Aurizon full-year profit slashed by 88pc
Rail and logistics firm Aurizon’s profit has sunk following a string of writedowns, as the mining downturn hits home.
Rail and logistics company Aurizon, Australia’s largest rail-freight operator, has seen its profit tank following a string of writedowns, as the downturn in the resources sector impacts haulage across the country.
And despite a stabilisation in prices of coal, which make up most of its haulage volumes, the company has flagged lower profits for this year than the market had been expecting.
Chief executive Lance Hockridge said the company had started a strategic review of the company’s intermodal and commodities freight businesses, with a focus on parts of those not generating acceptable returns.
Shares fell 29c, or 5.8 per cent to a six-week low of $4.74 in early trading, mainly on the lower guidance, with the writedowns having been previously announced.
Aurizon (AZJ) booked a net profit of $72 million for the year through June, an 88 per cent deterioration on the prior year’s result of $604m. On an underlying basis, the group said its profit was down just 16 per cent to $510m.
The slide in profit came after a 9 per cent fall in revenue to $3.458bn.
Aurizon said it expected to report an increase in underlying earnings of between $900m and $950m, which did not include more than $100m of restructuring costs it also expected to incur. Analysts had expected EBIT of $950m.
It also said it would cancel its share buyback to preserve balance sheet capacity for possible growth opportunities.
“Our first impression is that the result, outlook commentary and the stopping of the buyback is likely to disappoint market expectations and as a result we expect the shares to be weak,” RBC analyst Paul Johnston said.
Like many companies exposed to the downturn in the resources sector, Aurizon has felt the impact of a sharp downturn in world commodity markets. Miners use Aurizon to transport products such as coal from mines to ports but have cut back output and slashed spending as a result. Aurizon said there was a $180 million reduction in freight revenue over the year, after a 9 per cent fall in volumes.
Aurizon will pay a 13.3c final dividend, bringing the year’s total distribution to 24.6c per share — a 3 per cent increase year-on-year.
At its first-half results, Aurizon wrote down the value of businesses and projects by a combined $426m, which included an impairment charge worth $174m against a stalled iron ore project in northwest Australia. The year’s total impairments hit $528m pre-tax.
“It was a challenging year for the company and our customers, with volumes and revenue under pressure in our above rail businesses, particularly in freight,” Mr Hockridge said. “However we’ve seen a stabilisation in coal volumes in the second half, with relatively resilient earnings for the year in a lower volume environment.”
Aurizon’s coal customers are in much better health than they were just six months ago. Around 10 per cent of its coal customers have seen their cash costs fall compared to the first half of the year. But the company still anticipates above rail haulage for the coming year to remain flat. Aurizon said it was expecting revenues between $3.35bn and $3.55bn.