ASCIANO LTD SuppLY ChAiN StArt
Bathurst rail intermodal terminal, nsW
MONDAY | 6AM
Log receipt and scaling
ANNUAL REPORT
2015
AsciANO is AUsTRALiA's
ONLy iNTEGRATED RAiL, PORTs, sTEvEDORiNG AND LANDsiDE
LOGisTics bUsiNEss.
24 hOURs A DAy, 365 DAys A yEAR
AsciANO's bUsiNEssEs wORk TOGEThER TO DELivER END-TO-END
sUPPLy chAiN sOLUTiONs
TO cONNEcT OUR cUsTOmERs
TO ThEiR mARkETs AcROss AUsTRALiA AND OvERsEAs.
Bathurst rail intermodal terminal, nsW
MONDAY | 11AM
log storage and container packing
Bathurst rail intermodal terminal, nsW
MONDAY | 2pM
inventory management and rail haulage
Patrick terminal, Port Botany, nsW
TuESDAY | 7AM
container handling and storage
SuppLY ChAiN END
Patrick terminal, Port Botany, nsW
TuESDAY | 8pM
container stevedoring for export
hiGhLiGhTs
CONtENtS
end-to-end supply chain solutions
06
chairman & chief executive officer's report
10
operating & Financial review
Group Operating Performance
Pacific National
Patrick Terminals
& Logistics
Patrick Bulk & Automotive Port Services
46
sustainability
50
senior leadership team
52
Board of directors
54
Financial report
152
corporate directory
sTRONG REsULT UNDERPiNNED
by ThE bUsiNEss imPROvEmENT PROGRAm AND imPROvED RETURNs
uNDErLYiNg EBit iNCrEASED 9.7%tO
$790.2MrESuLt SuMMArY | |||
Year ended 30 June ($'m) | 2014 | 2015 | %chg |
revenue and other income | 3,994.6 | 3,839.1 | (3.9) |
revenue and other income (net of coal access) 3,790.6 3,651.7 (3.7) | |||
underlying eBitda¹ | 1,052.0 | 1,142.0 | 8.6 |
underlying eBit² | 720.3 | 790.2 | 9.7 |
u nderlying PBt | 495.0 | 585.7 | 18.3 |
underlying nPat after minority interests³ 349.8 414.7 18.6 | |||
material items after tax4 | (95.4) | (55.1) | (42.2) |
statutory nPat after minority interests | 254.4 | 359.6 | 41.4 |
d iluted underlying ePs after minority interests (c) | 35.8 | 42.5 | 18.7 |
diluted statutory ePs after minority interests (c) | 26.1 | 36.8 | 41.0 |
This Operating and Financial Review includes information required
as part of the Operating and Financial Review and forms part of the Directors' Report.
'underlying' Earnings Classification
the operating and Financial review includes references to 'underlying' earnings (eBitda, eBit, nPat, ePs) which excludes certain items, as determined by the Board and management, that are either significant by virtue of their size and impact on earnings, or are deemed to be outside normal operating activities. it reflects an assessment of the result for the ongoing business of asciano. 'underlying' earnings has been calculated in accordance with aiCd/Finsia principles for reporting
underlying profit and asiC's
regulatory guide 230 - disclosing non-iFrs financial information. 'underlying' earnings have not been
dPs (c)5 14.25 8.25 -
audited by the Group's external auditors however the adjustments have been extracted from the books and records that have been audited.
Outlook Statements
note: the outlook comments are on the basis of asciano continuing as a stand alone listed entity.
underlying eBitda excludes material items of
$70.1m (Fy14 $60.6m). details of the adjustments and a reconciliation are on page 16.
underlying eBit excludes material items of $78.7m (Fy14
$136.2m). details of the adjustments and a reconciliation between underlying eBit and statutory eBit is at page 19.
underlying nPat excludes material items of $55.1m (Fy14 $95.4m). a reconciliation between underlying nPat and statutory nPat is at page 21.
a breakdown of material items is on page 22.
no final dividend declared as asciano, subject to australian tax office (ato) clearance and the transaction proceeding, intends to pay a full franked special dividend of up to 90cps with a corresponding reduction in the cash component of the consideration offered by Brookfield infrastructure Partners limited (BiP) under the scheme implementation deed announced on 18 august 2015.
rOCE up
67BpS tO 11.4%
rOE up
141 BpS tO 10.9%
frEE CASh fLOw AftEr CApEX turNArOuND tO
pOSitivE
$108.4M
iN fY15
A 5.8% increase in coal NTKs, combined with a 2.8% increase in container lifts were offset by softer volumes in Intermodal, Bulk & Auto and Logistics
An after tax material expense of $55.1m reported relates to
port Botany redevelopment and the next stage of the restructure of pacific National's activities
FY15 capex below bottom end of target range at $566.9m
Free cash flow after capex turnaround to positive $108.4m in FY15
Forecast FY16 capex expected to be in the previously stated range of $390-440m
Balance sheet continues to strengthen, leverage declined to 2.7x, interest cover increased to 5.5x
Formal offer by a consortium led by Brookfield Infrastructure partners Limited to acquire 100 per cent of the issued capital of Asciano announced 18 August 2015
No final dividend declared as Asciano, subject to Australian Tax Office (ATO) clearance and the transaction proceeding, intends to pay a fully franked special dividend of up to 90cps with a
corresponding reduction in the cash component of the consideration offered by Brookfield Infrastructure partners Limited under the scheme implementation deed announced on 18 August 2015
Metro logistics joint venture with ACFS completed 31 July 2015
FY15 EBITDA
Split by Division1
FY15 Revenue Split by Division1
72.1%
Pacific national terminals & logistics Bulk & auto
62.6%
does not include corporate head office costs/eliminations.
uNDErLYiNg fuLLY DiLutED EpS grOwth Of
18.7%Bip prOgrAM DELivErED A furthEr $143.7M iN BENEfitS tAkiNg thE CuMuLAtivE tOtAL OvEr thE firSt fOur YEArS Of thE fivE YEAr pLAN tO
$258.7Mchairman & ceo's rePort
A sTRONG REsULT AND ExciTiNG fUTURE
Malcolm Broomhead
Chairman
John Mullen
Chief Executive Officer
dear shareholders,
asciano delivered a strong result for shareholders
in the 2015 financial year, despite ongoing weakness in the australian economy. We have continued to deliver against the financial targets set out in the ambitious five year plan we announced four years ago and have made further good progress on
our key non-financial programs, including in the critical areas of safety, customer and employee engagement.
asciano has delivered strong improvement in business performance over the last four years. our earnings before interest and tax ('eBit') compound annual growth rate has been 10% and we are on track to achieve almost all the other key financial targets outlined in our FY11-FY16 five year strategic plan. this includes significantly improving our return on capital employed ('roCe') and return on equity ('roe') and more than doubling our original business improvement program ('BiP') target of
$150 million in costs out across the business. these achievements build on earlier efforts to stabilise our balance sheet, improve our debt capital profile and drive a strong turnaround in free cash flow.
on 18 august 2015 we announced a formal offer by a consortium led by Brookfield infrastructure Partners limited (Brookfield infrastructure), other Brookfield sponsored and managed private funds and two institutional partners, to acquire 100 per cent of the issued capital of asciano for an implied
value of $9.15 per asciano share.1 this proposal gives your company an enterprise value of approximately
$12 billion. after careful consideration of all the options available, the Board unanimously recommends that shareholders accept this offer.
performance
Revenue and earnings
Continued weakness in the australian economy has limited top line growth, with revenue down 3.9% from the 2014 financial year to $3.8 billion. despite this, the company has performed well, delivering a strong 9.7% increase in underlying eBit to $790.2 million and an 18.6% increase in underlying net Profit after tax ('nPat') to $414.7 million.
the result was underpinned by a strong year in coal rail haulage, with a 5.8% increase in net tonne kilometres in this part of our Pacific national business, and an increase in container lifts in our Patrick container terminals business. these gains were offset by flat or weaker volumes and revenue growth in other areas of the business, including in Pacific national's intermodal business and in our Bulk & automotive Port services division.
our earnings performance also benefitted from a strong focus on our business improvement program ('BiP'), through which we achieved
a further $143.7 million in savings over the year.
Return on capital employed and return on equity
even with an extensive capital expenditure program over the last four years, we have achieved significant improvement in roCe and roe. in the last year, group roCe improved from 10.7% to 11.4% and roCe excluding goodwill was an impressive 18.3%. meanwhile, group roe, pre material items, improved from 9.5% to 10.9%. the increased returns reflect both the investments made over the past four years in new contracts and our continued focus on reducing costs.
ASCIANO
annual rePort 2015
1. Based on the Brookfield infrastructure unit price of us$42.05 per unit as at nyse close on 14 august 2015 and the aud/usd exchange rate of 0.7374 as quoted at 6am on 15 august 2015.
over the last year our business modernisation and upgrade program, which has replenished the capital stock of the business, has started to wind down. the $566.9 million capital expenditure spend over the 12 months was below the bottom end
of the forecast range of $600-700 million and significantly below total spend of $753.7 million last year. Key projects throughout the year included upgrades to strategic operational sites, including our sydney and melbourne rail freight terminals,
a new pre-delivery inspection facility at Webb dock and the acquisition and commissioning of a floating marine facility in dampier, Western australia.
We also made our final investment in the Port Botany redevelopment project, with the business switching over to our new automated state-of-the-art terminal in april 2015.
our capital expenditure program in the 2016 financial year is expected to further reduce to be in the range of $390-440 million, consistent with our previous estimates.
Business Improvement program
in 2011, we targeted $150 million cost take-out through our BiP over the five years to 2016. in 2014, we doubled this target to $300 million. over the last 12 months, the BiP delivered $143.7 million in benefits, taking the cumulative total over the last four years to $258.7 million. most notably, the integration of our two rail businesses to create a combined Pacific national division has delivered quantum changes to the cost base, with further savings still to be realised.
We continue to implement a number of plans to secure significant additional savings and now
expect to exceed our target of $300 million by up to 10% by the end of the 2016 financial year. this includes the recently announced integration of our two Patrick divisions. the ongoing benefit of our BiP will help offset what is expected to be relatively flat top line growth over the coming year.
Balance sheet
our balance sheet has been repaired over the last four years and is now in a strong position to support our activities. in the 2015 financial year, we continued to improve our position on key metrics. our leverage (net debt to eBitda) declined to 2.7 times, which is comfortably within our target range of 2.5 times to 3 times. our interest cover also improved from 5.3 times to 5.5 times, which is significantly above our targeted minimum of 3.5 times.
We have also continued to strengthen our debt profile by pushing out the tenure of, and further diversifying, our capital markets exposure. in may 2015, we issued $350 million of 10-year unsecured fixed rate medium term notes, with the proceeds of the offer, combined with existing bank facilities, to be used to repay debt maturing in september 2015.
this was the first ever 10-year triple-B rated debt issuance in the australian market and followed an upgrade to our standard & Poor's corporate credit rating, to BBB. the issuance and upgrade underscores the turnaround in the balance sheet over the last four years. Post the repayment of existing debt in september 2015, asciano will have no debt due until october 2016 and a weighted average maturity of 4.7 years.
10%
Our fOur YEAr EArNiNgS BEfOrE iNtErESt AND tAX (EBit) COMpOuND ANNuAL
grOwth rAtE
Patrick's new automated container terminal at Port Botany was launched in april 2015
chairman & ceo's rePort
Brookfield offer
on 18 august 2015, asciano announced that it had entered into a scheme implementation deed with Brookfield infrastructure under which it is proposed that a special purpose subsidiary of Brookfield infrastructure will acquire all of the issued ordinary shares in asciano by way of scheme of arrangement. the consideration, if the scheme is implemented, will consist of a$6.94 cash per share and a fixed exchange ratio of 0.0387 Brookfield infrastructure units per share, which represents a total implied value of a$9.15 per share. in addition, if the transaction proceeds and approval of the australian taxation office is received, asciano expects to pay a fully franked special dividend of up to a$0.90 per share to shareholders as part of the agreement. the total cash component of the scheme consideration will be reduced in line with the amount of the special dividend paid.
after careful consideration of all the options available, the Board has unanimously concluded that this proposal to acquire the company at a significant premium to market value, and on terms that we think reflects fair value, is in the best interests of all shareholders.
We encourage all shareholders to read the scheme Booklet which should be available in early october 2015 and to attend the meeting of shareholders in melbourne to vote for the approval of the scheme, which we expect to hold in november 2015.
Safety
our commitment to improving safety performance has again been a key focus throughout the year. since 2011, we have continued to invest in new programs and systems to improve the governance of our safety performance, address our critical risks and develop a culture of leadership on safety across the business. it is pleasing to see positive results from these efforts.
our recordable injury Frequency rate (riFr), our key lag indicator of safety performance, saw a 12.7% improvement, down from 16.5 to 14.4 in the last financial year. our focus on safety risk has continued with the final roll out of our Critical safety essentials program. development of the essentials has been the key part of our efforts to introduce standard controls to manage the key operational safety risks in our business.
as far as safety culture, our leading home safely every day (lhsed) program has made great strides this year. it is aimed at the top three layers of management and is designed to create a significant change in leadership safety behaviours. to date,
we have seen 1180 asciano leaders complete the frontline program and 430 employees complete the phase four program. lhsed is shifting our business towards a culture of safety, empowering our leaders to engage their teams and lead our safety performance.
Finally, throughout the year we have also begun implementation of a new three-year health and wellbeing strategy. the strategy will include the implementation of programs that seek to improve the physical, psychological, social and intellectual wellbeing of our people, recognising the importance of addressing these impacts across our workforce.
Customer
throughout the year we have continued the roll out of our customer engagement programs, implementing initiatives to track and improve touch points and strengthen our overall focus on the customer.
to measure our progress and identify areas of improvement, this year we conducted our largest ever customer survey, with 723 customers taking part. Pleasingly, the survey showed improved performance in many parts of our business. our net Promoter score (nPs) - a measure of the number of customers who are advocates for our services - improved again following considerable gains in 2014.
to see this consistency during a year of significant change, with projects such as the automation of Port Botany and the integration of two Pacific national businesses, is testament to the quality of our employees and the positive progress we have made in improving our focus on the customer across our business.
however, we still have a number of areas for improvement. our 2015 actionable Customer engagement (aCe) score - a measure of overall customer engagement - was slightly down from 2014. this movement shows there is still work for us to do in the consistency of how we deliver services to our customers.
people and Teamwork
With our core functions now well established, in 2015 we continued our work to further improve key aspects of our human resources program. this has included initiatives to improve our learning and development and recruitment and remuneration structures, along with a renewed push to address the unacceptably low levels of diversity in some parts of our business. We have also worked hard to increase the engagement of employees across our business.
Gender diversity across our operational divisions remains a top priority. over the last year, we began implementation of our Women in logistics (Wilpower) management Cadetship Program to improve the talent pool of potential female leaders in our Patrick business. Wilpower is an accelerated development pathway for female cadets interested in pursuing an operational management career. this year we appointed eight female cadets across our four Patrick container terminals, with the successful candidates beginning a two-year program which will expose them to key operational leadership functions.
The integration of our two rail businesses has delivered quantum change to our cost base
While the launch has been a success, we still have a long way to go to address the traditionally low levels of female representation in our industry. over the next year, Wilpower will be further expanded into our Pacific national business and we will introduce further initiatives to improve the number of women applying to join our business.
it is also pleasing to report that our workforce is responding to our efforts to improve their engagement with our business. our annual employee engagement survey was returned by 71% of our employees, a 21% improvement on 2014. this result will make our response to their feedback even more critical in the coming year, and we will double our efforts to improve communication and address other issues identified.
Outlook
under normal trading conditions and assuming there is no material change in the current australian business environment, we expect to report flat to low single digit underlying eBit growth in 2016. this will be driven by the ongoing benefits of our BiP, which will offset the impact of expected relatively flat top line growth and an expected 11-12% increase in our depreciation and amortisation charge.
We expect Pacific national volumes to be flat to slightly positive with coal haulage in the 2016 financial year to remain at high levels. other bulk volumes will be tied primarily to the agriculture, resource and building cycles in australia, while intermodal rail volumes will continue to be linked to the pace of australian economic growth, especially in Western australia and Queensland. We also expect to see further cost out benefits from ongoing initiatives within Pacific national tied to our BiP.
in Patrick, reported revenue in 2016 will be below 2015 due to the creation of the logistics joint venture with aCFs, which will result in metropolitan logistics earnings being equity accounted for the first time. Container lifts are forecast to rise in line with market growth, with a full year benefit of new contracts secured during the last year. meanwhile, volumes, revenue and earnings in our bulk and automotive port services businesses are also expected to be slightly positive, with improving market conditions for log stevedoring and storage in new Zealand, storage days in the automotive sector and increased activity at some of our key bulk ports.
reduced capital expenditure is expected over the coming year, in the absence of any new growth opportunities, and we expect to report a further significant increase in free cash flow. despite on-going soft market conditions externally, we believe that we can continue to improve the performance of the business for the benefit of all shareholders.
as always, we would like to thank our shareholders and customers for their loyalty and our employees for driving the outstanding performance of asciano over the last year.
ThANKS AND FAREwELL
Malcolm Broomhead, Chairman
shareholders,
should the Brookfield infrastructure offer be approved by shareholders, this year will be my last as Chairman of asciano. the last seven years have been incredibly fulfilling and i am proud of the achievements of the Board and senior leadership team, especially John mullen our Ceo, over this period. these efforts have included managing the significant debt issues and heavy losses which threatened the future of asciano following the global financial crisis and gradually improving our operational and financial performance to position for future growth and success. over the five years since John mullen joined in 2011, we have delivered the vast majority of the financial goals set out in our five year plan, restoring shareholder value while making asciano a safer and better place to work and materially improving our relationship with our customers.
asciano's businesses are unique and highly strategic, occupying market leading positions across australia and new Zealand's import, export and domestic supply chains. regardless of the future structure and ownership of asciano and its operating businesses, they are well positioned for future success.
i would like to thank all shareholders for their trust over the last seven years and my fellow directors for their ongoing counsel, commitment and contribution to making asciano the business it is today.
oPeratinG and Financial reVieW
GROUP OPERATiNG PERfORmANcE
Business Overview
Asciano is Australia's largest national rail freight and port operator. Asciano's strategic objective is to be Australia's leading provider of critical logistics services within essential infrastructure based supply chains.
asciano occupies all major segments of the import/export and domestic supply chains to offer a diverse freight mix service offering. asciano continues to pursue opportunities to provide integrated supply chain infrastructure solutions, leveraging the port and rail capabilities of
the Group. the Group also seeks to develop integrated service offerings linking freight owners with international port gateways.
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