of the rail haulage agreement with the Group in
June 2018, $26.8 million of property, plant and equipment and $1.1 million
of inventory was impaired at 30 June 2018.
(vi) Intermodal ($4.6 million)
Due to the closure and sale of Intermodal, an asset write-down of
$4.6 million has been allocated to software ($2.2 million), rollingstock
($1.1 million) and plant and equipment ($1.3 million).
Prior period
(i)
Bulk impairment ($525.9 million)
Western Australia ($362.4 million)
As a result of the low long-term iron ore price, high cash operating
costs for our customers, challenging and competitive bulk markets,
deterioration in operating performance and the changed business
structure resulting in changes in cost allocations, a review of the
operating cashflows of the Western Australia CGU was completed at
30 June 2017. A pre-tax impairment charge of $362.4 million was
recorded. The residual carrying value of the assets at 30 June 2017
was $207.8 million.
Bulk East ($163.5 million)
The Queensland CGU was 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 resulted
in a pre-tax impairment charge of $163.5 million under a FVLCD
methodology. The fair value was determined with reference to external
and internal valuations for assets. The residual carrying value of the Bulk
East CGU as at 30 June 2017 was $46.6 million.
(ii) Asset impairment as a result of contract exits ($10.2 million)
As a result of a 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 operation of this daily multi-
customer freight service from the contract expiry date of 31 January 2017.
An impairment of $10.2 million relating to assets was recognised at
31 December 2016.
(iii) 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.
(iv) Transformation – asset impairment ($48.9 million)
An impairment of $48.9 million was recorded as a result of a change in
Queensland operations, the ongoing transformation program, various
projects no longer proceeding and surplus assets.
(v) Impairment of other assets ($29.3 million)
Other minor assets and projects totalling $29.3 million have also been
impaired as a result of normal operations. These asset impairments were
not classified as significant items.
(vi) Intermodal ($162.2 million)
Due to the trading performance during the first half of financial year 2017
being lower than expectations, 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 FVLCD methodology.
The fair value was determined with reference to external and internal
valuations for assets. The Intermodal CGU was impaired by $162.2 million
with a residual value of $169.9 million as at 30 June 2017.
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 2018 have been
determined based on VIU calculations except for Bulk East, which
is valued using FVLCD. The value in use is calculated based on a
four-year Board approved corporate plan, a terminal growth rate
of 2.2% per annum (2017: 1.5%) and a pre-tax discount rate ranging
from 8.8% – 11.7% (2017: 9.1% – 11.8%). The value in use calculations
indicate headroom to the carrying value of CGUs, with the exception
of Western Australia. For the year ended 30 June 2018, the Western
Australia CGU had indicators of impairment due to the cessation of
services to a key iron ore customer during the year.
As a result, an impairment test was completed. The key assumptions
used in the estimation of the recoverable amount of the Western
Australia CGU are set out in note 4(a)(i-ii) above.
Following the impairment loss recognised in the Western Australia
CGU for the year ended 30 June 2018, the recoverable amount
is equal to the carrying amount. 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 ten-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 changes to volumes and
productivity, or a change in management’s view as to the level of
contingent fleet required, could result in impairment or reversal of
previous impairment in the future. The application of this judgement
will continue to be assessed at each reporting date.
59
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT
Notes to the consolidated financial statements
30 June 2018 (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.
Differences between tax law and 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.
60 AURIZON ANNUAL REPORT 2017-18
Current tax
Deferred tax
Current tax relating to prior periods
Deferred tax relating to prior periods
Income tax expense/(benefit) is attributable to:
Profit/(loss) from continuing operations
Loss from discontinued operation (note 24(b))
Deferred income tax expense included in
income tax expense comprises:
(Increase)/Decrease in deferred tax assets
(note 5(e))
Increase/(Decrease) in deferred tax liabilities
(note 5(f))
2018
$m
151.3
68.7
16.6
(17.0)
219.6
2017
$m
86.2
(166.4)
(9.1)
7.7
(81.6)
241.2
(21.6)
219.6
(17.0)
(64.6)
(81.6)
(8.5)
13.4
60.2
51.7
(172.1)
(158.7)
(b) Numerical reconciliation of income tax expense to prima
facie tax payable
Profit/(loss) before income tax expense from
continuing operations
Loss before income tax expense from
discontinued operation
Tax at the Australian tax rate of 30%
(2017: 30%)
Tax effect of amounts which are not deductible
(taxable) in calculating taxable income:
Entertainment
Research and development
Non-assessable income
Capital losses not recognised
Other
Adjustments for current tax of prior periods
(c) Amounts recognised directly in equity
Aggregate deferred tax arising in the reporting
period and directly credited to equity
2018
$m
2017
$m
801.3
(54.2)
(98.7)
(215.3)
702.6
(269.5)
210.8
(80.9)
0.2
(0.7)
(0.3)
8.0
2.0
(0.4)
219.6
0.2
(1.6)
0.1
–
2.0
(1.4)
(81.6)
2018
$m
2017
$m
4.9
(17.2)
(d) Tax expense/(benefit) relating to items of other
comprehensive income
Cash flow hedges
2018
$m
(3.9)
2017
$m
13.5
Notes to the consolidated financial statements
30 June 2018 (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
2018
$m
199.1
2017
$m
191.6
(199.1)
(191.6)
–
–
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax assets:
Movements
At 1 July 2017
(Charged)/credited
- to profit or loss
- to other comprehensive income
- directly to equity
At 30 June 2018
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
Total deferred tax liabilities
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax liabilities
Provisions/
accruals
$m
Customer
contracts
$m
Unearned
revenue
$m
Financial
instruments
$m
130.8
22.5
–
24.2
Other
$m
14.1
(9.5)
–
–
121.3
125.7
5.1
–
–
130.8
(7.8)
–
–
14.7
32.8
11.9
–
–
11.9
0.3
(10.3)
(0.3)
–
–
22.5
–
–
–
13.8
3.9
–
41.9
38.3
(0.6)
(13.5)
–
24.2
0.1
–
(4.9)
9.3
4.2
(7.3)
–
17.2
14.1
2018
$m
678.6
(199.1)
479.5
Total
$m
191.6
8.5
3.9
(4.9)
199.1
201.3
(13.4)
(13.5)
17.2
191.6
2017
$m
618.4
(191.6)
426.8
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax liabilities:
Movements
At 1 July 2017
Charged/(credited)
– profit or loss
At 30 June 2018
At 1 July 2016
Charged/(credited)
– profit or loss
At 30 June 2017
Non-
current
assets
$m
588.3
54.0
642.3
756.3
(168.0)
588.3
Consumables
and spares
$m
Accrued
income
$m
Financial
instruments
$m
5.2
2.6
22.1
Other
$m
0.2
Total
$m
618.4
(4.0)
1.2
(0.9)
1.7
11.5
33.6
(0.4)
(0.2)
60.2
678.6
10.3
(5.1)
5.2
0.3
2.3
2.6
23.2
(1.1)
22.1
0.4
(0.2)
0.2
790.5
(172.1)
618.4
61
FINANCIAL REPORT
Notes to the consolidated financial statements
30 June 2018 (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 in FY16 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 or credit for the year is the tax payable on the
current year’s taxable income based on the applicable income tax rate
for each jurisdiction adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws
enacted or substantively enacted at the end of the reporting year in
the countries where the Group’s subsidiaries and associates operate
and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to
be paid to the tax authorities.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial
statements. However, deferred tax liabilities are not recognised if they
arise from the initial recognition of goodwill. Deferred income tax is also
not accounted for if it arises from initial recognition of an asset or liability
in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred
income tax is determined using tax rates (and laws) that have been
enacted or substantially enacted by the end of the reporting 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.
Basic earnings per share attributable to the
ordinary equity holders of the Company:
– continuing and discontinued operations
– continuing operations
2018
Cents
2017
Cents
24.0
27.8
(9.2)
(1.8)
(b) Diluted earnings per share
Diluted EPS is calculated by dividing the profit attributable to owners
of the Company by the weighted average number of ordinary shares
outstanding after adjustment for the effects of all dilutive potential
ordinary shares.
Diluted earnings per share attributable to the
ordinary equity holders of the Company:
– continuing and discontinued operations
– continuing operations
(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:
2018
Cents
2017
Cents
24.0
27.8
(9.2)
(1.8)
2018
Number
‘000
2017
Number
‘000
2,013,362
2,051,745
Rights
1,865
496
Weighted average number of ordinary
and potential ordinary shares used as the
denominator in calculating diluted EPS
2,015,227
2,052,241
62 AURIZON ANNUAL REPORT 2017–18
AURIZON ANNUAL REPORT 2017-18
AURIZON ANNUAL REPORT 2017–18
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 64
Page 64
Page 65
Page 67
Page 68
Page 68
Page 69
FINANCIAL REPORT
63
Notes to the consolidated financial statements
30 June 2018 (continued)
7 Trade and other receivables
8 Inventories
2018
$m
2017
$m
Current
350.7
Raw materials and stores – at cost
(27.2)
Work in progress – at cost
323.5
173.3
496.8
Provision for inventory obsolescence
Non-current
Raw materials and stores – at cost
Provision for inventory obsolescence
2018
$m
2017
$m
133.1
0.2
(15.2)
118.1
44.8
(15.7)
29.1
135.8
2.2
(26.2)
111.8
47.4
(11.9)
35.5
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.
Current
Trade receivables
Provision for impairment of receivables
Net trade receivables
Other receivables*
435.1
(27.7)
407.4
123.5
530.9
* 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
2018
$m
2017
$m
4.9
–
3.0
7.9
9.4
0.5
1.5
11.4
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.
64 AURIZON ANNUAL REPORT 2016–17
AURIZON ANNUAL REPORT 2017-18
9 Property, plant and equipment
2018
Opening net book amount
Additions
Transfers between asset classes
Disposals
Impairment*
Assets classified as held for sale
Depreciation**
Closing net book amount
At 30 June 2018
Cost or fair value
Accumulated depreciation and
impairment
Net book amount
Owned
Leased
2017
Opening net book amount
Additions
Transfers between asset classes
Disposals
Impairment*
Assets classified as held for sale
Depreciation**
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Total
$m
184.8
502.4
(406.4)
–
(5.2)
(0.3)
–
275.3
159.7
273.5
–
(0.1)
(2.3)
–
(30.8)
–
126.5
–
(2.3)
(7.7)
(3.5)
(6.8)
(21.9)
231.3
377.0
–
20.6
(10.9)
(3.9)
(10.3)
(44.9)
327.6
2,329.2
5,510.8
8,835.0
–
131.5
(4.9)
(53.1)
(13.2)
(157.8)
2,231.7
–
263.6
(7.1)
(5.6)
(11.8)
502.4
6.9
(32.9)
(71.3)
(73.2)
(282.4)
(507.0)
5,467.5
8,659.9
275.3
126.5
499.4
756.8
5,081.0
7,468.6
14,207.6
–
275.3
275.3
–
275.3
385.4
468.3
(634.2)
–
(34.7)
–
–
–
126.5
102.7
23.8
126.5
(268.1)
231.3
223.2
8.1
231.3
160.5
340.9
–
1.9
(1.8)
(0.9)
–
–
–
32.8
(2.8)
(75.1)
(1.4)
(20.9)
273.5
(429.2)
327.6
327.6
–
327.6
389.6
–
117.5
(6.1)
(58.9)
–
(65.1)
377.0
(2,849.3)
(2,001.1)
(5,547.7)
2,231.7
2,231.7
–
2,231.7
5,467.5
8,659.9
975.8
4,491.7
5,467.5
4,136.3
4,523.6
8,659.9
2,823.4
5,619.4
–
193.9
(3.5)
–
288.1
(8.8)
9,719.2
468.3
–
(23.0)
(483.5)
(106.9)
(760.0)
–
(201.1)
2,329.2
(0.2)
(1.6)
(280.8)
(567.9)
5,510.8
8,835.0
Closing net book amount
184.8
159.7
At 30 June 2017
Cost
Accumulated depreciation and
impairment
Net book amount
Owned
Leased
184.8
159.7
526.2
793.4
5,140.2
7,266.3
14,070.6
–
184.8
184.8
–
184.8
–
159.7
135.9
23.8
159.7
(252.7)
273.5
264.4
9.1
273.5
(416.4)
377.0
377.0
–
377.0
(2,811.0)
2,329.2
2,329.2
–
2,329.2
(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
* Impairment of $71.3 million (2017: $760.0 million) includes impairment from continuing operations of $68.9 million (2017: $599.0 million) (note 3) and discontinued
operations of $2.4 million (2017: $161.0 million) (note 24).
** Depreciation of $507.0 million (2017: $567.9 million) includes depreciation from continuing operations of $505.0 million (2017: $551.2 million) (note 3)
and discontinued operations of $2.0 million (2017: $16.7 million) (note 24).
65
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT 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.
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, 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 FVLCD and VIU. In
assessing VIU, 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.
66
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
10 Intangible assets
2018
Opening net book amount
Additions
Transfers
Amortisation expense*
Impairment charge**
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
2017
Opening net book amount
Additions
Transfers
Amortisation expense*
Impairment charge**
Closing net book amount
Cost
Accumulated amortisation and impairment
Net book amount
Software
$m
Key customer
contracts
$m
Software under
development
$m
123.0
–
26.1
(20.3)
(2.2)
126.6
291.1
(164.5)
126.6
61.0
–
79.8
(16.3)
(1.5)
123.0
265.0
(142.0)
123.0
–
0.5
–
(0.5)
–
–
3.0
(3.0)
–
0.6
1.0
–
(0.4)
(1.2)
–
2.5
(2.5)
–
47.0
32.0
(33.0)
–
–
46.0
46.0
–
46.0
128.6
63.4
(79.8)
–
(65.2)
47.0
47.0
–
47.0
Total
$m
170.0
32.5
(6.9)
(20.8)
(2.2)
172.6
340.1
(167.5)
172.6
190.2
64.4
–
(16.7)
(67.9)
170.0
314.5
(144.5)
170.0
* Amortisation of $20.8 million (2017: $16.7 million) includes depreciation from continuing operations of $20.5 million (2017: $16.1 million) (note 3) and discontinued
operations of $0.3 million (2017: $0.6 million) (note 24).
** Impairment of $2.2 million (2017: $67.9 million) includes impairment from continuing operations of $nil million (2017: $66.7 million) (note 3) and discontinued operations
of $2.2 million (2017: $1.2 million) (note 24).
Recognition and measurement
(i) Software and software under development
Costs incurred in developing products or systems and costs incurred
in acquiring software and licenses that will contribute to future period
financial benefits through revenue generation and/or cost reduction are
capitalised to software and systems. Costs capitalised include external
direct costs of materials and service, employee costs and an appropriate
portion of relevant overheads.
Software under development costs include only those costs directly
attributable to the development phase and are only recognised following
completion of technical feasibility and where the Group has an intention
and ability to use the asset.
Software has a finite useful life and is carried at cost less accumulated
amortisation. Amortisation is calculated using the straight-line method
over the estimated useful life which varies from three to eleven 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.
67
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT
11 Trade and other payables
Details of employee benefits
Current liabilities
Trade payables
Other payables
2018
$m
2017
$m
247.7
28.1
275.8
273.8
35.9
309.7
(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.
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.
12 Provisions
Current
Employee benefits (a)
Provision for insurance claims
Litigation and workers compensation provision
Other provisions*
Non-current
Employee benefits (a)
Litigation and workers compensation provision
Decommissioning/make good
Land rehabilitation
Other provisions*
2018
$m
2017
$m
244.1
3.9
24.9
39.3
312.2
15.7
11.2
3.0
37.4
14.9
82.2
277.5
2.2
24.6
10.2
314.5
20.7
11.5
1.0
40.5
5.0
78.7
Total provisions
394.4
393.2
(a) Employee benefits
Annual leave
Long service leave
Other**
2018
$m
55.1
113.6
91.1
259.8
2017
$m
59.7
127.8
110.7
298.2
Included in other provisions are provisions for closure costs
*
** 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
$105.9 million (2017: $95.7 million) that is not expected to be taken or
paid within the next 12 months.
(ii) Other long-term employee benefit obligations
The liabilities for retirement allowance and long service 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. Benefits falling due more than 12 months
after the end of the reporting period are discounted to present value.
(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.
68
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
Notes to the consolidated financial statements
30 June 2018 (continued)
13 Other liabilities
Current
Income received in advance
Other current liabilities
Non-current
Income received in advance
Other non-current liabilities
2018
$m
2017
$m
72.6
5.4
78.0
183.1
35.4
218.5
39.3
1.4
40.7
203.4
2.6
206.0
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.
Other liabilities include lease incentive payments. These amounts are
deferred and earned over the term of the lease.
12 Provisions (continued)
(v) Superannuation (continued)
The latest valuation was completed as at 30 June 2017 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 pre-tax discount rates for employee benefits are
based on Australian corporate bond rates and range between 2.5% and
3.9% (2017: 2.5% and 3.0%).
To measure the estimated costs to remediate contaminated land
an inflation rate of 2.6% (2017: 2.6%) has been applied, based on
remediation dates ranging between 5 to 40 years. A weighted average
discount rate of 3.3% (2017: 3.2%) has been used in determining present
value, based on the interest rate which reflect the maturity profile of the
liability. The increase in the provision resulting from the passage of time
is recognised in finance costs.
The provision for insurance claims is raised for insurance claims external
to the Group and represents the aggregate deductible component
in relation to loss or damage to property, plant and equipment and
rollingstock.
A provision is made for the estimated liability for workers’ compensation
and litigation claims. Claims are assessed separately for common law,
statutory and asbestos claims. Estimates are made based on the average
number of claims and average claim payments over a specified period of
time. Claims Incurred But Not Reported are also included in the estimate.
The closure of Aurizon’s Interstate Intermodal business resulted in the
recognition of a provision for contract, lease and supplier exit costs and
represents the best estimate of the expenditure required to settle the
present obligation at the end of the reporting period. Refer to note 24.
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.
FINANCIAL REPORT
69
Notes to the consolidated financial statements
30 June 2018 (continued)
Capital and financial
risk management
IN THIS SECTION
Capital and financial risk management provides information
about the capital management practices of the Group and
shareholder returns for the year, 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 71
Page 71
Page 71
Page 73
Page 73
Page 79
70 AURIZON ANNUAL REPORT 2017-18
Notes to the consolidated financial statements
30 June 2018 (continued)
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 2018 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 2019.
Franking credits available for subsequent
reporting periods based on a tax rate of 30%
(2017: 30%)
2018
$m
2017
$m
71.5
2.8
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
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
Notes
2018
$m
2017
$m
17
3,501.9
3,376.2
(34.8)
(88.7)
3,467.1
3,287.5
4,730.1
5,022.1
8,197.2
8,309.6
42.3%
39.6%
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.
The gearing ratio excludes the impact of financial derivative assets and
liabilities (note 19). Aurizon Network Pty Ltd gearing ratio is 69.7%
(2017: 61.3%).
(a) Contributed equity
(i)
Issued capital
15 Dividends
(a) Ordinary shares
Interim dividend for the year ended
30 June 2018 of 14.0 cents 50%
franked (2017: 13.6 cents 70% franked)
per share, paid 26 March 2018
Final dividend for the year ended
30 June 2017 of 8.9 cents 50% franked
(2016: 13.3 cents 70% franked) per share,
paid 25 September 2017
2018
$m
2017
$m
Ordinary shares
– fully paid
2018
Shares
‘000
2017
Shares
‘000
2018
$m
2017
$m
1,990,128
2,051,745
906.6
1,206.6
(ii) Movements in ordinary share capital
279.5
279.0
Details
At 1 July 2016
At 30 June 2017
Number
of shares
‘000
2,051,745
2,051,745
$m
1,206.6
1,206.6
182.6
462.1
272.9
551.9
On-market share buy-back
(61,617)
(300.0)
At 30 June 2018
1,990,128
906.6
(b) Dividends not recognised at the end of the reporting
period
Since 30 June 2018, the Directors have
recommended the payment of a final dividend
of 13.1 cents per fully paid ordinary share 60%
franked (2017: 8.9 cents 50% franked). The
aggregate amount of the proposed dividend
expected to be paid on 24 September 2018 out
of retained earnings, but not recognised as a
liability at year end is:
2018
$m
2017
$m
260.7
182.6
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.
FINANCIAL REPORT
FINANCIAL REPORT
71
16 Equity and reserves (continued)
(b) Reserves
Balance at 1 July 2017
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
Buy-back of ordinary shares
Share-based payments expense
Employee share trust to employees
Deferred tax
Balance at 30 June 2018
Balance at 1 July 2016
Fair value losses 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
Balance 30 June 2017
Share
of an
associate’s
OCI
$m
(1.8)
Notes
–
–
–
–
–
–
–
–
29(b)
Share
of an
associate’s
OCI
$m
(1.8)
Notes
–
–
–
–
–
–
–
29(b)
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Total
$m
(1.8)
(11.2)
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Total
$m
(2.1)
(13.1)
0.1
3.9
(9.1)
–
–
–
–
(34.1)
45.7
(0.2)
(13.5)
32.0
–
–
–
9.1
3,467.8
3,473.0
–
–
–
–
–
3.9
(2.5)
(4.9)
5.6
–
–
–
–
(0.3)
–
–
–
(13.1)
0.1
3.9
(9.1)
(0.3)
3.9
(2.5)
(4.9)
3,467.5
3,460.1
(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)
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. 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.
72
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
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
2018
$m
2017
$m
100.0
100.0
79.0
79.0
2,552.1
2,441.7
860.0
865.0
(10.2)
(9.5)
3,401.9
3,297.2
3,501.9
3,376.2
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 November 2017, Aurizon Network Pty Ltd replaced $525.0 million of its
revolving bank debt facility with a 5-year $500.0 million revolving bank
debt facility extending the maturity date to 20 October 2022.
In June 2018, Aurizon Finance Pty Ltd voluntarily cancelled
$200.0 million of Syndicated facilities, reducing the facility limit
to $600.0 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 year.
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 4.5%
(2017: 5.0%).
18 Financial risk management
KEEPING IT SIMPLE
Exposure to market risk (including foreign currency risk and
interest rate risk), credit risk and liquidity risk arises in the
normal course of the Group’s business. A central treasury
department oversees financial risk under Board-approved
policies that cover specific areas related to these exposures,
as well as the use of derivative and non-derivative financial
instruments.
Compliance with the Board-approved policies is monitored
on an ongoing basis, including regular reporting to the
Board. Trading for speculation is prohibited.
(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 relative to risk limits established in the Treasury
Policy. 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.
73
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT
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 interest rate risk.
At the reporting date, the Group has exposure to the following variable
rate borrowings and interest rate swaps:
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
which in effect convert the debt to variable AUD.
Interest rate swaps currently in place cover approximately 81%
(2017: 87%) of the variable rate exposure. The weighted average maturity
of the outstanding swaps is approximately 3.0 years (2017: 3.8 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 $4.9 million (2017: loss of $27.5 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. The effect on equity is based on the financial
instruments notional principal. 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.
Effect on profit
(before tax)
Effect on equity
(before tax)
2018
$m
2017
$m
2018
$m
2017
$m
4.7
3.1
(46.7)
(64.3)
(4.7)
(3.1)
45.2
61.3
30 June 2018
30 June 2017
Weighted
average
interest
rate
%
Weighted
average
interest
rate
%
Balance
$m
Balance
$m
4.4
2,448.8
3.9
2,432.8
100 bps movement
in interest rates
100 bps decrease in
interest rates
100 bps increase in
interest rates
4.2
(1,975.0)
4.9
(2,125.0)
473.8
307.8
Variable rate
exposure
Interest rate
swaps (notional
principal
amount)
Net exposure to
interest rate risk
74
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
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:
Notional amount
Carrying amount assets/
(liability) refer to note 19
$m
Change in fair value
used for measuring
ineffectiveness for the year
$m
2018
2017
2018
2017
2018
2017
Cash flow hedges
Foreign exchange risk
Forward contracts
Forward contracts
Interest rate risk
Interest rate swaps
Foreign exchange and interest rate risks
CCIRS – EMTN 1
CCIRS – EMTN 2
Fair value hedges
Foreign exchange and interest rate risks
CCIRS – EMTN 1
CCIRS – EMTN 2
Interest rate risk
Interest rate swaps
US$26.0m
€14.0m
US$7.4m
€18.5m
A$1,975.0m
A$2,125.0m
€500.0m
€500.0m
€500.0m
€500.0m
1.2
0.5
4.3
1.2
(3.8)
€500.0m
€500.0m
€500.0m
€500.0m
101.0
(16.9)
(0.2)
(0.2)
1.4
0.7
(0.2)
(0.2)
11.4
(7.1)
11.4
(1.2)
(13.0)
63.1
(57.4)
2.4
9.2
49.4
54.2
3.4
(0.9)
(1.9)
(25.9)
(26.4)
–
A$425.0m
–
3.3
–
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
Interest rate risk
Forecast floating interest payments
Foreign exchange and interest rate risks
EMTN 1
EMTN 2
Cash flow hedge reserve*
$m
Change in fair value used for
measuring ineffectiveness
for the year
$m
2018
2017
2018
2017
(1.6)
0.3
(2.1)
0.4
(4.3)
(11.5)
7.1
(11.4)
6.5
15.6
(0.2)
14.4
(2.4)
(9.2)
0.9
1.9
* Cash flow hedge reserve includes the cumulative impact of cross currency basis relating to EMTN 1 and EMTN 2 of $23.5 million for the year ended 30 June 2018
(2017: $1.4 million).
75
Notes to the consolidated financial statements30 June 2018 (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 (continued)
Fair value hedges (before tax)
Interest rate risk
AMTN 2
Foreign exchange and interest rate risks
EMTN 1
EMTN 2
* Carrying amount excludes the effect of discounts.
Carrying amount*
$m
Accumulated fair value
adjustment
$m
Change in fair value
used for measuring
ineffectiveness for the year
$m
2018
2017
2018
2017
2018
2017
(429.0)
–
(4.0)
–
(4.0)
(826.6)
(784.6)
(777.2)
(730.4)
(116.0)
(6.4)
(66.6)
47.8
(49.4)
(54.2)
–
25.9
26.4
The above hedging relationships affected other comprehensive income
as follows:
Cash flow hedges (before tax)
Foreign exchange risk
Forward contracts
Interest rate risk
Interest rate swaps
Foreign exchange and interest rate risk
CCIRS
Hedging gain/(loss)
recognised in
comprehensive income
$m
2018
2017
2.0
(7.1)
(7.9)
(13.0)
–
39.1
6.4
45.5
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 Queensland Nickel Pty
Ltd 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.
76
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
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 year:
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-19
Jul-19
Jul-20
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Unsecured
Jun-19
Oct-22
Jul-21
Oct-20
Jun-24
Sept-24
Jun-26
Utilised*
2018
$m
2017
$m
Facility limit
2018
$m
2017
$m
70.2
100.0
–
170.2
52.1
270.0
490.0
525.0
425.0
710.6
102.4
300.0
75.0
477.4
6.7
-
490.0
525.0
425.0
710.6
150.0
300.0
300.0
750.0
100.0
500.0
490.0
525.0
425.0
710.6
150.0
300.0
500.0
950.0
100.0
525.0
490.0
525.0
425.0
710.6
778.2
3,250.9
3,421.1
778.2
2,935.5
3,412.9
778.2
3,528.8
4,278.8
778.2
3,553.8
4,503.8
* Amount utilised includes bank guarantees of $22.3 million (2017: $30.0 million) but excludes capitalised borrowing costs of $10.2 million (2017: $9.5 million) and discounts
on medium-term notes of $13.1 million (2017: $16.0 million).
** Amount utilised excludes accumulated fair value adjustments of $4.0 million (2017: $nil) relating to changes in the interest rate due to the fair value hedging relationship.
*** Amount utilised also excludes accumulated fair value adjustments of $116.0 million (2017: $66.6 million) for EMTN 1 and $6.4 million (2017: ($47.8) million) for EMTN 2.
Within the working capital facilities, the Group has access to financial accommodation arrangements totalling $250.0 million (2017: $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 $22.3 million (2017: $30.0 million) for financial bank guarantees.
The Group has complied with externally imposed debt covenants during the 2018 and 2017 reporting periods.
The following table summarises the contractual timing of undiscounted cash flows, including estimated interest payments, of financial liabilities and
derivative instruments, expressed in AUD. The contractual amount assumes current interest rates and foreign exchange rates estimated using forward
curves applicable at the end of the reporting period.
77
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT
18 Financial risk management (continued)
(c) Liquidity risk (continued)
2018
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
- (inflow)
- outflow
2017
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
- (inflow)
- outflow
Less
than
1 year
$m
Between
1 and 5
years
$m
Over 5
years
$m
Total
contractual
cash flows
$m
Carrying
amount
(assets)/
liabilities*
$m
275.8
251.0
22.3
549.1
1.3
–
(1.1)
–
0.2
309.7
223.7
30.0
563.4
5.5
–
(17.0)
17.2
5.7
–
–
275.8
275.8
1,883.7
2,135.3
4,270.0
3,420.4
–
–
22.3
–
1,883.7
2,135.3
4,568.1
3,696.2
(9.2)
(0.6)
–
–
0.2
(9.0)
–
–
–
(0.6)
(8.5)
–
(1.1)
0.2
(9.4)
7.6
(1.7)
–
–
5.9
–
–
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)
* Borrowings include the effect of CCIRS derivatives which have a carrying amount of $102.2 million (non-current asset) and $20.7 million (non-current liability)
(2017: $61.9 million non-current asset and $70.4 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 2018, the borrowing rates were determined to be
between 2.7% to 4.5%, depending on the type of borrowing (30 June
2017: 2.6% to 4.8%).
78
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18 Notes to the consolidated financial statements
30 June 2018 (continued)
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:
Carrying
amount
Notes
2018
$m
2017
$m
Fair value
2018
$m
2017
$m
› 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.
19
19
19
1.7
102.2
8.2
112.1
0.1
61.9
11.7
73.7
1.7
102.2
8.2
112.1
0.1
61.9
11.7
73.7
34.8
88.7
34.8
88.7
30 June 2018
Derivative financial
assets
Derivative financial
liabilities
7
530.9
565.7
496.8
585.5
530.9
565.7
496.8
585.5
Net financial instruments
measured at fair value
19
19
19
–
(0.6)
(20.7)
(21.3)
(0.5)
(0.3)
(70.4)
(71.2)
–
(0.6)
(20.7)
(21.3)
(0.5)
(0.3)
(70.4)
(71.2)
30 June 2017
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
–
–
–
–
–
–
112.1
(21.3)
90.8
73.7
–
–
–
–
112.1
(21.3)
90.8
73.7
(71.2)
–
(71.2)
2.5
–
2.5
11
(275.8)
(309.7)
(275.8)
(309.7)
17 (3,501.9) (3,376.2) (3,641.2) (3,556.5)
(3,777.7) (3,685.9) (3,917.0) (3,866.2)
19 Derivative financial instruments
KEEPING IT SIMPLE
A derivative is a type of financial instrument typically used
to manage risk. A derivative’s value changes over time in
response to underlying variables such as exchange rates
or interest rates and is entered into for a fixed period. The
Group holds derivative financial instruments to economically
hedge its foreign currency and interest rate exposures in
accordance with the Group’s financial risk management
policy (refer to note 18).
–
–
–
–
–
–
–
–
–
–
20.8
220.9
20.4
281.3
4.8
9.1
(22.3)
(30.0)
224.2
280.8
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
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 $85.6 million (30 June 2017:
$101.5 million), however Aurizon has obtained a 100% cross indemnity
guarantee from Qube Holdings Ltd in respect of any call under the
Aurizon PCG.
FINANCIAL REPORT
79
19 Derivative financial instruments (continued)
Current assets
Foreign exchange contracts
Non-current assets
Interest rate swaps
Foreign exchange contracts
CCIRS – EMTN 1
Total derivative financial instrument assets
Current liabilities
Foreign exchange forward contracts
Non-current liabilities
Interest rate swaps
Foreign exchange forward contracts
CCIRS – EMTN 2
Total derivative financial instrument liabilities
2018
$m
2017
$m
1.3
8.2
0.4
102.2
110.8
112.1
0.1
11.7
–
61.9
73.6
73.7
–
(0.3)
(0.6)
–
(20.7)
(21.3)
(21.3)
(0.3)
(0.2)
(70.4)
(70.9)
(71.2)
(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 2018 and 30 June 2017. 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
112.1
(21.3)
73.7
(71.2)
–
–
–
–
112.1
(21.3)
73.7
(71.2)
(4.5)
4.5
107.6
(16.8)
(14.5)
59.2
14.5
(56.7)
2018
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
2017
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
* No financial instrument collateral.
80
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
Notes to the consolidated financial statements
30 June 2018 (continued)
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 previous page.
Recognition and measurement
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured to their fair
value at the end of each reporting period. The accounting for subsequent
changes in fair value depends on whether the derivative is designated as
a hedging instrument and, if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of the 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.
8181
FINANCIAL REPORT FINANCIAL REPORT 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
24 Discontinued operation
25 Assets classified as held for sale
Page 83
Page 83
Page 84
Page 85
Page 87
Page 88
82 AURIZON ANNUAL REPORT 2017–18
Notes to the consolidated financial statements30 June 2018 (continued) 20 Associates and joint arrangements
KEEPING IT SIMPLE
Associates are all entities over which the Group has
significant influence but not control or joint control.
Investments in associates are accounted for using the
equity method of accounting after initially being
recognised at cost.
Non-current assets
Interest in joint ventures (b)
(a) Investments in associates
The Group has an interest in the following associates:
2018
$m
2017
$m
3.2
2.4
Ownership interest
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 prices, iron ore prices and the timing of development
of Aquila’s mining projects and is nil.
Name
Aquila Resources
Limited*
Country of
operation
2018
%
2017
%
Principal
activity
21 Material subsidiaries
Australia
15
15
Exploration
and mining
The Group’s material subsidiaries that were controlled during the year
and prior years are set out below.
* 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 $0.8 million to the Group results, have net assets
of $3.2 million and are not considered material to the Group.
Ownership interest
Name
Country of
operation
2018
%
2017
%
Principal
activity
Chun Wo/CRGL
China-Hong Kong
17
17 Construction
Name of entity
Aurizon Operations Limited
Interail Australia Pty Ltd
Australia Eastern Railroad Pty Ltd
Australia Western Railroad Pty Ltd
Aurizon Network Pty Ltd
Aurizon Property Pty Ltd
Aurizon Terminal Pty Ltd
Aurizon Finance Pty Ltd
Country of
incorporation
Equity
holding
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
ARG Risk
Management
Limited
Integrated
Logistics
Company Pty Ltd
ACN 169 052 288
Bermuda
50
50
Insurance
Iron Horse Insurance Company Pte Ltd
Singapore
Australia
Australia
14
15
14
15
Consulting
Dormant
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.
83
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT 21 Material subsidiaries (continued)
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:
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
Profit for the year
Total comprehensive income
2018
$m
61.1
2017
$m
15.9
6,093.9
6,092.6
6,155.0
6,108.5
(61.1)
(14.8)
(1,726.6)
(1,428.2)
(1,787.7)
(1,443.0)
4,367.3
4,665.5
906.6
1,206.6
1.7
0.9
3,459.0
3,458.0
4,367.3
4,665.5
462.9
462.9
550.1
550.1
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 2018 or 30 June 2017. 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 2018, the parent entity did not have any contractual
commitments for the acquisition of property, plant and equipment
(2017: 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 stand-alone taxpayer in
its own right.
In addition to its own current and deferred tax amounts, Aurizon also
recognises the current tax liabilities (or assets) and the deferred tax assets
arising from unused tax losses and unused tax credits assumed from
controlled entities in the tax consolidation group.
The entities have also entered into tax sharing and tax funding agreements.
The tax funding agreement sets out the funding obligations of members
of the tax consolidated group in respect of income tax amounts. The tax
funding arrangements require payments to the head entity equal to the
current tax liability assumed by the head entity. In addition, the head entity
is required to make payments equal to the current tax asset or deferred tax
asset arising from unused tax losses and tax credits assumed by the head
entity from a subsidiary member.
These tax funding arrangements result in the head entity recognising a
current inter-entity receivable/payable equal in amount to the tax liability/
asset assumed.
84
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18 Statement of comprehensive income
Profit/(loss) for the year
Other comprehensive income
Items that may be reclassified to profit or loss
– 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 income/(expense)
for the year, net of tax
Total comprehensive income/(expense)
for the year
2018
$m
2017
$m
856.3
(178.0)
(0.1)
(0.1)
0.2
(3.7)
(0.1)
1.1
–
(2.7)
856.3
(180.7)
Summary of movements in consolidated retained earnings
Retained (losses)/earnings at the beginning
of the financial year
Profit/(loss) for the year
Dividends provided for or paid
Retained earnings/(losses) at
the end of the financial year
(283.6)
446.3
856.3
(462.1)
(178.0)
(551.9)
110.6
(283.6)
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 Limited, Interail
Australia Pty Ltd, Australian Rail Pty Ltd, Australia Eastern Railroad Pty
Ltd, Australia Western Railroad Pty Ltd and Australian Railroad Group
Employment Pty Ltd are parties to a Deed of Cross Guarantee, under
which each company guarantees the debts of the others. By entering
into the cross guarantee, the wholly-owned entities have been relieved
from the requirement to prepare separate financial and directors’
reports under ASIC Corporations (Wholly owned Companies) Instrument
2016/785.
(a) Consolidated statement of profit or loss, 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/(losses) of associates and
joint venture partnerships accounted for using
the equity method
Finance costs
Finance income
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) for the year
2018
$m
2017
$m
2,781.9
2,984.1
592.5
216.5
(1,274.4)
(1,536.8)
(694.2)
(843.4)
(234.7)
(298.2)
(74.6)
(837.9)
(112.5)
(25.4)
0.8
(14.3)
2.8
(0.1)
(21.1)
1.6
973.3
(360.7)
(117.0)
856.3
182.7
(178.0)
85
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT 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 financial assets*
Deferred tax assets
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Current tax liabilities
Provisions
Other liabilities
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Borrowings
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
* Other financial assets represent investments in entities outside of the deed group.
86
2018
$m
2017
$m
11.3
441.3
88.2
4.1
108.0
652.9
22.5
2.0
48.7
400.6
76.5
24.4
6.7
556.9
26.6
3.4
3,277.3
3,475.2
77.6
3.2
1,222.9
148.4
89.3
2.4
1,224.1
165.5
4,753.9
4,986.5
5,406.8
5,543.4
305.7
49.0
287.3
48.0
12.7
365.8
74.0
246.7
4.7
–
702.7
691.2
99.4
63.3
50.4
213.1
915.8
373.7
70.5
7.7
451.9
1,143.1
4,491.0
4,400.3
906.6
1,206.6
3,473.8
3,477.3
110.6
(283.6)
4,491.0
4,400.3
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18 24 Discontinued operation
(a) Description
On 14 August 2017 the Group announced its intention to exit the
Intermodal business through a combination of closure and sale.
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 agreements.
Aurizon signed a separate binding agreement to sell its Queensland
Intermodal business to a consortium of Linfox and Pacific National
(QI BSA). The transaction includes the transfer of approximately
330 employee positions, as well as assets, commercial and operational
arrangements to the Linfox and Pacific National consortium.
The closure of Interstate Intermodal has resulted in $74.7 million of
significant items being recognised in the year ended 30 June 2018.
Significant Interstate Intermodal items include $61.0 million for contract,
lease and supplier exit costs, $9.1 million in redundancy costs and asset
write downs of $4.6 million.
SIGNIFICANT JUDGEMENTS
Notwithstanding the ACCC decision Aurizon remains committed to
exiting the Intermodal business and on this basis has continued to
classify the Acacia Ridge and Queensland Intermodal business assets
as held for sale and discontinued operations at 30 June 2018.
Financial information relating to the discontinued operation for the
period is set out below.
The transactions are subject to:
(b) Financial performance and cash flow information
Revenue
Employee benefits expense
Energy and fuel
Track access
Consumables
Depreciation and amortisation*
Impairment losses**
Other expenses
Net finance costs
Loss before income tax
2018
$m
225.4
(79.6)
(19.1)
(35.1)
2017
$m
309.8
(72.8)
(31.9)
(58.8)
(134.5)
(180.2)
(2.3)
(17.3)
(4.6)
(162.2)
(48.9)
–
(2.0)
0.1
(98.7)
(215.3)
Income tax benefit
21.6
64.6
Loss from discontinued operation after tax
(77.1)
(150.7)
Net cash (outflow) from operating activities
(25.1)
(34.8)
Net cash inflow/(outflow) from
investing activities***
Net cash inflow/(outflow) from
financing activities
Net increase/(decrease) in cash generated
by the discontinued operation
54.6
(34.7)
–
–
29.5
(69.5)
*
Includes $2.0 million depreciation (2017: $16.7 million) and $0.3 million
amortisation expense (2017: $0.6 million).
** Includes $2.4 million relating to property, plant and equipment (2017:
$161.0 million) and $2.2 million relating to intangible assets (2017: $1.2 million).
*** Net cash inflow from investing activities includes $45.0 million deposit in
relation to the transactions.
› Approval by the Australian Competition & Consumer Commission
(ACCC); and
› Approval by the Foreign Investment & Review Board (FIRB)
Total consideration for the two transactions is $225.0 million of which
$45.0 million has been received to date.
The ACCC decision was announced on 19 July 2018. The ACCC decided
to oppose both transactions and commenced proceedings against
Pacific National and Aurizon in the Federal Court of Australia. The ACCC
has sought declarations, pecuniary penalties, orders restraining the
existing sale transactions from proceeding and costs. The ACCC has also
sought an injunction to prevent Aurizon from closing its Queensland
Intermodal business while proceedings are on foot. While Aurizon refutes
the ACCC’s allegations and will defend the proceedings including seeking
clearance of the Acacia Ridge transaction, there is a risk that the Acacia
Ridge transaction will be prevented from completing and/or Aurizon
incurs orders for pecuniary penalties and costs. There is also the risk that,
in the interim whilst the matter is being determined by the Court, Aurizon
is injuncted from closing the Queensland Intermodal business.
On 12 August 2018 Aurizon provided Pacific National with a notice to
terminate the Business Sale Agreement for the Queensland Intermodal
business, with effect from 13 August 2018. It is Aurizon’s intention to
not contest clearance of that transaction through the Federal Court and
to exit the business. As clearance has not been obtained for the sale of
the Queensland Intermodal business, $10 million of the consideration
received for the transactions to date (recognised as a liability at 30 June
2018) will be refunded to Pacific National. The Business Sale Agreement
for the Acacia Ridge Terminal remains in place while Aurizon seeks
clearance of that transaction, and the remainder of the consideration
received for the transactions to date ($35 million) is not refundable.
Notwithstanding this Aurizon remains committed to exiting the
Intermodal business and on this basis has continued to classify the
Acacia Ridge and Queensland Intermodal business assets as held for
sale and discontinued operations at 30 June 2018.
On 10 August 2018 the Federal Court of Australian heard an application
from the ACCC for an interlocutory injunction to require Aurizon to
continue to operate the Queensland Intermodal business in the ordinary
and usual course. The Court reserved judgement on the matter, and
judgement is currently expected to be handed down on 13 August 2018.
Aurizon’s Interstate Intermodal business has been closed with the last
operational service occurring on 23 December 2017. Approximately
160 employee positions were affected by the closure of the Interstate
business.
87
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT
24 Discontinued operation (continued)
(c) Significant items
Significant items are those items where their nature and amount is considered material to the financial statements. Items related to discontinued
operations included within the Group’s profit are detailed below:
Significant items
Closure costs
Impairment expense
Redundancy costs
2018
$m
2017
$m
(61.0)
(4.6)
(9.1)
–
(162.2)
(5.0)
(74.7)
(167.2)
$74.7 million of significant items comprises $61.0 million for contract, lease and supplier exit costs, $9.1 million in redundancy costs for 158 employees in
the Interstate business and asset write downs of $4.6 million.
(d) Assets and liabilities of disposal group classified as held for sale
The following assets and liabilities relating to Intermodal and Acacia Ridge businesses were reclassified as held for sale in relation to discontinued
operations as at 30 June 2018:
Assets classified as held for sale
Property, plant and equipment
Trade and other receivables
Inventories
Total assets of disposal group held for sale
Liabilities directly associated with assets classified as held for sale
Employee benefit obligations
Net assets classified as held for sale
25 Assets classified as held for sale
Property, plant and equipment
Trade and other receivables
Inventories
Total assets held for sale
2018
$m
78.6
26.3
1.2
106.1
(12.7)
93.4
2017
$m
7.3
–
–
7.3
2018
$m
80.5
26.3
1.2
108.0
Assets held for sale includes $106.1 million related to discontinued operation. Refer to note 24.
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 FVLCD,
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.
88
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18 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.
26 Notes to the consolidated statements of cash flows
Page 90
27 Related party transactions
28 Key Management Personnel compensation
29 Share-based payments
30 Remuneration of auditors
31 Summary of other significant accounting policies
Page 91
Page 91
Page 91
Page 92
Page 93
FINANCIAL REPORT
89
Notes to the consolidated financial statements30 June 2018 (continued) 26 Notes to the consolidated statement of cash flows
(a) Reconciliation of net cash inflow from operating activities to profit from continuing operations
Profit/(loss) for the year from continuing operations
Depreciation and amortisation
Impairment of non-financial assets
Interest expense
Non-cash employee benefits expense — share-based payments
Net loss on sale of assets
Share of net (profit)/loss of associates and joint venture partnership
Net exchange differences
Change in operating assets and liabilities:
(Increase)/Decrease in trade and other receivables
(Increase)/Decrease in inventories
Decrease in other operating assets
(Decrease)/Increase in trade and other payables
Decrease in other liabilities
Increase/(Decrease) in current tax liabilities
Increase/(Decrease) in deferred tax liabilities
(Decrease)/Increase in provisions
2018
$m
560.1
525.5
70.0
168.3
3.9
4.7
(0.8)
0.3
(90.4)
(2.8)
1.9
(17.9)
(32.8)
40.3
90.7
(13.3)
2017
$m
(37.2)
567.3
678.3
181.3
6.6
6.0
0.1
–
16.8
28.9
0.1
22.0
(33.0)
(79.4)
(112.4)
27.8
Net cash inflow from operating activities from continuing operations
1,307.7
1,273.2
(b) Reconciliation of liabilities arising from financing activities to financing cash flows
Balance as at 1 July 2017
Financing cash flows**
Changes in fair value
Effect of changes in exchange rates
Other changes in fair values
Other non-cash movements
Balance as at 30 June 2018
Current
borrowings
Non-current
borrowings
Liabilities
held to
hedge
borrowings*
$m
(79.0)
(21.0)
–
–
–
$m
(3,297.2)
8.8
(90.6)
(20.0)
(2.9)
$m
(70.7)
–
45.3
4.1
–
Assets held
to hedge
borrowings*
$m
Total
$m
73.6
(3,373.3)
–
(12.2)
45.3
(8.5)
–
–
(24.4)
(2.9)
(100.0)
(3,401.9)
(21.3)
110.4
(3,412.8)
* Assets and liabilities held to hedge borrowings exclude foreign exchange contracts included in note 19.
** Financing cash flows consists of the net amount of proceeds from borrowings, repayment of borrowings and payments of transaction costs related to borrowings
in the consolidated statement of cash flows.
90
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
27 Related party transactions
29 Share-based payments
(a) Transactions with Directors and Key Management
Personnel
There were no Key Management Personnel (KMP) related party
transactions during the year (2017: nil).
(b) Transactions with other related parties
There were no transactions with other related parties during the year
(2017: nil).
(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.
28 Key Management Personnel
compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Termination benefits
Share-based payments
2018
$’000
8,769
290
96
–
2,159
11,314
2017
$’000
7,602
326
(57)
3,110
2,634
13,615
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.
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 Award (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 Operating Ratio (OR) and Return on Invested Capital
(ROIC). In 2017, the OR hurdle was removed as a company hurdle. 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.
91
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT 29 Share-based payments (continued)
(a) Performance rights plan (continued)
Set out below are summaries of rights granted under the plans:
(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 $3.886 million (2017: $6.559 million).
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
2018
STIAD
LTIA
–
105
–
–
105
10,462
3,982
(486)
(2,303)
11,655
Retentions
25
–
–
–
25
Total
2017
STIAD
LTIA
10,487
4,087
(486)
(2,303)
11,785
419
–
(419)
–
–
11,922
3,229
(1,127)
(3,562)
10,462
Retentions
125
25
(40)
(85)
25
Total
12,466
3,254
(1,586)
(3,647)
10,487
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 Company 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.
At 30 June 2018, there were no vested but unexercised rights (2017: nil).
30 Remuneration of auditors
The weighted average exercise price of rights granted during the year was
nil (2017: nil), as the rights have no exercise price. The weighted average
share price at the date of exercise for rights exercised during the period
was $5.22 (2017:$4.65). The weighted average remaining contractual life
of share rights outstanding at 30 June 2018 was 1.4 years (2017:1.5 years).
Fair value of rights granted
In determining the fair value, market techniques for valuation were
applied in accordance with AASB 2. The fair value of the portion of
Short-term Incentive Award Deferred (STIAD) and the portion of LTIA
rights, that are subject to non-market based performance conditions,
were $5.01 and $4.27 (2017: $nil granted for STIAD and $4.09 for
LTIA) respectively, determined by the share price at grant date less an
adjustment for estimated dividends payable during the vesting period.
The fair value of the LTIA rights subject to the TSR market based
performance condition has been calculated using the Monte-Carlo
simulation techniques based on the inputs disclosed in the table below:
2018
2017
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
2018
$’000
2017
$’000
Audit and other assurance services
Audit and review of financial statements
1,295
1,388
Other assurance services
Other assurance services
122
37
Total remuneration for audit and other
assurance services
Other services
Advisory services
1,417
1,425
282
1,699
718
2,143
Scheme
LTIA
LTIA
LTIA
LTIA
Total remuneration of PwC Australia
Grant date
7 Oct 2017
7 Oct 2017
7 Sep 2016 7 Oct 2016
Vesting date
1 Jul 2020
1 Jul 2021
31 Dec
2020
31 Dec
2021
Expiry date
Share price at
grant date
30 Jun
2019
31 Dec
2019
30 Jun
2019
31 Dec
2019
$5.07
$5.07
$4.43
$4.79
Expected life
3.0 years
4.0 years
3.5 years
3.5 years
Company share
price volatility
Risk free rate
Dividend yield
Fair value
19.50%
19.50%
32.75%
32.25%
2.00%
5.25%
$1.86
2.20%
5.50%
$1.93
1.45%
5.85%
$1.83
1.65%
5.75%
$2.25
The Company share price volatility is based on the Company’s average
historical share price volatility to the grant date.
92
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18
Notes to the consolidated financial statements
30 June 2018 (continued)
31 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
Certain new accounting standards and amendments to standards have
been published that are mandatory for 30 June 2018 reporting periods.
The Group has assessed these new standards and amendments and they
do not materially impact the amounts recognised in the current period or
any prior period and are not likely to affect any 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 except for
AASB 9 Financial Instruments which was early adopted in the year ended
30 June 2015.
(ii) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been
published that are not mandatory for 30 June 2018 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
(mandatory for financial year beginning 1 July 2018)
Nature of change:
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.
Impact:
The Group has reviewed sales contracts that together account for 99%
of the Group’s sales revenue from continuing operations to identify the
potential changes in: timing of revenue recognition, measurement of the
amount of revenue and note disclosure between the current standard
AASB 118 and AASB 15.
Revenue is currently derived from:
Freight Transport Services
› Transport of coal from mines in Queensland and New South Wales to
end customers and ports
› Transport of bulk mineral commodities (including iron ore), agricultural
products, mining and industrial inputs, and general freight throughout
Queensland and Western Australia
Access
› Provision of access to, and operation of, the Central Queensland Coal
Network; and
Other
› Other services including the provision of maintenance and rail grinding
Revenue for freight transport services is currently recognised under
AASB 118 once the individual service has been provided and is calculated
based on the rates agreed with customers on a tonnes per delivery
basis. Access revenue is currently also recognised under AASB 118 once
the individual service has been provided and is calculated based on
a number of operating parameters, including the volume hauled and
regulator approved tariffs.
On adoption of AASB 15, timing of recognition and measurement of
revenue for freight services and access revenue will be consistent with
the current treatment. Under AASB 15, individual services are considered
separate performance obligations and freight transport and access
revenue will continue to be recognised once the service has been
provided.
Revenue from other services primarily includes rail grinding services
and Transport Service Contract (TSC) payments received from the State
Government for regional freight and livestock transport. Under AASB
118, revenue for other services is recognised once the service has been
provided and is calculated in line with contractual arrangements. On
adoption of AASB 15, there will be no change in the timing of recognition
and measurement of revenue.
Other revenue earned by the Group includes payments in relation to
Access Facilitation Deeds (AFD) for mine specific infrastructure which
is currently recognised under AASB 118 over the term of the contract
as services are provided and external maintenance which is recognised
under AASB 118 once the service has been performed. Similarly as
above, on adoption of AASB 15, there will be no change in the timing of
recognition and measurement of other revenue.
Based on the completed assessment, there will be no impact on adoption
of AASB 15.
The Group will adopt the modified transitional approach to
implementation where any transitional adjustment is recognised in
retained earnings at 1 July 2018 without adjustment of comparatives and
the new standard will only be applied to contracts that remain in force at
that date.
AASB 16 Leases (mandatory for financial year beginning 1 July 2019)
Nature of change:
AASB 16 was issued in February 2016 and replaces AASB 117 Leases. 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. The accounting by lessors, however, will
not significantly change.
Impact:
Management is currently assessing the effects of applying the new
standard on the Group’s financial statements. AASB 16 will result in
higher assets and liabilities on the balance sheet. Information on the
undiscounted amount of the Group’s non-cancellable lease commitments
defined under AASB 117 as at 30 June 2018 is disclosed in note 33. The
present value of the Group’s operating lease payments as defined under
the new standard will be recognised as lease liabilities on the balance
sheet and included in net debt.
93
93
Notes to the consolidated financial statements30 June 2018 (continued)FINANCIAL REPORT 31 Summary of other significant
accounting policies (continued)
(a) Basis of preparation (continued)
(ii) New standards and interpretations not yet adopted
(continued)
To date, work has focused on the identification and understanding of the
provisions of the standard which will most impact the Group, establishing
the population of lease contracts which will extend beyond 1 July 2019,
the provision of training, impact analysis, discount rate determination
and the review of system requirements. In FY19, work on these issues
and their resolution will continue. A significant proportion by value of
the Group’s current operating lease commitments relate to property and
effort to date has focussed on this area.
The recognition of depreciation and interest expense instead of operating
lease payments in the Consolidated Income Statement, will result in an
increase in EBITDA, depreciation and interest.
This standard must be implemented retrospectively, either with the
restatement of comparatives or with the cumulative impact of application
recognised as at 1 July 2019 under the modified retrospective approach.
The Group currently expects to use the modified retrospective approach.
Under the modified retrospective approach, the right of use asset may
be deemed to be equivalent to the liability at transition or calculated
retrospectively as at inception of the lease, on a lease-by-lease basis.
(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.
(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.
94
Notes to the consolidated financial statements30 June 2018 (continued)AURIZON ANNUAL REPORT 2017–18 Notes to the consolidated financial statements
30 June 2018 (continued)
(f) Goods and Services Tax (GST)
Revenues, expenses and assets are recognised net of the amount of
associated GST, unless the amount of GST incurred is not recoverable
from the Australian Taxation Office (ATO). In this case, the GST is
recognised as part of the cost of acquisition of the asset or as part of
the expense.
Receivables and payables are stated inclusive of the amount of GST
receivable or payable. The net amount of GST recoverable from, or
payable to, the ATO is included with other receivables or payables in the
balance sheet.
Cash flows are presented in the cash flow statement on a gross basis.
The GST components of cash flows arising from investing or financing
activities which are recoverable from, or payable to the ATO, are
presented as operating cash flows.
The Company and its subsidiaries are grouped for GST purposes.
Therefore, any inter-company transactions within the Group do not
attract GST.
31 Summary of other significant
accounting policies (continued)
(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.
(iii) Non-derivative liabilities
The Group initially recognises loans and debt securities issued on the
date when they originate. 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.
9595
FINANCIAL REPORT FINANCIAL REPORT Unrecognised items
IN THIS SECTION
Unrecognised items provide information about items that are
not recognised in the financial statements but could potentially
have a significant impact on the Group’s financial position and
performance.
32 Contingencies
33 Commitments
34 Events occurring after the reporting period
Page 97
Page 97
Page 97
96
AURIZON ANNUAL REPORT 2017–18
Notes to the consolidated financial statements
30 June 2018 (continued)
32 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 the 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).
33 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
2018
$m
2017
$m
91.4
131.7
2018
$m
2017
$m
29.8
122.3
169.7
321.8
55.9
85.6
38.7
180.2
The above commitments flow primarily from operating leases of property
and machinery. These leases, with terms mostly ranging from one to ten
years, generally provide the Group with a right of renewal at which time
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.
34 Events occurring after the
reporting period
On 14 August 2017, the Group announced the intention to exit the
Intermodal business through a combination of closure and sale. Aurizon
signed a binding agreement with Pacific National to sell its Acacia Ridge
Intermodal Terminal. Aurizon signed a separate binding agreement to
sell its Queensland Intermodal business to a consortium of Linfox and
Pacific National (QI BSA). The transactions are subject to Approval by
the Australian Competition & Consumer Commission (ACCC) and Foreign
Investment & Review Board (FIRB). Refer to Key events and transactions
for reporting period and note 24 for further information.
The ACCC decision was announced on 19 July 2018. The ACCC decided
to oppose both transactions and commenced proceedings against Pacific
National and Aurizon in the Federal Court of Australia. The ACCC has
sought declarations, pecuniary penalties, orders restraining the existing
sale transactions from proceeding and costs. The ACCC has also sought
an injunction to prevent Aurizon from closing its Queensland Intermodal
business while proceedings are on foot. While Aurizon refutes the ACCC’s
allegations and will defend the proceedings including seeking clearance
of the Acacia Ridge transaction, there is a risk that the Acacia Ridge
transaction will be prevented from completing and/or Aurizon incurs
orders for pecuniary penalties and costs. There is also the risk that, in
the interim whilst the matter is being determined by the Court, Aurizon
is injuncted from closing the Queensland Intermodal business.
On 12 August 2018 Aurizon provided Pacific National with a notice to
terminate the Business Sale Agreement for the Queensland Intermodal
business, with effect from 13 August 2018. It is Aurizon’s intention to not
contest clearance of that transaction through the Federal Court and to
exit the business. As clearance has not been obtained for the sale of the
Queensland Intermodal business, $10 millon of the consideration received
for the transactions to date (recognised as a liability at 30 June 2018)
will be refunded to Pacific National. The Business Sale Agreement for the
Acacia Ridge Terminal remains in place while Aurizon seeks clearance of
that transaction, and the remainder of the consideration received for the
transactions to date ($35 million) is not refundable.
On 10 August 2018 the Federal Court of Australian heard an application
from the ACCC for an interlocutory injunction to require Aurizon to
continue to operate the Queensland Intermodal business in the ordinary
and usual course. The Court reserved judgement on the matter, and
judgement is currently expected to be handed down on 13 August 2018.
FINANCIAL REPORT
97
Directors’ Declaration
30 June 2018
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 46 to 97 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 2018 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 51 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
12 August 2018
98 AURIZON ANNUAL REPORT 2017–18
Independent auditor’s report
To the members 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 2018 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 income statement for the year ended 30 June 2018
the consolidated statement of comprehensive income for the year then ended
the consolidated balance sheet as at 30 June 2018
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 other 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.
FINANCIAL REPORT
99
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
Amongst other relevant topics,
we communicated the following
key audit matters to the Audit
Governance and Risk
Management Committee:
Impairment assessment of
the Western Australia cash-
generating unit (CGU)
Closure and sale of the
Intermodal business
These are further described in
the Key audit matters section of
our report.
For the purpose of our audit
we used overall Group
materiality of $36 million,
which represents
approximately 5% of the
Group’s adjusted profit before
tax.
Our audit focused on where
the Group made subjective
judgements; for example,
significant accounting
estimates involving
assumptions and inherently
uncertain future events.
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
the benchmark against which
the performance of the Group
is most commonly measured.
To calculate materiality, we
adjusted profit before tax for
significant unusual items such
as impairment, closure and
contract exit costs. These
adjustments were tested
separately using a specific
The Group is a large rail-based
freight operator and transports
coal, iron ore and other bulk
commodities across Australia.
The Group also owns and
operates the Central
Queensland Coal Network
(CQCN) which is a multi-user
track network that comprises
of four major coal systems and
one connecting system serving
Queensland’s Bowen Basin
coal region. The Group has a
centralised accounting
function in Brisbane at its
corporate head office where
our audit procedures were
predominantly performed. We
also visited the Mackay,
Townsville, Forrestfield and
Rockhampton depots to
100 AURIZON ANNUAL REPORT 2017–18
perform audit procedures on
inventory.
materiality level.
We utilised a 5% threshold
based on our professional
judgement, noting it is within
the range of commonly
acceptable thresholds.
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
How our audit addressed the key audit matter
Impairment assessment of the Western
Australia cash-generating unit (WA CGU)
In the second half of FY2018, an iron ore customer,
Cliffs Asia Pacific Iron Ore Pty Ltd (Cliffs) announced
the planned closure of mining operations in Australia.
The contract provided for haulage of up to 11mt of iron
ore per annum and was due to expire on 31 January
2022. On 29 June 2018 Cliffs issued a contract
termination notice, effective 30 June 2018.
This is an indicator of impairment for the WA CGU and
the Group performed an impairment assessment of the
carrying value of the WA CGU.
This resulted in a pre-tax impairment of $27.9 million
in respect of contract specific assets and a further $31.7
million in relation to the WA CGU. The recoverable
amount of the WA CGU ($170.7 million) was
determined using a value in use (VIU) methodology
utilising a discounted cashflow model (the model).
The recoverable amount used in the impairment test is
based on the Board-approved corporate plan, a
terminal growth rate of 2.2% and a pre-tax discount
rate of 11.7%.
We considered this a key audit matter due to the
judgements required by the Group in formulating the
Board approved corporate plan and estimating the
terminal growth rate and pre-tax discount rate.
Refer to Key events and transactions for the reporting period
and Note 4 Impairment of non-financial assets in the Annual
Report for further details.
To evaluate the Group’s assessment of the recoverable
amount of the WA CGU, we performed the following
procedures, amongst others:
Assessed whether the division of the Group’s
property, plant and equipment assets into
CGUs, which are the smallest identifiable
groups of assets that can generate largely
independent cash inflows, was consistent with
our knowledge of the Group’s operations and
internal Group reporting.
Assessed whether the carrying value of the WA
CGU included all assets, liabilities and
cashflows directly attributable to the CGU and
a reasonable allocation of corporate
overheads.
Evaluated if VIU was the highest basis upon
which the CGU is recoverable as required by
the Australian Accounting Standards.
Evaluated the Group’s historical ability to
forecast future cashflows by comparing
budgets with reported prior year actual
results.
Tested that forecast cashflows used in the
model were consistent with the most up-to-
date corporate plan formally approved by the
Board.
Evaluated the terminal value EBITDA and
sustaining capital assumptions used in the
model including consideration of the forecast
value of sustaining capital expenditure against
actual capital expenditure incurred over prior
periods.
FINANCIAL REPORT
101
Key audit matter
How our audit addressed the key audit matter
Assessed, with the assistance of PwC valuation
experts:
o
o
o
the forecast long term growth rate of
2.2% by comparing it to economic
forecasts;
that the discount rate of 11.7% (pre-
tax nominal) appropriately reflects
the risks of the CGU; and
the mathematical accuracy of the
model.
Evaluated the Group’s sensitivity analysis to
assess if further impairment would occur and
whether this was reasonably possible.
Evaluated the adequacy of the disclosures
made in note 4, including the key assumptions
and sensitivities to changes in such
assumptions in light of the requirements of
Australian Accounting Standards.
To assess the impact of the closure and sale of the
Intermodal business, the following procedures were
performed, amongst others:
We developed our understanding of the
transaction through discussions with the
Group, reading the binding sale agreements
and other supporting documentation
including the decision made by the ACCC.
We considered the Group’s decision to
disclose the Intermodal Business as
discontinued and we assessed the
classification of the assets and liabilities as
held for sale in light of the requirements of
Australian Accounting Standards.
We evaluated the adequacy of the disclosures
made in the Financial Report in light of the
requirements of Australian Accounting
Standards.
Closure and Sale of the Intermodal business
On 14 August 2017 the Group announced its intention
to exit the Intermodal business through a combination
of closure and sale.
The Group signed binding agreements to sell its Acacia
Ridge Intermodal Terminal and Queensland
Intermodal Business for total consideration of $225
million. The transactions have been subject to approval
by the Australian Competition & Consumer
Commission (ACCC) and the Foreign Investment &
Review Board (FIRB).
Subsequent to the year-end, on 19 July 2018, the ACCC
opposed both transactions and commenced
proceedings against Pacific National and the Group in
the Federal Court of Australia.
The ACCC has also sought an injunction to prevent the
Group from closing its Queensland Intermodal
Business while proceedings are on foot.
On 12 August 2018 the Group issued a termination
notice to terminate the Queensland Intermodal
Business sale agreement with effect from 13 August
2018.
The Group will defend the ACCC proceedings and
remains committed to the exit of Intermodal. On this
basis the Acacia Ridge and Queensland Intermodal
Business assets remain classified as held for sale and
discontinued operation at 30 June 2018.
We considered this a key audit matter given:
it was a significant transaction in the year; and
102 AURIZON ANNUAL REPORT 2017–18
Key audit matter
How our audit addressed the key audit matter
the judgement required by the Group
regarding the continued classification of the
Intermodal businesses as held for sale and
discontinued operation due to the ACCC
decision and proceedings in the Federal Court
of Australia.
Refer to Key events and transactions for the reporting period
and Note 24 Discontinued operation in the Annual Report for
further details.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 30 June 2018, including the FY2018 in
Review, Chairman’s Report, Managing Director & CEO’s Report, Directors' Report, Corporate
Governance Statement, Non-IFRS financial information, Shareholder Information, Glossary and
Corporate Information, 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
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
FINANCIAL REPORT
103
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 25 to 38 of the Directors’ Report for the
year ended 30 June 2018.
In our opinion, the remuneration report of Aurizon Holdings Limited for the year ended 30 June 2018
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
Nadia Carlin
Partner
Brisbane
12 August 2018
Tim Allman
Partner
104 AURIZON ANNUAL REPORT 2017–18
Non-IFRS Financial Information
in 2017-18 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 a performance measure of the operating
cost of earning each dollar of revenue and it is used as one of the key
performance measures of the Key Management Personnel.
ROIC is defined as underlying rolling twelve month EBIT divided by
the average invested capital. The average invested capital is calculated
by taking the rolling twelve month average of net property, plant
and equipment including assets under construction plus investments
accounted for using the equity method, plus net intangibles plus current
assets less cash, less current liabilities. This measure is intended to ensure
there is alignment between investment in infrastructure and superior
returns for shareholders.
Net debt consists of borrowings (both current and non-current) less cash
and cash equivalents. Net gearing ratio is defined as Net debt divided by
Shareholders Equity plus Net debt. Net debt and Net gearing ratio are
measures of the Group’s indebtedness and provides an indicator of the
balance sheet strength.
These above mentioned measures are commonly used by management,
investors and financial analysts to evaluate companies’ performance.
A reconciliation of the non-IFRS measures and specific items to the
nearest measure prepared in accordance with IFRS is included in the
table. The non-IFRS financial information contained within this Directors’
report and Notes to the Financial Statements has not been audited in
accordance with Australian Auditing Standards.
FINANCIAL REPORT
105
Non-IFRS Financial Information
in 2017-18 Annual Report (continued)
Profit/(loss) before income tax
Finance costs (net)
EBIT – Statutory
Significant adjustments:
Bulk contract exit impairment
Bulk contract exit termination payment
Bulk contract exit costs – redundancy and closure costs
Bulk impairment
Freight Management Transformation (FMT) impairment
Transformation – asset impairment
Transformation – redundancy costs
Intermodal closure costs
Intermodal impairment
EBIT – Underlying
Depreciation and amortisation
EBITDA – Underlying
Operating Ratio (continuing operations)
Average invested capital (continuing operations)
ROIC (continuing operations)
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Net Gearing Ratio
2018
2017
Continuing
operations
$m
Discontinued
operation
$m
Continuing
operations
$m
Discontinued
operation
$m
(98.7)
–
(98.7)
–
–
–
–
–
–
–
70.1
4.6
(24.0)
2.3
(21.7)
801.3
165.0
966.3
27.9
(66.3)
3.9
31.7
–
–
(22.9)
–
–
940.6
525.5
1,466.1
69.8%
8,615
10.9%
(54.2)
178.6
124.4
10.2
–
–
525.9
64.0
48.9
110.8
–
–
884.2
567.3
1,451.5
71.9%
9,473
9.3%
2018
$m
3,501.9
(34.8)
3,467.1
4,730.1
8,197.2
42.3%
(215.3)
0.1
(215.2)
–
–
–
–
–
–
5.0
–
162.2
(48.0)
17.3
(30.7)
2017
$m
3,376.2
(88.7)
3,287.5
5,022.1
8,309.6
39.6%
106 AURIZON ANNUAL REPORT 2017–18
Shareholder Information
RANGE OF FULLY PAID ORDINARY SHARES AS AT 6 AUGUST 2018
RANGE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Total
18,523
22,966
2,855
1,924
100
46,368
11,792,971
50,366,979
20,632,650
38,008,586
1,869,327,146
1,990,128,332
TOTAL HOLDERS
UNITS % OF ISSUED CAPITAL
UNMARKETABLE PARCELS AS AT 6 AUGUST 2018
Minimum $500.00 parcel at $4.54 per unit
MINIMUM PARCEL SIZE
111
HOLDERS
770
The number of shareholders holding less than the marketable parcel of shares is 770 (shares: 33,039).
SUBSTANTIAL HOLDERS OF 5% OR MORE OF FULLY PAID ORDINARY SHARES AS AT 6 AUGUST 2018*
0.59
2.53
1.04
1.91
93.93
100
UNITS
33,039
NOTICE DATE
18 May 2016
28 Mar 2017
20 Dec 2017
3 Jan 2018
16 Jul 2018
SHARES
151,013,818
105,643,028
108,337,155
153,470,787
149,457,188
NAME
HSBC Holdings PLC
BlackRock Group
The Vanguard Group Inc
JP Morgan Chase & Co and its affiliates
BNP Paribas Nominees Pty Ltd
* As disclosed in substantial shareholder notices received by the Company.
INVESTOR CALENDAR
2019 DATES
12 February 2019
25 March 2019
12 August 2019
DETAILS
Half Year results and interim dividend announcement
Interim dividend payment date
Full Year results and final dividend announcement
23 September 2019
Final dividend payment date
17 October 2019
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
107
TOP 20 HOLDERS OF FULLY PAID ORDINARY SHARES AS AT 6 AUGUST 2018
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
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
BNP PARIBAS NOMINEES PTY LTD
CITICORP NOMINEES PTY LIMITED
UBS NOMINEES PTY LTD
AMP LIFE LIMITED
CS THIRD NOMINEES PTY LIMITED
AVANTEOS INVESTMENTS LIMITED
MERRILL LYNCH (AUSTRALIA) NOMINEES PTY LIMITED
WOODROSS NOMINEES PTY LTD
NAVIGATOR AUSTRALIA LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED-GSCO ECA
AUSTRALIAN UNITED INVESTMENT COMPANY LIMITED
Totals: Top 20 holders of ORDINARY FULLY PAID SHARES (Total)
Total Remaining Holders Balance
UNITS
% OF UNITS
598,713,944
373,128,722
361,437,751
194,537,887
107,548,803
54,926,186
39,095,203
31,586,673
16,245,342
11,227,765
9,314,017
5,924,215
5,823,071
3,515,119
3,350,123
3,282,283
3,200,000
3,051,683
2,526,600
2,500,000
1,830,935,387
159,192,945
30.08
18.75
18.16
9.78
5.40
2.76
1.96
1.59
0.82
0.56
0.47
0.30
0.29
0.18
0.17
0.16
0.16
0.15
0.13
0.13
92.00
8.00
108 AURIZON ANNUAL REPORT 2017-18
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
Includes the business unit segments of Coal,
Bulk and Other of Aurizon Holdings Limited
Company Secretary
The Company Secretary of Aurizon Holdings
Limited
Constitution
The constitution of Aurizon Holdings Limited
ACN
Australian Company Number
Corporations Act
Corporations Act 2001 (Cth)
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
The business unit segment of Network —
Aurizon Network Pty Ltd (ACN 132 181 116)
a wholly owned subsidiary of Aurizon
Holdings Limited
CPS
Cents Per Share
CQCN
Central Queensland Coal Network
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)
Board
The Board of Directors of Aurizon Holdings
Limited
EPS
Earnings Per Share
Bulk
The Above Rail Bulk freight haulage operating
division of Aurizon Holdings Limited
CAGR
Compound Annual Growth Rate, expressed as
a percentage per year
FY
Financial Year ended 30 June, as the context
requires
GAP
Goonyella to Abbot Point
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
GLOSSARY
109
TRIFR
The cumulative number of Lost Time Injuries,
Medical Treatment Injuries and Restricted
Work Injuries sustained by employees and
contractors, per million hours worked, over a
given recording period
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
OP – Operating Ratio
1 – EBIT margin, expressed as a percentage
GAAP
Generally Accepted Accounting Principles
IBNR
Incurred But Not Reported
IFRS
International Financial Reporting Standards
km
Kilometre
LTIA
Long Term Incentive Awards
M
Million
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
OPEX
Operating Expense including depreciation
and amortisation
OTHER
A business unit segment of Aurizon
Holdings Limited
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
Rail Process Safety
The cumulative number of SPAD, derailment
and rollingstock to rollingstock collision
incidents, per million train kilometres, over
a given recording period.
Note: Infrastructure Caused SPADs have been
removed from the SPAD element of Aurizon’s
Rail Process Safety metric.
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
110 AURIZON ANNUAL REPORT 2017-18
Corporate Information
Aurizon Holdings Limited
ABN 14 146 335 622
Directors
Tim Poole
Andrew Harding
Marcelo Bastos
Russell Caplan
John Cooper
Karen Field
Michael Fraser
Samantha Lewis
Kate Vidgen
Company Secretary
Dominic D Smith
Registered Office
Level 8, 900 Ann Street
Fortitude Valley QLD 4006
Auditors
PricewaterhouseCoopers
Share Registry
Computershare Investor Services Pty Limited
Level 1, 200 Mary Street
Brisbane QLD 4001
Tel: 1800 776 476
(or +61 3 9938 4376)
CORPORATE INFORMATION
111
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112
AURIZON ANNUAL REPORT 2017–18 D
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FINANCIAL REPORT FINANCIAL REPORT
Aurizon Holdings Limited
ABN 14 146 335 622