Company Interview / Buybacks, bulks & building the business

Andrew Harding, the CEO of Aurizon (ASX: AZJ), recaps the recent developments, particularly concerning their capital management plan. Andrew expresses his satisfaction with improvements in the last half, with Aurizon's EBITDA increasing by 14%, a change largely due to the good performance for their customers. This increase has led to a jump in dividends and triggered a $150 million buyback plan. Andrew maintains that his primary task is to generate optimum value for the assets and people at his disposal.

Mentioning his approach to diversification, Andrew notes a small increment in the coal volumes they handled on a year-to-year basis. Furthermore, he indicates that a volumetric uplift is predicted this year because of what their customers are currently disclosing to them. However, besides coal, they are making efforts to branch out from this area, acknowledging however that these attempts are occasionally compounded given the cyclical nature of consumer goods' demand.

Despite this obstacle, Andrew remains positive, detailing Aurizon's strategic entry into the bulk and containerised rail haulage businesses. He emphasises the company's primary focus on delivering a better product offering at a competitive price, punctuated by great service. With a surge in support for train-hauled freight due to its low carbon emissions, Andrew is confident that more customers will shift their products via rail despite the ongoing challenges. He also elaborates on Aurizon's future plans, including its aim for increased participation in the bulk coal commodity business and growth in the national containerised freight market.

Full unedited transcript:

0:00

That we have detailed a rise in full year results. And joining us now to get us across the detail, Andrew Harding, the CEO of Verizon, also worthwhile mentioning that it plans to buy back up to $150 million worth of shares. Andrew, welcome to office. Thank you for joining us. When we spoke back at the half year results in February, you had foreshadowed the fact that we would see some sort of capital management plan coming through, and we've got this buyback now on the table. So what went what went well in that half that allows you to do so.

0:33

So um, what what went well from the time we last spoke at the last half, uh, is that we've seen our EBITDA increased by 14%. That's, that's on the back of, uh, good performance for our customers, uh, from a volumetric, uh, point of view. And, you know, that's that's led through to an increase in the the dividend and the 150 million buyback. That's, uh, you started the, uh, the conversation with. Yeah. And interesting to see the share price reaction to this result today because you did come in within guidance. And, you know, you've got this buyback on the table, increased dividends as well. So what is it that the market is reading into this result that, um, that perhaps you could answer to.

1:20

Yeah. Look, it's not something that I, um, uh, get involved in trying to explain on a, on a daily basis, uh, from the SharePoint, the share price. Uh, the reality is, um, uh, you know, the guidance, uh, we landed inside guidance. We had an EBITDA uplift of 14%. And, um, you know, there was a buyback announced for $150 million. So, um, you know, the the task I have is to see I was to run the run the business to generate the best value that I can with the assets and the people that I have. And that's actually what we said we're going to do. That's what we delivered on in the half. And I'll leave it to others to figure out, uh, what why the share price is doing what the share price is doing. Got it. Now, when it comes to the coal haulage and the trends that you're seeing there, so are the volumes coming off in Queensland or how strong is that business looking? So, um, coal volumes were up, uh, year on year. Um, only by a small amount, a couple of million tonnes, but

2:20

still up. And then if you look forward to a forecast for this year based on what our customers are telling us, and we aggregate all those volumes because we are particularly across our network, they go across, uh, the Queensland network. You can see that the volumes are up quite substantially to 216 million tonnes. So, um, that's a good uplift year on year. And other than coal, I mean, you've been trying to diversify the business away from coal. Is it challenging because I think that the consumer goods, um, you know, could be a timing. It's where we are in the cycle. One would imagine, you know, if people aren't buying a lot of stuff, stuff doesn't get put on trains, just to put it very simply. Um, so yeah, where are the challenges in diversifying away from coal?

3:07

Yeah. Look, we are, uh, we have been, um, entering the, uh, a business category called bulk and then a business category called containerized. Right. Uh, from a rail haulage point of view. And the containerized freight business does, um, track with GDP growth. um, over the longer term. And then you're exposed to the ups and downs of the consumer cycle. Uh, so at the moment it is well known and very, uh, fair to say that, uh, consumers are not as confident as there have been. And you're seeing that play out in the general industry background from in the containerized freight area. And so when do you expect to see that pickup or what can what levers can you pull to make rail. You know, the most attractive way to ship the freight? Yeah, sure. So, um, because we can't control the consumer cycle, obviously that, um, and sentiment. Um, the obvious thing to do is focus on those things that we

4:07

can control. Um, and the, the main task as a rail operator in that, um, uh, containerized freight area is the competition with the trucking industry and the trucking industry. Most of the containers are moved by truck many times more volume than is actually moved by rail in Australia. Um, and uh, the whole, uh, aspect of servicing the customer with a better product offering at a competitive price, uh, with great service. Um, that's the things that we can do to improve that over time to, encourage more customers to move their product via rail then and via road. And that's been that's not just an obviously on the horizon challenge, but the whole rail, uh, containerized freight, um, sector is, uh, exploring the same, um, and working to get the same sort of wins, um, on a year on year basis. And indeed, it's not just an Australian thing. You can actually see that globally a lot of

5:07

people understand the better, particularly carbon emissions associated with, uh, train hauled, um, freight. It's, you know, uh, better than eight times, uh, lower carbon emissions per tonne moved between trucking and between rail. So, you know, there's a lot of this groundswell of support for that. But, you know, um, there's more to our customers needs than just a better carbon solution. They want to see, you know, timely delivered straight in good, you know, good speed, good frequency and always at the right price.

5:42

Um, so what about the CapEx spend coming through? Uh, you know, in the FY 25? I mean, talk to us about the dynamics of that and how you're managing, um, you know, the CapEx spend and then balancing up shareholder returns as well. Yeah. Look, um, so from a CapEx spend point of view, we've got the the base level of CapEx that we spend, um, um, year on year to sustain the business, that more than the more than half of that goes into our network business in in Queensland, from which we earn a regulated, uh, rate of return. Um, it's a requirement and obviously sensible to keep the, the network in tip top order. And there's a return for doing that. So the rest of the sustaining spend is going to the maintenance of the rolling stock. Um, um, that runs across track across the rest of the country. And um, um, that's a regular, uh, expense. Then you look at the, um, uh, the other main category of expenses, uh, category

6:41

associated with growth and that, um, that's a little bit harder to predict because you're actually trying to match it to, um, the growth profiles that you're, uh, forecasting, experiencing, uh, the future never follows the straight line that, um, that we'd all like it to do. So you're constantly moving in and adapting to that to try and get the best, um, execution against against the possibility. So that's, um, that's the that's the area that we're pursuing. You know, it's the reward is that you can grow the business in a value, a creative way. And then then ultimately, as we've demonstrated for for the last 8 or 9 years, uh, we can give a great return back to the shareholders. Okay. So it's an interesting one because you've got a lot going on. You've got, um, you know, your diversification away from coal, you've got bulks, you've got the consumer goods, you know, the container freights, um, you've got the development of that rail corridor from, from Darwin down to South Australia going on. You've got a proposed purchase of

7:41

Flinders Logistics which the MMC has taken issue with. So Andrew you've handed down this result. Now you've announced this buyback. Like where are you focused in terms of growing the business for FY 25. You know, to ensure that you get that capital growth as well for um, you know, in terms of returns. Yeah, you're right. There is a lot growing going on in the business. And the and as to the question of focus, will, it's on what we've stated publicly a number of times about our strategy, which is we've got a great, uh, business, uh, coming out of the, uh, the coal sector. So that's the network business in Queensland and the rolling stock, uh, business where we haul coal in New South Wales and Queensland, and it's running those businesses as efficiently and as effectively as we can. They generate a great cash return. And then from a growth point of view, we started a number of years ago, and we're executing against a strategy of increasing our participation in the bulk cold

8:41

commodity business, um, across the country. And we're the focus in that area is just to continue to do that. And then in recently we announced, uh, entering into the national containerized freight market. And we're just building out that service offering, uh, for indeed, we just finished building out that service offering, uh, back in April with a one year, uh, stand up of terminals and, and rolling stock. And then lastly, of course, the, the, the, the iconic line, uh, that goes between Tacoma and Darwin, um, and, you know, joins up on the pathway to, um, path to, uh, Adelaide. Um, it's, um, settling down that acquisition and then, uh, showing the growth that's, uh, capable, uh, out of that, uh, corridor that will be so important to our future. So, um, none of that's, uh, new in a sense of, uh, surprise to anyone. It's been, uh, well articulated for a while. So when you ask me, what are we focusing on? We're focusing on continuing to execute against what we said we would do, uh, so many

9:41

years ago.