Aurizon Holdings Limited (AZJ) Earnings Call Transcript

So good afternoon, ladies and gentlemen. My name is Tim Poole, and I'm your company's Chairman. It gives me great pleasure this afternoon to introduce Matt Dukes, an Aurizon employee, who will do the acknowledgment of country. Matt?

Thanks very much, Tim. Ladies and gentlemen, my name is Matt Dukes. I'm a proud indigenous man and a descendant of the Marra people from the Roper River region of Northern Territory. On behalf of Aurizon, I begin today by acknowledging the traditional custodians, the Wulgurukaba and the Bindal peoples, as the first people to have lived on the land on which we meet today. We pay our respects to their elders past, present and future, for they hold the memories, the traditions, the cultures and the hopes of indigenous Australia. I also extend that respect to all aboriginal on Torres Strait Islander peoples that are here with us today. An important symbol for Wulgurukaba people is a carpet snake. The creation story talks of the snake that came down from the Herbert River and went out to sea, creating the Hinchinbrook Channel and Palm and Magnetic Islands. His body broke up, leaving parts along the coast. The tail of the snake is at Halifax Bay. His body is at Palm Island, while his head rests at the Arcadia headland on Magnetic Island. An important symbol for the Bindal people is a shooting star. They believe that wherever the star fell or the direction the star fell meant there was either danger coming or someone from that direction needed help. Education is an important part of preserving the rich traditions of indigenous cultures. I have fond memories of walking the waterways and bush country, searching for bush tucker with my grandmother and auntie, in the Blue Mountains west of Sydney where we grew up. My grandmother and auntie's totems are the willy wagtail and peewee birds, respectively. And when I see these birds, I am comforted by their presence and I know that my grandmother and auntie walk with me. Working for Aurizon allows me to continue the education process in a different way, and that's through our commitment to reconciliation which brings together indigenous and non-indigenous people. Personally, I've been employed by Aurizon for almost 4 years, and I hold the honor of being the most senior indigenous employee in the company. And I'm a member of the Aurizon Indigenous Reference Group. Being both a senior person in the company and a member of the IRG allows me to mentor young indigenous people and actively work on increasing indigenous employment in the company, and that's something that I'm very passionate about. Aurizon now has a truly national footprint North to South, East to West; and I'm very proud to work for a company that holds the indigenous culture in such high esteem. And it's a company that works hard to actively increase indigenous employment and commits to local communities in which it works. In closing. It's been an absolute honor to present the acknowledgment of country today. And I want to thank Aurizon for the opportunities given to me both personally and professionally. Thank you.

Thanks so much, Matt. It's a wonderful part of our Annual General Meetings to have an acknowledgment of the country like that. You did it brilliantly. And thank you for your efforts for our company. It's much appreciated. On behalf of Aurizon's Board, I'd like to welcome you to the company's 2022 Annual General Meeting. We are pleased you have taken the time to attend, and thank you for your interest in Aurizon. A special welcome also to those shareholders who have joined us in Townsville today. Townsville is the hub for our North Queensland operations, a region full of exciting opportunities for growth. The North West Minerals Province is rich in traditional minerals such as copper, lead and zinc; as well as new economy commodities such as phosphate and vanadium. We provide full pit-to-port transport solutions for our customers here in the North and continue to invest in our business to support future growth for customers and the regional economy here. The Board also chose Townsville for our AGM in recognition of the regional nature of the Aurizon business, where more than 80% of our employees work and live in regional Australia. Today's meeting is also being held as a hybrid meeting, with shareholders, proxies and guests able to attend either in person or online via the Computershare meeting platform. Shareholders and proxies attending the meeting online can ask questions and submit votes via the Computershare meeting platform. Before we start the meeting, I'd like to go through some general housekeeping information for those attending the meeting in person. First, can I ask that you please ensure your mobile phones are switched to silent or turned off for the duration of the meeting. We will now have a representative from the Townsville Entertainment & Convention Centre, [ Dawn Breen ], to conduct a short briefing to explain the emergency and safety procedures for this venue. Thank you.

Thank you so much. Good afternoon, everyone, and welcome to the Townsville entertainment center. In the event of emergency: There are 3 doors to your left, my right. Security will open them; if you could calmly walk towards the front of the building, on the grass area, and just stay present on the grass area until everybody has been accounted for. If there is an evacuation tone, you will actually hear 2. Just please remain in your seats unless someone from the Townsville entertainment center or someone from [ the ville ] or security announces whether we are evacuating the building. Please be mindful safety is also your responsibility as well as ours, so if you see any safety incidents, please let a representative know, and we will be able to rectify. Thank you very much.

Fantastic. Thank you, [ Dawn ]. As it is now just after 2:00 p.m. Queensland time and the company Secretary has confirmed that a quorum is present, I declare the Annual General Meeting open. The notice of meeting was sent to all shareholders on the 9th of September 2022, and I'll take the notice of meeting as read. I would now like to outline the format of the meeting. My introduction and address will be followed by an address from our Managing Director and CEO, Andrew Harding. We will then turn to the business of the meeting, during which you will have an opportunity to ask questions relating to the business of the meeting and the company. Questions will be taken after each item of business. And given this is a hybrid meeting with shareholders able to attend either online or in person, there are a few matters I need to run through, so please bear with me. Firstly, only shareholders, representatives and attorneys of shareholders and proxy holders are entitled to ask questions during this meeting. For those attending in person, to ask a question, please move towards the Aurizon attendants who will be standing in the outside aisles. Present your shareholder admission card, which will be white or blue in color. State your name and then ask your question. [Operator Instructions] Although online attendees can submit questions at any time, I will address those questions only at the relevant time during the meeting. If we receive multiple similar questions on any topic, we will try to group them together. I'll ask the moderator to read out the questions at the appropriate time. The company has received a number of questions from shareholders in advance of the meeting. And we have attempted to answer more frequently asked questions received in advance of the meeting in the opening remarks from Andrew and myself. If at the end of the meeting any shareholder feels that their questions may not have been answered, then please send your question to our investor relations team at aurizoninvestorrelations@aurizon.com.au after the meeting. Voting today will be conducted by way of a poll on all items of business. In order to provide you with enough time to vote, I will shortly open the voting. The poll will remain open until the close of the meeting. For attendees present in person and eligible to vote at the meeting, on the reverse of your white admission card is your voting paper and instructions. You will need to follow the instructions, mark a box beside each item of business on the voting paper to indicate how you wish to cast your vote on that item and then lodge it in the ballot box before voting closes. Proxy holders attending the meeting in person have, attached to their white admission cards, a summary of their proxy votes which detail their voting instructions. By completing the voting paper, you will be deemed to have voted in accordance with those instructions. Proxy holders who are entitled to cast any open votes will need to mark a box beside each relevant item of business to indicate how you wish to cast your open vote on that item. For attendees online who are eligible to vote at this meeting, a polling icon will appear on your device when voting appears and when -- sorry, when voting opens. Clicking on the icon will bring up a list of the items of business and present you with voting options. You simply select one of the options for the relevant item of business to cast your vote on that item. There is no need to hit a submit or enter button, as the vote is automatically recorded. You may change your vote at any time up until I declare that voting has closed. All attendees whether online or in person may submit votes at any time from when voting opens until I declare that voting is closed. It now gives me great pleasure to introduce our directors up on stage. So immediately on my right is Andrew Harding, our Managing Director and Chief Executive. And then we have our nonexecutive directors, Kate Vidgen, Russell Caplan, Sam Lewis, Lyell Strambi, Marcelo Bastos. Sarah Ryan, one of our nonexecutive directors, has also joined us today virtually. She's overseas, but she's online with us virtually. And then next to Marcelo, we have our company Secretary, David Wenck. And we also have in the audience today members of our executive committee; and also in attendance Chris Vagg, our group Treasurer and Head of Investor Relations, who actually joins us up on stage and will act as moderator of our shareholder questions, including written and verbal questions that we have received through the Computershare meeting platform. Now shareholders should be aware that, as moderator, Chris will not identify and read out repetitive questions or questions that are not relevant to the company or the items of business being considered at the meeting. Chris may also seek to aggregate questions based on their subject matter and, while providing as much context as is appropriate in the circumstances, may summarize lengthy questions to ensure that as many questions are able to be addressed at the meeting as possible. We also have Matthew Donaldson and Alison White of Deloitte Touche Tohmatsu with us. They're our external auditor and they're with us in person here today in Townsville. So it's great to have you, Matthew and Alison. Matthew and Alison will be available to answer any questions regarding the conduct of the audit of the company's financial report for the year ended 30 June 2022 and the content and preparation of the audit report. I will now turn to my meeting address. And I am pleased to report that, notwithstanding the complex operating environment, Aurizon continues to deliver strong operational performance and generate significant free cash flow. Our team is excited about how we are positioning the company for growth and the opportunities ahead of us. The Board is also pleased and would like to acknowledge the improvement in the 2022 financial year across our key safety metrics, and Andrew will share more detail on this in his address in a few moments time. In the 2022 financial year, we returned financial results within our guidance range with underlying earnings before interest, tax, depreciation and amortization of $1,468 million. This was a good result in a year when our above rail and Network volumes were impacted by a number of significant events. These included major flooding in parts of New South Wales and Queensland which closed rail and port infrastructure and lowered output from mining and agricultural customers. The COVID-19 pandemic continued to impact production for many customers nationally and this escalated as borders reopened in late 2021. In terms of shareholder returns, the Board declared a total dividend of $0.214 for the 2022 financial year, which represented a yield of more than 5%, with the final dividend fully franked. Aurizon remains well positioned in traditional markets for Australian resources, agriculture and industrial products, together with emerging markets as the world turns to lower-carbon products and energy solutions. Let me talk briefly about some of these commodity markets. Metallurgical coal remains a critical input for steelmaking, which in turn is at the heart of economic development of modern economies. Furthermore, steel is essential as the world seeks to reduce carbon emissions. For example, steel will play an important role in renewable energy generation, including and especially solar and wind power generation. Almost 3/4 of global steel production draws upon metallurgical coal, and Australia is the largest exporter of this coal. From an Aurizon perspective, around 2/3 of the volume hauled across the Central Queensland Coal Network and around half the coal volume hauled by Aurizon trains is metallurgical coal. Indeed, if thermal coal exports from Australia ceased tomorrow, the returns from our regulated Network business would continue based solely on metallurgical coal volumes. India is already Australia's largest trading partner for metallurgical coal and is expected to drive demand in the decades ahead. In August this year, India's largest steel producer, Tata, announced a plan to double crude steel capacity over the coming decade. Thermal coal is primarily used to generate electricity, with a 35% share of global generation. Although it is recognized that global thermal coal consumption will reduce in the decades ahead, demand for Australian coal is dependent on the traded market, which is around 1 billion tonnes per annum. Demand from Asia represents around 85% of the traded market, and over 95% of Australian thermal coal export volume is destined for that region. Australia's domestic electricity generation has dominated media over the past month, including the role of thermal coal longer term. Such debate is not unexpected given the average coal -- the average age of coal generation assets in Australia is roughly 35 years. This is against the typical expected retirement age of around 40 years. Rather than domestic consumption, it is, of course, the export market that is of far greater importance to Aurizon given around 85% of Australian coal production is exported. When we look at Asia, the average age of coal-fired generation capacity is around just 14 years. Turning now to Australian grain, where Australian export volumes were more than 40 million tonnes in the 2022 financial year. In 2023 financial year, Australia's winter crop production is forecast to reach the fourth highest record at around 55 million tonnes. Western Australia and South Australia combined represent over half of national grain production. Aurizon Bulk now has significant operations in both of these states as a result of the CBH contract we commenced in Western Australia 12 months ago and the One Rail acquisition we completed in July this year. Together with our growing operations in either -- in eastern states, this means Aurizon is now the largest grain rail operator in the country. And with about 70% of Australian grain exported, we like the strong demand profile of the business with its link to global population growth and food consumption. And again there is an increased focus at present on Australian grain supply given that Russia and Ukraine historically held a 30% share of global traded grain markets. Finally, some comments on emerging markets for future-facing commodities such as copper, lithium, nickel and rare earth elements. These are commodities used in the manufacture of mobile phones, wind turbines, battery development, electric cars, solar panels and other high-tech applications. Australia has large reserves of many of these critical minerals. For example, Australia holds the second largest reserves of copper globally, with 2/3 contained in South Australia. It's the home of one of our largest customers, copper, gold and emerging nickel producer OZ Minerals. Its CEO, Andrew Cole, underlined the size of the opportunity for Australia. I quote from an August presentation that Andrew made. "The world is on the cusp of a significant deficit of key modern minerals at a time when demand will rapidly intensify. Clear comparisons can be drawn between the age of electrification and decarbonization that we're entering and the decades-long iron ore super cycle that resulted from the industrialization of China, but this time, it's a global phenomenon." Wood Mackenzie projects total global copper consumption to increase from 29 million tonnes in 2020 to 56 million tonnes in 2050, primarily driven by the uptake of electric vehicles and supporting transmission infrastructure. This type of commentary and analysis aligns with Aurizon's business strategy and our decision to acquire One Rail. Our strategic aim is to maximize the respective strengths of our 3 business units Coal, Network and Bulk to deliver profits and growth opportunities for our company. The Aurizon Coal and Network businesses are stable, resilient; and generate strong cash flows. They are underpinned by the demand fundamentals of high-quality Australian metallurgical and thermal coal. Our strategy is to ensure these businesses remain highly efficient and resilient as markets change. They provide a solid foundation for our company and a funding source for Bulk growth as we pivot the Aurizon portfolio towards those rapidly growing markets. Aurizon Bulk is well positioned to seize multiple emerging growth opportunities. It has delivered on its business turnaround over the past 5 years, transforming its operations, commercial operations and customer focus. The footprint of the business now extends nationwide and covers all major commodity-rich regions in this country. We have strategic infrastructure and operating sites that provide an advantage and allow us to provide safe and reliable services to our customers. Our Bulk business has an extensive pipeline of growth opportunities with both existing and new customers. And we have extended our services along the supply chain to include, amongst other things, trucking, logistics, storage and port services. We have invested in terminal and stevedoring facilities at the Port of Townsville and the Port of Newcastle, and soon, we will commence bulk operations at the Port of Gladstone. In July 2022, we were pleased to complete the acquisition of One Rail Australia, which was comprised of 2 businesses: firstly, bulk haulage and infrastructure assets in South Australia and the Northern Territory, including the 2,200-kilometer Tarcoola-to-Darwin railway line and associated infrastructure. This business has been integrated with the Aurizon Bulk business and is now known as Bulk Central. As an integrated Network and above rail business, it provides highly competitive rail services for customers across regions rich in resources and agricultural commodities. Hopefully, you were able to see the video at the start of the meeting which showed parts of this business. Otherwise -- I understand it will run again at the end of the meeting. The second business includes coal haulage services in New South Wales and Queensland which is known as East Coast Rail. It will be divested by Aurizon, in accordance with the terms of an undertaking given by the company to the Australian Competition and Consumer Commission. ECR generates strong free cash flow with EBITDA margins higher than peers and revenue underpinned by long-term take-or-pay contracts for most of its volumes. It is expected to grow its revenue in the 2023 financial year, when compared to last financial year, driven by a new train consist which was commissioned in June which doubles Queensland capacity and a pricing reset under its inflation-linked contracts. ECR is rated investment grade and has also finalized its stand-alone debt refinancing which will replace debt with maturities of 2 to 5 years with a 10-year USPP notes issue later this year. The Board worked very closely with the management team on this transaction and were aligned that the best pathway was the acquisition of the entire business and subsequent divestment of East Coast Rail. This enabled the purchase of the bulk assets for a reasonable price and satisfies any competition concerns in relation to the coal haulage business. We are working hard on a dual track process for the divestment of East Coast Rail through either a trade sale or a demerger, whichever delivers the best outcome for Aurizon. We are well advanced in this process, and we expect to decide and announce the preferred pathway during November. We view the acquisition as a key plank in the rebalancing of Aurizon's portfolio over the next decade, with our Bulk business positioned to assume a greater proportion of group revenue and earnings compared to coal-related earnings. Aurizon is very well positioned to continue our transformation journey in the coming years; and grow our services, customers, volumes and profitability. Each of our 3 businesses are driving value for the company and our shareholders. Aurizon Coal is the nation's leading provider of coal haulage services with a long-term contract book with customers and a raft of continuous improvement opportunities underway. Aurizon Network is midway through its 10-year UT5 agreement with coal customers, delivering certainty for Queensland's export supply chain, together with the opportunity for performance-based reward for Aurizon. And Aurizon Bulk, which has successfully delivered on its 5-year turnaround, is now poised to drive the next phase of growth for our company on the back of the One Rail acquisition and a range of other initiatives being progressed across Australia. The Board and senior leadership team are energized and focused on growing Aurizon. We are confident in the strength of the Australian economy; and the exciting opportunities for growth, especially in those forward-facing commodities that will fuel and feed the world in the decades to come. We believe Aurizon is ideally positioned to tap into that growth trajectory and that ongoing operational and organizational transformation will make Aurizon the #1 choice for more and more customers across the country. On the half -- on behalf of the Board, I would like to acknowledge the tremendous effort and commitment of all of our employees, teams who are always looking for better ways to operate in a changing, complex and highly competitive environment. The commitment I have seen firsthand, from a number of site visits in recent times, from our employees is absolutely outstanding. The Board also extends its appreciation to our Managing Director and CEO, Andrew Harding; and Andrew's senior leadership team for their work over the past year in guiding the business during a challenging period and also for executing on initiatives that will deliver future growth for our company. You will also have seen from the notice of meeting that 2 of our directors, Russell Caplan and Kate Vidgen, who are both up for reelection, do not intend to complete their full 3-year term. Over the next 1 to 2 years, we will continue to renew the Aurizon Board as the company enters the next phase of growth. Russell has served as a director for 12 years since the public listing of Aurizon back in 2010, and we thank him for his outstanding contribution over this period. Kate, who has also made a very significant contribution to our Board and company over the past 6 years, has decided not to continue with Aurizon at some stage next year because of her increasing workload from her executive role and other board commitments. We'll say more about Kate and Russell in the fullness of time, but I did want to acknowledge their contributions today as they stand for reelection. I'd also like to acknowledge the very significant contribution from Michael Fraser, who retired as a director of our company back in February 2022. And Michael was a highly effective and valuable director of Aurizon and Chairman of Aurizon Network over a period of 6 years. And finally, my thanks to you, our shareholders, for your continued support and interest in our business. The Board appreciates your views and feedback. And we look forward to having a chance to catch up with those of you able to join us in person today follow the -- following the formal proceedings. Now it gives me great pleasure to hand over to Andrew, who's going to address you. Thank you.

Thank you, Tim. And good afternoon, ladies and gentlemen. I would like to reinforce the Chairman's remarks regarding the resilience of the business despite the challenging operating and economic environment in recent years. We've endured COVID-19 and a series of extreme weather events and more recently the impact of rising inflation and energy costs. The revenue protections we have in place together with our strong operating discipline have supported stable cash flow and good returns for the business. Looking ahead, I'm excited about future growth for our business, particularly as we realize the benefits of product diversification and expansion with the One Rail acquisition. I'll speak more about that later. As usual, I'll begin my remarks today on operational safety performance of the company. As the Chairman indicated, there were significant improvements delivered in FY 2022. We've used 2 key metrics to measure safety performance. The first, the total recordable injury frequency rate, measures the number of injuries per million hours worked. The second metric, rail process safety, measures the number of derailments, signals passed at danger and rolling stock collisions per million train kilometers. These metrics improved by 18% and 17%, respectively, in FY 2022. A further safety measure is also being introduced: potential serious injury and fatality frequency rate. This metric more accurately represents our business moving forward, as it covers all operations, not only rail, as we are now providing services in terminals and trucking, portside logistics and stevedoring. In respect to COVID-19, we've worked hard during the pandemic to maintain a disciplined approach to workplace health and well-being for our employees. Many protocols that were embedded from mid-2020 have remained in place to protect the health of our employees. I extend my thanks again to our dedicated employees for their commitment and day-to-day focus during this challenging time. The Chairman has provided an overview of our enterprise financial results. I will summarize some key outcomes during FY 2022 for each of the 3 business units Bulk, Coal and Network. After a number of years of rapid growth, FY 2022 was a year of consolidation and investment for the Bulk business. A number of long-term contracts commenced, which required significant resourcing and investment. These one-off costs were a key contributing factor to earnings being down 7% for the year. Tonnes were down 1% during FY 2022, below our expectations, due to a variety of reasons including flooding, COVID-19 and customer-specific reductions in production. We were pleased to secure a number of major long-term contracts in FY 2022. These included CBH for grain, Tronox for mineral sands, Alcoa for alumina and Lynas for rare earths, all contracts that demonstrate how we are diversifying commodity exposure in the business. You can see further details on the slide. Looking ahead, we're confident of Bulk returning to its growth trajectory. In FY 2023, we'll see the full year contribution of these contracts plus the step change increases from the Bulk Central business in South Australia and the Northern Territory. The results for our Coal business again underline the theme of resilience, with earnings up 1% on a 4% reduction in volumes. We saw a strong focus on cost control during the year as well as the benefit of inflation resets in our haulage contracts. We were pleased to announce a number of major contract wins, which you can see on the slide. I would call out the Pembroke contract. This is a greenfields metallurgical coal mine in the heart of Queensland's Bowen Basin, approved by the government in 2020 and due for first production next year. It's a $1 billion investment and a real demonstration of the confidence in the future of steelmaking coal mined in Australia. The Network business continues to generate strong, stable returns under the 10-year regulatory agreement in place with coal customers for the Central Queensland Coal Network. We are midway through the term of this performance-based agreement. And it is providing a solid framework for the operation and maintenance of this rail infrastructure asset for the Queensland coal export industry. Network volumes declined by 1%, largely the result of wet weather, customer-specific issues as well as COVID-19-related disruptions. Earnings were down 6% primarily due to lower fees received for the Goonyella-to-Abbot Point expansion; and the Wiggins Island Rail Project, known as WIRP. We were pleased to resolve all outstanding matters with WIRP customers during the year, which means there will be regular annual payments for the term of the agreement until 2035. Also, a reminder that there will be a reset in July 2023 of the weighted average cost of capital under the regulatory agreement. If the current higher interest rates sustain, then this will result in an earnings uplift for the Network business. At an enterprise level, we maintain the guidance range for FY 2023 for earnings before interest, tax, depreciation and amortization between $1.47 billion and $1.55 billion. We note that the lower demand during July 2020 that we spoke of in our FY '22 results presentation continued during the quarter as a result of a number of issues, including adverse weather impacts. We have built a very solid platform for the company in recent years by focusing on the fundamentals, improving productivity, extending and enhancing services for customers and reducing costs. We are now entering a new phase of growth for the company as we tap into existing and emerging markets. We see demand for high-quality Australian coal sustaining for some time and great opportunities for Aurizon and rail as the world makes its transition to a lower-carbon future. In this context, let me share some more about 2 incredibly exciting opportunities for Aurizon. The first is the One Rail acquisition, of -- on which the Chairman has also spoken. My time spent in the business in South Australia and the Northern Territory before and after the transaction completed in July has only reinforced confidence in the quality of the asset, the team we have in place and the terrific opportunities ahead. This acquisition will be truly transformative for Aurizon, providing the platform for future growth in new regions and new markets. We're committed to invest and grow this part of the business, given its great potential; and to work with customers, communities and governments who are also keen to grow regional economies in South Australia and the Northern Territory. Aurizon now has a 2,200-kilometer rail line into Australia's northernmost port of Darwin, the gateway to the rapidly growing economies of Asia. Adjacent to this rail corridor are more than 250 resource projects for new economy commodities in various stages of development, which you can see on the map, so it's not surprising that Aurizon sees great prospects to increase import and export traffic through Darwin as well as the ports in South Australia. In addition to the opportunities in South Australia and the Northern Territory, we've now joined the dots on our national footprint from West to East in providing a national service offering for customers. I look forward to updating you at next year's AGM on the progress in this space. The second exciting area is the ongoing work we're doing to bring renewable energy solutions to our business. We have work underway on multiple fronts in our Climate Strategy and Action Plan as we target net zero operational emissions by 2050. The aim is to create low- or zero-carbon supply chains for our customers and the Australian economy. Not only would this slash our carbon footprint and deliver environmental and community benefit, but it would also give our exporters competitive advantage in global markets. Here are some leading examples of work happening in Aurizon. Our fleet decarbonization program has made good progress in the past year as we move towards operational trials for a battery-powered heavy-haul locomotive. This includes an ongoing technical research program with The University of Queensland and the Central Queensland University. Our aim is to design, develop and trial a homegrown prototype, specifically to suit Australian conditions and the haulage routes our services track across the continent. We're increasing the proportion of renewable energy supplied to our electrified Central Queensland Coal Network. Aurizon Network has entered an agreement with CleanCo Queensland. Over the course of the agreement, 25% of Aurizon Network's electricity will be sourced from CleanCo's low-emissions portfolio, including large-scale solar and wind generation projects. Our business will also see continued emissions reduction as the renewable mix increases across the whole grid. In this sense, we will benefit from the Queensland government's recent commitment to lift renewable energy on the grid to 80% by 2035. We are working with global mining company Anglo American on a study to assess the introduction of hydrogen-powered solutions for heavy-haul freight trains. Anglo American and First Mode have developed a hydrogen-based power plant to replace diesel engines across their mining fleet. Essentially the idea is to couple a rail wagon with hydrogen fuel cells to a battery-powered locomotive, allowing us to extend the range for long hauls. The feasibility study has confirmed the technical viability of this option, and we are continuing to work with Anglo on operationalizing this concept. Aurizon has recently secured $5 million in funding from the Queensland government's Hydrogen Industry Development Fund. This will support the replacement of diesel fuel trucks with hydrogen-powered heavy vehicles to haul freight in and around our Stuart Terminal and the Port of Townsville. We plan to purchase 4 hydrogen-powered prime movers and build a refueling station in Townsville. The aim is to create opportunities for other businesses to convert their transport fleets to this new technology fuel as part of a hydrogen hub in North Queensland. We also see the Townsville project potentially accelerating the decarbonization efforts in our industry, including the rail-port supply chain of the North West Minerals Province. You can read more about our Climate Strategy and Action Plan on our website; or see a summary of recent activities in the 2022 sustainability report, which was released last week and is also available on our website. In closing. I reinforce the Chairman's remarks. The results over the past year highlight the resilience of the business. The work we have done in recent years to reshape and refocus has made Aurizon stronger and better placed to withstand the volatility we are seeing in global markets, with the pandemic and with climate-related change. We are constantly striving to improve our business where we create value for our customers, for shareholders and the communities in which we operate and where our employees live and work. In summary, Aurizon is very well positioned and excited about our next phase of growth. Again I thank our employees across Australia for their ongoing efforts and dedication to delivering safe, reliable services for our customers. This includes the additional 400 employees we welcomed to Aurizon in July this year following the acquisition of One Rail Australia. And finally, I extend my appreciation to our customers; and to you, our shareholders, for your continuing support. Thank you.

Thank you, Andrew. Well done. We now come to the formal business of today's meeting. And there are several procedural matters which I would like to draw to your attention. Each item of business will be introduced, and in turn, shareholder questions on each item of business will be answered after that item of business. As indicated in the notice of meeting and in order to ensure that the views of all shareholders are taken into account, all items of business before the meeting where a vote is required will be determined by way of a poll. All eligible shareholders and proxy holders have had the opportunity to vote in advance of the meeting and are also able to vote at the meeting today either in person or via the Computershare meeting platform. All eligible shareholders and proxy holders attending the meeting in person will have been issued white voting cards on entering the meeting. If you are both a shareholder and a proxy holder, it is important you complete 2 voting cards, 1 in your own right and the second as a proxy. All eligible nonvoting shareholders will have been issued blue voting cards on entering the meeting. Proxy holders should note that all directed votes received thus far have been accumulated and recorded. Proxy holders with open votes are asked to record a vote in favor of or against each item of business. Details of the proxies received by the company from shareholders will be displayed on the screens behind me and on the Computershare meeting platform after the introduction of each item of business. Subject to the voting exclusions detailed in the notice of meeting for items 3 and 4 and the shareholder having marked the appropriate box, any open proxies will be voted in favor of each resolution. As mentioned earlier, all items of business before the meeting where a vote is required will be determined by way of a poll. And in respect to conducting the poll, I appoint Lewis Brimelow of Computershare as the returning officer. During the meeting, I will ask those persons attending the meeting in person today who are eligible to vote to mark the reverse side of your voting card. And at the end of the meeting, they will be collected by the returning officer and his colleagues. For the convenience of those who may wish to leave early, I open the poll now. You can therefore vote through the Computershare meeting platform or mark your voting cards now and, as you leave, pass them to the returning officer and his colleagues who will be standing by the exits. I now declare voting open on all items of business. Okay, so let's move to item 1 on our formal agenda. The first item of business listed in the notice of meeting is to receive and consider the financial statements, directors' report and independent auditor's report of the company and its controlled entities for the financial year ended 30 June 2022. In accordance with the Corporations Act, there is no vote on this item. This item of business provides shareholders with the opportunity to ask questions about the reports and management of the company. I'm happy to take any comments or questions you may have in relation to the financial report or the management of the company in general. If you have a question, please move towards the Aurizon attendants standing before me in the outer aisles. Present your shareholder admission card, which will be white or blue in color. State your name and then please ask your questions. So can I ask whether there are any questions in the room before we go to those that are online? No, there don't appear to be, so while with -- those here are thinking about that, Chris, we might go to see whether there are any questions online.

Thanks, Tim. What we'll do first is go to the questions we've received in advance. The first question is from [ Mr. Peter Micenko ] and it is as follows. The majority of Aurizon's income comes from the land transportation of coal, and the world is moving against coal as an energy source. Aurizon has underutilized infrastructure. That is electric -- electrified railway in good condition. There are cattle wagons at Emerald [ and Abbot toward Rockhampton ], yet all cattle goes by road from Emerald to Rockhampton or to Brisbane. What is the Aurizon CEO doing to ensure the long-term low-cost income sources such as general freight can move on its coal network?

Thanks, Chris. That sounds like that question is being directed to you, Andrew, so I might hand that to you.

It does indeed. So look. The Central Queensland Coal Network [ not only carries coal, but it carries ] [indiscernible] livestock [ that's being grown ] and some passenger traffic. The Aurizon haulage contract for livestock which is referenced ceased in December 2021 and is now conducted by another operator in Queensland. If there's -- so if there's an issue with the transportation of livestock specifically, then you have -- you need to take it up with the operator that's concerned with that. As far as the general thrust of the business to support customers getting product, including coal, to export markets, our ability to help them is to provide a reliable, low-cost operation that's resilient under as many circumstances that we can manage. We've done that [ for many years ] and we'll continue to do that going into the future. The actual product types that actually get hauled on our various networks depend on what the customers want to haul. It's not our choice as to what actually gets put in the specific trains. Our task is to actually provide a resilient, reliable and low-cost, safe operation; and that will continue to be our focus going forward.

Thank you, Andrew. Chris, next question?

We've received 4 questions from Shirley Watson on behalf of the Australian Shareholders' Association. First of all, she says, "Chairman, firstly, I would like to congratulate you, your Board and management for achieving results within guidance during a period of challenging and volatile market conditions and, at the same time, taking initiatives for the future growth of the company." The first question is that the figures show some very encouraging improvements in safety. "I know that safety is a high priority for your company. What are some of the significant contributors to this achievement in recent years?"

Thanks, Chris. And thank you, Shirley, for your question or questions in advance. And thank you also for your interest in Aurizon. I've enjoyed our meetings off-line. And we certainly value the relationship we have with you and the Australian Shareholders' Association and acknowledge the hard work that you put into covering our company on behalf of your members, so thank you for your involvement throughout the year but also for your questions today. In relation to the specific safety question, given Andrew addressed that in -- partly in his address -- I might hand over to you, Andrew, also just to make any additional comments on the improvement in our safety performance in the last 12 months.

Thanks, Tim. Look. I think the improvement in safety as -- at the highest possible level is because we had incorporate -- had 3 strategies running in the different business units. And we aligned them to one strategy, safety strategy, for the entire company a number of years ago. And that allowed us to more comprehensively resource and support strategy -- safety improvement work. Then I think the second part was that we've actually kept the same strategy for a number of years. It's not something you want to change every year. You want to be sort of resolute in pursuit of improvement over a number of years, and your strategy should be good for a number of years. And it takes a long time to change behavior. So I think we're seeing -- I'm sorry. I know we are seeing the results of that commitment to that strategy over a number of years. If you look below the strategy itself, that headline for the strategy itself, I think there's probably 3 [ callout ] activities that I'd point to. There's many more that's covered in the strategy itself, but the first one is our leadership in safety training, for which we've won industry awards to recognize the quality of. That's upskilling all of our leadership. The second thing I think that's had a big impact over the last couple of years is our [ critical ] control verification, yes, which covers the key critical risks in the organization, for -- a critical risk being, for example, falling from heights. There's a number of those. And it allows us to in a very disciplined and robust and repeatable way get people, leaders particularly, out in the field and verifying that indeed management of the risks are in place and continue to be of high quality. And then lastly, I'd say one of the changes in recent times' activities has been our introduction of a support software called [ beacon ], which has a -- is a mobile application. It's helped people in the field. It's reduced the amount of paperwork that they have to do. It helps prompt them to ask and address the right sorts of issues. It doesn't replace people at all. It aids the effectiveness of our people out in the workplace. And so I think those 3 things would be the things that come top of mind as part of our long-term commitment to the safety strategy.

Thanks, Andrew, terrific. Chris, back to you for the next one.

Yes. Next question from Shirley Watson is, understandably with the purchase of One Rail, there was a dividend payout reduction from 100% of net profit to 75% to maintain balance sheet strength. Is this temporary? Or could it be maintained, with capital growth becoming more part of shareholder returns?

Yes, thanks, Shirley. I can't answer that question directly because we are somewhat in the land of speculation in relation to that issue. What I can point to is our very well-articulated and consistently articulated capital allocation framework, which is a feature of our half year and our full year results presentations. In that framework, we have a range that we articulate for our dividends which is 70% to 100% of net profit after tax. That was introduced 7 years ago. It's been in place for the last 7 years, so that is our stated position as we sit here today. And I can also point to that another feature of the capital allocation framework, which does prioritize the payment of a dividend over growth opportunities. Clearly we need to be mindful of what's ahead of us in terms of growth opportunities. And if there are attractive growth opportunities that provide very, very attractive rates of return, we'll obviously consider that in our future policy, but as we sit here today, the Board hasn't turned its mind to what happens after we get through the 1 to 2 years that we flagged. And you just included as part of your question we will get to that in the fullness of time. And if there is any change, we'll obviously update the market at the appropriate time. Thanks, Chris.

Next question from Shirley is what effect, if any, will the recent Queensland government announced plans to close coal-fired power stations, in a conversion to renewable energy, have on the company's strategic plans.

Yes. So the short answer to that is no change to our strategic plans. Andrew touched on in his remarks, when he talked about that policy, there will be a benefit for our company. The benefit will be -- we're a very significant user of electricity for our Queensland -- Central Queensland Coal Network. Now roughly half of the network is electrified. We're a very significant user of electricity, therefore, and if we can get more renewable energy into that network, then it will demonstrably reduce the emissions from our business. So that will be a very significant benefit to our business, but it won't result in a change of strategy. The only other point I'd call out in relation to that question is, if ultimately one day there was no more thermal coal required in Queensland for internal electricity generation, so generation of electricity within the state, that would -- that's about a 3% volume reduction for us. So about 3% of our above rail volume is for internal purposes inside of Queensland. So it's not a significant number for us, so I'll just reinforce that, that wouldn't be a -- that announcement, that policy announcement, wouldn't be a change of strategy in any sense for us. Thanks, Chris.

Final question from Shirley Watson is, "Do you envisage the likelihood of road transport being progressively replaced by more rail transport into the future? What factors might enable this to occur?"

Yes, absolutely. So as a number of companies are grappling with their own reduction-of-emission strategies, it's a common feature of -- when we pick up and read the newspaper or read company announcements these days, that we're all companies -- around the country are trying to reduce their emissions. And one very effective way to reduce your emissions is to get more product off road and onto rail. If you look at it on a per-tonne-kilometer basis, road transport is -- makes 16x more emissions compared to rail. So it's a really simple equation for companies looking to try and reduce their emissions. Play the modal shift game. We are trying to talk about that as strongly as we can. We're trying to encourage it as strongly as we can. We're trying to make sure, where we manage the below rail infrastructure, that it's up to standard to promote that modal shift. And we want to encourage other network operators around the country to make their infrastructure up to scratch as well so that, that modal shift can continue. Because it's the one way that companies can reasonably easily get a demonstrable reduction in their emissions by that modal shift, and we see that as a great opportunity for our company going forward. Thanks, Chris.

That was the last question we received in advance, but we have a few online, which I'll read through now.

Yes, sure.

First one is from [ Lawrence Watkins and Tracy Watkins ]. "I note that there were -- 66 SIF potential events were reported in 2022, in your annual sustainability report. Only the Bulk number of events were reported and no categorization of events based on hazard type. Will additional detail be provided in future reports to support enhanced safety reporting and fatality prevention efforts?

Yes. So I might make a comment and see what Andrew wants to add. Obviously we take serious incidents as an incredible priority for our company. It's one of the reasons we've just changed one of our key safety metrics from rail process safety to serious incident, because we do take those type of incidents incredibly highly. It's also a factor of the change of our business. So rail process safety, very relevant to rail operations, but as we have talked about, both Andrew and I have talked about, and you've -- know that and read in a number of our communications, our strategy is so much broader than that now. We want to do the pit to port. So that involves trucking and logistics and stevedoring and loadout at the port and a whole range of other activities, not just the rail piece. We still want to do the rail piece and we're very good at doing the rail piece, but we want to be very good and do the whole set of solutions for our customers. That necessitated a change in our safety metric, on top of the fact of my earlier comment that we take serious incidents incredibly seriously, because they are the highest-consequence issues. And so we felt that, that was the right thing to do in terms of our measures, but Andrew, I might just hand over to you and see if you want to make any specific comments about our reporting going forward.

Yes. Look. And with respect to reporting on SIF -- or actually I'll go back to the sustainability report is a summary of activity across a broad range of areas that fall under the umbrella of kind of sustainability. We report many thousands of times more than that to regulators across the country and to industry associations and the like, so when we're trying to produce a document that's relevant to people to understand the broad aspects of sustainability, it contains sufficient information in there for you to track how we're going, but it's not the Encyclopedia Britannica. And it's by no means or even partially representative of all the reporting that we do outside of Aurizon from a transparency point of view. So enough information in there to understand how Aurizon is tracking from a significant injury point of view is absolutely relevant, enough to understand where an issue may or may not be, but there's plenty of other reporting that goes on. And it's always a balance about doing that because our main aim in actually creating or adopting the -- a SIF measure or any measure is to hold ourselves accountable to improve the operations. And particularly, in safety, it's to make safety -- the workplace safer for our employees and for the communities in which we operate.

Brilliant. Thanks, Andrew. Chris?

Our next question is from [ Mr. Robert Crone ]. At the full year '22 presentation, you indicated that you expected all nonbinding offers for the compulsory divestment of East Coast Rail will be received by September. Can you please provide the status and details on this?

Yes. So when we made those comments, we had in mind a certain -- well, sorry. Can you just repeat? Was that -- was that this time last year? Or sorry. Can you just repeat the...

No, in August, the full year '22 results presentation.

Right, right, yes. So I think I provided the update in my comments earlier. We have been working -- even before we got the ACCC approval, we were working on preparing for the divestment on the basis we would get it, so we have been working on the divestment process for some time. We've been working exceptionally hard on the divestment process once we got through completion at the end of July. As I said in my presentation, that process has continued at pace both on the demerger option and the trade sale option. And as I said in my earlier remarks, we expect to be able to make an announcement on the preferred pathway in November. So that's the timing.

Another question from [ Robert Crone ]. Could you please provide details of the independent One Rail asset valuations, which you indicated will be completed by the end of September at the FY '22 results presentation?

Yes. So that's a process that we're still going through. That's a process that, under the accounting standards -- and Sam, you can yell at me if I get this wrong, but that's a process under the accounting standards that you have 12 months to do post completion. There are a number of [ valuation ] processes that we need to go through. There's a number of authorities we need to talk to about [ stamp duty ] and a range of other things. So it's actually quite -- for an asset -- or for an acquisition of this size and nature, it's actually quite a complex process to go through. We have the 12 months. We expect -- and George will probably kick me from over there, but we expect to probably provide some guidance on what the purchase price accounting looks like in February, potentially. But we've certainly got the 12 months to complete that task, and once we complete it, we'll be obviously incredibly transparent through our financial reporting on the outcomes of that process. Chris?

Next question is from [ Ms. Mosy Pinchback ], yes. It's a bit of a long question. What is the company's risk management policy around the following: first, exposure to hedge fund investors and market volatility; second, the exposure to major multinational fund managers who also own substantial holdings in competing markets known to heavily influence company direction and global and local monopolies as highlighted in the recent report by [ Andrew Lee and Adam Trigg ]; and third, debt levels and protection of Australian jobs?