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Aurizon profit slumps 43 pct and looming strike threats earnings

It is reported that rail giant Aurizon’s profit has slumped 43% and looming strike action poses another threat to earnings.

Australia’s largest freight operator was adversely hit by the slowdown in mining activity, particularly the fall in the price of coal, to which it is heavily exposed in Queensland.

Net profit shrank to USD 253 million in the year to June 30th, down from USD 447 million in the previous year.

Aurizon wore USD 317 million in asset impairments, as it scaled back its fleet and cut 410 jobs.

With Aurizon giving no short term prospect of conditions improving, the share price was down 16.5 cents, or 3.3%, at USD 4.865 at 1525 AEST.

Mr Lance Hockridge, CEO of Aurizon, warned earnings could be adversely affected by looming industrial action, after it failed to reach an agreement with Queensland employees on a new enterprise agreement.

The Rail, Tram and Bus Union has asked for a 4.5% pay rise and the 2 parties are disputing proposed changes to many working conditions.

Aurizon has applied to terminate the expiring enterprise agreements, which the Fair Work Commission will rule on in November.

Mr Hockridge said reporters that “Frankly we are at the hands in the air stage of frustration.”

The outlook for this year is subdued, with coal haulage volumes tipped to be flat at 210 million tonne to 220 million tonne and iron ore volumes to decline to 23 million tonne, from 29.9 million, due to the conclusion of 2 contracts.

Mr Hockridge said that the result was solid, pointing to USD 129 million in savings through Aurizon’s restructure and expected savings of USD 250 million to USD 300 million in the current year.

Mr Peter Esho, managing partner of wealth manager 100 Doors, said that those savings merely highlighted how much Aurizon was struggling in a tough market.

He said that “It is basically an admission that you are uncompetitive and the only way to grow or maintain earnings is by stripping out costs.”

Mr Hockridge said that he was cautiously optimistic about the medium to long term outlook for Australian resources, particularly coal and iron ore.

Mr Esho agreed that the coal price had to rise and Aurizon’s future was bright, aided by expansion plans including the West Pilbara iron ore joint venture and Galilee Basin coal rail and port infrastructure in Queensland.

He said that “But it is not just about future prospects, it is also about the financial results you want on your investment and the relationship between managing capital and staff.”

Source –  tradingroom

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