Aurizon revisits splitting rail network from haulage business
Aurizon has resurrected the possibility of splitting up apart its rail haulage and rail tracks businesses as the Brisbane-based company’s earnings slide and its share price hovers close to historic lows.
Aurizon’s stock has lost almost one-fifth of its value over the past 12 months – despite a share buyback that has been doubled since its inception to $300 million – as investors worry over the company’s future growth.
The stock price last traded at these levels in early 2011, shortly after its 2010 initial public offering, when it listed at $2.55 per share.Aurizon boss Andrew
Harding is reconsidering a split of the rail group’s haulage and infrastructure businesses.
The possibility of Aurizon splitting up its haulage and infrastructure operations has been on the cards ever since it listed, with the company’s board regularly reviewing its options.“We have had many banking groups come through with pitches over the years on various sorts of structures,” said chief executive Andrew Harding. “I’ve seen that probably for the last six or seven years.” The difference this year is that “the share price is at a significant low”, Harding said, after the company reported a 2 per cent drop in interim net profit to $233 million.
Aurizon has an unusual structure, owning both a haulage business that moves coal and other commodities such as grain, as well as managing rail networks in Queensland, South Australia and the Northern Territory.Typically, companies either do one or the other. Its rival Pacific National, owned by infrastructure and pension funds, only has haulage businesses.
RBC Capital Markets’ Owen Birrell said a demerger or partial sale of the network would give Aurizon “an opportunity to further diversify its portfolio away from its dominant coal exposure, and crystallise some value from an infrastructure asset that hasn’t been fully valued by the listed market”.The integrated structure is a legacy of Aurizon’s days as a state government-owned entity.
Before the freight rail group floated under the name of QR National in 2010 – it was rebranded Aurizon in 2012 – it was owned by the Queensland government for well over a century.Aurizon’s shares fell 2¢ to close at $3.17 on Monday after group earnings before interest taxation depreciation and amortisation dropped 4 per cent to $814 million, below analysts’ expectations.
Aurizon is experiencing “some turbulence” in its markets, Harding said. This includes bulk haulage where earnings tumbled 25 per cent, dragged down by lower bauxite, grain and iron ore volumes and unexpectedly big provisions for unpaid debts from several customers.
Aurizon is trying to cut costs to boost profits. It expects automation of some coal haulage trains in central Queensland will reduce numbers of full-time train drivers by 50 (about 5-10 per cent) through natural attrition the end of the 2025-26 financial year.Meanwhile, Aurizon’s interstate rail freight services business continues to sustain losses, although losses narrowed to $29 million from $34 million a year earlier mostly due to income from legal settlements.In 2023, the company won a $1.8 billion contract with Team Global Express from Pacific National, But the contract is only profitable if trains carrying goods for the logistics group across the Nullarbor and on the east coast are at least 70 per cent full.While volumes moved for TGE have been rising and trains are now around 60 per cent full, they have not yet hit the crucial 70 per cent benchmark.
Aurizon expects the TGE contract to break even by the end of June.The company knows it has “work to do” in its containerised freight and bulk businesses to meet investors’ expectations but remains confident in its strategy, Harding said.The rail group, which has also been pushing a “land bridge” plan to take goods off ships in Darwin and then put them on trains to SA, said shipping line ANL had started bringing in some containers that Aurizon then takes to Adelaide. Around 100 containers of time-sensitive goods arrive in Darwin on ANL ships every 10 days and are put on Aurizon trains, Harding said.Aurizon is also trying to get car importers to put vehicles on its trains and is working with Japanese group NYK, although it has not finalised contracts.Aurizon has resumed carrying iron ore to South Australia’s cash-strapped Whyalla steelworks, owned by Sanjeev Gupta’s GFG Alliance, after suspending services last year due to unpaid bills.
Aurizon’s interim dividend dropped to 9.2¢ from 9.7¢ a year earlier.Full-year underlying group earnings are expected to be at the lower end of Aurizon’s forecast range of $1.66 billion to $1.74 billion.
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