Aurizon flags $200m impairment

Aurizon Holdings (AZJ) has announced a first-half impairment of almost $200 million as it reduces its locomotive and wagon fleet and terminates the Surat Basin Rail Joint Venture.

In a statement to the Australian Securities Exchange, Aurizon said it expects an asset impairment of $130 million to $150 million pre-tax, recognised as an expense in its first-half 2014 financial statements, as it reduces the fleet.

Aurizon announced a further impairment of $47 million pre-tax due to the decision to terminate the Surat Basin Rail Joint Venture after Glencore put the Wandoan mine project on hold, as well as the consolidation of Aurizon options related to the proposed development of the Galilee Basin.

Aurizon plans to reduce its locomotive fleet by 28%, from 829 down to 598, and its wagon fleet by 12%, from 18,546 down to 16,292.

The group said the reductions will be achieved through asset disposals and will simplify the fleet, standardise maintenance practices, reduce materials and inventory and boost efficiency.

"The fleet reconfiguration will deliver a range of financial and operational benefits to the company with a fundamentally reset cost structure including reduced maintenance spend, depreciation expense and fuel costs as well as better alignment of fleet capability with customer requirements," Aurizon said.

The group said further restructuring has led to the acceptance of an additional 248 voluntary redundancies across the company since July.

Since its IPO, more than 2000 people have left the company, a reduction of more than 20%, Aurizon said.

The group said it remains confident about achieving 75% operating ratio in respect of fiscal 2015.

The demand environment of key commodities hauled remained strong, with increases in coal and iron ore for the five months ending November 2013, Aurizon said.