ANNUAL REPORT 18|19 Contents Purpose Growing regional Australia by delivering bulk FY2019 in Review ................................................... 1 commodities to the world. Chairman’s Report ................................................ 2 Managing Director & CEO’s Report .............. 3 Vision The first choice for bulk commodity transport Directors’ Report ...................................................4 solutions. – Operating and Financial Review ............... 10 – Remuneration Report ....................................25 Values Auditors’ Independence Declaration ........ 39 Safety: We have a relentless focus towards ZEROHarm. Corporate Governance Statement .............40 People: We seek diverse perspectives. Financial Report .................................................. 46 Integrity: We have the courage to do Shareholder Information ................................110 the right thing. Glossary .................................................................. 112 Customer: We strive to be the first choice Corporate Information ....................................114 for customers. Excellence: We set and achieve ambitious goals. FY2019 in Review Result Highlights (Underlying and statutory continuing operations) ($M) FY2019 FY2018 VARIANCE % Total revenue 2,907.6 3,112.7 (7%) EBITDA 1,371.6 1,466.1 (6%) EBIT 829.0 940.6 (12%) Adjustments – Cliffs contract exit – 34.5 – – Impairments – (31.7) – – Redundancy benefit – 22.9 – EBIT – statutory 829.0 966.3 (14%) NPAT 473.3 542.1 (13%) NPAT – statutory 473.3 560.1 (15%) Free cash flow (FCF) 734.8 669.4 10% Final dividend (cps) 12.4 13.1 (5%) Total dividend (cps) 23.8 27.1 (12%) Earnings per share (cps) 23.8 26.9 (12%) Return on invested capital (ROIC) 9.7% 10.9% (1.2ppt) EBITDA margin (%) 47.2% 47.1% 0.1ppt Operating ratio (OR) (%) 71.5% 69.8% (1.7ppt) Above Rail Tonnes (m) 258.9 267.1 (3%) Above Rail opex/NTK (excluding access) ($/’000 NTK) 20.3 18.5 (10%) Gearing (net debt/net debt + equity) (%) 41.7% 42.3% 0.6ppt Highlights Major items Outlook › EBIT down 12% to $829.0m in line with › Network – UT5 commercial deal negotiated › Underlying EBIT guidance for FY2020 expectations with: with customers that provides greater $880m – $930m • Network down $80.3m (17%) due to long-term certainty and improved return. Key assumptions: the impact of the UT5 Final Decision, Awaiting approval from the QCA, expected • Approval of the UT5 commercial deal including the true up of FY2018 revenues later in 2019 during 1HFY2020 and an uplift in WACC • Coal down $13.5m (3%) with higher › Outcome of the integration review concluded from 5.9% to 6.3% assumed 2HFY2020 maintenance and costs to install capacity the benefits of remaining vertically • Above Rail Coal volumes 220mt – 230mt offset in part by higher volumes and integrated outweigh separation at this time • Operational efficiency improvements revenue quality › Optimal legal and capital structure remain a key driver. Redundancy costs • Bulk down $12.8m (26%) due to the determined which results in a more efficient included in guidance cessation of the Cliffs contract in June balance sheet and funding structure. • Excludes earnings from the rail 2018. This was partly offset by growth Provides additional funding capacity of grinding business volumes and benefits from operational ~$1.2bn, with debt to be added progressively • No major weather or industrial efficiencies over time in order to mitigate risk and relations impacts • Other benefited from the reversal of a provide flexibility and optionality provision of $20.3m relating to an agreed › Queensland Intermodal sold to Linfox settlement with a customer in January 2019. Sale of Acacia Ridge › FCF improved 10% to $734.8m due to Intermodal Terminal to Pacific National the receipt of the early termination fee (PN) subject to Australian Competition from Cliffs and Consumer Commission (ACCC) appeal › Final dividend of 12.4cps, 70% franked through Federal Court (representing 100% payout of underlying › Progress made on Enterprise Agreements NPAT for Continuing Operations), (EA) with five agreements now complete a decrease of 5% against prior year, and the Coal Queensland EA approved in line with lower earnings in an employee ballot awaiting Fair Work › On market buy back of up to $300.0m Commission approval. Work continues announced for FY2020, confirming on the Bulk Queensland EA Aurizon’s commitment to returning surplus capital to shareholders FY2019 IN REVIEW 1 Chairman’s Report A message from the Chairman Last year, I confirmed the Board would take In September I announced Board Director, a close and active interest in the long-term Karen Field’s retirement from Aurizon’s Board, Dear fellow shareholders program of work to renew the Company’s and in May, Director John Cooper retired due I am pleased to report that Aurizon made focus on safety. We have been pleased to see to health reasons. Both Karen and John served important progress on several key matters the progress to date in simplifying the safety on Aurizon’s Board and committees for seven during the year ended 30 June 2019 (FY2019). management systems and the changes in years and were integral to the Company’s These include working with our mining the Company’s safety culture, however, we transformation. On behalf of the Board and the customers to commercially agree revised are disappointed in the final employee and Company, I thank both Karen and John for their regulatory arrangements, the sale of our contractor safety statistics for the year. invaluable contribution to Aurizon. Queensland Intermodal business to Linfox, All injuries are preventable, and during the With the removal of much of the regulatory successfully defending action taken by coming year we will continue our focus on uncertainty that impacted our business for the the Australian Competition and Consumer safety and support the leadership team to past couple of years, I am confident that our Commission in the Federal Court (concerning improve performance. team can focus on our core business, drive the sale of our Acacia Ridge Intermodal As noted above, the Company made substantial further transformation and provide safe and Terminal) and extending and executing a progress during the year in achieving efficient service to our customers. number of key Above-Rail customer contracts. regulatory reform, with a simpler, longer-term On behalf of the Board, I thank all employees In terms of earnings, Aurizon delivered Earnings and commercially focused framework for across our operations for their outstanding Before Interest and Tax (EBIT) in FY2019 of the regulation of the CQCN. In May 2019, we contribution to our results this year and thank $829 million. While lower than the prior year were pleased to announce an agreement with our shareholders for their ongoing support of result, this is in line with expectations and customers representing more than 90% of railed our Company. reflects the impact of the UT5 Final Decision tonnes on the CQCN. This is an important step including the one-off regulatory true-up towards developing an Access Undertaking of $60 million. We did not provide FY2019 that better addresses customer needs, EBIT guidance for Network due to regulatory improves export supply chain performance and uncertainty. Our Above Rail (non-Network) delivers long-term investment certainty for the business of Coal and Bulk delivered a Queensland coal sector. It also provides greater $450 million contribution to Group EBIT certainty for our shareholders. The revised Tim Poole (excluding redundancy), above the top end Access Undertaking is now being assessed by of guidance range we provided to the market the Queensland Competition Authority as part Chairman in August 2018. of the regulatory process. 12 August 2019 Volumes in the Coal business were at a As a Board, we are responsible for the overall record high despite operational challenges stewardship, strategic direction, governance and of industrial action and supply chain impacts. performance of the Company. During the year, The Bulk business continued to progress its we endorsed two strategically important pieces turnaround program, securing new customers of work that will support Aurizon’s ongoing and implementing several operational value to shareholders. First, was the decision for improvements. Our Network business delivered the Company to remain vertically integrated. a record 232.7 million tonnes across the Central Following a review of the Company’s integrated Queensland Coal Network (CQCN) in FY2019, a structure that included stakeholder consultation great result for the Network team and re-affirms and analysis, the review concluded that the the quality of this infrastructure asset. benefits of remaining vertically integrated outweighed separation. Aurizon has decided to pay out 100% of Underlying Net Profit After Tax as dividends, Second, we concluded a review to determine consistent with our practice for the last four the optimal legal and capital structure of the years. The Board has declared a final dividend Group. The Board endorsed the management of 12.4 cents per share, 70% franked. This team to commence implementation of a will take total dividends in respect of FY2019 simplified legal structure that will provide to 23.8 cents per share, 70% franked. the opportunity to optimise the Company’s The Company will also be undertaking an balance sheet and provide additional funding on-market share buy-back of up to capacity for the Group. We believe we will have $300 million during FY2020.