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Down, Down: Rail Freight Operator Aurizon Reports Falls In Profits And Earnings

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Down, Down: Rail Freight Operator Aurizon Reports Falls In Profits And Earnings

Australian bulk rail freight operator Aurizon (ASX: AZJ), which owns one of the world's largest coal rail networks, reported a 15 percent decline in full year profits. Statutory earnings before interest and taxation (EBIT) were down by 14 percent and revenues were down 7 percent.

Revenues stood at A$2.9 billion for the most recent financial year, which ran from July 2018 to June 2019, down 7 percent from the A$3.1 billion recorded in the 2017-2018 financial year. Statutory EBIT fell from A$966 million to A$829 million. Statutory Net Profit After Tax fell from A$542 million to A$473 million.

"In line with expectations"

The company downplayed the less profitable results.

Aurizon Chairman Tim Poole said that the lower result was "in line with expectations and which reflected the ‘UT5 Final Decision.'" That was a decision by the Queensland competition regulator to limit how much the company can charge on its railway. According to the company, the drop in EBIT of A$111.6 million was due to reduced earnings from the UT5 Final Decision.

The company's poorer profit results were effectively caused by the fact that the company generated less revenues as the company's operating costs actually largely showed an improvement. There were particularly big decreases in the costs of energy and fuel, down by about A$18.5 million from A$252.4 million in the 2017-2018 financial year to A$233.9 million in the last financial year. That's a 7.3 percent drop in costs.

Another major booster was the 47.2 percent decrease in the cost of track access. It fell by A$90.4 million, from A$191.4 million in the 2017-2018 financial year to A$101.0 million in the last financial year. However, offsetting those savings, Aurizon's cost of consumables blew out by A$49.4 million, a 14.2 percent increase, from A$348.4 million recorded in 2017-2018 to A$397.8 million in the 2018-2019 financial year. Overall, operating costs fell by about A$110.6 million.

Balance sheet update

The company's balance sheet looks healthy. As may be expected from a rail freight and rail network operator, the company has a very asset-heavy balance sheet with total assets in excess of A$9.7 billion. However, that figure is marginally down by 0.8 percent from the previous financial year. That said, for large companies, even a small decline can translate into a large absolute decline and that's the case here. Aurizon's small 0.8 percent decline in assets represents a decline of A$80.7 million.

Aurizon's liabilities also declined, from just over A$5.06 billion in the 2017-2018 financial year to A$5.02 billion in the 2018-2019 financial year. That's a 0.6 percent decline in liabilities and a A$28 million fall in debt in absolute terms. The weighted average debt maturity tenor is 4.3 years.

Haulin' coal

Aurizon hauled 214.3 million metric tonnes of coal, a 1 percent increase over the previous financial year. Net tonne kilometers (the movement of one tonne of cargo one kilometer) was 50.5 billion, largely flat from the previous year. The average haul length was 236 kilometers, which was, again, largely flat from the previous year.

Commenting on its coal performance, the company noted that coal earnings before interest and taxation decreased A$13.5 million to A$415.1 million due to an increase in operating costs. That increase was caused by an increase in the costs of maintenance.

Volumes hauled increased by 1.9 million metric tonnes, but this was partially offset by increased supply chain constraints and industrial action.

Bulk cargoes

Aurizon's bulk business hauls a range of bulk materials and commodities including agricultural products, mining and industrial materials. Freight transport under the country's bulk division fell by 20 percent from A$592.1 million to A$474.6 million. That's a decrease of A$117.5 million and a percentage decrease of 19.8 percent.

The figure for total cargo tonnes hauled stood at 44.6 million tonnes, which is 18 percent lower than the 54.7 million recorded in the 2018 financial year. The bulk division also generated 27.1 million in "other" revenues.

Meanwhile, commenting on the overall operational performance, CEO Andrew Harding pointed out several highlights, including winning "key contract extensions over the year, which has the effect of extending the expiry profile of the portfolio with 72 percent of our contracts having a duration of seven years or more."

Aurizon is primarily a bulk rail freight operator. It hauls coal, about 500,000 metric tonnes every day, from pits in Queensland and New South Wales to port for export. That coal is destined for markets in China, India, Japan, South Korea and Taiwan. A metric tonne is 2,204.6 U.S. pounds. The company transports about 200 million metric tonnes of metallurgical (i.e. steel-making) coal and thermal coal (burned for energy generation) each year. The rail freight operator also hauls over 40 million tonnes of other commodities each year.

Aurizon uses non-International Financial Reporting Standards.

Image Sourced from Pixabay

 

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