Aurizon Holdings Limited (AZJ) Earnings Call Transcript

Good afternoon, everyone. I actually didn't bring my watch in, so I'm actually not sure, but I think we're right on 2:00. So welcome, everyone. My name is Tim Poole, and I'm Aurizon's Chairman. And it's with great pleasure that I introduce Caitlyn Gallagher, a very valued Aurizon employee who will do the acknowledgment of the country today. Caitlyn.

Thanks, Tim. Ladies and gentlemen. My name is Caitlyn Gallagher, and I am proud Gomeroi. And on behalf of Aurizon, I'd like to acknowledge that Jagera and the Turrbal people. who are the traditional custodians and caretakers on the land in which we gather today. We pay our respect to their elders past, present and future. So they hold the memories, traditions, the culture the hopes of indigenous Australia. As a proud member of Aurizon's indigenous reference group and to be asked here today to acknowledge the country in which we meet is a great honor for myself. As even though I am Gomeroi descent, it was on this country in which I was born. I started with Aurizon in 2017 as a trainee train driver. And in 2021, I started a new role in the office that was better suited to by little family's lives. It was during this new position, I was approached and asked if I would like to join the Aurizon's Indigenous Reference Group to help oversee the commitments Aurizon has made in our reconciliation action plan. However, being a member of the IRG has helped me so much more. Growing up a part of my family history was never acknowledged nor was it celebrated like it should have been. And I'd love to be able to share with you stories of my indigenous heritage that have been passed down to me, but I have none. All I can tell you is that even though we knew we were of indigenous descent, we were asked not to speak of it or we told that it doesn't matter anyway. However, now this has changed for me as I'm now part of a group that is committed to making a difference, engaging with my workmates and local communities, recognizing and promoting our beautiful culture and creating awareness and most importantly, being proud of who you are and encouraging everyone around you to be proud of themselves as well. For this, I have a Aurizon to thank for giving me the confidence to speak up and share what matters that are important to me. I'm passionate about my culture and my people and extremely impassionate about employment opportunities for First Nations people and supporting the communities in which we work and live to strive for reconciliation. So thank you, Aurizon, for playing your part in reconciling Australia. And please remember that no matter what the future holds, let's all promise to respect each other and all the cultures of this beautiful country and work together to close the gap. In closing, [Foreign Language]. I thank you for giving me this opportunity today to present the acknowledgment of country and for the opportunities that you have presented to me, both on a professional and personal level. Thank you.

Thank you, Caitlyn. It's an absolute, whole lot of our AGMs to have one of our indigenous employees do a welcome to country. So thank you, Caitlyn. That was wonderful. We'll now have a representative of Karstens Brisbane, Tanya Miles conduct a short briefing to explain the emergency and safety procedures for this venue we're in today. Tanya.

Welcome to Karstens. It's a pleasure to have you here today. In the event of an emergency, you will hear a sound system go off that will come down from this top of the building. It's beep, beep means get ready, so let's just get everything ready and the staff will come around and help you. Woop, woop is the emergency evacuation for leave immediately. Your evacuation door is straight outside here, so it's very, very easy to get to. There's 24 floors. So we do advise you to pace yourself and use the banister. There is hand sanitizer down the bottom. We'd rather you use the banister. We meet in post office square and will come and make sure that everyone is okay. If anyone doing an emergency can't evacuate, just come to one of the staff members and we'll assist you. Okay. Thank you.

Thank you, Tanya. On behalf of Aurizon's Board, welcome to the 2023 Annual General Meeting. The notice of meeting was sent to all shareholders on the 8th of September 2023, setting out the items of business for today's meeting. I would now like to introduce your Board of Directors. Joining me today on my right is Sarah Ryan; Lyell Strambi, Tim Longstaff, Samantha Tough, Russell Caplan, Sam Lewis, Marcelo Bastos, our Company Secretary and Chief Legal Counsel, David Wenck; and our Head of Investor Relations, James Coe. Andrew Harding, our Managing Director and CEO, is also with us today. He's actually not in the room with us today. He tells us that he has quite a life-threatening influenza. I understand from his wife, it's more like a sniffle, but he is contagious. And because of that, he's doing the right thing. He is actually on this floor in another room, and he will participate in our meeting shortly. So welcome Andrew online. Members of the company's Executive Committee are also in attendance today. Matthew Donaldson and Alison White of Deloitte Touche Tohmatsu, the company's external auditor, are also in attendance and will be available to answer questions regarding the audit of the company's financial report for the year ended 30 June 2023. I'll now turn to my address to the meeting. The last 12 months has seen Aurizon -- has seen the Aurizon team deliver several important initiatives. Many shareholders joined the webcast for our Investor Day in July and also for our 2023 results presentation in August, where we shared detailed information on our business strategy and progress with these initiatives. And here's a brief recap. We successfully integrated the $1.4 billion One Rail acquisition into our business. We sold East Coast Rail for $425 million, fulfilling our commitment we gave as part of the One Rail transaction. This sale also saw the purchaser assume all of East Coast Rail's debt obligations. We established a new containerized freight business unit after securing a long-term contract with Team Global Express. This is the largest non-coal contract in Aurizon's history. And we built a business case and a new growth opportunity for the land bridging of freight by rail from the Port of Darwin to southern capitals. We will take a staged, low-risk approach in developing this business. These initiatives have been delivered by the business despite a very challenging operational year for Aurizon. From an operational standpoint, prolonged wet weather affected many parts of our business during the 2023 financial year, particularly on the East Coast of Australia. This was compounded by mine production issues for some of our customers, a major third-party derailment and labor shortages for critical roles such as train drivers. Collectively, these factors significantly reduced tonnes hauled by our trains and across our networks compared to the previous year. As a result, underlying earnings before interest, tax, depreciation and amortization for the 2023 financial year of $1.428 billion was at the lower end of our revised guidance range. The Board declared a final dividend of $0.08 per share, 60% franked, which was paid to shareholders on the 27th of September. This took total dividends for 2023 financial year to $0.15 representing a dividend payout ratio of 75%, which is at the lower end of our payout range. The dividend payout ratio is consistent with our commitment to maintain strong investment-grade credit ratings during the current growth investment stage of our Bulk and Containerized Freight businesses. And as a reminder, since, the 2016 financial year Aurizon has returned over $5 billion to shareholders through dividends and share buybacks. The Board is pleased with continuing improvements in the safety performance of the company, particularly in relation to potential incidents that may have serious consequences. There is also a significant program of work underway across Aurizon to support the health and well-being of our employees. This is important in continuing to build a healthy and resilient workforce, and appropriately supporting them in times of need. Andrew will provide more detail on safety and other initiatives in his address shortly. Returning now to the longer-term reposition of Aurizon. As mentioned, it has been a very productive 12 months as we executed several key initiatives, we see significant opportunity for growth in our bulk and containerized freight businesses and for continued high-performance from our cash-generative coal and network businesses. With the acquisitions we have made in recent years, Aurizon now has a national footprint with assets in every Mainland state and the Northern Territory. We have more than 5,000 kilometers of rail infrastructure, Australia's largest fleet of rolling stock and a growing number of port terminal assets. Together with our highly capable team, the company is well positioned to execute on our growth strategy. As we capitalize on growth opportunities in existing and emerging markets for the Australian economy, you will see new investments being made and contracts being secured with new customers in new geographies. And Andrew again will share some more details in his address shortly. We all know this is a time for change for the global economy. The energy transition is driving demand for critical minerals such as copper, bauxite, nickel, lithium, and rare earths. These are vital inputs for battery and electric vehicles, solar panels and wind turbines and telecommunications infrastructure. Australia is rich in many of these resources and has the opportunity to become a leading global supplier of these commodities in the same way, we have developed world-class sectors in coal, gas and iron ore. Likewise, we are seeing increasing demand for high-quality Australian food and agricultural products for exports such as grain and phosphates. These growth dynamics are underpinned by Australia's proximity to the rapidly growing economies and rising living standards in Asia. Aurizon's operational footprint means we are located to support the transport needs of these products moving to markets here in Australia and also offshore. This includes our newly acquired rail corridor from South Australia to Darwin in the Northern Territory, which sits adjacent to more than 250 resource projects from exploration through to preproduction. Our railway goes right to the wharf at the port, where we have a lease and a stevedoring license. This integrated rail port supply chain opens up further opportunities for import and export traffic through Darwin, Australia's closest port for our Asian trading partners. During the year, our non-executive directors, including new directors, Tim Longstaff and Samantha Tough, have continued to get out into our business to meet our regional teams. We find this incredibly valuable in seeing operations firsthand and then being able to understand more about the business from our employees. We discussed and learned from employees about that pipeline of opportunity for the new bulk central business in South Australia, and the Northern Territory. Likewise, in regional Western Australia, where our business is expanding to support growing exports such as grain and magnetite. And while there, we traveled to the Karara Mine east of Geraldton to mark rail haulage milestones with our valued customer, KML. Karara is the largest mining operation and the first major magnetite mine in WA's Midwest. It produces a premium, high-grade concentrate, which is less carbon-intensive during the steelmaking process and therefore, is in very high demand. In recent weeks, we have been to Queensland's North and Northwest to Townsville, Cloncurry and Mount Isa where Aurizon has a strong local presence. This is a corridor serving the Carpentaria Minerals Province, home to not only great reserves of copper, lead and zinc, but also emerging new economy commodities such as vanadium and high-grade phosphate. Getting out to the front line also reaffirms to me the high-level capability and assets we have in our company as well as the economic strength and significant opportunity that continues to exist in regional Australia. This is where more than 80% of our 5,000 strong employees live and work. In closing, I would like to acknowledge the ongoing efforts and commitment of Aurizon employees in delivering safe and reliable services to our customers. The company is fortunate to have such a dedicated and skilled workforce. I also thank Andrew and his senior leadership team for their work during the year in leading strong operational performance in challenging conditions while delivering on our strategic initiatives. During the year, you will have seen that we announced changes to the Aurizon Board as we continue to renew and add diversity to our Board composition. Tim Longstaff, a charted accountant with a 25-year career in investment banking, joined as a non-executive director on the 1st of June 2023. And Samantha Tough, a lawyer with extensive experience as both an executive and non-executive, joined as a nonexecutive on our Board on the 1st of September 2023. I'd also like to acknowledge 2 outstanding directors for their contribution to the company over many years. Firstly, Kate Vidgen, who retired as a non-executive director on the 31st of May this year after 7 years of service; and Sam Lewis, who's here with us today, unfortunately, for the last time before she retires after 9 exceptional years working with us on the Aurizon Board. I sincerely like to thank on behalf of the Board and on behalf of all shareholders, Kate and Sam, for their exceptional dedication, hard work and immense contribution over their many years of service to the company and wish them all the very best for the future. So thank you, Sam, in particular today. Finally, to our shareholders, thank you for your continued support through a significant period of change and transformation. The strategic repositioning of the business, supported by targeted investment is providing Aurizon a solid platform for growth and success. The Board is excited about the pathway ahead and is committed to deliver on the opportunities before us. Thank you. And I'd now like to, technology-willing, pass over to Andrew for his Managing Director and CEO address. Andrew?

Thank you, Tim, and good afternoon, ladies and gentlemen. I'd like to build on the Chairman's comments and to share more detail on the work underway across Aurizon to grow and improve our business. This includes investments made to support growth in emerging markets, new contracts won by the business and the significant work underway to decarbonize our operations. Firstly, to operational and safety performance. As the Chairman has detailed, our frontline teams experienced a challenging year with prolonged wet weather impacting our business and also our financial results. While we are disappointed with the reductions in tonnages and revenue during that year, our teams maintained their operating discipline and their focus on safety. Safety is absolutely paramount for Aurizon in protecting our people, our customers and the local communities in which we operate. During FY 2023, we saw a 2% improvement in the total recordable injury frequency rate, a 1% improvement in the equivalent loss time measure and a significant 56% improvement in the potential serious injury and fatality frequency rate. Level crossing risk is 1 key area of focus for us at Aurizon and the rail industry more broadly, with a range of measures in place and more initiatives underway. We're stepping up education and awareness activity in the communities where we operate as well as advocacy and engagement with key stakeholders. We're also extending our work to support health and well-being for our employees, including mental health initiatives. This recognizes the benefit of investing in a healthy workforce and healthy local communities. For example, we have supported the establishment of a network of volunteers qualified in providing mental health first aid. This network is now 160 strong in depots and offices across our national footprint. In times of need, you know you can reach out to a colleague to have them listen and to help you access professional support. Aurizon remains committed to supporting communities through the community giving fund. This fund has provided more than 570 charities with grants since it opened in 2011. We support grassroots organizations in the areas of education, community safety, environment and health and well-being. During the year, we were pleased to provide a number of grants into our new operating areas in South Australia and the Northern Territory. In July, to get together with the senior leadership team, I was pleased to host an Investor Day in Darwin. This was a great opportunity to provide a deep dive into our business strategy and demonstrate how we are tapping into emerging markets. We also showed investors some of the great assets we acquired in Central Australia, including rail infrastructure, freight facilities in the terminal at the Port of Darwin. We see the 2,200 kilometer Tarcoola to Darwin railway as a nationally significant corridor, feeding into the closest port to Australia's largest trading partners in Asia. These assets are absolutely key to the future growth of our bulk and containerized freight businesses. We are supporting them with targeted and disciplined investments in locomotives, wagons and port equipment. In FY 2023, investments totaled $212 million. In FY 2024, we expect to invest a further $250 million to $300 million, with investment beyond that contingent on new contracts and growth of the business. Key investments include more than 30 new heavy haul locomotives, more than 500 container wagons and mobile harbor cranes and reach stackers for the movement of containers. Aurizon will leverage these new assets as we look to develop land bridging solutions for customers. We shared the concept of land bridging at the Investor Day in July, and I'm pleased to report we continue to have positive engagement with the market. The cranes we're installing at Darwin port represent a significant milestone in realizing our Stage 1 aspirations with land bridging and provide confidence in our capability to deliver the new supply chain offering to potential customers. Our target for Stage 1 is 100,000 TEUs, 20-foot equivalent containers per year. That's within a market of some 8 million TEUs of throughput at major Australian ports annually. And we estimate that our supply chain for land-bridging will be up to 40% quicker when compared to key shipping routes into Australian ports. In this context, we believe our aspirations are very achievable. We are taking a staged approach to land bridging to effectively manage business and investment risk. Limited additional rolling stock is required for stage 1, and it is the exact same rolling stock that we currently use across bulk and containerized freight. I'll now speak to the major contract wins for each of the 3 above-rail businesses during the year. You can see a summary of these wins on the screen. Just a couple of call-outs here. The new national line haul service we're providing for Team Global Express is the largest ever non-coal contract secured by Aurizon. We're currently ramping up to full service profile for TGE for east-west Melbourne Perth services and the north-south services for the Melbourne, Sydney, Brisbane corridor. With TGE as the cornerstone customer, we're building volumes with other customers along these corridors. You can see the spread of products and geographies for the bulk business, including contracts for those future-facing commodities that the Chairman mentioned in his address. This includes the transport of phosphate from Northwest Queensland to Townsville Port to Centrex, with Aurizon providing a full pit to port solution; and the railing of copper concentrate from the Northparkes mine in Central New South Wales to the port of Newcastle. After year-end, in August, we announced a contract with Northern Iron for the transport of magnetite from Tennant Creek to the Port of Darwin. There's also been some great work in securing contract extensions and renewals across our portfolio. In coal, we secured some valuable long-term haulage contracts, including Malabar and SIMEC in New South Wales and New Wilkie in Queensland. We're also pleased to win an important contract for rolling stock maintenance work with the BMA Rail fleet in Central Queensland. This is an excellent demonstration of leveraging our considerable capability and assets to create new revenue opportunities. I would also like to reinforce the Chairman's comments about the inherent value of our coal and network businesses, which serve Australia's coal sector. They are high-performing cash-generative businesses for Aurizon. The last 12 months has been an exciting time for Aurizon in the sustainability space. In May, we launched our project to build an emissions-free capable freight locomotive. This is an Australian-first initiative, constructing a homegrown battery-powered locomotive that is suitable for Australian conditions. The prototype project is now well underway in a workshop in Southeast Queensland with our technology partners Progress Rail. When completed, we plan to trial the prototype locomotive on freight hauls for a key customer, which we expect to start in early 2025. If we are successful with developing a new battery-powered freight locomotive, it will deliver major benefits for our customers and Australian supply chains as well as the environment and local communities. This is an exciting and potentially transformational project. You can read more about this project and the extensive work with our initiatives in our Climate Strategy and Action Plan and our 2023 sustainability report available on our website. Before closing a brief update on performance so far this financial year. We maintain the guidance range provided in August at full year results for FY 2024 earnings before interest, tax, depreciation and amortization of between $1.59 billion to $1.68 billion. At the midpoint, this is an uplift of just over $200 million compared to the prior year and is supported by an uplift in maximal allowable revenue for the network business and an expected recovery in volumes from existing and new customers for coal and bulk. The results seen in the first quarter of the financial year are aligned to this outlook. Finally, I extend my thanks to our teams right across Australia for their efforts and dedication over the past year. It has been an extremely challenging time for many with prolonged wet weather impacting both our business operations and the local communities in which our people live and work. To deliver safely and reliably for customers day after day requires commitment and focus. Thank you to all the Aurizon teams across the country. I'm also delighted with the progress we've made in recent times with repositioning the business so we can tap into emerging opportunities across our national footprint. We have a strong resilient business and a team excited and energized about the next phase of growth for Aurizon. Thank you.

Thanks, Andrew. Well done. We now come, ladies and gentlemen, to the formal business of the meeting. So each item will be introduced and shareholder questions will be taken on each of those items in turn. Shareholders or proxies attending in person who wish to ask a question should raise your hand at the appropriate time with your white or blue shareholder admission card, state your name and then ask your question. [Operator Instructions] We've also received a number of questions from shareholders in advance of the meeting, which will also be addressed at the appropriate time. The moderator, who is James, will not read out repetitive or irrelevant questions and may aggregate questions based on their subject matter to ensure as many questions are able to be addressed as possible today. Now voting today will be conducted by a poll, and Lewis Brimelow of Computershare is appointed as the returning officer. Voting will be opened shortly and will remain open until the close of the meeting. For those online, when voting opens, a polling icon will appear on your device where you cast your vote. You can change your vote at any time until the poll closes. For attendees here in person, you will have received a colored admission card at registration, informing you about your individual right to vote and ask questions today. For those with white cards, your voting paper and instructions, including any relevant proxy voting instructions are on the reverse side of that card. Voting cards will be collected at the end of the meeting by the returning officer and his colleagues. All eligible shareholders have had the opportunity to vote in advance of the meeting, Details of the proxy voting received prior to the meeting for each item of business will be displayed at the relevant time on the screens in the room here with us and also online. Subject to the voting exclusions detailed in the notice of meeting for items 3, 4 and 5 and shareholders having marked the appropriate box, any open proxies will be voted in favor of each resolution. I now declare voting open on all items of business. For those who need to leave early, you can cast your vote online at any time while voting remains open or complete your voting card and hand it to Computershare representative as you leave the room. Okay. So the first item of business listed in the Notice of Meeting is to receive and consider the financial statements, directors' report and independent auditors' report of the company and its controlled entities for the financial year ended 30th of June 2023. There is no vote on this item, but I am happy to take any comments or questions in relation to the financial report or the management of the company in general. For this item and all remaining items of business, we will start with taking questions in person from the floor and then move to the moderator to address any additional questions received prior to the meeting or for those attending online today. So can I first see whether there are any questions from the floor? Yes, David, we got a mic. Thank you.

Good afternoon. My name is David Lismore, and I'm a volunteer Australian Shareholders' Association. Today, we hold proxies from 119 ASA members for approximately 116,000 company shares. My first question is the dividend policy of high return of capital, 70% to 100% is partially unfranked dividends. Does this high return of capital limit the growth opportunities?

Yes. Thanks, David. Look, the short answer is no. And I think what's probably good to do is look at recent history. And recent history would suggest that -- we have been able to demonstrate in recent times that we have been able to pursue bulk and containerized freight growth through investment. We've been able to maintain that 70% to 100% dividend payout ratio. And importantly, we've also been able to maintain a very strong BBB+ credit rating. So we have, in recent times, been able to do that, and we expect to be able to do that going forward.

All right. I'm used to holding it. So strategy in the bulk segment would change the company, particularly in terms of the risk profile of the company and also how you see the impact of El Nino over the next few years?

Yes, sure. In terms of the first part of that question, so bulk growth and how that might change the company, both in terms of maybe returns and also risks, our CFO, George Lippiatt, actually stood up in Darwin, and there's a very good slide in our Investor Day presentation where we talk about the types of returns we're looking for from all parts of that business, but also the bulk part of that business. And we talk in there about hurdle rate of low double-digit type IRRs. So that's very much our hurdle. We're certainly striving for better than that, but even at a low double-digit type return, we'll still be generating good shareholder value. So we find the return in that part of the market attractive, which is why we're interested in it. In terms of risk, in the bulk business, we are trying to do more for our customers. So we are trying to offer more services. Obviously, rail is at the center of that. And we're used to hauling commodities by rail across our business. But we are taking on some other services like stevedoring and storage and other things. So that has the potential to increase our risk profile slightly, but we've got a management team who is very skilled in those areas. We've brought in some expertise where we've had gaps. So it is a slightly different risk profile in some sense, but we think that's a set of risks that are well managed. It's also a different customer mix for us. So that does introduce some different counterparties to our business. But when you have a portfolio of counterparties, again, we think that's a risk that we can manage. In terms of the part of your question around the way it changes the company, probably the most important thing we see is in many -- historically, in many of the areas of our business, the outlook for those commodities has been somewhat muted, whereas in the bulk side of the business, we're excited about it because many of the commodities were either hauling or intend to haul going forward have a really exciting growth profile. And so for us, that's a key change to the business. We can actually see commodities which have long life, they're growing. And so that's why we're excited about that part of the business. It provides an exciting growth platform for our business. In relation to the second part of your question on El Nino, yes, it's interesting. I mean, we've obviously, it's been well documented. I've spoken about it, Andrew's spoken about today. There's a lot of material in our annual report and Investor Presentation about the impact of the prolonged wet weather over the last 12 months, particularly the first half of the 2023 financial year. We think that the El Nino weather patterns, if they play out as expected, will see probably a dryer period of time. Around the edges of our business that will have the impact, for example, we might not see as much grain in our business come across our requiring haulage across -- for our business. But in terms of most of our business, less wet weather and a reasonable run of dry weather, will actually be beneficial for volumes across our business. There are some things that we'll probably need to continue to do very well. Our network team is expert at monitoring weather and weather patterns and protecting our infrastructure. And then just one example of that. Our network team monitors the temperature of our tracks. And where it gets extreme, we might impose speed restrictions for trains across the track. So those things might come into play. But net-net, I'd say, dry period of time should be net-net beneficial for our business.

I've got one more question for this segment.

Sure.

Could you tell me what is it about Aurizon that keeps you up at night? And particularly in terms of all the various IT issues that we've had over the last 12 months?

Yes. The biggest thing, there's probably 2 things that I, that concern me the most. One is the safety of our people. We've -- the director sitting in front of you and the team, obviously, that are here today, we spend a lot of time in our business. And when you go on-site and whether it's Samantha was riding one of her [indiscernible] trains in North Queensland recently and while she was doing that also on a road train from Mount Isa 200 kilometers south. Our people are involved with very significant pieces of equipment. They're interacting with the public in terms of cars and trucks and across level crossings, so in short, it's the safety of our people that I probably worry about the most because where there are incidents, there can be pretty significant incidents. So that's probably the thing that I worry about the most. And then don't probably get me talking about the share price because that's probably the thing that, on the financial side, probably concerns me the most in terms of making sure that the very good work that we're doing ultimately shows up on the scoreboard, which is the share price. And in an environment where companies in our sector, which is the infrastructure-related sector, do get taken over from time to time. That does worry me as well. Thanks, David. Can I ask are there any other questions in the room? Yes, sir?

My name is Francis [indiscernible] I go by Fran. I'm not sure if this is the time to ask. But in regards because since you're the CEO, is the infrastructure set up at the Port of Darwin for the increase of freight traffic because, I mean, it's, I've been there, it's out there, and are you set up though, for all of a sudden quadrupling the freight traffic through there?

Yes. So we -- and by the way, thank you for my promotion to CEO. Delighted -- we'll keep Andrew in the back room again, and I'm happy to take over as CEO, very worried management faces down here. But in terms of capacity at the Darwin port and many of us have been to Darwin port over the last 6 months or so, as I said in my address, the rail actually goes on to the wharf. So it's beautifully set up for us. And as I also said in my address, we have -- we now have a stevedoring license, so we can take over actually the operation of between the train and the ship. So we can actually do end-to-end solutions now. For the -- what we would call stage 1 of our ambitions, the infrastructure that is already there is sufficient to deliver that Stage 1 that we'd like to first do. If we're more successful in terms of volumes, and we can move on to stage 2. There will be some infrastructure required. There will be some more infrastructure required on our side in terms of rail infrastructure and some passing loops, and there'll be some more infrastructure required to be invested by the port. But at this stage, what our initial plans are that Andrew and I both talked about, the infrastructure is in place and also our rolling stock and equipment at the port is also in place. So -- and that's one of the reasons why we're excited about it. We have a lot of trains that go up to Darwin at the moment, very full, and they come back less full, and there's a lot of capacity at the moment. Thank you. I think there's a...

Chairman, my name is [indiscernible]. I'm a shareholder. Before you start -- before I start my question, I just indicate that it's very difficult to see what was on the screen down here. Your Managing Director did talk about your contracts and I couldn't see anything. And I think there's other people who couldn't see it from here. At the outset, I must state that I applaud Aurizon's desire to grow non-coal revenue streams. I also see in Chairman's report that Aurizon has now completed the acquisition of 1 rail Australia and Central Queensland now called Bulk Central. In recent months, there's been talk by Aurizon about the land bridge, bridging goods from Port of Darwin to the rest of Australia to increase the non-coal revenues, and we've spoken about that and you're just speaking at that, too. I'd also note, in early 2000s, Chris Corrigan, an Aurizon's competitor Patrick Corporation, said the return on capital employed would be quite smaller than [indiscernible] and the idea would never take off. FreightLink tried this land bridging approach, it went into voluntary administration in 2008. Can you give the current situation with regard to meeting targets and what those targets are?

Yes. So what I can say, and Andrew talked about the fact that we have been really pleased so far with the level of discussions that we've got going on in relation to the land-bridging concept. We have signed 4 MOUs with operators who may become partners to bring freight through that hub and be our first set of customers for the land-bridging operation. So it's early days. But at this stage, we're really encouraged with the market's response to what we talked about at our Investor Day in Darwin.

So target-wise, meeting targets? Not meeting targets?

Yes. So what we said in Darwin at our Investor Day and we've recommitted to that is, in stage 1 we'd like to see 100,000 TEU bought into Darwin and on the back of our rail.

That's likely to occur.

Well, with all of these things, when you're starting up new operations until it happens, it hasn't happened. So are we confident that based on the level of discussions that we've got going on, are we confident? Yes, we are confident. I mean, we wouldn't have committed the capital that we have if we weren't confident. But the thing I should also point out is if it takes off, we'll be using capacity on the rail that we've already got. The capital that we've actually put into Darwin is actually quite modest. Most of that will be able to serve other product going through the port, and if at all turns to [indiscernible], we can take the equipment that we have acquired and put it into other areas of our operation. One of the things that our management team have worked on and done an exceptional job on is making sure where we've made strategic investments. If it doesn't quite go to plan, we can take that equipment elsewhere in our operations. So they like to call it a technical term. I like to call it fungible equipment. But in short, it's basically, if it doesn't work there, we can take it there, and we've been very successful at that portfolio approach, and it's something we'll continue to do.

Okay. Can I just ask 1 more question?

Sure.

Okay. Bearing in mind what I said earlier that I applaud the decision by Aurizon to grow non-coal revenue streams. I had trouble finding the words cattle transport service on reading the annual report. When Queensland Rail was sold, there was a transport services contract with the state, under which there would continue to be rail-based livestock transportation services. This contract expired 31st of December 2015. According to media reports, Watco East West jointly owned by Watco Australia and East West Road and Rail operates cattle rail transport services and is attracting cattle into loading points as far north as Winton and Clermont as well as building greater volumes from the north to the west. It also has grain operations. In March this year, the CEO of Watco said "this once shrinking market that is the rail, cattle rail train services is rapidly becoming a core business for Watco Australia since landing its first livestock contract in 2021." My question is there are future for cattle transport by Aurizon?

So we lost that contract, and we were disappointed to lose that contract. But when you've got a business with hundreds of contracts, you will occasionally lose contracts. And one of the things that we've been quite vigilant about as we have repositioned our bulk business is making sure we participate in contracts where we're earning a sufficient return for the risk we're taking and the service we're providing. And unfortunately, we weren't able to come to terms in relation to the renewal of that contract, and we were unsuccessful when there was an open tender. Could that contract come back to us over time. We'd love to consider taking that contract back on at a future point in time if the moons aligned in terms of risk and return and opportunity. So it's very much a possibility for the future.

So it is a possibility?

Yes. And so I should say also in relation to your first comment on not being able to see, I apologize for that. All of the material that we've got on display today will be on the ASX website. So if you want to go on to the ASX website under the AZJ code, you will be able to see on your computer a hard copy of what we've put up today. So thank you for your questions.

Ken Roll is my name. I am a longtime shareholder in Aurizon since the float. And I think this is my first time of engagement with Aurizon since the pandemic. Before that, I used to come [indiscernible] a bit out of date, and I'm pleased to get an update here today to hear that the company is expanding. Something caught my attention in your sustainability report, there's a good map of Australia there with all these red dots showing where the business is operating. Of course, many of those are locations are in indigenous, the populated parts of Australia. So looking at -- you say that the company has about 5,700 employees. Most of them in regional Australia. Could you give me any idea at all as to how many of those employees might be indigenous?

Yes, I can. About 7% of that workforce is indigenous.

Right? And the second part of my question is, could you give me a rough estimate as to how many of those 30% might be in reasonably senior management roles?

That's a good question. I'm not sure I've got the answer to that. Andrew, have you got that number top of mind?

Can you hear me, Tim?

Yes, we can.

Yes. So look, I don't have an actual percentage of in management roles. The most senior person who identifies as indigenous is in a managerial level role, and there are others in more junior roles than that. And indeed, we run over the last couple of years leadership training programs to help indigenous people come off the shop floor or entry role into high levels of responsibility in the organization. So what I'm basically saying is it's work in progress.

Thanks, Andrew. There's a question down there. So did you have a question?

Several years ago, you said the east -- several years ago, you said the East Coast container traffic was unprofitable, and it was sold off. Recently, you've seen that you're running another operation from Melbourne to Brisbane, which the first one ran nearly empty. So what makes you think you can make a profit? And secondly, talking about a shortage of train [ jobbers ] but just in the last year, there was many made redundant. So I just wonder about the man -- long-term manpower planning.

Yes. Thank you. So you're right. I have stood before this meeting before and talked about our Intermodal business, which we reviewed many years ago and then closed down. The containerized freight business that we have started in more recent times and are keen to expand is a much different business. The containerized freight business will have a much smaller number of very significant freight forwarding customers. The Intermodal business that we tried many years ago was almost like the way I described the bulk business. It was the end-to-end solution for a container from basically either the port to the customer distribution center or the reverse. And we were trying to do all of that supply chain which was very difficult, very competitive and we didn't have the skills or experience to make a good fist of that, and that's why we came to the decision to exit that part of the business. And just to give you a sense of that, when we did close that business, we had something like 600-plus customers. So a very large number of customers we're trying to service, and we're trying to do the end to end. With the containerized freight business, as I said, it's a very different proposition. We are trying to do the rail line haul piece of that. So the freight forwarders do everything else, and we do the long-term line haul, which is the rail piece, and our ambition is to work for a much smaller tighter group of very significant freight forwarding customers. We think that's very viable. We think -- and again, the proof will be in the pudding in terms of how the business performs in over the next 2 or 3 years. But to be able to sign a contract of the size of TGE, Team Globe Express, our Toll Express business out of the box has given us scale from day 1. So -- and again, that's a very significant contract that we weren't able to have when we ran the business called intermodal historically. So we're excited by the business. We think it's a real opportunity for us. We think it complements the One Rail acquisition that we made. We certainly didn't make the One Rail acquisition because we thought we would do containerized freight. But now having that asset, we think it complements our ambition in containerized freight exceptionally well. Thank you for your question.

[indiscernible]

Sorry?

Shortage of train drivers.

Sorry, there is shortage of train drivers. Thank you. Yes. So we -- I'm not aware, and I'm happy for Andrew, for you to chip in, in a moment in terms of redundancies. But we are actively pursuing train driver schools around the country. When we were in Cloncurry 10 days or so ago, we have a training school in Cloncurry. And we had a meeting with the mayor of Cloncurry, who was very interested in what we're doing. He knew a lot of the people involved in the training program. So around Australia, we have training schools. We are trying to accelerate the number of drivers we have. We have 2 constraints, so that's a very exciting growth profile we have. One is equipment and the second is train drivers, and we are trying to fix both of those. So Andrew, I'm not sure whether you've got any comment on the question around redundancies for train drivers, but...

Yes, look, it's an easy question to ask. And obviously, a confusing one when you understand that we're trying to train as many train drivers as we are. The reality is when you lose a contract, which has happened from time to time, that contract will have attached to it, train drivers that are based in a certain area. So for example, let's say, we lost a contract that had train drivers based in Toowoomba. Now we ask people, would you move somewhere else? Let's say Mackay. And they don't want to move somewhere else. So as part of the enterprise agreement you go through a process of redundancy. So it's tied to the depot and the winning or losing of contracts and the fact that people, unlike rolling stock, are not fungible and you can just move them wherever you feel like you want to move them.

Nobody mentioned anything about this, but if in land rail, eventually gets to Queensland, what impact can you see it has on your business?

Yes. It's actually, it's a really good question. The short answer is, it will be positive because it will assist our ambitions in the containerized freight business. It should attract modal shift. So you should see less trucks on road and more containers on train. So net-net, that's a real positive for our business. But in the more shorter term, the piece of inland rail that we're barracking for really strongly is the first stage, which is the stage that the government has committed to post carry shops review. And that's the Melbourne to parks route, because once Melbourne to parks is built, you will be able to take a double-stack train from Darwin to Melbourne, and that will be a game changer. So at the moment, trains can't come from Adelaide to Melbourne double stack because of bridge restrictions. But once that first piece of or stage 1 of inland rail is built, that's going to be a real game changer. So we've been very barracking really hard for that. We're delighted the government is committed to that. We've got a terrific relationship with the National Intermodal Corporation, who's playing a role in that, and we are very supportive of that project. Thank you. Sorry. Sorry, I'll come back to you. There's a question at the back.

My name is Michael. I'm a blogger. I've been engaged with the Queensland Competition Authority for the last couple of years. And I had a question that relates to prudential concern regarding new co-haulage facilities like the Carmichael Rail network. The Queensland Competition Authority recently decided that the coal network capacity company, which has 2 former Aurizon staff on its leadership team is "independent", and I'm also aware that the Queensland Competition Authority under the act, the Aurizon is not actually compelled to inform the authority when it's made an access agreement. So it's oversight over future coal rail facilities that it might be regulating is limited, whereas the coal network capacity company has people with inside knowledge from a couple of years ago when they were employed by Aurizon that they can apply to consideration of those future facilities and third parties as they come along. So the question I want to ask today is which [ governing ] entities have you made -- has Aurizon made access agreements with, and that would include Carmichael Rail network Proprietary Limited, the proponent and the operator or Bowen Rail Company, which also has a rail operator accreditation.

Yes. Thank you for your question. So look, under our access arrangements, we aren't able to comment publicly on specific contractual arrangements. But what I can say is this, which I have said in previous AGMs, the Central Queensland coal network that we run and is regulated by the Queensland Competition Authority is an open access regime, so the network is open access. So if you apply and you meet all of the requirements to get access and they are extensive, you can get access to the system. So it's no secret to see the range of companies that have haul or have hauled for them, their coal across the Central Queensland coal network. The trains are out there to see and the mines are out there to see, but we can't comment on them specifically other than to say that it is an open access regime. If you meet all of the criteria, the very extensive criteria, as I say, then you can get access to the system. And that's what we're required to do under law. I think there was a question down the front of you. Thank you.

Thank you George Bomba, Director of [indiscernible]. Before when you were commenting about Darwin, you asked a question about Darwin and the port, you said, if it succeeds, shouldn't that be -- when it succeeds?

Well, there are laws about making forecasts that I need to walk a fine line through. So look, we're -- as I say, we're confident about our success, but there are no guarantees in life. So until we see -- and I talked to our institutional shareholders and Andrew and George and James through all the time. We've -- everyone understands that these are well-considered plans and they were thrilled through plans, but no one's going to give us credit, and we're not going to claim credit until we actually see trains with full of commodities or containers. So until that happens, we're not going to say it's done.

We need to be positive. And the other question was you spent a fair bit of money TV advertising earlier this year. What was the purpose of that, what was the cost of it and what was the end result of your advertising?

Yes. And Andrew, I might get you to speak on this in a moment as well. But one of the things I said before, there are 2 things to our -- 2 significant constraints to our growth. One is equipment and the second is people. The advertising campaign, which was quite modest in the scheme of things. But nonetheless, I thought it was exceptional and I'm glad you saw it was directed at trying to raise Aurizon's profile. Plenty of people have heard of Queensland Rail. There's a smaller number of people that have heard of Aurizon. And so we felt it was important as we try to increase the number of employees that we appeal to, to have a stronger brand presence. And also remember that we're now a national company. We've expanded to new geographies. And so a lot of the work we did was targeting some of those areas where we're less well known, we haven't been before to try and raise our profile. And as I say, the attraction of people is a key part of that. Andrew, is there anything you'd like to add? And maybe also, Andrew, you can comment on your views on the success of the campaign today.

Yes. Thanks, Tim. So look, the original decision to undertake an advertising campaign was formed on the back of qualitative and quantitative assessment that we did, surveys done across the country to answer a number of questions relating to how well people knew about us from an employee point of view, how well, what we were doing from a corporate responsibility point of view and how we can improve that and many other issues were covered in that survey. As a result of processing that information you're looking out at how ways that we could actually respond to that, it became quite obvious, particularly and Tim has picked it up. The key thing was getting employees, particularly out of Queensland to understand that Aurizon wasn't just a Queensland-based coal company, that we are a national freight operator and that a career with Aurizon would be a very good and sensible thing to undertake. And particularly with the shortage not just the train drivers, but engineers, electricians and the like, that was quite demanding, it's a very, very sensible thing to undertake. So that's what we've been doing for the best part of the year now. And to date, it's always a little early to actually call victory on these sort of things because you're dealing with lagging indicators, but the feedback we've got and some notional move in some indicators would say that the thing, the program has been well targeted. But for me, to actually stand up and say, quantitatively, I can show you these metrics have improved, that will take another 6 to 12 months, as I understand it. I say that, and I'm not an advertising executive by background. I'm just basing that on my understanding of the indicated timing.

Thanks, Andrew. Thank you, sir. There's a question in the middle.

This might be more to the financial -- I can't see you. With regard to the performance overview, Page 1 of the annual report states under other down $44 million quite recognition of a $15 million long service leave provision adjustment. What's that all about?

Yes. So there was actually some change in legislation that related to the way long service leave is calculated and awarded, which actually predates Aurizon as a public company. So it is actually a very historical issue. And based on that change of legislation, we needed to make an adjustment to the provision that we carry for our employees. So that's what it's about. David, I'm not sure whether you want to add anything from, in terms of the legal side of things.

No. That's sufficient. I think it was a change in law that necessitated a recalculation of long service leave entitlement.

Do you think [indiscernible]?

Yes. There you go. That's the high integrity thing to do. Are there any other questions on this agenda item? James, can we check online whether there are any questions online?

Yes, there are questions [indiscernible] Tim, And some questions that have come online as well. First one from shareholder, Natasha Lee. Both borrowings and interest paid has increased this year. Can you please explain how this has occurred?

Yes, sure. So as I think we've talked about quite a lot in our material and also today the presentation. So we made a very significant acquisition with the One Rail investment, and we've also followed that with some growth capital that we spent in the business in terms of investment in our containerized freight business and also our Bulk business. So between those, that acquisition and the additional growth capital, there has been an expansion of borrowings for the group. And secondly, we have seen, as everyone would be aware, rising interest rates. So those two things, higher debt levels and higher interest rates has seen an increase in our interest expense during the 2023 financial year. But I should note -- I think it's important for shareholders to note that offsetting that is we have been a very significant beneficiary of the increase in interest rates through resetting of our WACC for our network business. So the return we get in our regulated network business, it's a monopoly asset, regulated, as I said before, the return we get is very much linked to interest rates. Historically, for the last 4 or so years, the return, the weighted average cost of capital was around 6.3%. The WACC will increase to circa 8.6% for the next 4 years, so -- and that's a direct reflection of the increase in interest rates. So on the negative side, we've seen it higher interest expense, but we are going to be more than compensated by the increase in revenue in our network business. Back to you, James.

Another question also from Natasha Lee. The cost to audit and review financials has increased this year. Can you please explain what has driven this?

Yes. There's a couple of things going on. Firstly, with the One Rail acquisition, we obviously had to increase the scope in terms of -- we had new geographies and new assets, which had to be examined by the auditors, so that increased the scope. And secondly, as you can imagine, when you make a very significant acquisition, the accounting and business combination accounting can be very complicated and some of you will have seen that from deep in our financial report, the acquisition accounting was very complicated. And there was a one-off additional fee for Deloitte to basically sign off on that very complicated accounting. That was the other reason why we had a higher fee in 2023. Thanks, James.

Thanks, Tim. A question from Kevin Daly, who's from online. How feasible is it to modify the existing diesel locomotives to run on hydrogen stored as ammonia?

So our resident expert on the battery electric locomotive trial, given he gets asked to speak at every conference around decarbonization in the country is Andrew. Maybe that's why he's got a sniffle, Andrew, can I direct that question to you?

Yes. Certainly, Tim. So I'd say it's probably, it's, to be fair, we're quite a long way down the ranking of feasibility. The reality is what we're trying to do with alternatives to a really great system driving locomotives with the diesel electric or the electrified with overhead solution, which have been around forever. That you are trying to match -- the demand that you have against either the technologies and how those technologies you deem will progress. And to date, what we found is battery electric is a useful solution battery electric augmented with hydrogen fuel cell technology is probably the solution would have for the much longer haul requirements across the country and that sort of thing because you've also got a putting whether it's flat running or whether it's over mountainous country that has impact on your solution as well. And those solutions by themselves will probably yield most of the result that you need. The benefit of moving to ammonia would have to offset the quite significant downsides that you'd see from a safety point of view. And I doubt currently seeing if there was a very big gap between what we need to do and what the technology is as a battery electric and hydrogen will deliver not that all of that's been developed yet, then we might move down the pathway to something else. But at the moment, I'd say it will stay fairly long way down the list. We'll continue to look at it. The world is going to change. Technology is going to change. So we'll have to continually refresh; 1 day, it might move up the list, but the safe operation of ammonia stored locomotives across Australia in all of various different requirements through great strong population centers in that would take a lot of work before it become very feasible. Hopefully that helps.