The Aurizon Holdings Ltd (ASX: AZJ) share price is starting the week in the red following the release of the company's FY 2023 results.
At the time of writing, the rail freight operator's shares are down 2.5% to $3.60.
Aurizon share price lower on results release
- Revenue up 14% to $3,511 million
- Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) down 3% to $1,428 million
- Underlying net profit after tax down 30% to $367 million
- Free cash flow down 61% to $267 million
- Final dividend down 27% to 8 cents per share (FY 2023 dividend down 30% to 15 cents per share)
What happened in FY 2023?
For the 12 months ended 30 June, Aurizon reported a 3% decline in underlying EBITDA to $1,428 million. This reflects weakness in its Coal EBITDA, which offset growth from other sides of the business. However, this was in line with its guidance for the low end of $1,420 million to $1,470 million.
Coal EBITDA was down 16% to $455 million in FY 2023 due to lower volumes caused by the impact of prolonged wet weather, a major third-party derailment, and mine-specific production issues. Volumes hauled of 185 million tonnes were 5% lower than in FY 2022.
Aurizon's Bulk EBITDA was up an impressive 59% to $214 million. This was primarily driven by additional revenue flowing from the acquisition of One Rail Australia. Volumes hauled of 68.2 million tonnes were 34% higher than FY 2022. Grain volumes were stronger nationally, and other volumes increased with new and existing customers.
Finally, Network EBITDA was up a modest 1% to $813 million. This reflects an increase in allowable revenue, a reduction in GAPE revenue, and an increase in other revenue offset by an increase in electric traction charges and other operating costs. Tonnes carried over the Central Queensland Coal Network were 207.6 million tonnes, 1% higher than in FY 2022.
On the bottom line, the company's underlying net profit after tax came in at $367 million, down 30% year on year. This unfortunately meant that the Aurizon board was forced to cut its dividend by the same margin to 15 cents per share (60% franked). This dividend will be paid on 27 September and has a record date of 28 August.
How does this compare to expectations?
While the company delivered EBITDA in line with expectations, it was a different story for net profit after tax.
Goldman Sachs highlights that "Group EBITDA of A$1,428m compares with guidance of 'low end' of A$1,420-1,470m, GSe of A$1,428m and Consensus of A$1,429m" but "NPAT was 5% below GSe and 6% below Consensus, with a higher than expected tax rate and net interest expense."
Management commentary
Aurizon's managing director and CEO, Andrew Harding, acknowledged that FY 2023 was a challenging year but is expecting things to improve in the new financial year. He said:
It was a challenging operating environment for the business in FY2023, with prolonged wet weather significantly impacting volumes and earnings. We saw an uptick in Coal (2%) and Network (9%) volumes in the June quarter, which gives us confidence in an improved outlook for FY2024.
We are also anticipating increased activity for the Bulk and Containerised Freight businesses, as investments that we are making in new rollingstock, terminal and port equipment are progressively commissioned to support growth with new and existing contracts for our customers.
Outlook
Management has provided guidance for FY 2024 which has failed to lift the Aurizon share price today. It expects:
In FY2024, Aurizon expects Group EBITDA to be in the range of $1,590 million – $1,680 million. Sustaining capital expenditure is in the range of $600 million – $660 million (including ~$40 million of transformational project capital) with growth capital expenditure expected to be $250 million – $300 million.
Aurizon's EBITDA guidance implies growth of 11% to 17.6% year on year. How does this compare? Well, it appears to be in line with the market's expectations.
Goldman said: "EBITDA guidance of A$1,590-1,680m retained vs GSe at A$1,602m and Consensus at A$1,646m."
