Financial Pressure

Aurizon's customers under 'financial pressure', Moody's warns

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New Aurizon chairman Tim Poole has started overhauling the rail group's board. Josh Robenstone
by Jenny Wiggins
Aurizon's credit ratings are at risk of being lowered after Moody's Investors Service warned the rail group's coal and iron ore customers are facing "escalating financial pressures".
The credit ratings agency has put Aurizon's investment grade Baa1 rating on review for downgrade, warning that the company's take or pay haulage contracts and its regulated rail track business were likely to experience "higher volatility due to potential counterparty failure or a failure to renew contracts".
Aurizon's shares, which have lost a third of their value over the past two months due to concerns about its financial outlook, closed down 6¢ at $3.68.
The rail group's recent profit warning indicated "increasing uncertainty" around the stability of Aurizon's earnings, Moody's said.

Aurizon outlined up to $240 million in asset write-downs in late December and said first-half underlying earnings before interest and taxation (EBIT) would be between $390 million and $410 million – well below analysts' expectations of about $500 million of EBIT.
REVIEW FOLLOWS WARNINGS

The company reports first-half results on February 15.
The Moody's review follows warnings by Macquarie analysts last month that Aurizon's coal mining customers may try to renegotiate their take or pay haulage contracts on more favourable terms to ease the financial pain of low coal prices.

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AURIZON FPO (AZJ)

$3.68-0.06-1.60%
volume 8688854value 32139867.9

• 5 YEARS
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Last updated: Tue Feb 02 2016 - 6:17:04 PM
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Company Profile
Integrated heavy haul freight railway operator and rail transporter of coal from mine to port for export markets, with portfolio of other bulk, general and containerised freight businesses, as well as large-scale rail services activities.
http://www.aurizon.com.au
Road & Rail (203040)
ASIC NULL

	ASX Announcements
1		2/2/16	Form 484 Cancellation of Shares
2		29/1/16	Board Changes
3		27/1/16	Ceasing to be a substantial holder from NAB
4		21/1/16	December 2015 Quarterly Above Rail Volumes
5		20/1/16	Becoming a substantial holder from NAB

VIEW ALL ANNOUNCEMENTS
Aurizon uses take or pay contracts on most of the coal and iron ore it moves from mines to ports. The contracts require miners to pay the rail haulage company and other infrastructure providers such as port operators, regardless of whether they export forecast amounts of coal and iron ore.
Aurizon has already started talks with iron ore mining customers about extending their contracts in return for renegotiating the terms of their take or pay agreements.
The company is also under pressure from investors to return capital instead of spending money on expansionary projects.
BOARD CHANGES BRING IN RESTRUCTURE EXPERIENCE

New Aurizon chairman Tim Poole has started to influence changes on the rail group's board, bringing in people with experience in restructuring companies.
Former AGL chief executive Michael Fraser will join the board from February 15.
Mr Poole said Aurizon would benefit from Mr Fraser's experience around "regulated assets, corporate transformation and capital allocation in capital-intensive industries".
Mr Fraser has been credited with turning around AGL and creating a more competitive company.

Lawyer John Atkin and former Wesfarmers executive Gene Tilbrook – who have both been non-executive directors since the rail group's float in 2010 – will leave the board on February 12.