Aurizon slipped to its lowest share price since September 2012 on Monday, after chief executive Lance Hockridge revealed more than a quarter of the rail operator’s coal customers are operating at breakeven, or worse.
Hockridge this week announced the Queensland-based rail operator made a statutory loss after tax of $108m for the first half of the financial year.
This was driven by $240m in impairments announced in December 2015, and a further $186m of impairments of which $174m relates to Aurizon’s failed venture into Aquila’s West Pilbara Iron Ore Project (WPIOP).
“As foreshadowed in December, Aurizon has reviewed the implications of the announcement in relation to WPIOP,” the company said.
“As a result a further impairment relating to WPIOP and the related investment in Aquila has been made, given an assessment the project was unlikely to proceed in the short to medium term.”
Instead of the significant loss, however, market analysts said the slip in Aurizon’s share price to $3.40 on Monday was more the result of the revelation by Hockridge on the company’s investor call that 26% of Aurizon’s Queensland and NSW coal customers were operating at cash neutral, or worse.
Hockridge said the situation was “not a great position to be in, but I remind you that two years ago that number was 40%”.
Aurizon reported a 5% decline in tonnages and an 11% decline in revenue in the first half. The company’s board declared an interim dividend of 11.3 cents per share, up 12% year-on-year.
“Today’s profit result is in line with the guidance provided by Aurizon to the market in December,” Hockridge said.
“Our underlying business is strong and resilient but we need to respond rapidly in a very challenging business environment for our customers.
“Cost reduction and transformation will remain the key drivers of margin growth and shareholder value creation, and we’re determined to pull every cost and efficiency lever available to us.
“Despite the short-term challenges, Aurizon is in a strong financial position with stable and long-term contractual arrangements with major customers and an ability to continue delivering strong returns to shareholders.”
Aurizon’s ASX price has bounced back from its Monday close, to around $3.70 a share on Wednesday – albeit this figure is still significantly down from the $5.50 peak hit in November last year.
Aurizon have had too many eggs in one basket (i.e. coal). Challenge is to diversify into other markets such as intermodal.