AURIZON REVISES ASSET IMPAIRMENT FORECAST

Written on the 26 June 2014

AURIZON REVISES ASSET IMPAIRMENT FORECAST

AURIZON Holdings Ltd (ASX:AZJ) is poised to book up to $160 million in additional impairments this financial year, partly due to a blowout in redundancy costs and further provisions for a reduction in its rolling stock fleet.

The rail freight operator expects full-year impairments to total between $352 and $382 million before tax, up from $222 million announced in December.

Aurizon says the increase follows a review of its portfolio to reflect its best assessment of the short-term outlook for the coal market and the deferral or cancellation of capital projects in the resources sector.

In addition to a round of redundancies at Redbank and Townsville announced in May, Aurizon has made another 103 jobs redundant - mainly from head office.

Redundancies could account for $40 million of the additional impairment costs.

Aurizon will continue to implement changes to its Integrated Operating Plan (IOP) to reduce costs, assets and labour requirements – with the company reporting positive key metrics in locomotive utilisation and record tonnages across the state network.

Managing director and CEO Lance Hockridge (pictured) says the review considers the market outlook in the short, medium and long term.

“Our continuing focus on, and efforts to build, value and returns in our business through disciplined operations continues to show great progress,” Hockridge says.

“The speed and effectiveness of execution of the IOP gives us the confidence to further refine what we consider to be the right size for our fleet while driving consistent, high quality performance for our customers.

“While that outlook for the resources sector is still very attractive, it is clearly more subdued.”

Assets under construction impairments totalled up to $45 million, with the company’s Dudgeon Point and Wiggins Island phase two projects unlikely to go ahead.

A review of rollingstock impairments was estimated to be up to $25 million, with 20 locomotives and 195 wagons identified as excess stock.

The announcement follows recent progress in the company’s joint off-market bid with Baosteel Resources to acquire Aquila Resources, to develop rail infrastructure in West Pilbara.

Aquila co-founder Charles Bass holds 10.7 per cent interest in the company and has thrown his support behind the $3.40 per share deal.

AZJ will outline the full details of these items in its FY14 financial results on August 18.

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