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Aurizon reflects on “challenging” FY16 as volumes drop

Aurizon is feeling the force of struggling coal and iron ore markets. Photo: RailGallery

Rail operator Aurizon has reported volume declines across coal, iron ore and freight  in the first quarter of the new financial year, after enduring a tough FY16.

Company chairman Tim Poole told investors at the Aurizon AGM on October 18 that difficult market conditions in the resources and freight sectors “were tough on our customers and this resulted in flat or lower volumes across our businesses”.

Poole’s words came a day after the operator announced a 3% decline in coal volumes in the first quarter of the new financial year, compared with FY16, along with a 14% decline in iron ore volumes, and a 10% decline in freight volumes.

The 10% decline in freight reflects the loss of Queensland Nickel’s bulk volumes between its refinery and the Port of Townsville. In terms of more traditional container freight, Aurizon was pleased to announced a 2% increase in intermodal business, to 100,000 TEUs in the September 2016 quarter.

Coal volumes were impacted by a 5% year-on-year decline in Aurizon’s larger Queensland haulage business, to 39.7mt. This was somewhat counterbalanced by a 6% increase in the smaller New South Wales volumes, to 11.5mt, but the overall coal haulage figure for the September quarter was still down 3%, to 51.2mt.

Iron ore volumes declined 14% to 5.4mt, Aurizon said, reflecting smaller volumes from a key customer.

Poole said the company needed to focus on reshaping itself for the current market.

“Given a subdued market outlook, business transformation remains absolutely fundamental to the company,” he said.

“Transformation initiatives are making your company more efficient, reducing the cost base, and making us even more competitive in the marketplace.”

Aurizon says it took $131 million out its cost base in FY16, and is on track for $380 million in cost cutting over the three financial years ending mid-2018.

“Major restructuring projects are at various stages of implementation right across the organisation, together with the continued introduction of new technology and systems,” Poole said.

Despite declining volumes in the first quarter of FY17, the chairman said the rail operator remained “cautiously optimistic” in the new financial period.

“The company is strongly positioned with stable and long-term contractual arrangements with significant and largely investment grade customers,” he said.

“We also note recent improvements in commodity prices, particularly metallurgical coal, which is likely to deliver an increase in customer profitability and improved confidence generally in the resources sector.”

He said Aurizon believed there will remain a strong demand for high-quality thermal and metallurgical coal from Australia.

“This is supported by external and internal analysis,” he added.

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