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AZJ.AX - Aurizon Holdings Ltd Annual Shareholders Meeting
EVENT DATE/TIME: NOVEMBER 12, 2014 / 02:00AM GMT
CORPORATE PARTICIPANTS
John Prescott Aurizon Holdings Limited - Chairman
Lance Hockridge Aurizon Holdings Limited - MD and CEO
Russell Caplan Aurizon Holdings Limited - Non-executive Director
CONFERENCE CALL PARTICIPANTS
George CrispSecurityholder
Philip WoodcockSecurityholder
Vishna Kumar SapulSecurityholder
Sally ForrestSecurityholder
Linda SelveySecurityholder
Sven BorgSecurityholder
Jim LyonSecurityholder
Jaime Yallup FarrantSecurityholder
Maryanne ChapelSecurityholder
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NOVEMBER 12, 2014 / 02:00AM GMT, AZJ.AX - Aurizon Holdings Ltd Annual Shareholders MeetingPRESENTATION
John Prescott - Aurizon Holdings Limited - Chairman
Good morning, ladies and gentlemen. My name is John Prescott and I am your Company's Chairman. On behalf of the Board I would like to welcome you to Aurizon's 2014 Annual General Meeting. We are pleased that you have taken the time to attend and thank you for your interest and support of Aurizon.
(Conference Instructions).
The Company Secretary has confirmed that a quorum is present and accordingly I declare the Annual General Meeting open. The Notice of Meeting was mailed to all shareholders on September 12 and I will take the Notice of Meeting as read.
I would now like to outline the format of the meeting. My introduction and address will be followed by an address by the Managing Director and CEO, Mr. Lance Hockridge. We will then turn to the business of the meeting, during which you will have an opportunity to ask questions that you may have relating to the business of the meeting.
I will now introduce your Board of Directors and some of our senior executives. Seated from my far left, your right, is Mr. Graeme John, Non-executive Director; Mr. John Cooper, Non-executive Director; Ms Andrea Staines, Non-executive Director; our Company Secretary, Mr. Dominic Smith; Mr. Lance Hockridge, the Company's Managing Director and Chief Executive Officer; Mr. Russell Caplan, Non-executive Director; Mr. Gene Tilbrook, Non-executive Director; Mrs. Karen Field, Non-executive Director; and Mr. John Atkin, Non-executive Director.
Members of the Company's executive committee, that's Lance's direct reports, are also present. Mr. John Yeoman of PricewaterhouseCoopers, the Company's external auditor, is in attendance today and he is also seated in front of me, in the middle. John will be available to answer questions regarding the conduct of the audit and the content and preparation of the audit report.
I will now turn to my meeting address. I apologise for my voice but I've been on too many aeroplanes.
On behalf of the Board I do welcome you to this the fourth Annual General Meeting of Aurizon Holdings Limited, the first to be held in Perth. We have really been looking forward to this day as Western Australia is extremely important to us.
We've been growing our presence in this state since we acquired ARG in 2006 and we've built our business in this state. We've taken the important strategic move to balance our coal portfolio with iron ore and other minerals. We are now seeking to grow our success in the southwest with a substantial opportunity in the Pilbara. I'll return to this later, but Western Australia is also important for our general freight initiatives.
I want to open this meeting, as we do all meetings in Aurizon, by emphasising the importance we place on safety and the progress we are making. Safety is at the heart of everything we do in Aurizon. It is the Company's core value and the foundation from which we are driving cultural change throughout the organisation.
Over the four years since privatisation, we have delivered significant year-on-year improvements in safety and last year our lost time injury frequency rate declined by 71% and our medical treatment injury frequency rate by 49%. Against this, since year end we've been devastated by a tragic road accident near Stanwell in Central Queensland, where two of our colleagues and an Aurizon contractor were killed.
These three men were travelling to a crew change. Aurizon has extended support to their families and to all our employees, many of whom have been deeply affected by this incident. Lance will talk more about it in his address.
Safety is of course part of a wider sustainability initiative. This embraces safety, community, organisational capability and environment, and it embraces taking the least resource-intensive approach to our operations.
While sustainable practices have long been part of our operations, our business, the Board has overseen a range of work in the past year to bring all this together with greater focus and transparency.
As you entered today's meeting, you will have received our inaugural Sustainability Report. We are delighted to launch this report today. In part, the report describes the enormous importance of the coal industry to billions of people around the world. It's an industry that supports a very large number of Australians.
The report also describes how we in the industry are addressing the concerns of others. Ladies and gentlemen, it is plain wrong to suggest these concerns are not being addressed constructively.
For Aurizon to be world-class in all we do, we must have a strong, enduring social licence to operate and a business model that is grounded in economic, environment and social principles. I encourage you to visit our website to experience the interactive version of our Sustainability Report: Aurizon Beyond 2020. It will be updated annually.
Ladies and gentlemen, you've had the opportunity to examine the Company's financial performance in our Annual Report. We are pleased with the results and we hope you are too. Our statutory earnings before interest and tax were down 32% due largely to a decision to take an impairment by writing off about 20% of our rolling stock fleet.
But there were several positives. That write-off will bring its own benefits over future years. Our underlying EBIT increased 13% and net profit after tax by 7%. Transformation benefits during the year were AUD129 million. Our operating ratio was down from 79.8% to 77.7% so we're on track to achieve our target of 75% this year.
I remind shareholders that it was 94% at the time of the IPO. That means that our EBIT profit margin has moved from just 6% in 2010 to 22% in 2014. We handled record tonnages of coal and of iron ore and with fewer trains.
We declared a final dividend of AUD0.085 per share, taking our payout ratio to 70%. This is at the top end of what we foreshadowed last year. The total dividend for the year was a gain of 34%. From listing to June 30 this year, the Company's total shareholder returns outperformed the S&P/ASX 200 by an average of 5.5% each year.
However, over recent months sentiment has weakened towards our sector and some of the challenges facing the Company have weighed on our stock. But you'll have noted the more recent improvement in our share price.
Running in parallel with our transformation and growth efforts has been our negotiation with customers and the Queensland Competition Authority to finalise Access Undertaking UT4. This undertaking will regulate the terms and tariffs for railway operators, including ourselves, to access the Central Queensland coal network.
It's a complex topic. In broad summary, on September 30 this year the QCA released a draft revenue decision that will regulate the maximum allowable revenue for Aurizon network in the Central Queensland coal network. We have until December 12 to complete our submissions. We're working with customers and the authority to secure a better recognition of the need for higher overheads and maintenance recoveries and subject to this, a final outcome that will be satisfactory.
The Board has been engaged in two other substantial activities in the past year. Firstly, we collected information from a range of shareholders as to their concerns that led to last year's first strike against our Remuneration Report. We then decided on a number of changes to address those concerns. These changes are described on the screens and I'm pleased to say they seem to have been well received.
Secondly, a priority for the Board during the year has been the assessment of the Company's leadership and our requirements for future leadership. This is all the more important given the rapid transformational change that is occurring in the Company and our growth ambitions.
We've always looked to the future to assess our leadership needs and to put in place teams that will continue to drive growth in shareholder returns. We have a continuous process of reviewing the senior management team and a robust CEO succession plan. We've also sought to continually assess the Board's own performance and structure to ensure they meet in a timely manner the Board's changing needs and succession.
We began calendar 2014 with a Board subcommittee considering what we would need in a future Chairman. I stood aside from that subcommittee but was asked by the Board to lead the follow-on. We then did further reviews with external advisors on what the Board should look like going forward, and to help us find the best people for our growth and succession plans.
These activities continue. More recently, we established a nomination and succession committee separate from our remuneration committee to facilitate these actions. By the way, we embarked on all of this before the recent burst of publicity.
As part of what we're doing I expect we'll have a new Chairman before next year's AGM. I therefore expect that this will be my last AGM as a Director of Aurizon. I thank the Board, our Directors, the management team and particularly you, our shareholders, for your encouragement and support. It's been an exciting period to be your Chairman and a privilege and an honour to lead such a great Australian company.
I should also mention our efforts to reach new enterprise agreements with our Queensland employees. We have not pursued an ambit claim but one we think is fully justified given similar arrangements applying to our competitors.
Our current agreements contain restrictions on our ability to achieve improvements, improvements in our operational activity, productivity and efficiency. This is why we have the current hearings in the Fair Work Commission where we're seeking termination of these agreements that are well past their nominal terms.
Ladies and gentlemen, our post-implementation reviews, the reviews we do after projects have been running awhile, are achieving their stated objectives, on our new contracts and our capital spending. We believe there remain excellent prospects for Aurizon in the short and longer terms.
In the nearer future we will be well served by our continuing transformation initiatives. Those initiatives are touching every aspect of our business.
The integrated operating plan is continuing to improve our efficiency and reduce our costs, so we're carrying more freight with less equipment, lower maintenance costs, better fuel consumption and quicker turnarounds. We continue to work closely with our customers in what are very challenging times for them by helping drive down their unit costs and providing a high level of consistent service.
We confirm our guidance that we expect to move 210 million to 220 million tonnes of coal this year and 23 million tonnes of iron ore. That's in the current fiscal year. We also expect to achieve our target 75% operating ratio for the year and to deliver both our higher operating ratio and returns goals going forward as we continue to drive to a world-class performance.
Beyond the early horizons, we have excellent prospects for growth as illustrated by our work in the Pilbara and the Galilee. In the Pilbara we're working with two of the world's leading steelmakers, Baosteel and POSCO, and with one of the leading privately-held resource companies AMCI to prove up the viability of a world-class project. This would help deliver the iron ore that they need for continuing growth in the Asian economies.
In the Galilee, we're working with GVK-Hancock to finalise agreements that would see us investigate the opportunity to construct rail and port infrastructure to serve the large thermal coal mines proposed for the region as well as the next generation of growth in the northern Bowen Basin. We are confident that these projects are sound propositions, but I emphasise in each case there are prerequisites that must be satisfied before we will commit further significant capital.
We know the environment is tough but Aurizon's Board, management and employees are stepping up their efforts to deliver on the inherent potential of this great Company. Our objectives are simple; to create a growing world-class Company that delivers shareholder value. We are most grateful for your support.
On behalf of the Board, I would like to thank all Aurizon executives and employees for their hard work and enthusiasm over the past year. I'll now invite Lance to share his thoughts with you. Thank you.
Lance Hockridge - Aurizon Holdings Limited - MD and CEO
Thank you, Chairman. Ladies and gentlemen, I'm really delighted to be here in Western Australia for our Annual General Meeting.
This is clearly a very important part of our business from a whole range of reasons, a part of the business that's enjoyed strong growth. It's an area in which we've invested both in the business and the communities in which we live and operate.
Can I begin by supporting our Chairman's comments about the solid progress that I believe your Company has made through the 2014 financial year, despite those challenging conditions that the Chairman spoke about? This progress could not have been achieved without the tremendous work and effort by all of the people in our Company, the management of the Company, but our employees right across the length and breadth of Australia.
I would also though particularly today like to acknowledge the outstanding leadership of the Chairman, John Prescott, who joined this Company in 2006 and has led the Company through what on any analysis, in my view, has been an extraordinary period of change. An extraordinary period of transformation of the Company from a company which was a Queensland-based government-owned corporation to today's Company which is an ASX 50 company.
On all the things that matter; first and foremost of course the safety journey in the Company, but shareholder value and overall performance, this Company has delivered under the Chairman's guidance. It's hard to imagine just how different your Company today is compared to the Company that John found when he joined the Company in 2006.
For that reason I thank him personally. I thank him on behalf of the employees of the Company for his tremendous contribution to this Company.
There remains of course a good deal for John to continue to do, but as he has said himself, it's unlikely that he'll be here next year. We know however that that legacy that I speak of will endure, and it will endure for years and for decades around our Company.
So today I'll build on the Chairman's remarks by talking to some of the broader organisational work in the Company, change initiatives in safety, in diversity, in sustainability that make Aurizon a better place to work, a valued contributor to the communities in which we live and work, and all the while driving improved commercial results for our shareholders.
Safety though remains the core value of our Company and I begin of course on a sombre note by paying respect to those three men, the two employees and the contractor who were so tragically killed in a road incident a few weeks ago in Queensland. This tragedy has sent, as you can imagine, shockwaves right throughout our Company, among our train-driving colleagues in the surrounding depots, indeed right across the entire Corporation the impact of this incident was profound.
Such an incident always reminds us that safety must always be in the front of our minds and that we must redouble our efforts to make sure that there is never a repetition of such an incident.
Notwithstanding that incident, the Chairman has already spoken about the impressive reduction in safety incidents across recent times. In key metrics such as our lost time injury frequency rate we're now reaching best-in-class levels. For example, just in the last couple of months for the first time in history we had a month in which we had neither a lost time injury nor a medically treated injury.
This is really quite remarkable when, as we do think back to the early days of privatisation in particular, many people, particularly at the start of that safety journey would say to us, you know what, zero harm is simply unachievable in the rail industry. Notwithstanding though again that progress, clearly it is a work-in-progress. Clearly it has been marred terribly by that incident in Queensland. We cannot let our focus waver one little bit. We must continue to be dedicated and to be determined in all of our safety efforts.