Aurizon (AZJ) has lifted its half year profit thanks to cost-cutting efforts across its rail network and it is looking to another bout of cost cutting to offset the continuing slump in the coal mining and export industry.
The company yesterday reported an an underlying profit of $308 million, up 17% from $263 million for the first half of the 2013-14 financial year.
Its statutory profit was $308 million, nearly triple the $107 million in the previous half year which was depressed by a series of asset write downs and redundancy costs as the company sacked hundreds of staff in two restructurings.
Aurizon lifted its unfranked interim dividend 2.1c to 10.1c a share, up 26%, and as surprisingly large increase given more talk of a $100 million cost cutting program this year.
Underlying earnings before interest and taxation (EBIT) of $486 million were around $10 million lower than some forecasts.
AZJ 1Y – Aurizon lifts H1 profit, more cuts to come
In a briefing, CEO Lance Hockridge hinted the company could return cash if it doesn’t proceed with a couple of possible projects such as big iron ore mine, port and railroad development in Western Australia next year.
That project, on the front burner last year after Aurizon and its partner Baosteel of China spent around $1.4 billion (most of the money came from the Chinese company) taking over Aquila Resources, despite weakening iron ore prices. They have fallen further since then (as have coal prices which are hurting Aurizon’s main business in Queensland and NSW this year).
Mr Hockridge said yesterday a decision on the WA project will be made next year but he told the media and analysts that it would be a "challenging” project if iron ore prices stay around their current levels of $US60 to $US65 a tonne. The CEO said the project would only go ahead if it made “commercial sense”.
Mr Hockridge said another mega project – building rail and port infrastructure with miner GVK Hancock in Queensland’s Galilee Basin – was not likely to start until “the back end of this decade” and would depend on thermal coal prices which are forecast to remain low (between $US55 and $US65 a tonne).
Mr Hockridge said if neither project proceeds, Aurizon will consider returning cash to investors – possibly as higher dividends – as well as mergers and acquisitions.
Aurizon’s shares rose 5c, or 1%, in early trading yesterday to $5.05, they then fell to close down 2.4% at $488, despite a solid recovery in the wider market in the afternoon.
The slowdown in the coal business – thermal and coking coal exports, especially in Queensland and NSW – is the driver for the latest cost cutting program which is looking at gains of around $100 million.
Mr Hockridge said, “Business conditions are subdued, it is a low growth environment”, about the current experience for the company’s core haulage and rail tracks businesses.
The outlook is for no real change over the rest of the year.
That was accentuated by the weak performance in underlying earnings before interest and tax in Aurizon’s Networks business, which operates its rail tracks.
That rose by just $1 million to $218 million. Underlying EBIT in the company’s commercial and marketing business, which includes its core haulage operations, fell $21 million to $1.59 billion.
Aurizon has kept its full year coal haulage outlook unchanged, forecasting it will haul between 210 and 220 million tonnes in 2014-15.
