Aurizon : FY2023 Results Presentation Transcript

AURIZON HOLDINGS LIMITED

FY2023 INVESTOR PRESENTATION: (EDITED) TRANSCRIPT (14 AUGUST 2023)

Andrew Harding: Managing Director & Chief Executive Officer

Good morning and welcome to the 2023 full year results.

We are in Brisbane today therefore I acknowledge the Traditional Custodians of this land, the Turrbal and Jagera people, and pay my respects to the elders past, present and future for they hold the memories, the traditions, the culture and hopes of Aboriginal Australia. We must always remember that under the ballast, sleepers, rail systems and office buildings where Aurizon does business, was and always will be traditional Aboriginal land.

I am joined on the call by the CFO, George Lippiatt, and the rest of the Group Executive team.

We will shortly go through the presentation that we lodged with the ASX this morning which is also available on our website.

As usual, at the end of the presentation we will take questions.

Turning to safety performance.

SLIDE 3: SAFETY PERFORMANCE

A two percent improvement was recorded for the Total Recordable Injury Frequency Rate and a two percent improvement in the equivalent Lost Time measure. The Potential Serious Injury and Fatality Frequency Rate was introduced this year to more accurately represent our business as it grows beyond rail.

A reminder that this measure shows the number of events, as represented per million hours worked, that had the potential to cause, or did cause, a serious injury or fatality.

We have recorded a significant improvement of 56 percent in this measure compared to the prior year.

As noted at the first half results, we recategorised 23 incidents in 2022, resulting in a restatement of the outcome as shown on the slide.

Both metrics exclude Bulk Central, as we transition processes and systems from the acquired business to the Group, with consolidated reporting from this year.

In terms of risk, level crossings remain one of the areas of most concern for the rail industry, and we continue our efforts to improve safety through education and engineering solutions.

For example, in the twelve months to July, motor vehicles collided with our trains at level crossings on eleven occasions with six of these occurring in the final five weeks of that period.

It is fortunate that none of our train drivers have been killed or critically injured in these collisions. We understand however the lasting trauma that near misses and collisions can have on our drivers and on our recovery crews.

There is already a range of measures to support level crossing safety but we are determined to work with the community to do more to protect our drivers.

AURIZON HOLDINGS LIMITED

FY2023 INVESTOR PRESENTATION: (EDITED) TRANSCRIPT (14 AUGUST 2023)

We are working across three broad areas:

• Engineering and technical;
• advocacy with regulators and government; and
• education and awareness.

As always, our focus remains on protecting our employees, our customers and the communities in which we operate.

Before going into the Results, I want to revisit the key messages from the Investor Day we held in Darwin last month.

SLIDE 5: KEY MESSAGES FROM JULY 2023 INVESTOR DAY

Aurizon has continued to build upon our position as Australia's leading integrated rail provider. We have an operational footprint that covers mainland Australia as well as holding the largest fleet of locomotives and wagons.

In recent years, we have significantly increased our exposure to non-coal commodities through new contracts with customers such as CBH and Centrex, in addition to the One Rail acquisition.

The investments we are making in standard gauge locomotives and container wagons support the growth opportunities for the Bulk business unit. This rollingstock is generally able to be deployed across the 18 thousand kilometres of standard gauge track in Australia, as we continue to diversify our geographic and commodity exposure.

We took the opportunity to update our strategic aims, building upon what was introduced at Investor Day two years earlier. As shown on the next slide, this strategy is largely unchanged, although we lifted our aspirations in Bulk and have added a new growth stream in Containerised Freight.

SLIDE 6: STRATEGIC AIMS

The resilience of our highly-disciplined Network and Coal businesses is unchanged with a stable, cash- generative platform supporting our growth aspirations.

We have strengthened our Bulk growth aspirations driven by:

• an increase in the estimated addressable bulk market; and more importantly
• a greater aspirational market share of 25-30%, largely attributable to our exposure to Central Australia growth opportunities.

We have introduced our aspirations for Containerised Freight of 500 thousand TEUs on the back of our National Interstate Network and our integrated Bulk Central operations. In addition, and why we held our Investor Day in Darwin, we shared our land-bridging concept.

The land-bridging concept is of course not new, with the successful application in Europe and North America. And in the Australian context, the use of the Central corridor for land-bridging was part of the original plans when the Alice Springs to Darwin line was constructed twenty years ago.

So what is different now?

AURIZON HOLDINGS LIMITED

FY2023 INVESTOR PRESENTATION: (EDITED) TRANSCRIPT (14 AUGUST 2023)

From a volume perspective, container traffic at major Australian ports has doubled in the last twenty years to eight million TEUs. Over the same period, there have been expansions at key ports but the ability to continually extend operations to meet demand is likely to be challenged, as is the development of new ports in major cities.

Furthermore, no single entity, and definitely not in the prime Darwin to Tarcoola corridor, has had the rail infrastructure and capacity of Aurizon today to offer such a solution, including direct access to the port of Darwin. The previous owner of the concession saw no need to operate at the Port with the concession sub- leased. We will operate at the Port upon the delivery of mobile harbour cranes later in the year.

So what does our land-bridging solution offer?

From a cost perspective, the Darwin land-bridging solution requires less vessel sailing time when compared to delivery to all major Australian city ports. The distance between Shanghai and Darwin is half that of Shanghai-Melbourne.

Aurizon's Berrimah terminal adjoins the port and therefore limits costs in the transfer of containers between a ship and a train. Finally, delivery to rail terminals is generally in the outer suburbs of major cities reducing the distance and cost of delivery to nearby distribution centres.

From a value perspective, our proposed supply chain is estimated at 7 days (or 40%) quicker for the same Shanghai-Melbourne example, when compared against current sea freight. In addition, shipping fleet capacity is released given the shorter sailing distance to Darwin compared to other major ports.

I remain absolutely convinced of the opportunity in front of us, particularly when combined with the considered, staged approach to capacity we are taking. Limited additional rollingstock is required for stage one, and it is the exact same rollingstock that we currently use across Bulk and Containerised Freight. Stage one is aspiring for 100 thousand TEUs per annum a reminder again that total TEUs at major ports is 8 million per annum.

To date, we have two MoUs in operation, and with our concept now in the public domain, the level of discussion with global shippers and beneficial freight owners has ramped-up considerably.

Rather than simply hearing about our strategic aims, the next slide shows our progress to-date.

SLIDE 7: PROGRESS AGAINST STRATEGIC AIMS

This slide shows:

• the resilience of Coal and Network;
• Bulk growth, including the step-up this year driven by both the existing operations and the One Rail acquisition;
• our progress against the 500 thousand TEU aspiration, including the contribution of Bulk Central and our first National Interstate volumes; and finally,
• the effect of growth in Bulk and Containerised Freight resulting in a reducing share of thermal coal revenue.

Now turning to the Results

AURIZON HOLDINGS LIMITED

FY2023 INVESTOR PRESENTATION: (EDITED) TRANSCRIPT (14 AUGUST 2023)

SLIDE 8: FY2023 RESULTS

As noted at the first half results, wet weather has impacted our Coal, Network and Bulk East operations negating the uplift in earnings from the inclusion of eleven months of Bulk Central.

Bulk volumes were 34% higher, again driven by Bulk Central but also national grain volumes and the contribution of newer contracts such as Centrex and Tronox. Lower EBITDA and the One Rail acquisition has impacted ROIC this year, but this will improve in the future as earnings continue to grow.

Free cashflow from continuing operations decreased by 61%. This was driven by:

• higher capex supporting Bulk growth and our Queensland regulated Network;
• an increase in tax payments; and
• working capital movements.

George will spend some time going through the detail of the cash flow in a moment.

Although recognising a challenging year for Coal and Network volumes, the early results of Bulk investment can be seen with the increased share of revenue extending to 45% of the group excluding Network.

A final dividend declared of 8 cents per share maintains the payout ratio at 75% which we believe is appropriate given the investment cycle we are currently in. This takes the total dividend for the year to 15 cents.

Moving to our business units

SLIDE 9: BUSINESS UNITS

A five percent reduction in Coal volumes has driven a reduction in revenue and at the same time, higher non-pass through access costs that George will speak to shortly. Outside of this, other operating costs increased by 5% with fuel a key contributor, in addition to general cost escalation in wages and materials. Yield (excluding fuel) increased as a result of CPI-linked price escalation, partly offset by the end of previously advised higher yielding contracts.

Importantly, it has been a busy year with new contracts signed, including:

• a 10-year contract for the Maxwell mine in the Hunter Valley;
• a 5-year contract for the New Wilkie mine in Southeast Queensland;
• a 5-year contract for the Tahmoor mine in the Illawarra coal region; and a
• BMA Rail maintenance contract that commenced in July.

We are also expecting first coal to be railed for Olive Downs in this financial year.

Bulk has seen a step-up in earnings from the One Rail acquisition, but partially offset by the impact of wet weather, supply chain disruptions and customer specific production issues - with much of this in the first half of the financial year.

Bulk also signed a number of new contracts across a diverse selection of regions and commodities. The contracts cover a mix of supply chain solutions and have a duration of up to six years.

AURIZON HOLDINGS LIMITED

FY2023 INVESTOR PRESENTATION: (EDITED) TRANSCRIPT (14 AUGUST 2023)

We have spoken about the growth platform that has been set for Bulk, and the contract book we have announced today provides evidence of this success.

Turning to Bulk Central, we are now at 12 months of ownership and the Bulk leadership team has focussed on establishing the growth platform that is already in-place across the rest of Bulk. As such, the commercial activity to date has been with contract extensions. The next phase is of course growth and I look forward to updating the market in due course.

Network volumes were below the regulatory forecast resulting in an under-recovery of allowable revenue and triggered revenue protection mechanisms including take-or-pay of $76m,a further $21m of revenue will be recovered in two years' time.

Network EBITDA growth is expected in 2024 driven by a $125m increase in Allowable Revenue, as a result of the uplift in the preliminary WACC and the reset of the asset base.

A submission was made to the Queensland Competition Authority in July with a proposed final reset WACC of 8.51% to apply through to the end of UT5 in 2027. This compares with 6.3% that applied up until June 2023 and a preliminary WACC of 8.18% used in FY24 tariffs.

Finally to Containerised Freight where we are now operating two weekly National Interstate services in addition to our Central Corridor services, with almost 100 thousand TEUs transported during the year.

From our announcement in February, I am pleased by the progress to-date in standing-up capacity. We have begun railing spot volumes for a second customer for National Interstate and I look forward to the full schedule being in operation in April.

On that I will hand over to George.

George Lippiatt: Chief Financial Officer & Group Executive Strategy

SLIDE 11: KEY FINANCIAL RESULTS

Thank you Andrew and good morning to those joining us on the call.

These results are characterised by two major themes:

• firstly, a recovery across all key financial metrics in the second half after a weather impacted first half; and
• secondly, investments in One Rail and equipment as outlined at the recent Investor Day. This meant higher depreciation and interest costs during the year, but will provide benefits as we utilise the capacity in future periods.

As you can see on the table, underlying EBITDA declined 3% to $1,428m, however I note the second half was up around 12% on the first due to take or pay being booked and improved volumes across all Business