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ANNUAL REPORT
Contents
FY2020 in Review .................................................. 1
Chairman’s Report ................................................ 2
Managing Director & CEO’s Report .............. 3
Directors’ Report ...................................................4
– Operating and Financial Review .................11
– 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.
FY2020 in Review
Result Highlights (Underlying and statutory continuing operations)
($M)
Total revenue
EBITDA
EBIT
EBIT Statutory
NPAT
NPAT Statutory
Free cash flow (FCF)
Final dividend (cps)
Total dividend (cps)
Earnings per share (cps)
Return on invested capital (ROIC)
EBITDA margin (%)
Operating ratio (OR) (%)
Above Rail Tonnes (m)
Above Rail opex/NTK (excluding access) ($/’000 NTK)
Gearing (net debt/net debt + equity) (%)
FY2020
3,064.6
1,467.6
909.0
1,014.4
531.4
605.1
714.7
13.7
27.4
27.2
10.9%
47.9%
70.3%
262.0
20.9
45.1%
FY2019
2,907.6
1,371.6
829.0
829.0
473.3
473.3
734.4
12.4
23.8
23.8
9.7%
47.2%
71.5%
258.9
20.3
41.7%
VARIANCE
5%
7%
10%
22%
12%
28%
(3%)
10%
15%
14%
1.2ppt
0.7ppt
1.2ppt
1%
(3%)
(3.4ppt)
Performance Overview
› EBIT up 10% to $909.0m with:
Major items
› Bulk – strong financial performance delivered
Outlook
› Underlying EBIT guidance for FY2021 for
through new contracts and ongoing
operational efficiency improvements.
Acquisition of Townsville Bulk Storage and
Handling (renamed Aurizon Port Services)
in March 2020 expands capability and
offering to customers
› Network – UT5 Undertaking approved during
the year providing greater certainty and
improved returns
› Coal – secured contract extensions with major
customers during the year and now operates
in all coal systems across the east coast
of Australia
› Completed the refinancing of Network’s
bank debt facilities in June 2020, increasing
capacity to $1.3bn with maturities from June
2023 – June 2025, of which $525.0m is to
cover the upcoming bond maturity
Group $830m to $880m. Key assumptions:
• Coal – flat volumes 210-220mt based
on current view of COVID-19 impact
on coal
• Network –
– Tariffs based on QCA approved
volume forecast of 239mt – 5% higher
than FY2020 actual volumes
– CQCN volumes expected to be lower
than 239mt due to COVID-19's impact
on coal demand, resulting in a revenue
under-recovery
– Flat volumes implies a revenue under-
recovery of approximately $50m1
– any shortfall will form part of the
revenue cap in FY2023 partly offset
by other adjustments including WACC
• Operational efficiency improvements
remain a key driver in the business
• Redundancy costs included in guidance
(reported in 'Other' segment)
• No material disruptions to commodity
supply chains (such as adverse weather
and/or COVID-19)
• Bulk up $52.6m (141%) with higher
revenue through new contracts and
benefits from ongoing efficiency
improvements
• Network up $68.5m (17%) with higher
revenue from the implemented
UT5 Undertaking and non-recurrence of
the FY2018 true-up that impacted FY2019
• Coal down $4.5m (1%) with higher
depreciation and operating costs
associated with installing additional
capacity to deliver contracted
volume growth
• Other down $36.6m impacted by the sale
of the Rail Grinding business in October
2019 and the recovery of a $20.3m
doubtful debt in FY2019
› FCF declined 3% to $714.7m due to the
impact of the Cliffs termination payment
in FY2019 and FY2018 true-up adjustment
paid in FY2020 more than offsetting an
improvement in cash flows from investing
activities (sale of Rail Grinding business)
and higher Group earnings
› Final dividend 13.7cps, 70% franked,
representing a payout ratio of 100%
of underlying NPAT for the continuing
operations, an increase of 10%
› Commitment to returning surplus funds to
shareholders with completion of $400.0m
on market buy-back and further $300.0m
targeted for FY2021
1 Based on 227mt applied to $941 MAR (excluding GAPE).
FY2020 IN REVIEW
1
Chairman’s Report
A message from the Chairman
Dear fellow shareholders
I am pleased to report that Aurizon has
performed well during a challenging year
to 30 June 2020. It was a year of two very
different operating periods for your Company,
with the coronavirus pandemic (COVID-19)
dominating the second half of FY2020. As an
essential service provider to the Australian
economy, Aurizon has continued to operate
throughout COVID-19, delivering safely and
reliably for our customers. The health and
well-being of our employees has remained our
highest priority. A range of proactive measures,
aligned with expert health and government
advice, has been maintained in Aurizon
workplaces. Further detail on these measures
is provided in Andrew Harding’s MD & CEO
report on the following page. Andrew chairs
the COVID-19 Crisis Management Team for the
Company, with the support of our leadership
team and Chief Medical Officer.
Aurizon is strongly committed to safety –
for our employees, the customers we serve
and the communities in which we operate.
We were saddened by the death in December
2019 of one of our employees, Hans Ah Chee,
in a work motor vehicle accident. Hans was
a highly respected train driver working in our
Coal business in Central Queensland and is
missed by his colleagues. Andrew addresses
in his report the broader program of safety
work underway in Aurizon.
In terms of earnings, Aurizon delivered
Earnings Before Interest and Tax (EBIT) in
FY2020 of $909 million. This was a solid result
given the uncertain business environment that
unfolded during the second half of FY2020.
While there were no significant impacts to
demand during this period, changes were
required in how we delivered rail haulage
and infrastructure services for customers.
Additional health and hygiene protocols were
also implemented to protect our employees.
Collectively, these added complexity and cost
to our business. It is a mark of the resilience of
our Company and the efforts of our employees
that Aurizon was able to deliver on EBIT
guidance in FY2020.
Aurizon has decided to pay out 100% of
Underlying Net Profit After Tax as dividends,
consistent with our practice for the past five
years. The Board has declared a final dividend
of 13.7 cents per share, 70% franked. This will
take total dividends in respect of FY2020
to 27.4 cents per share, 70% franked. During
the year, we also completed a $400 million
on-market share buy-back which is value-
accretive for shareholders.
Strong progress was made on several key
priorities during FY2020:
› Approval from the Queensland Competition
Authority for the 10-year Access Undertaking
(UT5) for the Central Queensland Coal
Network. This agreement is a major
achievement for Aurizon and the coal
industry, providing long-term investment
certainty for one of Australia’s most
important export infrastructure assets
and a platform for continued performance
improvement across the supply chain
› Implementation of a new legal and capital
structure for the Aurizon Group which
has organised the above and below-rail
businesses under the holding company.
We established independent gearing
levels for each business, consistent with
their different risk profiles, which has
made available additional funding capacity
of approximately $1.2 billion. By progressively
adding debt over time, we can optimise the
balance sheet and unlock additional value
for shareholders
› Successful completion of the refinancing
of Aurizon Network’s bank facilities,
extending the maturity to 2023-2025 and
increasing the facility size to $1.3 billion,
an increase of $420 million. With the
completion of this refinancing, the Aurizon
Group now has more than $1.1 billion of
available liquidity (30 June 2020). After the
October 2020 maturity of the $525 million
Medium Term Note (which will be repaid
from the proceeds of this refinancing), the
Aurizon Group has no further refinancing
requirements until 2023
› The turnaround of the operational
and financial performance of the Bulk
business has continued strongly, with
new customer contracts and ongoing
efficiency improvements. The Company
initiated a turnaround plan in 2017 following
a strategic review of the loss-making
freight business. In the space of three years,
Bulk has improved its EBIT by more than
$100 million, from negative $14 million
in FY2017 to $90 million in FY2020.
2
In February, we acknowledged the sad passing
of our highly-respected former colleague,
John Cooper. John served on Aurizon’s Board
from April 2012 until May 2019 when he retired
due to health reasons. John was a force for
positive change during his time as a Director
and played a key role in the Board’s focus on
safety, people and culture as part of broader
transformation efforts.
In December 2019, Dr Sarah Ryan and
Mr Lyell Strambi joined the Aurizon Board
as Non-Executive Directors. Sarah and Lyell
have brought further operational, major project,
technology and transport skills and experience
to your Board. Sarah has approximately
30 years of international experience in the
oil and gas industry. Lyell is the Chief Executive
Officer of Melbourne Airport and has extensive
experience over more than 40 years in the
aviation and transport infrastructure sectors,
both in Australia and overseas. We are delighted
that Sarah and Lyell have joined our Board.
As we enter FY2021, we are cognisant of the
continuing economic uncertainty in the markets
we serve and the inevitable headwinds that will
flow through to our business. We have built
strong foundations for the Company in recent
years by simplifying the business model and
focussing on core services for our customers.
Aurizon is well-positioned from a funding
perspective, with a strong balance sheet.
On behalf of the Board, I thank all employees
across the business for their outstanding
contribution to our results this year and
particularly for their efforts in the challenging
environment of COVID-19. I also acknowledge
the continued support of you, our shareholders.
Tim Poole
Chairman
10 August 2020
AURIZON ANNUAL REPORT 2019–20
Managing Director & CEO’s Report
A message from the
Managing Director & CEO
Dear fellow shareholders
I begin my report to you on our business results
in FY2020 by addressing safety performance in
the Company.
Sadly, as the Chairman has also noted in
his report, one of our employees was killed
in a road accident in December 2019. Hans
Ah Chee was a highly respected train driver
working in our Coal business and based at
Sarina in Central Queensland. Workplace
Health & Safety Queensland has advised
it has considered all issues relating to the
accident and is not investigating the matter
any further. Our thoughts remain with Han’s
family, friends and colleagues.
Notwithstanding this tragic fatality, our total
recordable injury frequency rate improved by
10% during FY2020. The other metric we use to
measure safety performance is Rail Process
Safety (RPS) which measures significant
operational safety incidents including
derailments, signals passed at danger and
collisions. In FY2020, there was a deterioration
in RPS by 8%. While it is important to note
that over the past decade there has been
long-term improvement in Aurizon’s safety
performance, we remain absolutely focused
on driving further significant improvements.
Safety remains Aurizon’s highest priority and
we are determined to focus our resources
and investment on ‘managing what matters’
and, in particular, identifying and learning
from events that have the potential for
serious injury and fatality.
Last year I reported on the extensive work we
have commenced to enhance safety including
systems, leadership and culture. In FY2021,
we are moving to the next phase of this work,
updating our strategy and building on the
improvements and successful initiatives that have
been delivered over the past year.
I also want to build on the Chairman’s
comments regarding Aurizon’s response to
the coronavirus pandemic (COVID-19). Aurizon
continues to monitor developments relating to
COVID-19, with our workplace responses and
decision-making guided by advice from the
Australian Government’s Department of Health
and respective State Governments.
Our first priority remains the health and
well-being of our employees. Protocols are
in place across workplaces to provide a safe
work environment while providing business
continuity to our customers:
› protocols and practices for all operational
and office environments, including hygiene
stations, workplace separation and social
distancing. Ongoing work from home
arrangements have been facilitated for
employees not in operational roles
› increased staff awareness and education
on personal hygiene and cleaning regimes
for depots, offices, locomotives and vehicles
› ceasing all non-essential travel and
training courses
› a special COVID-19 leave entitlement of
10 days’ paid leave to support employees
who may be impacted
› extending a range of resources to support
the physical and mental well-being of
our employees.
I am immensely proud of our employees’
dedication and discipline throughout COVID-19
in looking after the health and wellbeing
of themselves and their colleagues, while
delivering safely and reliably for our customers.
Now turning to the operational performance
of the Company and the business by
business breakdown.
The Bulk business has delivered a strong
result in FY2020, winning a number of new
haulage contracts and delivering ongoing
transformation benefits. It achieved EBIT
of $90 million, a major turnaround from
the loss-making position it was in three
years ago. Contract wins include South32
Cannington (11-year extension to 2032
on the Mt Isa corridor), Incitec Pivot (new
contract commencing January 2020 on
the Mt Isa corridor), and BGC (new contract
commencing June 2020 on the Kalgoorlie
Freighter). During the year, Aurizon Bulk
completed the acquisition of Townsville Bulk
Storage and Handling which operates bulk
transport, handling and stevedoring services
in North Queensland. The acquisition – now
known as Aurizon Port Services – allows us
to extend supply chain services beyond our
core rail capability on the Mt Isa line corridor,
connecting the Port of Townsville to the
commodity-rich North West Minerals province.
In FY2020, the COVID-19 pandemic had some
impact on coal demand in Asia and on the
Indian sub-continent which has contributed
to volumes slightly lower than anticipated
in our Coal and Network businesses.
The Coal business delivered 214 million tonnes
(mt) of coal for customers during FY2020,
which is broadly in line with FY2019. It achieved
EBIT of $410.6 million in FY2020, a decrease
of 1% against FY2019. Contract wins during
FY2020 include: Peabody (extension of all
existing volumes and new business on the
Central Queensland Coal Network (CQCN)
and NSW); Coronado (contract variation with
additional volumes and term extension for
Curragh mine, CQCN), Bluescope (commenced
railings in April 2020 installing Aurizon into
the Illawarra region. NSW). With the Bluescope
contract, Aurizon Coal now operates in all coal
systems across Australia.
The Network business achieved EBIT of $469
million in FY2020, an increase of 17% compared
to FY2019. This reflects the new rates of return
contained in the UT5 Access Undertaking for
the Central Queensland Coal Network (CQCN).
Tonnages carried across the CQCN in FY2020
were 229 mt, compared to 234 mt in FY2019,
a decrease of 2%.
During FY2020, we had some changes
to our senior leadership team. I would like
to acknowledge the contribution of former
Group Executive Network, Michael Riches,
who left Aurizon in December 2019. Michael
was instrumental in reaching agreement with
coal customers on the UT5 Access Agreement.
Recognising the strong capability of the
leadership team, we appointed the Chief
Financial Officer and Group Executive
Strategy, Pam Bains to the Network role.
George Lippiatt, the former Head of
Strategy and Corporate Development for
the Company, was subsequently appointed
to the role of Chief Financial Officer and
Group Executive Strategy.
I extend special thanks to our employees
across the Company for their efforts in a
very challenging year. Our people are central
to Aurizon’s success and the connection
we have with the communities in which
we operate. While COVID-19 has tested
our operational capabilities, we have found
new and more flexible ways of working.
We have also benefitted from having a
decentralised workforce with more than
80% of employees working and living
in regional areas of Australia.
Andrew Harding
Managing Director & CEO
10 August 2020
MANAGING DIRECTOR & CEO’S REPORT
3
Directors’ Report
Aurizon Holdings Limited
For the year ended 30 June 2020
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 2020 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 to
14 August 2019) 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)
M Fraser
(Appointed 15 February 2016)
(Independent Non-Executive Director)
S Lewis
(Appointed 17 February 2015)
(Independent Non-Executive Director)
S Ryan
(Appointed 1 December 2019)
(Independent Non-Executive Director)
L Strambi
(Appointed 1 December 2019)
(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 2019–20 A Harding
Experience: Mr Harding has extensive
operational experience in the resources 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 to April 2019).
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: Member 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.
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 & 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 and 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: Chair 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).
S Ryan
Experience: Dr Sarah Ryan has approximately
30 years of international experience in the oil
and gas industry. Initially Sarah spent 20 years
in various technical, operational and senior
management positions, including 15 years with
Schlumberger Limited both in Australia and
overseas. Dr Ryan then spent 10 years as an
equity analyst covering natural resources with
institutional investment firm Earnest Partners,
based in the US. Dr Ryan is currently a Non-
Executive Director of ASX listed Woodside
Petroleum Limited and Viva Energy Group
Limited and a Non-Executive Director of
Future Battery Industry Cooperative Research
Centre. Dr Ryan is also a Non-Executive
Director of Norwegian listed Akastor ASA.
Dr Ryan is a Fellow of the Australian Academy
of Technology and Engineering.
Qualifications: PhD (Petroleum and
Geophysics), BSc (Geophysics) (Hons 1),
BSc (Geology), FTSE.
Special Responsibilities: Member of
Audit, Governance & Risk Management
Committee. Member of Safety, Health
& Environment Committee.
Australian Listed Company Directorships
held in the past three years: Woodside
Petroleum Limited – Non-Executive Director
(24 October 2012 – current), Viva Energy
Group – Non-Executive Director (18 June 2018
– current) and Central Petroleum Limited –
Non-Executive Director (23 October 2017 to
13 November 2018).
6
AURIZON ANNUAL REPORT 2019–20 L Strambi
Experience: Mr Strambi was appointed CEO
and Managing Director of Australia Pacific
Airports Corporation (APAC) in September
2015. He is responsible for the operation
and development of both the Melbourne
and Launceston airports.
Mr Strambi has a wealth of experience in
the aviation sector both in Australia and
abroad, spanning 40 years. As APAC’s leader,
Mr Strambi is responsible for overseeing
a direct workforce of 300 staff and assets
valued in excess of $10 billion.
Prior to commencing at APAC, Mr Strambi
was the Chief Executive Officer of Qantas
Airways Domestic, a role he held for three
years following four years as the airline’s
Group Executive Operations. Between 2001
and 2008 Mr Strambi was based in London,
working in senior roles at Virgin Atlantic
that included Executive Director – Airline
Services and followed by six years as Chief
Operating Officer.
Mr Strambi is a Graduate and Fellow of the
Australian Institute of Company Directors
and a Member of the Australian Institute of
Management. He holds a Bachelor of Business
in Accounting and Finance.
As a Director, Mr Strambi has held positions
with Star Track Express, Traveland and
Southern Cross Distribution Systems and
was President of the Royal Flying Doctors
SE. Currently Mr Strambi is an APAC
Board Member.
Qualifications: BBus (Accy), FAICD.
Special Responsibilities: Non-Executive
Director of Aurizon Network Pty Ltd. Member
of Safety, Health & Environment Committee.
Australian Listed Company Directorships
held in the past three years: None other
than Aurizon Holdings Limited.
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: Chair of
Remuneration & Human Resources Committee.
Member of Nomination & Succession
Committee. Non-Executive Director of
Aurizon Network Pty Ltd.
Australian Listed Company Directorships
held in the past three years: None other
than Aurizon Holdings Limited.
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 11
to 24 of this report.
DIRECTORS’ REPORT
7
Directors’ Report (continued)
In September 2019, the Federal Department
of Environment and Energy advised off-road
diesel transport, including rail freight, was
exempt from the introduction of national
standards for the regulation of off-road
engines. This decision gave due recognition
to actions the rail freight industry, led by
Aurizon, has taken to manage emissions by
introducing the CoP.
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 third Emissions Reduction
Fund Safeguard Mechanism (Safeguard)
compliance period (ended on 30 June 2019),
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. Following amendments
to the Safeguard Rule in 2019, Aurizon is
well positioned for a timely transition of its
reported and calculated baselines over the
coming reporting periods.
Further details of the Company’s climate and
environmental performance will be published
in Aurizon’s forthcoming Sustainability Report
which will be published in October 2020.
Environmental prosecutions
There have been no environmental
prosecutions during this financial year.
Dividends
A final dividend of 12.4 cents per fully paid
ordinary share (70% franked) was paid on
23 September 2019 and an interim dividend
of 13.7 cents per fully paid ordinary share
(70% franked) was paid on 23 March 2020.
Further details of dividends provided for, or
paid, are set out in note 16 to the consolidated
financial statements.
Since the end of the financial year, the
Directors have declared to pay a final dividend
of 13.7 cents per fully paid ordinary share.
The dividend will be 70% franked and is
payable on 21 September 2020.
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 37 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 and the Managing Director &
CEO’s Report set out on page 3 of this report.
In the opinion of the Directors, disclosure
of any further information would be likely to
result in unreasonable prejudice to the Group.
Environmental regulation
and performance
Aurizon is committed to managing its
operational activities and services in an
environmentally responsible manner to meet
legal, social and moral obligations. In order
to deliver on this commitment, Aurizon seeks
to comply with all applicable environmental
laws and regulations.
Aurizon acknowledges the strong scientific
consensus of climate change and supports
the objectives of the Paris Agreement, to
find a pathway to limiting global warming
to below 2°C. Aurizon also acknowledges the
objectives of the Paris Agreement to pursue
efforts to limit the temperature increase even
further to 1.5°C. To this end, Aurizon continues
to incorporate the recommendations of the
Financial Stability Board’s (FSB) Final Report:
Recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD),
when considering climate-related risks. While
Aurizon’s annual Sustainability Report will
remain the primary channel for engaging on
all ESG matters, in FY2021 Aurizon will publish
its inaugural Climate Strategy and Action Plan
which will consolidate the Company’s position
on climate change and set-out Aurizon’s
long-term climate strategy, actions and targets.
For more information, see our Sustainability
Report, available on our website, aurizon.com.au.
In 2016, Aurizon established a greenhouse gas
(GHG) emissions intensity target which expires
in 2020. Over the past year, Aurizon continued
to monitor its progress towards its target and
despite significant reductions made to date,
Aurizon’s emissions intensity was higher than
initial target forecasts due to operational
and service mix changes in previous years,
and Aurizon will not achieve its target of
15% emissions intensity reduction on 2015
levels in 2020. Aurizon remains committed
to further reducing the greenhouse gas
emissions intensity of its operations through
targeted initiatives and programs and will be
announcing revised short term and long-term
operational decarbonisation targets in FY2021.
In July 2019, the NSW government introduced
legislation requiring Rolling Stock Operators
(RSOs) to apply for a mandatory Environment
Protection Licence (EPL) by January 2020.
The EPLs, set to be finalised in August 2020,
are significant in that they establish acceptable
thresholds for locomotive diesel emissions
and rail noise. Aurizon was first aware of the
potential for this requirement in 2014 and,
since this time, has led extensive consultation
with the NSW Environment Protection
Authority (EPA). The EPA recognised past
efforts of RSOs, led by Aurizon, in developing
the 2018 Rail Industry and Standards Board
(RISSB) Code of Practice (CoP) on the
Management of Locomotive Diesel Emissions
and ultimately adopted the requirements set
out in the CoP. Aurizon’s reputation enabled
effective input to the EPA’s approach to
EPL implementation.
8
AURIZON ANNUAL REPORT 2019–20 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 and
supporting Risk Assessment Procedure are aligned to the international standard for risk management (AS/NZS ISO 31000:2018) 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 2020
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
M Fraser
S Lewis
S Ryan
L Strambi
K Vidgen
A
13
13
13
13
13
13
8
8
13
B
13
13
13
13
13
13
8
8
13
A
8
–
–
8
–
8
4
–
–
B
8
–
–
8
–
8
4
–
–
A
–
–
–
5
5
5
–
–
5
B
–
–
–
5
5
5
–
–
5
A
5
5
5
–
–
–
3
3
–
B
5
5
5
–
–
–
3
3
–
A
1
–
–
–
–
1
–
–
1
B
1
–
–
–
–
1
–
–
1
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.
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 six occasions.
Directors’ interests
Directors’ interests are as at 30 June 2020.
TABLE 2 – DIRECTORS’ INTERESTS AS AT 30 JUNE 2019
DIRECTOR
T Poole
A Harding
M Bastos
R Caplan
M Fraser
S Lewis
S Ryan
L Strambi
K Vidgen
NUMBER OF ORDINARY
SHARES
110,500
316,997
25,947
82,132
70,000
43,025
13,000
5,355
40,000
Only Mr Harding, Managing Director & CEO receives performance rights, details of which are set out in the
Remuneration Report.
DIRECTORS’ REPORT
9
Directors’ Report (continued)
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 2020.
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 2001, 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
10 August 2020
Non‑audit services
During the year, the Company’s auditor
PricewaterhouseCoopers (PwC), performed
other services in addition to its audit
responsibilities.
The Directors are satisfied that the provision
of non-audit services by PwC during the
reporting period did not compromise the
auditor independence requirements set
out in the Corporations Act 2001.
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
2020
$’000
34
70
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 2001.
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 while 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 33 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.
10
AURIZON ANNUAL REPORT 2019–20
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 measures.
The non-IFRS financial information contained within this Directors’ Report and Notes to the Consolidated 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, Return on Invested Capital (ROIC), Net debt and
Net gearing ratios. Each of these measures are 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
Statutory EBITDA
Depreciation and amortisation
EBIT
Statutory EBIT
Net finance costs
Income tax expense
Statutory Income tax expense
NPAT
Statutory NPAT
Profit after tax from discontinued operations Statutory
NPAT (group) Statutory
Earnings per share1
Statutory
Earnings per share1 (continuing and discontinued operations)
Statutory
Return on invested capital (ROIC)2
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)
Labour costs3/Revenue
Above Rail Tonnes (m)4
EBIT BY SEGMENT
Coal
Bulk
Network
Other
Group (Continuing operations)
FY2020
3,064.6
(791.6)
(231.3)
(107.2)
(440.7)
(26.2)
1,467.6
1,573.0
(558.6)
909.0
1,014.4
(148.5)
(229.1)
(260.8)
531.4
605.1
10.8
615.9
27.2
31.0
27.7
31.5
10.9%
70.3%
1,237.5
13.7
45.1%
2.2
4,883
26.4%
262.0
FY2020
410.6
89.9
468.8
(60.3)
909.0
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%
71.5%
1,316.1
12.4
41.7%
2.3
4,728
26.0%
258.9
FY2019
415.1
37.3
400.3
(23.7)
829.0
VARIANCE
5%
(2%)
1%
(6%)
(11%)
(6%)
7%
15%
(3%)
10%
22%
(1%)
(10%)
(25%)
12%
28%
238%
29%
14%
30%
15%
32%
1.2ppt
1.2ppt
(6%)
10%
(3.4ppt)
(4%)
(3%)
(0.4ppt)
1%
VARIANCE
(1%)
141%
17%
(154%)
10%
1 Calculated on weighted average number of shares on issue – 1,953m FY2020 and 1,990m FY2019
2 ROIC is defined as underlying rolling twelve-month EBIT divided by the average invested capital. The average invested capital is calculated as the rolling twelve-month
average of net assets (excluding cash, borrowings, tax, derivative financial assets and liabilities)
3 FY2020 excludes $16.0m redundancy costs (FY2019 excludes $21.4m redundancy costs)
4 Includes both Coal and Bulk
OPERATING AND FINANCIAL REVIEW
11
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Group Performance Overview
EBIT improved $80.0m or 10% due to higher earnings in Network from the UT5 Undertaking and volume growth (principally new contracts) in Bulk.
Earnings in Coal were marginally lower with higher costs incurred to support an increase in contracted volumes. The decline in Other EBIT is principally
due to the completion of the sale of the Rail Grinding business in October 2019 and a $20.3m doubtful debt recovery in FY2019.
Group revenue improved $157.0m or 5% with higher revenue in all business units with new contract growth for Bulk, greater revenue yield in Coal and
higher revenue from the UT5 Undertaking in Network, partly offset by the impact from the sale of the Rail Grinding business.
Operating costs increased $61.0m or 4% principally due to additional costs in the Bulk business associated with the increased volumes and revenues.
The net impact on EBIT of adopting AASB 16 Leases was $1.4m.
ROIC has improved 1.2ppts to 10.9% reflecting the increased EBIT during FY2020.
Reconciliation to Statutory Earnings
Underlying earnings is a non-statutory measure and is the primary reporting measure used by management and the Group’s chief operating decision
making bodies for managing and assessing the financial performance of the business. Underlying earnings is derived by adjusting statutory earnings
for significant items as noted in the following table:
($M)
Underlying EBIT (Continuing operations)
Significant items (Continuing operations)
Sale of Rail Grinding
Statutory EBIT (Continuing operations)
Net finance costs
Statutory PBT (Continuing operations)
Income tax expense
Statutory NPAT (Continuing operations)
EBIT (Discontinued operations)
Significant items (Discontinuing operations)
Asset impairments
Intermodal closure benefit
Redundancy benefit
Net finance benefit (Discontinued operations)
Income tax (expense)/benefit (Discontinued operations)
Statutory NPAT
FY2020
909.0
105.4
105.4
1,014.4
(148.5)
865.9
(260.8)
605.1
12.7
2.5
–
2.5
–
–
(4.4)
615.9
FY2019
829.0
–
–
829.0
(147.1)
681.9
(208.6)
473.3
6.7
(11.4)
(25.1)
13.2
0.5
0.1
7.8
476.5
Significant items in the continuing operations during FY2020 were $105.4m and relate to the net gain on sale of the Rail Grinding business.
Significant items for the discontinued operations totalled $2.5m, including gain on the sale of surplus assets.
12
AURIZON ANNUAL REPORT 2019–20
2. Other financial information
BALANCE SHEET SUMMARY
($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 2020
30 JUNE 2019
65.1
650.2
715.3
8,537.1
519.6
9,056.7
9,772.0
(0.7)
(814.1)
(3,607.2)
(992.3)
5,414.3
4,357.7
45.1%
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%
Balance Sheet Movements
Total current assets decreased by $24.3m largely due to:
› Net reduction of $43.3m in assets classified as held for sale predominately due to the completion of the Rail Grinding business sale
› Reduction in trade and other receivables of $21.7m due to the timing of receipt of customer receipts and lower Take-or-Pay accrual
These reductions in current assets were partly offset by:
› Increase in current inventory of $28.6m to support overhaul and maintenance programs and additional requirements due to COVID-19
› Increase in other assets of $8.6m predominately due to the adoption of AASB 16
› Increase in cash and cash equivalents of $4.1m
Total non-current assets increased by $95.2m largely due to a $24.1m favourable valuation of derivative financial instruments, an increase in other
assets of $61.9m as a result of the adoption of AASB 16 and an increase in contract asset balances.
Total current liabilities, excluding borrowings increased by $18.4m largely due to:
› Increase in current tax liabilities of $42.5m
› Unfavourable valuation of derivative financial instruments (and a portion reclassified from non-current) of $35.1m due to the reduction in
interest rates
› Increase in other liabilities of $26.2m due to an increase in contract liability balances and adoption of AASB 16
These increases in current liabilities were partly offset by a reduction of $83.6m in trade and other payables mainly due to the settlement of an $81.3m
over-collection of access revenue in FY2019.
Total borrowings increased by $237.4m, including $82.0m proceeds from issuance of an Australian Dollar Medium Term Note, net proceeds from bank
debt facilities of $134.0m and $18.7m unfavourable revaluation of Euro Medium Term Notes. The first Australian Dollar Medium Term Note matures in
October 2020 and as a result has been reclassified to current borrowings.
Other non-current liabilities increased by $137.9m largely due to a $71.0m increase in net deferred tax liabilities and $67.9m increase in other liabilities
predominately due to the adoption of AASB 16.
Gearing (net debt/debt plus equity) was 45.1% as at 30 June 2020.
OPERATING AND FINANCIAL REVIEW
13
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
CASH FLOW SUMMARY
($M)
Statutory EBITDA (Continuing operations)
Working capital and other movements
Non-cash adjustments – asset impairments
Cash inflows from Continuing operations
Interest received
Income taxes paid
Principal elements of lease receipts
Net cash inflow from operating activities from Continuing operations
Net operating cashflows from Discontinued operations
Net operating cash flows
Cash flows from investing activities
Proceeds from sale of business
Payments for acquisitions of subsidiary, net of cash acquired
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 cash flows
Net cash flow from financing activities
Net proceeds/(repayments) from borrowings
Payment for share buy-back and share based payments
Interest paid
Proceeds from settlement of derivatives
Dividends paid to Company shareholders
Finance lease payments
Net cash (outflow) from financing activities from Continuing operations
Net financing cashflows from Discontinued operations
Net financing cash flows
Net (decrease)/increase in cash from Continuing operations
Net increase/(decrease) in cash from Discontinued operations
Free Cash Flow (FCF)5 from Continuing operations
Free Cash Flow (FCF)5 from Discontinued operations
FY2020
1,573.0
(203.2)
5.7
1,375.5
2.8
(146.5)
5.7
1,237.5
9.9
1,247.4
165.3
(24.5)
15.8
(528.3)
(371.7)
0.4
(371.3)
211.2
(403.6)
(151.1)
–
(513.8)
(14.6)
(871.9)
–
(871.9)
(6.1)
10.3
714.7
10.3
FY2019
1,371.6
61.6
24.9
1,458.1
2.9
(145.3)
–
1,315.7
(25.4)
1,290.3
–
–
13.7
(444.5)
(430.8)
11.1
(419.7)
(253.4)
(0.6)
(150.5)
11.5
(487.6)
–
(880.6)
–
(880.6)
4.3
(14.3)
734.4
(14.3)
5 FCF – Defined as net cash flow from operating activities less net cash outflow from investing activities less interest paid
Cash flow movements
Net cash inflow from operating activities from continuing operations decreased by $78.2m (6%) to $1,237.5m. This was largely due to the receipt of
the Cliffs termination payment in FY2019 and the FY2018 UT5 true-up adjustment that was paid to customers in FY2020. These working capital items
offset the improved earnings of the Group.
Net cash outflow from investing activities from continuing operations decreased by $59.1m (14%) to $371.7m, largely due to $164.5m proceeds from the
sale of the Rail Grinding business which completed on 31 October 2019. This was partly offset by a $24.5m payment for the acquisition of Townsville
Bulk Storage and Handling (renamed Aurizon Port Services) in March 2020 and a $83.8m increase in payments for capital expenditure.
Net cash outflow from financing activities from continuing operations reduced by $8.7m (1%) to $871.9m with the higher dividend payments and the
on-market share buy-back largely offset by an increase of net proceeds from borrowing of $464.6m.
14
AURIZON ANNUAL REPORT 2019–20
Discontinued Operations
On 14 August 2017 Aurizon announced
the intention to exit the Intermodal business
through a combination of closure and sale.
Aurizon signed a binding agreement with
Pacific National on 29 July 2017 to sell its
Acacia Ridge Intermodal Terminal for $205.0m,
of which a $35.0m non-refundable amount
was received in advance. This transaction is
subject to approval by the ACCC and Foreign
Investment Review Board.
On 6 May 2020, the Full Federal Court
unanimously dismissed an appeal by the ACCC
that the sale of the Acacia Ridge Intermodal
Terminal to Pacific National contravened section
50 of the Commonwealth's Competition and
Consumer Act (2010). On 26 June 2020, the
ACCC sought special leave to the High Court
to appeal the decision of the Full Federal Court.
It is anticipated that the special leave
application decision will be received before
the end of calendar year 2020. 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 2020.
The Queensland Intermodal business was sold
to Linfox on 31 January 2019.
Funding
The Group's improved legal and capital
structure was implemented in FY2020 which
results in a more efficient balance sheet and
funding structure. Aurizon Operations’ and
Aurizon Network’s credit ratings have each
been maintained at BBB+/Baa1. The Aurizon
Holdings’ credit rating was withdrawn during
the period.
The Group continues to be committed
to diversifying its debt investor base
and increasing average debt tenor.
During FY2020 Aurizon Network:
› Issued a 10.5 year, $82.0m A$ Private
Placement
› Cancelled existing Network bank debt
syndicated facilities maturing in July 2021
and October 2022 and replaced them with
bilateral bank debt facilities totalling $1.3bn
with maturity extended to June 2023, 2024
and 2025
In respect of FY2020:
› Weighted average debt maturity tenor
was 3.8 years. This was lower than FY2019
(4.3 years) due to the debt portfolio’s
duration reducing by 12 months, partly offset
by the extinguishment and replacement of
Network bank debt facilities noted above.
› Group interest cost on drawn debt was 4.5%
(FY2019 4.5%)
› Available liquidity (undrawn facilities plus
cash) as at 30 June 2020 was $1,165m, with
$525m to be used for the upcoming bond
maturing
› Group gearing (net debt/(net debt + equity))
as at 30 June 2020 was 45.1% (FY2019 41.7%)
› Network gearing (net debt/Regulated
Asset Base (excluding Access Facilitation
Deeds)) as at 30 June 2020 was 56.0%
(FY2019 58.7%)
› Operations gearing (net debt/(net debt
+ equity)) as at 30 June 2020 was 10.2%
(FY2019 0.7%)
Dividend
The Board has declared a final dividend for
FY2020 of 13.7cps (70% franked) based on a
payout ratio of 100% in respect of underlying
NPAT for continuing operations.
The relevant final dividend dates are:
› 24 August 2020 – ex-dividend date
› 25 August 2020 – record date
› 21 September 2020 – payment date
Share buy-back
On 12 August 2019, Aurizon announced
its intention to undertake an on-market
share buy-back of up to $300.0m during
FY2020. This was subsequently increased
on 10 February 2020 to $400.0m, confirming
Aurizon’s commitment to returning surplus
capital to shareholders.
During the year, 75,485,000 shares at a total
consideration of $400.0m were bought back
and subsequently cancelled.
Tax
For FY2020 continuing operations, the
underlying income tax expense was $229.1m
and the statutory income tax expense was
$260.8m. Statutory income tax expense for
the Group (both continuing and discontinued)
for FY2020 was $265.2m. The Group
underlying and statutory effective tax rate6 for
FY2020 was 30.1% which is greater than 30%
due to the derecognition of the deferred tax
asset in respect of net capital losses. The Group
underlying cash tax rate7 for FY2020 was
21.3%, which is less than 30% primarily due to
accelerated fixed asset related adjustments.
The underlying effective tax rate for FY2021
is expected to be in the range of 29-31% and
the underlying cash tax rate is expected to be
less than 25% for the short to medium term.
Aurizon publishes additional tax information
in accordance with the voluntary Tax
Transparency Code in its sustainability
report. Please refer to www.aurizon.com.
au/sustainability for a copy of Aurizon’s
sustainability report (including tax
transparency disclosures).
6 Underlying effective tax rate = income tax expense excluding the impact of significant items/underlying consolidated profit before tax
7 Underlying cash tax rate = cash tax payable excluding the impact of significant items/underlying consolidated profit before tax
OPERATING AND FINANCIAL REVIEW
15
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
BUSINESS UNIT REVIEW
COAL
Aurizon’s Coal business provides a critical supply chain link for the majority of Australia’s coal producers. The coal transport operation connects mines
in the Newlands, Goonyella, Blackwater, Moura and West Moreton systems in Queensland and the Hunter Valley and Illawarra coal systems, in New
South Wales with domestic customers and coal export terminals.
FINANCIAL SUMMARY
($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)8
Active locomotives (as at 30 June)8
Wagon productivity (‘000 NTK/Active wagon day)8
Active wagons (as at 30 June)8
Payload (tonnes)8
Velocity (km/hr)8
Fuel Consumption (l/d GTK)8
FY2020
FY2019
VARIANCE
1,260.3
512.8
2.2
1,775.3
(1,158.9)
616.4
(205.8)
410.6
1,236.2
487.7
0.9
1,724.8
(1,115.0)
609.8
(194.7)
415.1
2%
5%
144%
3%
(4%)
1%
(6%)
(1%)
FY2020
FY2019
VARIANCE
213.9
150.1
63.8
86%
50.0
37.8
12.2
234
35.5
25.2
76.9%
27.3
17.1
405.5
332
15.7
8,721
7,676
23.5
2.86
214.3
152.3
62.0
90%
50.5
38.3
12.2
236
34.2
24.5
75.9%
25.9
16.6
416.0
337
16.0
8,732
7,501
22.9
2.82
(0%)
(1%)
3%
(4.0ppt)
(1%)
(1%)
–
(1%)
4%
3%
(1.0ppt)
(5%)
(3%)
(3%)
(1%)
(2%)
(0%)
2%
3%
(1%)
8 Operational metrics have been restated in prior periods to reflect new reporting which utilises updated data sources
Coal Performance Overview
Coal EBIT decreased $4.5m (1%) to $410.6m with higher depreciation and operating costs associated with installing additional capacity, technology
improvements and CPI impacts, partly offset by revenue quality improvements.
Volumes were 213.9mt (-0.4mt; 0%) which was broadly in line with the prior year.
› Across the CQCN, volumes decreased by 2.2mt (1%) to 150.1mt largely due to customer specific maintenance and production issues which more than
offset recovery from the one-off supply chain impacts experienced in FY2019
› In NSW and South-East Queensland (SEQ), volumes increased by 1.8mt (3%) to 63.8mt with higher volumes from MACH Energy partly offset by
production issues experienced by other key customers
16
AURIZON ANNUAL REPORT 2019–20 Coal revenue increased by $50.5m (3%)
to $1,775.3m, with higher above rail revenue
yield (including CPI impacts) and track access
revenue following an increase in CQCN access
tariffs from the finalisation of UT5, partly offset
by prior year Take-or-Pay recovery.
Total operating costs (including depreciation)
increased $55.0m (4%) to $1,364.7m with
higher track access costs and an increase
in other operating costs and depreciation.
The major drivers of these movements are
noted below:
› Track access costs increased by $35.0m
(7%) due to the increase in the CQCN
access tariffs
› Other operating costs increased $8.9m due
to increased traincrew and maintenance
costs to meet expected volume growth and
wages and consumables escalation, including
the commencement of new Enterprise
Agreements. These costs were partly
offset by lower fuel expenses and ongoing
efficiency benefits
› Depreciation increased $11.1m relating to
the additional installed fleet, overhauls
of existing rollingstock and technology
modernisation investments
BULK
Operationally, key productivity metrics
showed some deterioration given lower
than expected NTKs. However, average
payloads and velocity have increased as
a result of successful efficiency initiatives,
including increasing consist lengths in the
Hunter Valley and SEQ and implementing
improved driver methodologies.
Market update
Australia exported 176mt of metallurgical coal
in FY2020, down 4% against the prior year.
China was Australia's largest metallurgical coal
export market with export volume of 50mt
(28% share), followed by India at 40mt (22%
share) and Japan at 32mt (18% share). Although
not impacting crude steel production in China,
increasing by 2% in the six months to June, steel
capacity in both India and Japan was curtailed
as a result of COVID-19 with production reducing
by -24% and -17% respectively over the same
period. The average hard coking coal price in
FY2020 fell by 30% (compared to the prior
year) to US$145/t. In the 12 months to June,
metallurgical coal exports from the United States
(the second largest metallurgical coal export
nation behind Australia) decreased by 20%.
Australia exported a record 213mt of thermal
coal in FY2020, up 1% against the prior year.
Japan remained Australia’s largest thermal coal
export market with export volume of 74mt
(35% share), followed by China at 52mt
(24% share) and South Korea at 32mt
(15% share). This was a record result for China
and also Vietnam, with the export volume for the
latter at 13mt (+78%). The average Newcastle
benchmark thermal coal price in FY2020 fell by
35% (compared to the prior year) to US$65/t.
In the 12 months to May, total coal exports
(almost entirely thermal coal) from Indonesia
(the largest thermal coal export nation)
decreased by 2% against the same period
of the prior year.
Contract update
› Bluescope – commenced railings in
April 2020 installing Aurizon into the
Illawarra region
› Peabody – commenced railings in July across
CQCN and NSW under new contracts
Aurizon’s Bulk business supports a range of customers nationally for bulk materials and commodities, agricultural products and mining and
industrial inputs.
FINANCIAL SUMMARY
($M)
Revenue
Freight Transport
Other
Total revenue
Operating costs
EBITDA
Depreciation and amortisation
EBIT
Total tonnes hauled (m)
Operating Ratio (%)
FY2020
FY2019
VARIANCE
583.4
25.4
608.8
(498.7)
110.1
(20.2)
89.9
48.1
85.2%
474.6
27.1
501.7
(447.2)
54.5
(17.2)
37.3
44.6
92.6%
23%
(6%)
21%
(12%)
102%
(17%)
141%
8%
7.4ppt
OPERATING AND FINANCIAL REVIEW
17
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Contract update
› South32 Cannington – executed an 11 year
contract extension out to 2032 for services
on the Mt Isa corridor
› Aurizon Port Services – acquired Townsville
Bulk Storage and Handling to extend
supply chain services for Bulk customers in
North Queensland
› Incitec Pivot Ltd – new contract commenced
in January 2020 for the haulage of acid and
fertiliser on the Mt Isa corridor
› BGC – new contract commenced in June
2020 hauling cement products on the
Kalgoorlie Freighter
Bulk Performance Overview
EBIT increased $52.6m (141%) to $89.9m due
to new volume growth, increased revenue
quality and ongoing operational efficiencies.
The result demonstrates the strong progress
made on the Bulk turnaround program. All
divisions within the Bulk business are now
profitable. The result was also supported by
the decision to not expense sustaining capital
spend in Bulk East from July 2019 based on
a more sustainable earnings outlook.
Revenue increased $107.1m (21%) to $608.8m
due to:
› The full year impact of the Linfox agreement
(no volumes are recorded against this
contract as it is a hook and pull agreement
and invoiced on a per service basis)
› The full year impact of the Glencore
Freighter service on the Mt Isa corridor
in October 2018 along with increased
concentrate volumes
› The commencement of the Rio Tinto
contract for the operation and maintenance
of Rio’s ballast cleaning machine on its
Western Australian (WA) Pilbara network
in February 2020
› The commencement of the Mineral Resource
contract for the lease of rollingstock,
provision of mainline crew and Esperance
yard operations during 2H FY2020
› The acquisition of Townsville Bulk Storage
and Handling (renamed Aurizon Port
Services) from Flinders Ports in March 2020
› Higher revenue yield through some minor
contract variations, CPI mechanisms and the
expiry of a short-term rate relief arrangement
for an Iron Ore customer in late FY2019
In Bulk East, volumes increased by 0.9mt with
the commencement of the Glencore Freighter
service in October 2018 and the significant
flooding event in 2H FY2019 in North
Queensland. Overall train services increased
42% driven by the Linfox contract which
commenced in February 2019.
In WA, iron ore volumes were up 2.0mt driven
by the commencement of Mineral Resources
volumes into Esperance in 2H FY2020.
Bulk West volumes increased by 0.5mt
largely due to higher volumes for the South
West customers.
Total costs (including depreciation) increased
$54.5m (12%) largely due to operating costs
associated with the new volumes, Aurizon Port
Services and the full year run rate for the Linfox
contract. This was partly offset by ongoing cost
benefits from the Bulk turnaround program,
lower average fuel prices compared to the prior
year and not expensing Bulk East sustaining
capital spend from July 2019.
Market update
Aurizon’s Bulk business includes haulage
of a range of bulk commodities such as iron
ore, bauxite, alumina, base metals, grain
and livestock across WA and Queensland.
In addition to commodities required to build
infrastructure, 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,
cobalt, copper and lithium. This is supported by
increased exploration expenditure in Australia
– for the nine months ended 31 March 2020,
copper exploration expenditure increased
by 54% (compared to the same period of
the prior year) and nickel (including cobalt)
exploration expenditure rose by 11%, across
the same period.
18
AURIZON ANNUAL REPORT 2019–20 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 (the Goonyella
to Abbot Point Expansion (GAPE)).
FY2020
FY2019
VARIANCE
1,131.7
56.8
1,188.5
(390.4)
798.1
(329.3)
468.8
FY2020
226.9
56.2
60.6%
2.3
12.8
23.3
83.3%
248
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%
249
6%
20%
6%
2%
11%
(3%)
17%
VARIANCE
(2%)
(3%)
3.6ppt
–
(3%)
1%
(0.5ppt)
(0%)
This was partially offset by:
› A volume related under-recovery of allowable
revenue in FY2020 of $22.6m compared to
an over-recovery of $11.8m in FY2019;
› Unfavourable Revenue Cap movements
of $57.5m, being a repayment in FY2020
of both $0.8m in relation to FY2018 and
$12.2m in relation to FY2019 compared
to a recovery of $44.5m in FY2019; and
› GAPE revenue was $2.7m lower.
Access Revenue included the recognition of
$25.6m Take-or-Pay in relation to the Goonyella
and Moura systems.
Services and other revenue increased $9.4m
(20%) mainly due to additional external
construction works revenue ($9.1m) partially
offset in expenses.
Operating costs decreased by $6.1m (2%)
from a reduction in consumables due to lower
professional services spend (primarily relating
to UT5 and the WIRP dispute), overhead
savings and lower employee costs from cost
saving initiatives which more than offset
CPI impacts.
Depreciation increased $8.4m (3%) due
to increased levels of asset renewals and
ballast undercutting.
Network’s 2018-2019 Regulated Asset
Base roll-forward is estimated to be $5.5bn
(including all deferred capital but excluding
Access Facilitation Deeds of $0.4bn).
Although the volume related under-recovery
was $22.6m for the year, the revenue cap
adjustment is expected to be minmal given
offsets from lower maintenance costs and
adjustments for rebates and WACC.
FINANCIAL SUMMARY
($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 improved $68.5m (17%) to $468.8m in
FY2020, with increased revenue of $70.8m
(6%) and reduced operating costs of $6.1m
(2%) partially offset by higher depreciation
of $8.4m (3%).
Regulatory access revenue has been accounted
for based on actual railed tonnes using tariffs
approved by the QCA on 21 February 2020.
Actual net tonnes were 226.9mt compared
to the regulatory system forecast of 240.0mt.
Total Access Revenue increased $61.4m (6%),
benefitting from:
› Increased regulatory allowable revenue
of $76.6m including the impact of the
UT5 Undertaking;
› The non-recurrence of the FY2018 true-up
that impacted FY2019 revenue, totalling
$60.1m; and
› Lower customer funded infrastructure
rebates, which were $17.8m favourable
compared to FY2019 due to a combination
of lower volumes and a true-up adjustment
following the finalisation of the UT5
Undertaking as rebates had previously
been paid on a transitional tariff basis.
OPERATING AND FINANCIAL REVIEW
19
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
› Network obtained Rail Industry Group
(RIG) approval of both the FY2021
Maintenance Strategy and Budget
and the FY2021 Renewals Strategy
and Budget on 14 February 2020
› On 21 February 2020, the QCA approved
the consolidated Draft Amending Access
Undertaking (DAAU) which brought together
the outcomes from the customer-supported
UT5 and the Volume Reset DAAU into one
operational Access Undertaking. Key points
from this approval included:
• Reset FY2020 forecast volumes for the
CQCN from 248.2 to 240.0mt
• Reduce the FY2020 variable maintenance
allowance to reflect the lower volumes
• Reduce the forecast electrical
infrastructure charges (AT5) to reflect
lower charges from Transmission
Network Service Providers
• Bring-forward the FY2019 Revenue
cap adjustment from FY2021 to a
payment in FY2020
› The QCA approved Network's FY2021
reference tariff submission on 28 May 2020
and brought together the following elements,
which are ultimately reflected in the Access
tariffs effective from 1 July 2020:
• Revised FY2021 coal volume forecasts for
the CQCN from 249.2 to 239.2mt
• Updated maintenance indicator for each
coal system to reflect the RIG-approved
Maintenance Strategy and Budget
• Updated capital indicator for each coal
system to reflect the RIG-approved
Renewals Strategy and Budget
• A true-up of the revenues associated with
the approved FY2018 capital expenditure
against the Capital Indicator
Regulation Update
› On 19 December 2019, the Queensland
Competition Authority (QCA) approved
the 2017 Access Undertaking (UT5) with
support from customers representing more
than 90% of railed tonnes in the CQCN
› Aurizon continues to progress the
implementation of UT5. The status of key
aspects of UT5 is as follows:
• The term of UT5 is extended to 10 years
(1 July 2017 to 30 June 2027)
• The appointment of an Independent
Expert (IE) to complete initial and
ongoing capacity assessments and
to undertake reporting requirements
– The IE was incorporated on
20 April 2020, as the Coal Network
Capacity Co Pty Ltd
– The IE is in the process of setting up
for operation with the Chair and the
Chief Executive Officer appointed
– Network and its customers
are continuing to progress the
development of the Initial Capacity
Assessment Report while the
IE is being established with the
assistance of external consultants
• Network's weighted average cost
of capital (WACC) increased from
5.7% to 5.9% on 3 May 2019, with
a further increase to 6.3% upon the
completion of specific milestones by
both the IE and Network (Report Date).
QCA approved reference tariffs assume
the commencement of the WACC uplift
to 6.3% from 1 March 2020. Future tariffs
may be adjusted to reflect the actual
Report Date
• The Performance Rebate mechanism is
not applicable for FY2020. The rebate
will come into effect once Network
provides its response to the Initial
Capacity Assessment Report. Transitional
arrangements may be in effect depending
on the outcomes of the Initial Capacity
Assessment Report and any resulting
remedial requirements
Operational Update
Network maintained strong operational
performance during FY2020 despite
challenges presented by bushfires, wet
weather and the COVID-19 pandemic.
› The supply chain delivered the third
highest volumes on record in the CQCN of
226.9mt with new monthly CQCN records
achieved in July and December. Volumes
during FY2020 were impacted by isolated
customer demand and production issues
along with additional reactive maintenance
requirements particularly during the second
half of FY2020
› Total System Availability declined marginally
from 83.8% to 83.3%
› Cancellations due to the Network rail
infrastructure increased from 1.8% to
2.5% partly reflecting additional reactive
maintenance requirements, primarily in
Blackwater and Goonyella
› Cycle velocity improved from 23.1km/h
to 23.3km/h
The RM902, Network’s new ballast cleaning
machine remains in the commissioning phase
following the identification of some design
modification requirements. It is now expected
that the machine will be fully operational in
the second half of FY2021.
Wiggins Island Rail Project (WIRP)
› During FY2020 legal proceedings
continued in relation to the notices received
by Network in September 2015 from WIRP
customers purporting to exercise a right
under their WIRP Deeds to reduce their
financial exposure in respect of payment
of the non-regulated WIRP fee. On 27 June
2019, the Supreme Court of Queensland
ruled in Network’s favour. Customers
appealed that decision and that appeal
was heard in the Queensland Court of Appeal
between 10-12 March 2020. A decision of the
Queensland Court of Appeal is expected to
be delivered during 1HFY2021
› The WIRP customers also initiated other
disputes under their respective WIRP
Deeds, which were the subject of an expert
determination in February 2019. 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.
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
in FY2020
20
AURIZON ANNUAL REPORT 2019–20 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
FY2020
FY2019
VARIANCE
40.7
(97.7)
(57.0)
(3.3)
82.2
(96.1)
(13.9)
(9.8)
(50%)
(2%)
(310%)
66%
(60.3)
(23.7)
(154%)
Other Performance Overview
EBIT decreased by $36.6m (154%) mainly due to reduced earnings from
the sale of the Rail Grinding business which completed in October 2019
and the recovery of a $20.3m doubtful debt in FY2019.
INTERMODAL – DISCONTINUED OPERATION
($M)
Total revenue
Operating costs
EBITDA – Underlying
Depreciation and
amortisation
EBIT – Underlying
Significant Items
Net finance benefit
Income tax (expense)/
benefit
NPAT (Discontinued
operations) – Statutory
FY2020
FY2019
VARIANCE
25.0
(12.1)
12.9
(0.2)
12.7
2.5
–
(4.4)
10.8
111.0
(104.1)
6.9
(0.2)
6.7
(11.4)
0.1
7.8
3.2
(77%)
88%
87%
–
90%
122%
(100%)
(156%)
238%
Intermodal Performance Overview
The EBIT position for Intermodal improved $6.0m to $12.7m with the sale
of Queensland Intermodal in the prior period.
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
Precision Scheduled Railroading (Precision) ultimately delivers better
value for Aurizon’s customers and shareholders.
Partnerships across the supply chain are critical to facilitating a step-
change in system throughput using a disciplined and evidence-based
approach to scheduling, execution and continuous improvement.
The focus of Precision in FY2020 has been twofold:
› Improve system performance in Blackwater through the
implementation of the Schedule Adherence operating mode. Schedule
Adherence brings further discipline to train operations and creates a
stable baseline from which to drive operational improvements. By Q4
FY2020, the Schedule Adherence process had been implemented with
a high degree of consistency within the business and resulted in the
following improvements compared with the FY2019 baseline9:
• On-time arrival to mine improved from 47% to 86%
• On-time arrival to port improved from 16% to 60%
• A 20% reduction in service cancellations to Network and
Operator causes
› Establish the Precision master plan, comprised of five key workstreams
which are driving operational improvements:
• Fleet Performance
• Network Performance
• Day of Operations Optimisation
• Modern Planning & Scheduling
• Resource Performance
These workstreams have identified numerous process and operational
changes in both the Coal and Network business units. The primary
objective of these workstreams is to reduce train turnaround time which
in turn creates options for Aurizon to deliver additional throughput and/
or reduce the rollingstock capital requirements of Aurizon Operations.
The Precision project team is working closely with relevant stakeholders
to implement these changes throughout FY2021.
9 Baseline is the 12 week period (to 1 December 2018) immediately preceding Schedule Adherence
OPERATING AND FINANCIAL REVIEW
21
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
TrainGuard
TrainHealth
Optimise Strategic Lever
TrainGuard is a platform utilising ETCS
(European Train Control System) technology
to support driver decision making, particularly
in relation to speed control and signal
enforcement. TrainGuard will support safer and
more efficient train operations with reduced
rail process safety issues and improved train
handling. TrainGuard is also a pathway to
expanding our driver only operations in Central
Queensland. Operational demonstration of
TrainGuard was completed as planned in Q4
FY2020. Following this, the business decision
to proceed with deployment of TrainGuard
across Blackwater and Goonyella has been
communicated to stakeholders. TrainGuard’s
next phase is deployment on the Blackwater
mainline (Callemondah to Bluff) by the end
of calendar year 2021.
Asset Maintenance
A project plan and multi-year project has
been established and a dedicated project
team stood up to work in close collaboration
with the business stakeholders.
The program of work is broken down into five
distinct but complementary work streams:
› Governance and Management
› Maintenance Program
› Supply Chain and Vendor Management
› Planning Processes
› Shop floor and work procedures
All workstreams are being advanced in
parallel with initial work standardisation,
depot efficiency and supply chain processes
indicating positive early results to solidify
our maintenance capability. Preparation work
to transform the maintenance program and
move towards condition based and predictive
maintenance is underway with a rollout in our
key fleets during FY2021. The outcome of the
program will ensure the optimal amount of
the right maintenance, completed on time.
Benefits include: reduction in the maintenance
cost base, enhanced turnaround time in depots
and increased fleet reliability, availability and
optimising the investment in the rollingstock
assets. The program is complementary to
Project Precision and will leverage from other
technology investments to maximise benefits
and performance.
TrainHealth provides Aurizon with capability
to monitor performance of locomotives and
train handling/utilisation in real time. This
initiative enables access to real time asset
data that is being used to 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 is initially being installed
across the Siemens electric locomotive fleet
in the CQCN, with installation expected to be
completed by December 2020. Approximately
half of the Siemens fleet has been fitted
to date.
ADDITIONAL INFORMATION
Senior Management Changes
Pam Bains, CFO & Group Executive Strategy
was appointed to the role of Group Executive
Network in March 2020 following the
resignation of Michael Riches in December
2019. George Lippiatt, Head of Strategy
and Corporate Development was appointed
to the role of CFO & Group Executive
Strategy in June 2020.
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 2020, Aurizon
updated the Board approved Enterprise Risk
Management Framework and Appetite to
encompass culture and conduct-related risks,
among others. This latest update ensures that
Aurizon continues to consider and develop
strategies to manage the full scope of risks.
Enhancements have also been made to the
risk reporting provided both to our Board and
supporting Committees, to better facilitate the
early identification and proactive management
of emerging risks where the impacts and
opportunities are continually evolving.
Risks to the delivery of strategy have been
categorised into the three strategic levers
of Optimise, Excel and Extend.
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 of 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.
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 from external
penetration of Aurizon’s corporate and
operational systems
› Technology incidents – failure of technical
infrastructure impacting technology-
dependent systems and operations
› Adverse weather events could impact
Aurizon’s operations, assets or customers
22
AURIZON ANNUAL REPORT 2019–20 COVID-19
The global Coronavirus pandemic exposes
Aurizon to two primary risks:
› Reduced demand – due to export markets
requiring less of the commodities we haul,
Aurizon’s profitability would reduce.
› Service delivery – employee health issues
limiting our ability to provide services to
customers. This risk extends to other supply
chain participants such as mines and ports,
and their ability to provide continuity
of service.
Acacia Ridge Intermodal Terminal
sale transaction
There is a risk that the Acacia Ridge Intermodal
Terminal sale transaction as described on
page 15 of this report will be prevented from
completing and Aurizon incurs orders for costs.
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.
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. Implementation of these changes
may have a material adverse impact on project
investment, Aurizon’s profitability and business
in general, as well as Aurizon’s customers.
Implementation of the UT5 obligation to
publish an Initial Capacity Assessment Report
could be delayed, resulting in an adverse
financial outcome.
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.
Counterparty Risk
Aurizon’s earnings are concentrated in
commodity markets across a relatively small
number of customers and may be impacted
by deterioration in counterparty credit
quality, mine sale to a lower tier party, mine
profitability, contract renewals, supply chain
disruptions and/or macro-industry issues.
General Economic Conditions
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 are less certain. 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. Given our customers'
exposure (almost entirely) to export markets,
trade and geopolitical risk may impact demand
for Aurizon services.
Extend Strategic Lever
WIRP Non-Regulated Revenue Dispute
Given the decision of the Supreme Court
has been appealed by the customers,
there is potential the entire amount of the
WIRP non-regulated fee as described in the
Network Section of this report is determined
by the Court of Appeal to not be payable by
the WIRP customers.
Climate Change Risk
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.
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, 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, its
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
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. This year will be the fourth reporting
period in which Aurizon incorporates
recommendations from the Financial Stability
Board’s Final Report: Recommendation of
the Task Force on Climate-related Financial
Disclosures (TCFD). In addition, in 2020
Aurizon will publish a Climate Strategy and
Action Plan, outlining the Company’s position
on climate change, underpinned by long-term
strategies and associated actions to mitigate
climate risk and take advantage of climate-
related opportunities.
OPERATING AND FINANCIAL REVIEW
23
Directors’ Report (continued)
OPERATING AND FINANCIAL REVIEW
Sustainability
Aurizon keeps stakeholders informed of
its corporate governance and financial
performance via announcements to the
Australian Securities Exchange (ASX) and
the Company’s website. Investors can access
copies of announcements to the ASX, notices
of meetings, annual reports, policies, investor
presentations, webcasts, and transcripts of
those presentations on this site.
In addition to the above disclosures, Aurizon
takes a direct approach to reporting
Environmental, Social and Governance
(ESG) disclosures to stakeholders with the
publication of our annual Sustainability Report.
This Report is prepared with reference to the
Global Reporting Initiative’s (GRI) standards to
provide investors with comparable information
relating to ESG performance. Aurizon strives to
ensure that our Sustainability Report reflects
significant ESG priorities that may influence
strategic decision-making. As such, the
Company continuously assesses the material
issues that affect its business, stakeholders,
and operating environment.
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.
In addition to our annual Sustainability Report
(to be published in October), in 2020 we will
publish a Climate Strategy and Action Plan that
will communicate our plans to decarbonise
our operations and provide direction for the
Company’s long-term climate change strategy.
Safety
At Aurizon safety is a core value and we are
committed to protecting ourselves, each other
and our communities. Throughout FY2020,
we retained two primary safety metrics to
measure safety outcomes across the enterprise
being Total Recordable Injury Frequency Rate
(TRIFR) and Rail Process Safety (RPS).
Rail Process Safety, which measures
operational safety including derailments,
signals passed at danger and rollingstock
collisions deteriorated 8% against the prior
year to 4.74. Aurizon continues to progress
a number of initiatives, including Train Guard,
to strengthen Rail Process Safety.
FY2020 TRIFR was 9.92 injuries per million
hours worked, which was a 10% improvement
against the prior year.
We are determined to focus on managing what
matters, with a specific focus on identifying
and learning from events that have the
potential for Serious Injury and Fatality (SIF).
In September 2019, the Federal Department
of Environment and Energy advised off-road
diesel transport, including rail freight, was
exempt from the introduction of national
standards for the regulation of off-road
engines. This decision gave due recognition
to actions the rail freight industry, led by
Aurizon, has taken to manage emissions
by introducing CoP.
In FY2020, Aurizon had six notifiable
environmental incidents. Remediation
actions have been implemented as required
and no ongoing environmental impacts
are anticipated.
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 embed
a safe and high performing culture and
engage and enable employees
› Further improve our people, processes and
systems through cascading performance
succession systems through the organisation
and further embedding a quality
performance management cycle
› Continuing to promote diversity and
inclusion through actively reducing the
gender pay gap, meeting workforce
representation targets and implementing an
online Culture Awareness learning experience
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, rail noise and clean air.
In July 2019, the NSW government introduced
legislation requiring Rolling Stock Operators
(RSOs) to apply for mandatory Environment
Protection Licences (EPL) by January 2020.
The EPLs, set to be finalised in August 2020,
are significant as they establish acceptable
thresholds for locomotive diesel emissions
and rail noise. Aurizon was first aware of the
potential for this requirement in 2014 and,
since this time, has led extensive consultation
with the NSW Environment Protection
Authority (EPA). The EPA recognised
the past efforts of RSOs, led by Aurizon,
in developing the 2018 Rail Industry and
Standards Board (RISSB) Code of Practice
(CoP) on the Management of Locomotive
Diesel Emissions. This acknowledgement
ultimately led to the EPA setting the CoP
requirements as conditions of the EPLs.
Aurizon’s deep experience in rollingstock
engineering enabled effective input to the
EPA’s approach to EPL implementation.
24
AURIZON ANNUAL REPORT 2019–20 Directors’ Report (continued)
REMUNERATION REPORT
Dear fellow shareholders
On behalf of the Board, we are pleased to present Aurizon’s Financial Year (FY) 2020 Remuneration Report. The Board believes that the Company has
performed well during a challenging year and wishes to recognise the Leadership Team's performance in executing our business strategy, for improving
the core business of delivering bulk commodity transport solutions for our customers, and for achieving key milestones during the year.
Being an essential service provider to the Australian economy, Aurizon has continued to operate throughout the challenging COVID-19 pandemic, with the
health and wellbeing of our employees paramount. A range of proactive workplace protocols and measures, aligned with expert health and government
advice, has been maintained throughout our operations. The Board would like to thank all employees across the business for their ongoing dedication and
discipline throughout this challenging period.
We were saddened by the death in December 2019 of one of our employees, Hans Ah Chee, in a work motor vehicle accident. Hans was a highly
respected train driver working in our Coal business in Central Queensland. Workplace Health and Safety Queensland has advised it has considered all
issues relating to the accident and is not investigating the matter any further.
The Short Term Incentive (STI) Award for FY2020 continued to be based on annual performance measures of Underlying Earnings Before Interest and
Tax (EBIT), Safety and Individual Key Deliverables. Business Unit earnings measures were introduced for Bulk and Coal in FY2019 and Network in FY2020.
Target performance was achieved for Group Underlying EBIT of $909 million in FY2020. Outcomes varied across the Business Units, with Bulk achieving
Stretch performance, Network achieving an outcome between Threshold and Target, while Coal performance was below Threshold.
During the year there was a mixed result across the Safety measures with a 10% improvement in the Total Recordable Injury Frequency Rate (TRIFR)
and an 8% deterioration in Rail Process Safety (Total Accident Rate, Signals Passed at Danger and Collisions). Despite the improvement in TRIFR, the
safety targets were not achieved and no reward was allocated for the Enterprise Safety performance.
The mixed performance across the Enterprise and Business Unit earnings measures and individual measures is reflected directly in the STI payments for
our Executive Key Management Personnel (KMP). The Board has determined that above Target outcomes will be awarded to Bulk participants, with the
remaining participants receiving overall outcomes below Target. The Board have determined that no adjustment will be made to STI outcomes as a result
of the fatality.
The Long Term Incentive (LTI) Award performance measures are Return on Invested Capital (ROIC) and relative Total Shareholder Return (TSR). During
FY2020, the 2017 (3 year) LTI Award was subject to testing. No portion of the ROIC component vested and these rights will lapse. A positive TSR of 6%
was achieved over the period. Relative TSR ranked above the median and therefore 16.5% of the total award will vest in August 2020.
The fixed remuneration of the Executive KMP was reviewed and benchmarked against an external peer group. As a result of this review, increases were
awarded between 3.5-5% and 10% (Group Executive Bulk) effective 1 July 2019. The MD & CEO did not receive any fixed remuneration increase.
Due to the uncertainty in the economic outlook, the Board has determined that no fixed remuneration increases will be awarded to the Executive KMP
in FY2021.
The Board also determined that, from FY2021, an adjustment would be made to the remuneration for the MD & CEO. This adjustment will see the
maximum opportunity of the LTI increase from 120% to 150% of fixed remuneration, and further aligns remuneration and shareholder outcomes.
In FY2020, the Board continued to review and refine Aurizon’s remuneration framework. Some changes were made to the governing rules to strengthen
Board discretion, extend the definition of a claw-back event and formalise Good Leaver guidelines. The Board will continue to review the framework to
ensure it delivers against Aurizon's remuneration principles and remains effective in driving performance.
The Board considers that these overall remuneration outcomes reach an appropriate balance between shareholder outcomes, uncertainty in the
economic outlook, and recognising the significant value-adding contribution of the MD & CEO and Leadership Team.
We are grateful for your ongoing support.
Yours faithfully,
Tim Poole
Chairman
Kate Vidgen
Chair, 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, while attracting and
retaining Directors and Executives with the
right capability to achieve results.
The Remuneration Report for the year ended
30 June 2020 is set out as per Table 1. The
information in this Report has been audited.
2. Directors and Executives
The Key Management Personnel (KMP) of the Group (being those whose remuneration must be
disclosed in this Report) include the Non-Executive Directors and those Executives who have the
authority and responsibility for planning, directing and controlling the activities of Aurizon.
The Non-Executive Directors and Executives that formed part of the KMP for the Financial Year
(FY) ended 30 June 2020 are identified in Table 2.
Table 3 identifies other persons who were KMP at some time during FY2020.
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
for Financial Year 2020
Take Home Pay
Short Term Incentive
Award
Long Term Incentive
Award
Executive Employment
Agreements
Non-Executive Director
Remuneration
Executive Remuneration
for Financial Year 2020
26
26
27
29
29
30
32
34
35
36
T Poole
M Bastos
R Caplan
M Fraser
S Lewis
S Ryan1
L Strambi2
K Vidgen
EXECUTIVE KMP
A Harding
P Bains3
G Lippiatt4
C McDonald
E McKeiver
Chairman, Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Managing Director & Chief Executive Officer
Group Executive Network
Chief Financial Officer & Group Executive Strategy
Group Executive Bulk
Group Executive Coal
1 S Ryan was appointed a Director on 1 December 2019
2 L Strambi was appointed a Director on 1 December 2019
3 P Bains was appointed Group Executive Network on 9 March 2020 and prior to this held the role of Chief
Financial Officer & Group Executive Strategy
4 G Lippiatt was appointed Chief Financial Officer & Group Executive Strategy on 9 March 2020 in an acting
capacity, and permanently on 30 June 2020
TABLE 3 – FORMER KEY MANAGEMENT PERSONNEL
NAME
EXECUTIVE KMP
M Riches1
POSITION
Group Executive Network
1 M Riches ceased in role on 17 December 2019 and with the Company on 30 June 2020
26
AURIZON ANNUAL REPORT 2019–20
3. Remuneration Framework
FIGURE 1 – TOTAL POTENTIAL REMUNERATION1
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 FY2020 for the MD & CEO and Executive
KMP is set out in Figure 1: Total Potential
Remuneration. During the year, the Board
reviewed the remuneration for the MD &
CEO and has determined that, from FY2021,
the maximum opportunity of the LTI will
be increased from 120% to 150% of fixed
remuneration. This change ensures alignment
with the external market and increases
the proportion of the remuneration mix
aligned with the interests of shareholders.
The remuneration for other Executive KMP
remains unchanged.
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 9 of this report. The
Committee’s Charter is available in the
Governance section of the Company’s
website at www.aurizon.com.au
EXECUTIVE KMP: CASH COMPONENT: 51%
EQUITY COMPONENT: 49%
30%
21%
14%
35%
MD & CEO (PRIOR TO FY2021): CASH COMPONENT: 51%
EQUITY COMPONENT: 49%
27%
24%
16%
33%
MD & CEO (FROM FY2021): CASH COMPONENT: 47%
EQUITY COMPONENT: 53%
24%
23%
15%
38%
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 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 2020
During FY2019 and FY2020, the Board continued to review and refine Aurizon’s remuneration framework. The Board has determined that the current
framework, as summarised in Figure 3, continues to deliver against our remuneration principles and, with minor adjustments, remains effective in
driving performance. The Board will continue to review the framework and assess alternative structures implemented in the market.
FIGURE 3 – REMUNERATION FRAMEWORK AND OBJECTIVES FOR FINANCIAL YEAR 2020
PERFORMANCE MEASURE
STRATEGIC OBJECTIVES AND
LINK TO PERFORMANCE
FY2020 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 and 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
› Effective 1 July 2019, fixed
remuneration increases were
provided to Executive KMP to
ensure alignment with external
peer group:
• GE Coal (3.5%)
• CFO & GE Strategy (5%)
• GE Bulk (10%)
› The MD & CEO did not receive
an increase
›
Introduction of Business Unit
measure (Underlying EBIT)
for Coal, Bulk (FY2019) and
Network (FY2020)
› A review is underway to assess
alternative reward structures
and performance metrics to
support an improvement in
Safety performance
› Governing rules updated to
strengthen Board discretion,
extend definition of claw-back
event (DSTIA) and formalised
Good Leaver guideline
› For the MD & CEO, from FY2021,
the maximum opportunity of the
LTI will be increased from 120%
to 150% of Fixed Remuneration
› To attract and retain Executives with
the right capability to achieve results
The financial and non-financial
performance measures were
chosen because:
› Underlying EBIT delivers direct
financial benefits to shareholders
› Safety drives a continuous safety
›
improvement culture and embeds safe,
efficient and effective processes across
all aspects of a heavy industry business
Individual aligns employee contribution
to the achievement of the Company
strategy. At the start of the performance
year the Board determines the MD
& CEO individual strategic measures.
Relevant measures are cascaded
to the Executive Committee and
throughout the Company
› 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
28
AURIZON ANNUAL REPORT 2019–20
4. Company Performance for Financial Year 2020
Aurizon reported Group Underlying Earnings Before Interest and Tax (EBIT) of $909 million for continuing operations for year ended 30 June 2020,
in line with EBIT guidance range ($880m – $930m).
Being an essential service provider to the Australian economy, Aurizon has continued to operate throughout the challenging coronavirus pandemic
(COVID-19) period, with the health and wellbeing of our employees paramount. Progress has continued in executing the business strategy
and achieving key milestones during FY2020.
Table 4 shows historical Company performance across a range of key measures. Performance across earnings and individual measures is reflected directly
in STIA payments. LTIA outcomes are aligned with the shareholder experience over the last three years. Detail related to performance against the FY2020
STIA performance measures is provided in Table 6 (page 31). Table 8 (page 32) provides additional information related to the LTIA performance outcomes.
TABLE 4 – HISTORICAL COMPANY PERFORMANCE AGAINST KEY MEASURES
KEY PERFORMANCE MEASURES
DESCRIPTION
FY2020
FY2019
FY2018
FY2017
FY2016
Group Underlying EBIT1
Bulk Underlying EBIT2
Coal Underlying EBIT2
Network Underlying EBIT2
Return on Invested Capital
$m
$m
$m
$m
%
Total Recordable Injury Frequency Rate (TRIFR)3
per million work hours
Rail Process Safety (RPS)4
per million train kilometres
Total Shareholder Return (TSR)
3-year TSR
%
%
909
90
411
469
10.9
9.92
4.74
-9.6
6.0
829
37
415
400
9.7
11.07
4.38
28.2
25.5
941
50
429
481
10.9
10.02
5.08
-13.6
-5.5
884
871
9.3
7.12
15.8
26.3
8.6
9.88
-8.6
18.9
1 Continuing operations
2 Business Unit model was introduced from FY2018
3 From FY2018, TRIFR definition has been redefined and contractor statistics have been included. Performance unaudited prior to FY2018.
4 Rail Process Safety (Total Accident Rate and Signals Passed at Danger) was introduced from FY2018
5. Take Home Pay
Table 5 identifies the actual remuneration
earned during FY2020 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 2019,
fixed remuneration increases were provided to
Executive KMP (between 3.5% to 10%) to ensure
alignment with external peer group. The MD &
CEO did not receive an increase.
The remuneration outcomes identified in
Table 5 are directly linked to the Company
performance described in Section 6 (page 30)
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 43% to 88%
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 FY2020, the 2017 Award (3 year) was
subject to testing. Relative TSR ranked above
the median and therefore 16.5% of the award
will vest in August 2020. No portion of the ROIC
component vested and these rights will lapse.
Movement in the Aurizon share price over
the various performance periods is reflected
in the remuneration outcomes for Executive
KMP, aligning the Executive KMP outcomes
with the shareholder experience.
TABLE 5 – REMUNERATION EARNED IN FINANCIAL YEAR 2020
FIXED
REMUNERATION
$’000
NON‑MONETARY
BENEFITS1
$’000
STIA
CASH2
$’000
STIA DEFERRED
FROM PRIOR YEAR3
$’000
LTIA
VESTING4
$’000
SHARE PRICE
DEPRECIATION5
$’000
ACTUAL FY2020
REMUNERATION OUTCOMES
$’000
NAME
EXECUTIVE KMP
A Harding
P Bains
G Lippiatt6
C McDonald
E McKeiver
1,717
788
129
667
683
–
5
–
29
3
981
328
61
394
200
1,031
338
–
273
277
252
97
32
83
89
(202)
(67)
(2)
(54)
(55)
3,779
1,489
220
1,392
1,197
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 FY2020 STIA which will be paid in September 2020
3 The amount relates to the deferred component (40%) of the FY2019 STIA which was awarded in performance rights and will become unrestricted in September 2020
(calculation assumes a share price of $6.03)
4 The amount is the value of rights which will vest in August 2020 (ie a portion of the 2017 Award (3-year)) (calculation assumes share price of $5.17)
5 The amount is the number of rights which vest multiplied by the decrease in the Aurizon share price over the period ended 30 June 2020 (calculation assumes share
price depreciation of $1.11 DSTIA and $0.25 LTIA)
6 The amount relates to the salary and STIA attributable to the Chief Financial Officer & Group Executive Strategy role
REMUNERATION REPORT
29
Directors’ Report (continued)
REMUNERATION REPORT
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, Business
Unit and individual performance measures
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,
which is subject to claw-back for financial
misstatements and misconduct.
What are the Company performance
measures?
The performance measures which apply to
all participants are Underlying EBIT, Safety
and Individual.
From FY2019, Business Unit measures were
included in the scorecard for Bulk and Coal.
Following the Final Decision on the UT5
outcome, from FY2020, Network also has
a Business Unit measure.
Each measure has a defined level of
performance. The measures drive a continuous
safety improvement culture, strengthen and
grow our current business while continuing
to transform the Enterprise.
STIA outcomes are determined by calculating
the performance outcome against the
relevant weighted performance measure.
Figure 5 provides an example of an at Target
performance outcome.
This is achieved through a focus on people
and asset efficiencies while at the same time,
delivering benefits to shareholders'.
Individual performance measures relate to
each specific role and measure an individual’s
contribution against a range of operational
and strategic performance measures (including
additional safety measures). At the start of
the performance year the Board determines
the MD & CEO individual strategic measures.
Relevant measures are cascaded to the
Executive Committee and throughout the
Company as reflected in Figure 4.
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 FY2020?
Table 6 identifies the performance measures,
relevant weightings and outcomes for FY2020.
The FY2020 actual outcomes for Executive
KMP are identified within Table 7.
Target performance was achieved for Group
Underlying EBIT. Outcomes varied across the
Business Units, with Bulk achieving Stretch
performance, Network achieving an outcome
between Threshold and Target while Coal
performance was below Threshold.
During the year there was a mixed result across
the Safety measures with a 10% improvement
in the Total Recordable Injury Frequency
Rate (TRIFR) and an 8% deterioration in
Rail Process Safety.
Despite the improvement in TRIFR, Executive
KMP will not be rewarded for any portion of
the Safety measures.
In December 2019 there was also a tragic death
of one of our employees, in a work motor
vehicle accident. Workplace Health and Safety
Queensland has advised it has considered
all issues relating to the accident and is not
investigating the matter any further. The Board
determined that no adjustment would be made
to the outcome as a result of the fatality.
FIGURE 4 – STRATEGIC MEASURES CASCADING PROCESS
Managing
Director
& Chief
Executive
Officer
Executive
Committee
Direct
Reports
to the
Executive
Committee
Other
STIA
Participants
OPTIMISE
EXCEL
EXTEND
30
FIGURE 5 – STIA PERFORMANCE
OUTCOME CALCULATION
MD & CEO AND SUPPORT
FUNCTION PARTICIPANTS
60%
+ 10%
+
30%
=
100%
BUSINESS UNIT PARTICIPANTS
30%
+
10%
+
30%
+
30%
=
100%
Enterprise
Measures
(EBIT)
Enterprise
Safety
Measures
(TRIFR,
RPS)
Business
Unit
Measures
(EBIT)
Individual
Strategic
Measures
(varied)
STIA
OUTCOME
AURIZON ANNUAL REPORT 2019–20 TABLE 6 – SHORT TERM INCENTIVE AWARD FINANCIAL YEAR 2020 OBJECTIVES1
PERFORMANCE MEASURE
ENTERPRISE
Group EBIT1: Underlying EBIT delivers financial benefit to shareholder through the
achievement of underlying operating earnings
Group Safety: The measures drive a commitment to delivering a continuous
safety improvement culture across all of the Company measured through equally
weighted parameters which include:
› Total Reportable Injury Frequency Rate (TRIFR)
› Rail Process Safety (Total Accident Rate and Signals Passed at Danger) (RPS)
BUSINESS UNIT1
Coal EBIT:
Bulk EBIT:
Network EBIT:
INDIVIDUAL: At the start of the performance year the Board determines the
MD & CEO individual strategic measures. These individual measures are based
on the Aurizon strategy of continuing to optimise, excel and extend the business.
Relevant measures are subsequently cascaded to the Executive Committee and
throughout the organisation. During FY2020 some of the key strategic measures
for the MD & CEO and across the organisation were:
› Deliver key operational efficiency
improvement programs (including Project
Precision and Network Optimisation Program)
› Advancement of key technology programs
TOTAL OUTCOME
› Safety and performance culture
› Climate change response
› Position business for growth
WEIGHTING
MD & CEO
& CFO
COAL,
BULK &
NETWORK
TARGET
FY2020 PERFORMANCE
OUTCOME
60%
30%
$906m
$906m
5%
5%
5%
5%
–
30%
7.96
3.79
$431m
$59m
$473m
9.92
4.74
$411m
$90m
$469m
30%
30% Individual performance
targets vary for each
specific role
Personal outcomes
for MD & CEO and
Executive KMP varied
between above Target
and Stretch depending
on performance against
individual KPIs
100%
100%
Bulk
MD & CEO, CFO, Coal & Network
1 Company performance hurdles relate to continuing operations and excludes the Rail Grinding business which was sold in October 2019
Stretch Between Target & Stretch Target Between Threshold & Target Threshold Below Threshold
TABLE 7 – SHORT TERM INCENTIVE AWARDED IN FINANCIAL YEAR 2020
NAME
EXECUTIVE KMP
A Harding
P Bains
G Lippiatt3,4
C McDonald
E McKeiver
TARGET STIA
$’000
MAXIMUM
POTENTIAL
STIA $’000
CASH
COMPONENT
DEFERRED
SHARE
COMPONENT1
TOTAL STIA
PAYMENT
% OF
TARGET
STIA
% OF
MAXIMUM
STIA2
AWARDED FY2020 $’000
1,717
591
64
500
512
2,576
887
97
750
768
981
328
61
394
200
654
218
–
263
134
1,635
546
61
657
334
95
92
95
131
65
63
62
63
88
43
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 12% and 57% of their maximum potential outcomes
3 G Lippiatt was not remunerated as an Executive KMP for FY2020 therefore his STIA will be awarded entirely as cash
4 The amount relates to the STIA made while acting as Chief Financial Officer & Group Executive Strategy from March 2020
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.
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 (increasing to 150% from FY2021) 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. Retesting does not form
part of any awards.
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 8 and Table 9.
What are the performance hurdles?
The LTIA has two performance hurdles –
Relative Total Shareholder Return and Average
Return on Invested Capital.
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.
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, aligning Executive
outcomes and shareholder experience.
Company performance and vesting outcomes
for the 2017 LTIA (3 year) is identified in Table 8.
Partial vesting of the LTIA has occured which is
aligned with the shareholder experience over the
performance period.
TABLE 8 – COMPANY PERFORMANCE AGAINST LONG TERM INCENTIVE AWARDS SUBJECT TO TESTING IN FINANCIAL YEAR 2020
COMPANY HURDLE AND PERFORMANCE MEASUREMENT PERIOD
WEIGHTING
RESULT
%
VESTED
%
LAPSED
2017 AWARD (3 YEAR): 01 JULY 2017 – 30 JUNE 20201
Relative TSR: against peer
group within ASX100 Index
30% of rights vest at the 50th percentile, 75% at the
62.5th percentile up to 100% at the 75th percentile
ROIC: average annual ROIC
FY2018 – FY20202
50% of rights vest with an average ROIC of 10.5%, up
to 100% at 11.5%
TOTAL WEIGHTED OUTCOME
50%
Above Median
32.9%
67.1%
50%
100%
9.5%
0%
100%
16.5%
83.5%
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 2017 and 2018 Awards
Maximum Between Minimum and Maximum Minimum Below Minimum
32
AURIZON ANNUAL REPORT 2019–20 TABLE 9 – LONG TERM INCENTIVE AWARD PERFORMANCE OVERVIEW AND HURDLES FOR FUTURE AWARDS
DEFINITION
RELATIVE TOTAL SHAREHOLDER RETURN (WEIGHTING 50%)
Measures the growth in share price plus cash distributions notionally
reinvested in shares and is:
› Conditional on Aurizon’s TSR performance relative to a peer group of
companies in the ASX 100 index (approximately 70) that are broadly
comparable to Aurizon (ie with which Aurizon competes for capital
and/or capability)
› Financial, healthcare, biotechnology, casinos and gaming companies
are excluded from the peer group
› Determined by reference to a VWAP over a period to smooth any
short-term ‘peaks’ or ‘troughs’
› Verified by an independent expert
RETURN ON INVESTED CAPITAL (WEIGHTING 50%)
For the purposes of LTIA, ROIC is underlying EBIT divided by Invested
Capital and will be calculated on the same basis as published ROIC, with
the following exceptions:
› Adjusted, for Invested Capital, to exclude major (infrastructure
investments with an approved budget capital expenditure over $250m)
assets under construction 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)
› 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
VESTING THESHOLDS
Vesting Thresholds are consistent across all outstanding Awards
MINIMUM VESTING
MAXIMUM VESTING
30% of rights vest at
the 50th percentile
75% of rights vest at
the 62.5th percentile
100% of rights vest at
the 75th percentile
All rights will vest pro-rata on a straight-line basis between the minimum
and maximum vesting points
Vesting Thresholds vary across outstanding Awards
MINIMUM VESTING
MAXIMUM VESTING
50% of Rights vest
with an average
ROIC of:
100% of Rights vest
with an average
ROIC of:
2017 Award (4 year)1
10.5%
2018 Award1
2019 Award2,3
2020 Award2,3
9%
9.5%
9.5%
11.5%
10%
10.5%
10.5%
All rights will vest pro-rata on a straight-line basis between the minimum
and maximum vesting points
1 Following the expected Network regulatory outcomes, the Board has determined that no adjustment will be made to the hurdles for 2017 Award and 2018 Awards
2 With the introduction of the new lease accounting standard effective from 1 July 2019 which has the effect of bringing leases on balance sheet, we have completed
a review of our current ROIC calculation and simplified the definition of invested capital which will be applied from the 2019 Award. This definition change has no
material impact on the ROIC
3 ROIC hurdles 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. In FY2018, an award was issued to an Executive who has subsequently been appointed to the Executive Committee (CFO & GE
Strategy). During FY2020, no retention awards were issued to Executive KMP but a number were issued to other employees. Further information is
available in note 31 of the Financial Report (page 94).
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 10.
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
2020 are set out in Table 11.
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 10 – EMPLOYMENT AGREEMENTS
NAME
EXECUTIVE KMP
A Harding
P Bains
G Lippiatt
C McDonald
E McKeiver
DURATION OF
EMPLOYMENT AGREEMENT
FIXED REMUNERATION AT
END OF FINANICAL YEAR
20201
NOTICE PERIOD2
BY EXECUTIVE
BY COMPANY3
Ongoing
Ongoing
Ongoing
Ongoing
Ongoing
1,717,000
788,000
700,000
667,000
683,000
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 11 – KMP SHAREHOLDINGS AS AT 30 JUNE 2020
NAME
NON–EXECUTIVE DIRECTORS
BALANCE
AT THE START
OF THE YEAR
RECEIVED
DURING THE YEAR
ON VESTING
OTHER
CHANGES DURING
THE YEAR
BALANCE
AT THE END
OF THE YEAR
% OF FIXED
REMUNERATION1
T Poole
M Bastos
R Caplan2
M Fraser
S Lewis
S Ryan
L Strambi
K Vidgen
EXECUTIVE KMP
A Harding
P Bains
G Lippiatt
C McDonald
E McKeiver
90,500
11,400
82,132
70,000
33,025
–
–
40,000
82,9473
68,627
9,435
110,968
56,929
–
–
–
–
–
–
–
–
199,050
61,663
–
54,442
55,677
20,000
14,547
–
–
10,000
13,000
5,355
–
35,000
(78,921)
2,500
(71,000)
(55,677)
110,500
25,947
82,132
70,000
43,025
13,000
5,355
40,000
316,997
51,369
11,935
94,410
56,929
111%
57%
195%
151%
93%
31%
13%
87%
91%
32%
8%
70%
41%
1 Assumes Total Directors’ Fees and Fixed Remuneration as at 30 June 2020 and the calculation assumes a share price of $4.92
2 KMP required to meet the minimum shareholding requirement due to length of service in a KMP role being longer than six years
3 Restated from FY2019
34
AURIZON ANNUAL REPORT 2019–20 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
The current annual base fees for the Non-
Executive Directors are set out in Table 12.
The Chairman’s fee is inclusive of fees for
Committee memberships.
In addition, to base Directors’ fee,
Non-Executive Directors are also eligible
to receive Committee chairperson and/
or member fees. These Committee fees
are set out in Table 13.
The base Directors’ fee and Committees'
fees include both cash and any statutory
superannuation contributions. There are no
other retirement benefits in place for Non-
Executive Directors. Non-Executive Directors
do not receive performance pay.
The actual remuneration outcomes for the
Non-Executive Directors of the Company
is summarised in Table 14. Details of the
Non-Executive Director membership is
disclosed on page 9.
What are the aggregate fees approved by shareholders?
$2.5 million. The cap does not include remuneration for performing additional or special duties for
Aurizon at the request of the Board or reasonable travelling, accommodation and other expenses
of Directors in attending meetings and carrying out their duties.
TABLE 12 – DIRECTORS’ FEES
DIRECTORS
Chairman
TERM
Directors’ fees (inclusive of all responsibilities
and superannuation contributions)
Other Non-Executive Directors Directors’ fees (inclusive of all
superannuation contributions)
$490,000
$170,000
TABLE 13 – COMMITTEE FEES
NETWORK
BOARD
AUDIT AND RISK
COMMITTEE
$40,000
$20,000
$40,000
$20,000
REMUNERATION
AND HUMAN
RESOURCES
COMMITTEE
SAFETY,
HEALTH AND
ENVIRONMENT
COMMITTEE
$35,000
$17,500
$35,000
$17,500
Chairperson
Member
TABLE 14 – 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 DIRECTORS3
T Poole
M Bastos
R Caplan
M Fraser
S Lewis
S Ryan
L Strambi
K Vidgen
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2020
2020
2019
479
469
205
194
200
197
208
199
208
199
115
102
203
185
FORMER NON‑EXECUTIVE DIRECTORS
J Cooper
K Field
Total
2019
2019
2020
2019
183
61
1,720
1,687
3
3
–
–
–
–
–
–
3
3
–
–
–
–
–
–
6
6
11
21
20
18
9
19
20
19
20
19
1
10
19
18
17
6
110
137
493
493
225
212
209
216
228
218
231
221
116
112
222
203
200
67
1,836
1,830
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 2020
3 Details assosiated with Non-Executive Director fee changes are described in Section 9 of the FY2018 and
FY2019 Remuneration Reports
REMUNERATION REPORT
35
Directors’ Report (continued)
REMUNERATION REPORT
10. Executive Remuneration for Financial Year 2020
The table below details the number and value of movements in equity awards during FY2020.
TABLE 15 – RIGHTS GRANTED AS COMPENSATION
INCENTIVE
PLAN
BALANCE AT
BEGINNING
OF YEAR
RIGHTS
AWARDED
DURING THE
YEAR1
VALUE OF
RIGHTS
GRANTED IN
YEAR
VESTED IN
YEAR
EXERCISED
DURING THE
YEAR
FORFEITED IN
YEAR
FORFEITED IN
YEAR
NO.
NO.
$’000
%
NO.
NO.
%
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
NAME
EXECUTIVE KMP
A Harding
P Bains
G Lippiatt
C McDonald
E McKeiver
20163
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2018
2019 STIAD6
2019
20153
20163
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2018
2019 STIAD6
2019
20153
20163
2017 (3 year)
2017 (4 year)
2018 – Ret7
2018
2019
20153
20163
2017 (3 year)
2017 (4 year)
2018 STIAD5
2018
2019 STIAD6
2019
20153
20163
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2018
2019 STIAD6
2019
FORMER EXECUTIVE KMP
M Riches
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2018
2019 STIAD6
2019
463,636
295,938
295,938
199,050
459,911
–
–
46,066
60,776
114,241
114,241
61,663
188,337
–
–
40,307
47,845
37,573
37,573
44,843
62,500
–
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
–
–
170,846
347,454
1,030
1,371
55,970
149,494
338
590
48,799
193
45,224
126,539
273
499
45,970
129,574
51,866
136,404
277
511
313
538
100%
(199,050)
100%
(61,663)
100%
(54,442)
100%
(55,677)
100%
(53,682)
(463,636)
100%
(46,066)
(60,776)
100%
100%
(40,307)
(47,845)
100%
100%
(51,824)
(60,776)
100%
100%
(55,279)
(64,656)
100%
100%
(110,161)
(110,161)
(174,526)
(51,866)
(136,404)
100%
100%
100%
100%
100%
$’000
1,616
184
210
161
165
207
210
221
223
350
339
446
313
538
NO.
295,938
295,938
459,911
170,846
347,454
114,241
114,241
188,337
55,970
149,494
37,573
37,573
44,843
62,500
48,799
97,921
97,921
152,176
45,224
126,539
104,449
104,449
165,737
45,970
129,574
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
3.49
3.09
2.99
4.21
2.58
6.03
3.95
4.00
3.45
3.18
3.07
4.21
2.56
6.03
3.95
4.00
3.45
3.18
3.07
4.46
2.56
3.95
4.00
3.45
3.18
3.07
4.21
2.56
6.03
3.95
4.00
3.45
3.18
3.07
4.21
2.56
6.03
3.95
3.18
3.07
4.21
2.56
6.03
3.95
18-Oct-17
18-Oct-17
18-Oct-17
17-Sept-18
18-Oct-18
30-Sept-19
17-Oct-19
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
10-Aug-18
5-Oct-18
17-Oct-19
17-Aug-15
7-Oct-17
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
7-Sept-19
18-Oct-20
18-Oct-21
17-Sept-19
18-Oct-22
30-Sept-20
17-Oct-23
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
13-Aug-20
5-Oct-22
17-Oct-23
17-Aug-18
7-Oct-20
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-20
31-Dec-22
31-Dec-23
31-Dec-19
31-Dec-20
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
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 in the FY2019 Remuneration Report
3636
AURIZON ANNUAL REPORT 2019–20 10. Executive Remuneration for Financial Year 2020
The table below details the number and value of movements in equity awards during FY2020.
TABLE 15 – RIGHTS GRANTED AS COMPENSATION
NAME
INCENTIVE
PLAN
EXECUTIVE KMP
A Harding
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
%
P Bains
G Lippiatt
C McDonald
E McKeiver
20163
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2019 STIAD6
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2019 STIAD6
2018
2019
20153
20163
2018
2019
20153
20163
2018
2019
20153
20163
2017 (3 year)
2017 (4 year)
2018 – Ret7
2017 (3 year)
2017 (4 year)
2018 STIAD5
2019 STIAD6
2018
2019
20153
20163
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2019 STIAD6
2018
2019
2017 (3 year)4
2017 (4 year)
2018 STIAD5
2019 STIAD6
2018
2019
463,636
295,938
295,938
199,050
459,911
46,066
60,776
114,241
114,241
61,663
188,337
40,307
47,845
37,573
37,573
44,843
62,500
–
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
–
–
170,846
347,454
1,030
1,371
55,970
149,494
338
590
48,799
193
45,224
126,539
273
499
45,970
129,574
51,866
136,404
277
511
313
538
100%
(199,050)
100%
(61,663)
100%
(54,442)
100%
(55,677)
100%
(53,682)
(463,636)
100%
(46,066)
(60,776)
100%
100%
(40,307)
(47,845)
100%
100%
(51,824)
(60,776)
100%
100%
(55,279)
(64,656)
100%
100%
(110,161)
(110,161)
(174,526)
(51,866)
(136,404)
100%
100%
100%
100%
100%
FORMER EXECUTIVE KMP
M Riches
VALUE OF RIGHTS
FORFEITED IN YEAR
BALANCE AT END
OF YEAR
WEIGHTED FAIR
VALUE PER RIGHT
AT GRANT DATE
GRANT
DATE
DATE ON WHICH
GRANT VESTS2
EXPIRY
DATE
$’000
1,616
184
210
161
165
207
210
221
223
350
339
446
313
538
NO.
–
295,938
295,938
–
459,911
170,846
347,454
–
–
114,241
114,241
–
188,337
55,970
149,494
–
–
37,573
37,573
44,843
62,500
48,799
–
–
97,921
97,921
–
152,176
45,224
126,539
–
–
104,449
104,449
–
165,737
45,970
129,574
–
–
–
–
–
–
$
3.49
3.09
2.99
4.21
2.58
6.03
3.95
4.00
3.45
3.18
3.07
4.21
2.56
6.03
3.95
4.00
3.45
3.18
3.07
4.46
2.56
3.95
4.00
3.45
3.18
3.07
4.21
2.56
6.03
3.95
4.00
3.45
3.18
3.07
4.21
2.56
6.03
3.95
3.18
3.07
4.21
2.56
6.03
3.95
18-Oct-17
18-Oct-17
18-Oct-17
17-Sept-18
18-Oct-18
30-Sept-19
17-Oct-19
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
10-Aug-18
5-Oct-18
17-Oct-19
17-Aug-15
7-Oct-17
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
17-Aug-15
7-Oct-16
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
6-Oct-17
6-Oct 17
17-Sept-18
5-Oct-18
30-Sept-19
17-Oct-19
7-Sept-19
18-Oct-20
18-Oct-21
17-Sept-19
18-Oct-22
30-Sept-20
17-Oct-23
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
13-Aug-20
5-Oct-22
17-Oct-23
17-Aug-18
7-Oct-20
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
17-Aug-18
7-Oct-19
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
6-Oct-20
6-Oct 21
17-Sept-19
5-Oct-22
30-Sept-20
17-Oct-23
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-20
31-Dec-22
31-Dec-23
31-Dec-19
31-Dec-20
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-19
31-Dec-19
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
31-Dec-20
31-Dec-21
31-Dec-19
31-Dec-22
31-Dec-20
31-Dec-23
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 in the FY2019 Remuneration Report
4 Details of the vesting outcomes are described in Table 8
5 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 5 in the FY2018 Remuneration Report
6 Deferred STIA component as described in Section 3 and Section 5 of this report and Table 6 in the FY2019 Remuneration Report
7 Retention Award as described in Section 7 in the FY2018 Remuneration Report
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 16 – EXECUTIVE REMUNERATION
NAME
EXECUTIVE KMP
A Harding
P Bains7
G Lippiatt8
C McDonald
E McKeiver
FORMER EXECUTIVE KMP
M Riches9
Total Executive KMP
compensation (group)
CASH
SALARY
AND FEES1
$’000
A
1,696
1,696
764
674
122
646
585
662
639
323
672
4,213
4,266
YEAR
2020
2019
2020
2019
2020
2020
2019
2020
2019
2020
2019
2020
2019
SHORT‑TERM EMPLOYEE BENEFITS
POST‑
EMPLOYMENT
BENEFITS
LONG‑
TERM
BENEFITS
EQUITY‑
SETTLED
SHARE‑BASED
PAYMENTS
CASH
BONUS
$’000
ANNUAL
LEAVE2
$’000
NON‑
MONETARY
BENEFITS3
$’000
OTHER
$’000
SUPER‑
ANNUATION4
$’000
LONG‑
SERVICE
LEAVE
$’000
RIGHTS5
$’000
TOTAL
$’000
PROPORTION OF
COMPENSATION
PERFORMANCE
RELATED6 %
REMUNERATION
CONSISTING
OF RIGHTS FOR
THE YEAR %
B
981
1,545
328
506
61
394
409
200
416
–
469
1,964
3,345
C
51
34
22
15
(6)
34
23
(2)
(18)
14
23
113
77
D
–
–
5
3
–
29
52
3
57
1
–
38
112
E
–
–
–
–
–
–
–
–
–
386
–
386
–
F
21
21
24
76
7
21
21
21
21
10
21
104
160
G
32
36
46
34
28
24
(51)
(23)
23
12
5
119
47
H
1,560
814
543
297
32
461
178
477
153
I
4,341
4,146
1,732
1,605
244
1,609
1,217
1,338
1,291
(411)
490
335
1,680
2,662
9,599
1,932
9,939
J
59
57
50
50
38
53
48
51
44
–
57
48
53
K
36
20
31
19
13
29
15
36
12
–
29
28
19
1
2
Cash salary and fees include any salary sacrifice benefits
Annual leave represents annual leave accrued or utilised during the financial year and excludes periods of unpaid annual leave. Negative amounts represent the
utilisation of annual leave
3 Non-monetary benefits includes travel benefits and relocation assistance
4 Superannuation amounts represent employers’ contribution to superannuation
5 The accounting expense recognised in relation to rights granted in the year is the fair value independently calculated at grant date using an expected outcome model.
This was consistent with the Monte-Carlo simulation conducted in the prior year and resulted in similar outcomes. This amount is progressively expensed over the
vesting period. Refer to note 31 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, long-term and retention
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
P Bains was appointed Group Executive Network on 9 March 2020 prior to this held the role of Chief Financial Officer & Group Executive Strategy
8 G Lippiatt was appointed Chief Financial Officer & Group Executive Strategy on 9 March 2020 in an acting capacity, and permanently on 30 June 2020. The cash salary
and fees (column A) and cash bonus (column B) reflect the salary and STIA attributable to the Chief Financial Officer & Group Executive Strategy role
9 M Riches ceased in the role on 17 December 2019. Other (column E) represents contractual benefits received until 30 June 2020. He did not receive any remuneration
associated with the FY2020 STIA. The Rights value reflects the forfeiture of awards upon termination
38
AURIZON ANNUAL REPORT 2019–20 Auditors Independence Declaration
As lead auditor for the audit of Aurizon Holdings Limited for the year ended 30 June 2020, I declare
that to the best of my knowledge and belief, there have been:
(a)
no contraventions of the auditor independence requirements of the Corporations Act 2001 in
relation to the audit; and
(b)
no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Aurizon Holdings Limited and the entities it controlled during the
period.
Nadia Carlin
Partner
PricewaterhouseCoopers
Brisbane
10 August 2020
PricewaterhouseCoopers, ABN 52 780 433 757
480 Queen Street, BRISBANE QLD 4000, GPO Box 150, BRISBANE QLD 4001
T: +61 7 3257 5000, F: +61 7 3257 5999, www.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.
AUDITORS’ INDEPENDENCE DECLARATION
39
Corporate Governance Statement
Aurizon Holdings Limited and the entities
it controls (Aurizon Holdings or Company)
believe corporate governance is a critical
pillar on which business objectives and,
in turn, shareholder value must be built.
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 and is an early adopter
of the ASX Corporate Governance Council’s
Corporate Governance Principles and
Recommendations – 4th 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.
This Statement was adopted by the Board
on 7 August 2020.
Principle 1: Lay solid foundations for management and oversight
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
1.1 Role of Board and
management which
is set out in a Board
Charter
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 Board Charter (Charter).
The Charter also provides an overview of the roles of the Chairman, individual Directors, the Managing Director
& CEO and the Company Secretary.
1.2 Information
regarding election
and re‑election of
Director candidates
and appropriate checks
are undertaken on
Director and senior
executive appointments
1.3 Written agreements
setting out terms of
appointment
1.4 Company Secretary
A copy of the Charter is available in the Governance section of the Company’s website aurizon.com.au.
Aurizon carefully considers the character, experience, education, skill set as well as interests and associations
of potential candidates for appointment to the Board and conducts appropriate checks to verify the suitability
of the candidate prior to their 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. Aurizon also conducts checks
on character, experience, education, criminal records and bankruptcy before appointing a new Director or a senior
executive (the MD&CEO and his or her direct reports). During the year two Directors were appointed to the Board
and satisfactory checks were undertaken before those appointments were made.
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 attached 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 and Board Charter, 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 2019–20
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
1.5 Diversity & inclusion
Aurizon Holdings has had a Diversity and Inclusion Policy since 2011 which is reviewed periodically, and which sets
out its objectives including its stated values 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 FY2020, are set
out below:
ENTERPRISE MEASURES
FY20 TARGET
FY20 ACTUAL
Gender representation on the Board Minimum 30% (each gender)
33.3% women/66.7% men
Representation of women in senior
executive roles (direct reports to
the MD & CEO)
Representation of women in
the workforce
Representation of Aboriginal and
Torres Strait Islander men and
women in Aurizon
30%
22%
5.5%
33.3%
22%
6.1%
Further details on the Company’s inclusion and diversity performance and activities can be found on the Company
website aurizon.com.au.
1.6 Board reviews
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.
In relation to FY20 the Board conducted an internal review of its Board (and its individual Directors)
and Committees and their effectiveness.
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 executives is completed for the year-end. The Company’s Remuneration & Human Resources
Committee reviews the remuneration and performance management frameworks during the year. In addition, the
MD & CEO and each of his direct reports present to the Board on the status, progress made and their performance
against their set key deliverables.
Principle 2: Structure the Board to be effective and 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 7 of the Annual Report.
2.2 Board skills
The number of meetings held and attended by each member of the Nomination & Succession Committee during
the financial year are set out on page 9 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. Aurizon also has in place a policy on election
and appointment of Non-Executive Directors, which is reviewed annually.
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 FY2020 two Directors
were appointed (Dr Sarah Ryan and Mr. Lyell Strambi). In appointing these two Directors the Board enhanced its
operational, transformation, major project, technology, regulatory and transport skills and experience.
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CORPORATE GOVERNANCE STATEMENT
41
Corporate Governance Statement
(continued)
Principle 2: Structure the Board to be effective and 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 7 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 7 of the Annual Report.
An induction process including appointment letters and ongoing education exists to promote early, active and
relevant involvement of new members of the Board.
In addition to peer review, interaction and networking with other Directors and industry leaders, Aurizon Holdings’
Directors participate, from time-to-time, in Aurizon Holdings’ leadership forums and actively engage with Aurizon
Holdings’ employees by visiting operational sites to gain an understanding of the Company’s operating environment.
During the year, Directors receive accounting policy updates, especially around the time the Board considers the
half-year and full-year financial statements.
The Board also receives briefings from time-to-time on legal, accounting, regulation, developments in
communication and human resource management and technology.
Directors are encouraged and given the opportunity to broaden their knowledge of the business by visiting offices
and sites in different locations. During the financial year, Directors made visits to operational sites in Queensland
and Western Australia.
Principle 3: Instil a culture of acting lawfully, ethically and responsibly
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
3.1 The values of
the Company are
articulated and
disclosed
3.2 Code of Conduct
3.3 Whistleblower
Policy
3.4 Anti‑Bribery and
Corruption Policy
The Company has a clear set of core values. These core values are Safety, People, Integrity, Customer and
Excellence. A description of these values is set out in the Company’s Code of Conduct and the Company’s Annual
Report. The Company’s values, their articulation and acknowledgment are embedded in all meetings of the Board,
Board Committee and the MD & CEO’s Executive meetings and form part of the performance and remuneration
framework of the Company.
The Board has 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 forms part
of the induction of Directors as well as new employees. The code is reviewed periodically by the Board. The Board
is informed of any material breaches of the code either through the whistleblower reports or the governance reports
that are presented from time to time to the Company’s Audit, Governance and Risk Management Committee.
The Company 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 & Risk Management Committee, reviews
reports on concerns raised or material breaches under the Whistleblower Policy.
The Company has an Anti-Bribery and Corruption 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, receives an update annually on any material breaches of this policy through the Governance report
to the Committee.
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42
AURIZON ANNUAL REPORT 2019–20 Principle 4: Safeguard the integrity of corporate reports
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
4.1 Audit Committee
The Audit, Governance & Risk Management Committee comprises four members, all of whom are Independent
Non-Executive Directors. Details of the membership of the Audit, Governance & Risk Management Committee,
including the names and qualifications of the Committee members, are set out on pages 4 to 7 of the Annual Report.
In addition to the Audit, Governance & Risk Management Committee members, the Managing Director & CEO,
CFO, Head of Risk & Assurance, external auditors and Company Secretary attend the Audit, Governance & Risk
Management Committee meetings.
The number of meetings held and attended by each member of the Audit, Governance & Risk Management
Committee during the financial year are set out on page 9 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. Among other things, the Audit, Governance & Risk Management Committee reviews
the processes that validate the Directors' Report and the Annual Report. The Board, as a whole, has oversight of other
corporate reporting, such as investor presentations prepared for full year and half year results briefings.
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 2001 (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 Disclose processes
to verify the integrity
of periodic corporate
reports released to
the market
The periodic corporate reports, being the half year and full year financial statements including the Company’s
Annual Report, is underpinned by a certification process whereby each Group Executive and finance partner for
each business unit responds to set questionnaires and signs a certification. This process provides verification and
sign off for the MD and CFO then to provide a signed representation letter to the external auditors and also a signed
declaration to the Board that supports that the accounts provide a true and fair view and that there is integrity
in the statements that the financial statements comply with the Corporations Act 2001 and relevant Accounting
standards. The certification process is reviewed annually with the view that it remains current having regard to any
changes in the Corporations Act 2001, accountings standards or governance. The Company also provides quarterly
above rail volume reports to the market. These reports are verified by each of the respective business unit Group
Executives. For other types of periodic corporate reports, including the Company's quarterly above rail volume
reports, the Company conducts an internal review and verification process to ensure that such reports, are materially
accurate, balanced and provide investors with appropriate information. Where applicable, the relevant reports will
be approved in accordance with the Company's Disclosure and Communication Policy.
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 2001.
Aurizon Holdings has established guidelines to assist officers and employees of the Company comply 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.
5.2 Material Market
Announcements
The Board receives a copy of all announcements under Listing Rule 3.1 immediately prior to those announcements
being made to the ASX (noting that the Board may not approve or authorise all announcements made to the ASX).
5.3 New and
substantive investor or
analyst presentation
materials to be released
to the ASX ahead of
the presentation
Aurizon releases new and substantive presentations to the ASX prior to them being presented. This will typically
occur at the half year and full year results briefings, and prior to the Annual General Meeting.
Where practicable, Shareholders are provided with the opportunity to participate in such presentations, for example,
by providing dial-in details.
Principle 6: Respect the rights of security holders
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
6.1 Information
on website
6.2 Investor relations
programs
Aurizon Holdings keeps investors informed of its corporate governance, financial performance and prospects via
announcements to the ASX and Aurizon's 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 half year 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 senior 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.
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CORPORATE GOVERNANCE STATEMENT
43
Corporate Governance Statement
(continued)
Principle 6: Respect the rights of security holders (continued)
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
6.3 Facilitate
participation at
meetings of security
holders
6.4 Resolutions
decided by Poll
6.5 Option to receive
communications
electronically
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 at the Company’s AGM are determined by Poll.
Aurizon provides shareholders the option to receive communications from, and send communications to, the Company
and the share registry electronically.
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 Framework (Risk Policy).
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 and on page 9 of the Annual Report.
The Board reviews Aurizon’s Enterprise Risk Management Framework and Appetite at least annually to approve
updates, where required. 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. The Executive Committee regularly reviews and updates the enterprise risk profile to
satisfy itself that Aurizon is operating with due regard to the risk appetite set by the Board. 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.
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 discloses material exposures to environmental, social and governance (ESG) risks and associated
risk management strategies through our annual Sustainability Report. During FY2020, the Company published
its sixth Sustainability Report (for the period ended 30 June 2019). A copy of this report is available in the
Sustainability section of the Company’s website aurizon.com.au.
Aurizon’s FY2020 Sustainability Report will be published in October 2020. This will be the fourth 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 and supports the objectives of the Paris Agreement to find a pathway to limiting global
warming to below 2°C. Aurizon also acknowledges the objectives of the Paris Agreement to pursue efforts to
limit the temperature increase even further to 1.5°C. Climate change is affecting a wide range of industries globally,
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 primary channel for engaging with stakeholders on all ESG matters, including
our climate-related disclosures, is through the publication of our Sustainability Report, which is updated and
issued annually.
During FY2021, Aurizon will be publishing its inaugural Climate Strategy and Action Plan which will consolidate
Aurizon’s position on climate change underpinned by long-term strategies, actions and targets to mitigate
climate risk and leverage emerging opportunities.
Aurizon commits to supporting and respecting the protection of internationally proclaimed human rights, as
set out in the Universal Declaration of Human Rights and the 10 principles of the United Nations Global Compact.
Aurizon understands its responsibility to respect human rights and commit to providing transparency on any risks
that exist in Aurizon's supply chain and how they are being addressed. In accordance with legislation, Aurizon will
publish its first Modern Slavery Statement during 2020, which will describe the modern slavery risks associated with
its business activities and actions taken to address those risks.
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44
AURIZON ANNUAL REPORT 2019–20
Principle 8: Remunerate fairly and responsibly
RECOMMENDATION
AURIZON HOLDINGS’ COMPLIANCE WITH RECOMMENDATIONS
8.1 Remuneration
Committee
8.2 Disclosure
of Executive and
Non‑Executive
Director remuneration
policy
Aurizon Holdings’ remuneration function is performed by the Remuneration & Human Resources Committee,
comprising four members, all of whom are Independent Non-Executive Directors. Details of the membership of the
Remuneration & Human Resources Committee, including the names and qualifications of the Committee members,
are set out on pages 4 to 7 of the Annual Report.
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 9 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 senior executives with appropriate skills,
qualifications and experience to add value to the Company and fulfil the roles and responsibilities required.
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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 senior executives 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 are reviewed annually by the Board.
During the year, there were no agreements entered for the provision of consulting or similar services by a Director
or senior executive, or by a related party of a Director or senior executive.
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.
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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 2020
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
15. Capital risk
management
2. Revenue and
other income
3. Expenses
4. Impairment of
non-financial
assets
5. Income tax
8. Inventories
16. Dividends
9. Property, plant
and equipment
17. Equity and
reserves
10. Intangible
assets
11. Other assets
18. Borrowings
19. Financial risk
management
12. Trade and other
20. Derivative
6. Earnings per
payables
share
13. Provisions
14. Other liabilities
financial
instruments
21. Associates
and joint
arrangements
22. Material
subsidiaries
23. Parent
28. Notes to the
consolidated
statement of
cash flows
29. Related party
transactions
disclosures
30. Key
24. Deed of cross
guarantee
25. Business
combination
26. Discontinued
operation
27. Assets classified
as held for sale
Management
Personnel
compensation
31. Share-based
payments
32. Remuneration
of auditors
33. Summary of
other significant
accounting
policies
34. 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
35. Contingencies
36. Commitments
37. 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 in 2019-20 Annual Report
Page 100
Page 101
Page 108
46
AURIZON ANNUAL REPORT 2019–20
Consolidated income statement
for the year ended 30 June 2020
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 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 2020
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
26
6
6
Notes
17(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.
2020
$m
3,061.6
108.4
3,170.0
(791.6)
(231.3)
(107.2)
(440.7)
(558.6)
(5.7)
(20.4)
(0.1)
1,014.4
2.5
(151.0)
(148.5)
865.9
(260.8)
605.1
10.8
615.9
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
Cents
Cents
31.5
31.0
31.5
30.9
2020
$m
615.9
(35.7)
10.7
(25.0)
590.9
23.9
23.8
23.9
23.8
2019
$m
476.5
(50.6)
15.2
(35.4)
441.1
47
FINANCIAL REPORT
Consolidated balance sheet
as at 30 June 2020
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
Derivative financial instruments
Current tax liabilities
Provisions
Other liabilities
Liabilities directly associated with assets classified as held for sale
Total current liabilities
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Provisions
Other liabilities
Total non-current liabilities
Total liabilities
Net assets
EQUITY
Contributed equity
Reserves
Retained earnings
Total equity
The above consolidated balance sheet should be read in conjunction with the accompanying notes.
48
Notes
2020
$m
2019
$m
7
8
20
11
27
8
20
9
10
11
21
12
18
20
13
14
18
20
5(f)
13
14
17(a)
17(b)
29.3
460.1
145.8
0.2
14.8
65.1
715.3
38.1
220.8
8,537.1
187.5
70.5
2.7
9,056.7
9,772.0
323.0
657.6
35.1
83.4
271.3
101.3
0.7
1,472.4
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
2,949.6
3,220.8
45.7
605.3
64.0
277.3
3,941.9
5,414.3
4,357.7
506.6
3,395.1
456.0
4,357.7
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
AURIZON ANNUAL REPORT 2019–20 Consolidated statement of changes in equity
for the year ended 30 June 2020
Attributable to owners of Aurizon Holdings Limited
Balance at 30 June 2019
Adjustment on adoption of AASB 16
Balance at 1 July 2019
Profit for the year
Other comprehensive expense
Total comprehensive income/(expense) for the year
Transactions with owners in their capacity as owners:
Buy-back of ordinary shares
Dividends provided for or paid
Share-based payments
Balance at 30 June 2020
Balance at 1 July 2018
Profit for the year
Other comprehensive expense
Total comprehensive income/(expense) for the year
Transactions with owners in their capacity as owners:
Dividends provided for or paid
Share-based payments
Notes
34(a)
17(b)
17(a)
16(a)
17(b)
17(b)
16(a)
17(b)
Contributed
equity
$m
906.6
–
906.6
–
–
–
Reserves
$m
3,418.5
–
3,418.5
–
(25.0)
(25.0)
(400.0)
(0.4)
–
–
(400.0)
506.6
906.6
–
–
–
–
–
–
–
2.0
1.6
3,395.1
3,460.1
–
(35.4)
(35.4)
–
(6.2)
(6.2)
Balance at 30 June 2019
906.6
3,418.5
The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.
Retained
earnings
$m
352.3
1.6
353.9
615.9
–
615.9
–
(513.8)
–
(513.8)
456.0
363.4
476.5
–
476.5
(487.6)
–
(487.6)
352.3
Total
equity
$m
4,677.4
1.6
4,679.0
615.9
(25.0)
590.9
(400.4)
(513.8)
2.0
(912.2)
4,357.7
4,730.1
476.5
(35.4)
441.1
(487.6)
(6.2)
(493.8)
4,677.4
49
FINANCIAL REPORT Consolidated statement of cash flows
for the year ended 30 June 2020
Cash flows from operating activities
Receipts from customers (inclusive of GST)
Payments to suppliers and employees (inclusive of GST)
Interest received
Income taxes paid
Principal elements of lease receipts
Net cash inflow from operating activities from continuing operations
Net cash inflow/(outflow) from operating activities from discontinued operations
Net cash inflow from operating activities
Cash flows from investing activities
Payment for acquisition of subsidiary, net of cash acquired
Payments for property, plant and equipment
Proceeds from sale of business
Proceeds from sale of property, plant and equipment
Interest paid on qualifying assets
Payments for intangibles
Distributions received from associates
Net cash (outflow) from investing activities from continuing operations
Net cash inflow from investing activities from discontinued operations
Net cash (outflow) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Payments of transaction costs related to borrowings
Principal elements of lease payments
Interest paid
Proceeds from settlement of derivatives
Payments for buy-back of ordinary shares
Payments of transaction costs for buy-back of ordinary shares
Payments for shares acquired for share-based payments
Dividends paid to Company’s shareholders
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 (decrease)/increase in cash and cash equivalents from continuing operations
Net increase/(decrease) in cash and cash equivalents from discontinued operations
Cash and cash equivalents at the beginning of the financial year
Effects of exchange rate changes on cash and cash equivalents
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.
Notes
28
26
25
3
26
16
26
26
2020
$m
3,407.6
(2,032.1)
2.8
(146.5)
5.7
1,237.5
9.9
1,247.4
(24.5)
(492.3)
165.3
15.8
(3.9)
(32.1)
–
(371.7)
0.4
(371.3)
702.0
(486.0)
(4.8)
(14.6)
(151.1)
–
(400.0)
(0.4)
(3.2)
(513.8)
(871.9)
–
2019
$m
3,325.5
(1,867.4)
2.9
(145.3)
–
1,315.7
(25.4)
1,290.3
–
(407.8)
–
13.0
(3.9)
(32.8)
0.7
(430.8)
11.1
(419.7)
139.0
(390.0)
(2.4)
–
(150.5)
11.5
–
–
(0.6)
(487.6)
(880.6)
–
(871.9)
(880.6)
(6.1)
10.3
25.2
(0.1)
29.3
4.3
(14.3)
34.8
0.4
25.2
50
AURIZON ANNUAL REPORT 2019–20 Notes to the consolidated financial statements
30 June 2020
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
10 August 2020. 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 2019
› Equity account for associates and joint arrangements listed at note 21
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.
KEEPING IT SIMPLE
The “Keeping it simple” explanations are designed to provide
a high level overview of the accounting treatment of the more
complex sections of the financial statements. Disclosures in
the notes to the financial statements provide information
required by the Accounting Standards or ASX Listing Rules.
The notes provide explanations and additional disclosure
to assist readers’ understanding and interpretation of the
financial statements.
SIGNIFICANT JUDGEMENTS AND ESTIMATES
In the process of applying the Group’s accounting policies,
management has made a number of judgements and applied
estimates of future events. Details of the following judgements
and estimates which are material to the financial statements can
be found in the following notes:
Revenue
Impairment
Income tax
Useful lives
Discontinued operations
Note
2
4
5
9
26
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) Access revenue
2017 Access Undertaking
The Queensland Competition Authority (QCA) approved Aurizon Network
Pty Ltd’s (a wholly-owned subsidiary of the Group) consolidated Compliant
Access Undertaking and Volume Reset Draft Amending Access Undertaking
(DAAU) for the Central Queensland Coal Network (CQCN) on 21 February
2020. Key elements of the consolidated Compliant Access Undertaking
and Volume Reset DAAU include:
› Extending the term of the Access Undertaking to 10 years, from
1 July 2017 to 30 June 2027, enabling improved long-term investment
decisions for the CQCN;
› Greater customer involvement in assessing and pre-approving
strategies and annual budgets for asset renewals and replacement
(capital expenditure) and maintenance expenditure;
› The ability for operating cost efficiencies to be retained by Aurizon;
› An improved return which better reflects the risks of owning and
operating the CQCN; and
› A rebate mechanism to customers if Aurizon performs below target levels.
The Weighted Average Cost of Capital (WACC) applied under the Compliant
Access Undertaking and Volume Reset DAAU is 5.90%, increasing to 6.30%
upon completion of an independent capacity assessment of the CQCN. In
the event that a capacity deficit is identified, the WACC increase to 6.30%
will commence when Aurizon notifies relevant parties of proposed options
to address the deficit. The independent capacity assessment is expected to
be completed in the second half of financial year 2021.
The consolidated Compliant Access Undertaking and Volume Reset DAAU
approved by the QCA assumed the independent capacity assessment would
be complete by 1 March 2020 and therefore, a combined WACC of 6.03%
(5.90% July – February, 6.30% March – June) would apply for financial year
2020. The delay in the independent capacity assessment and the higher
WACC of 6.30% applying has resulted in an over-collection of access charges
in financial year 2020 which forms part of the revenue cap adjustment. The net
financial year 2020 revenue cap adjustment is up to $3.0 million and includes
the over-recovery of WACC offset by a volume under-recovery and other
adjustments. The net revenue cap adjustment is collectible in financial year
2022 and is subject to QCA approval.
Access revenue for the period has been recognised based on the consolidated
Compliant Access Undertaking and Volume Reset DAAU.
51
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2020 (continued)
Key events and transactions for
reporting period (continued)
(a) Access revenue (continued)
Wiggins Island Rail Project (WIRP)
In the 2019 financial year, legal proceedings occurred 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 non-regulated WIRP
fee. On 27 June 2019, the Supreme Court of Queensland ruled in the
Group’s favour. Customers appealed that decision and that appeal
was heard in the Queensland Court of Appeal between 10 March 2020
and 12 March 2020. A decision of the Queensland Court of Appeal is
expected to be delivered in the first half of financial year 2021.
The WIRP customers also initiated other disputes under their respective
WIRP Deeds which were the subject of an expert determination in
February 2019. 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
of Queensland proceedings and will not impact the 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 2020 financial year.
(b) 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, as such,
the Intermodal business is disclosed as a discontinued operation from
that date.
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).
On 6 May 2020, the Full Federal Court unanimously dismissed an appeal
by the ACCC that the sale of the Acacia Ridge Intermodal Terminal
to Pacific National contravened section 50 of the Commonwealth’s
Competition and Consumer Act (2010). On 26 June 2020, the ACCC
sought special leave to the High Court to appeal the decision of the
Full Federal Court.
It is anticipated that the special leave application decision will be
received before the end of calender year 2020. 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 2020.
The Queensland Intermodal business was sold to Linfox Australia Pty Ltd
on 31 January 2019.
(c) Sale of rail grinding business
Sale of the rail grinding business to Loram Pty Ltd completed on
31 October 2019. The net gain on sale of $105.4 million has been
classified as a significant item.
(d) Acquisition of Flinders TBSH Pty Ltd
Aurizon Operations Limited (a wholly-owned subsidiary of the
Group) acquired 100% of the issued shares in Flinders TBSH Pty Ltd,
a bulk transport, handling and stevedoring services provider in North
Queensland, for consideration of $24.8 million on 20 March 2020. The
company was renamed Aurizon Port Services Pty Ltd. The acquisition
includes long-term leases at the Port of Townsville with bulk storage
warehouses and handling facilities adjacent to rail lines. Refer to note 25
for further information.
(e) Debt refinancing
During the year Aurizon Network Pty Ltd:
› Reduced the capacity of the syndicated bank debt facility maturing
July 2021 from $490.0 million to $380.0 million in July 2019;
› Issued a long term $82.0 million fixed rate Medium Term Note maturing
22 March 2030 in September 2019; and
› Cancelled existing syndicated bank debt facility maturing July
2021 and October 2022 and replaced them with bilateral bank debt
facilities totalling $1,300.0 million maturing June 2023 – June 2025
in June 2020.
$525.0 million Medium Term Note maturing October 2020 (AMTN 1)
is classified as a current liability and the Group has sufficient bank debt
facility capacity to repay the Medium Term Note.
(f) On-market share buy-back scheme
The Group has completed an on-market share buy-back program of
up to $400.0 million. The Group acquired 75.5 million shares for total
consideration of $400.0 million.
(g) Deed of Cross Guarantee
The Deed of Cross Guarantee, for which Aurizon Holdings Limited was
the Trustee, was revoked effective 14 February 2020. Aurizon Operations
Limited has subsequently entered a Deed of Cross Guarantee as Trustee
with all parties of the former consolidated group (the ‘closed group’),
except for Aurizon Holdings Limited, on 22 April 2020. Refer to note 24
for further information.
(h) Change in accounting policies
The Group adopted AASB 16 Leases retrospectively from 1 July 2019
and comparatives for the 2019 financial year have not been restated
as permitted under specific transitional provisions in the standard.
The impact of the new leasing standard and change in accounting
policies are disclosed in note 34.
(i) Impact of COVID-19
COVID-19 has had no material impact on the Group in financial year
2020. The potential risk of the COVID-19 pandemic on key assumptions
used in impairment testing and assessment of useful lives is included in
the significant judgement disclosures.
52
AURIZON ANNUAL REPORT 2019–20 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
53
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. Information relating to discontinued operations
is included in note 26.
(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 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 2020 (continued)AURIZON ANNUAL REPORT 2019–20 1 Segment information (continued)
(b) Segment information
Network
$m
Coal
$m
Bulk
$m
Other
$m
Total continuing
operations
$m
30 June 2020
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)1,2
Depreciation and amortisation
Continuing EBIT (Underlying)1
Significant adjustments (note 1(c))
EBIT1
Net finance costs
Profit before income tax from continuing operations
1 Refer to page 108 for Non-IFRS financial information.
617.4
–
18.7
29.0
665.1
514.3
–
9.1
523.4
1,188.5
–
1,188.5
798.1
(329.3)
468.8
512.8
1,260.3
–
2.2
1,775.3
–
–
–
–
–
568.8
23.1
1.0
592.9
–
14.6
1.3
15.9
1,775.3
608.8
–
–
1,775.3
608.8
–
–
16.2
12.1
28.3
–
–
9.4
9.4
37.7
3.0
40.7
616.4
(205.8)
410.6
110.1
(20.2)
89.9
(57.0)
(3.3)
(60.3)
1,130.2
1,829.1
58.0
44.3
3,061.6
514.3
14.6
19.8
548.7
3,610.3
3.0
3,613.3
(548.7)
3,064.6
1,467.6
(558.6)
909.0
105.4
1,014.4
(148.5)
865.9
2 Refer to note 34 for details regarding the impact of changes in the Group’s accounting policies following the adoption of the new leasing standard from 1 July 2019
on segment information. The new leasing standard has been adopted retrospectively and comparatives for the 2019 financial year have not been restated as permitted
under specific transitional provisions in the standard.
55
Notes to the consolidated financial statements30 June 2020 (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 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)1
Depreciation and amortisation
Continuing EBIT (Underlying)1
EBIT1
Net finance costs
Profit before income tax from continuing operations
1 Refer to page 108 for Non-IFRS financial 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
56
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 1 Segment information (continued)
(c) Significant adjustments
The Group’s underlying results differ from the statutory results. The
exclusion of certain items permits a more appropriate and meaningful
analysis of the Group’s underlying performance on a comparative basis.
Net gain on sale of rail grinding business
(before income tax)
Total significant adjustments
(continuing operations)
2020
$m
2019
$m
105.4
105.4
–
–
Total significant adjustments from continuing operations, net of tax
is $73.8 million.
For disclosure on the significant items relating to discontinued
operations refer to note 26.
(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:
Customer 1
Customer 2
Total
2020
$m
522.2
438.2
960.4
2019
$m
2020
credit rating
2019
credit rating
488.7
405.9
894.6
A
BBB+
A
BBB+
2 Revenue and other income
KEEPING IT SIMPLE
Aurizon recognises revenue from the provision of access
to the CQCN and the provision of freight haulage services
across Australia.
The Group derives the following types of revenue:
Services revenue
Track access
Freight transport
Other services
Other revenue
1,130.2
1,829.1
58.0
44.3
1,077.7
1,701.4
74.3
51.8
Total revenue from continuing operations
3,061.6
2,905.2
Other income
108.4
2.4
Total revenue and other income from
continuing operations
3,170.0
2,907.6
Other income includes net gain on sale of rail grinding business.
(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 recognised the following revenue related contract assets:
Current
Contract assets for freight transport
Customer contract costs
Non-current
Contract assets for freight transport
Customer contract costs
2020
$m
2019
$m
0.2
1.1
1.3
14.7
7.2
21.9
–
–
–
–
–
–
Contract assets primarily represent incremental costs incurred to secure
new or extensions to existing customer contracts. These amounts
are capitalised and amortised against revenue as the performance
obligations are satisfied over time.
Within one year
Later than one year but not later than five years
Later than five years
2020
$m
1.3
16.3
5.6
23.2
2019
$m
–
–
–
–
(ii) Contract liabilities
The Group has recognised the following revenue-related
contract liabilities:
2020
$m
2019
$m
Current
Advances for freight transport
Advances for other services
Non-current
Advances for freight transport
Advances for other services
2020
$m
2019
$m
2.0
26.5
28.5
14.4
136.0
150.4
1.8
26.4
28.2
3.9
161.1
165.0
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.
57
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 2 Revenue and other income (continued)
SIGNIFICANT JUDGEMENTS
(b) Contract assets and liabilities (continued)
(ii) Contract liabilities (continued)
Within one year
Later than one year but not later than five years
Later than five years
2020
$m
28.5
109.7
40.7
178.9
2019
$m
28.2
124.7
40.3
193.2
The reduction in contract liabilities primarily represents revenue
recognised for prepayments from future access charges in previous
financial years, offset by freight revenue received in advance under
transport agreements during the financial year.
(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
2020
$m
2019
$m
0.4
26.8
27.2
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
Take-or-Pay clauses may trigger when annual volumes railed are
less than the regulatory forecast. Take-or-Pay is calculated based
on management’s judgement of below rail cause versus above rail
operator/mine cancellations. This judgement impacts the calculation
of Take-or-Pay and the receivable recognised in the year that the
contractual railings were not achieved. Take-or-Pay revenue of
$25.6 million has been recognised at 30 June 2020 (2019: $4.2 million).
Wiggins Island Rail Project (WIRP) Access Revenue
In the 2019 financial year, legal proceedings occurred 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
non-regulated WIRP fee. On 27 June 2019, the Supreme Court of
Queensland ruled in the Group’s favour. Customers appealed that
decision and that appeal was heard in the Queensland Court of
Appeal between 10 March 2020 and 12 March 2020. A decision of the
Queensland Court of Appeal is expected to be delivered in the first
half of financial year 2021.
The WIRP customers also initiated other disputes under their
respective WIRP Deeds which were the subject of an expert
determination in February 2019. 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 of Queensland proceedings and will
not impact the 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 2020 financial year.
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 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.
58
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20
2 Revenue and other income (continued)
(c) Recognition and measurement (continued)
(i) Track access (continued)
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.
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.
Access revenue for the financial year has been recognised based on the
consolidated Compliant Access Undertaking and Volume Reset DAAU.
Refer to key events and transactions during the reporting period for
further information.
(ii) Freight transport
Freight transport revenue is recognised as the relevant performance
obligations are satisfied over time, being the provision of freight
transport services.
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.
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 don’t 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 asset is recorded for revenue when the Group does not
have an unconditional right to invoice the customer for performance
obligations satisfied. 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.
3 Expenses
Profit before income tax from continuing operations includes the
following specific expenses:
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 losses1
Property, plant and equipment
Intangibles
1 Refer to note 4 for information.
Finance expenses
2020
$m
2019
$m
10.2
57.9
16.0
707.5
791.6
530.8
27.8
558.6
5.7
–
5.7
11.4
54.3
21.4
691.5
778.6
516.9
25.7
542.6
24.7
0.2
24.9
Interest and finance charges paid/payable
152.3
155.1
Interest paid on lease liability
Provisions: unwinding of discount
Amortisation of capitalised borrowing costs
Amortisation of AMTN 2 fair value adjustment
Counterparty credit risk adjustments
Amount capitalised to qualifying assets
5.1
–
3.8
(2.4)
(3.9)
154.9
(3.9)
151.0
–
0.1
3.5
(0.9)
(3.9)
153.9
(3.9)
150.0
59
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2020 (continued)
4 Impairment of non-financial assets
Continuing operations
Bulk impairment
Asset impairment as a result of transfer to held
for sale
Other assets
Discontinued operations
Intermodal impairment
Total impairment of non-financial assets
2020
$m
2019
$m
–
–
5.7
5.7
–
5.7
11.4
13.5
–
24.9
25.1
50.0
(a) Impairment of non-financial assets
Current period
An impairment charge has been recognised for other assets not in use
as at 30 June 2020 for which the carrying amount is not considered
recoverable. This impairment has not been classified as a significant item.
Prior period
(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 during
the 2017 and 2018 financial years. The Bulk East CGU continued to be
valued under FVLCD methodology during the 2019 financial year, and as
a result, an impairment charge of $11.4 million was recorded in respect
of additional sustaining capital expenditure not considered recoverable.
The residual carrying value of property, plant and equipment as at 30
June 2019 was $45.8 million. This impairment was not 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 was recognised in the 2019 financial year. This impairment
was not classified as a significant item.
(iii) Discontinued operations – Intermodal impairment
($25.1 million)
As a result of the sale of the Queensland Intermodal business an asset
impairment of $25.1 million was recognised at 30 June 2019.
SIGNIFICANT JUDGEMENTS
The Group considers annually whether there have been any indicators
of impairment or impairment reversal and then tests whether non-
current assets have suffered any impairment, in accordance with the
accounting policy stated in note 9 and note 10.
Impairment tests for cash generating units (CGUs) and goodwill
CGUs are tested for impairment whenever events or circumstances
indicate that the carrying amount may not be recoverable. CGUs
containing goodwill are tested for impairment annually, or more
frequently if events or changes in circumstances indicate that it might
be impaired. CGUs that have previously recognised an impairment to
the carrying amount are reviewed for impairment reversal whenever
events or changes in circumstances indicate that the recoverable
amount may exceed the carrying amount.
Indicators of impairment reversal were identified for the Bulk East and
Western Australian CGUs.
The recoverable amount of a CGU is determined based on value in
use calculations. These calculations use cash flow projections based
on a corporate plan approved by the Board covering a four-year
period. Cash flows beyond the four-year period are extrapolated
using estimated growth rates.
The Group applies a pre-tax discount rate of 10.4% (2019: 10.9%) and
terminal growth rate of 2.0% (2019: 2.0%) to the below CGUs. There
is a risk that the assumptions applied to the CGUs below may be
impacted by the effects of either COVID-19 or climate-related emerging
risks and don’t reflect the actual future impact. The recoverable amount
of the Bulk East and Western Australia CGUs were tested for sensitivity
of the pre-tax discount rate as well as other factors as noted below.
Bulk East CGU
The Bulk East CGU includes goodwill of $5.2 million acquired on
acquisition of a subsidiary (refer to note 25) in the financial year.
The CGU was previously impaired under fair value less costs of disposal
methodology. The recoverable amount of the CGU is now determined
based on the value in use methodology. The recoverable amount is
sensitive to changes in customer contractual arrangements and should
any major contracts not be renewed, this may result in a reduction to
the recoverable amount of the CGU. The recoverable amount of the
CGU supports the carrying amount including goodwill, therefore no
further impairment has been recognised. Due to the sensitivity of the
recoverable amount to the renewal of major customer contracts, no
reversal of previous impairment has been recognised.
Western Australia CGU
The Western Australia CGU was previously impaired under value
in use methodology. The Western Australia CGU has a small number
of customers and the recoverable amount is sensitive to changes in
customer contractual arrangements. The recoverable amount of the
CGU was determined taking into consideration expected end of mine
life for major contracts. 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. The recoverable amount of the CGU supports the
carrying amount, therefore no further impairment has been recognised.
Due to the sensitivity in major customer assumptions no reversal of
previous impairment has been recognised.
Impairment tests for property, plant and equipment
Assets that are subject to depreciation and amortisation are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Assets
that have previously been impaired are reviewed for impairment
reversal whenever events or changes in circumstance indicate that
the recoverable amount may exceed the carrying amount.
The Group prepares an Enterprise Fleet Plan to determine the level
of rollingstock required. The Enterprise Fleet Plan covers a 10-year
period and key assumptions include forecast volumes, productivity
and required level of contingent fleet.
There is a risk that the key assumptions applied may be impacted by
the effects of either COVID-19 or climate-related emerging risks and
the forecast volumes, productivity or contingent fleet requirements
don’t reflect the actual rollingstock required.
60
AURIZON ANNUAL REPORT 2019–20
Notes to the consolidated financial statements
30 June 2020 (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.
Current tax
Deferred tax
Current tax relating to prior periods
Deferred tax relating to prior periods
2020
$m
186.6
81.2
1.1
(3.7)
2019
$m
127.6
73.4
(1.5)
1.3
265.2
200.8
Income tax expense/(benefit) is attributable to:
Profit from continuing operations
260.8
208.6
Profit/(loss) from discontinued operations
(note 26(b))
Deferred income tax expense included in
income tax expense comprises:
Increase/(decrease) in deferred tax assets
(note 5(e))
Increase in deferred tax liabilities (note 5(f))
4.4
265.2
(7.8)
200.8
11.7
65.8
77.5
(21.2)
95.9
74.7
(b) Numerical reconciliation of income tax expense to prima
facie tax payable
Profit before income tax expense from
continuing operations
Profit/(loss) before income tax expense from
discontinued operations
Tax at the Australian tax rate of 30% (2019: 30%)
Tax effect of amounts which are not deductible
(taxable) in calculating taxable 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 debited/(credited) to equity
2020
$m
2019
$m
865.9
681.9
15.2
881.1
264.3
(4.6)
677.3
203.2
1.1
2.4
(2.6)
3.6
(5.8)
(0.2)
265.2
200.8
2020
$m
2019
$m
0.7
(1.6)
(d) Tax expense/(benefit) relating to items of other
comprehensive income
Cash flow hedges
2020
$m
(10.7)
2019
$m
(15.2)
61
FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2020 (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
2020
$m
265.2
2019
$m
236.1
(265.2)
(236.1)
–
–
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax assets:
Consumables
and spares
$m
Provisions/
accruals
$m
Customer
contracts
$m
Unearned
revenue
$m
Financial
instruments
$m
Movements
At 1 July 2019
Adjustment on adoption of AASB 16
Acquisition of subsidiary (note 25)
(Charged)/credited
– to profit or loss
– to other comprehensive income
– directly to equity
At 30 June 2020
At 1 July 2018
(Charged)/credited
– to profit or loss
– to other comprehensive income
– directly to equity
At 30 June 2019
(f) Deferred tax liabilities
7.0
–
–
2.1
–
–
9.1
(1.2)
8.2
–
–
7.0
108.7
–
0.2
7.3
–
–
12.2
–
–
(2.6)
(7.3)
(3.2)
–
–
106.3
121.3
–
–
–
14.7
(12.6)
(7.4)
–
–
108.7
–
–
7.3
–
–
9.0
11.9
0.3
–
–
12.2
Other
$m
15.8
26.2
4.4
(5.8)
–
(0.7)
39.9
Total
$m
236.1
26.2
4.6
(11.7)
10.7
(0.7)
265.2
85.1
–
–
5.1
10.7
–
100.9
41.9
9.5
198.1
28.0
15.2
–
85.1
4.7
–
1.6
15.8
2020
$m
870.5
21.2
15.2
1.6
236.1
2019
$m
773.5
(265.2)
(236.1)
605.3
537.4
Total deferred tax liabilities
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax liabilities
The table below outlines the temporary differences and movements in those temporary differences that comprise the deferred tax liabilities:
Movements
At 1 July 2019
Adjustment on adoption of AASB 16
Acquisition of subsidiary (note 25)
Charged/(credited)
– profit or loss
At 30 June 2020
At 1 July 2018
Charged/(credited)
– profit or loss
At 30 June 2019
62
Non-current
assets
$m
Accrued
income
$m
Financial
instruments
$m
711.8
26.2
5.0
58.4
801.4
642.3
69.5
711.8
2.4
–
–
0.4
2.8
1.7
0.7
2.4
59.3
–
–
7.0
66.3
33.6
25.7
59.3
Total
$m
773.5
26.2
5.0
65.8
870.5
677.6
95.9
773.5
AURIZON ANNUAL REPORT 2019–20
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 the 2016 financial year 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 and 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 where there is a legally
enforceable right to offset current tax assets and liabilities and where
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
2020
Cents
2019
Cents
31.5
31.0
23.9
23.8
(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:
2020
Cents
2019
Cents
31.5
30.9
23.9
23.8
2020
Number
‘000
2019
Number
‘000
1,952,895
1,990,128
Rights
2,918
1,567
Weighted average number of ordinary
and potential ordinary shares used as the
denominator in calculating diluted EPS
1,955,813
1,991,695
63
Notes to the consolidated financial statements30 June 2020 (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 Other assets
12 Trade and other payables
13 Provisions
14 Other liabilities
Page 65
Page 65
Page 66
Page 69
Page 70
Page 70
Page 70
Page 72
64
AURIZON ANNUAL REPORT 2019–20
Notes to the consolidated financial statements30 June 2020 (continued) 7 Trade and other receivables
8 Inventories
2020
$m
2019
$m
Current
366.1
Raw materials and stores – at cost
(5.8)
Provision for inventory obsolescence
Non-current
Raw materials and stores – at cost
Provision for inventory obsolescence
2020
$m
2019
$m
155.9
(10.1)
145.8
50.5
(12.4)
38.1
130.9
(13.7)
117.2
53.0
(12.8)
40.2
Recognition and measurement
Inventories include infrastructure and rollingstock items held in
centralised stores, workshops and depots. Inventories are measured
at the lower of cost and net realisable value. Cost is determined
predominantly on an average cost basis.
Items expected to be consumed after more than one year are classified
as non-current.
The provision for inventory obsolescence is based on assessments by
management of particular inventory classes and relates specifically
to infrastructure and rollingstock maintenance items. The amount of
the provision is based on a proportion of the value of damaged stock,
slow moving stock and stock that has become obsolete during the
reporting period.
Current
Trade receivables
Provision for impairment of receivables
Net trade receivables
Other receivables
352.1
(7.7)
344.4
115.7
460.1
360.3
121.5
481.8
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 financial year, $1.9 million of
the provision for impairment of receivables was expensed to profit
or loss (2019: $21.9 million released).
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 and outlook. The trade
receivable balances disclosed are unsecured and represent the
Group’s maximum exposure to credit risk.
AURIZON ANNUAL REPORT 2016–17
65
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT
9 Property, plant and equipment
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Right-
of-use
$m
Total
$m
2020
Opening net book amount
281.7
138.9
266.1
285.7
2,202.0
5,361.9
–
8,536.3
Adjustment for change in
accounting policy (note 34(a))
–
–
Restated opening net book amount
281.7
138.9
Additions
Transfers between asset classes
Acquisition of subsidiary (note 25)
Disposals
494.6
(473.9)
–
–
–
0.3
–
(1.1)
Assets classified as held for sale
(1.3)
(13.8)
Depreciation1
Impairment2
–
–
–
–
(48.9)
217.2
–
10.5
6.1
(2.6)
(7.2)
(12.6)
–
Closing net book amount
301.1
124.3
211.4
–
–
–
102.2
53.3
285.7
2,202.0
5,361.9
102.2
8,589.6
–
20.5
11.6
(1.9)
(0.1)
(43.8)
(1.9)
270.1
–
139.4
–
(0.1)
–
–
303.3
0.9
(5.4)
(5.8)
0.3
–
14.6
(4.7)
–
494.9
0.1
33.2
(15.8)
(28.2)
(162.4)
(298.0)
(14.2)
(531.0)
–
–
(3.8)
(5.7)
2,178.9
5,356.9
94.4
8,537.1
At 30 June 2020
Cost
Accumulated depreciation
and impairment
Net book amount
Owned
Leased
2019
Opening net book amount
Additions
Transfers between asset classes
Disposals
Assets classified as held for sale
Depreciation1
Impairment2
Closing net book amount
At 30 June 2018
Cost or fair value
Accumulated depreciation
and impairment
Net book amount
Owned
Leased
301.1
124.3
461.1
670.1
5,284.7
7,917.6
120.0
14,878.9
–
301.1
301.1
–
124.3
98.5
25.8
301.1
124.3
–
(249.7)
(400.0)
(3,105.8)
(2,560.7)
(25.6)
(6,341.8)
211.4
209.5
1.9
211.4
270.1
270.1
–
270.1
2,178.9
2,178.9
–
2,178.9
5,356.9
985.5
4,371.4
5,356.9
94.4
8,537.1
–
4,043.6
94.4
94.4
4,493.5
8,537.1
Assets under
construction
$m
Land
$m
Buildings
$m
Plant and
equipment
$m
Rollingstock
$m
Infrastructure
$m
Total
$m
275.3
467.6
(424.7)
–
(25.2)
–
(11.3)
281.7
126.5
–
0.6
(1.9)
13.7
–
–
138.9
231.3
–
64.0
(5.7)
5.9
(19.6)
(9.8)
266.1
327.6
–
41.3
(3.1)
(27.7)
(50.7)
(1.7)
285.7
2,231.7
–
128.6
(1.1)
(0.1)
(155.2)
(1.9)
5,467.5
8,659.9
–
192.3
(5.1)
1.1
(291.6)
(2.3)
467.6
2.1
(16.9)
(32.3)
(517.1)
(27.0)
2,202.0
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
–
138.9
113.4
25.5
138.9
(254.1)
(369.6)
(2,963.2)
(2,282.3)
(5,869.2)
266.1
264.0
2.1
266.1
285.7
285.7
–
285.7
2,202.0
2,202.0
–
2,202.0
5,361.9
973.4
4,388.5
5,361.9
8,536.3
4,120.2
4,416.1
8,536.3
1 Depreciation of $531.0 million (2019: $517.1 million) includes depreciation from continuing operations of $530.8 million (2019: $516.9 million) (note 3) and discontinued
operations of $0.2 million (2019: $0.2 million) (note 26).
2 Impairment of $5.7 million (2019: $27.0 million) includes impairment from continuing operations of $5.7 million (2019: $24.7 million) (note 3) and discontinued operations
of $nil (2019: $2.3 million) (note 26).
66
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 9 Property, plant and equipment
(continued)
SIGNIFICANT JUDGEMENTS
Useful lives
The useful lives of assets are determined based on the expected
period of time over which economic benefits from use of the asset
will be derived. The useful life of assets is reviewed on an annual
basis with consideration of key assumptions including historical
and forecast usage rates, technological advancements, changes in
legal and economic environments.
The useful life of property, plant and equipment in use in the
Queensland Coal, New South Wales and Network CGUs were reviewed
in the financial year due to the potential effects of COVID-19 and
climate-related emerging risks. The assumptions reviewed included
volume growth, including a negative volume growth scenario to reflect
the potential impact on thermal coal exports, and expected end of mine
life for major contracts. The assumptions reviewed support the remaining
useful life of property, plant and equipment in use in these CGUs.
There is a risk that the assessment of factors used to determine
useful lives of property, plant and equipment may be impacted by
the effects of either COVID-19 or climate-related emerging risks and
as a result useful lives may be revised in the future resulting in a
change in depreciation rates.
(a) Leases
The Group has adopted AASB 16 Leases retrospectively from 1 July
2019, and has not restated comparatives for the 2019 financial year
as permitted under the specific transitional provisions in the standard.
The reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on 1 July
2019. Refer note 34(a) for further information.
On adoption of AASB 16 Leases, fit-out assets relating to leased buildings
were reclassified to right-of-use. Coal infrastructure, corridor land and
buildings captured by leases with the State and Queensland Rail as
noted below were not reclassified to the right-of-use asset class in order
to continue to show the breakdown of the carrying amount of these
right-of-use assets across the respective asset classes.
Right-of-use assets
The Group primarily leases buildings with terms mostly ranging from
one to 20 years. The leases generally provide the Group with the right
to renewal at which time the lease terms are renegotiated. The Group
applies the following practical expedients permitted by the standard:
Corridor land and buildings
Aurizon Network Pty Ltd, leases corridor land and buildings owned by
the State. The leases expire on 30 June 2109 and rental is $1 per year if
demanded. As the rental is only payable if demanded, no lease liability is
recognised on balance sheet for corridor land and buildings.
(i) Amounts recognised in the consolidated balance sheet
The balance sheet includes the following amounts relating to leased assets:
Right-of-use assets
Buildings
Equipment
Other leased assets2
Coal infrastructure
Corridor land
Buildings
Total leased assets
Lease liabilities
Current
Non-current
2020
$m
88.8
5.6
94.4
1 July
2019
$m1
101.7
0.5
102.2
4,371.4
4,388.5
25.8
1.9
25.5
2.1
4,399.1
4,416.1
4,493.5
4,518.3
17.4
125.4
142.8
14.1
128.8
142.9
1 Refer to note 34 for details regarding the impact of changes in the Group’s
accounting policies following the adoption of the new leasing standard from
1 July 2019
2 Reflects the assets of the CQCN
(ii) Amounts recognised in consolidated income statement
The consolidated income statement includes the following amounts
relating to right-of-use assets:
Right-of-use assets
Buildings
Equipment
› Payments for short-term leases of less than 12 months are recognised
as an expense in profit or loss as incurred; and
Other leased assets
Coal infrastructure
› Payments for leases for which the underlying asset is of a low value
Buildings
are recognised as an expense in profit or loss as incurred.
Coal infrastructure
The Group leases infrastructure assets including:
› CQCN from the State; and
› North Coast Line owned by Queensland Rail.
The infrastructure assets are leased to Aurizon Network Pty Ltd. The
term of each lease is 99 years, expiring 30 June 2109, at a rental of $1 per
year if demanded. The State and Queensland Rail (Infrastructure Lessors)
have an option to extend the infrastructure leases by a further 99 years,
with at least 20 years notice prior to expiry of the existing term. As the
rental is only payable if demanded, no lease liability is recognised on
balance sheet for coal infrastructure assets.
Total leased assets depreciation
Interest expense (included in net finance costs)
Expense relating to short-term leases
(included in consumables)
Expenses relating to variable lease
payments not included in lease liabilities
(included in consumables)
The total cash outflow for leases during the financial year was $25.9 million.
67
2020
$m
2019
$m
13.5
0.7
14.2
–
–
–
245.7
240.6
0.2
245.9
260.1
5.1
1.4
4.8
0.2
240.8
240.8
–
–
–
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 9 Property, plant and equipment
(continued)
Gains and losses
Gains and losses on disposals are determined by comparing proceeds
with carrying amount. These are included in profit or loss.
(b) Recognition and measurement
(i) Property, plant and equipment
Carrying value
Property, plant and equipment (including leased coal infrastructure,
corridor land and buildings) are stated at historical cost, less any
accumulated depreciation or impairment. Historical costs include
expenditure that is directly attributable to the acquisition of the
items, gains or losses on qualifying cash flow hedges of foreign
currency purchases transferred from equity and capitalised interest.
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. All repairs
and maintenance are charged to profit or loss during the financial
period in which they are incurred.
Depreciation
Depreciation is calculated on a straight-line basis, except for motor
vehicles included in plant and equipment for which depreciation is
calculated on a diminishing value method. Straight-line allocates the
cost of an item of property, plant and equipment net of residual values
over the expected useful life of each asset. Estimates of remaining useful
life and residual values are reviewed and adjusted, if appropriate, on an
annual basis.
The Group builds mine specific infrastructure for customers and provides
access to those customers under access facilitation deeds. Infrastructure
controlled by the Group under these deeds is depreciated over the term
of the deed, except for where economic benefits are expected to flow
to the Group after the end of the term of the deed.
The depreciation rates used for each class of assets are:
Infrastructure, including:
- Tracks
- Track turnouts
- Ballast
- Civil works
- Bridges
- Electrification
- Field signals
Buildings
Rollingstock, including:
- Locomotives
- Locomotives componentisation
- Wagons
- Wagon componentisation
Plant and equipment
8 – 50 years
20 – 25 years
8 – 20 years
20 – 100 years
30 – 100 years
20 – 50 years
15 – 40 years
10 – 40 years
25 – 35 years
8 – 12 years
25 – 35 years
10 – 17 years
3 – 20 years
An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
(ii) Leases
Until 30 June 2019, leases of property, plant and equipment were
classified as either finance or operating leases (refer to note 33(d)).
From 1 July 2019, leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is available
for use by the Group. 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.
Assets and liabilities arising from a lease are initially measured on a
present value basis. Lease liabilities include the net present value of
the following lease payments:
› fixed payments (including in-substance fixed payments), less any
lease incentives receivable;
› variable lease payments that are based on an index or a rate; and
› payments of penalties for terminating the lease, if the lease term
reflects the lessee exercising that option.
The lease payments are discounted using the Group’s incremental
borrowing rate, being the rate that the Group would have to pay to
borrow the funds necessary to obtain an asset of similar value in a
similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
› the amount of the initial measurement of lease liability;
› any lease payments made at or before the commencement date less
any lease incentives received; and
› any initial direct costs.
Right-of-use assets are depreciated over the shorter of the asset’s useful
life and the lease term on a straight-line basis. Depreciation is calculated
using the straight-line method over the estimated useful life which varies
from two to 20 years.
(iii) Impairment of assets
Assets that are subject to depreciation and amortisation are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Assets that have
previously been impaired are reviewed for impairment reversal whenever
events or changes in circumstance indicate that the recoverable amount
may exceed the carrying amount.
An impairment loss is recognised for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an assets fair value less cost of disposal and
value in use.
For the purpose of assessing impairment, assets are grouped at the
lowest levels for which there are separately identified cash flows
(cash generating units).
68
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 10 Intangible assets
2020
Opening net book amount
Additions
Transfers between asset classes
Acquisition of subsidiary (note 25)
Amortisation
Closing net book amount
At 30 June 2020
Cost
Accumulated amortisation and impairment
Net book amount
2019
Opening net book amount
Additions
Transfers between asset classes
Amortisation
Impairment
Closing net book amount
At 30 June 2019
Cost
Accumulated amortisation and impairment
Net book amount
Recognition and measurement
(i) Goodwill
Goodwill represents the excess of the cost of an acquisition over the
fair value of the Group’s share of net identifiable assets of the acquired
subsidiary or business at the date of the acquisition. Goodwill on
acquisitions of subsidiaries is included in intangible assets. Goodwill
is not amortised. Instead, it is tested for impairment annually, or more
frequently if events or changes in circumstances indicate that it might
be impaired, and is carried at cost less accumulated impairment
losses. Any impairment is recognised as an expense and is not
subsequently reversed.
Goodwill is allocated to cash generating units for the purpose of
impairment testing. The allocation is made to those cash generating
units or group of cash generating units that are expected to benefit
from the business combination in which the goodwill arose.
Goodwill
$m
Software
$m
Software under
development
$m
–
–
–
5.2
–
5.2
5.2
–
5.2
158.2
–
29.7
–
(27.8)
160.1
371.3
(211.2)
160.1
18.7
33.3
(29.8)
–
–
22.2
22.2
–
22.2
Software
$m
Software under
development
$m
Key customer
contracts
$m
126.6
-
57.5
(25.7)
(0.2)
158.2
344.1
(185.9)
158.2
46.0
32.3
(59.6)
–
–
18.7
18.7
–
18.7
–
–
–
–
–
–
3.0
(3.0)
–
Total
$m
176.9
33.3
(0.1)
5.2
(27.8)
187.5
398.7
(211.2)
187.5
Total
$m
172.6
32.3
(2.1)
(25.7)
(0.2)
176.9
365.8
(188.9)
176.9
(ii) Software
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 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 is stated at historical cost, less any accumulated amortisation
or impairment. Amortisation is calculated using the straight-line method
over the estimated useful life which varies from three to 11 years.
69
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT
11 Other assets
13 Provisions
Current
Contract assets
Lease receivable
Other current assets
Non-current
Contract assets
Lease receivable
Other non-current assets
2020
$m
2019
$m
1.3
6.5
7.0
14.8
21.9
48.6
–
70.5
–
–
6.2
6.2
–
–
8.6
8.6
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
2020
$m
2019
$m
229.3
8.6
20.9
12.5
271.3
13.4
9.7
2.9
38.0
–
64.0
335.3
2020
$m
67.1
112.0
63.6
242.7
234.7
1.4
33.6
3.3
273.0
12.6
10.9
3.0
34.2
2.2
62.9
335.9
2019
$m
55.4
110.5
81.4
247.3
Land rehabilitation
Other provisions
Total provisions
(a) Employee benefits
Annual leave
Long service leave
Other1
1 Included in other employee benefits are short-term incentives, 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 plan and redundancy provision. Included in long service leave
are all unconditional entitlements where employees have completed
the required period of service and also a provision for the probability
that employees will reach the required period of service. Based on past
experience, the Group does not expect all employees to take the full
amount of accrued leave or require payment within the next 12 months.
The current provision for employee benefits includes an amount of
$105.6 million (2019: $90.6 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.
(a) Contract assets
Refer to note 2(b) for further information relating to contract assets.
(b) Lease receivable
Lease receivables represent the present value of future lease payments
receivable on sub-lease arrangements where the expiry of the term of
the sub-lease is the same as the head lease. Refer to note 34 for details
regarding the impact of changes in the Group’s accounting policies
following the adoption of the new leasing standard from 1 July 2019.
Minimum lease payments receivable on sub-leases are as follows:
Within one year
Later than one year but not later than five years
Later than five years
Less: Unearned interest income
Total lease receivables
2020
$m
2019
$m
8.2
32.9
22.6
63.7
(8.6)
55.1
–
–
–
–
–
–
Interest income (included in net finance costs) relating to sub-lease
arrangements during the financial year was $1.9 million. Income relating
to variable lease payments received (included in other revenue) during
the financial year was $7.6 million.
The total cash inflow for sub-leases in the financial year was $15.2 million.
12 Trade and other payables
Current liabilities
Trade payables
Other payables
2020
$m
2019
$m
289.0
34.0
323.0
297.5
109.2
406.7
Other payables in the 2019 financial year included a payable of
$81.3 million (including GAPE) in respect of the over-collection
of access revenue. This was settled and there is no similar payable
included in the 2020 financial year.
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.
70
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 13 Provisions (continued)
Details of employee benefits (continued)
(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.
(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 2019 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 0.6%
and 2.5% (2019: 1.5% and 2.7%).
To measure the estimated costs to remediate contaminated land an
inflation rate of 1.6% (2019: 1.9%) has been applied, based on remediation
dates ranging between five to 40 years. A weighted average discount
rate of 1.2% (2019: 2.0%) 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.
71
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 13 Provisions (continued)
14 Other liabilities
Recognition and measurement (continued)
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.
Current
Contract liabilities
Income received in advance
Lease liabilities
Other current liabilities
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.
Non-current
Contract liabilities
Lease liabilities
Other non-current liabilities
2020
$m
2019
$m
28.5
36.9
17.4
18.5
101.3
150.4
125.4
1.5
277.3
28.2
36.7
–
10.2
75.1
165.0
–
40.0
205.0
(a) Contract liabilities
Refer to note 2(b) for further information relating to contract liabilities.
(b) Income received in advance
Income received in advance primarily represents deposits received.
(c) Lease liabilities
Lease liabilities represent the present value of future lease payments.
Refer to note 34 for details regarding the impact of changes in the
Group’s accounting policies following the adoption of the new leasing
standard from 1 July 2019.
Minimum lease payments are as follows:
Within one year
Later than one year but not later than five
years
Later than five years
Less: Discounted using Group’s incremental
borrowing rate
Total lease liabilities
2020
$m
22.3
72.6
75.8
170.7
(27.9)
142.8
2019
$m
–
–
–
–
–
–
72
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20
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, how these affect the Group’s
financial position and performance, and what the Group does to
manage these risks.
15 Capital risk management
16 Dividends
17 Equity and reserves
18 Borrowings
19 Financial risk management
20 Derivative financial instruments
Page 74
Page 74
Page 74
Page 76
Page 76
Page 83
FINANCIAL REPORT
73
15 Capital risk management
(b) Dividends not recognised at the end of the reporting period
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. During
the financial year, the Board endorsed the implementation
of a simplified legal structure to optimise the Company’s
balance sheet and provide additional funding capacity for
the Group. The Group and the Company monitor its capital
structure by reference to its gearing ratio.
Net debt consists of borrowings (both current and non-current) less cash
and cash equivalents. Net debt excludes lease liabilities (included in other
liabilities) recognised on adoption of the new lease accounting standard
effective from 1 July 2019. Net gearing ratio is defined as Net debt divided
by 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. An alternative Net gearing ratio is also disclosed to include
derivative financial instruments used to hedge market risk on borrowings
and is reconciled in the Non-IFRS financial information on page 108.
Total borrowings
Notes
2020
$m
2019
$m
18
3,607.2
3,369.8
Less: cash and cash equivalents
(29.3)
(25.2)
Since 30 June 2020, the Directors have
recommended the payment of a final dividend
of 13.7 cents per fully paid ordinary share 70%
franked (2019: 12.4 cents 70% franked). The
aggregate amount of the proposed dividend
expected to be paid on 21 September 2020
out of retained earnings, but not recognised
as a liability at year end is:
2020
$m
2019
$m
262.3
246.8
(c) Franked dividends
The franked portions of the final dividends recommended after 30 June
2020 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
2021. The 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.
Franking credits available for subsequent
reporting periods based on a tax rate of 30%
(2019: 30%)
17 Equity and reserves
2020
$m
2019
$m
92.6
64.9
Net debt
Total equity
Total capital
Gearing ratio
Alternative gearing ratio
16 Dividends
(a) Ordinary shares
3,577.9
3,344.6
4,357.7
4,677.4
7,935.6
8,022.0
45.1%
43.3%
41.7%
40.0%
KEEPING IT SIMPLE
Issued capital represents the amount of consideration
received for securities issued by Aurizon.
When the Company purchases its own shares, as a result
of the share-based payment plans and share buy-back,
the consideration paid, including any directly attributable
incremental costs (net of income taxes), is recognised
directly in equity.
Interim dividend for the year ended 30 June
2020 of 13.7 cents 70% franked (2019: 11.4 cents
70% franked) per share, paid 23 March 2020
Final dividend for the year ended 30 June 2019
of 12.4 cents 70% franked (2018: 13.1 cents 60%
franked) per share, paid 23 September 2019
2020
$m
2019
$m
(a) Contributed equity
(i)
Issued capital
267.0
226.9
246.8
513.8
260.7
487.6
2020
Shares
‘000
2019
Shares
‘000
2020
$m
2019
$m
Ordinary shares
– fully paid
1,914,643
1,990,128
506.6
906.6
(ii) Movements in ordinary share capital
Details
At 1 July 2018
At 30 June 2019
On-market share buy-back
At 30 June 2020
Number
of shares
‘000
1,990,128
1,990,128
$m
906.6
906.6
(75,485)
(400.0)
1,914,643
506.6
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.
74
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 17 Equity and reserves (continued)
(b) Reserves
Balance at 1 July 2019
Fair value gains/(losses) taken to equity
Fair value (gains)/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 2020
Balance at 1 July 2018
Fair value gains/(losses) taken to equity
Fair value (gains)/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
Share
of an
associate’s
OCI
$m
(1.8)
Notes
–
–
–
–
–
–
–
–
31(b)
Cash flow
hedges
$m
Share-
based
payments
$m
Capital
reserves
$m
Total
$m
(46.6)
(39.3)
3.6
10.7
(25.0)
–
–
–
–
(0.6)
3,467.5
3,418.5
–
–
–
–
–
5.9
(3.2)
(0.7)
1.4
–
–
–
–
(0.4)
–
–
–
(39.3)
3.6
10.7
(25.0)
(0.4)
5.9
(3.2)
(0.7)
3,467.1
3,395.1
(1.8)
(71.6)
Share
of an
associate’s
OCI
$m
(1.8)
Notes
–
–
–
–
–
–
–
31(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
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 represent capital contributions from Queensland
State Government pre-IPO less cumulative share buy-backs and
transaction costs charged to this account.
75
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 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 4.9% (2019: 4.6%).
19 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 Notes maturing September 2024 (EMTN 1) and June 2026 (EMTN
2). The Group also has exposure to movements in foreign currency
exchange rates through anticipated purchases of parts and equipment.
18 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
Medium-term notes
Bank debt facilities
Non-current – Unsecured
Medium-term notes
Bank debt facilities
Capitalised borrowing costs
Total borrowings
2020
$m
2019
$m
524.6
133.0
657.6
–
149.0
149.0
2,249.8
2,670.0
710.0
(10.2)
560.0
(9.2)
2,949.6
3,220.8
3,607.2
3,369.8
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 19(a). Risk is managed in accordance with Board approved
Treasury Policies.
During the year Aurizon Network Pty Ltd:
› Reduced the capacity of the syndicated bank debt facility maturing
July 2021 from $490.0 million to $380.0 million in July 2019;
› Issued a long term $82.0 million fixed rate Medium Term Note maturing
22 March 2030 in September 2019; and
› Cancelled existing syndicated bank debt facility maturing July
2021 and October 2022 and replaced them with bilateral bank debt
facilities totalling $1,300.0 million maturing June 2023 – June 2025
in June 2020.
$525.0 million Medium Term Note maturing October 2020 (AMTN 1)
is classified as a current liability and the Group has sufficient bank debt
facility capacity to repay the Medium Term Note.
Details of the Group’s financing arrangements and exposure to risks
arising from current and non-current borrowings are set out in note 19(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.
76
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20
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 93% (2019:
99%) of the variable rate exposure. The weighted average maturity of
outstanding swaps is approximately 2.0 years (2019: 2.7 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 $25.9 million (2019: $2.2 million) as a result
of market interest rates closing lower than the average hedged rate.
The total realised loss represents the effective portion of the hedges
which have been recognised in interest expense.
(iii) Sensitivity on interest rate risk
The following table summarises the gain/(loss) impact of interest rate
changes, relating to existing borrowings and financial instruments,
on net profit and equity before tax. 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 (with the decrease in interest rates limited to
a reduction to 0.0% where the sensitivity would have reduced interest
rates to negative), assuming hedge designations and effectiveness and
all other variables remain constant.
Effect on profit
(before tax)
Effect on equity
(before tax)
2020
$m
2019
$m
2020
$m
2019
$m
1.6
0.2
(69.8)
(62.4)
(1.6)
(0.2)
68.1
60.4
100 bps movement
in interest rates
100 bps decrease
in interest rates
100 bps increase
in interest rates
19 Financial risk management
(continued)
(a) Market risk (continued)
(i) Foreign exchange risk (continued)
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.
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:
30 June 2020
30 June 2019
Weighted
average
interest
rate
%
Weighted
average
interest
rate
%
Balance
$m
Balance
$m
4.5
2,331.8
4.5
2,197.8
4.4
(2,175.0)
4.3
(2,175.0)
156.8
22.8
Variable rate
exposure
Interest rate
swaps (including
debt credit
margins)
Net exposure to
interest rate risk
77
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 19 Financial risk management (continued)
(a) Market risk (continued)
(iv) Effects of hedge accounting on the consolidated balance sheet and consolidated income statement
The impact of hedging instruments designated in hedging relationships on the consolidated balance sheet of the Group is as follows:
Notional amount
Carrying amount assets/
(liability) refer to note 20
Change in fair value
used for measuring
ineffectiveness for the year
2020
2019
2020
$m
2019
$m
2020
$m
2019
$m
Cash flow hedges
Foreign exchange risk
Forward contracts
Forward contracts
Interest rate risk
US$4.0m
US$11.0m
€13.0m
€13.0m
Interest rate swaps (current)
A$2,175.0m
A$2,175.0m
Interest rate swaps (forward dated)1
A$2,550.0m
A$1,225.0m
Foreign exchange and interest rate risks
CCIRS – EMTN 1
CCIRS – EMTN 2
Fair value hedges
Interest rate risk
Interest rate swaps – AMTN 2
Interest rate swaps – AMTN 3
Foreign exchange and interest rate risks
CCIRS – EMTN 1
CCIRS – EMTN 2
€500.0m
€500.0m
€500.0m
€500.0m
–
A$82.0m
–
–
€500.0m
€500.0m
€500.0m
€500.0m
(0.7)
(0.8)
(37.9)
(41.2)
0.2
(6.8)
–
3.2
155.1
69.1
0.5
0.3
(41.4)
(7.7)
0.9
(4.3)
–
–
150.7
49.4
(1.2)
(1.1)
3.5
(33.5)
(0.7)
(2.5)
–
3.4
2.9
15.7
(0.7)
(0.2)
(45.7)
(7.7)
(0.3)
(0.5)
(3.3)
–
44.3
62.8
1 Forward dated interest rate swaps entered into commencing June 2021 on maturity of current interest rate swaps in June – August 2021
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 reserve1
Change in fair value used for
measuring ineffectiveness
for the year
2020
$m
2019
$m
2020
$m
2019
$m
1.5
79.1
5.2
16.5
(0.8)
2.3
49.1
4.7
13.8
30.0
0.7
2.5
0.9
53.4
0.3
0.5
1 Cash flow hedge reserve includes the cumulative impact of cross currency basis relating to EMTN 1 and EMTN 2 of $19.3 million for the financial year ended 30 June
2020 (2019: $19.1 million)
78
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20
19 Financial risk management (continued)
(a) Market risk (continued)
(iv) Effects of hedge accounting on the consolidated balance sheet and consolidated income statement (continued)
Carrying amount1
Accumulated fair value
adjustment
Change in fair value
used for measuring
ineffectiveness for the year
2020
$m
2019
$m
2020
$m
2019
$m
2020
$m
2019
$m
(85.4)
–
(3.4)
–
(3.4)
–
Fair value hedges (before tax)
Interest rate risk
AMTN 3
Foreign exchange and interest rate risks
EMTN 1
EMTN 2
(873.9)
(863.2)
(1,737.1)
Total borrowings (subject to fair value hedges)
(1,822.5)
1 Carrying amount excludes the effect of discounts
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
2020
$m
2019
$m
(2.3)
(0.8)
(30.0)
(53.4)
(3.4)
(35.7)
3.6
(50.6)
There was no material ineffectiveness related to cash flow hedges and
fair value hedges recognised in the consolidated income statement
during the financial 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.
(870.9)
(847.4)
(1,718.3)
(1,718.3)
(163.2)
(85.0)
(248.2)
(251.6)
(160.3)
(69.2)
(229.5)
(229.5)
(2.9)
(15.7)
(18.6)
(22.0)
(44.3)
(62.8)
(107.1)
(107.1)
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 19(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.
79
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT
19 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 financial year:
Aurizon Finance Pty Ltd
Working capital facility
Bilateral facility
Aurizon Network Pty Ltd
Working capital facility
Syndicated facility2
Syndicated facility2
Bilaterial facility2
Bilaterial facility2
Bilaterial facility2
AMTN 1
AMTN 23
AMTN 34
EMTN 15
EMTN 25
Utilised1
2020
$m
2019
$m
Facility limit
2020
$m
2019
$m
Security
Maturity
Unsecured
Dec-20
Unsecured
Nov-23
83.3
290.0
373.3
Unsecured
Dec-20
67.5
Unsecured
Jul-21
Unsecured
Oct-22
–
–
Unsecured
Jun-23
420.0
Unsecured
Jun-24
Unsecured
Jun-25
Unsecured
Oct-20
Unsecured
Jun-24
Unsecured
Mar-30
Unsecured
Sept-24
Unsecured
Jun-26
–
–
525.0
425.0
82.0
710.6
778.2
84.3
90.0
174.3
82.6
470.0
–
–
–
–
525.0
425.0
–
710.6
778.2
150.0
450.0
600.0
100.0
–
–
850.0
300.0
150.0
525.0
425.0
82.0
710.6
778.2
150.0
450.0
600.0
100.0
490.0
500.0
–
–
–
525.0
425.0
–
710.6
778.2
Total Group financing arrangements
3,008.3
2,991.4
3,920.8
3,528.8
3,381.6
3,165.7
4,520.8
4,128.8
1
2
Amount utilised includes bank guarantees of $17.8 million (2019: $17.9 million) and excludes capitalised borrowing costs of $10.2 million (2019: $9.2 million) and
discounts on Medium-Term Notes of $7.1 million (2019: $10.3 million)
Aurizon Network Pty Ltd cancelled existing syndicated bank debt facility maturing July 2021 and October 2022 and replaced them with bilateral bank debt facilities
totalling $1,300.0 million maturing between June 2023 – June 2025 in June 2020
3 Amount utilised excludes accumulated fair value adjustment of $9.5 million (2019: $11.9 million) which will be recognised in profit or loss over the remaining term of the
AMTN 2 bond
4 AMTN 3 amount utilised excludes accumulated fair value adjustment of $3.4 million (2019: $nil)
5 EMTN 1 amount utilised excludes accumulated fair value adjustments of $163.2 million (2019: $160.3 million). EMTN 2 amount utilised excludes accumulated fair value
adjustments $85.0 million (2019: $69.2 million)
Within the working capital facilities, the Group has access to financial accommodation arrangements totalling $250.0 million (2019: $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 financial year, the
Group utilised $17.8 million (2019: $17.9 million) for financial bank guarantees.
The Group has complied with all debt covenants during the 2020 and 2019 financial years.
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.
80
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20
19 Financial risk management (continued)
(c) Liquidity risk (continued)
2020
Non-derivatives
Trade payables
Borrowings1
Financial guarantees
Lease liabilities2
Derivatives
Interest rate swaps
Foreign exchange contracts
(inflow)
outflow
CCIRS – EMTN 11
CCIRS – EMTN 21
2019
Non-derivatives
Trade payables
Borrowings1
Financial guarantees
Derivatives
Interest rate swaps
Foreign exchange contracts
(inflow)
outflow
CCIRS – EMTN 11
CCIRS – EMTN 21
1 Borrowings exclude the effect of cross currency interest rate swap derivatives
2 Lease liabilities are included in other liabilities, refer to note 14
Less
than
1 year
$m
Between
1 and 5
years
$m
Over 5
years
$m
Total
contractual
cash flows
$m
Carrying
amount
(assets)/
liabilities1
$m
323.0
745.9
17.8
22.3
1,109.0
43.1
–
(1.5)
0.2
(2.4)
6.2
45.6
406.7
104.4
17.9
529.0
20.1
–
(0.5)
0.2
4.5
14.0
38.3
–
2,207.7
–
72.6
2,280.3
36.9
–
(0.3)
–
(123.3)
33.6
(53.1)
–
938.4
–
75.8
1,014.2
(2.2)
–
–
–
–
(28.6)
(30.8)
323.0
3,892.0
17.8
170.7
4,403.5
77.8
–
(1.8)
0.2
(125.7)
11.2
(38.3)
323.0
3,607.2
–
142.8
4,073.0
75.9
1.5
–
–
(155.3)
(62.3)
(140.2)
–
2,779.5
–
–
835.7
–
406.7
3,719.6
17.9
406.7
3,369.8
–
2,779.5
835.7
4,144.2
3,776.5
30.4
–
–
–
(90.0)
75.3
15.7
–
–
–
–
–
(13.0)
(13.0)
50.5
–
(0.5)
0.2
(85.5)
76.3
41.0
49.1
(0.8)
–
–
(151.6)
(45.1)
(148.4)
81
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2020 (continued)
Carrying
amount
Fair value
Notes
2020
$m
2019
$m
2020
$m
2019
$m
Financial assets
carried at fair value
Foreign exchange
contracts
Interest rate swaps –
AMTN 3
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
Foreign exchange
contracts
Interest rate swaps
20
20
20
20
0.2
0.8
0.2
0.8
3.2
155.3
62.3
221.0
–
151.6
45.1
197.5
3.2
155.3
62.3
221.0
–
151.6
45.1
197.5
29.3
25.2
29.3
25.2
7
460.1
489.4
481.8
507.0
460.1
489.4
481.8
507.0
20
20
(1.7)
(79.1)
(80.8)
–
(49.1)
(49.1)
(1.7)
(79.1)
(80.8)
–
(49.1)
(49.1)
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
12
(323.0)
(323.0)
18 (3,607.2) (3,369.8) (3,688.6)
(406.7)
(406.7)
(3,510.9)
(3,930.2) (3,776.5)
(4,011.6)
(3,917.6)
–
–
–
–
–
–
–
–
–
–
19.1
315.6
19.1
315.2
2.3
2.5
(17.8)
319.2
(17.9)
318.9
19 Financial risk management (continued)
(d) Fair value measurements
The fair value of cash, cash equivalents and non-interest bearing financial
assets and liabilities approximates their carrying value due to their short
maturity. The fair value of financial instruments that are not traded in an
active market (for example, over-the-counter derivatives) are determined
using valuation techniques. These valuation techniques maximise the use
of observable market data where available and rely as little as possible
on entity specific estimates. If all significant inputs required to fair value
an instrument are observable, the instrument is included in Level 2.
The Group measures and recognises the following assets and liabilities
at fair value on a recurring basis:
› Forward foreign exchange contracts
› Interest rate swaps
› CCIRS
The fair value of forward foreign exchange contracts has been
determined as the unrealised gain/(loss) at balance date by reference to
market rates. The fair value of interest rate swaps has been determined
as the net present value of contracted cash flows.
These values have been adjusted to reflect the credit risk of the Group
and relevant counterparties, depending on whether the instrument is
a financial asset or a financial liability. The existing exposure method,
which discounts estimated future cash flows to present value using credit
adjusted discount factors after counterparty netting arrangements, has
been adopted for both forward foreign exchange contracts and interest
rate swaps.
The fair value of CCIRS has been determined as the net present value of
contracted cash flows. The future probable exposure method is applied
to the estimated future cash flows to reflect the credit risk of the Group
and relevant counterparties.
The fair value of non-current borrowings is estimated by discounting
the future contractual cash flows at the current market interest rates
that are available to Aurizon for similar financial instruments. For the
period ended 30 June 2020, the borrowing rates were determined
to be between 0.9% to 3.0%, depending on the type of borrowing
(2019: 1.8% to 4.2%).
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.
8282
AURIZON ANNUAL REPORT 2017–18AURIZON ANNUAL REPORT 2019–20
19 Financial risk management (continued)
20 Derivative financial instruments
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by
valuation method. The different levels have been defined as follows:
› Level 1: Quoted prices (unadjusted) in active markets for identical
assets or liabilities
› Level 2: Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices)
› Level 3: Inputs for the asset or liability that are not based on
observable market data (unobservable inputs)
During the year, there were no transfers between Level 1, Level 2 and
Level 3 fair value hierarchies.
2020
Notes
Level 1
$m
Level 2
$m
Level 3
$m
Derivative financial assets
20
Derivative financial
liabilities
20
Net financial instruments
measured at fair value
2019
Derivative financial assets
20
Derivative financial
liabilities
20
Net financial instruments
measured at fair value
–
–
–
–
–
–
221.0
(80.8)
140.2
197.5
(49.1)
148.4
–
–
–
–
–
–
Total
$m
221.0
(80.8)
140.2
197.5
(49.1)
148.4
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 19).
Current assets
Foreign exchange contracts
Non-current assets
Interest rate swaps – AMTN 3
CCIRS – EMTN 1
CCIRS – EMTN 2
Total derivative financial instrument assets
Current liabilities
Foreign exchange contracts
Interest rate swaps
Non-current liabilities
Foreign exchange contracts
Interest rate swaps
Total derivative financial instrument liabilities
2020
$m
2019
$m
0.2
0.8
3.2
155.3
62.3
220.8
221.0
(1.5)
(33.6)
(35.1)
(0.2)
(45.5)
(45.7)
(80.8)
–
151.6
45.1
196.7
197.5
–
–
–
–
(49.1)
(49.1)
(49.1)
83
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 20 Derivative financial instruments (continued)
(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 2020 and 30 June 2019. 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 amount1
$m
2020
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
2019
Financial assets
Derivative financial instruments
Financial liabilities
Derivative financial instruments
1 No financial instrument collateral
221.0
(80.8)
197.5
(49.1)
–
–
–
–
221.0
(80.8)
197.5
(49.1)
(0.9)
0.9
–
–
220.1
(79.9)
197.5
(49.1)
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.
84
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 20 Derivative financial instruments
(continued)
(a) Offsetting financial assets and financial liabilities
(continued)
Recognition and measurement
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured to their fair
value at the end of each reporting period. The accounting for subsequent
changes in fair value depends on whether the derivative is designated
as a hedging instrument and, if so, the nature of the item being hedged.
The Group designates certain derivatives as hedges of the cash flows
of recognised assets and liabilities, and highly probable forecast
transactions (cash flow hedges). The Group has established a 100%
hedge relationship against the identified exposure, therefore the
hedge ratio is 1:1.
At inception, the Group documents the relationship between hedging
instruments and hedged items, the risk management objective and
the strategy for undertaking various hedge transactions. 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 cash flows of hedged
items. Hedge effectiveness is determined at the inception of the hedge
relationship, and through periodic prospective effectiveness assessments
to ensure that an economic relationship exists between the hedged item
and hedging instrument. The Group enters into hedge relationships where
the critical terms of the hedging instrument match exactly with the terms
of the hedged item, and so a qualitative assessment of effectiveness is
performed. If changes in circumstances affect the terms of the hedged
item such that the critical terms no longer match exactly with the critical
terms of the hedging instrument, the Group uses the hypothetical
derivative method to assess effectiveness.
The fair values of derivative financial instruments used for hedging
purposes are disclosed in this section. The full fair value of a hedging
derivative is classified as a non-current asset or liability when the
remaining maturity of the hedged item is more than 12 months. It is
classified as a current asset or liability when the remaining maturity
of the hedged item is less than 12 months.
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.
85
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT Group structure
IN THIS SECTION
Group structure provides information about particular
subsidiaries and associates and how changes have affected
the financial position and performance of the Group.
21 Associates and joint arrangements
22 Material subsidiaries
23 Parent disclosures
24 Deed of cross guarantee
25 Business combination
26 Discontinued operations
27 Assets classified as held for sale
Page 87
Page 87
Page 88
Page 89
Page 89
Page 89
Page 90
86 AURIZON ANNUAL REPORT 2019–20
Notes to the consolidated financial statements30 June 2020 (continued) 21 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.
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. 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.
(a) Investments in associates
The Group has an interest in the following associates:
22 Material subsidiaries
Name
Aquila Resources
Limited1
Ownership interest
Country of
operation
2020
%
2019
%
Principal
activity
Australia
15
15
Exploration
and mining
1 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. The Group’s share of net loss from joint ventures was
$0.1m (2019: net profit $0.1 million). The joint ventures have net assets
of $2.7 million (2019: $2.8 million) and are not considered material to
the Group.
Name
Coal Network
Capacity Co Pty Ltd1
Chun Wo/CRGL
ARG Risk
Management Limited
Integrated Logistics
Company Pty Ltd
ACN 169 052 288
Ownership interest
Country of
operation
2020
%
2019
%
Principal
activity
Australia
China-
Hong Kong
Bermuda
Australia
Australia
8
17
50
14
15
Independent
Expert
–
17 Construction
50
Insurance
14
15
Consulting
Dormant
1 Coal Capacity Co Pty Ltd is the Independent Expert established as a result of the
approved Access Undertaking.
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.
The Group’s material subsidiaries that were controlled during the
financial year 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
Aurizon Port Services Pty Ltd
Equity holding
Country of
incorporation
2020
%
2019
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
Iron Horse Insurance Company Pte Ltd
Singapore
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 financial 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. Where arrangements between the continuing and
discontinued operation will continue subsequent to disposal, transactions
including revenue and expenses will be included in the continuing
operations profit or loss with elimination entries recognised in profit
or loss of the discontinued operation.
Intercompany transactions, balances and unrealised gains on transactions
between Group companies are eliminated on consolidation.
87
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 22 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.
23 Parent disclosures
The parent and ultimate parent entity within the Group is Aurizon
Holdings Limited.
During the financial year, the Aurizon Holdings Limited Board endorsed
the implementation of a simplified legal structure to optimise the Group’s
balance sheet and provide additional funding capacity. The internal
reorganisation was completed on 19 August 2019.
› Aurizon Operations Limited transferred its equity investment in Aurizon
Network Pty Ltd to the Company; and
› The Company transferred its equity investment in Aurizon Finance Pty
Ltd to Aurizon Operations Limited.
(a) Summary financial information
The individual financial statements for the parent entity, Aurizon Holdings
Limited, 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
2020
$m
67.7
2019
$m
40.9
4,004.5
6,086.1
4,072.2
6,127.0
(67.5)
(42.4)
–
(1,724.8)
(67.5)
(1,767.2)
4,004.7
4,359.8
506.6
44.6
906.6
2.0
3,453.5
3,451.2
4,004.7
4,359.8
556.4
556.4
487.9
487.9
(b) Guarantees entered into by the parent entity
The Deed of Cross Guarantee, for which Aurizon Holdings Limited was
the Trustee, was revoked effective 14 February 2020. Refer to note 24
for further information.
On 25 January 2017, as a residual obligation under the project documents
with Moorebank Intermodal Company (MIC) Aurizon Holdings Limited
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 $65.8 million
(2019: $70.8 million), however Aurizon Holdings Limited has obtained
a 100% cross indemnity guarantee from Qube Holdings Ltd in respect
of any call under the Aurizon Holdings Limited PCG.
(c) Contingent liabilities of the parent entity
The parent entity did not have any material contingent liabilities as at
30 June 2020 (2019: $nil).
(d) Contractual commitments for the acquisition of
property, plant and equipment
As at 30 June 2020, the parent entity did not have any contractual
commitments for the acquisition of property, plant and equipment
(2019: $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.
Investments in subsidiaries, associates and joint venture entities
(i)
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.
The parent entity has several employees. All costs associated with these
employees are borne by a subsidiary of the parent entity and are not
included in the above disclosures.
These tax funding arrangements result in the head entity recognising
a current inter-entity receivable/payable equal in amount to the tax
liability/asset assumed.
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.
88
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 Goodwill is attributable to future customer growth and has been
allocated to the Bulk East CGU. None of the goodwill is expected to
be deductible for tax purposes.
Acquisition costs of $0.5 million were expensed to profit or loss.
Net cash outflow from investing activities for acquisition of subsidiary
was $24.5 million, representing cash paid of $24.8 million net of cash
acquired of $0.3 million.
26 Discontinued operations
(a) Description
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, as such,
the Intermodal business is disclosed as a discontinued operation from
that date.
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 ACCC and FIRB.
On 6 May 2020, the Full Federal Court unanimously dismissed an appeal
by the ACCC that the sale of the Acacia Ridge Intermodal Terminal
to Pacific National contravened section 50 of the Commonwealth’s
Competition and Consumer Act (2010). On 26 June 2020, the ACCC
sought special leave to the High Court to appeal the decision of the
Full Federal Court.
It is anticipated that the special leave application decision will be
received before the end of calendar year 2020.
The Queensland Intermodal business was sold to Linfox Australia Pty Ltd
on 31 January 2019.
SIGNIFICANT JUDGEMENTS
The Group 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 2020.
23 Parent disclosures (continued)
(d) Contractual commitments for the acquisition of
property, plant and equipment (continued)
(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.
24 Deed of cross guarantee
The Deed of Cross Guarantee, for which Aurizon Holdings Limited was
the Trustee, was revoked effective 14 February 2020. Aurizon Operations
Limited has subsequently entered a Deed of Cross Guarantee as Trustee
with all parties of the former consolidated group (the ‘closed group’),
except for Aurizon Holdings Limited, on 22 April 2020.
The parties to the Deed of Cross Guarantee included: 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.
Refer to the 2019 Annual Report for information relating to the 2019
financial year.
25 Business combination
(a) Summary of acquisition
Aurizon Operations Limited acquired 100% of the issued shares in
Flinders TBSH Pty Ltd, a bulk transport, handling and stevedoring
services provider in North Queensland, for consideration of $24.8 million
on 20 March 2020. The company was renamed Aurizon Port Services Pty
Ltd. The acquisition includes long-term leases at the Port of Townsville
with bulk storage warehouses and handling facilities adjacent to rail lines.
The business will be complementary to the Bulk East CGUs rail operation
as it is located at the end of the Mt Isa rail line connecting the Port of
Townsville to the commodity rich North West Minerals Province.
Details of the provisional purchase consideration, the net assets acquired
and goodwill are as follows:
Total purchase consideration
Total assets
Total liabilities
Net identifiable assets acquired
Add: Goodwill
Net assets acquired
$m
24.8
Fair value
$m
36.4
(16.8)
19.6
5.2
24.8
89
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 26 Discontinued operations (continued)
(b) Financial performance and cash flow information
Financial information relating to the discontinued operations is set out
below. The 2019 financial year includes the Queensland Intermodal
business that was sold on 31 January 2019.
Revenue
Other income
Employee benefits expense
Energy and fuel
Track access
Consumables
Depreciation
Impairment1
Other expenses
Net finance costs
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit from discontinued operations after tax
Net cash inflow/(outflow) from operating
activities
Net cash inflow from investing activities
Net cash inflow/(outflow) from financing
activities
Net increase/(decrease) in cash generated by
the discontinued operations
2020
$m
25.0
2.5
(3.6)
(0.2)
–
(8.4)
(0.2)
–
0.1
–
15.2
(4.4)
10.8
9.9
0.4
–
2019
$m
111.0
12.1
(31.2)
(6.1)
(8.7)
(58.4)
(0.2)
(25.1)
1.9
0.1
(4.6)
7.8
3.2
(25.4)
11.1
–
Current period
Intermodal closure benefit includes gain on sale of assets in the period.
Prior period
Intermodal closure benefit includes 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.
(d) Assets and liabilities of disposal group classified as
held for sale
The following assets and liabilities of the disposal group are classified
as held for sale:
Assets classified as held for sale
Property, plant and equipment
Trade and other receivables
Total assets of disposal group held for sale
Liabilities directly associated with assets
classified as held for sale
2020
$m
2019
$m
38.8
3.9
42.7
36.7
6.2
42.9
Employee benefit obligations
Net assets classified as held for sale
(0.7)
42.0
(0.7)
42.2
27 Assets classified as held for sale
2020
$m
61.2
3.9
–
65.1
2019
$m
90.0
15.3
3.1
108.4
Property, plant and equipment
10.3
(14.3)
Trade and other receivables
1
Financial year 2019 includes $22.8 million impairment of assets classified as held
for sale and $2.3 million impairment of property, plant and equipment.
Inventories
Total assets held for sale
(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 are detailed below:
Significant items
Intermodal closure benefit
Intermodal impairment expense
Redundancy benefit
2020
$m
2019
$m
2.5
–
–
2.5
13.2
(25.1)
0.5
(11.4)
90
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 Other notes
IN THIS SECTION
Other notes provides information on other items which require
disclosure to comply with Australian Accounting Standards and
other regulatory pronouncements however are not considered
critical in understanding the financial performance or position
of the Group.
28 Notes to the consolidated statement of cash flows
29 Related party transactions
30 Key Management Personnel compensation
31 Share-based payments
32 Remuneration of auditors
33 Summary of other significant accounting policies
34 Changes in accounting policies
Page 92
Page 93
Page 93
Page 93
Page 94
Page 95
Page 97
FINANCIAL REPORT 91
Notes to the consolidated financial statements30 June 2020 (continued) 28 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 expense/(benefit)
Net (gain)/loss on sale of non-current assets
Net (gain)/loss on sale of business
Share of profits of associates and joint ventures
Net exchange differences
Change in operating assets and liabilities:
(Increase)/Decrease in trade and other receivables
(Increase)/Decrease in inventories
(Increase)/Decrease in other operating assets
Increase/(Decrease) in trade and other payables
Increase/(Decrease) in other liabilities
Increase/(Decrease) in current tax liabilities
Increase/(Decrease) in deferred tax liabilities
Increase/(Decrease) in provisions
Net cash inflow from operating activities from continuing operations
(b) Reconciliation of liabilities arising from financing activities to financing cash flows
2020
$m
605.1
558.6
5.7
151.0
5.8
1.1
(105.4)
0.1
(0.1)
25.9
(26.2)
(19.2)
(77.3)
(3.5)
39.9
74.4
1.6
1,237.5
Current
borrowings
Non-current
borrowings
Liabilities
held to
hedge
borrowings1
Assets held
to hedge
borrowings1
$m
$m
$m
$m
2019
$m
473.3
542.6
24.9
150.0
(7.2)
2.8
–
(0.1)
0.9
49.5
(13.1)
(10.2)
87.2
(17.8)
(31.2)
94.7
(30.6)
1,315.7
Total
$m
Balance as at 1 July 2019
Reclassification
Financing cash flows2
Effect of changes in exchange rates
Other changes in fair values
Other non-cash movements
Balance as at 30 June 2020
Balance as at 1 July 2018
Financing cash flows2
Effect of changes in exchange rates
Other changes in fair values
Other non-cash movements
Balance as at 30 June 2019
(3,220.8)
(49.1)
196.8
(3,222.1)
(149.0)
(523.5)
16.0
–
(1.1)
–
(657.6)
(100.0)
(49.0)
–
–
–
523.5
(227.2)
(14.1)
(9.6)
(1.4)
(2,949.6)
(3,401.9)
302.4
(46.4)
(72.3)
(2.6)
(149.0)
(3,220.8)
–
–
–
(30.0)
–
(79.1)
(21.3)
–
10.6
(38.4)
–
(49.1)
–
–
14.1
9.9
–
–
(211.2)
–
(30.8)
(1.4)
220.8
(3,465.5)
110.4
(11.5)
35.8
62.1
–
(3,412.8)
241.9
–
(48.6)
(2.6)
196.8
(3,222.1)
1 Assets and liabilities held to hedge borrowings exclude foreign exchange contracts included in note 20.
2 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.
92
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20
29 Related party transactions
31 Share-based payments
(a) Transactions with Directors and Key Management
Personnel
There were no Key Management Personnel (KMP) related party
transactions during the financial year (2019: nil).
(b) Transactions with other related parties
There were no transactions with other related parties during the financial
year (2019: 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.
30 Key Management Personnel
compensation
Short-term employee benefits
Post-employment benefits
Long-term benefits
Other benefits
Share-based payments
2020
$’000
2019
$’000
8,054
9,493
214
119
386
2,662
11,435
297
47
–
1,932
11,769
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 Performance Rights Plan was established by the
Board 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
Under the Performance Rights Plan, rights may be offered to Participants
selected by the Board. Unless otherwise determined by the Board,
no payment is required for the grant of rights under the Performance
Rights Plan.
Subject to any adjustment in the event of a bonus issue, each right
is an option to subscribe for one Share. Upon the exercise of a right
by a Participant, each Share issued will rank equally with other Shares
of the Company.
The Performance Rights Plan schemes are described as follows:
Short-term Incentive Award (STIA)
A portion of any STIA for the Managing Director & CEO and the
Executive Management Team is awarded in performance rights and are
deferred. The rights vest after one year and a Participant may exercise
the right provided that the Participant 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. Vesting of the rights is subject to satisfying
service conditions and performance conditions including Total
Shareholder Return (market based) and Return on Invested Capital
(non-market based).
Retentions
Performance rights are granted to eligible executives at the Board’s
discretion for retention. The rights vest at the end of a specified retention
period or project and a Participant may exercise the right provided that
the Participant remains employed by the Group at vesting date.
93
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT 31 Share-based payments (continued)
(b) Expenses arising from share-based payment transactions
(a) Performance rights plan (continued)
Retentions (continued)
The table below summarises rights granted under the plan:
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 year1
Number
‘000
2020
STIAD
LTIA
Retentions
Total
2019
STIAD
LTIA
Retentions
Total
546
10,679
263
480
2,354
18
(546)
(52)
428
–
–
(5,043)
7,990
–
281
11,488
2,852
(546)
(5,095)
8,699
105
11,655
25
11,785
546
2,950
263
3,759
(105)
–
546
–
(3,926)
10,679
(25)
(130)
–
263
(3,926)
11,488
Performance Rights Plan
2020
$m
5.9
2019
$m
7.2
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.
1 Balance of rights at the end of the year remains unvested.
32 Remuneration of auditors
The weighted average share price at the date Participants exercised
rights during the period was $5.79 (2019: $4.32). The weighted average
remaining contractual life of unvested rights at 30 June 2020 was
1.6 years (2019: 1.2 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) was
$6.03 (2019: $4.21) representing the share price at grant date. The fair
value of LTIA rights, that are subject to non-market based performance
conditions, was $4.77 (2019: $3.40) and represents 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 market
based performance condition has been calculated using the Monte-Carlo
simulation techniques based on the inputs disclosed in the table below:
2020
2019
LTIA EXECS & CEO LTIA EXECS
17 Oct 2019
30 Jun 2023
31 Dec 2023
$5.80
5 Oct 2018
5 Oct 2022
31 Dec 2022
$4.14
LTIA CEO
18 Oct 2018
18 Oct 2022
31 Dec 2022
$4.10
Scheme
Grant date
Vesting date
Expiry date
Share price at
grant date
Expected life
Company
share price
volatility
Risk free rate
0.80%
Dividend yield 5.30%
Fair value
$3.12
4 years
17.80%
4 years
18.70%
4 years
18.90%
2.20%
5.20%
$1.70
2.30%
5.20%
$1.77
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
2020
$’000
2019
$’000
Audit and other assurance services
Audit and review of financial statements
1,190
1,213
Other assurance services
Other assurance services
34
58
Total remuneration for audit and other
assurance services
Taxation services
Tax advisory services
Other services
Advisory services
Total remuneration of PwC Australia
1,224
1,271
11
–
59
1,294
246
1,517
33 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.
The Company share price volatility is based on the Company’s average
historical share price volatility to the grant date.
94
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20
Notes to the consolidated financial statements
30 June 2020 (continued)
33 Summary of other significant
accounting policies (continued)
(a) Basis of preparation
(i) New and amended standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for the annual reporting period commencing 1 July 2019:
› AASB 16 Leases
› Interpretation 23 Uncertainty over Income Tax Treatments
› AASB 2018-1 Amendments to Australia Accounting Standards –
Annual Improvements 2015-2017 Cycle
The Group also elected to adopt the following amendments early:
› AASB 2019-3 Amendments to Australia Accounting Standards –
Interest Rate Benchmark Reform
The Group had to change its accounting policies as a result of adopting
AASB 16. The Group elected to adopt the new rules retrospectively and
recognised the cumulative effect of initially applying the new standard
on 1 July 2019. This is disclosed in note 34. The Interest Rate Benchmark
Reform amendments modify specific hedge accounting requirements
to allow hedge accounting to continue during the period of uncertainty
relating to the benchmarking reforms for affected cash flow and fair value
hedges related to the Group’s European Medium Term Notes (EMTN).
The Interest Rate Benchmark Reform and other amendments listed above
did not have any impact on the amounts recognised in prior years and are
not expected to significantly affect the current or future years.
(ii) New standards and interpretations not yet adopted
Certain new accounting standards and amendments to standards
have been published that are not mandatory for reporting periods
commencing 1 July 2019 and have not been early adopted by the
Group. These standards are not expected to have a material impact
on the entity in the current or future reporting periods 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.
(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
As explained in note 33(a)(i), the Group has changed its accounting
policy for leases where the Group is the lessee. The new policy is
described in note 9(b) and the impact of the change in note 34.
Until 30 June 2019, leases in which a significant portion of the risks
and rewards of ownership are not transferred to the Group, as lessee,
were classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) were charged
to the consolidated income statement on a straight-line basis over the
period of the lease. Lease income from operating leases where the
Group is a lessor was recognised as income on a straight-line basis
over the lease term.
(e) Business combinations
The acquisition method of accounting is used to account for all business
combinations, regardless of whether equity instruments or other assets
are acquired. The consideration transferred for the acquisition of a
subsidiary comprises the:
› fair values of the assets transferred
› liabilities incurred to the former owners of the acquired business
› equity interests issued by the Group
› fair value of any asset or liability resulting from a contingent
consideration arrangement, and
› fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions,
measured initially at their fair values at the acquisition date. The
Group recognises any non-controlling interest in the acquired entity
on an acquisition-by-acquisition basis either at fair value or at the
non-controlling interest’s proportionate share of the acquired entity’s
net identifiable assets.
Acquisition-related costs are expensed as incurred.
The excess of the:
› consideration transferred,
› amount of any non-controlling interest in the acquired entity, and
› acquisition-date fair value of any previous equity interest in the
acquired entity
over the fair value of the net identifiable assets acquired is recorded
as goodwill. If those amounts are less than the fair value of the net
identifiable assets of the business acquired, the difference is recognised
directly in profit or loss as a bargain purchase.
95
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT Notes to the consolidated financial statements
30 June 2020 (continued)
33 Summary of other significant
accounting policies (continued)
(e) Business combinations (continued)
Where settlement of any part of cash consideration is deferred, the
amounts payable in the future are discounted to their present value
as at the date of exchange. The discount rate used is the entity’s
incremental borrowing rate, being the rate at which a similar borrowing
could be obtained from an independent financier under comparable
terms and conditions.
Contingent consideration is classified either as equity or a financial
liability. Amounts classified as a financial liability are subsequently
remeasured to fair value with changes in fair value recognised in
profit or loss.
Predecessor value method of accounting is used to account for all
business combinations that involve entities under common control.
Acquired assets and liabilities are recorded at their existing carrying
values and no goodwill is recorded. Retrospective presentation of the
acquired entity’s results and balance sheet are incorporated as if both
entities (acquirer and acquiree) had always been combined.
(f) Non-current assets (or disposal groups) held for sale
and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale
if their carrying amount will be recovered principally through a sale
transaction rather than through continuing use and a sale is considered
highly probable. They are measured at the lower of their carrying amount
and fair value less costs to sell, except for assets such as deferred tax
assets, assets arising from employee benefits, financial assets and
investment property that are carried at fair value and contractual
rights under insurance contracts, which are specifically exempt
from this requirement.
An impairment loss is recognised for any initial or subsequent write-
down of the asset (or disposal group) to fair value less costs to sell.
A gain is recognised for any subsequent increases in fair value less costs
to sell of an asset (or disposal group), but not in excess of any cumulative
impairment loss previously recognised. A gain or loss not previously
recognised by the date of the sale of the non-current asset (or disposal
group) is recognised at the date of derecognition.
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.
Non-current assets classified as held for sale and the assets of a disposal
group classified as held for sale are presented separately from the other
assets in the balance sheet. The liabilities of a disposal group classified
as held for sale are presented separately from other liabilities in the
balance sheet.
A discontinued operation is a component of the entity that has been
disposed of or is classified as held for sale and that represents a separate
major line of business or geographical area of operations, is part of a
single co-ordinated plan to dispose of such a line of business or area of
operations, or is a subsidiary acquired exclusively with a view to resale.
The results of discontinued operations are presented separately in the
statement of profit or loss.
(g) 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.
(h) 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.
96
Notes to the consolidated financial statements30 June 2020 (continued)AURIZON ANNUAL REPORT 2019–20 34 Changes in accounting policies
The change in accounting policy affected the following items in the
consolidated balance sheet on 1 July 2019:
This note explains the impact of adoption of AASB 16 Leases on the
Group’s financial statements and discloses the new accounting policies
that have been applied from 1 July 2019.
The Group has adopted AASB 16 retrospectively from 1 July 2019
and comparatives for the 2019 financial year have not been restated
as permitted under the specific transitional provisions in the standard.
The reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on
1 July 2019.
(a) Adjustments recognised on adoption of AASB 16
On adoption of AASB 16, the Group recognised lease liabilities in relation
to leases which had previously been classified as ‘operating leases’ under
the principles of AASB 117 Leases. These liabilities were measured at
the present value of the remaining lease payments, discounted using
the Group’s incremental borrowing rate as of 1 July 2019. The weighted
average incremental borrowing rate applied to the lease liabilities on
1 July 2019 was 3.6%.
Operating lease commitments disclosed as at
30 June 2019
Discounted using the Group’s incremental
borrowing rate at the date of initial application
(Less): short-term leases recognised on a
straight-line basis as expense
(Less): adjustments as a result of a different
treatment of termination options
Lease liability recognised as at 1 July 2019
Of which:
Current other liabilities
Non-current other liabilities
2019
$m
174.6
(26.4)
(0.5)
(4.8)
142.9
14.1
128.8
142.9
The associated right-of-use assets, which relate primarily to property,
were measured at the amount equal to the lease liability and initial direct
costs incurred when entering into the lease less incentives received for
fitout contributions. The right-of-use assets were adjusted for the lease
receivable on sub-lease arrangements where the sub-lease was for the
duration of the head lease.
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
1 July 2019
$m
4.9
53.3
41.1
0.1
(9.8)
2.3
(90.3)
1.6
1.6
Impact on segment disclosures and earnings per share
(i)
As a result of adopting the new leasing standard from 1 July 2019,
segment continuing EBITDA has improved due to the change in policy.
The impact for 2020 financial year is included in the table below.
Segment
Network
Coal
Bulk
Other
Continuing
EBITDA
$m
–
4.6
1.6
2.0
8.2
There has been no material impact on earnings per share for the 2020
financial year as a result of the adoption of AASB 16.
(ii) Practical expedients applied
In applying AASB 16 for the first time, the Group has used the following
practical expedients permitted by the standard:
› the accounting for operating leases with a remaining lease term
of less than 12 months as at 1 July 2019 as short-term leases; and
› reliance on previous assessments on whether leases are onerous.
The Group has also elected not to reassess whether a contract is, or
contains a lease at the date of initial application. Instead, for contracts
entered into before the transition date, the Group relied on its
assessment made applying AASB 117 and Interpretation 4 Determining
whether an Arrangement contains a Lease.
(b) The Group’s leasing activities and how these are
accounted for
Refer to note 9(b) for the Group’s accounting policy relating to leases.
97
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT
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 occurring after
the reporting date.
35 Contingencies
36 Commitments
37 Events occurring after the reporting period
Page 99
Page 99
Page 99
98 AURIZON ANNUAL REPORT 2019–20
35 Contingencies
36 Commitments
(a) Capital commitments
Significant capital expenditure contracted for at the end of the financial
year but not recognised as liabilities is as follows:
2020
$m
2019
$m
Property, plant and equipment
Within one year
102.6
81.1
(b) Lease commitments
The Group primarily leases property, plant and equipment. 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.
From 1 July 2019, the Group has recognised a lease liability for these
leases, except for short-term and low-value assets. Refer to note 9
and note 34 for further information.
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
2019
$m
19.4
75.3
79.9
174.6
37 Events occurring after the
reporting period
No matter or circumstance, other than the matters disclosed in key
events and transactions for the period, has occurred subsequent to
the interim financial period that has significantly affected, or may
significantly affect, the operations of the Group, the results of those
operations or the state of affairs of the Group or economic entity in
subsequent financial periods.
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, product warranties and regulatory
breaches are dealt with as they arise. There were no material contingent
liabilities requiring disclosure in the financial statements, other than as
set out below.
Guarantees and letters of credit
For information about guarantees and letters of credit given by the
Group, refer to note 19(d). For information about the MIC Parent
Company Guarantee, refer to note 23(b).
Transfer duty exemption
The transfer of ownership of Aurizon Network Pty Ltd from Aurizon
Operations Limited to Aurizon Holdings Limited in August 2019 qualified
for an exemption from transfer duty under the Queensland Duties
Act 2001. Should duty become payable in respect of the restructure
(for example, due to a change in ownership of Aurizon Network Pty
Ltd within three years of the transfer of the shares in August 2019),
Aurizon estimates the duty liability may be approximately $295 million.
(b) Contingent assets
Guarantees and letters of credit
For information about guarantees given to the Group, refer to note 19(d).
Wiggins Island Rail Project (WIRP)
In the 2019 financial year, legal proceedings occurred 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 non-regulated WIRP fee.
On 27 June 2019, the Supreme Court of Queensland ruled in the Group’s
favour. Customers appealed that decision and that appeal was heard in
the Queensland Court of Appeal between 10 March 2020 and 12 March
2020. A decision of the Queensland Court of Appeal is expected to be
delivered in the first half of financial year 2021.
The WIRP customers also initiated other disputes under their respective
WIRP Deeds which were the subject of an expert determination in
February 2019. 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
of Queensland proceedings and will not impact the 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 2020 financial year.
99
Notes to the consolidated financial statements30 June 2020 (continued)FINANCIAL REPORT Directors’ Declaration
30 June 2020
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 99 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 2020 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.
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.
Tim Poole
Chairman
Brisbane
10 August 2020
100
AURIZON ANNUAL REPORT 2019–20
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 2020 and of its financial
performance for the year then ended; and
(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 2020;
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; and
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 (including Independence
Standards) (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.
101
FINANCIAL REPORT
Our audit approach
An audit is designed to provide reasonable assurance about whether the financial report is free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of
users taken on the basis of the financial report.
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial report as a whole, taking into account the geographic and management structure of the
Group, its accounting processes and controls and the industry in which it operates.
Materiality
Audit scope
Key audit matters
● Amongst other relevant topics,
we communicated the following
key audit matters to the Audit
and Risk Committee:
− Access Revenue
recognition; and
− 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 $38 million,
which represents
approximately 5% of the
Group’s profit before tax from
continuing operations.
● 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.
● 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 from continuing operations
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.
102
AURIZON ANNUAL REPORT 2019–20
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
Access Revenue recognition
(Refer to note 2 and Key events and transactions for
the reporting period)
During the year ended 30 June 2020 (FY2020), the
Group recorded track access revenue of $1,130.2
million.
The following procedures amongst others were
performed in relation to access revenue recognition:
● Obtained management’s reconciliation of the
total MAR for FY2020 as per the QCA
approved 2017 Access Undertaking to actual
revenue billed to customers for each of the
systems in the CQCN.
● Agreed the reference tariff applicable for each
of the systems within the CQCN for FY2020 to
the QCA approved 2017 Access Undertaking.
● Agreed on a sample basis that revenue had
been recognised based on actual volumes
hauled and the approved 2017 Access
Undertaking reference tariffs.
Track access revenue is recognised over time as access
to the Central Queensland Rail Network (CQCN) is
provided and is measured on a number of operating
parameters, including the volume hauled and regulator
(Queensland Competition Authority (QCA)) approved
pricing tariffs.
The tariffs are determined with reference to the total
allowable revenue, applied to the regulatory approved
annual volume forecast for each rail system.
Where annual volumes railed are less than the
regulatory forecast Take-or-Pay clauses may be
triggered. Take-or-Pay is calculated based on the
Group’s judgement of below rail cause versus above rail
operator/mine cancellations.
Take-or-Pay revenue is recognised in the financial year
that the contractual railings were not achieved as the
Group consider that related performance obligations
have been satisfied.
2017 Access Undertaking Update
On 21 February 2020, the QCA approved Aurizon
Networks’ consolidated Compliant Access Undertaking
and Volume Reset Draft Amending Access Undertaking
(DAAU) for the CQCN (2017 Access Undertaking).
The tariffs included in the 2017 Access Undertaking
approved by the QCA assumed an independent
capacity assessment would be complete by 1 March
2020 and therefore, a combined WACC of 6.03%
(5.90% July - February, 6.30% March - June) would
apply for FY2020.
103
FINANCIAL REPORT
Key audit matter
How our audit addressed the key audit matter
The delay in the independent capacity assessment and
the higher WACC of 6.30% applying from March 2020
has resulted in an over-collection of access charges in
FY2020. This over collection forms part of the net
revenue cap adjustment of up to $3.0 million to be
collected in FY2022 subject to the approval of the QCA.
Access revenue for FY2020 has been recognised based
on the QCA approved 2017 Access Undertaking.
Take-or-Pay
Take-or-Pay
In FY2020, Take-or-Pay clauses have been triggered
under the 2017 Access Undertaking resulting in $25.6
million of revenue being recognised where the Group
considered that customers have not railed their
nominated forecast volumes and the reason for the
shortfall was not due to Aurizon Network’s
management of the CQCN.
There is judgement involved in respect of the revenue
recognised in accordance with the Take-or-Pay clauses
in determining whether the shortfall to nominated
forecast volumes is due to below rail cause or above rail
operator/mine cancellations.
We considered revenue recognition to be a key audit
matter due to the new 2017 Access Undertaking being a
key event in the financial year, complexity in revenue
calculations and the judgement, including the
determination of Take-or-Pay revenue.
Recoverability of assets (including Bulk East
and Western Australia (WA) Cash Generating
Units (CGUs) and Rollingstock)
(Refer to note 4)
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.
During FY2020, impairment reversal indicators have
been identified for the Bulk East and WA CGUs.
The Bulk East and WA CGUs’ recoverable amount is
determined using the Value in Use (VIU) methodology
utilising a discounted cash flow model.
● Obtained computation for the Take-or-Pay
revenue and agreed that the amounts
recognised are in accordance with the 2017
Access Undertaking.
● Agreed on a sample basis the Take-or-Pay
model inputs (including operational units
such as tonnages hauled, train paths, consist
configuration, kilometres travelled etc.) to
underlying customer contracts and other
supporting documentation.
● Tested the mathematical accuracy of the Take-
or-Pay model.
● Agreed on a sample basis, the evidence to
support the cause for volume shortfalls
relative to nominated forecasts used in the
determination of Take-or-Pay revenue.
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:
● Assessed whether the division of the Group’s
property, plant and equipment assets into
CGUs, which are the smallest identifiable
groups of assets that can generate largely
independent cash inflows, was consistent with
our knowledge of the Group’s operations and
internal Group reporting.
● Assessed whether the carrying value of the
CGUs included all assets, liabilities and
cashflows directly attributable to the CGU and
a reasonable allocation of corporate
overheads.
104
AURIZON ANNUAL REPORT 2019–20
Key audit matter
How our audit addressed the key audit matter
In determining the recoverable amount, the Group has
made the following key judgements:
●
●
the terminal value growth rate of 2.0%; and
the pre-tax discount rate of 10.4% is
appropriate.
Due to the sensitivity of the recoverable amount to the
renewal of major customer contracts, no reversal of
previous impairments has been recognised during the
year ended 30 June 2020.
Rollingstock
● 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
judgements made by the Group in relation to
key customers’ current and future contractual
arrangements.
The Group prepares an Enterprise Fleet Plan (EFP) to
determine the level of rollingstock required.
● Assessed, with assistance from PwC valuation
experts:
The Enterprise Fleet Plan covers a ten-year period and
key assumptions include forecast volumes, productivity
and required level of contingent fleet.
Given the judgements incorporated by the Group, the
assessments of the recoverability of assets (including
the Bulk East & WA CGUs and rollingstock) is
considered to be a key audit matter.
o
o
o
the forecast terminal value growth
rate of 2.0% by comparing it to
economic forecasts;
that the pre-tax nominal discount
rate applied in the model reflects the
risks of the CGU; and
the mathematical accuracy of the
model.
● Evaluated the Group’s sensitivity analysis to
assess reasonable possible changes that may
give rise to a further impairment or reversal of
previous impairments.
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 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 2020, 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:
https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf
This description forms part of our auditor's report.
106
AURIZON ANNUAL REPORT 2019–20
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 2020.
In our opinion, the remuneration report of Aurizon Holdings Limited for the year ended 30 June 2020
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 Tim Allman
Partner Partner
Brisbane
10 August 2020
FINANCIAL REPORT 107
Non-IFRS Financial Information
in 2019-20 Annual Report
Net debt consists of borrowings (both current and non-current) less
cash and cash equivalents. Net debt excludes lease liabilities (included
in other liabilities) recognised on adoption of the new lease accounting
standard effective from 1 July 2019. 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. An alternative Net debt and Net
gearing ratio are also disclosed to include derivative financial instruments
used to hedge market risk on borrowings.
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.
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, 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.
ROIC is defined as underlying rolling twelve-month EBIT divided
by average invested capital. With the introduction of the new lease
accounting standard effective from 1 July 2019, which has the effect of
bringing leases onto the balance sheet, the definition of average invested
capital has been simplified. Average invested capital is calculated as
the rolling 12-month average of net assets (excluding cash, borrowings,
tax, derivative financial assets and liabilities). This measure is intended
to ensure there is alignment between investment in infrastructure and
superior returns for shareholders.
108
AURIZON ANNUAL REPORT 2019–20 Non-IFRS Financial Information
in 2019-20 Annual Report (continued)
2020
2019
Continuing
operations
$m
Discontinued
operations
$m
Continuing
operations
$m
Discontinued
operations
$m
NPAT – Underlying
Significant adjustments, net of tax
NPAT – Statutory
Income tax expense/(benefit)
Profit/(loss) before income tax
Net finance costs/(benefit)
EBIT – Statutory
Add back significant adjustments:
— Net gain on sale of rail grinding business
— Intermodal closure benefit
— Intermodal impairment
— Intermodal redundancy benefit
EBIT – Underlying
Depreciation and amortisation
EBITDA – Underlying
Average invested capital (continuing operations)
ROIC (continuing operations)
Net Gearing Ratio
Total borrowings
Less: cash and cash equivalents
Net debt
Total equity
Total capital
Net Gearing Ratio
Alternative Net Gearing Ratio
Net debt
Accumulated fair value adjustments1
Alternative Net Debt
Total equity
Total capital
Alternative Net Gearing Ratio
1 Refer note 19 (a) (iv)
9.0
1.8
10.8
4.4
15.2
–
15.2
–
(2.5)
–
–
12.7
0.2
12.9
531.3
73.8
605.1
260.8
865.9
148.5
1,014.4
(105.4)
–
–
–
909.0
558.6
1,467.6
8,364
10.9%
473.3
–
473.3
208.6
681.9
147.1
829.0
–
–
–
–
829.0
542.6
1,371.6
8,561
9.7%
2020
$m
3,607.2
(29.3)
3,577.9
4,357.7
7,935.6
45.1%
2020
$m
3,577.9
(251.6)
3,326.3
4,357.7
7,684.0
43.3%
11.2
(8.0)
3.2
(7.8)
(4.6)
(0.1)
(4.7)
-
(13.2)
25.1
(0.5)
6.7
0.2
6.9
2019
$m
3,369.8
(25.2)
3,344.6
4,677.4
8,022.0
41.7%
2019
$m
3,344.6
(229.5)
3,115.1
4,677.4
7,792.5
40.0%
109
FINANCIAL REPORT Shareholder Information
RANGE OF FULLY PAID ORDINARY SHARES AS AT 4 AUGUST 2020
RANGE
1-1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 Over
Total
18,220
22,703
2,990
1,933
79
45,925
11,359,678
50,264,205
21,753,244
38,689,820
1,792,575,885
1,914,642,832
TOTAL HOLDERS
UNITS % OF ISSUED CAPITAL
UNMARKETABLE PARCELS AS AT 4 AUGUST 2020
Minimum $500.00 parcel at $4.59 per unit
MINIMUM PARCEL SIZE
109
HOLDERS
904
The number of shareholders holding less than the marketable parcel of shares is 904 (shares: 43,178).
0.59
2.63
1.14
2.02
93.62
100.00
UNITS
43,178
SUBSTANTIAL HOLDERS OF 5% OR MORE OF FULLY PAID ORDINARY SHARES AS AT 4 AUGUST 2020*
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
141,036,686
INVESTOR CALENDAR
2021 DATES
15 February 2021
29 March 2021
9 August 2021
DETAILS
Half Year results and interim dividend announcement
Interim dividend payment date
Full Year results and final dividend announcement
20 September 2021
Final dividend payment date
12 October 2021
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 2019–20
TOP 20 HOLDERS OF FULLY PAID ORDINARY SHARES AS AT 4 AUGUST 2020
NAME
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
CITICORP NOMINEES PTY LIMITED
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
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