Rail freight operator Aurizon is selling its troubled intermodal business, cutting another 250 jobs, revealed the financial cost of the impact from Cyclone Debbie and has slashed its final dividend after reporting a bottom line loss of $188 million. But it will run a multi-million dollar buyback this financial year to provide support to the share price.
The loss was expected after the Queensland-based rail operator revealed a $927 million hit from asset impairments and redundancy-related costs a few weeks ago (its another company to seperate the bad news from the not so bad).
The company reported a statutory loss of $91 million, blaming $811.2 million in asset impairments, including a $526 million write-down in the value of its bulk business, and $115.87 million in redundancy costs for more than 920 employees across the business.
Underlying earnings before interest and tax for the year to June 30 fell 4% at $836 million, on the back of an estimated $89 million loss from the impacts of Cyclone Debbie, lower iron ore earnings and a weaker performance in its freight business.
Aurizon said it will exit its intermodal business, selling the Queensland operations and and closing the rest.
The Queensland intermodal business – which involves moving freight containers – will be sold to trucking group Linfox and rival rail operator Pacific National, and the Acacia Ridge interstate terminal in Brisbanes southern suburbs will be sold to Pacific National. Aurizon will receive $220 million for the two transactions.
The rest of the intermodal business outside Queensland will be closed by the end of the year, leading to the loss of 250 jobs. The sales will be concluded by mid-2018 if Aurizon receives approval from the ACCC and the Foreign Investment and Review Board. Pacific National, which was previously owned by Asciano, is now owned by a consortium of international pension funds.
The sale has been mooted for sometime as the company has struggled the improve performance at the business. Aurizon chief executive Andrew Harding said yesterday the intermodal operations had not been able to establish significant scale and a customer base to support a profitable business. The company has sent more than a year reviewing the business.
“While a difficult decision for affected employees, exiting the business will allow the company to focus on core, profitable parts of the Aurizon portfolio including the ability to recycle capital into other growing parts of our business," he said.
The company will pay a final dividend of 8.9 cents share, which represents a payout ratio of 100% of net profit after tax- the best indicator of how much the board wants to keep in sweet with shareholders. That was down from 13.3 cents a share a year ago, which is the best sign of the real state of the company’s finances.
Total payout for the year is 22.5 cents, down from 24.6 paid for 2015-16. the 2016-17 interim was 13.6 cents which now looks profligate.
The board obviously couldn’t contemplate a larger cut to preserve cash. To further boost that support, the company revealed plans for an on-market share buyback totalling $300 million.
“The buyback reflects Aurizon’s strong financial position, lower profile of capital expenditure, and expectations of higher free cash-flow generation in coming years,” Mr Harding said in yesterday’s statement.
The company said it expected 2017-18 underlying EBIT to be between $900 and $960 million, excluding intermodal. Coal haulage volumes are forecast to be between 215 and 225 million tonnes. They were $836 million in 2016-17. Group revenues were flat for the June year at $3.45 billion. The shares were down 1%.
