Rail operator Aurizon says it will take another huge write down – the 4th in as many years with directors yesterday revealing a $321 million hit from write-downs and other cost cuts and charges.
This time the losses have been taken against its core general freight business, such as containers, instead of the coal and iron ore investments and rail businesses which featured in the red ink from 2013 to 2016. But has maintained its full-year guidance for underlying earnings, which are only an indicator so common have the write-downs become in the past four years.
In fact the latest figure of $321 million takes the total since 2013-14 to more than $1.62 billion, with much of it relating to the wrong headed attempt to get into the WA iron ore industry just as demand from China was slowing and rices for iron ore started their long two year slide to $US38 a tonne in late 2015.
On top of that the slide in cal prices (which started in 2012 and continued up to the middle of 2015, saw demand slow, new projects cut, mines closed or suffer production curbs (rom producers such as Glencore and Anglo American) and Aurizon as a result lost contracts and revenues.
And its general freight business has lost momentum as trade volumes, especially imports have slowed in the past two years.
Aurizon said yesterday it had written down the value of its container freight operations by $162 million after its trading performance in the first half of 2017 financial year failed to meet expectations. After the impairment, the carrying value of the container business is $177 million.
Aurizon says no final decision has been made on the container business but it is continuing to review it ( in other words its dead).
The company has also been hit by a $64 million impairment charge against its freight management transformation (FMT) project, which had aimed to put 18 systems for logistics planning, scheduling, ordering and billing onto one platform.
Aurizon has scrapped the remainder of the project, expecting little further benefit from it. The company also took a $10 million impairment against rolling stock, plant and equipment on its freight service between Mt Isa and Townsville, which has been discontinued.
It also has booked significant items totalling $85 million, including $64 million in redundancy costs. Back in October, Aurizon Holdings has warned of more impairments at its iron ore and coal freight and intermodal freight businesses, where revenue has slipped 28% in the past two years.
The company took $528 million in after-tax impairments in 2015-16, $US386 million in 2014-15 nd the same amount for $2013-14.
While the company has maintained its guidance for underlying earnings before interest and tax (EBIT) for the 2017 full year of $900-$950 million, and total above-rail tonnages in the range of 255-275 million tonnes, you have to wonder if the earnings estimate has any value because losses and cost cuttings have been part of the comany’s stock in trade for the past four years or more.
Chief executive Andrew Harding said yesterday the company was focused on getting its core business right. "We will take a very disciplined approach to managing costs and capital to ensure we drive shareholder value," he said on Tuesday.
"The FMT project was not delivering value for the business, was at high risk of over-spend and delays, and so it was stopped.
"By undertaking the freight review we’re getting the granularity we need to make informed decisions and to clearly understand the future value and potential of the businesses in this area.
"Despite these matters, the company remains on track with its FY2017 guidance and remains committed to its transformation targets through to FY2018."
Shares in Aurizon rose 2%, higher at $5.01.
