The other shoe dropped at rail group, Aurizon late yesterday – 15 days ago it revealed a restructure and slimming of top management jobs – it revealed another write off of its abortive WA iron ore play, more job cuts among employees, and said 2015-16 results would be a bit better than expected.
It has all been heard before from a company which has seemed to be on an almost permanent diet involving job losses and write downs and impairments.
But the shares rose 2.1% to $5.11 as analysts and investors ignored the company’s continuing financial volatility.
Aurizon told the ASX yesterday that it had completely written-off its investment in coal group Aquila Resources just two years after being a minor party in a $1.4 billion takeover with Chinese steel giant, BaoSteel.
The idea was to develop a huge low grade WA iron ore project, with Aurizon providing the rail side of the project. It got crunched by the slide in iron ore prices in 2014 and 2015.
The company said it would take a further $73 million impairment on the carrying value of its Aquila assets, as well as recognising a $29 million write down on railway coal-carrying rolling stock.
The group will also slash around 300 jobs, although its underlying profit is expected to come in at the upper end of its guidance.
The announcements come on the back of a $426 million write down in the first-half, taking the total write down this year to $499 million.
The latest Aquila move follows February’s sharp devaluation, with Aurizon’s initial investment now written down to nil and the latest number accounting for “all known exposures”.
The group had paid $225 million for 15% of Aquila in 2014 as a shareholder to China’s Baosteel.
The rolling stock write down related to forecast future demand in a weak coal market and improved efficiencies.
For the full year to June 30 impairments will total $528 million.
Aurizon did the usual thing companies do when reporting bad news – it gilded the bad with the good, telling the market that it expected underlying pre-tax profit to come in at the upper end of its guidance.
The group forecasting pre-tax earnings of $871million, which compares favourably to analyst estimates of $867million and falls within Aurizon’s guidance range of $845 million-$885 million.
The company also said its above-rail coal tonnages had reached 206.8 million tonnes for the year, in line with forecasts, while record below-rail tonnages of 225.9 million tonnes were reported.
“Clearly we’re operating in a tough and volatile market with lower growth conditions for our customers,” Aurizon managing director Lance Hockridge said.
“While the coal market remains challenged, we are sustaining tonnages in our above-rail business and have seen strong below-rail volumes across the Central Queensland Coal Network.”
The 300 jobs to go follows hundreds of jobs cut in the past two years. 800 jobs went last October, and more than 100 in mid 2014. The company said at the time more than 700 jobs would go by 2017, but that estimate no longer applies with the total closer to 1500.
This includes 120 leadership roles in operations and 180 positions across train crewing and yard operations, maintenance depots and network infrastructure.
The group’s 2015-16 results will be released on August 15.
