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ANNUAL REPORT
Contents
FY2019 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 ................................110
Glossary .................................................................. 112
Corporate Information ....................................114
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.
FY2019 in Review
Result Highlights (Underlying and statutory continuing operations)
($M)
Total revenue
EBITDA
EBIT
Adjustments – Cliffs contract exit
– Impairments
– Redundancy benefit
EBIT – statutory
NPAT
NPAT – statutory
Free cash flow (FCF)
Final dividend (cps)
Total dividend (cps)
Earnings per share (cps)
Return on invested capital (ROIC)
EBITDA margin (%)
Operating ratio (OR) (%)
Above Rail Tonnes (m)
Above Rail opex/NTK (excluding access) ($/’000 NTK)
Gearing (net debt/net debt + equity) (%)
FY2019
2,907.6
1,371.6
829.0
–
–
–
829.0
473.3
473.3
734.8
12.4
23.8
23.8
9.7%
47.2%
71.5%
258.9
20.3
41.7%
FY2018
VARIANCE %
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%
(7%)
(6%)
(12%)
–
–
–
(14%)
(13%)
(15%)
10%
(5%)
(12%)
(12%)
(1.2ppt)
0.1ppt
(1.7ppt)
(3%)
(10%)
0.6ppt
Highlights
› EBIT down 12% to $829.0m in line with
Major items
› Network – UT5 commercial deal negotiated
Outlook
› Underlying EBIT guidance for FY2020
$880m – $930m
Key assumptions:
• Approval of the UT5 commercial deal
during 1HFY2020 and an uplift in WACC
from 5.9% to 6.3% assumed 2HFY2020
• Above Rail Coal volumes 220mt – 230mt
• Operational efficiency improvements
remain a key driver. Redundancy costs
included in guidance
• Excludes earnings from the rail
grinding business
• No major weather or industrial
relations impacts
expectations with:
• Network down $80.3m (17%) due to
the impact of the UT5 Final Decision,
including the true up of FY2018 revenues
• Coal down $13.5m (3%) with higher
maintenance and costs to install capacity
offset in part by higher volumes and
revenue quality
• Bulk down $12.8m (26%) due to the
cessation of the Cliffs contract in June
2018. This was partly offset by growth
volumes and benefits from operational
efficiencies
• Other benefited from the reversal of a
provision of $20.3m relating to an agreed
settlement with a customer
› FCF improved 10% to $734.8m due to
the receipt of the early termination fee
from Cliffs
› Final dividend of 12.4cps, 70% franked
(representing 100% payout of underlying
NPAT for Continuing Operations),
a decrease of 5% against prior year,
in line with lower earnings
› On market buy back of up to $300.0m
announced for FY2020, confirming
Aurizon’s commitment to returning surplus
capital to shareholders
with customers that provides greater
long-term certainty and improved return.
Awaiting approval from the QCA, expected
later in 2019
› Outcome of the integration review concluded
the benefits of remaining vertically
integrated outweigh separation at this time
› Optimal legal and capital structure
determined which results in a more efficient
balance sheet and funding structure.
Provides additional funding capacity of
~$1.2bn, with debt to be added progressively
over time in order to mitigate risk and
provide flexibility and optionality
› Queensland Intermodal sold to Linfox
in January 2019. Sale of Acacia Ridge
Intermodal Terminal to Pacific National
(PN) subject to Australian Competition
and Consumer Commission (ACCC) appeal
through Federal Court
› Progress made on Enterprise Agreements
(EA) with five agreements now complete
and the Coal Queensland EA approved
in an employee ballot awaiting Fair Work
Commission approval. Work continues
on the Bulk Queensland EA
FY2019 IN REVIEW
1
In September I announced Board Director,
Karen Field’s retirement from Aurizon’s Board,
and in May, Director John Cooper retired due
to health reasons. Both Karen and John served
on Aurizon’s Board and committees for seven
years and were integral to the Company’s
transformation. On behalf of the Board and the
Company, I thank both Karen and John for their
invaluable contribution to Aurizon.
With the removal of much of the regulatory
uncertainty that impacted our business for the
past couple of years, I am confident that our
team can focus on our core business, drive
further transformation and provide safe and
efficient service to our customers.
On behalf of the Board, I thank all employees
across our operations for their outstanding
contribution to our results this year and thank
our shareholders for their ongoing support of
our Company.
Tim Poole
Chairman
12 August 2019
Chairman’s Report
A message from the Chairman
Dear fellow shareholders
I am pleased to report that Aurizon made
important progress on several key matters
during the year ended 30 June 2019 (FY2019).
These include working with our mining
customers to commercially agree revised
regulatory arrangements, the sale of our
Queensland Intermodal business to Linfox,
successfully defending action taken by
the Australian Competition and Consumer
Commission in the Federal Court (concerning
the sale of our Acacia Ridge Intermodal
Terminal) and extending and executing a
number of key Above-Rail customer contracts.
In terms of earnings, Aurizon delivered Earnings
Before Interest and Tax (EBIT) in FY2019 of
$829 million. While lower than the prior year
result, this is in line with expectations and
reflects the impact of the UT5 Final Decision
including the one-off regulatory true-up
of $60 million. We did not provide FY2019
EBIT guidance for Network due to regulatory
uncertainty. Our Above Rail (non-Network)
business of Coal and Bulk delivered a
$450 million contribution to Group EBIT
(excluding redundancy), above the top end
of guidance range we provided to the market
in August 2018.
Volumes in the Coal business were at a
record high despite operational challenges
of industrial action and supply chain impacts.
The Bulk business continued to progress its
turnaround program, securing new customers
and implementing several operational
improvements. Our Network business delivered
a record 232.7 million tonnes across the Central
Queensland Coal Network (CQCN) in FY2019, a
great result for the Network team and re-affirms
the quality of this infrastructure asset.
Aurizon has decided to pay out 100% of
Underlying Net Profit After Tax as dividends,
consistent with our practice for the last four
years. The Board has declared a final dividend
of 12.4 cents per share, 70% franked. This
will take total dividends in respect of FY2019
to 23.8 cents per share, 70% franked.
The Company will also be undertaking an
on-market share buy-back of up to
$300 million during FY2020.
Last year, I confirmed the Board would take
a close and active interest in the long-term
program of work to renew the Company’s
focus on safety. We have been pleased to see
the progress to date in simplifying the safety
management systems and the changes in
the Company’s safety culture, however, we
are disappointed in the final employee and
contractor safety statistics for the year.
All injuries are preventable, and during the
coming year we will continue our focus on
safety and support the leadership team to
improve performance.
As noted above, the Company made substantial
progress during the year in achieving
regulatory reform, with a simpler, longer-term
and commercially focused framework for
the regulation of the CQCN. In May 2019, we
were pleased to announce an agreement with
customers representing more than 90% of railed
tonnes on the CQCN. This is an important step
towards developing an Access Undertaking
that better addresses customer needs,
improves export supply chain performance and
delivers long-term investment certainty for the
Queensland coal sector. It also provides greater
certainty for our shareholders. The revised
Access Undertaking is now being assessed by
the Queensland Competition Authority as part
of the regulatory process.
As a Board, we are responsible for the overall
stewardship, strategic direction, governance and
performance of the Company. During the year,
we endorsed two strategically important pieces
of work that will support Aurizon’s ongoing
value to shareholders. First, was the decision for
the Company to remain vertically integrated.
Following a review of the Company’s integrated
structure that included stakeholder consultation
and analysis, the review concluded that the
benefits of remaining vertically integrated
outweighed separation.
Second, we concluded a review to determine
the optimal legal and capital structure of the
Group. The Board endorsed the management
team to commence implementation of a
simplified legal structure that will provide
the opportunity to optimise the Company’s
balance sheet and provide additional funding
capacity for the Group. We believe we will have
$1.2 billion of additional debt capacity without
impacting on the Company’s current BBB+/Baa1
credit ratings.
2
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19
Managing Director & CEO’s Report
A message from the
Managing Director & CEO
Dear fellow shareholders
In my report to you on our FY2019
performance, I wanted to first address our
safety performance. Safety is at the heart
of everything we do and forms part of our
everyday conversations, however there is
always opportunity to do things better
and differently.
At Aurizon we are committed to driving a
Safety and Performance culture where we
live the Company values, and our people are
engaged and enabled to do their best work.
To help achieve this, we are investing in
programs to help drive safety as well as
leadership capability and better business
processes and systems.
For example, this year we started implementing
an extensive program of work to enhance
our safety systems and procedures, and
improve our safety leadership and culture.
We call it Seamless Safety, a move away from
bureaucratic safety culture and removing layers
of process that can add little value to safety
outcomes. As part of this, we are engaging our
frontline teams to tap into their operational
knowledge and experience to re-shape how
they perform work safely.
Despite this work, our safety performance
results for the year were mixed. The metric
for our Rail Process Safety, which measures
operational safety including derailments,
signals passed at danger and collisions, has
improved. This is significant given these events,
while low frequency, can potentially be high
consequence (potential multiple fatalities) so
our efforts to reduce risk are very important.
Unfortunately, the measure we use to record
employee and contractor injuries for every
million hours worked – our total recordable
injury frequency rate – has deteriorated by
10%. While there are many underlying factors
to these statistics, any number of injuries in
the workplace is unacceptable. I expect all
our employees to go home after each shift in
the same condition they came to work in and
have reinforced to all employees that safety
must be the absolute number one priority for
our Company.
Now turning to the operational performance
of the Company. The Chairman, Tim Poole
covers the financial results in his report. In our
Coal business, we have secured key contract
extensions over the year, which has the effect
of extending the expiry profile of the portfolio,
with 72% of our contracts having a duration
of seven years or more.
Across the Coal business, our volumes were up
by 1% from last year with the business hauling
a record of 214.3 million tonnes, which was
just below the lower end of FY2019 guidance.
New South Wales volumes increased following
the start of MACH Energy railings in January,
however volumes in Queensland were impacted
by weather-related events, supply chain
constraints and protected industrial action
during Enterprise Agreement negotiations.
We were pleased to conclude bargaining with
a positive vote for the new agreement, which
covers more than 1,200 Queensland Coal
employees, in July 2019.
We are committed to achieving fair and
reasonable outcomes in enterprise bargaining
and are pleased our employees have voted
positively for five Enterprise Agreements since
September 2018. This provides certainty for
our employees, our business and importantly,
for our customers.
The Bulk business is in line with expectations
on its turnaround plan by securing new haulage
contracts during the year and improving
operational efficiency. In Queensland, the
Bulk business commenced a new three-year
freighter service for Glencore and its largest
east coast contract, providing linehaul services
for Linfox between Brisbane and Cairns.
On the back of record iron ore prices, in April
we commenced a short-term spot contract
for Mount Gibson Iron in Western Australia
and have improved the utilisation of the
Kalgoorlie Freighter. The Bulk team is focused
on delivering on-time performance through
disciplined train operations and by optimising
employee rosters. While the business had
higher operating costs for the year because
of its growth in operations, these costs
were offset by the efficiency benefits of the
turnaround program.
Our Network business delivered an all-time
record with 232.7 million tonnes of coal being
hauled over the Central Queensland Coal
Network during the year, which includes a
record month in June of 21 million tonnes.
Our Network team remains focused on
creating a rail network that is reliable and
available for our customers to support
Queensland’s strong coal industry.
Following ongoing constructive engagement
with our Network customers, we submitted a
revised Access Undertaking to the regulator,
the Queensland Competition Authority
(QCA). The commercial outcome with
customers is an important step towards the
fundamental regulatory reform required to
support the long-term commercial success
of the Queensland coal supply chain. Aurizon
Network and customers are engaging with the
QCA for it to fully consider, and if appropriate,
approve the revised Access Undertaking in
accordance with its standard procedures.
Across the Group, we remain committed to
continuously improving the efficiency and
safety of our operations to deliver benefits for
our customers and shareholders. Technology
plays a key role in this and we are investing
in the type of initiatives that will improve
locomotive reliability, program diagnosis,
driving techniques and operational safety.
Over the year, some of our communities where
we operate were greatly impacted by weather
events. Both the Hunter Valley and parts of
Queensland continued to experience extreme
drought conditions, and our communities
in North and North West Queensland were
severely impacted by monsoonal rains and
subsequent flooding. To support the long-term
recovery and rebuilding of these communities,
we made additional funding available through
our Community Giving Fund.
As a company with a predominantly regional
footprint, we recognise that we have an
important and ongoing role to play in
supporting our communities – it is these
communities where our trains travel, our
rail network traverses, and importantly
where our people and their families live
and work each day.
It is our people that make our Company
successful and I would like to thank them all
for their contribution to our operations this
year. We are really starting to unlock Aurizon’s
value and potential as we focus on delivering
on our strategy every day.
Andrew Harding
Managing Director & CEO
12 August 2019
MANAGING DIRECTOR & CEO’S REPORT
3
Directors’ Report
Aurizon Holdings Limited
For the year ended 30 June 2019
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 2019 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).
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 – 29 May 2019)
(Independent Non-Executive Director)
K Field
(Appointed 19 April 2012 – 18 October 2018)
(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 2018–19AURIZON ANNUAL REPORT 2018–19 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 and Chairman and
Non-Executive Director of Horizon Roads Pty
Ltd. 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: None other
than Aurizon Holdings Limited.
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 Mr Bastos 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).
Mr Bastos also had a 19-year career with Vale in
a range of senior management and operational
positions in Brazil, including General Manager of
Carajas in the northern region and also Director
of Non Ferrous – Copper business.
Mr Bastos is currently a Non-Executive Director
of IIuka Resources Limited, Non-Executive
Director of Anglo American PLC, and an
External Director (Non-Executive Independent)
of Golder Associates.
Qualifications: B.Eng. Mechanical (Hons),
MBA (FDC-MG), MAICD.
Special Responsibilities: Chairman of
Safety, Health & Environment Committee.
Non-Executive Director of Aurizon
Network Pty Ltd.
Australian Listed Company Directorships held
in the past three years: lluka Resources Limited
– Non-Executive Director (February 2014 –
current); Oz Minerals Limited – Non-Executive
Director (September 2018 – April 2019)
DIRECTORS’ REPORT
5
Directors’ Report (continued)
M Fraser
Experience: Mr Fraser has more than 35 years
of 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, 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).
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 Limited –
Non-Executive Director (1 March 2014 –
ongoing), Nine Entertainment Co. Holdings
Limited (20 March 2017 – ongoing).
K Vidgen
Experience: Ms Vidgen began her career
as a banking, finance and energy lawyer at
Malleson Stephen Jacques and in 1998 started
in the Infrastructure advisory team within
the Macquarie Group. During her time at
Macquarie, Ms Vidgen has traversed a number
of sectors with a focus on infrastructure,
energy and resources. Ms Vidgen has also
held a number of roles including heading
up Macquarie Capital’s coal advisory team
in Australia and being Global Co-Head of
Resources Infrastructure. Ms Vidgen remains
an Executive Director at Macquarie Capital
and is currently the Global Head of Principal
in Oil and Gas.
Qualifications: LLB (Hons), BA, GAICD.
Special Responsibilities: Non-Executive
Director of Aurizon Network Pty Ltd. Member
of Remuneration & Human Resources
Committee. Member of Nomination &
Succession Committee.
Australian Listed Company Directorships
held in the past three years: None other than
Aurizon Holdings Limited.
6
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 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:
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,
agricultural products, mining and industrial
inputs, and general freight throughout
Queensland and Western Australia.
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 13.1 cents per fully paid
ordinary share (60% franked) was paid on
24 September 2018 and an interim dividend
of 11.4 cents per fully paid ordinary share
(70% franked) was paid on 25 March 2019.
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 12.4 cents per fully paid ordinary share.
The dividend will be 70% franked and is
payable on 23 September 2019.
State of affairs
In the opinion of the Directors, there were no
significant changes in the state of affairs of the
Company that occurred during the financial
year under review.
Events since the end of the
financial year
The Directors are not aware of any events or
developments which are not set out in this
report or note 35 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).
In 2016, as part of Aurizon’s climate change
strategy, the Company established a greenhouse
gas (GHG) emissions intensity target which
expires in 2020. In FY2019 Aurizon made
further progress towards its target however,
levels were higher than initial target forecasts
due to operational and service mix changes.
In addition, Aurizon analyses climate change
policy implications for Australia’s seaborne
coal markets and has established processes
for preparing, adapting and responding to
severe weather events.
Aurizon continues to focus on efforts to improve
an understanding of issues associated with
climate change and clean air. In December 2018
the Rail Industry and Standards Board (RISSB)
Code of Practice (CoP) on the Management
of Locomotive Diesel Emissions came into
effect. Aurizon played a leading role in the
development of the CoP which was devised
as an industry led approach to improving
locomotive diesel emissions.
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 second Emissions Reduction
Fund Safeguard Mechanism (Safeguard)
compliance period (ended on 30 June 2018),
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
Aurizon recognises that risk is characterised by both threat and opportunity and manages risk to enhance opportunities and reduce threats to sustain
shareholder value. Aurizon fosters a risk-aware culture through the application of high-quality, integrated risk assessments to support informed decision
making. The Board is ultimately responsible for risk management, which considers a wide range of risks within strategic planning. Aurizon has a
commitment to effective risk management as a key element of business success.
The Audit, Governance & Risk Management Committee monitors management’s performance against Aurizon’s risk management framework, including
whether it is operating within the risk appetite set by the Board (see page 44 of this Annual Report). The Company’s Risk and Assurance Function is
responsible for providing oversight of the risk management framework and assurance on the management of significant risks to the Managing Director
& CEO and the Board.
Aurizon’s risk-aware culture has an emphasis on frontline accountability for effective risk management. The consideration of risk features heavily in our
thinking, from the framing of strategy through to informing decision making. Aurizon’s Enterprise Risk Management Framework and Appetite 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.
Processes exist for the prevention, detection and management of fraud within the Company, and for fair dealing in matters pertaining to fraud.
Further details of risks and risk management are set out on pages 22 to 23 of the Directors’ Report.
TABLE 1 – DIRECTORS’ MEETINGS AS AT 30 JUNE 2019
DIRECTOR
AURIZON HOLDINGS
BOARD
AUDIT, GOVERNANCE
& RISK MANAGEMENT
COMMITTEE
REMUNERATION &
HUMAN RESOURCES
COMMITTEE
SAFETY, HEALTH
& ENVIRONMENT
COMMITTEE
NOMINATION
& SUCCESSION
COMMITTEE
T Poole1
A Harding1
M Bastos
R Caplan
J Cooper2
K Field3
M Fraser
S Lewis
K Vidgen
A
20
20
20
20
18
6
20
20
20
B
20
20
20
20
16
6
20
20
20
A
8
–
–
8
–
2
–
8
–
B
8
–
–
8
–
2
–
8
–
A
–
–
–
5
4
–
5
5
5
B
–
–
–
5
4
–
5
5
5
A
5
5
5
–
4
1
–
–
–
B
5
5
5
–
4
1
–
–
–
A
3
–
–
–
3
–
–
3
3
B
3
–
–
–
3
–
–
3
3
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 J Cooper was an apology for two Aurizon Holdings Board meetings and retired on 29 May 2019.
3 K Field attended all meetings as a Non-Executive Director and retired on 18 October 2018.
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 10 occasions.
Directors’ interests
Directors’ interests are as at 30 June 2019.
TABLE 2 – DIRECTORS’ INTERESTS AS AT 30 JUNE 2019
DIRECTOR
T Poole
A Harding
M Bastos
R Caplan
M Fraser
S Lewis
K Vidgen
NUMBER OF ORDINARY
SHARES
90,500
82,076
11,400
82,132
70,000
33,025
40,000
Only Mr Harding, Managing Director & CEO receives performance rights, details set out in the Remuneration Report
8
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19
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 2019.
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 2019
Non‑audit services
During the year the Company’s auditor
PricewaterhouseCoopers (PwC), performed
other services in addition to its audit
responsibilities.
CEO and CFO declaration
The Managing Director & CEO and Chief
Financial Officer (CFO) have provided a written
statement to the Board in accordance with
Section 295A of the Corporations Act.
The Directors are satisfied that the provision of
non-audit services by PwC during the reporting
period did not compromise the auditor
independence requirements set out in the
Corporations Act.
All non-audit services were subject to the
Company’s Non-Audit Services Policy and do
not undermine the general principles relating
to auditor independence set out in APES 110
Code of Ethics for Professional Accountants as
they did not involve reviewing or auditing the
auditor’s own work, acting in a management
or decision-making capacity for the Company,
or jointly sharing risks and rewards.
No officer of the Company was a former
Partner or Director of PwC and a copy of the
auditor’s independence declaration as required
under the Corporations Act 2001 is set out in,
and forms part of, this Directors’ Report.
Details of the amounts paid to the auditor
of the Company and its related practices for
non-audit services provided throughout the
year are as set out below:
OTHER ASSURANCE SERVICES
Total remuneration for
other assurance services
OTHER SERVICES
Total remuneration
for other services
2019
$’000
58
246
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 108. 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)
NPAT
Profit/(loss) after tax from discontinued operations
NPAT (group)
Earnings per share1
Earnings per share1 (group)
Return on invested capital (ROIC)2
Return on invested capital (ROIC)2 (Continuing & Discontinued)
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)
– statutory
– statutory
– statutory
– statutory
– statutory
– statutory
– statutory
– statutory
FY2019
2,907.6
(778.6)
(233.9)
(101.0)
(397.8)
(24.7)
1,371.6
1,371.6
(542.6)
829.0
829.0
(147.1)
(208.6)
(208.6)
473.3
473.3
3.2
476.5
23.8
23.8
24.0
23.9
9.7%
9.7%
71.5%
1,316.1
12.4
41.7%
2.26
4,728
FY2019
37.7
26.0%
12.5
20.3
59.0
258.9
FY2018
3,112.7
(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%
2.30
4,835
FY2018
38.1
24.4%
13.2
18.5
63.8
267.1
VARIANCE %
(7%)
(1%)
7%
47%
(14%)
69%
(6%)
(8%)
(3%)
(12%)
(14%)
11%
11%
14%
(13%)
(15%)
nm
(1%)
(12%)
(14%)
(7%)
–
(1.2ppt)
(0.7ppt)
(1.7ppt)
1%
(5%)
0.6ppt
(2%)
2%
VARIANCE %
(1%)
(1.6ppt)
(5%)
(10%)
(8%)
(3%)
1 Calculated on weighted average number of shares on issue – 1,990.1m FY2019 and 2,013.4m FY2018
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 FY2019 excludes $21.4m redundancy costs (FY2018 excludes $16.5m redundancy costs)
10
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19
EBIT BY SEGMENT
($M)
Coal
Bulk
Network
Other
Group (Continuing operations)
FY2019
415.1
37.3
400.3
(23.7)
829.0
FY2018
428.6
50.1
480.6
(18.7)
940.6
VARIANCE %
(3%)
(26%)
(17%)
(27%)
(12%)
Group Performance Overview
EBIT decreased $111.6m or 12% in line with expectations with reduced earnings in Network from the UT5 Final Decision, including the acceleration of
the total FY2018 true up into FY2019. Bulk earnings decreased $12.8m or 26% due to the cessation of the Cliffs iron ore contract in June 2018. In Coal,
earnings decreased $13.5m or 3% with increased maintenance expenditure and depreciation costs offset in part by higher volumes. Other EBIT was
impacted by the inclusion of Group wide redundancy costs of $21.4m which were included in the respective business units in the prior year, largely
offset by the reversal of a provision of $20.3m relating to an agreed settlement with a customer.
Revenue decreased $205.1m or 7% reflecting the impact of the UT5 Final Decision and the FY2018 true up in Network and the lower revenue in Bulk
with the cessation of the Cliffs contract.
Operating costs decreased $110.6m or 7% with lower access costs in Coal and Bulk, lower energy costs in Network and the reversal of a provision
relating to an agreed settlement with a customer, partly offset by higher consumables in Coal. Depreciation increased $17.1m with increases in Coal
from newly commissioned rollingstock and overhaul activity and increased levels of asset renewals and ballast undercutting in Network.
ROIC decreased 1.2ppt to 9.7% due to reduced earnings.
Reconciliation to Statutory Earnings
Underlying earnings is a non-statutory measure, and is the primary reporting measure used by management and the Group’s chief operating decision
making bodies for the purpose of managing and assessing the financial performance of the business. Underlying earnings is derived by adjusting
statutory earnings for significant items as noted in the following table:
($M)
Underlying EBIT (Continuing operations)
Significant items (Continuing operations)
Bulk contract exit – termination payment
Bulk contract exit – costs
Asset impairments – Bulk
Redundancy benefit
Statutory EBIT (Continuing operations)
Net finance costs
Statutory PBT (Continuing operations)
Income tax expense
Statutory NPAT (Continuing operations)
Underlying EBIT (Discontinued operation)
Significant items (Discontinued operation)
Intermodal
Net finance income (Discontinued operation)
Income tax benefit (Discontinued operation)
Statutory NPAT
FY2019
829.0
–
–
–
–
–
829.0
(147.1)
681.9
(208.6)
473.3
6.7
(11.4)
(11.4)
0.1
7.8
476.5
FY2018
940.6
25.7
66.3
(31.8)
(31.7)
22.9
966.3
(165.0)
801.3
(241.2)
560.1
(24.0)
(74.7)
(74.7)
–
21.6
483.0
There were no significant items in the continuing operations during FY2019. Significant items for the discontinued operation totalled ($11.4m) and
relate to:
› ($25.1m) asset impairments due to the Queensland Intermodal sale, partly offset by:
› $13.2m for Interstate Intermodal closure impacts, including a gain on the sale of assets and the release of contract exit cost provisions recognised
in the prior year
› $0.5m write back of redundancy costs
OPERATING AND FINANCIAL REVIEW
11
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
2. Other financial information
BALANCE SHEET SUMMARY
($M)
Assets classified as held for sale
Other current assets
Total current assets
Property, plant and 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) (%)
30 JUNE 2019
30 JUNE 2018
108.4
631.2
739.6
8,536.3
425.2
8,961.5
9,701.1
(3.8)
(795.7)
(3,369.8)
(854.4)
(5,023.7)
4,677.4
41.7%
108.0
698.2
806.2
8,659.9
315.7
8,975.6
9,781.8
(12.7)
(735.6)
(3,501.9)
(801.5)
(5,051.7)
4,730.1
42.3%
Balance sheet movements
Total current assets decreased by $66.6m largely due to:
› Reduction in cash held of $9.6m
› Reduction in trade and other receivables of $57.5m largely due to the Cliffs termination payment of $66.3m (excluding GST) included at 30 June
2018, partly offset by the reversal of a provision for impairment of receivable of $20.3m for a customer
Total non-current assets decreased by $14.1m due to reduction in PP&E and intangibles of $119.3m, partly offset by a $85.9m increase in derivative
financial instruments (favourable valuation) and $8.6m increase in other assets.
Total current liabilities, excluding borrowings, increased by $60.1m due to a $130.9m increase in trade and other payables, partly offset by a $50.5m
reduction in provisions and other liabilities as a result of settlement of Interstate Intermodal closure provisions, a refund of $10.0m deposit received in
relation to sale of Queensland Intermodal to a consortium of PN and Linfox and a $20.3m reduction in current tax liabilities. The increase in trade and
other payables includes Network’s prior year UT5 true ups.
Total borrowings decreased by $132.1m due to $253.4m net repayment of bank debt facilities partly offset by a revaluation of medium-term notes
(unfavourable valuation).
Other non-current liabilities increased by $52.9m due to a $57.9m increase in deferred tax liabilities and a $27.8m increase in derivative financial
instruments (unfavourable valuation), partly offset by a $32.8m reduction in provisions and other liabilities.
Gearing (net debt/net debt + equity) was 41.7% as at 30 June 2019.
12
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 CASH FLOW SUMMARY
($M)
Statutory EBITDA (Continuing operations)
Working capital and other movements
Non-cash adjustments – asset impairment
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 associate and sale of property, plant and equipment (PP&E)
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 (repayment)/proceeds from borrowings
Payment for share buy-back and share based payments
Interest paid
Proceeds from settlement of derivatives
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 (decrease)/increase in cash from Discontinued operations
Free Cash Flow (FCF)5 from Continuing operations
Free Cash Flow (FCF)5 from Discontinued operations
FY2019
1,371.6
62.0
24.9
1,458.5
2.9
(145.3)
1,316.1
(25.4)
1,290.7
13.7
(444.5)
(430.8)
11.1
(419.7)
(253.4)
(0.6)
(150.5)
11.5
(487.6)
(880.6)
–
(880.6)
4.7
(14.3)
734.8
(14.3)
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
Cash flow movements
Net cash inflow from operating activities from continuing operations increased by $8.4m (1%) to $1,316.1m due to an improvement in working capital
with the receipt of the Cliffs termination payment ($66.3m excluding GST) in the period and the increase in accruals relating to the Network prior
year UT5 true up, partially offset by lower provisions with the finalisation of Interstate Intermodal and the reversal of the provision for impairment of
receivable from a customer.
Net cash outflow from investing activities from continuing operations decreased by $51.7m (11%) to $430.8m due to a reduction in capital expenditure.
Net cash outflow from financing activities from continuing operations decreased by $28.0m (3%) due to a share buy-back of $300.0m in FY2018,
partly offset by net repayment of borrowings and increased dividends in FY2019.
5 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
The Group continues to be committed
to diversifying its debt investor base and
increasing average debt tenor. During FY2019,
Aurizon Finance cancelled existing bank debt
syndicated facilities expiring in July 2019 and
July 2020 and replaced them with bilateral
bank debt facilities totalling $450.0m with
maturity extended to November 2023.
In respect of FY2019:
› Weighted average debt maturity tenor
was 4.3 years. This was lower than FY2018
(4.7 years) due to the debt portfolio’s
duration reducing by 12 months, partly offset
by the extension of the bank debt facilities
noted above
› Group interest cost on drawn debt was
4.5% (FY2018 4.5%)
› Available liquidity (undrawn facilities plus
cash) at 30 June 2019 was $989.3m
› Group gearing (net debt/(net debt + equity))
as at 30 June 2019 was 41.7% (FY2018 42.3%)
› Network gearing (net debt/RAB (excl AFDs))
as at 30 June 2019 was 58.7% (FY2018
62.4%)
› Credit rating remains unchanged for Network
and Aurizon Holdings at BBB+/Baa1
Dividend
The Board has declared a final dividend for
FY2019 of 12.4cps (70% franked) based on a
payout ratio of 100% in respect of underlying
NPAT for continuing operations.
The relevant final dividend dates are:
› 26 August 2019 – ex-dividend date
› 27 August 2019 – record date
› 23 September 2019 – payment date
Tax
Underlying and statutory income tax expense
for continuing operations for FY2019 was
$208.6m. Statutory income tax expense for
the Group for FY2019 was $200.8m. The
Group underlying and statutory effective tax
rate for FY2019 was 30.6% which is greater
than 30% due to the derecognition of the
deferred tax asset in respect of net capital
losses. The Group underlying cash tax rate
for FY2019 was 19.3%, which is less than
30% primarily due to accelerated fixed asset
related adjustments.
The underlying effective tax rate6 for FY2020 is
expected to be in the range of 29-31% and the
underlying cash tax rate7 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 Operation
On 14 August 2017 Aurizon announced the
intention to exit the Intermodal business
through a combination of closure and sale.
The Intermodal business includes the Acacia
Ridge Intermodal Terminal, Queensland
Intermodal and Interstate Intermodal.
The Intermodal business is disclosed as a
discontinued operation.
Acacia Ridge Intermodal Terminal
Aurizon signed a binding agreement with PN on
29 July 2017 to sell its Acacia Ridge Intermodal
Terminal for $205.0m, of which $35.0m was
received in advance (non-refundable). This
transaction is subject to approval by the ACCC
and Foreign Investment Review Board.
The ACCC opposed the sale on 19 July 2018
and commenced proceedings against Aurizon
and PN in the Federal Court. On 15 May 2019,
the Federal Court rejected the allegations by
the ACCC that the proposed sale contravened
section 45 and section 50 of the Competition
and Consumer Act (2010). On 27 June 2019
the ACCC sought to appeal the Federal Court’s
decision in relation to the contravention of
section 50 of the Act (but not the Federal
Court’s decision in relation to section 45).
On 18 July 2019, Aurizon and PN filed notices
of cross-appeal. The appeal and cross-appeal
will be heard by the Full Federal Court in
due course.
Aurizon remains committed to exiting the
Acacia Ridge Intermodal Terminal and on this
basis has continued to classify the Acacia Ridge
Intermodal Terminal as held for sale and a
discontinued operation as at 30 June 2019.
Queensland Intermodal
The Queensland Intermodal business was sold
to Linfox on 31 January 2019.
Interstate Intermodal
The Interstate Intermodal business ceased
operations on 23 December 2017.
BUSINESS UNIT REVIEW
COAL
Aurizon’s Coal business provides a critical
supply chain link for the majority of Australia’s
coal producers. The coal transport operation
connects mines in the Newlands, Goonyella,
Blackwater, Moura and West Moreton systems
in Queensland and the Hunter Valley, including
the Ulan and Gunnedah coal systems, in New
South Wales with domestic customers and
coal export terminals.
6 Underlying effective tax rate = income tax expense excluding the impact of significant items/underlying consolidated profit before tax
7 Underlying cash tax rate = cash tax payable excluding the impact of significant items/underlying consolidated profit before tax
14
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 ($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)
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)
FY2019
FY2018
VARIANCE %
1,236.2
487.7
0.9
1,724.8
(1,115.0)
609.8
(194.7)
415.1
1,207.8
598.1
7.3
1,813.2
(1,202.0)
611.2
(182.6)
428.6
2%
(18%)
(88%)
(5%)
7%
–
(7%)
(3%)
FY2019
FY2018
VARIANCE %
214.3
152.3
62.0
90%
50.5
38.3
12.2
236
34.2
24.5
75.9%
25.9
16.6
419.9
336
16.1
8,724
7,496
22.8
2.93
212.4
152.5
59.9
93%
50.4
38.3
12.1
237
36.0
24.0
76.4%
27.5
15.4
462.8
308
16.4
8,568
7,447
23.2
2.91
1%
–
4%
(3.0ppt)
–
–
1%
–
(5%)
2%
0.5ppt
6%
(8%)
(9%)
9%
(2%)
2%
1%
(2%)
(1%)
Coal Performance Overview
Coal EBIT decreased $13.5m (3%) to $415.1m resulting from an increase in operating costs due to an uplift in maintenance expenditure and costs for
installing capacity for future volume growth, partly offset by higher net revenue including the 1% volume increase and contract escalation.
Volumes increased by 1.9mt (1%) to 214.3mt. Across the CQCN, volumes decreased by 0.2mt (0%) to 152.3mt despite strong demand and ramp up of
railings for QCoal’s Byerwen mine. The stronger demand was offset by increased supply chain constraints and one-off impacts compared to FY2018,
including the impact of protected industrial action, weather and third-party derailments.
In NSW and South-East Queensland (SEQ), volumes increased by 2.1mt (4%) to 62.0mt with higher volumes from AGL Macquarie and BHP and
the commencement of railings for MACH Energy. This was partly offset by other customer specific production issues, the impact of a third-party
derailment at Newdell in September plus protected industrial action.
Coal revenue reduced $88.4m (5%) to $1,724.8m driven by a reduction in pass-through access and other revenue.
› Above rail revenue increased $28.4m (2%) compared to FY2018 due to the 1.9mt (1%) increase in volumes, higher fuel charges and contract price
escalation. Above rail revenue per NTK increased 2% on lower contract utilisation
› Coal track access revenue reduced $110.4m (18%). This was largely driven by a tariff rate reduction to align to the QCA approved reference tariffs
and customers on the West Moreton and Moura corridors converting to End User Access Agreements (where access charges are paid direct to
Queensland Rail or Network). Decreased track access costs are noted below. This reduction was partly offset by the recovery of FY2018 Access
Take-or-Pay from customers
› Other revenue reduced by $6.4m which predominately relates to internal services completed for Network which are now completed by Bulk
OPERATING AND FINANCIAL REVIEW
15
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Coal Performance Overview (continued)
Total operating costs (including depreciation) reduced $74.9m (5%) to $1,309.7m. Lower track access costs were partly offset by an increase in other
operating costs with the major drivers noted below:
› Track access costs reduced by $137.2m (23%), largely due to the impacts discussed above, including West Moreton and Moura corridor customers
moving to End User Access Agreements, the network tariff rate reduction and a reduction in Take-or-Pay from FY2018 to FY2019
› Increased operating costs of $50.2m including increased maintenance ($22.6m), fuel price increases ($14.2m), wages and consumables escalation
($7.1m) and higher labour costs to meet additional volumes ($5.6m)
› Depreciation increased $12.1m relating to the additional capacity installed to meet growth volumes in NSW (including transfer of locomotives
from the Interstate Intermodal business), overhauls completed on existing rollingstock as well as some additional depreciation resulting from the
implementation of technology projects to replace legacy systems and
improve delivery performance
An explanation of the key operating metrics is shown below:
› During the period, several operating metrics displayed a deterioration compared to the prior year due to the impact of the installation of additional
consists to meet current and future demand and one-off supply chain impacts including: protected industrial action, derailments and weather
impacts. This includes:
• Average velocity – reducing from 23.2km/hr to 22.8km/hr
• Average NTK per locomotive and wagon – falling 9% and 2% respectively
› Average payloads increased from 7,447t to 7,496t with a change in service mix and improved fleet configurations in NSW, SEQ and Moura
Market update
Australia exported 183mt of metallurgical coal in FY2019, +2% against the prior year. India remains Australia's largest metallurgical coal export market with
record export volume of 47mt (26% share), followed by China at 41mt (22% share) and Japan at 35mt (19% share). In the six months to June, crude steel
production in China increased by +10% and in India, an increase of +5% against the same period of the prior year. The average hard coking coal prices
in FY2019 was US$206/t (+1% compared to the prior year). In the 12 months to June, metallurgical coal exports from the United States (second largest
metallurgical coal export nation behind Australia) decreased -1% against the same period of the prior year.
Australia exported 210mt of thermal coal in FY2019, +4% against the prior year. Japan remained as Australia’s largest thermal coal export market with
export volume of 79mt (38% share), followed by China at 47mt (22% share) and South Korea at 3mt (15% share). During the June quarter, declining gas
prices in Europe led a switch from coal to gas for power generation, resulting in Atlantic coal producers redirecting exports into the Asian market. The
average Newcastle benchmark thermal coal price in FY2019 was US$100/t (+1% compared to the prior year). In the 12 months to May 2019, total coal
exports (almost entirely thermal coal) from Indonesia (largest thermal coal export nation) increased by +11% against the same period of the prior year.
Contract update
› Jellinbah – contract extension for Jellinbah East and Lake Vermont mines
› Glencore – a number of contract extensions and additional volumes, most notably in the Newlands corridor
› Baralaba Coal Company commenced railings in 1HFY2019 from the Baralaba North Mine to RG Tanna Coal Terminal
› MACH Energy commenced railings in January 2019 from the Mt Pleasant mine
BULK
Aurizon’s Bulk business supports a range of customers nationally for bulk materials and commodities, agricultural products and mining and
industrial inputs.
($M)
Revenue
Freight Transport
Other
Total revenue
Operating costs
EBITDA
Depreciation and amortisation
EBIT
16
FY2019
FY2018
VARIANCE %
474.6
27.1
501.7
(447.2)
54.5
(17.2)
37.3
592.1
26.0
618.1
(542.9)
75.2
(25.1)
50.1
(20%)
4%
(19%)
18%
(28%)
31%
(26%)
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 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)
Order Fulfilment (%)
Fuel Consumption (l/d GTK)
Bulk Performance Overview
EBIT decreased $12.8m (26%) to $37.3m due
to the impact of the Cliffs iron ore contract
ceasing in June 2018, partly offset by cost
reductions and new volume growth. The result
demonstrates the good progress made on the
Bulk turnaround program.
Total revenue decreased $116.4m (19%) to
$501.7m with an 18% reduction in volumes
(37% in NTK terms) due to:
› The cessation of Cliffs in FY2018 totalling
$146.3m, partly offset by
› Other total revenue increasing by $29.9m
due to volume growth, higher revenue yield
and fuel price increase (resulting in higher
revenue due to cost pass through)
In Bulk East, volumes increased with MMG
now fully operational, the commencement of a
freighter service for Glencore and the transfer
of internal services for Network from Coal.
This was partly offset by lower QLD/NSW grain
volumes due to dry conditions, the loss of the
Wilmar Sugar contract in FY2018, protected
industrial action and flooding impacts in
Queensland in 2HFY2019.
In Western Australia (WA), volumes increased
on the Kalgoorlie freighter service (daily
service between Kwinana and Kalgoorlie) and
higher export bauxite volumes. WA revenue
yield also benefited from reduced rate relief
due to higher commodity prices.
FY2019
FY2018
VARIANCE %
44.6
8.5
191
59.0
92.6%
54.6
42.4
96.0%
3.29
54.7
13.4
245
46.1
91.9%
42.4
30.3
98.0%
3.01
(18%)
(37%)
(22%)
28%
(0.7ppt)
(29%)
(40%)
(2.0ppt)
(9%)
Bulk revenue per NTK increased 28%
predominately due to the impact of the Cliffs
contract ceasing in June 2018 (this was a
longer haul than average and therefore had a
disproportionate impact on NTKs), higher fuel
prices and the commencement of the Linfox
hook and pull agreement in February 2019.
As this contract is a hook and pull operation,
the contract is based on the number of services
and has no associated volumes and NTKs.
Total costs (including depreciation) decreased
$103.6m (18%) largely due to the impact of the
Cliffs contract ceasing and ongoing benefits
from the Bulk turnaround program. Excluding
the impact of Cliffs, total costs increased by
$5.2m due to higher terminal and delivery costs
to support volume growth, including the new
Glencore and Linfox contracts, and an increase
in the average fuel price compared to the
prior year.
Operating metric performance was principally
driven by the cessation of Cliffs as it
contributed a significant level of Bulk’s EBIT,
tonnes and NTKs.
Market update
Aurizon’s Bulk business includes haulage of a
range of bulk commodities such as iron ore,
base metals, minerals, grain and livestock
across Western Australia, Queensland and
New South Wales. In addition to commodities
required in the construction industry, exposure
to growth markets of fertilisers and batteries
will unlock future opportunities. In terms of
batteries, the global uptake of electric vehicles
is expected to drive demand for commodities
such as nickel, copper and lithium. This
is supported by increased exploration
expenditure in Australia, with copper
exploration increasing by 42% (compared
to the prior year) in the March 2019 quarter
to $65m and nickel and cobalt exploration
expenditure rising 6% to $49m, across the
same period.
Contract update
› Executed a variation to the mixed freighter
and concentrate contract with Glencore
expiring August 2021
› Executed a 10-year agreement (5+5)
with Linfox for hook and pull services in
Queensland commencing February 2019
› Cessation of Mt Gibson Mining contract in
January 2019, in line with end of mine life.
Short term spot agreement commenced in
May 2019 to haul low grade ore
› Aurizon was unsuccessful in recontracting
the existing Queensland 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)).
FY2019
FY2018
VARIANCE %
1,070.3
47.4
1,117.7
(396.5)
721.2
(320.9)
400.3
FY2019
232.7
57.9
64.2%
2.3
12.4
23.1
83.8%
248.8
1,167.1
51.6
1,218.7
(430.1)
788.6
(308.0)
480.6
(8%)
(8%)
(8%)
8%
(9%)
(4%)
(17%)
FY2018
VARIANCE %
229.6
56.9
60.6%
2.2
13.0
23.5
82.0%
247.7
1%
2%
(3.6ppt)
(5%)
5%
(2%)
1.8ppt
–
Access revenue billed was $11.8m above the
FY2019 DAAU allowable revenue primarily
due to the higher volumes in Blackwater and
billing of Take or Pay in Moura resulting in an
over-recovery (FY2018 was an over-recovery of
$7.7m). This will be repaid to customers through
revenue cap in FY2021. In addition, track access
revenue was impacted by lower GAPE revenue
of $7.7m and lower Electricity Charge (EC)
revenue of $19.8m. The reduction in EC revenue
was caused by lower wholesale energy prices
and there is also a corresponding decrease in
EC operating expense.
Services and other revenue decreased $4.2m
(8%) mainly due to the recognition of the
Caledon WIRP Deed bank guarantee in the
prior year, partially offset by $2.4m insurance
recovery revenue and $0.9m additional external
construction works revenue in FY2019.
Operating costs decreased by $33.6m (8%).
This was primarily due to a $34.1m (24%)
reduction in energy and fuel costs from lower
wholesale electricity prices and discounts
negotiated on transmission costs (offset
in Access revenue and EC revenue above).
Employee benefits expense increased by
$3.1m (2%) largely due to annual salary
escalation. Consumables and other expenses
decreased $2.6m (2%) while depreciation
increased $12.9m (4%) due to increased levels
of asset renewals and ballast undercutting and
higher corporate depreciation allocations.
The Regulated Asset Base (RAB) roll-forward
value based on the UT5 Final Decision is
estimated to be $5.7bn (including all deferred
capital but excluding AFDs of $0.4bn)
at 1 July 2019.
FINANCIAL SUMMARY
($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 ($/’000 NTK)
Opex/NTK ($/’000 NTK)
Cycle Velocity (km/hr)
System Availability (%)
Average haul length (km)
Network Performance Overview
EBIT declined $80.3m (17%) to $400.3m in
FY2019, with cost reductions of $20.7m offset
by decreased revenue of $101.0m, mainly due
to the QCA’s Final Decision on Network’s UT5
proposal which was issued on 6 December 2018
(UT5 Final Decision).
Regulatory access revenue in FY2019 was
based on the Reference Tariffs DAAU (FY2019
DAAU) approved by the QCA on 24 June 2019.
Track access revenue decreased by $96.8m
(8%), impacted by the UT5 Final Decision
allowable revenue for FY2019 being lower than
the FY2018 transitional tariff allowable revenue
(ex GAPE) of $58.8m. There was a further
impact of $60.1m (ex GAPE) for the FY2018
true up to the UT5 Final Decision. FY2018
access revenue also included $18.4m of flood
cost recoveries within the allowable revenue.
This was partly offset by a positive revenue
adjustment of $66.0m, comprising a recovery
of $44.6m (for FY2017 revenue cap payments
in FY2019) compared to a return to customers
in FY2018 of $21.4m.
18
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 › Submissions on the UT5 DAAU closed on
3 July 2019. Network will continue to work
with the QCA to progress the approval of
the UT5 DAAU
› On 18 July 2019, the QCA approved
Network's Electric Traction DAAU which
seeks to lessen potential stranding risk of
the electrical infrastructure by putting
in place utilisation thresholds for the
Blackwater and Goonyella systems
Regulation Update
› The QCA approved the UT5 Final Decision on
21 February 2019, replacing the 2016 Access
Undertaking (UT4)
› The UT5 Final Decision provides a Maximum
Allowable Revenue (MAR) of $4,123m
over the four-year regulatory period
(FY2018-2021) with a Vanilla Nominal Post
Tax Weighted Average Cost of Capital
(WACC) of 5.7% retaining the WACC
parameters from the Final Decision in
December 2018
› UT4 transitional tariffs were in place from
1 July 2017 until 20 February 2019
› On 24 June 2019, the QCA approved the
FY2019 DAAU, which:
• Addressed the revenue differences
between UT4 Transitional Tariffs and
approved UT5 final approved Tariffs for
FY2018 of $81.3m ($60.1m ex GAPE)
• Reset the CQCN coal volume forecasts
for FY2019 from 245.2 million tonnes to
233.8 million tonnes
• Updated the EC and QCA Levy to
be reflective of the approved rates
by the QCA in its October 2018 UT4
Extension DAAU
• Reconciled other omissions from
within the QCA UT5 Final Decision
(e.g. connection charges, Cyclone
Debbie review events and modelling
inconsistencies)
› On 3 May 2019, Network submitted its
UT5 Draft Amending Access Undertaking
(UT5 DAAU), following a period of
negotiation with its customers. The UT5
DAAU is a package agreement which was
submitted with support from more than 90%
of Network’s customers by contract tonnage.
Key points of the UT5 DAAU include:
• Extending the term of UT5 to 10 years
(1 July 2017 to 30 June 2027)
• A WACC of 5.9% from 3 May 2019,
increasing to 6.3% (subject to a reset
of market parameters on 1 July 2023)
on completion of specific milestones
• Greater involvement of customers
through processes to annually
pre-agree future maintenance and
capital expenditure
• The appointment of an independent
expert to complete initial and ongoing
capacity assessments and undertake
reporting requirements
• Operating cost efficiencies to be retained
by Network for the term of the UT5 DAAU
• Funding commitments from Network
on growth-based capital expenditure,
including a potential $300.0m in capital
to rectify any capacity deficit identified in
the independent expert’s initial capacity
assessment report and an annual $30.0m
for expansions that benefit more than one
mining customer. These amounts will be
included in the RAB for pricing purposes
• A rebate mechanism payable to
customers where Network performs
below target levels which are to be
determined following the independent
expert’s initial capacity assessment
OPERATING AND FINANCIAL REVIEW
19
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Operational Update
Performance
During FY2019 Network operational performance remained strong.
Highlights include:
› The supply chain delivered a record year with volumes in the CQCN
of 232.7mt. In the last six months record monthly volumes were
achieved in all four systems while in June overall tonnes were 21.5mt,
the first-time monthly volumes have exceeded 21mt
› Total System Availability improved from 82.0% to 83.8% with
fewer paths impacted by network, port and mine train load-out
maintenance. Network has focused on the execution of some key
initiatives throughout the year, including the introduction of Precision
Maintenance Blocks, A-type possessions and a schedule adherence
trial in the Moura system, as described below:
• A ‘Precision Maintenance Block’ is a set of repeating maintenance
possessions that are dedicated to maintenance in a ‘normal’ week,
with the aim of improving the productivity of the maintenance
teams and the overall flow of trains to improve the utilisation of
the network. A-type possessions relate to single line closures of a
single section in duplicated track territory; changes to how Network
schedule around these closures has also allowed for increased
utilisation of the network. These two initiatives have enabled the
scheduling of an additional six services per week in the Blackwater
system since November 2018 and one additional service in the
Goonyella system since January 2019
• During June, Network commenced a schedule adherence trial in
the Moura system. The objective of the trial was to test how the
system performed when the schedules were strictly adhered to and
if this would result in improved On Time Performance, Performance
to Plan (reduced cancellations) and the overall reduction in Turn
Around Time (TAT). Over the five-week trial period:
– On Time Arrival at mine improved from 23%
(12-week baseline pre-trial) to 67%
– Performance to Plan increased from 77% to 82%
– TAT reduced by an average of 2.35 hours per service
– Overall delays were an average of 45 minutes less per service
– These results are encouraging and the trial has been continued.
Network will focus on implementing the lessons learned from
this trial in the other systems throughout FY2020
› Cancellations due to Network rail infrastructure decreased from 2.2%
to 1.8%
› Cycle velocity reduced marginally from 23.5km/h to 23.1km/h
Operational efficiency improvements delivered:
› A variety of initiatives in relation to electric traction were delivered,
which will continue to deliver cost benefits to the supply chain through
FY2020 and beyond, including constructive engagement with suppliers
to seek to improve the long-term efficiency of the electrified system
› The RM902, Network’s new ballast cleaning machine, is presently
in its commissioning phase and scheduled to be fully operational
in 2HFY2020. This machine should increase production from the
existing undercutter with savings in ballast costs due to its increased
screening capability
› During the second half of FY2019 Network continued development
and user acceptance testing (UAT) for release 2 of the Advanced
Planning System (APS) software which modernises the train ordering
process and includes the APS scheduling module. Release 2 went
live into production on 27 July 2019
Wiggins Island Rail Project (WIRP)
› During FY2019 legal proceedings continued 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 WIRP fee, which is non-regulated. The trial
in the Supreme Court of Queensland was heard between 10 September
2018 and 21 September 2018 and on 27 June 2019 the Supreme Court
ruled in Network’s favour. On 25 July 2019 all customers lodged notices
of appeal challenging the decision of the Supreme Court. Network is
considering the appeal and will respond in accordance with the Court
of Appeal mandated timeframes
› The customers also initiated other disputes under their respective
WIRP Deeds which were the subject of an expert determination
in February 2019. Those disputes relate to various matters on
the completion of the WIRP construction works. The Expert’s
Determination was issued on 4 June and found that the WIRP Fee
should be partially reduced. These disputes relate to the same
component of WIRP revenue as the Supreme Court proceedings and
will not impact recovery of the regulated access charge component
of WIRP capital expenditure. Network is determining options for
appeal of this outcome
› Due to the ongoing dispute, no revenue in respect of the WIRP
fee has been recognised to date
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.
($M)
Total revenue
Operating costs
EBITDA
Depreciation and amortisation
EBIT
Other Performance Overview
FY2019
FY2018
VARIANCE %
82.2
(96.1)
(13.9)
(9.8)
90.8
(99.7)
(8.9)
(9.8)
(23.7)
(18.7)
(9%)
4%
(56%)
–
(27%)
EBIT decreased by $5.0m mainly due to the inclusion of $21.4m of Group
wide redundancy costs, largely offset by the reversal of a provision of
$20.3m relating to an agreed settlement with a customer. Redundancy
costs were included in the business unit results in prior year.
INTERMODAL – DISCONTINUED OPERATION
($M)
Total revenue
Operating costs
EBITDA – Underlying
Depreciation and amortisation
EBIT – Underlying
Significant Items
Net finance income
Income tax benefit
NPAT (Discontinued operation)
– Statutory
FY2019
FY2018
VARIANCE %
111.0
225.4
(104.1)
(247.1)
6.9
(0.2)
6.7
(11.4)
0.1
7.8
3.2
(21.7)
(2.3)
(24.0)
(74.7)
–
21.6
(77.1)
(51%)
58%
nm
91%
nm
85%
–
(64%)
nm
20
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 Intermodal Performance Overview
Train Guard
Train Guard is a technology platform utilising ETCS (European Train
Control System) technology to support driver decision making
particularly in relation to speed control and signal enforcement in Central
Queensland. This technology will support safer and more efficient train
operations with reduced signals passed at danger and improved control
and train handling. This technology is also a pathway to expanding our
driver only operations in Central Queensland and will initially be installed
on three locomotives. Installation of equipment on locomotives and
wayside has commenced in preparation for a trial in 2020.
Asset Maintenance
As part of an enterprise review of rollingstock maintenance Aurizon
has developed a comprehensive plan that underpins a fundamental
repositioning in the way it approaches rollingstock maintenance, on the
journey through condition-based maintenance to predictive maintenance.
While Aurizon has had huge success in applying technology to condition-
based maintenance, especially in the CQCN, the plan that has been
developed covers all aspects of rollingstock across both Coal and Bulk.
This is a multi-year program that has three major phases:
› Solidify the foundation
› Improve the maintenance maturity
› Increase the competitiveness of the business
The targeted investments in technologies that have already been made
will greatly enable the success on this journey.
TrainHealth
TrainHealth provides Aurizon with capability to monitor performance of
locomotives and train handling/utilisation in real time. This initiative will
enable access to real time asset data that will inform the health of the
locomotive, enhance asset reliability and maintenance decisions for the
fleet, provide greater visibility on driver variability and support business
decisions for on-time running. TrainHealth will initially be installed across
the Siemens electric locomotive fleet in the CQCN with installation to
commence during August 2019.
The EBIT position for Intermodal improved $30.7m mainly due to:
› $28.6m reduction in operating losses with the closure of Interstate
Intermodal in December 2017
› $2.1m reduction in depreciation
Significant items for the discontinued operation totalled ($11.4m)
and relate to:
› ($25.1m) asset impairments due to the Queensland Intermodal sale,
partly offset by:
› $13.2m for Interstate Intermodal closure impacts, including a gain
on sale of assets and the release of contract exit cost provisions
recognised in the prior year
› $0.5m write back of redundancy costs
OPERATIONAL EFFICIENCY IMPROVEMENT UPDATE
As part of Aurizon’s Strategy In Action, particularly the Optimise and
Excel levers, Aurizon continues to focus on operational efficiency to
continuously improve its operational performance, asset efficiency and
cost competitiveness. Through the Optimise and Excel levers, Aurizon is
making targeted investments in technology on the journey to continuous
improvement. Outlined below are the major initiatives being pursued in
the business:
Precision Railroading Operations
Project Precision is focussed on driving precise planning and disciplined
delivery of operations with the objective to improve on time departure
and arrival of above rail services across CQCN. This initiative drives value
through improving asset and crew utilisation and unlocking capacity of
the network. The focus of the project in the first three quarters of FY2019
was on improving scheduling capability, releasing additional capacity
by improving the alignment of maintenance activities and non-coal
traffic operating on the CQCN and reducing unnecessary dwell and yard
time. These improvements have resulted in approximately 20 additional
services per week scheduled since early January 2019.
In the fourth quarter of FY2019 the project focus shifted to the
disciplined execution of the train schedule in the day of operations.
A schedule adherence trial was conducted in the Moura system and has
seen an improvement in on time performance of services, a reduction in
turnaround time and average cancellations and improved driver safety
statistics. Following the success of the Moura trial, plans have been put
in place to extend this trial into other CQCN corridors through FY2020.
Restructure of Support Areas
Aurizon has delivered significant benefits from the implementation of the
restructure of the Technical Services and Planning (TSP) business unit
during FY2019. The restructure enables TSP to deliver a more sustainable,
focussed, flexible and lower cost service to the Coal, Bulk and Network
business units. The reduced headcount of ~175 will contribute to the
delivery of the savings target of approximately $20m during FY2020.
OPERATING AND FINANCIAL REVIEW
21
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
ADDITIONAL INFORMATION
Business Interruption
Aurizon may experience business interruption
and consequential financial impact from a
range of circumstances including, but not
limited to:
› Road Vehicle Incident – death or injuries to
our people from operating road vehicles
› Process Safety Incident – major process
safety event leading to death or injuries
to our people, significant distraction or
loss of license to operate
› Illegal protest activity – safety risks to
employees and individuals due to anti-coal
protesters illegally entering the rail corridor
and danger zone to conduct blockades
› Cyber security incidents in relation to
Aurizon’s corporate and operational systems
› Adverse weather events could impact
Excel Strategic Lever
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. Most of
Aurizon’s significant customer contracts
are secured on long-dated terms, however
failure to win or retain customer contracts at
acceptable rates will 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. Competitors may also
deploy technology or innovation more rapidly
than Aurizon.
Aurizon’s operations, assets or customers
Delivery of Regulatory Reform
Enterprise Agreement Renegotiations
EA renegotiations to support sustainable
business transformation are ongoing.
Approximately 75% of Aurizon’s workforce
are covered by collectively bargained EAs.
One of these EAs was successfully
renegotiated in FY2018 and a further four in
FY2019. The Queensland Coal EA has received
approval through an employee ballot in July
2019 and is with Fair Work Commission for
approval. These renegotiated EAs provide
balanced productivity improvements with
fair wage outcomes. Work continues in
Queensland in relation to the Bulk EA.
Through ongoing bargaining, Aurizon is
seeking to balance productivity improvements
with wage outcomes. There are risks that
prolonged industrial action impacts Aurizon’s
critical operations or final agreements do not
support business objectives.
Acacia Ridge Intermodal Terminal
sale transaction
There is a risk that the Acacia Ridge Intermodal
Terminal sale transaction as described on
page 14 of this report will be prevented from
completing and Aurizon incurs orders for costs.
Network may fail to achieve regulatory reform
over the medium term, impacting future
company performance. The near-term risk
relates to the potential for the QCA not to
approve the UT5 DAAU as detailed on page
19 of this report, in which case the UT5 Final
Decision will remain in place, resulting in
a lower allowable revenue than under the
UT5 DAAU.
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.
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. In late 2018,
Aurizon reviewed and refreshed its Enterprise
Risk Management Framework and Risk
Appetite. The update aims to deliver a simpler
and more practical format to support 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
Delivery of Optimise Initiatives
Aurizon maintains a pipeline of efficiency
initiatives that are expected to deliver a
cost effective and customer aligned model.
Failure to be the lowest cost or highest
service provider may occur due to a lack of
definition in the target state or unsuccessful
implementation of the associated action plans.
Impacts on non-delivery include not achieving
budget and failure to maximise volumes within
customer contracts.
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.
22
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 Physical Risks
› 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 Aurizon’s
sustainability report.
Adverse Basin or 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 develops its own position regarding
future coal demand through our Strategy
in Uncertainty framework which includes
scenario analysis. This process considers
both short-term impacts as well as risks
that emerge over the medium to long term,
where the timing and magnitude is less
certain. Our management team and Board
are directly engaged in helping to identify
the scenarios for consideration in addition
to development of plans and initiatives to
position the organisation to mitigate risks
and take advantage of opportunities. Given
our customer's exposure (almost entirely)
to export markets, in developing our own
scenario analysis we assess global seaborne
demand for metallurgical coal and thermal
coal, driven primarily by steel production
and energy generation respectively. Based
on this addressable market, Australian
supply is assessed considering the risks and
opportunities for both current and future coal
production. In addition to developing our own
long-term outlook for seaborne coal demand,
we also consider scenarios developed by
external organisations such as the International
Energy Agency (IEA) through the annual
release of the World Energy Outlook (WEO).
Extend Strategic Lever
WIRP Non-Regulated Revenue Dispute
Given that the decision of the Supreme
Court of Queensland has been appealed by
customers, there is potential the entire amount
of the WIRP non-regulated fee as described
on page 20 of this report is determined by
the Court of Appeal to not be payable by
the WIRP customers.
Climate Change Risk
The long-term implications of climate change
may impact Aurizon on several fronts.
For example:
Transition Risks
› Demand for thermal coal is subject to energy
policy and fuel-mix decisions driven by
energy costs, energy security, and regulation
of GHG emissions (including carbon pricing).
Demand for metallurgical coal is subject to
factors such as economic development, steel
intensive growth, alternative methods of
steel production and import reliance
› Demand for metallurgical coal is subject to
factors such as economic development, steel
intensive growth, alternate methods of steel
production, import reliance and regulation of
GHG emissions (including carbon pricing)
› Investor concern over climate-related risks
may result in an inability for Aurizon, our
customers and end-users of coal to gain
licences, funding and insurance for coal
mining, transport and coal-fired generation
and/or steel production capacity
› Carbon liability under the Safeguard
Mechanism Rule and potential penalties for
inappropriate carbon reporting under the
National Greenhouse and Energy Reporting
(NGER) Act
OPERATING AND FINANCIAL REVIEW 23
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Sustainability
Aurizon’s Sustainability Report details how
Aurizon takes account of social, environmental
and economic considerations related to its
operations. In October 2018, Aurizon released
its fifth Sustainability Report. In August 2019,
Aurizon maintained a ‘Leading’ rating for
the fifth consecutive year by the Australian
Council of Superannuation Investors (ACSI) for
Corporate Sustainability Reporting in Australia.
Having received this rating for four or more
consecutive years, Aurizon has again been
considered a ‘Leader’ by ACSI, along with
45 other ASX200 companies.
This year will be the third reporting period in
which Aurizon incorporates 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 2019 Sustainability Report will be
published in October 2019.
24
Safety
People
At Aurizon our values (Safety, People, Integrity,
Customer and Excellence) guide our people’s
work in delivering bulk commodities to the
world. During the year we have continued
to focus on developing the capability of our
people through:
› Leadership programs designed to promote
accountability and engage and enable
employees
› Further improve our people, processes and
systems through cascading performance
succession systems through the organisation
› Review and implement a new HR system
framework for HR policies to create easier
access to key policies, tools and documents
providing clearer accountability and greater
flexibility
At Aurizon safety is a core value and we are
committed to achieving ZEROHarm. We have
two primary safety metrics that are used to
measure safety outcomes across the enterprise
being Total Recordable Injury Frequency Rate
(TRIFR) and Rail Process Safety.
Rail Process Safety, which measures
operational safety including derailments,
signals passed at danger and rollingstock
collisions improved 14% against the prior
year decreasing to 4.38. This is significant
given these events, while low frequency, can
potentially be high consequence so efforts to
reduce risk are very important.
FY2019 TRIFR, which includes contractors,
was 11.07 injuries per million hours worked,
which was a 10% increase against the prior
year. The data shows the actual number of total
recordable injuries remained largely unchanged
from the prior year and the increase can be
attributed to the fact that the total number
of recordable hours worked were lower.
Nevertheless, the figure is disappointing and
reinforces the importance of the continued
rollout of the Seamless Safety program and
other initiatives.
Aurizon also continues to focus on contractor
safety through the Contractor Safety
Community of Competence. During FY2019
this group of subject matter experts assisted
in the goal of reducing injuries to contractors
and improving TRIFR data quality.
Environment
Aurizon’s vision is to deliver environmental
value through effective management of
material environmental risks and improved
enterprise environmental performance.
Aurizon continues to focus on efforts to
improve visibility and transparency related to
key and emerging environmental issues such
as climate change and clean air.
Aurizon’s leadership on diesel emissions
was made evident through our contribution
to the Code of Practice for Management of
Locomotive Exhaust Emissions (CoP) published
by the Rail Industry Safety and Standards
Board in 2018. The CoP outlines emissions
standards for new and existing fleet that must
be met within 10 years of the effective date
(1 December 2018).
In FY2019, Aurizon had two notifiable
environmental incidents. Remediation
actions have been implemented as required
and no ongoing environmental impacts
are anticipated.
AURIZON ANNUAL REPORT 2018–19 Directors’ Report (continued)
REMUNERATION REPORT
Dear Fellow Shareholders
On behalf of the Board, we present Aurizon’s Financial Year (FY) 2019 Remuneration Report. The Board believes the Company has performed well
in difficult circumstances and wishes to recognise the Leadership Team’s progress in executing our business strategy and achieving key milestones
during the year, which have provided long-term certainty for the business.
The Leadership Team has continued to focus the Company’s efforts during the year on the business strategy and improving our core business
of delivering bulk commodity transport solutions for customers. We are using three strategic levers to deliver this continuous improvement
and create long-term value for customers and shareholders – Optimise (our existing core business); Excel (to create competitive advantage),
and Extend (to support long-term sustainable growth).
Our Coal business performed well, despite operational challenges of industrial action, weather-related and supply chain constraints. The Bulk
business continued to progress with its turnaround program, securing new customers and improving business operations. The Network business
reported record tonnages across the Central Queensland Coal Network (CQCN), with 232.7 million tonnes of coal delivered in FY2019.
A significant achievement in FY2019 was the agreement with coal customers for an alternate access undertaking for the CQCN. This establishes
the foundation for much-needed regulatory reform for one of Australia’s leading infrastructure assets and also the basis for a renewed
relationship with our customers, based on productivity and a mutual interest in supply chain performance. We also completed the second stage
exit from the loss-making Intermodal business by selling the Queensland Intermodal business to Linfox.
Over the past 12 months our safety performance has been mixed with improvement on Rail Process Safety which includes derailments, Signals
Passed at Danger and rollingstock collisions and a disappointing deterioration in our Total Recordable Injury Frequency Rate which captures the
number of injuries to employees and contractors per million hours worked.
The Short Term Incentive (STI) Award for FY2019 continued to be based on annual performance measures of Underlying EBIT, Safety and
Individual Key Deliverables. Business Unit earnings metrics were introduced for Bulk and Coal in FY2019. Due to the uncertainty from Aurizon
Network’s Draft Access Undertaking, the Board determined that these arrangements would be introduced for Network from FY2020.
Strong performance across earnings and individual measures is reflected directly in the STI payments for our Key Management Personnel.
Stretch performance was achieved for Group Underlying EBIT, Bulk EBIT and Rail Process Safety. There was no reward allocated for our Injury
metric. The Board has determined that an overall outcome at or close to Stretch will be awarded to participants.
During FY2019, the 2016 Long Term Incentive (LTI) Award and unvested 2015 LTI Award were subject to testing however Aurizon’s performance
resulted in no components of these Awards vesting. This outcome is consistent with shareholder experience over the last three years. Aurizon’s
share price has seen a significant improvement over the past 12-months, which is expected to be reflected in vesting of future LTI Awards.
The fixed remuneration of the Executive Key Management Personnel (KMP) was reviewed and increases were awarded to the MD & CEO (1%),
CFO & Group Executive Strategy (7%) and other Executive KMP (1%-3%).
The Board considers that these remuneration outcomes reach an appropriate balance both reflecting shareholder outcomes and recognising
the value-adding contribution of the Leadership Team.
During FY2018 and FY2019, the Board conducted a comprehensive review of Aurizon’s remuneration framework and performance metrics.
The Board has determined that the current framework delivers against Aurizon’s remuneration principles and, with minor adjustment,
remains effective in driving performance. In FY2020, the STI metrics will include Network Earnings and Individual Key Deliverables related
to improvement in safety performance and culture. The Return on Invested Capital hurdle for the 2019 LTI allocation has been set taking into
account the current business outlook and the expected Network regulatory outcomes. The Board will continue to review and assess alternative
remuneration structures implemented in the market.
As communicated last year, 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, which was introduced over a two-year period.
We are grateful for your ongoing support.
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 2019 is set out in Table 1. The
information in this Report has been audited.
2. Directors and Executives
The Key Management Personnel (KMP) of the Group (being those whose remuneration must be
disclosed in this Report) include the Non-Executive Directors and those Executives who have the
authority and responsibility for planning, directing and controlling the activities of Aurizon.
The Non-Executive Directors and Executives that formed part of the KMP for the Financial Year
(FY) ended 30 June 2019 are identified in Table 2.
Table 3 identifies other persons who were KMP at some time during FY2019.
TABLE 2 – KEY MANAGEMENT PERSONNEL
NAME
POSITION
TABLE 1 – TABLE OF CONTENTS
NON–EXECUTIVE DIRECTORS
SECTION CONTENTS
PAGE
1
2
3
4
5
6
7
8
9
10
Remuneration Report
Introduction
Directors and Executives
Remuneration
Framework Components
Company Performance
Financial Year 2019
Take Home Pay
Short Term Incentive
Award
Long Term Incentive
Award
Executive Employment
Agreements
Non-Executive Director
Remuneration
Executive Remuneration
Financial Year 2019
26
26
27
29
30
31
32
34
35
36
T Poole
M Bastos
R Caplan
M Fraser
S Lewis
K Vidgen
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
Chairman, Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Managing Director & Chief Executive Officer
Chief Financial Officer & Group Executive Strategy
Group Executive Bulk
Group Executive Coal
Group Executive Network
TABLE 3 – FORMER KEY MANAGEMENT PERSONNEL
NAME
POSITION
FORMER NON–EXECUTIVE DIRECTORS
J Cooper1
K Field2
Independent Non-Executive Director
Independent Non-Executive Director
1 J Cooper ceased in the role and with the Company on 29 May 2019
2 K Field ceased in the role and with the Company on 18 October 2018
26
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19
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) 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 FY2019 for the MD & CEO and Executive
KMP is set out in Figure 1: Total Potential
Remuneration Financial Year 2019. This diagram
demonstrates the revised remuneration mix
for appointments, implemented since FY2017,
where a greater portion 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 20191
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
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 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 remuneration matters.
These advisors:
› Review and provide
recommendations on the
appropriateness of the
MD & CEO and Executive
remuneration
› Provide independent
advice, information
and recommendations
relevant to remuneration
decisions
Any advice or
recommendations provided
by external advisors are
used to assist the Board –
they do not substitute
for the Board and
Remuneration and Human
Resources Committee
processes
REMUNERATION REPORT
27
Directors’ Report (continued)
REMUNERATION REPORT
Remuneration Framework and objectives Financial Year 2019
During FY2018 and FY2019, the Board conducted a comprehensive review of Aurizon’s remuneration framework and performance metrics. The Board
has determined that the current framework, as summarised in Figure 3, delivers against our remuneration principles and, with minor adjustment,
remains effective in driving performance. The Board will continue to actively review and assess alternative structures implemented in the market.
FIGURE 3 – REMUNERATION FRAMEWORK AND OBJECTIVES FOR FINANCIAL YEAR 2019
PERFORMANCE MEASURE
STRATEGIC OBJECTIVES AND
LINK TO PERFORMANCE
FY2019 FRAMEWORK
CHANGES
D
E
X
F
I
I
N
O
T
A
R
E
N
U
M
E
R
M
R
E
T
T
R
O
H
S
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 (Enterprise and,
if applicable, Business Unit) (60%)
› Safety (10%)
›
Individual (30%)
Measured over a one-year
performance period
Participants can earn up to a maximum
of 150% of “at-target” remuneration
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
LTIA at Risk (Maximum):
MD & CEO: 120% of Fixed Remuneration
Other Executive KMP: 112.5% of
Fixed Remuneration
M
R
E
T
G
N
O
L
D
R
A
W
A
E
V
T
N
E
C
N
I
I
› To attract and retain Executives
with the right capability to
achieve results
Effective 1 July 2018, TFR increases
were provided to ensure alignment
with external peer group:
› MD & CEO: from $1.7m
to $1.717m (1%)
› Other Executive KMP:
between 1% & 7%
›
› A greater proportion of the
Award has been weighted
towards Underlying EBIT from
40% to 60%
Introduction of Business Unit
measures (Underlying EBIT)
for Coal, Bulk (FY2019) and
Network (FY2020)1
Enterprise Transformation
Program measure has been
removed however the benefits
have been embedded within
the EBIT targets
›
No change
The financial and non-financial
performance measures were
chosen because:
› Underlying EBIT delivers direct
financial benefits to shareholders
› Safety captures the need to
continuously improve safety and
embed safe, efficient and effective
processes across all aspects of a
heavy industry business
›
Individual aligns employee
contribution to the achievement
of Aurizon’s strategy
› Relative TSR is a measure of the
return generated for Aurizon’s
shareholders over the performance
period relative to a specific peer
group of companies (from the
ASX100 index)
› 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
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
1 Network did not have an EBIT target for remuneration purposes for FY2019 due to the unknown UT5 outcome which was awaiting Final Decision at the time targets were
set. Group Executive Network will receive the Enterprise outcome for FY2019
28
AURIZON ANNUAL REPORT 2018–19
4. Company Performance for
Financial Year 2019
Aurizon reported Group Underlying Earnings
Before Interest and Tax (EBIT) of $829 million
for year ended 30 June 2019. The Non-Network
businesses (Coal, Bulk and Other) delivered
a $450.1 million contribution to Group
EBIT (excluding redundancy), above the
non-Network EBIT guidance range of $390m
– $430m. Aurizon Network delivered a $400
million contribution to Group EBIT which
includes Aurizon's decision to recognise a
one-off regulatory true-up of $60 million to
account for the UT5 Final Decision. The true-up
is the largest contributor to the 12% reduction
in Group EBIT from FY2018.
Progress in executing the business strategy and
achieving key milestones during FY2019 have
provided long-term certainty for the business.
Key achievements include:
› Record tonnages across the Central
Queensland Coal Network (CQCN) of
232.7 million tonnes
› New customers and improved business
operations in Coal and Bulk
› An agreement with Coal customers for an
alternate access undertaking for the CQCN
delivering a range of benefits for Aurizon
and its customers
› Successful second stage exit from the
Intermodal business through the sale of the
Queensland Intermodal business to Linfox
› An improvement in Rail Process
Safety performance which includes
derailments, Signals Passed at Danger
and rollingstock collisions
› Completed bargaining for five
Enterprise Agreements
› Continued delivery on programs focused
on safety and performance culture,
efficiencies and cost savings.
Figure 4 shows historical Company
performance across a range of key metrics.
Strong performance across earnings and
individual metrics is reflected directly
in STIA payments. Detail related to
performance against the FY2019 STIA
performance measures is provided in
Table 5 (page 31). Table 7 (page 32) provides
additional information related to the LTIA
performance outcomes.
FIGURE 4 – HISTORICAL COMPANY PERFORMANCE
0
7
9
1
7
8
4
8
8
1
4
9
9
2
8
.
7
9
.
3
9
6
8
.
.
9
0
1
.
7
9
12%
1.2ppt
FY18
FY19
FY15
FY16
FY17
FY18
FY19
Return on Invested Capital (%)1
FY15
FY16
Underlying EBIT ($m)1
FY17
7
0
.
1
1
2
0
0
1
.
8
8
9
.
4
2
4
.
3
4
8
.
1
4
2
.
2
1
.
7
9
6
2
.
8
0
5
.
8
3
4
.
14%
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
Total Recordable Injury Frequency Rate (TRIFR)2
(per million man-hours worked)
Rail Process Safety3
10%
.
6
4
2
4
2
.
5
2
2
1
.
7
2
.
8
3
2
.
2
8
2
.
8
5
1
12%
1
.
7
.
6
8
-
.
6
3
1
-
41.8ppt
FY15
FY16
FY17
FY18
FY19
FY15
FY16
FY17
FY18
FY19
Total Dividend per Share (cents)
.
3
4
7
.
8
4
7
9
.
1
7
.
8
9
6
5
.
1
7
Total Shareholder Return (%)
FY16
FY17
FY15
Operating Ratio (%)1
FY18
FY19
1.7ppt
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. Performance
unaudited prior to FY2018. The line diagram depicts the historical performance under the previous definition
3 Rail Process Safety (Total Accident Rate and Signals Passed at Danger) was introduced from FY2018
REMUNERATION REPORT
29
Directors’ Report (continued)
REMUNERATION REPORT
5. Take Home Pay
Table 4 identifies the actual remuneration
received during FY2019 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).
Following a market review, effective 1 July 2018,
Fixed Remuneration increases were provided
to the MD & CEO (1%), CFO & Group Executive
Strategy (7%) and other Executive KMP
(1%-3%). The remuneration outcomes identified
in Table 4 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,
Business Unit and individual performance
as described in Section 6.
Varying performance across our key measures
is also reflected directly in the payments for our
Executive KMP, which range from 93% to 100%
of their potential maximum.
The actual vesting of the LTIA is dependent
on Aurizon’s performance and the outcomes
are further described in Section 7.
During FY2019, the 2016 Award and 2015
Award (Retest) were subject to testing.
However, Aurizon’s performance resulted in
no components of these Awards vesting.
TABLE 4 – REMUNERATION EARNED IN FINANCIAL YEAR 2019
FIXED
REMUNERATION
$’000
NON‑
MONETARY
BENEFITS1
$’000
STIA
CASH2
$’000
STIA
DEFERRED FROM
PRIOR YEAR3
$’000
LTIA
VESTING4
$’000
SHARE PRICE
APPRECIATION5
$’000
ACTUAL FY2019
REMUNERATION
OUTCOMES
$’000
1,717
750
606
660
695
–
3
52
57
–
1,545
506
409
416
469
838
260
229
234
226
–
–
–
–
–
237
73
65
66
64
4,337
1,592
1,361
1,433
1,454
NAME
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
1 The amount relates to Reportable Fringe Benefits for the respective FBT year ending 31 March and includes travel benefits and relocation assistance
2 The amount relates to the cash component (60%) of the FY2019 STIA which will be paid in September 2019
3 The amount relates to the deferred component (40%) of the FY2018 STIA which was awarded in performance rights and will vest in September 2019 (calculation
assumes a share price of $4.21)
4 The amount is the number of rights which would have vested in August 2019. As the performance hurdles were not met no rights vested
5 The amount is the number of rights which vest in September 2019 multiplied by the increase in the Aurizon share price over the period ended 30 June 2019
(calculation assumes share price appreciation of $1.19)
30
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 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, outcomes which are 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, Safety
and Individual.
From FY2019, the portion of the STIA weighted
towards underlying EBIT has increased (from
40% to 60%). Additionally, Business Unit
measures have been included for Bulk and
Coal (FY2019) and Network (FY2020). Each
measure has a defined level of performance.
Network did not have an EBIT target, for
remuneration purposes, for FY2019 due to the
unknown UT5 outcome which was awaiting
Final Decision at the time targets were set.
The measures capture the need to continuously
improve safety across 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 whist at the same time,
delivering benefits to shareholders. Individual
performance hurdles relate to each specific
role and measure an individual’s contribution.
TABLE 5 – SHORT TERM INCENTIVE AWARD FINANCIAL YEAR 2019 OBJECTIVES
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 FY2019?
Table 5 identifies the performance measures,
relevant weightings and outcomes for FY2019.
The FY2019 actual outcomes for Executive
KMP are identified within Table 6.
PERFORMANCE MEASURE
ENTERPRISE
Group EBIT2: Underlying EBIT delivers financial benefit to shareholder through the
achievement of underlying operating earnings
Group Safety: The measures capture the need to continuously improve safety across
all of the Company measured through equally weighted parameters which include:
WEIGHTING
MD & CEO,
CFO &
NETWORK1
COAL
&
BULK
TARGET
FY2019 PERFORMANCE
OUTCOME
60%
30%
$787m
$829m
› Total reportable injury Frequency Rate (TRIFR)
› Rail Process Safety (Total Accident Rate and Signals Passed at Danger)
5%
5%
5%
5%
7.96
5.34
BUSINESS UNIT1
Coal EBIT:
Bulk EBIT:
INDIVIDUAL: Performance hurdles for the Executive KMP are established on an
annual basis by the MD & CEO and are based on the individual contribution to the
achievement of the Aurizon strategy of continuing to optimise, excel and extend the
business. In the case of the MD & CEO the individual hurdles are established by the
Board. FY2019 included:
› Deliver Enterprise Strategic Plan
› Transformation
› Intermodal exit
TOTAL OUTCOME
› Regulatory strategy
› Advancement of key
technology projects
–
30%
Performance
targets vary for
each Business Unit
30%
30% Individual performance
targets vary for each
specific role
100% 100%
11.07
4.38
$415.1m
$37.3m
Personal outcomes
for MD & CEO and
Executive KMP varied
between above Target
and Stretch depending
on performance
against KPIs
1 Network did not have an EBIT target for remuneration purposes for FY2019 due to the unknown UT5 outcome which was awaiting Final Decision at the time targets were set.
Group Executive Network will receive the Enterprise outcome
2 Company performance hurdles relate to continuing operations
Stretch
Between Target & Stretch
Target
Between Threshold & Target
Threshold
Below Threshold
TABLE 6 – SHORT TERM INCENTIVE AWARDED IN FINANCIAL YEAR 2019
NAME
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
TARGET
STIA
$’000
MAXIMUM
POTENTIAL
STIA ($’000)
CASH
COMPONENT
DEFERRED
SHARE
COMPONENT1
TOTAL STIA
PAYMENT
% OF
TARGET
STIA
% OF
MAXIMUM
STIA2
AWARDED FY2019 ($’000)
1,717
563
455
495
521
2,576
844
682
743
782
1,545
506
409
416
469
1,031
338
273
277
313
2,576
844
682
693
782
150
150
150
140
150
100
100
100
93
100
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 0% and 7% of their maximum potential outcomes
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
a number of other management employees.
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 against predetermined company
hurdles as described in Table 7 and Table 8.
What happens when performance
rights vest?
Performance rights awarded under the LTIA
vest subject to the satisfaction of company
hurdles. Rights vest and the resulting shares
are transferred to the Executive at no cost
to the Executive. 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 FY2019 is identified in Table 7.
What is the amount that Executives
can earn through an LTIA?
The maximum potential remuneration
(expressed as a percentage of Fixed
Remuneration) available through the LTIA
is 120% in the case of the MD & CEO 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 the event that a hurdle is not achieved in
relation to the 2015 Award, 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 7 – COMPANY PERFORMANCE AGAINST LONG TERM INCENTIVE AWARDS SUBJECT TO TESTING IN FINANCIAL YEAR 2019
COMPANY HURDLE AND PERFORMANCE MEASUREMENT
PERIOD
2015 AWARD: RETEST 01 JULY 2015 – 30 JUNE 2019
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: FY2016 – FY2018
Retest: FY2016 – FY2019
Retest: 100% of rights vest at the
75th percentile. 0% vest below the
75th percentile
Initial: 50% of rights vest with a
FY2018 OR of 71.5%, up to 100%
at 70%
Retest: 100% of rights vest at or below
69%. 0% will vest with an OR above 69%
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%
2016 AWARD: 01 JULY 2016 – 30 JUNE 2019
Relative TSR:
against peer group
within ASX100 Index
OR Improvement
30% of rights vest at the 50th
percentile, 75% at the 62.5th percentile
up to 100% at the 75th percentile
50% of rights vest with a FY2019 OR of
70%, up to 100% at 68.5%
ROIC: average annual
ROIC FY2017 – FY2019
50% of rights will vest with an average
ROIC of 10.5%, up to 100% at 11.5%
WEIGHTING
RESULT
%
VESTED
% FOR
RETESTING
%
LAPSED
33%
Below median
(FY2018)
Below top
quartile (FY2019)
0% 100% of this component
was subject to a single
retest in FY2019
0%
100%
34%
72.5%1 (FY2018)
0% 100% of this component
was subject to a single
retest in FY2019
72.8%1 (FY2019)
0%
100%
33%
8.7%2 (FY2018)
0% 100% of this component
was subject to a single
retest in FY2019
8.5%2 (FY2019)
0%
100%
35%
Below median
0% Retesting does not
100%
form part of the
2016 Award
15%
50%
72.8%1
8.5%2
0%
0%
100%
100%
1 OR for remuneration purposes has been adjusted to include Intermodal (until the divestment is completed or the business is closed). The adjustment will be limited to
underlying items and excluded any one-off items. This ensures that the definition used is consistent with when the performance hurdles were set. OR for continuing
operations was 69.8% (FY2018) and 71.5% (FY2019)
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 9.4% for the 2015 Award (FY2016 – FY2018), 9.6% for the 2015 Award (Retest FY2016 –
FY2019) and 10% for the 2016 Award (FY2017 – FY2019)
Maximum
Between Minimum and Maximum
Below Minimum
Minimum
32
AURIZON ANNUAL REPORT 2018–19 TABLE 8 – LONG TERM INCENTIVE AWARD PERFORMANCE OVERVIEW AND HURDLES
TSR
The vesting of rights for relative TSR growth is conditional on Aurizon’s TSR performance relative to a peer group of companies in the
ASX100 index (approximately 70) that are broadly comparable to Aurizon (i.e. with which Aurizon competes for capital and/or capability).
Property trusts (from 2016 Award) and telecommunications companies (from 2017 Award) 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
exclude 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 costs as a percentage of revenue. Aurizon is committed to reducing OR through further
implementation or 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
both FY2018 and FY2019. As a result, the Board determined that OR for remuneration purposes will be adjusted to include Intermodal (until
the divestment is completed or the business is closed). The adjustment was limited to underlying items and will exclude any one-off items.
This ensures that the definition used is consistent with when the performance hurdles were set.
WEIGHTING
MINIMUM VESTING POINT
MAXIMUM VESTING POINT
2017 AWARD (3 YEAR): 01 JULY 2017 – 30 JUNE 20201
Relative TSR: against peer
group within ASX100 Index
ROIC: average annual ROIC
FY2018 – FY20202
50%
50%
30% of rights will vest
at the 50th percentile
75% of rights will vest
at the 62.5th percentile
100% of rights will vest
at the 75th percentile
50% of rights vest with an
average ROIC of 10.5%
100% of rights will vest with
an average ROIC of 11.5%
2017 AWARD (4 YEAR): 01 JULY 2017 – 30 JUNE 20211
Relative TSR: against peer
group within ASX100 Index
ROIC: average annual ROIC
FY2018 – FY20212
50%
50%
2018 AWARD: 01 JULY 2018 – 30 JUNE 2022
30% of rights will vest
at the 50th percentile
75% of rights will vest
at the 62.5th percentile
100% of rights will vest
at the 75th percentile
50% of rights vest with an
average ROIC of 10.5%
100% of rights will vest with
an average ROIC of 11.5%
Relative TSR: against peer
group within ASX100 Index
ROIC: average annual ROIC
FY2019 – FY20222
50%
50%
30% of rights will vest
at the 50th percentile
50% of rights vest with
an average ROIC of 9%
75% of rights will vest
at the 62.5th percentile
100% of rights will vest
at the 75th percentile
100% of rights will vest with
an average ROIC of 10%
2019 AWARD: 01 JULY 2019 – 30 JUNE 2023
Relative TSR: against peer
group within ASX100 Index
ROIC: average annual ROIC
FY2020 – FY20233,4
50%
50%
30% of rights vest at
the 50th percentile
75% of rights will vest
at the 62.5th percentile
100% of rights will vest
at the 75th percentile
50% of rights vest with an
average ROIC of 9.5%
100% of rights will vest with
an average ROIC of 10.5%
All rights will vest pro-rata on a straight-line basis between the minimum and maximum vesting points
1 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
2 Following the expected Network regulatory outcomes, the Board has determined that no adjustment will be made to the hurdles for the 2017 and 2018 Awards
3 With the introduction of the new lease accounting standard effective from 1 July 2019, which has the effect of bringing leases to the balance sheet, we have completed
a review of our current ROIC calculation and simplified the definition of invested capital which will be applied for the 2019 Award. This definition change has no material
impact on ROIC
4 ROIC hurdles for the 2019 Award have been set taking into account the current business outlook and the expected Network regulatory outcomes
How does Aurizon utilise Retention awards?
In some circumstances, as approved by the Board, Management may recommend using 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 FY2019, no retention awards were issued to Executive KMP but a number were issued to other employees. Further information is
available in note 29 of the Financial Report (page 92).
REMUNERATION REPORT
33
Directors’ Report (continued)
REMUNERATION REPORT
8. Executive Employment Agreements
Executive Employment Agreements
Remuneration and other terms of employment
for the MD & CEO and Executive KMP are
formalised in an Employment Agreement as
summarised in Table 9.
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
2019 are set out in Table 10.
Hedging and margin lending policies
Aurizon has in place a policy that prohibits
Executives from hedging economic exposure to
unvested rights that have been issued pursuant
to a Company employee share plan. The policy
also prohibits margin loan arrangements for
the purpose of purchasing Aurizon shares.
Adherence to this policy is monitored regularly
and involves each Executive signing an annual
declaration of compliance with the policy.
TABLE 9 – EMPLOYMENT AGREEMENTS
NAME
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
DURATION OF
EMPLOYMENT AGREEMENT
FIXED REMUNERATION AT
END OF FINANCIAL YEAR
20191
NOTICE PERIOD2
BY EXECUTIVE
BY COMPANY3
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
$1,717,000
$750,000
$606,000
$660,000
$695,000
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 10 – KMP SHAREHOLDINGS AS AT 30 JUNE 2019
NAME
NON–EXECUTIVE DIRECTORS
T Poole
M Bastos
R Caplan2
M Fraser
S Lewis
K Vidgen
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
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
90,500
11,400
82,132
40,000
33,025
40,000
10,000
23,348
105,694
56,929
–
–
–
–
–
–
–
42,076
45,279
12,774
–
–
–
–
–
30,000
–
–
30,000
–
(7,500)
–
–
90,500
11,400
82,132
70,000
33,025
40,000
82,076
68,627
110,968
56,929
–
100%
27%
197%
166%
78%
104%
26%
49%
99%
47%
0%
1 Assumes Total Directors’ Fees and Fixed Remuneration as at 30 June 2019 and the calculation assumes a share price of $5.40
2 KMP required to meet the minimum shareholding requirement due to length of service in a KMP role being longer than six years
34 AURIZON ANNUAL REPORT 2018–19
AURIZON ANNUAL REPORT 2018–19 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.
Fee Structure
As previously communicated, in FY2018,
a market review of Non-Executive Director
fees was undertaken which resulted in
changes to the reward structure – 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 resulted
in a decrease to the base Directors’ fee as
described in Table 11.
In addition, to the base Directors’ fee,
other Non-Executive Directors received
the applicable fee component for
Committee chairperson and/or membership
responsibilities. The Committee fees were
introduced over a two-year period and the
changes are provided in Table 12. The actual
remuneration outcomes for the Non-Executive
Directors of the Company is summarised in
Table 13. Details of the Non-Executive Director
membership is disclosed on page 8.
The base Directors’ fee and Committees fees
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 a
performance pay.
What are the aggregate fees approved by shareholders?
$2.5 million. The cap does not include remuneration for performing additional or special duties for
Aurizon at the request of the Board or reasonable travelling, accommodation and other expenses
of Director in attending meetings and carrying out their duties.
TABLE 11 – DIRECTORS’ FEES
EMPLOYMENT AGREEMENT SUMMARY
DIRECTORS
Chairman
TERM
Directors’ fees (inclusive of all
responsibilities and superannuation)
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 12 – COMMITTEE FEES
NETWORK
BOARD
AUDIT
AND RISK
COMMITTEE
REMUNERATION
AND HUMAN
RESOURCES
COMMITTEE
SAFETY,
HEALTH AND
ENVIRONMENT
COMMITTEE
Chairperson 1 January 2019
$40,000
1 January 2018
$30,000
Member
1 January 2019
$20,000
1 January 2018
$20,000
$40,000
$30,000
$20,000
$20,000
$35.000
$17,500
$17,500
$8,750
$35,000
$17,500
$17,500
$8,750
TABLE 13 – NON‑EXECUTIVE DIRECTORS’ REMUNERATION
SHORT‑TERM
EMPLOYEE BENEFITS
POST‑EMPLOYMENT
BENEFITS
SALARY
AND
FEES1
$’000
NON‑
MONETARY
BENEFITS2
$’000
SUPERANNUATION
$’000
TOTAL
REMUNERATION
$’000
NAME
YEAR
NON‑EXECUTIVE DIRECTORS
T Poole
M Bastos
R Caplan
M Fraser
S Lewis
K Vidgen
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
469
461
194
109
197
181
199
181
199
181
185
177
FORMER NON‑EXECUTIVE DIRECTORS
J Cooper
K Field
Total
2019
2018
2019
2018
2019
2018
183
181
61
181
1,687
1,652
3
–
–
–
–
–
–
–
3
–
–
–
–
–
–
–
6
-
21
20
18
10
19
17
19
17
19
17
18
17
17
17
6
17
137
132
493
481
212
119
216
198
218
198
221
198
203
194
200
198
67
198
1,830
1,784
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
REMUNERATION REPORT
35
Directors’ Report (continued)
REMUNERATION REPORT
10. Executive Remuneration Financial Year 2019
The table below details the number and value of movements in equity awards during FY2019.
TABLE 14 – RIGHTS GRANTED AS COMPENSATION
NAME
EXECUTIVE KMP
A Harding
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.
100%
(42,076)
100%
(25,000)
100%
(20,279)
100%
(12,774)
(49,382)
100%
(55,555)
100%
(59,260)
100%
20163
2017 STIAD5
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
2014
20153
2016 – Ret4
20163
2017 STIAD5
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
2014
20153
20163
2017 STIAD5
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
2014
20153
20163
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
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
–
–
199,050
459,911
838
1,185
61,663
188,337
260
481
54,442
152,176
229
389
55,677
165,737
53,682
174,526
234
423
226
446
176
198
211
–
–
–
–
–
–
–
463,636
295,938
295,938
199,050
459,911
46,066
60,776
114,241
114,241
61,663
188,337
51,824
60,776
97,921
97,921
54,442
152,176
55,279
64,656
104,449
104,449
55,677
165,737
110,161
110,161
53,682
174,526
$
3.49
5.01
3.09
2.99
4.21
2.58
3.57
4.00
4.74
3.45
5.01
3.18
3.07
4.21
2.56
3.57
4.00
3.45
5.01
3.18
3.07
4.21
2.56
3.57
4.00
3.45
3.18
3.07
4.21
2.56
3.18
3.07
4.21
2.56
18-Oct-17
18-Sept-17
18-Oct-17
18-Oct-17
17-Sept-18
18-Oct-18
18-Aug-14
17-Aug-15
1-Jul-16
7-Oct-16
18-Sept-17
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
18-Aug-14
17-Aug-15
7-Oct-16
18-Sept-17
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
18-Aug-14
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
7-Sept-19
18-Sept-18
18-Oct-20
18-Oct-21
17-Sept-19
18-Oct-22
18-Aug-18
17-Aug-18
30-Jun-18
7-Oct-19
18-Sept-18
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
18-Aug-18
17-Aug-18
7-Oct-19
18-Sept-18
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
18-Aug-18
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
31-Dec-19
31-Dec-18
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-18
31-Dec-19
7-Jan-19
31-Dec-19
31-Dec-18
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-18
31-Dec-19
31-Dec-19
31-Dec-18
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-18
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
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 the 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 7
4 Retention Award as described in Section 7 in the FY2018 Remuneration Report
5 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 6 in the FY2017 Remuneration Report
6 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 5 in the FY2018 Remuneration Report
3636 AURIZON ANNUAL REPORT 2018–19
AURIZON ANNUAL REPORT 2018–19 P Bains
(49,382)
100%
10. Executive Remuneration Financial Year 2019
The table below details the number and value of movements in equity awards during FY2019.
TABLE 14 – RIGHTS GRANTED AS COMPENSATION
NAME
INCENTIVE
PLAN
EXECUTIVE KMP
A Harding
20163
2017 STIAD5
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
2014
20153
20163
2016 – Ret4
2017 STIAD5
2017 (3 year)
2017 (4 year)
2018 STIAD6
2017 STIAD5
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
2014
20153
20163
2018
2014
20153
20163
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
2017 (3 year)
2017 (4 year)
2018 STIAD6
2018
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
–
–
–
–
–
–
–
–
–
–
199,050
459,911
838
1,185
61,663
188,337
260
481
54,442
152,176
229
389
55,677
165,737
53,682
174,526
234
423
226
446
E McKeiver
M Riches
100%
(42,076)
100%
(25,000)
100%
(20,279)
100%
(12,774)
C McDonald
(55,555)
100%
(59,260)
100%
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 the 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 7
4 Retention Award as described in Section 7 in the FY2018 Remuneration Report
5 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 6 in the FY2017 Remuneration Report
6 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 5 in the FY2018 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.
176
198
211
463,636
–
295,938
295,938
199,050
459,911
–
46,066
–
60,776
–
114,241
114,241
61,663
188,337
–
51,824
60,776
–
97,921
97,921
54,442
152,176
–
55,279
64,656
104,449
104,449
55,677
165,737
110,161
110,161
53,682
174,526
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
4.21
2.58
3.57
4.00
4.74
3.45
5.01
3.18
3.07
4.21
2.56
3.57
4.00
3.45
5.01
3.18
3.07
4.21
2.56
3.57
4.00
3.45
3.18
3.07
4.21
2.56
3.18
3.07
4.21
2.56
18-Oct-17
18-Sept-17
18-Oct-17
18-Oct-17
17-Sept-18
18-Oct-18
18-Aug-14
17-Aug-15
1-Jul-16
7-Oct-16
18-Sept-17
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
18-Aug-14
17-Aug-15
7-Oct-16
18-Sept-17
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
18-Aug-14
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
7-Sept-19
18-Sept-18
18-Oct-20
18-Oct-21
17-Sept-19
18-Oct-22
18-Aug-18
17-Aug-18
30-Jun-18
7-Oct-19
18-Sept-18
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
18-Aug-18
17-Aug-18
7-Oct-19
18-Sept-18
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
18-Aug-18
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
31-Dec-19
31-Dec-18
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-18
31-Dec-19
7-Jan-19
31-Dec-19
31-Dec-18
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-18
31-Dec-19
31-Dec-19
31-Dec-18
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-18
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
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 15 – EXECUTIVE REMUNERATION
SHORT‑TERM EMPLOYEE BENEFITS
POST‑
EMPLOYMENT
BENEFITS
LONG‑
TERM
BENEFITS
EQUITY‑
SETTLED
SHARE‑BASED
PAYMENTS
CASH
SALARY
AND
FEES1
$’000
CASH
BONUS
$’000
ANNUAL
LEAVE2
$’000
NON‑
MONETARY
BENEFITS3
$’000
SUPER‑
ANNUATION4
$’000
LONG‑
SERVICE
LEAVE
$’000
CONTRACTUAL
TERMINATION
BENEFITS
$’000
RIGHTS5
$’000
A
B
1,696
1,545
1,680
1,257
674
621
585
580
639
620
672
612
506
389
409
344
416
352
469
339
4,266 3,345
4,113
2,681
C
34
(4)
15
24
23
18
(18)
24
23
11
77
73
D
–
109
3
2
52
58
57
69
0
12
112
250
E
21
20
76
79
21
20
21
20
21
19
160
158
F
36
10
34
15
(51)
14
23
53
5
4
47
96
G
814
1,012
297
399
178
307
153
293
490
148
1,932
2,159
H
–
–
–
–
–
–
–
–
–
–
–
–
TOTAL
$’000
I
4,146
4,084
1,605
1,529
1,217
1,341
1,291
1,431
1,680
1,145
9,939
9,530
PROPORTION OF
COMPENSATION
PERFORMANCE
RELATED6 %
REMUNERATION
CONSISTING
OF RIGHTS FOR
THE YEAR %
J
57
56
50
52
48
49
44
45
57
43
53
51
K
20
25
19
26
15
23
12
20
29
13
19
23
NAME
YEAR
EXECUTIVE KMP
A Harding
P Bains
C McDonald
E McKeiver
M Riches
Total
Executive KMP
compensation
(group)
2019
2018
2019
2018
2019
2018
2019
2018
2019
20187
2019
2018
Cash salary and fees include any salary sacrifice benefits
Annual leave represents annual leave accrued or taken during the financial year. Negative amounts represent the taking of annual leave
1
2
3 Non-monetary benefits represents the value of Reportable Fringe Benefits for the respective FBT year ending 31 March and 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
performance related remuneration
7
M Riches was appointed to Group Executive Network on 24 July 2017
38
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 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.
The Board has adopted a suite of charters and
key corporate governance documents which
articulate the policies and procedures followed
by Aurizon Holdings.
These documents are available in the
Governance section of the Company’s website,
aurizon.com.au. These documents are reviewed
regularly to address any changes in governance
practices and the law.
This Statement explains how Aurizon Holdings
complies with the ASX Corporate Governance
Council’s ‘Corporate Governance Principles
and Recommendations – 3rd Edition’ (ASX
Principles and Recommendations), and all the
practices outlined in this Statement unless
otherwise stated, have been in place for the
full reporting period. The ASX released its 4th
edition of the Corporate Governance Principles
and Recommendations (Principles) in
February 2019. The Company will be required
to report against those Principles in the year
commencing 1 July 2020.
The Company reviewed the Company’s
corporate governance practices against
those new Principles and as at the date of
this Statement is confident that its practices
meets all the new Principles and accordingly
the Company will be an earlier adopter of the
new Principles.
This Statement was adopted by the Board on
9 August 2019.
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.
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 34 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 2018–19AURIZON ANNUAL REPORT 2018–19 RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
1.5 Diversity & inclusion
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.
P
The measurable objectives and outcomes for diversity, agreed by the Aurizon Holdings Board for FY2019, are set
out below:
ENTERPRISE MEASURES
FY19 TARGET
FY19 ACTUAL
Gender representation on the Board Minimum 30% (each gender)
29% women/71% men
Representation of women in
the workforce
Representation of Aboriginal and
Torres Strait Islander men and
women in Aurizon
22.0%
5.5%
21.0%
5.6%
During the year Mr Cooper and Mrs Field retired as Directors of the Company. The Board is undertaking a
Non-Executive Director search and in assessing potential candidates, the Company’s gender target will be taken
into account. 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 FY19 the Board conducted an internal review of its Board and Committee and their effectiveness.
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 three members (including the Chairman), all of whom are
Independent Non-Executive Directors. Details of the membership of the Nomination & Succession Committee,
including the names and qualifications of the Committee members, are set out on pages 4 to 6 of the Annual Report.
The number of meetings held and attended by each member of the Nomination & Succession Committee during the
financial year are set out on page 8 of the Directors’ Report within the Annual Report.
The Charter governing the conduct of the Nomination & Succession Committee is reviewed annually and is available in
the Governance section of the Company’s website, aurizon.com.au.
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
2.2 Board skills
The skills listed below have been identified as the optimum skills Aurizon Holdings seeks to achieve across its Board
membership. The Aurizon Holdings Board possesses a good blend of these skills. During FY2019 two Directors
retired (Ms Karen Field and Mr John Cooper) and as part of its annual internal Board review, the Board reviewed its
current skills and requirements.
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
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
2.3 Disclose
independence and
length of service
Further details regarding the skills and experience of each Director are included on pages 4 to 6 of the Report.
Details regarding which Directors are considered independent and the length of their service are set out on page 4
of the Annual Report.
2.4 Majority of
Directors independent
In accordance with the Board Charter, the majority of Directors are independent. Only the Managing Director & CEO is
not considered independent, by virtue of the role being an Executive of the Company.
Details regarding which Directors are considered independent and the length of their service are set out on page 4
of the Annual Report.
2.5 Chair independent
The Chairman, Tim Poole, is an Independent Non-Executive Director. The role of CEO is performed by another Director.
2.6 Induction
and professional
development
Further details regarding the Directors are set out on pages 4 to 6 of the Annual Report.
An induction process including appointment letters and ongoing education exists to promote early, active and
relevant involvement of new members of the Board.
In addition to peer review, interaction and networking with other Directors and industry leaders, Aurizon Holdings’
Directors participate, from time-to-time, in Aurizon Holdings’ leadership forums and actively engage with Aurizon
Holdings’ employees by visiting operational sites to gain an understanding of the Company’s operating environment.
During the year Directors receive accounting policy updates, especially around the time 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.
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 reports on concerns raised under the Whistleblower Policy.
P
P
P
P
P
P
42
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19 Principle 4: Safeguard integrity in corporate reporting
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
4.1 Audit Committee
The Audit, Governance & Risk Management Committee comprises three members, all of whom are Independent
Non-Executive Directors. Details of the membership of the Audit, Governance & Risk Management Committee,
including the names and qualifications of the Committee members, are set out on pages 4 to 6 of the Annual Report.
In addition to the Audit, Governance & Risk Management Committee members, the 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 environmental, social and governance (ESG) risks
through our annual Sustainability Report. During FY2019, the Company published its fifth Sustainability Report for
the period ended 30 June 2018. A copy of this report is available in the Sustainability section of the Company’s
website, aurizon.com.au.
P
P
P
P
Aurizon’s FY2019 Sustainability Report will be published in October 2019. This will be the third reporting period in
which we incorporate 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. These climate change risks and opportunities are disclosed annually in Aurizon’s
sustainability report.
44
AURIZON ANNUAL REPORT 2018–19AURIZON ANNUAL REPORT 2018–19
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 Chairman’s fee is inclusive of fees for Committee membership and the other Non-Executive Directors are
paid a fixed base fee plus Committee fees, as applicable. 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 2019
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 the reporting period
Results for
the year
Operating assets
and liabilities
Capital and
financial risk
management
Group
structure
Other
notes
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
20. Associates
and joint
arrangements
21. Material
subsidiaries
22. Parent
26. Notes to the
consolidated
statement of
cash flows
27. Related party
transactions
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
32. Changes in
accounting
policies
Page 47
Page 47
Page 48
Page 49
Page 50
Page 51
Page 51
Page 51
Unrecognised
items and events
after reporting date
33. Contingencies
34. Commitments
35. Events
occurring after
the reporting
period
SIGNED REPORTS
Directors’ declaration
Independent auditor’s report to the members of Aurizon Holdings Limited
ASX INFORMATION
Non-IFRS financial information
Page 99
Page 100
Page 108
46
AURIZON ANNUAL REPORT 2018–19
Consolidated income statement
for the year ended 30 June 2019
Revenue from continuing operations
Other income
Total revenue and other income
Employee benefits expense
Energy and fuel
Track access
Consumables
Depreciation and amortisation
Impairment losses
Other expenses
Share of net profit of associates and joint venture partnerships accounted
for using the equity method
Operating profit
Finance income
Finance expenses
Net finance costs
Profit before income tax
Income tax expense
Profit from continuing operations after tax
Profit/(loss) from discontinued operations after tax
Profit for the year attributable to owners of Aurizon Holdings Limited
Basic earnings per share for profit attributable to the ordinary equity holders of the Company:
– continuing and discontinued operations
– continuing operations
Diluted earnings 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 2019
Profit for the year
Other comprehensive income:
Items that may be reclassified to profit or loss
– changes in the fair value of cash flow hedges
– income tax relating to these items
Other comprehensive expense for the year, net of tax
Notes
2
2
3
3
4
3
5
24
6
6
Notes
16(b)
5(d)
Total comprehensive income for the year attributable to owners of Aurizon Holdings Limited
The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.
2019
$m
2,905.2
2.4
2,907.6
(778.6)
(233.9)
(101.0)
(397.8)
(542.6)
(24.9)
0.1
0.1
829.0
2.9
(150.0)
(147.1)
681.9
(208.6)
473.3
3.2
476.5
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
Cents
Cents
23.9
23.8
23.9
23.8
2019
$m
476.5
(50.6)
15.2
(35.4)
441.1
24.0
27.8
24.0
27.8
2018
$m
483.0
(13.0)
3.9
(9.1)
473.9
47
FINANCIAL REPORT
Consolidated balance sheet
as at 30 June 2019
ASSETS
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Derivative financial instruments
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Inventories
Derivative financial instruments
Property, plant and equipment
Intangible assets
Other assets
Investments accounted for using the equity method
Total non-current assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Borrowings
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
2019
$m
2018
$m
7
8
19
25
8
19
9
10
20
11
17
12
13
17
19
5(f)
12
13
16(a)
16(b)
25.2
481.8
117.2
0.8
6.2
108.4
739.6
40.2
196.7
8,536.3
176.9
8.6
2.8
8,961.5
9,701.1
406.7
149.0
40.9
273.0
75.1
3.8
948.5
34.8
539.3
118.1
1.3
4.7
108.0
806.2
29.1
110.8
8,659.9
172.6
–
3.2
8,975.6
9,781.8
275.8
100.0
61.2
312.2
86.4
12.7
848.3
3,220.8
3,401.9
49.1
537.4
62.9
205.0
4,075.2
5,023.7
4,677.4
906.6
3,418.5
352.3
4,677.4
21.3
479.5
82.2
218.5
4,203.4
5,051.7
4,730.1
906.6
3,460.1
363.4
4,730.1
AURIZON ANNUAL REPORT 2018–19 Consolidated statement of changes in equity
for the year ended 30 June 2019
Balance at 1 July 2018
Profit for the year
Other comprehensive expense
Total comprehensive income for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Share-based payments
Balance at 30 June 2019
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 preference shares, net of tax
Dividends provided for or paid
Share-based payments
Balance at 30 June 2018
Attributable to owners of Aurizon Holdings Limited
Contributed
equity
$m
Notes
Reserves
$m
Retained
earnings
$m
16(b)
15(a)
16(b)
16(b)
16(a)
15(a)
16(b)
906.6
3,460.1
–
–
–
–
–
–
–
(35.4)
(35.4)
–
(6.2)
(6.2)
906.6
3,418.5
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
363.4
476.5
–
476.5
(487.6)
–
(487.6)
352.3
342.5
483.0
–
483.0
–
(462.1)
–
(462.1)
363.4
Total
equity
$m
4,730.1
476.5
(35.4)
441.1
(487.6)
(6.2)
(493.8)
4,677.4
5,022.1
483.0
(9.1)
473.9
(300.3)
(462.1)
(3.5)
(765.9)
4,730.1
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
49
FINANCIAL REPORT Consolidated statement of cash flows
for the year ended 30 June 2019
Notes
2019
$m
2018
$m
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
Interest paid on qualifying assets
Payments for intangibles
Distributions received from associates
26
24(b)
3
Net cash (outflow) from investing activities from continuing operations
Net cash inflow 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
Payments 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
Proceeds from settlement of derivatives
Payments for shares acquired for share based payments
Interest paid
Net cash (outflow) from financing activities from continuing operations
Net cash inflow/(outflow) from financing activities from discontinued operations
Net cash (outflow) from financing activities
Net increase/(decrease) in cash and cash equivalents from continuing operations
Net (decrease)/increase in cash and cash equivalents from discontinued operations
Cash and cash equivalents at the beginning of the financial year
Cash and cash equivalents at end of the financial year
The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.
16(a)
15(a)
16(b)
24(b)
24(b)
3,325.5
(1,867.0)
2.9
(145.3)
1,316.1
(25.4)
1,290.7
3,474.9
(2,060.0)
2.9
(110.1)
1,307.7
(25.1)
1,282.6
(407.8)
(467.7)
13.0
(3.9)
(32.8)
0.7
(430.8)
11.1
(419.7)
139.0
(390.0)
(2.4)
–
–
(487.6)
11.5
(0.6)
(150.5)
(880.6)
–
(880.6)
4.7
(14.3)
34.8
25.2
19.0
(2.8)
(31.0)
–
(482.5)
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
50
AURIZON ANNUAL REPORT 2018–19 Notes to the consolidated financial statements
30 June 2019
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 2019. 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 2018
› Equity account for associates and joint arrangements 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, disposals 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.
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 the
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.
The three-stage exit comprises the Acacia Ridge Intermodal Terminal,
Queensland Intermodal and Interstate Intermodal. The Intermodal
business is disclosed as a discontinued operation.
Acacia Ridge Intermodal Terminal
The Group signed a binding agreement with Pacific National on 28 July 2017
to sell its Acacia Ridge Intermodal Terminal for $205.0 million, of which
a $35.0 million non-refundable deposit was received in advance. The
transaction is subject to approval by the Australian Competition & Consumer
Commission (ACCC) and Foreign Investment & Review Board (FIRB).
The ACCC opposed the sale on 19 July 2018 and commenced
proceedings against Aurizon and Pacific National in the Federal Court.
On 15 May 2019, the Federal Court rejected the allegations by the ACCC
that the proposed sale contravened section 45 and section 50 of the
Commonwealth’s Competition and Consumer Act (2010). On 27 June
2019 the ACCC sought to appeal the Federal Court’s decision in relation
to the contravention of section 50 of the Act (but not the Federal Court’s
decision in relation to section 45). On 18 July 2019, Aurizon and Pacific
National filed notices of cross-appeal. The appeal and cross-appeal will
be heard by the Full Federal Court in due course.
The Group remains committed to exiting the Acacia Ridge Intermodal
Terminal and on this basis has continued to classify the Acacia Ridge
Intermodal Terminal as held for sale and a discontinued operation as at
30 June 2019.
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.
Queensland Intermodal
The agreement entered between the Group and a consortium of Linfox
and Pacific National dated 14 August 2017 was terminated by Aurizon
on 13 August 2018 and $10.0 million received in advance was refunded.
The Group signed a binding agreement with Linfox to sell the
Queensland Intermodal business on 12 October 2018 for a sale price
of $7.3 million. Under the agreement Aurizon retains the Intermodal
locomotive fleet and train crew and will provide Linfox rail linehaul
services. Completion of the sale occurred on 31 January 2019.
Interstate Intermodal
The Interstate Intermodal business ceased operating on 23 December 2017.
51
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2019 (continued)
Wiggins Island Rail Project (WIRP)
During the period, legal proceedings continued in relation to the
notices received by Aurizon Network Pty Ltd from the WIRP customers
purporting to exercise a right under their WIRP Deeds to reduce
their financial exposure in respect of payment of the WIRP fee,
which is non-regulated. The trial in the Supreme Court of Queensland
was heard between 10 September 2018 and 21 September 2018 and
on 27 June 2019 the Supreme Court ruled in the Group’s favour.
On 25 July 2019 customers lodged an appeal challenging the decision
of the Supreme Court.
The customers also initiated other disputes under their respective WIRP
Deeds which were the subject of an expert determination in February
2019. Those disputes relate to various matters relating to the completion
of the WIRP construction works. The Expert’s Determination was issued
on 4 June 2019 and found that the WIRP fee should be reduced. These
disputes relate to the same component of WIRP revenue as the Supreme
Court proceedings and will not impact recovery of the regulated access
charge component of WIRP capital expenditure. The Group is determining
options for appeal of this outcome.
Due to the ongoing dispute, no revenue in respect of the WIRP fee has
been recognised in the period.
(c) Debt refinancing
In November 2018, Aurizon Finance Pty Ltd (a wholly-owned subsidiary
of the Group) cancelled existing bank debt syndicated facilities and
replaced them with bilateral bank debt facilities totalling $450.0 million
expiring in November 2023.
(d) Sale of rail grinding business
On 12 June 2019 the Group signed a business sale agreement with
Loram Pty Ltd to sell the rail grinding business for a sale price of
$166.2 million. As a result, the Group has classified assets and liabilities
included within the business sale agreement as held for sale as at
30 June 2019. The sale is expected to complete in the first half of FY20
Key events and transactions for
reporting period (continued)
(b) Access revenue
2017 Access Undertaking
The Queensland Competition Authority (QCA) issued a Final Decision
in relation to Aurizon Network Pty Ltd’s (a wholly-owned subsidiary
of the Group) 2017 Access Undertaking (UT5) on 6 December 2018.
A Complying Undertaking aligning to the Final Decision was approved
by the QCA on 21 February 2019.
In May 2019, the Group submitted a Reference Tariff Variation Draft
Amending Access Undertaking (Reference Tariff Variation DAAU)
to the QCA proposing amendments to the 2017 Access Undertaking.
The Reference Tariff Variation DAAU was approved by the QCA on
24 June 2019. The Reference Tariff Variation DAAU included revised
tariffs for FY19 incorporating a volume reset of the system forecast and
true-up of the FY18 overcollection (net of FY16/17 flood review events)
of transitional tariffs in comparison to the 2017 Access Undertaking
in the comparative period, based on FY19 volumes railed.
Access revenue for the period has been recognised based on the 2017
Access Undertaking, amended for the Reference Tariff Variation DAAU.
An amount of $81.3 million (including GAPE) has been included in trade
and other payables at 30 June 2019 which represents the overcollection
of transitional tariffs in comparison to the 2017 Access Undertaking,
amended for the Reference Tariff Variation DAAU, which will be repaid
based on FY19 volumes railed.
UT5 Customer Proposal
During the period agreements were also signed with customers
who represent more than 90% of railed tonnes in the CQCN to
propose amendments to the 2017 Access Undertaking. As a result,
on 3 May 2019, a DAAU was submitted to the QCA incorporating the
proposed amendments. The DAAU remains subject to approval by the
QCA. If approved the DAAU has no material impact on access revenue
recognised during the period. The proposed amendments to the 2017
Access Undertaking include:
› Extending the term of the Access Undertaking to ten years
(1 July 2017 to 30 June 2027);
› A Weighted Average Cost of Capital (WACC) of 5.9% increasing
to 6.3% (subject to reset on 1 July 2023) on completion of specified
milestones, as compared to a WACC of 5.7% in UT5; and
› Development of mechanisms to provide supply chain value through
improved supply chain stability and improved maintenance and asset
renewal programs.
52
AURIZON ANNUAL REPORT 2018–19 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 59
Page 60
Page 61
Page 63
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).
Aurizon determines and presents operating segments on a business
unit structure basis as this is how the results are reported internally
and how the business is managed. The Managing Director & CEO and
the Executive Committee assess the performance of the Group based
on the underlying EBIT.
Unless otherwise noted, the segment reporting information excludes
discontinued operations being Intermodal. 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, 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, strategy and investor relations.
54
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 1 Segment information (continued)
(b) Segment information
Network
$m
Coal
$m
Bulk
$m
Other
$m
Total continuing
operations
$m
30 June 2019
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)*
EBIT*
Net finance costs
Profit before income tax from continuing operations
* Refer to page 108 for Non-IFRS information
590.0
–
9.7
31.9
631.6
480.3
–
5.8
486.1
1,117.7
–
1,117.7
721.2
(320.9)
400.3
487.7
1,236.2
–
0.9
1,724.8
–
–
–
–
1,724.8
–
1,724.8
609.8
(194.7)
415.1
–
465.2
23.3
0.5
489.0
–
9.4
0.9
10.3
499.3
2.4
501.7
–
–
41.3
18.5
59.8
–
–
22.4
22.4
82.2
–
82.2
54.5
(17.2)
37.3
(13.9)
(9.8)
(23.7)
1,077.7
1,701.4
74.3
51.8
2,905.2
480.3
9.4
29.1
518.8
3,424.0
2.4
3,426.4
(518.8)
2,907.6
1,371.6
(542.6)
829.0
829.0
(147.1)
681.9
55
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT 1 Segment information (continued)
(b) Segment information (continued)
Network
$m
Coal
$m
Bulk
$m
Other
$m
Total continuing
operations
$m
30 June 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
Loss before income tax from continuing operations
* Refer to page 108 for Non-IFRS information
581.5
–
7.3
37.7
626.5
585.6
–
6.6
592.2
1,218.7
–
1,218.7
788.6
(308.0)
480.6
598.1
1,207.8
0.2
0.6
1,806.7
–
–
6.5
6.5
1,813.2
–
1,813.2
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
56
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 1 Segment information (continued)
2 Revenue and other income
(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.
2019
$m
2018
$m
KEEPING IT SIMPLE
The Group adopted AASB 15 Revenue from Contracts
with Customers from 1 July 2018. Aurizon recognises
revenue from the provision of access to the CQCN and the
provision of freight haulage services across Australia.
Bulk contract exit termination
payment received
Bulk contract exit asset impairment
Bulk contract exit – redundancy and
closure costs
Bulk impairment – Western Australia
Transformation – redundancy benefit
Total significant adjustments
(continuing operations)
–
–
–
–
–
–
66.3
(27.9)
(3.9)
(31.7)
22.9
Services revenue
Track access
Freight transport
Other services
25.7
Other revenue
The Group derives the following types of revenue:
2019
$m
2018
$m
Current period
No significant adjustments from continuing operations have been
recognised during the period.
Prior period
Significant adjustments from continuing operations recognised in
the prior period includes $66.3 million other income and $3.9 million
redundancy and closure costs relating to the early termination of the
Cliffs iron ore contract and a redundancy benefit of $22.9 million relating
to the release of a provision for train crew recorded as a significant item
in the year ended 30 June 2017. Other significant items relating
to impairment are disclosed in note 4.
For disclosure on the significant items relating to discontinued
operations refer to note 24.
(d) Customer disclosure
The nature of the Group’s business is that it enters into long-term
contracts with key customers. Two customers each contribute more
than 10% of the Group’s total revenue as detailed below:
Total revenue from continuing operations
2,905.2
Other income
2.4
Total revenue and other income from
continuing operations
2,907.6
3,179.0
(a) Disaggregation of revenue from contracts with
customers
The Group derives revenue from the provision of services over time.
Revenue is disaggregated by the Group’s segments, refer to note 1(b).
(b) Contract assets and liabilities
(i) Contract assets
The Group has not recognised any material contract assets at balance
date (1 July 2018: $nil).
(ii) Contract liabilities
The Group has recognised the following revenue-related contract liabilities:
1,077.7
1,701.4
74.3
51.8
1,179.6
1,798.3
69.3
65.5
3,112.7
66.3
Customer 1
Customer 2
Total
2019
$m
488.7
405.9
894.6
2018
$m
2019
credit rating
2018
credit rating
487.3
424.7
912.0
A
BBB+
A
BBB+
Current
Advances for freight transport
Advances for other services
Non-current
Advances for freight transport
Advances for other services
2019
$m
1 July
2018
$m
1.8
26.4
28.2
3.9
161.1
165.0
1.2
26.0
27.2
2.7
183.1
185.8
Contract liabilities primarily represent amounts received from customers
as advances for future track access under agreements for mine specific
infrastructure. These amounts are deferred and earned over the term of
the agreements using the output method as performance obligations are
satisfied. $28.2 million of contract liabilities will be recognised in less than
one year from balance date, $124.7 million within two to five years and
$40.4 million in five years or over.
The reduction in contract liabilities primarily represents revenue
recognised for prepayments for future access charges during the period.
57
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT 2 Revenue and other income (continued)
SIGNIFICANT JUDGEMENTS
(b) Contract assets and liabilities
(iii) Revenue recognised in relation to contract liabilities
The following table shows how much of the revenue recognised in the
current reporting period relates to carried-forward contract liabilities.
Revenue recognised that was included in the contract liability
balance at the beginning of the year
Advances for freight transport
Advances for other services
2019
$m
1.2
26.0
27.2
(iv) Unsatisfied performance obligations
The Group has a number of long-term contracts to provide services to
customers in future periods. The majority of revenues are recognised on
an as invoiced basis, hence, the right to consideration from a customer
corresponds directly with the entity’s performance completed to date.
Long-term track access and freight transport contracts are considered
by management to be a series of annual performance obligations
that are satisfied within each financial year. Any amounts received as
prepayments to provide access to the CQCN are recognised over the
term of the access agreement as performance obligations are satisfied.
The Group applies the practical expedient in paragraph 121 of AASB
15 Revenue from Contracts with Customers and does not disclose
information on the transaction price allocated to performance
obligations that are unsatisfied.
All other track access and freight transport contracts for periods of
one year or less are billed monthly based on the services provided.
As permitted under AASB 15 Revenue from Contracts with Customers,
the transaction price allocated to these unsatisfied performance
obligations is not disclosed.
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 operated by or for the relevant operator,
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
$4.2 million has been recognised at 30 June 2019 (2018: $27.1 million).
Wiggins Island Rail Project (WIRP) Access Revenue
During the period, legal proceedings continued in relation to
the notices received by the Group from the WIRP customers
purporting to exercise a right under their WIRP Deeds to reduce
their financial exposure in respect of payment of the WIRP fee,
which is non-regulated. On 27 June 2019, the Supreme Court of
Queensland ruled in the Group’s favour, however, on 25 July 2019,
customers lodged an appeal challenging the decision of the
Supreme Court. Due to the ongoing dispute, no revenue in respect
of the WIRP fee has been recognised in the period.
Freight Transport Contract Modifications
Modifications to existing agreements where there is also a new
agreement put in place are assessed based on the facts and substance
of the individual contractual arrangements and will be accounted
for as either combined or separate contracts in accordance with
AASB 15 Revenue from Contracts with Customers. There is significant
judgement exercised in determining if a modification to an existing
agreement should be treated as a combined or separate contract.
Judgement, including expected volumes to be railed in individual
contract years and whether the contract price represents the market
price in the respective contract period, is applied in determining
contract assets or liabilities recorded. These judgements impact the
timing of revenue recognition over the life of the individual contract.
(c) Recognition and measurement
The Group recognises revenue as the relevant performance obligations
are satisfied. Revenue includes the provision of track access and freight
transport services as described below.
(i) Track access
Track access revenue is generated from the provision of access to, and
operation of, the CQCN. Access revenue is recognised over time as the
relevant performance obligations are satisfied, being the provision of
access to the rail network.
A contract liability is recorded for revenue received in advance of
satisfying a performance obligation and is subsequently recognised
in profit and loss as the performance obligation is satisfied during the
term of the contract.
Approved Access Undertaking
Track access revenue is recognised as track access is provided and is
measured on a number of operating parameters including volumes hauled
applied to regulator approved tariffs. The tariffs charged are determined
with reference to the total allowable revenue, applied to the regulatory
approved annual volume forecast for each system. At each balance date,
track access revenue and receivables include an amount of revenue for
which performance obligations have been met under the respective
contract but have not yet settled. The Group has an unconditional right
to receive this consideration once the performance obligation is satisfied
and therefore a trade receivable is recognised for these amounts.
58
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
2 Revenue and other income (continued)
3 Expenses
Profit before income tax from continuing operations includes the
following specific expenses:
(c) Recognition and measurement (continued)
(i) Track access (continued)
Approved Access Undertaking (continued)
Where annual volumes railed are less than the regulatory forecast,
Take-or-Pay may trigger. Take-or-Pay is recognised as a receivable in
the year that the contractual railings were not achieved as the related
performance obligations have been satisfied.
The majority of access revenue is subject to a revenue cap mechanism
that serves to ensure the rail network recovers its system allowable
revenue over the regulatory period. A revenue adjustment event results
in the under or over recovery of regulatory access revenue (net of
Take-or-Pay revenue) for a financial year being recognised in the
accounting revenues in the second financial year following the event as
per the Access Undertaking. If a Draft Amending Access Undertaking
(DAAU) proposes a different treatment that is more probable to apply
to a revenue adjustment event, the treatment per the DAAU is applied.
Access revenue for the period has been recognised based on the 2017
Access Undertaking, amended for the Reference Tariff Variation DAAU.
Refer to key events and transactions during the reporting period for
further information.
Employee benefits expense
Defined benefit superannuation expense
Defined contribution superannuation expense
Redundancies
Salaries, wages and allowances including on-costs
Depreciation and amortisation
Depreciation
Amortisation of intangibles
Impairment losses*
Property, plant and equipment
Transitional Tariff Period
During the transitional period, revenue is determined based on the
most relevant and reliable information available.
Intangibles
Inventory
(ii) Freight transport
Freight transport revenue is recognised as the relevant performance
obligations are satisfied over time, being the provision of freight
transport services.
* Refer to note 4 for impairment information.
Finance expenses
Freight transport revenue is billed monthly in arrears and recognised
at rates specified in each contractual agreement and adjusted for the
amortisation of customer contract assets or liabilities. At each balance
date, freight transport revenue includes an amount of revenue for which
performance obligations have been met under the respective contract but
have not yet settled. These amounts are recognised as trade receivables.
Interest and finance charges paid/payable
Provisions: unwinding of discount
Amortisation of capitalised borrowing
transaction costs and AMTN 2 bond
Counterparty credit risk adjustments
Amount capitalised to qualifying assets
A contract modification is a separate contract if the scope of services is
increased by distinct additional services and the total price increases by the
market rate for those services over the remaining contract period. Where
the distinct services do not indicate market prices, weighted-average
contract rates are applied which may result in the recognition of a contract
asset or liability that amortise over the term of the individual contract.
Modifications to existing agreements where there is also a new
agreement put in place are assessed based on the facts and substance
of the individual contractual arrangements and will be accounted for
as either combined or separate contracts.
A contract liability is recorded for revenue received in advance of
satisfying a performance obligation and is recognised over the term
of the contract.
(iii) Capitalisation of customer contract costs
Where incremental costs are incurred to secure new or extensions to
existing customer contracts these costs are capitalised as a contract
asset and amortised against revenue as the performance obligations
are satisfied over time in the new contract.
Where an arrangement contains a significant financing component
the transaction price is adjusted to reflect the effects of the financing
component and a contract asset is recognised and amortised against
revenue as the performance obligations are satisfied over time.
2019
$m
2018
$m
11.4
54.3
21.4
691.5
778.6
516.9
25.7
542.6
24.7
0.2
–
24.9
155.1
0.1
2.6
(3.9)
153.9
(3.9)
150.0
12.6
55.3
(3.9)
691.2
755.2
505.0
20.5
525.5
68.9
–
1.1
70.0
160.3
0.4
2.9
7.5
171.1
(2.8)
168.3
59
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2019 (continued)
4 Impairment of non-financial assets
2019
$m
2018
$m
(ii) Impairment of assets in exit of contracts ($27.9 million)
As a result of Cliffs closing mining operations in Western Australia
and the termination of the rail haulage agreement with the Group
in June 2018, an impairment charge of $27.9 million was recorded.
11.4
42.1
($4.6 million)
(iii) Discontinued operation – Intermodal impairment
Continuing operations
Bulk impairment
Asset impairment as a result of transfer to held
for sale
Impairment of assets on exit of contracts
Discontinued operations
Intermodal impairment
Total impairment of non-financial assets
(a) Impairment of non-financial assets
Current period
13.5
–
24.9
25.1
50.0
–
27.9
70.0
4.6
74.6
(i) Bulk impairment ($11.4 million)
An impairment charge was recognised in respect of the Bulk East CGU
using fair value less costs of disposal (FVLCD) methodology at 30 June
2017 and 30 June 2018. The Bulk East CGU continued to be valued under
FVLCD methodology during the period, and as a result, an impairment
charge of $11.4 million in respect of additional sustaining capital
expenditure has been recognised. The residual carrying value of property,
plant and equipment as at 30 June 2019 is $45.8 million. This impairment
has not been classified as a significant item.
(ii) Asset impairment as a result of transfer to held for sale
($13.5 million)
As a result of the transfer of assets to held for sale, an asset impairment
of $13.5 million has been allocated to buildings ($9.8 million),
infrastructure ($1.9 million) and plant and equipment ($1.8 million).
This impairment has not been classified as a significant item.
(iii) Discontinued operation – Intermodal impairment
($25.1 million)
As a result of the sale of the Queensland Intermodal business an asset
impairment of $25.1 million has been allocated to assets classified as held
for sale ($22.8 million) and assets under construction ($2.3 million).
Prior period
(i) Bulk impairment ($42.1 million)
Western Australia ($31.7 million)
As a result of the cessation of the Cliffs iron ore contract earlier than
expected, a review of the operating cash flows of the Western Australia
CGU was completed at 30 June 2018. A pre-tax impairment charge of
$31.7 million was recorded. The residual carrying value of the Western
Australia CGU was $170.7 million.
Bulk East ($10.4 million)
At 30 June 2017, an impairment charge of $163.5 million was recorded
in respect of the Bulk East CGU using a FVLCD methodology. An
impairment charge of $10.4 million was recorded in respect of additional
sustaining capital incurred during the prior period. This impairment was
not classified as a significant item.
60 AURIZON ANNUAL REPORT 2018–19
Due to the closure of Interstate Intermodal, an asset impairment
of $4.6 million was recognised at 30 June 2018.
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 the CGUs for 30 June 2019 have been
determined based on value in use calculations, except for Bulk East
for which the recoverable amount is determined using FVLCD. The
value in use is calculated based on a four-year Board approved
corporate plan, a terminal growth rate of 2.0% per annum (2018: 2.2%)
and a pre-tax discount rate ranging from 8.4% – 10.9% (2018: 8.8% –
11.7%). The value in use calculations indicate headroom to the carrying
value of the CGUs.
The Western Australia CGU was impaired in the prior period as a
result of cessation of services to a key iron ore customer. The Western
Australia CGU has a small number of customers and the value in
use calculation is sensitive to changes in customer contractual
arrangements. Should any major contracts not be renewed or the
remaining iron ore customer either cease to operate before the
expected end of mine life or be unable to comply with current
contractual arrangements, it may result in a change to the impairment
recorded for the CGU.
There is a risk that the judgements applied in relation to the terminal
growth rate will be impacted by climate-related emerging risks which
have been considered for impairment testing through sensitivity on
terminal growth rates. There is also a risk that the assumptions made
and growth rates applied don’t reflect the actual impact of climate-
related emerging risks in the future.
Individual non-current assets
Each period the Group is required to assess the recoverability of
non-current assets. Each period the Enterprise Fleet Plan is reviewed.
This is a 10-year plan and judgement has been applied to estimate
forecast volumes and productivity, as well as the required level of
contingent fleet, in determining the level of rollingstock required
for the foreseeable future. Any changes to volumes, productivity,
climate-related emerging risks 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.
Notes to the consolidated financial statements
30 June 2019 (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.
Current 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 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.
Current tax
Deferred tax
Current tax relating to prior periods
Deferred tax relating to prior periods
Income tax expense/(benefit) is attributable to:
Profit from continuing operations
Loss from discontinued operation (note 24(b))
Deferred income tax expense included in
income tax expense comprises:
Increase in deferred tax assets (note 5(e))
Increase in deferred tax liabilities (note 5(f))
2019
$m
127.6
73.4
(1.5)
1.3
200.8
208.6
(7.8)
200.8
(12.9)
87.6
74.7
2018
$m
151.3
68.7
16.6
(17.0)
219.6
241.2
(21.6)
219.6
(8.5)
60.2
51.7
(b) Numerical reconciliation of income tax expense to prima
facie tax payable
Profit before income tax expense from
continuing operations
Loss before income tax expense from
discontinued operation
Tax at the Australian tax rate of 30% (2018: 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
2019
$m
2018
$m
681.9
801.3
(4.6)
(98.7)
677.3
203.2
702.6
210.8
0.1
–
–
3.6
(5.9)
(0.2)
200.8
0.2
(0.7)
(0.3)
8.0
2.0
(0.4)
219.6
2019
$m
2018
$m
(1.6)
4.9
(d) Tax expense/(benefit) relating to items of other
comprehensive income
Cash flow hedges
2019
$m
(15.2)
2018
$m
(3.9)
61
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2019 (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
2019
$m
228.8
2018
$m
199.1
(228.8)
(199.1)
–
–
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax assets:
Movements
At 1 July 2018
(Charged)/credited
- to profit or loss
- to other comprehensive income
- directly to equity
At 30 June 2019
At 1 July 2017
(Charged)/credited
– to profit or loss
– to other comprehensive income
– directly to equity
At 30 June 2018
(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
121.3
14.7
(12.6)
(7.4)
–
–
108.7
130.8
(9.5)
–
–
121.3
–
–
7.3
22.5
(7.8)
–
–
14.7
11.9
0.3
–
–
12.2
–
11.9
–
–
11.9
41.9
28.0
15.2
–
85.1
24.2
13.8
3.9
–
41.9
Other
$m
9.3
4.6
–
1.6
15.5
14.1
0.1
–
(4.9)
9.3
2019
$m
766.2
(228.8)
537.4
Total
$m
199.1
12.9
15.2
1.6
228.8
191.6
8.5
3.9
(4.9)
199.1
2018
$m
678.6
(199.1)
479.5
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax liabilities:
Movements
At 1 July 2018
Charged/(credited)
- profit or loss
At 30 June 2019
At 1 July 2017
Charged/(credited)
- profit or loss
At 30 June 2018
62
Non-
current
assets
$m
642.3
69.5
711.8
Consumables
and spares
$m
Accrued
income
$m
Financial
instruments
$m
Other
$m
Total
$m
1.2
(8.2)
(7.0)
1.7
0.7
2.4
33.6
(0.2)
678.6
25.7
59.3
(0.1)
(0.3)
87.6
766.2
588.3
5.2
2.6
22.1
0.2
618.4
54.0
642.3
(4.0)
1.2
(0.9)
1.7
11.5
33.6
(0.4)
(0.2)
60.2
678.6
AURIZON ANNUAL REPORT 2018–19
5 Income tax (continued)
6 Earnings per share
(f) Deferred tax liabilities (continued)
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 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 substantively enacted by the end of the reporting
year and are expected to apply when the related deferred income tax
asset is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised only if it is probable that future
taxable amounts will be available to utilise those temporary differences
and losses.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets and liabilities and when
the deferred tax balances relate to the same taxation authority.
Current tax assets and tax liabilities are offset where the entity has
a legally enforceable right to offset and intends either to settle on a
net basis, or to realise the asset and settle the liability simultaneously.
To the extent that an item is recognised in other comprehensive
income or directly in equity, the deferred tax is also recognised in
other comprehensive income or directly in equity.
KEEPING IT SIMPLE
Earnings per share (EPS) is the amount of post-tax profit
attributable to each share.
(a) Basic earnings per share
Basic EPS is calculated by dividing the profit attributable to owners of the
Company by the weighted average number of ordinary shares outstanding.
Basic earnings per share attributable to the
ordinary equity holders of the Company:
– continuing and discontinued operations
– continuing operations
2019
Cents
2018
Cents
23.9
23.8
24.0
27.8
(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:
2019
Cents
2018
Cents
23.9
23.8
24.0
27.8
2019
Number
‘000
2018
Number
‘000
1,990,128
2,013,362
Rights
1,567
1,865
Weighted average number of ordinary
and potential ordinary shares used as the
denominator in calculating diluted EPS
1,991,695
2,015,227
63
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT
Operating assets
and liabilities
IN THIS SECTION
Operating assets and liabilities provides information about the
working capital of the Group and major balance sheet items,
including the accounting policies, judgements and estimates
relevant to understanding these items.
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 65
Page 65
Page 66
Page 68
Page 69
Page 69
Page 70
64
64 AURIZON ANNUAL REPORT 2018–19
Notes to the consolidated financial statements30 June 2019 (continued) 7 Trade and other receivables
8 Inventories
Current
Trade receivables
2019
$m
2018
$m
Current
366.1
443.5
Raw materials and stores – at cost
Provision for impairment of receivables
(5.8)
(27.7)
Work in progress – at cost
2019
$m
2018
$m
130.9
–
(13.7)
117.2
53.0
(12.8)
40.2
133.1
0.2
(15.2)
118.1
44.8
(15.7)
29.1
Provision for inventory obsolescence
Non-current
Raw materials and stores – at cost
Provision for inventory obsolescence
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.
Net trade receivables
Other receivables*
360.3
121.5
481.8
415.8
123.5
539.3
* Other receivables include revenue for services performed but not yet invoiced
under contracts including external construction contracts, Take-or-Pay and
annual GAPE fees.
The creation or release of the provision for impairment of receivables
has been included in profit or loss. Amounts charged to the provision
account are generally written off when there is no expectation of
recovering additional cash. During the period, $21.9 million of the
provision for impairment of receivables was released to profit or loss
(2018: $0.5 million created) including $20.3 million for a customer as
a result of an agreed settlement in the Supreme Court of Queensland
on 31 July 2019.
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 Financial Instruments, which requires
the use of the lifetime expected loss provision for all trade receivables.
The Group’s debtors exhibit similar credit risk characteristics and
exposure. Estimating the Group’s credit risk to debtors has focused
largely on experienced payment history. The trade receivable balances
disclosed are unsecured and represent the Group’s maximum exposure
to credit risk. At the time of issuing the financial statements, the
outstanding receivables have been paid in accordance with their
credit terms without default.
AURIZON ANNUAL REPORT 2016–17
65
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT
9 Property, plant and equipment
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Total
$m
2019
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 2019
Cost
Accumulated depreciation and
impairment
Net book amount
Owned
Leased
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
275.3
467.6
(424.7)
–
(11.3)
(25.2)
–
281.7
126.5
–
0.6
(1.9)
–
13.7
–
138.9
231.3
–
64.0
(5.7)
(9.8)
5.9
(19.6)
266.1
327.6
–
41.3
(3.1)
(1.7)
(27.7)
(50.7)
285.7
2,231.7
–
128.6
(1.1)
(1.9)
(0.1)
(155.2)
2,202.0
5,467.5
8,659.9
–
192.3
(5.1)
(2.3)
1.1
(291.6)
467.6
2.1
(16.9)
(27.0)
(32.3)
(517.1)
5,361.9
8,536.3
281.7
138.9
520.2
655.3
5,165.2
7,644.2
14,405.5
–
281.7
281.7
–
281.7
184.8
502.4
(406.4)
–
(5.2)
(0.3)
–
275.3
–
138.9
113.4
25.5
138.9
(254.1)
266.1
264.0
2.1
266.1
159.7
273.5
–
(0.1)
(2.3)
–
(30.8)
–
126.5
–
(2.3)
(7.7)
(3.5)
(6.8)
(21.9)
231.3
(369.6)
285.7
285.7
–
285.7
377.0
–
20.6
(10.9)
(3.9)
(10.3)
(44.9)
327.6
(2,963.2)
(2,282.3)
(5,869.2)
2,202.0
5,361.9
8,536.3
2,202.0
–
973.4
4,388.5
4,120.2
4,416.1
2,202.0
5,361.9
8,536.3
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
–
126.5
102.7
23.8
126.5
(268.1)
231.3
223.2
8.1
231.3
(429.2)
(2,849.3)
(2,001.1)
(5,547.7)
327.6
327.6
–
327.6
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
* Impairment of $27.0 million (2018: $71.3 million) includes impairment from continuing operations of $24.7 million (2018: $68.9 million) (note 3) and discontinued
operations of $2.3 million (2018: $2.4 million) (note 24).
** Depreciation of $517.1 million (2018: $507.0 million) includes depreciation from continuing operations of $516.9 million (2018: $505.0 million) (note 3) and discontinued
operations of $0.2 million (2018: $2.0 million) (note 24).
66
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 9 Property, plant and equipment
(continued)
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.
SIGNIFICANT JUDGEMENTS
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, climate-related emerging
risks 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.
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 value
in use. In assessing value in use, the estimated future cashflows are
discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the
risks specific to the asset.
Impairment losses are recognised in the income statement. After the
recognition of an impairment loss, the depreciation (amortisation) charge
for the asset is adjusted in future periods to allocate the asset’s revised
carrying amount, less its residual value (if any), on a systematic basis
over its remaining useful life. Impairment losses, if any, recognised in
respect of CGUs are allocated first to reduce the carrying amount of any
goodwill allocated to CGUs and then to reduce the carrying amount of
other assets in the unit on a pro-rata basis.
Non-financial assets that have previously been impaired are reviewed for
possible reversal of impairment at each reporting period.
67
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT
10 Intangible assets
2019
Opening net book amount
Additions
Transfers
Amortisation expense*
Impairment charge**
Closing net book amount
At 30 June 2019
Cost
Accumulated amortisation and impairment
Net book amount
2018
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
126.6
–
57.5
(25.7)
(0.2)
158.2
344.1
(185.9)
158.2
123.0
–
26.1
(20.3)
(2.2)
126.6
291.1
(164.5)
126.6
–
–
–
–
–
–
3.0
(3.0)
–
–
0.5
–
(0.5)
–
–
3.0
(3.0)
–
46.0
32.3
(59.6)
–
–
18.7
18.7
–
18.7
47.0
32.0
(33.0)
–
–
46.0
46.0
–
46.0
Total
$m
172.6
32.3
(2.1)
(25.7)
(0.2)
176.9
365.8
(188.9)
176.9
170.0
32.5
(6.9)
(20.8)
(2.2)
172.6
340.1
(167.5)
172.6
* Amortisation of $25.7 million (2018: $20.8 million) includes amortisation from continuing operations of $25.7 million (2018: $20.5 million) (note 3) and discontinued
operations of $nil (2018: $0.3 million) (note 24).
** Impairment of $0.2 million (2018: $2.2 million) includes impairment from continuing operations of $0.2 million (2018: $nil) (note 3) and discontinued operations of
$nil (2018: $2.2 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 11 years.
68
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
11 Trade and other payables
Current liabilities
Trade payables
Other payables
2019
$m
2018
$m
297.5
109.2
406.7
247.7
28.1
275.8
Other payables includes a payable of $81.3 million (including GAPE)
in respect of the overcollection of access revenue which will be repaid
based on FY19 volumes railed. Refer to key events and transactions
during the reporting period for further information.
Recognition and measurement
Trade and other payables 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*
2019
$m
2018
$m
234.7
1.4
33.6
3.3
273.0
12.6
10.9
3.0
34.2
2.2
62.9
244.1
3.9
24.9
39.3
312.2
15.7
11.2
3.0
37.4
14.9
82.2
Total provisions
335.9
394.4
(a) Employee benefits
Annual leave
Long service leave
Other**
2019
$m
55.4
110.5
81.4
247.3
2018
$m
55.1
113.6
91.1
259.8
* Other provisions in 2018 included provisions for Intermodal closure costs.
** Included in other employee benefits are short-term incentive plans, retirement
allowances, and termination benefits. As well as payroll tax on leave and
short-term incentive plans.
The current provision for employee benefits includes accrued annual
leave, leave loading, retirement allowances, long service leave, short-term
incentive plans 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
$90.6 million (2018: $91.9 million) that is not expected to be taken or
paid within the next 12 months.
Details of employee benefits
(i) Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits and
accumulating annual leave and leave loading that are expected to be
settled wholly within 12 months after the end of the period in which
the employees render the related service, are recognised in respect
of employees’ services up to the end of the reporting period and are
measured at the amounts expected to be paid when the liabilities are
settled. The short-term employee benefit obligations are recognised
in the provision for employee benefits.
(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) Short-term incentive plans
The Group recognises a liability for short-term incentive plans 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 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 Provisions,
Contingent Liabilities and Contingent Assets and involves the payment
of termination benefits. Benefits falling due more than 12 months after
the end of the reporting period are discounted to present value.
69
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT
12 Provisions (continued)
(v) Superannuation
The Group pays an employer subsidy to the Government Superannuation
Office in respect of employees who are contributors to the Public Sector
Superannuation (QSuper) scheme.
Employer contributions to the QSuper Defined Benefit Fund are
determined by the State of Queensland Treasurer having regard to advice
from the State Actuary. The primary obligation to fund the defined
benefits obligations are that of the State. However, the Treasurer has
the discretion to request contributions from employers that contribute
to the defined benefit category of QSuper. No liability is recognised for
accruing superannuation benefits as this liability is held on a whole of
Government basis and reported in the whole of Government financial
statements. The State Actuary performs a full actuarial valuation of the
assets and liabilities of the fund at least every three years. The latest
valuation was completed as at 30 June 2018 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
any 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 1.5% and
2.7% (2018: 2.5% and 3.9%).
To measure the estimated costs to remediate contaminated land an
inflation rate of 1.9% (2018: 2.6%) has been applied, based on remediation
dates ranging between five to 40 years. A weighted average discount
rate of 2.0% (2018: 3.3%) has been used in determining present value,
based on the interest rate which reflects the maturity profile of the
liability. The increase in the provision resulting from the passage of time
is recognised in finance costs.
The provision for insurance claims is raised for insurance claims external
to the Group and represents the aggregate deductible component
in relation to loss or damage to property, plant and equipment and
rollingstock.
A provision is made for the estimated liability for workers’ compensation
and litigation claims. Claims are assessed separately for common law,
statutory and asbestos claims. Estimates are made based on the average
number of claims and average claim payments over a specified period of
time. Claims Incurred But Not Reported are also included in the estimate.
A provision for onerous contracts is recognised by the Group when the
unavoidable costs of meeting the obligations under the contract exceed
the expected economic benefits to be received. It is measured at the
present value of management’s best estimate of the expenditure required
to settle the present obligation at the reporting period.
13 Other liabilities
Current
Contract liabilities
Income received in advance
Other current liabilities
Non-current
Contract liabilities
Income received in advance
Other non-current liabilities
2019
$m
2018
$m
28.2
36.7
10.2
75.1
165.0
–
40.0
205.0
–
81.0
5.4
86.4
–
183.1
35.4
218.5
Income received in advance primarily represents deposits received.
Contract liabilities primarily represent amounts received from customers
as advances for future track access under agreements for mine specific
infrastructure. These amounts are deferred and earned over the term of
the agreements as performance obligations are satisfied.
On adoption of AASB 15 Revenue from Contracts with Customers on
1 July 2018, $27.2 million (current) and $185.8 million (non-current)
was reclassified to contract liabilities. Refer to note 2 and note 32
for further information.
70
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
Notes to the consolidated financial statements
30 June 2019 (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 72
Page 72
Page 72
Page 74
Page 74
Page 80
FINANCIAL REPORT
71
Notes to the consolidated financial statements30 June 2019 (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.
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Gearing ratio
Notes
2019
$m
2018
$m
17
3,369.8
3,501.9
(25.2)
(34.8)
3,344.6
3,467.1
4,677.4
4,730.1
8,022.0
41.7%
8,197.2
42.3%
The gearing ratio excludes the impact of financial derivative asset and
liabilities (refer note 19). Aurizon Network Pty Ltd gearing ratio is 69.9%
(2018: 69.7%).
(c) Franked dividends
The franked portions of the final dividends recommended after
30 June 2019 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 2020.
Franking credits available for subsequent
reporting periods based on a tax rate of 30%
(2018: 30%)
2019
$m
2018
$m
64.9
71.5
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
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.
(a) Contributed equity
(i)
Issued capital
15 Dividends
(a) Ordinary shares
Interim dividend for the year ended 30 June
2019 of 11.4 cents 70% franked (2018: 14.0 cents
50% franked) per share, paid 25 March 2019
Final dividend for the year ended 30 June 2018
of 13.1 cents 60% franked (2017: 8.9 cents 50%
franked) per share, paid 24 September 2018
2019
$m
2018
$m
Ordinary shares
– fully paid
2019
Shares
‘000
2018
Shares
‘000
2019
$m
2018
$m
1,990,128
1,990,128
906.6
906.6
226.9
279.5
(ii) Movements in ordinary share capital
260.7
487.6
182.6
462.1
Details
At 1 July 2017
On-market share buy-back
Number
of shares
‘000
$m
2,051,745
1,206.6
(61,617)
(300.0)
1,990,128
1,990,128
906.6
906.6
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.
(b) Dividends not recognised at the end of the reporting period
At 30 June 2018
At 30 June 2019
Since 30 June 2019, the Directors have
recommended the payment of a final dividend
of 12.4 cents per fully paid ordinary share
70% franked (2018: 13.1 cents 60% franked).
The aggregate amount of the proposed
dividend expected to be paid on 23 September
2019 out of retained earnings, but not
recognised as a liability at year end is:
2019
$m
2018
$m
246.8
260.7
72
FINANCIAL REPORT
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 16 Equity and reserves (continued)
(b) Reserves
Balance at 1 July 2018
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 at 30 June 2019
Balance at 1 July 2017
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
Buy-back of ordinary shares
Share-based payments expense
Employee share trust to employees
Deferred tax
Balance at 30 June 2018
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
(11.2)
(52.2)
1.6
15.2
(35.4)
–
–
–
5.6
3,467.5
3,460.1
–
–
–
–
(7.2)
(0.6)
1.6
–
–
–
–
–
–
–
(52.2)
1.6
15.2
(35.4)
(7.2)
(0.6)
1.6
(1.8)
(46.6)
(0.6)
3,467.5
3,418.5
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
(2.1)
(13.1)
0.1
3.9
(9.1)
–
–
–
–
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
(1.8)
(11.2)
Nature and purpose of reserves
Cash flow hedges
The hedging reserve is used to record the effective portion of 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.
73
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT 17 Borrowings
KEEPING IT SIMPLE
The Group borrows money through bank debt facilities and
through the issuance of debt securities in capital markets.
The carrying amount of the Group’s borrowings is as follows:
Current – Unsecured
Bank debt facilities
Non-current – Unsecured
Medium-term notes
Bank debt facilities
Capitalised borrowing costs
Total borrowings
2019
$m
2018
$m
149.0
149.0
100.0
100.0
2,670.0
560.0
2,552.1
860.0
(9.2)
(10.2)
3,220.8
3,401.9
3,369.8
3,501.9
The Group’s bank debt facilities contain financial covenants. Both the
bank debt 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 2018 Aurizon Finance Pty Ltd (a wholly-owned subsidiary
of the Group) cancelled existing bank debt syndicated facilities and
replaced them with bilateral bank debt facilities totalling $450.0 million
expiring in November 2023.
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 and the Group does not expect to repay
within 12 months.
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 4.6%
(2018: 4.5%).
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
Treasury 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 Treasury 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 Board
approved Treasury Policies. 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 June 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.
74
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
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.
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 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 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 99% (2018:
81%) of the variable rate exposure. The weighted average maturity of
outstanding swaps is approximately 2.7 years (2018: 3.0 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 $2.2 million (2018: $4.9 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.
30 June 2019
30 June 2018
Weighted
average
interest
rate
%
Weighted
average
interest
rate
%
Balance
$m
Balance
$m
4.5
2,197.8
4.4
2,448.8
100 bps movement
in interest rates
100 bps decrease in
interest rates
100 bps increase in
interest rates
4.3
(2,175.0)
4.2
(1,975.0)
22.8
473.8
Variable rate
exposure
Interest rate
swaps (including
debt credit
margins)
Net exposure to
interest rate risk
Effect on profit
(before tax)
Effect on equity
(before tax)
2019
$m
2018
$m
2019
$m
2018
$m
0.2
4.7
(34.2)
(46.7)
(0.2)
(4.7)
33.6
45.2
75
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT 18 Financial risk management (continued)
(a) Market risk (continued)
(iv) Effects of hedge accounting on the consolidated balance sheet and consolidated income statement
The impact of hedging instruments designated in hedging relationships on the consolidated balance sheet of the Group is as follows:
Cash flow hedges
Foreign exchange risk
Forward contracts
Forward contracts
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
Notional amount
Carrying amount assets/
(liability) refer to note 19
Change in fair value
used for measuring
ineffectiveness for the year
2019
2018
2019
$m
2018
$m
2019
$m
2018
$m
US$11.0m
US$26.0m
€13.0m
€14.0m
0.5
0.3
A$2,175.0m
A$1,975.0m
(49.1)
€500.0m
€500.0m
€500.0m
€500.0m
0.9
(4.3)
1.2
0.5
4.3
1.2
(3.8)
€500.0m
€500.0m
€500.0m
€500.0m
150.7
49.4
101.0
(16.9)
(0.7)
(0.2)
(53.4)
(0.3)
(0.5)
44.3
62.8
–
A$425.0m
–
3.3
(3.3)
1.4
0.7
(7.1)
2.4
9.2
49.4
54.2
3.4
* Excludes $1,250.0 million of forward dated interest rate swaps entered into commencing on expiry of current interest rate swaps.
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*
Change in fair value used for
measuring ineffectiveness
for the year
2019
$m
2018
$m
2019
$m
2018
$m
(0.8)
(1.7)
0.9
49.1
4.7
13.8
(4.3)
53.4
6.5
15.6
0.3
0.5
(2.1)
7.1
(2.4)
(9.2)
* Cash flow hedge reserve includes the cumulative impact of cross currency basis relating to EMTN 1 and EMTN 2 of $19.1 million for the year ended 30 June 2019
(2018: $23.5 million).
76
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
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
Total borrowings (subject to fair value hedges)
* Carrying amount excludes the effect of discounts.
Carrying amount*
Accumulated fair value
adjustment
Change in fair value
used for measuring
ineffectiveness for the year
2019
$m
2018
$m
2019
$m
2018
$m
2019
$m
2018
$m
–
(429.0)
–
(4.0)
–
(4.0)
(870.9)
(847.4)
(1,718.3)
(1,718.3)
(826.6)
(784.6)
(1,611.2)
(2,040.2)
(160.3)
(69.2)
(229.5)
(229.5)
(116.0)
(6.4)
(122.4)
(126.4)
(44.3)
(62.8)
(107.1)
(107.1)
(49.4)
(54.2)
(103.6)
(107.6)
** The AMTN 2 fair value hedge was terminated on 11 February 2019. The accumulated fair value adjustment included in the carrying amount of the AMTN 2 bond as at
30 June 2019 is $11.9 million (2018: $4.0 million). The accumulated fair value adjustment will be recognised over the remaining term of the AMTN 2 bond.
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
2019
$m
2018
$m
(0.8)
(53.4)
3.6
(50.6)
2.0
(7.1)
(7.9)
(13.0)
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 and 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 Treasury Policies which restricts
the Group’s exposure to financial institutions by credit rating band. The
Treasury Policies limit 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.
77
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT
18 Financial risk management (continued)
(c) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulties in meeting the obligations associated with its financial liabilities. The Group’s approach
to managing liquidity is to ensure, as far as possible, sufficient liquidity is available to meet its liabilities when due, under both normal and stressed
conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
Financing arrangements
The Group has access to the following arrangements at the end of the reporting year:
Aurizon Finance
Working capital facility
Syndicated facility**
Syndicated facility**
Bilateral facility
Aurizon Network
Working capital facility
Syndicated facility
Syndicated facility
AMTN 1
AMTN 2***
EMTN 1****
EMTN 2****
Total Group financing arrangements
Security
Maturity
Utilised*
2019
$m
2018
$m
Facility limit
2019
$m
2018
$m
Unsecured
Dec-20
84.3
Unsecured
Jul-19
Unsecured
Jul-20
Unsecured
Nov-23
–
–
90.0
174.3
70.2
100.0
–
–
170.2
Unsecured
Dec-20
82.6
52.1
Unsecured
Jul-21
470.0
490.0
Unsecured
Oct-22
Unsecured
Oct-20
Unsecured
Jun-24
Unsecured
Sept-24
Unsecured
Jun-26
–
525.0
425.0
710.6
778.2
270.0
525.0
425.0
710.6
778.2
150.0
–
–
450.0
600.0
100.0
490.0
500.0
525.0
425.0
710.6
778.2
150.0
300.0
300.0
–
750.0
100.0
490.0
500.0
525.0
425.0
710.6
778.2
2,991.4
3,250.9
3,528.8
3,528.8
3,165.7
3,421.1
4,128.8
4,278.8
*
Amount utilised includes bank guarantees of $17.9 million (2018: $22.3 million) but excludes capitalised borrowing costs of $9.2 million (2018: $10.2 million) and
discounts on medium-term notes of $10.3 million (2018: $13.1 million).
** In November 2018 Aurizon Finance Pty Ltd (a wholly-owned subsidiary of the Group) cancelled existing bank debt syndicated facilities and replaced them with bilateral
bank debt facilities totalling $450.0 million expiring in November 2023.
*** The AMTN 2 fair value hedge was terminated on 11 February 2019. Amount utilised excludes an accumulated fair value adjustment of $11.9 million (2018: $4.0 million)
which will be recognised over the remaining term of the AMTN 2 bond.
**** Amount utilised also excludes accumulated fair value adjustments of $160.3 million (2018: $116.0 million) for EMTN 1 and $69.2 million (2018: $6.4 million) for EMTN 2.
Within the working capital facilities, the Group has access to financial accommodation arrangements totalling $250.0 million (2018: $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 $17.9 million (2018: $22.3 million) for financial bank guarantees.
The Group has complied with externally imposed debt covenants during the 2019 and 2018 reporting periods.
78
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
18 Financial risk management (continued)
(c) Liquidity risk (continued)
The following table summarises the contractual timing of undiscounted cash flows, including estimated interest payments, of financial liabilities and
derivative instruments, 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.
2019
Non-derivatives
Trade payables
Borrowings*
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
- (inflow)
- outflow
2018
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
406.7
123.0
17.9
547.6
20.1
–
(0.5)
0.2
19.8
275.8
251.0
22.3
549.1
1.3
–
(1.1)
–
0.2
–
2,004.9
–
2,004.9
–
1,582.6
–
1,582.6
30.4
–
–
–
30.4
–
–
–
–
–
–
–
406.7
3,710.5
17.9
4,135.1
50.5
–
(0.5)
0.2
50.2
406.7
3,173.1
–
3,579.8
49.1
(0.8)
–
–
48.3
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
* Borrowings include the effect of CCIRS derivatives which have a carrying amount of $196.7 million (non-current asset) (2018: $102.2 million non-current asset and
$20.7 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:
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.
› Forward foreign exchange contracts
› Interest rate swaps
› CCIRS
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.
79
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT 18 Financial risk management (continued)
(d) Fair value measurements (continued)
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 2019, the borrowing rates were determined to be between
1.8% to 4.2%, depending on the type of borrowing (2018: 2.7% to 4.5%).
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 $70.8 million (2018: $85.6
million), however Aurizon has obtained a 100% cross indemnity guarantee
from Qube Holdings Ltd in respect of any call under the Aurizon PCG.
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.
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as follows:
› Level 1: Quoted prices (unadjusted) in active markets for identical
assets or liabilities
Carrying
amount
Notes
2019
$m
2018
$m
› Level 2: Inputs other than quoted prices included within Level 1 that are
Fair value
2019
$m
2018
$m
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.
2019
Derivative financial assets
Derivative financial
liabilities
Net financial instruments
measured at fair value
2018
Derivative financial assets
Derivative financial
liabilities
Net financial instruments
measured at fair value
Notes
Level 1
$m
Level 2
$m
Level 3
$m
19
19
19
19
–
–
–
–
–
–
197.5
(49.1)
148.4
112.1
(21.3)
90.8
–
–
–
–
–
–
Total
$m
197.5
(49.1)
148.4
112.1
(21.3)
90.8
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 Board approved Treasury Policies
(refer to note 18).
Financial assets
carried at fair value
Foreign exchange
contracts
Interest rate swaps
CCIRS – EMTN 1
CCIRS – EMTN 2
Financial assets carried
at amortised cost
Cash and cash
equivalents
Trade and other
receivables
Financial liabilities
carried at fair value
Interest rate swaps
CCIRS – EMTN 2
Financial liabilities carried
at amortised cost
Trade and other
payables
Borrowings
Off-balance sheet
Unrecognised financial
assets
Third party
guarantees
Bank guarantees
Insurance company
guarantees
Unrecognised
financial liabilities
Bank guarantees
80
19
19
19
19
7
19
19
0.8
–
151.6
45.1
197.5
1.7
8.2
102.2
–
112.1
0.8
–
151.6
45.1
197.5
1.7
8.2
102.2
–
112.1
25.2
34.8
25.2
34.8
481.8
507.0
539.3
574.1
481.8
507.0
539.3
574.1
(49.1)
–
(49.1)
(0.6)
(20.7)
(21.3)
(49.1)
–
(49.1)
(0.6)
(20.7)
(21.3)
11
(406.7)
(406.7)
17 (3,369.8) (3,501.9) (3,510.9)
(275.8)
(275.8)
(3,641.2)
(3,776.5) (3,777.7)
(3,917.6)
(3,917.0)
–
–
–
–
–
–
–
–
–
–
19.1
290.7
20.8
220.9
1.5
4.8
(17.9)
(22.3)
293.4
224.2
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
19 Derivative financial instruments (continued)
Current assets
Foreign exchange contracts
Non-current assets
Interest rate swaps
Foreign exchange contracts
CCIRS – EMTN 1
CCIRS – EMTN 2
Total derivative financial instrument assets
Non-current liabilities
Interest rate swaps
CCIRS – EMTN 2
Total derivative financial instrument liabilities
2019
$m
2018
$m
0.8
1.3
–
–
151.6
45.1
196.7
197.5
8.2
0.4
102.2
–
110.8
112.1
(49.1)
–
(49.1)
(0.6)
(20.7)
(21.3)
(a) Offsetting financial assets and financial liabilities
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 2019 and 30 June 2018. 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
2019
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
2018
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
* No financial instrument collateral.
197.5
(49.1)
112.1
(21.3)
–
–
–
–
197.5
(49.1)
112.1
(21.3)
–
–
(4.5)
4.5
197.5
(49.1)
107.6
(16.8)
81
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT
Notes to the consolidated financial statements
30 June 2019 (continued)
19 Derivative financial instruments
(continued)
(a) Offsetting financial assets and financial liabilities
(continued)
Master netting arrangement
Derivative transactions are administered under ISDA Master Agreements.
Under the terms of these agreements, where certain credit events
occur (such as default), the net position owing/receivable to a single
counterparty in the same currency will be taken as owing and all the
relevant arrangements terminated. As the Group does not presently have
a legally enforceable right of set-off between different transaction types,
these amounts have not been offset in the balance sheet, but have been
presented separately in the table above.
Recognition and measurement
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured to their fair
value at the end of each reporting period. The accounting for subsequent
changes in fair value depends on whether the derivative is designated as
a hedging instrument and, if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of the cash flows
of recognised assets and liabilities, and highly probable forecast
transactions (cash flow hedges). The Group has established a 100%
hedge relationship against the identified exposure, therefore the hedge
ratio is 1:1.
At inception, the Group documents the relationship between hedging
instruments and hedged items, the risk management objective and the
strategy for undertaking various hedge transactions. At inception and on
an ongoing basis, the Group 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.
8282
AURIZON ANNUAL REPORT 2017–18AURIZON ANNUAL REPORT 2018–19 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 84
Page 84
Page 85
Page 86
Page 88
Page 89
FINANCIAL REPORT
83
Notes to the consolidated financial statements30 June 2019 (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 and joint arrangements 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:
2019
$m
2018
$m
2.8
3.2
Ownership interest
Name
Aquila Resources
Limited*
Country of
operation
2019
%
2018
%
Principal
activity
Australia
15
15
Exploration
and mining
* Aquila Resources Limited is accounted for as an associated company because the
Group has significant influence primarily through representation on its Board of
Directors.
(b) Investments in joint ventures
The Group has an interest in the following joint ventures, which are equity
accounted, contributed $0.1 million to the Group results, have net assets
of $2.8 million and are not considered material to the Group.
Ownership interest
Name
Country of
operation
2019
%
2018
%
Principal
activity
Chun Wo/CRGL
China-Hong Kong
17
17 Construction
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.
21 Material subsidiaries
The Group’s material subsidiaries that were controlled during the year
and prior years are set out below:
Name of entity
Aurizon Operations Limited
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
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.
ARG Risk
Management
Limited
Integrated
Logistics
Company Pty Ltd
ACN 169 052 288
84
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 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
2019
$m
40.9
2018
$m
61.1
6,086.1
6,093.9
6,127.0
6,155.0
(42.4)
(61.1)
(1,724.8)
(1,726.6)
(1,767.2)
(1,787.7)
4,359.8
4,367.3
906.6
906.6
2.0
1.7
3,451.2
3,459.0
4,359.8
4,367.3
487.9
487.9
462.9
462.9
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 2019 (2018: $nil). 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 2019, the parent entity did not have any contractual
commitments for the acquisition of property, plant and equipment
(2018: $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.
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.
85
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT Statement of comprehensive income
Profit 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 for the year,
net of tax
2019
$m
2018
$m
499.1
835.7
(0.2)
5.0
(0.1)
0.2
(1.5)
(0.1)
3.3
–
Total comprehensive income for the year
502.4
835.7
Summary of movements in consolidated retained earnings
Retained earnings/(losses) at the beginning
of the financial year
Profit for the year
Dividends provided for or paid
Retained earnings at the end of the
financial year
93.8
499.1
(279.8)
835.7
(487.6)
(462.1)
105.3
93.8
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 operations
Other income
Employee benefits expense
Consumables
2019
$m
2018
$m
2,456.5
2,781.9
221.7
663.8
(658.2)
(694.2)
(1,128.8)
(1,366.3)
Depreciation and amortisation expense
(224.0)
(234.7)
Impairment losses
Other expenses
Share of net profits of associates and joint
venture partnership accounted for using the
equity method
Finance income
Finance expenses
Profit before income tax
Income tax expense
Profit for the year
(50.0)
7.4
(74.6)
(112.5)
0.1
3.1
(8.5)
619.3
(120.2)
499.1
0.8
2.8
(14.3)
952.7
(117.0)
835.7
86
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 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
Derivative financial instruments
Other assets
Assets classified as held for sale
Total current assets
Non-current assets
Inventories
Derivative financial instruments
Property, plant and equipment
Intangible assets
Deferred tax assets
Other assets
Investments accounted for using the equity method
Other financial assets*
Total non-current assets
Total assets
Current liabilities
Trade and other payables
Borrowings
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
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Contributed equity
Reserves
Retained earnings
Total equity
2019
$m
2018
$m
20.8
517.9
89.4
0.8
4.8
108.4
742.1
28.6
–
11.3
441.3
88.2
0.7
3.4
108.0
652.9
22.5
2.0
3,221.3
3,285.7
79.8
93.5
8.6
2.8
77.6
148.4
–
3.2
1,222.4
1,222.9
4,657.0
4,762.3
5,399.1
5,415.2
378.4
305.7
67.0
40.9
191.2
48.7
3.8
49.0
61.3
244.3
56.4
12.7
730.0
729.4
87.9
3.1
59.5
44.0
194.5
924.5
99.4
–
63.3
50.4
213.1
942.5
4,474.6
4,472.7
906.6
906.6
3,462.7
3,472.3
105.3
93.8
4,474.6
4,472.7
* Other financial assets represent investments in entities outside of the deed group.
87
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT 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.
The three-stage exit comprises the Acacia Ridge Intermodal Terminal,
Queensland Intermodal and Interstate Intermodal. The Intermodal
business is disclosed as a discontinued operation.
Acacia Ridge Intermodal Terminal
The Group signed a binding agreement with Pacific National on
28 July 2017 to sell its Acacia Ridge Intermodal Terminal for
$205.0 million, of which a $35.0 million non-refundable deposit
was received in advance. The transaction is subject to approval
by the Australian Competition & Consumer Commission (ACCC)
and Foreign Investment & Review Board (FIRB).
The ACCC opposed the sale on 19 July 2018 and commenced
proceedings against Aurizon and Pacific National in the Federal Court.
On 15 May 2019, the Federal Court rejected the allegations by the ACCC
that the proposed sale contravened section 45 and section 50 of the
Commonwealth’s Competition and Consumer Act (2010). On 27 June
2019 the ACCC sought to appeal the Federal Court’s decision in relation
to the contravention of section 50 of the Act (but not the Federal Court’s
decision in relation to section 45). On 18 July 2019, Aurizon and Pacific
National filed notices of cross-appeal. The appeal and cross-appeal will
be heard by the Full Federal Court in due course.
The Group remains committed to exiting the Acacia Ridge Intermodal
Terminal and on this basis has continued to classify the Acacia Ridge
Intermodal Terminal as held for sale and a discontinued operation as
at 30 June 2019.
Queensland Intermodal
The agreement entered between the Group and a consortium of Linfox
and Pacific National dated 14 August 2017 was terminated by Aurizon
on 13 August 2018 and $10.0 million received in advance was refunded.
The Group signed a binding agreement with Linfox to sell the
Queensland Intermodal business on 12 October 2018 for a sale price
of $7.3 million. Under the agreement Aurizon retains the Intermodal
locomotive fleet and train crew and will provide Linfox rail linehaul
services. Completion of the sale occurred on 31 January 2019.
Interstate Intermodal
The Interstate Intermodal business ceased operating on 23 December 2017.
SIGNIFICANT JUDGEMENTS
Aurizon remains committed to exiting the Intermodal business and
on this basis has continued to classify the Acacia Ridge Intermodal
Terminal as a discontinued operation and held for sale at 30 June 2019.
(b) Financial performance and cash flow information
Financial information relating to the discontinued operation is set out
below which includes the Acacia Ridge Intermodal Terminal for the full
period, Queensland Intermodal for the period to 31 January 2019 and
finalisation of the closure of Interstate Intermodal.
Revenue and other income
Employee benefits expense
Energy and fuel
Track access
Consumables
Depreciation and amortisation *
Impairment losses **
Other expenses
Net finance costs
2019
$m
123.1
(31.2)
(6.1)
(8.7)
2018
$m
225.4
(79.6)
(19.1)
(35.1)
(58.4)
(134.5)
(0.2)
(25.1)
1.9
0.1
(2.3)
(4.6)
(48.9)
–
Loss before income tax
(4.6)
(98.7)
Income tax benefit
Profit/(loss) from discontinued operations
after tax
7.8
3.2
Net cash (outflow) from operating activities
(25.4)
Net cash inflow from investing activities
Net cash inflow/(outflow) from financing
activities
11.1
–
21.6
(77.1)
(25.1)
54.6
–
Net (decrease)/increase in cash generated by
the discontinued operations
(14.3)
29.5
* Includes $0.2 million depreciation (2018: $2.0 million) and $nil amortisation
expense (2018: $0.3 million).
** Includes $22.8 million of assets classified as held for sale (2018: $nil),
$2.3 million property, plant and equipment (2018: $2.4 million) and
$nil intangible assets (2018: $2.2 million).
88
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 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
Intermodal closure benefits/(costs)
Intermodal impairment expense
Redundancy benefit/(expense)
2019
$m
2018
$m
13.2
(25.1)
0.5
(61.0)
(4.6)
(9.1)
(11.4)
(74.7)
Current period
Intermodal closure benefits include gain on sale of assets in the period and release of contract exit cost provisions recognised in the prior period of
$13.2 million. Significant items also include asset write downs of $25.1 million and a redundancy benefit of $0.5 million as a result of the sale of the
Queensland Intermodal business.
Prior period
Intermodal closure costs include contract, lease and supplier exit costs of $61.0 million, redundancy expense of $9.1 million 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 are classified as held for sale and included in assets classified as held for sale (note 25).
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
2019
$m
2018
$m
36.7
6.2
–
42.9
78.6
26.3
1.2
106.1
(0.7)
42.2
(12.7)
93.4
2019
$m
90.0
15.3
3.1
2018
$m
80.5
26.3
1.2
108.4
108.0
*
Movement in property, plant and equipment held for sale includes $32.3 million net transfers from property, plant and equipment, partly offset by $22.8 million
of impairment as a result of a reduction to fair value.
Assets classified as held for sale at 30 June 2019 include the rail grinding assets subject to the business sale agreement signed between the Group
and Loram Pty Ltd on 12 June 2019. Refer to key events and transactions for the reporting period for further information.
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.
89
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT Other notes
IN THIS SECTION
Other notes provide 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 statement of cash flows
Page 91
27 Related party transactions
28 Key Management Personnel compensation
29 Share-based payments
30 Remuneration of auditors
31 Summary of other significant accounting policies
32 Changes in accounting policies
Page 92
Page 92
Page 92
Page 93
Page 94
Page 96
90
90 AURIZON ANNUAL REPORT 2018–19
Notes to the consolidated financial statements30 June 2019 (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 for the year from continuing operations
Depreciation and amortisation
Impairment of non-financial assets
Finance expenses
Non-cash employee incentive (benefits)/expense
Net loss on sale of assets
Share of profits of associates and joint ventures
Net exchange differences
Change in operating assets and liabilities:
Decrease/(Increase) in trade and other receivables
(Increase) in inventories
(Increase)/Decrease in other operating assets
Increase/(Decrease) in trade and other payables
(Decrease) in other liabilities
(Decrease)/Increase in current tax liabilities
Increase in deferred tax liabilities
(Decrease) in provisions
Net cash inflow from operating activities from continuing operations
(b) Reconciliation of liabilities arising from financing activities to financing cash flows
2019
$m
473.3
542.6
24.9
150.0
(7.2)
2.8
(0.1)
1.3
49.5
(13.1)
(10.2)
87.2
(17.8)
(31.2)
94.7
(30.6)
1,316.1
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)
1,307.7
Balance as at 1 July 2018
Financing cash flows**
Effect of changes in exchange rates
Other changes in fair values
Other non-cash movements
Balance as at 30 June 2019
Balance as at 1 July 2017
Financing cash flows**
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
$m
$m
(100.0)
(49.0)
–
–
–
(3,401.9)
302.4
(46.4)
(72.3)
(2.6)
(149.0)
(3,220.8)
(79.0)
(21.0)
–
–
–
(3,297.2)
8.8
(90.6)
(20.0)
(2.9)
Liabilities
held to
hedge
borrowings*
$m
(21.3)
–
10.6
(38.4)
–
(49.1)
(70.7)
–
45.3
4.1
–
Assets held
to hedge
borrowings*
$m
Total
$m
110.4
(3,412.8)
(11.5)
241.9
35.8
62.1
–
196.8
73.6
–
45.3
(8.5)
–
–
(48.6)
(2.6)
(3,222.1)
(3,373.3)
(12.2)
–
(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, payments of transaction costs related to borrowings and
proceeds from settlement of derivatives in the consolidated statement of cash flows.
91
Notes to the consolidated financial statements30 June 2019 (continued)FINANCIAL REPORT
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 (2018: nil).
(b) Transactions with other related parties
There were no transactions with other related parties during the
year (2018: 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
Share-based payments
2019
$’000
2018
$’000
9,493
8,769
297
47
1,932
11,769
290
96
2,159
11,314
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, 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.
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.
92
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19 29 Share-based payments (continued)
(a) Performance rights plan (continued)
Retentions (continued)
Set out below are summaries of rights granted under the plans:
Balance
at start of
the year
Number
‘000
Granted
during
the year
Number
‘000
Exercised
during
the year
Number
‘000
Forfeited
during
the year
Number
‘000
Balance
at end of
the year
Number
‘000
2019
STIAD
LTIA
Retentions
Total
2018
STIAD
LTIA
Retentions
105
11,655
25
11,785
–
10,462
25
546
2,950
263
3,759
105
3,982
–
(105)
–
546
–
(3,926)
10,679
(25)
–
263
(130)
(3,926)
11,488
–
–
105
(486)
(2,303)
11,655
–
–
25
Total
10,487
4,087
(486)
(2,303)
11,785
At 30 June 2019, there were no vested but unexercised rights (2018: nil).
The weighted average exercise price of rights granted during the year was
$nil (2018: $nil), as the rights have no exercise price. The weighted average
share price at the date of exercise for rights exercised during the period
was $4.32 (2018: $5.22). The weighted average remaining contractual life
of share rights outstanding at 30 June 2019 was 1.2 years (2018: 1.4 years).
Fair value of rights granted
In determining the fair value, market techniques for valuation were
applied in accordance with AASB 2 Share-based payments. 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 $4.21 and $3.40 (2018: STIAD $5.01 and
LTIA $4.27) respectively, determined by the share price at grant date
less an adjustment for estimated dividends payable during the vesting
period. The fair value of the LTIA rights subject to the TSR market based
performance condition has been calculated using the Monte-Carlo
simulation techniques based on the inputs disclosed in the table below:
Scheme
Grant date
Vesting date
Expiry date
2019
LTIA
EXECS
LTIA
CEO
5 Oct
2018
5 Oct
2022
31 Dec
2022
18 Oct
2018
18 Oct
2022
31 Dec
2022
LTIA
EXECS
6 Oct
2017
6 Oct
2020
31 Dec
2020
2018
LTIA
CEO
18 Oct
2017
18 Oct
2020
31 Dec
2020
LTIA
EXECS
6 Oct
2017
6 Oct
2021
31 Dec
2021
LTIA
CEO
18 Oct
2017
18 Oct
2021
31 Dec
2021
(b) Expenses arising from share-based payment transactions
Total benefit recognised arising from share-based payment transactions
during the period was $7.199 million (2018: total expense $3.886 million).
The benefit recognised is a result of non-market performance conditions
on prior period schemes not vesting during the period.
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.
30 Remuneration of auditors
During the year the following fees were paid or payable for services
provided by the auditor of the parent entity and its related practices:
PwC Australia
Audit and other assurance services
2019
$’000
2018
$’000
Audit and other assurance services
Audit and review of financial statements
1,175
1,295
Other assurance services
Other assurance services
58
122
Total remuneration for audit and other
assurance services
Other services
Advisory services
Total remuneration of PwC Australia
1,233
1,417
246
1,479
282
1,699
$5.02
$5.12
$5.02
$5.12
4 years
4 years 4 years 3 years
18.70% 18.90% 19.50% 19.40% 19.50% 19.40%
3 years 4 years
$4.14
$4.10
Share price at
grant date
Expected life
Company
share price
volatility
Risk free rate
2.20% 2.30%
Dividend yield 5.20% 5.20%
Fair value
$1.70
$1.77
2.00%
5.25%
$1.91
2.00% 2.20%
5.50%
5.25%
$1.97
$1.82
2.20%
5.50%
$1.88
The Company share price volatility is based on the Company’s average
historical share price volatility to the grant date.
FINANCIAL REPORT
93
Notes to the consolidated financial statements30 June 2019 (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
AASB 15 Revenue from Contracts with Customers became applicable
for the current reporting period and the Group updated its accounting
policy and made reclassifications to comparatives as a result of adopting
the standard. The impact of the adoption of AASB 15 Revenue from
Contracts with Customers is disclosed in note 32.
(ii) New standards and interpretations not yet adopted
Certain new accounting standards and amendments to standards have
been published that are mandatory for reporting periods commencing
1 July 2019 and have not been early adopted by the Group. The nature
of the change and the potential impact is discussed further below.
AASB 16 Leases (mandatory for financial year beginning 1 July 2019)
Nature of change:
AASB 16 Leases addresses the recognition, measurement, presentation
and disclosure of leases. The Group will adopt the standard on 1 July 2019.
Aurizon as lessee:
The adoption of AASB 16 Leases will result in almost all previously
recognised operating 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 finance liability to pay rentals are recognised. The lease liability is
measured at the present value of the lease payments that are not paid at
the balance date and is unwound over time using either the interest rate
implicit in the lease repayments or the Group’s incremental borrowing
rate. The right-of-use asset comprises the initial lease liability amount,
and initial direct costs incurred when entering into the lease less lease
incentives received for fitout contributions. The right-of-use asset is
depreciated over the term of the lease. The new standard effectively
replaces the Group’s operating lease expense with an interest and
depreciation expense, except where the leases are considered to be
short-term leases or leases of low value assets. Payments associated with
short-term leases (i.e. leases with a lease term of 12 months or less) and
leases of low value assets will continue to be recognised on a straight-
line basis as an expense in profit and loss.
Aurizon as lessor:
Where the Group acts as lessor, it is not required to make any
adjustments on transition to AASB 16 Leases and as a result, lease
income will continue to be accounted for on a straight-line basis over the
lease term in profit and loss for operating leases.
On transition to AASB 16 Leases, where the Group is a sub-lessor and
the sub-lease is for the duration of the head lease, the right-of-use
asset recognised from the head leases are derecognised and a lease
receivable equal to the present value of future lease payments receivable
is recognised.
Impact:
The Group has elected to apply the “Modified Retrospective Approach”
when transitioning to the new standard. Under this approach, the Group
will not be required to restate the comparative information. The right-of-
use asset will be brought onto the balance sheet at the same value as the
lease liability on transition date, adjusted for the lease receivable on sub-
lease arrangements and any prepaid or accrued lease payments.
The Group estimates adoption will have the following impact on the
consolidated balance sheet:
Impact on Balance Sheet line items
ASSETS
Current assets
Other assets
Non-current assets
Property, plant and equipment
Other assets
LIABILITIES
Current liabilities
Provisions
Other liabilities
Non-current liabilities
Provisions
Other liabilities
Net assets
EQUITY
Retained earnings
AASB 16
$m
5.0
51.2
41.5
0.1
(9.2)
2.1
(89.2)
1.5
(1.5)
The adoption of AASB 16 Leases will result in the reclassification of
existing balance sheet items as well as the recognition of new asset and
liability balances to reflect the change in accounting policy for the Group
from 1 July 2019. These include:
› An increase in total assets of $97.7 million, including the recognition
of a right-of-use asset in property, plant and equipment and lease
receivables;
› An increase in total liabilities of $96.2 million, including the recognition
of lease liabilities; and
› An increase in equity of $1.5 million, representing the impact on
retained earnings on adoption of applying the modified retrospective
transition approach.
The Group estimates adoption of AASB 16 Leases will result in an
increase to operating profit (EBIT) of $0.5 million and a decrease in profit
before tax of $2.8 million in the year ending 30 June 2020.
There are no other standards that are not yet effective and that would be
expected to have a material impact on the entity in the current or future
reporting years and on foreseeable future transactions.
(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.
94
Notes to the consolidated financial statements30 June 2019 (continued)AURIZON ANNUAL REPORT 2018–19
Notes to the consolidated financial statements
30 June 2019 (continued)
31 Summary of other significant
accounting policies (continued)
(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.
(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 Financial Instruments, 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.
FINANCIAL REPORT
95
Notes to the consolidated financial statements
30 June 2019 (continued)
31 Summary of other significant
accounting policies (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.
32 Changes in accounting policies
(a) AASB 15 Revenue from Contracts with Customers –
Impact of adoption
The Group has adopted AASB 15 Revenue from Contracts with
Customers on 1 July 2018 which has not resulted in any adjustments
to amounts previously recognised in the financial statements. Refer to
note 2 and note 13 for current period accounting policies and disclosures.
In accordance with the transition provisions in AASB 15 Revenue from
Contracts with Customers, the Group has adopted the new rules
retrospectively with the cumulative effect recognised on the date
of initial application.
9696
AURIZON ANNUAL REPORT 2017–18AURIZON ANNUAL REPORT 2018–19 Unrecognised items and
events after reporting date
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. This section also includes events ocurring after
the reporting date.
33 Contingencies
34 Commitments
35 Events occurring after the reporting period
Page 98
Page 98
Page 98
FINANCIAL REPORT
97
Notes to the consolidated financial statements30 June 2019 (continued) Notes to the consolidated financial statements
30 June 2019 (continued)
33 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).
Wiggins Island Rail Project (WIRP)
During the period, legal proceedings continued in relation to the
notices received by Aurizon Network Pty Ltd from the WIRP customers
purporting to exercise a right under their WIRP Deeds to reduce their
financial exposure in respect of payment of the WIRP fee, which is non-
regulated. The Supreme Court of Queensland ruled in the Group’s favour
on 27 June 2019, however customers lodged an appeal challenging the
decision of the Supreme Court on 25 July 2019.
The customers also initiated other disputes under their respective WIRP
Deeds which were the subject of an expert determination in February
2019. Those disputes relate to various matters relating to the completion
of the WIRP construction works. The Expert’s Determination was issued
on 4 June 2019 and found that the WIRP fee should be reduced.
These disputes relate to the same component of WIRP revenue as
the Supreme Court proceedings and will not impact recovery of the
regulated access charge component of WIRP capital expenditure.
The Group is determining options for appeal of this outcome.
Due to the ongoing dispute, no revenue or trade receivables in respect
of the WIRP fee have been recognised in the period. Refer to key events
and transactions for the reporting period for further information.
34 Commitments
(a) Capital commitments
Property, plant and equipment
Within one year
(b) Lease commitments
2019
$m
2018
$m
81.1
91.4
2019
$m
2018
$m
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
19.4
75.3
79.9
174.6
25.4
101.3
142.0
268.7
The above commitments flow primarily from operating leases of property
and machinery. These leases, with terms mostly ranging from one to 10
years, generally provide the Group with a right of renewal at which times
the lease terms are renegotiated. The lease payments comprise a base
amount, while the property leases also contain a contingent rental, which
is based on either the movements in the Consumer Price Index or another
fixed percentage as agreed between the parties.
35 Events occurring after the
reporting period
On 31 July 2019, the Group agreed to a settlement with a customer for
outstanding rail haulage fees that were subject to liquidation proceedings
before the Supreme Court of Queensland. The settlement agreed
represents an adjusting event occurring after the reporting period.
As a result, a provision for impairment of receivable of $20.3 million
recognised by the Group in FY16 has been released.
98
AURIZON ANNUAL REPORT 2018–19 Directors’ Declaration
30 June 2019
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 98 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 2019 and of its performance for the
financial 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 2019
99
FINANCIAL REPORT
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 2019 and of its
financial performance for the year then ended
(b)
complying with Australian Accounting Standards and the Corporations Regulations 2001.
What we have audited
The Group financial report comprises:
the consolidated balance sheet as at 30 June 2019
the consolidated income statement for the year then ended
the consolidated statement of comprehensive income for the year then ended
the consolidated statement of changes in equity for the year then ended
the consolidated statement of cash flows for the year then ended
the notes to the consolidated financial statements, which include a summary of significant
accounting policies
the directors’ declaration.
Basis for opinion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for the audit of the financial
report section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the auditor independence requirements of the
Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical
Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant
to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities
in accordance with the Code.
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
100
AURIZON ANNUAL REPORT 2018–19 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
(AGRMC):
Recognition of Access
Revenue
Implementation of a new
revenue accounting policy
due to the adoption of AASB
15
Recoverability of assets
(including Bulk East and
Western Australia (WA) Cash
Generating Units (CGUs) and
Rollingstock)
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 $34 million,
which represents
approximately 5% of the
Group’s profit before tax.
We applied this threshold,
together with qualitative
considerations, to determine
the scope of our audit and the
nature, timing and extent of
our audit procedures and to
evaluate the effect of
misstatements on the financial
report as a whole.
We chose Group profit before
tax because, in our view, it is
the benchmark against which
the performance of the Group
is most commonly measured.
We utilised a 5% threshold
based on our professional
judgement, noting it is within
the range of commonly
acceptable thresholds.
Our audit focused on where
the Group made subjective
judgements; for example,
significant accounting
estimates involving
assumptions and inherently
uncertain future events.
The Group is a large rail-based
freight operator and transports
coal, iron ore and other bulk
commodities across Australia.
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 Hexham,
Callemondah, Emerald,
Merinda and Yeerongpilly
depots to perform audit
procedures on inventory.
101
FINANCIAL REPORT 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
The following procedures amongst others were
performed in relation to access revenue recognition:
Agreed on a sample basis that revenue had been
recognised based on billings made to customers on
actual volumes hauled and approved reference
tariffs applicable during the current financial year.
Agreed the amended reference tariff applicable for
FY2019 which includes the impact of over
collection in FY2018 to the QCA approved
Reference Tariff Variation DAAU.
Obtained computation of the adjustment charge
payable to customers (as a result of over collection
in FY2018 and FY2019 i.e. the difference between
FY2019 actual billings and the FY2019 DAAU
Reference Tariffs applied to actual volumes) and
tested the mathematical accuracy.
Agreed that the adjustment charge payable had
been adjusted as a reduction in billed revenue and
recorded as other payables as at 30 June 2019.
Recognition of Access Revenue
During the year ended 30 June 2019 (FY2019), the
Group recorded track access revenue of $1,077.7m.
Track access revenue generated from the CQCN track
systems is recognised as haulage services are provided
to customers and is based on a number of operating
parameters, including the volume hauled and regulator
(Queensland Competition Authority (QCA)) approved
pricing tariffs.
The tariffs are determined by the total allowable
revenue, applied to the regulatory approved annual
volume forecast for each system.
In May 2019, the Group submitted a Reference Tariff
Variation Draft Amending Access Undertaking
(DAAU). The DAAU included revised tariffs for FY2019
incorporating a volume reset of the system forecast and
true-up of the FY2018 over collection (net of FY16/17
flood review events) relative to the revised tariffs which
was to be paid to customers based on FY2019 volumes
railed.
On 24 June 2019, the QCA approved the DAAU and to
repay the over collection of previous revenue
recognised under approved tariffs for FY2018 and
FY2019.
The Group has disclosed that revenue for FY2019 has
been recognised based on actual volumes railed in
FY2019 and the 2017 Access Undertaking amended for
the Reference Tariff Variation DAAU.
We consider revenue recognition in relation to UT5 to
be a key audit matter given it was a significant event in
the financial year and had a significant impact on net
profit for FY2019.
Refer to Key events and transactions for the reporting
period and Note 2 Revenue and other income included
in the Consolidated Annual Financial Report for
further details.
102
AURIZON ANNUAL REPORT 2018–19 Key audit matter
How our audit addressed the key audit matter
Implementation of a new revenue accounting
policy due to the adoption of AASB 15
The Group adopted a new revenue accounting policy
during the year due to the mandatory introduction of
AASB 15 Revenue for Contracts with Customers.
The new policy for the recognition and measurement of
revenue from contracts with customers is disclosed
within Note 2(c) and addresses revenue from track
access, freight transport and the capitalisation of
customer contract costs.
The adoption of the new revenue accounting policy was
a key audit matter due to the:
significance of revenue to understanding the
financial results for users of the financial report;
complexity involved in applying the new AASB 15
requirements given the regulated environment
impacting track access revenue and the complexity
of the terms and conditions in freight transport
contracts with customers
significant judgements required by the Group in
applying the new AASB 15 requirements, such as
determining if a modification to an existing
agreement should be treated as a combined or
separate contract.
Refer to Note 2 Revenue and other income included in
the Consolidated Annual Financial Report for further
details.
The following procedures amongst others were
performed in relation to the implementation of the new
revenue accounting policy:
Developed an understanding of relevant key
revenue internal controls (including both new and
updated controls).
Assessed the adequacy of the methodology and
monetary threshold used by the Group for
determining the extent of contract reviews
required to identify AASB 15 impacts.
Assisted by PwC financial reporting specialists
assessed whether the Group’s new accounting
policies were in accordance with the requirements
of AASB 15 through consideration of accounting
papers on key areas of judgement prepared by the
Group as well as written advice sought from the
Group's experts.
For a sample of customer contracts:
developed an understanding of the key terms
of the arrangement including parties, contract
duration, background of agreement,
performance obligations and payments to be
made;
assessed the Group’s determination of
performance obligations with respect to the
contractual terms and commercial substance
of the arrangement;
assessed the allocation of stand-alone selling
prices to the performance obligations
identified;
considered whether the transaction price was
properly allocated based on the stand-alone
selling price by assessing the fixed and
variable elements included in the contracts as
well as assessing whether or not a significant
financing component existed.
For a sample of contract modifications and
extensions, assessed based on the contractual
terms and standalone selling prices whether the
contracts should be combined and accounted for as
a single contract or accounted for as separate
contracts in accordance with the Group’s
accounting policy.
Assessed the competency, independence and scope
of experts used by the Group to implement the new
accounting policy.
Evaluated the adequacy of the disclosures made in
note 2 in light of the requirements of Australian
Accounting Standards.
103
FINANCIAL REPORT Key audit matter
How our audit addressed the key audit matter
Recoverability of assets (including Bulk East
and Western Australia (WA) Cash Generating
Units (CGUs) and Rollingstock)
To evaluate the Group’s assessment of the recoverable
amount of the Bulk East & WA CGUs, we performed a
number of procedures including the following:
Bulk East and WA CGUs
The Bulk East and WA CGUs have been impaired in
prior years due to the loss of key customers,
challenging and competitive Bulk markets and
operational performance issues.
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.
Evaluated if VIU or FVLCD was the highest basis
upon which to determine the recoverable amount
of the CGU in accordance with the Australian
Accounting Standards.
Bulk East CGU
The Bulk East CGU recoverable amount continues to be
determined based on a Fair Value less Cost of Disposal
(FVLCD) methodology. In FY19, an impairment
expense of $11.4m reflecting sustaining capital
expenditure has been recognised.
Bulk East CGU
Evaluated the FVLCD of the Bulk East CGU, by
assessing the key assumptions used in the
valuations in determining the FVLCD assigned to
the individual property and rollingstock assets.
WA CGU
The recoverable amount of the WA CGU continues to
be determined using the Value in Use (VIU)
methodology utilising a discounted cash flow model
(the model).
WA CGU
Assessed whether the carrying value of the CGU
included all assets, liabilities and cashflows
directly attributable to the CGU and a reasonable
allocation of corporate overheads.
No impairment or impairment reversal has been
identified by the Group at 30 June 2019.
In determining the recoverable amount the Group has
made the following key judgements:
Key customers operate to the end of expected mine
lives and current contractual arrangements are
complied with;
Current contractual arrangements with key
customers are renewed; and
A terminal value growth rate of 2.0% and the pre-
tax discount rate in the range of 8.4% to 10.9% is
appropriate.
Evaluated the Group’s historical ability to forecast
future cashflows by comparing budgets with
reported prior years 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 appropriateness of the key
judgement made by the Group in relation to key
customers’ current contractual arrangements.
Assessed, with assistance from PwC valuation
experts:
the forecast long term growth rate of 2.0% by
comparing it to economic forecasts;
that the pre-tax nominal discount rate applied
in the model appropriately reflects the risks of
the CGU; and
the mathematical accuracy of the model.
Evaluated the Group’s sensitivity analysis to assess
when further impairment would occur and
whether this was reasonably possible.
104 AURIZON ANNUAL REPORT 2018–19
Key audit matter
How our audit addressed the key audit matter
Recoverability of assets (including Bulk East
and Western Australia (WA) Cash Generating
Units (CGUs) and Rollingstock) - Continued
Rollingstock
The Group continually reviews its Enterprise Fleet Plan
(EFP) which compares the rollingstock assets
(consisting of locomotives and wagons) and their
haulage capacity against forecast volume demand over
a 10-year period.
Developing the EFP and assessing the recoverability of
rollingstock involves significant judgement by the
Group in:
Estimating future haulage demand for the next 10
years while incorporating the impact of any new
contracts and the cessation of any existing
contracts;
Determining on-going productivity and the
resulting impact on the rollingstock fleet
requirements; and
Considering the required level of contingent fleet
to maintain operational performance.
Given the judgements incorporated by the Group, the
assessments of the recoverability of the Bulk East & WA
CGUs and rollingstock are considered to be a key audit
matter.
Refer to note 4 Impairment of non-financial assets in
the Consolidated Annual Financial Report for further
details.
Rollingstock
To evaluate the Group’s assessment of the recoverable
amount of rollingstock, we performed a number of
procedures including the following:
Evaluated the key assumptions included in the
Group’s EFP.
Compared the forecast volume growth used in the
EFP to external industry reports.
Compared the forecast haulage demand and
rollingstock requirements included in the EFP to
the Board-approved corporate plan.
Evaluated the level of contingent fleet and
previously impaired rollingstock retained in
service included in the EFP.
105
FINANCIAL REPORT 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 2019, 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
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 on the other information that we obtained prior to the date of
this auditor’s report, 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
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.
106
AURIZON ANNUAL REPORT 2018–19
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 2019.
In our opinion, the remuneration report of Aurizon Holdings Limited for the year ended 30 June 2019
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 2019
Tim Allman
Partner
FINANCIAL REPORT 107
Non-IFRS Financial Information
in 2018-19 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.
108 AURIZON ANNUAL REPORT 2018–19
Non-IFRS Financial Information
in 2018-19 Annual Report (continued)
Profit/(loss) before income tax
Finance costs (net)
EBIT – Statutory
Add back significant adjustments:
– Bulk contract exit asset impairment
– Bulk contract exit termination payment received
– Bulk contract exit costs – redundancy and closure costs
– Bulk impairment – Western Australia
– Transformation – redundancy benefit
– Intermodal closure (benefit)/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
2019
2018
Continuing
operations
$m
Discontinued
operation
$m
Continuing
operations
$m
Discontinued
operation
$m
(4.6)
(0.1)
(4.7)
–
–
–
–
–
(13.7)
25.1
6.7
0.2
6.9
681.9
147.1
829.0
–
–
–
–
–
–
–
829.0
542.6
1,371.6
71.5%
8,561
9.7%
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%
2019
$m
3,369.8
(25.2)
3,344.6
4,677.4
8,022.0
41.7%
(98.7)
-
(98.7)
-
-
–
-
-
70.1
4.6
(24.0)
2.3
(21.7)
2018
$m
3,501.9
(34.8)
3,467.1
4,730.1
8,197.2
42.3%
109
FINANCIAL REPORT Shareholder Information
RANGE OF FULLY PAID ORDINARY SHARES AS AT 5 AUGUST 2019
RANGE
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Total
17,753
21,222
2,381
1,638
85
43,079
11,283,446
45,736,511
17,306,104
32,471,402
1,883,330,869
1,990,128,332
TOTAL HOLDERS
UNITS % OF ISSUED CAPITAL
UNMARKETABLE PARCELS AS AT 5 AUGUST 2019
Minimum $500.00 parcel at $5.76 per unit
MINIMUM PARCEL SIZE
87
HOLDERS
606
The number of shareholders holding less than the marketable parcel of shares is 606 (shares: 16,126).
0.57
2.30
0.87
1.63
94.63
100
UNITS
16,126
SUBSTANTIAL HOLDERS OF 5% OR MORE OF FULLY PAID ORDINARY SHARES AS AT 5 AUGUST 2019*
NAME
The Vanguard Group Inc
BlackRock Group
* As disclosed in substantial shareholder notices received by the Company.
NOTICE DATE
20/12/2017
28/01/2019
SHARES
108,337,155
122,907,978
INVESTOR CALENDAR
2020 DATES
10 February 2020
23 March 2020
10 August 2020
21 September 2020
14 October 2020
DETAILS
Half Year results and interim dividend announcement
Interim dividend payment date
Full Year results and final dividend announcement
Final dividend payment date
Annual General Meeting
The payment of a dividend is subject to the Corporations Act and Board discretion.
The timing of any event listed above may change. Please refer to the Company website,
aurizon.com.au, for an up-to-date list of upcoming events.
ASX code: AZJ
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.
110
AURIZON ANNUAL REPORT 2018–19
TOP 20 HOLDERS OF FULLY PAID ORDINARY SHARES AS AT 5 AUGUST 2019
NAME
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
CITICORP NOMINEES PTY LIMITED
BNP PARIBAS NOMINEES PTY LTD
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