THOMSON REUTERS STREETEVENTS	
EDITED TRANSCRIPT	
AZJ.AX - Interim 2013 Aurizon Holdings Limited Earnings Presentation	
	
EVENT DATE/TIME: FEBRUARY 20, 2013 / 12:00AM  GMT 	

	

CORPORATE PARTICIPANTS
 Lance Hockridge Aurizon Holdings Limited - Managing Director and CEO
 Keith Neate Aurizon Holdings Limited - Executive VP and Acting CFO

CONFERENCE CALL PARTICIPANTS
 Matthew Spence Merrill Lynch - Analyst
 Scott Ryall CLSA - Analyst
 Toby Bucks Platypus Asset Management - Analyst
 Simon Mitchell UBS - Analyst
 Anthony Moulder Credit Suisse - Analyst
 Cameron McDonald Deutsche Bank - Analyst
 Scott Kelly Morgan Stanley - Analyst
 Matt Crowe CBA - Analyst
 Scott Carroll JP Morgan - Analyst
 Russell Shaw Macquarie - Analyst
 Paul Ryan Evans and Partners - Analyst
 Nathan Lead RBS Morgans - Analyst

 PRESENTATION

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Well good morning to everybody here and to those who are joining us electronically, to this, the report of the half year for Aurizon Holdings Limited. I really do welcome you and with Keith I look forward to being able to both explain a number of the events during the course of the half and also to reflect on the future of our Company. I would like to acknowledge the presence of Keith as Acting CFO, but also Paul Scurrah, Ken Lewsey and John Knowles who are here with us today.

You have the material and appreciating that it's been such a light day otherwise, from your point of view, I'm sure you've been through in detail, but nonetheless, we will step lightly through the presentation and then be in a position to be able to take your questions. You will note that there is that next level of material in front of you today. That is part and parcel of our effort around increased detail and increased transparency and I hope you're finding that that is useful as well.

So this then has been for us another strong period, another period in which as we reflect both on the objectives of the Company and on the progress around particularly the elements of transformation in our Company, we have again demonstrated the momentum of which I've been talking, the credibility and also the underpinnings of how we are going to continue to move forward to achieve the objectives, more of which I'll talk about in a little while.

It's certainly been an eventful period for us, but as we think about the strong performance during the period, firstly of course we always talk about safety and you can see there the level of improvement both in the lost time injury performance and in the medically treated injury performance rate for our Company, such a metaphor for what we're doing to the whole of the Company. Having taken this Company from what could most charitably be subscribed as an also-ran in the safety performance, to today at least knocking on the door, if not yet being in the space of world class performance; more of that in a moment.

From an earnings point of view, the big issue of course with the numbers during the year is the cost of the redundancy scheme. We've taken the hard decisions around the reformation of the business in this respect as it relates to the headcount in the business. So the second major redundancy program in the business has taken 814 people out in the half that we're talking about, another 65 people to go in the current half at a total cost of AUD88 million.

So underlying EBIT you can see is up 36%, the statutory EBIT is flat as a result of that AUD88 million. Again though, the message is we are focused on what it takes to achieve the goals, as I said, more of which I'll talk about later on, that we've set for the Company. We've taken the hard decisions and we've executed well.

We continue to drive the performance for the owners of the business. So we see here, for example, the improvement in the interim dividend and in particular on this occasion the fact that the dividend is partially franked, franked to 70% at this point. All other things being equal, we would expect to have our full year dividend fully franked.

The returns in the business have improved and not just marginally, but by some 270 basis points in this period. Again, it's a reflection of the hard work that we're putting in to making a change in favour of the owners of the business.

We speak a lot, of course, about operating ratio and here encapsulated you can see the progress that I'm talking about. You can see the momentum that I'm talking about with our operating ratio at the end of December being at 81%. So we get ever closer to the 75% which, as you know, is our goal in 2015. Again, I'll talk more about that a little later.

Through this period we have had substantial contract wins, both with respect to renegotiation and new contracts, but more of that in a moment.

The financial highlights, I think I've touched on and I'll leave it to Keith to go into more detail around the breakup of the results and with respect to the reconciliation between underlying and statutory, as I mentioned a moment ago, this is a clean result. The only difference between underlying and statutory is the AUD88 million which is an investment in the future of the business, an investment the return for which we expect in a full year to be some AUD80 million of earnings.

Altogether we, as I say, continue to drive the momentum with respect to the improvement in the business. We continue to deliver on the breadth of the promises that we've made with respect to the business, even in circumstances where we all know only too well the tonnages have been relatively flat.

With respect to our operating highlights, again we present to you the range of KPIs in the business, each of which demonstrates the level of attention, the level of focus and the level of execution capability in terms of carrying forward that ongoing reformation of this business. Again, ultimately it all ties together in the way that I've set as the objective for this Company from the start with respect to the operating ratio in the Company.

I do note though, on this slide, that we are now below 8000 employees in terms of total numbers of employees in the business. So from where we were at IPO, we have certainly, through those two major redundancy exercises, taken those tough decisions, we have been able to execute without any substantial issues and we are now in a position where we're within sight of the kind of productivity goals that we know that this Company is capable of achieving.

Safety always is first and I've made the observation about the degree of progress in this half year. I can tell you that as we've gone into the second half of the financial year, notwithstanding the challenges that we've had from an operating point of view over the last six weeks or so, that momentum, to continue that theme, is continuing in terms of the further improvement of our safety performance.

Perhaps a little more time on the contract wins slide. We would firstly of course acknowledge that what we're seeing in terms of our flat throughput at the moment is in part as a result of the short term loss or in the short term, the loss of some of those key contracts, particularly the Anglo contracts in Brisbane. I remind you though that those were decisions that were made a couple of years ago. I remind you that the whole of the intensity of the effort of your Company in the period since then has been to, as part of that transformation, changed to a commercially oriented customer focused business. If we look at the scorecard, therefore, through calendar '12 and particularly as it's represented by this scorecard with respect to the first half of the current financial year, you see the outworking, you see the results, the tangible results of the change in the structure, the change in the focus of this business, our ability to be able to compete.

Here, through not only the success that we've had in recontracting existing contracts, but as you can see, not far short of 25 million tonnes of additional tonnage has been contracted; additional tonnage has been contracted in this period which will flow through in the coming periods. I emphasise that every one of those tonnes has been won on fully commercial terms. I have spoken about the goals that we have for the Company overall, the goals that we have with respect to the commercial impact of these tonnage renegotiations and new tonnage contracts and I can say to you that not only are we achieving the contracts, we are achieving them living up to those objectives.

On the back of that then, as we think about the future and as we think about the things that we have underway with respect to growth in our business, you can see the words here, but simply to say with respect to Wiggins Island, we are on time and budget. With respect to Hay Point, we are on time and on budget. With respect to Hexham in the Hunter Valley, AUD100 million order of magnitude facility that underpins our growth in that part of the world, we are on time and we are on budget.

We know and acknowledge that there are significant issues that we are addressing and will continue to address in the Network space, in particular of course in the regulatory space. Whether it is the coming renegotiation of our access undertaking, whether it is around the electrification or whether it is around SUFA, we are, as you would imagine, very focused on that, we have the right resources, we have been putting a lot of preparation into those things. I can say to you that we are working increasingly constructively not only with our customers, but with the regulator in Queensland. This of course will be the subject of ongoing updates as we work our way through these issues. But as I'll observe more a little later on, we would propose to offer to you the chance to, for example, meet with Mike Carter and get a level of granularity around the issues and what our response is with respect to those issues.

Finally, before handing over to Keith, an update of course on the events of the last few weeks since the beginning of this half, both with respect to flood and with respect to derailment, we have sought here to be quite transparent with you about those impacts. In the north of our Central Queensland system, in other words, Newlands and Goonyella, there is essentially been no impact and I can tell you that what impact there was, was readily made up and we are railing flat out through the Goonyella system at the moment.

Unfortunately of course in Blackwater we saw that 12 day outage followed by the outage associated with the derailment and in Moura it was only last night that we were able to reopen that part of the system. So in raw terms, the impact is, as you see on this page, a loss of some 4 million tonnes of throughput, a cost in terms of network rectification of between AUD10 million and AUD15 million which is, as you would appreciate, we will recover through the access arrangements and the total EBIT impact probably of the order of AUD22 million, subject to what I'm about to say with respect to recovery. The derailment further added to that and the net impact of the derailment we believe will be around AUD5 million.

On the back of all of that, we have recast, as it were, our view about the remainder of the year, but perhaps I'll come back to that if I might once I've given Keith the opportunity to talk in a little more detail with respect to the financial results for the first half.

Thanks Keith and welcome.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Thanks Lance and good morning everyone. The first half result, as Lance has already touched on, is a strong performance in the underlying EBIT, up 36% against the prior period on a 3% increase in volume and a 9% increase in revenue. The core drivers are the Network business with the GAPE commissioned in December 2011 and the revenue count recoveries that we've seen in the current period, the Iron Ore business in the Freight segment where volumes are up 90% with good margins behind them. We'll talk a little bit more about the EBIT bridge between the two periods in a moment.

So just focusing on the low line items at the moment, interest obviously a billion dollar buy back during the period has driven the interest cost up by AUD27 million. Tax we've seen a marginal decrease in our effective tax rate to 22.5% which is delivering a good outcome and we paid our first tax bill in December, an effective cash rate of 18% which is enabling us to frank our interim dividend to the tune of 70%.

In terms of movement period-on-period, coal revenue continues to contribute on an incremental basis with the improving revenue quality. We've now got around 40% of our rail volume is undertaken under the new form contracts and there's further details of the differences between the legacy contracts and new form contracts included in the appendices.

Network access, as I mentioned, is a big driver of the result this period with GAPE being commissioned and the other non-GAPE tariffs coming through to the tune of about AUD95 million, offset by an increase obviously in traction costs. The Freight business, 89% increase in volumes, 140 odd% increase in the revenue line has driven the improvement in the Freight business and we'll talk later about the change in mix within that business which is obviously impacting the revenue quality as well.

The other key points to touch on in the EBIT graph are labour where we've seen a AUD40-odd million increase in our labour bill, offset by the savings from the VR program and in the first half we recovered AUD18 million from the VR program based on timing and we've also seen natural attrition in the period of around about 190 people which has also contributed to a reduction in our overall headcount bill. Depreciation, a significant increase there, reflecting a ramp up of the Iron Ore business and the rolling stock we've acquired for that and obviously the GAPE being commissioned is now in the asset base.

In terms of the other expenses, the key driver here is not a change in the current period, but the prior period had significant proceeds on disposal of surplus rolling stock which we don't have in the current period.

The reform program obviously is the key plank in our drive towards a 75% operating ratio by FY15. We understand this is a key area that everyone is interested in having a little bit more detail on, so between now and the full year results in August, we will be giving further briefing sessions on the initiatives that actually sit behind this program of work. Suffice to say, in the first half of the year, the focus has been on three key areas. One was bedding down the functional structure that was introduced at the beginning of last year and there's been some minor tweaks to that as we've gone through. The second is obviously the VR program which took up the majority of our time during the last six months. The third phase of work is planning for phase 2 of the initiatives and it is those initiatives that we will provide further colour on between now and the full year results.

Savings in the six month period were around AUD28 million, AUD18 million from the VR program and as Lance has mentioned, the full year run rate is around AUD80 million, so we're expecting to see some AUD40 million fall through in that upside in the second half of the year and the AUD10 million from the coal revenue quality. It's worth noting that we're railing 41% of our volumes under the new form contracts. That 41% of volume is actually contributing almost three-quarters of our EBIT which gives you some idea of the value as we transition from the legacy to the new form contracts going forward.

This slide has highlighted a series of other initiatives we've got running. I won't go through them in detail; their fairly self-explanatory, except for the last two. There's following slides on those, again, pretty straight forward, but illustrative of the initiatives that are being undertaken by improving the consist design in both Newlands and the Hunter Valley, we've increased at a point in time the capacity by 26% in Newlands and 10% in the Hunter Valley. This is a program of work that was introduced originally in Goonyella and Blackwater where we've seen a sustainable increase in the average payloads for both of those corridors in Goonyella. We're now railing on average 10,000 tonnes and in Blackwater it sits close to 8000 tonnes and it's important to note here that in achieving the payload increase we've not invested in any incremental rolling stock, it has all come from the existing fleet.

The slide here outlines, and I won't go through the detail, I'll leave you to read that, but it's a pilot program we've introduced in Goonyella. The optimisation and standardisation of our planning and execution capability is a key area for us to drive long term sustainable improvement in the business. The type of business we are high investment in assets, high fixed cost base of operation, we have to drive fleet utilisation, we have to drive increasing velocity around the corridors, i.e. reducing the cycle times, and we have to increase payload. All of the issues you see noted on the slide here will contribute towards that, driving capital efficiency as the business moves forward.

The balance sheet, to be honest the balance sheet has not changed much in the last six months with the exception of the buyback increasing our borrowings by AUD1 billion. We still have flexibility to fund future growth and we've maintained our investment credit rating. Leveraged net debt to EBITDA is at 2.2 times and interest cover is just under 12 times. So target gearing for the organisation will remain under the metrics driving the investment grade rating which is in the order of about 35%.

Capital management. Capital management remains a priority for the business. We obviously had a capital structure that we inherited as part of the IPO, it wasn't an optimal structure for an organisation such as ours and we're in the process of revising that as we move forward. I'll talk about funding arrangements in a moment. Suffice to say there will be changes during the current year. The only other point to note on this slide is that going forward we will expect to be fully franking all of our dividends in the future.

Capital expenditure. Our forecast for the remainder FY13 is the CapEx bill will be just a shade over AUD1 billion, down from the AUD1.1 billion previously advised and that's as we see improvement in capital efficiency and also GAPE is now completed, in 2011. Expenditure in the period predominantly on WIRP and track renewals in the network business and in acquisition of rolling stock as we ramp up the Iron Ore business in WA. Going forward we would expect to see, as we stabilise the business, sustaining CapEx at around the AUD350 million a year mark.

In terms of the funding structure, as I mentioned earlier this is currently under review. We renegotiated our initial funding structure during the first half of the year as you're aware and deferred repayment of the first tranche of the debt from--to rather-- the first half FY15 and the long term structure is currently under review. As part of that renegotiation we saw the interests costs reduced on borne debt from 6.5% to 6.3%. We are targeting the refinancing to occur during the current year which will incorporate a diversity of sources for the funds and a mix of maturity and tenure as you would expect. We will also be looking at the debt capital market in terms of the diversity.

Cash flow. Again with the exception of the buyback cash flow is pretty similar. In terms of net operating cash flow and reconciliation to EBITDA the only movement really is the voluntary redundancy program. A P&L cost of AUD88 million, by the time you add on the accrued long service and annual service awards the cash cost to the business is AUD116 million which brings you down to the cash from operations number of about AUD390 million. In the period obviously we've also paid our first tax bill, as I noted earlier and an increase in interest.

Turning now to the segment results. Coal is flat on the period. As you know demand for coal has been softer during the first quarter of this year, picked up slightly in the second quarter but has still been volatile, as we've seen in prior periods. Network, a strong underlying performance in the Network business with a significant increase in its operating ratio and the upside in the Freight business coming from the iron ore and offsetting to an extent the loss of the CBH contract, although we have also seen some strong railings in WA and other bulk contracts.

The unallocated costs are corporate costs and again a reduction on the comparative prior period but an increase over the last six months in FY12, again reflecting the fact the asset disposals were previously included in that period.

Turning to the Coal business, a solid performance at an EBIT level. A marginal increase in revenue as we've seen the new contracts come on board. Worth remembering in the coal business though that many of the initiatives that we're rolling out through the rest of the business started in the coal business some time ago and so the benefits we've seen in the coal business have been the reduction in the operation ratio from its previously significantly higher levels. In the last six months, as I've already mentioned, the focus has been very much on the development and implementation of the VR program, which by its very nature, as you will be aware, has significantly impacted the coal business and that's where the focus was for the coal management team during this period.

It's also worth noting that as we roll into the second half of the financial year the majority of the AUD40 million benefit that we will be seeing in the second half is going to accrue to the coal business, so you will see the ratios move accordingly in that period.

Turning to the metrics, as Lance has already mentioned in Queensland we saw the loss of six million tonnes on the Anglo contract which has been almost replaced from other customers. We've seen a marginal decrease of 3% in Queensland volumes, offset by a strong growth in the New South Wales market, driven by demand and obviously improved productivity from the mine is at 15%. It's worth noting that in the December quarter we saw an improvement in growth. The September quarter volumes were down 7%, in the December quarter they were up 1%. We saw that strength continuing into January, obviously prior to the floods and the derailment.

On the network business, it's worth noting -- and there's a slide in the appendices to give you the detail behind this -- that we've re-stated the segment during this period. We have removed the [racks] external services from this business. It's not core to our business and it's now included in the corporate costs and obviously as you're aware we changed accounting policy in terms of ballast capitalisation last year so the numbers have been re-stated for that as well. The racks adjustment amounted to AUD4 million in the first half so it's not a material adjustment.

Strong performance in this business as we've seen the GAPE revenues increase by AUD50 million and the revenue cap and tariff increases drive a further AUD50 million, resulting in a strong improvement in the operating ratio of 6 percentage points down to 58. It's worth noting again in terms of the GAPE performance, as the GAPE ramps up to full volume by FY15 we will expect to see somewhere in the order as previously advised of AUD170 to AUD190 million of EBITDA and that revenue is obviously all [take or pay].

Turning to the network metrics. The only point to note here really is the adjustment on the maintenance costs, where we've seen the charge for NTK increase by 8% from 2.4 to 2.6 and this is a temporary adjustment. It reflects resurfacing works that the network business was unable to perform due to the wet weather and disruption to the system in previous periods. It's been caught up during the second half '12 and the first half of '13 and going forward from here we would expect it to normalise now back to normal levels.

On the freight business we've already talked about the strong performance of the iron ore business, significant increase in volumes and the improvement in the operating ratio driven by that change in mix. Iron ore was a break even result in the prior corresponding period, in the current period it's driving an operating ratio of 72%, so a very sound performance there and it's offsetting the fall back that we've seen in the other businesses, particularly the [internode] on bulk businesses where we've seen the operating ratio drift back to 99%, driven by lower volumes and an uncertain Christmas period for the retail sector.

On the freight metrics, again the key metric to note here, the others are all fairly self-explanatory, is the revenue for NTK and this again reflects the changing haul mix of the business. In the iron ore sector we're achieving roughly AUD35 per 1000 NTKs, in the bulk business it's significantly higher at AUD80 per 1000 NTKs and we see in that mix iron ore growing from 26% of hauls to 41% and the bulk business reducing from 74% to 59%. We've seen a consequent impact on revenue for NTK but with the iron ore business driving stronger EBIT margins we've seen that fall through to the bottom line.

With that I'll hand back to Lance.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Thanks, Keith. So again if we change gears a little bit and on the back of the half and the commentary that we've just been talking about and rather think forward, and where do we believe that we are? You will recall of course that the strategy that I've outlined is the achievement of an operating ratio of 75% in 2015 on the way to achieving world class levels and securing the further growth in the business. So given that at the end of the period that we're talking about our operating ratio was 81, having come down 4 points over the prior 12 months it gives us 2.5 years self-evidently to achieve that kind of outcome. So on that basis and given the things that I'm about to talk about I remain very confident about achieving or better the operating ratio and growth goals that we have set out.

That's on the back of this continuing focus and rigor about the roadmap toward achieving those goals. I have spoken with you consistently, since in fact before the IPO, around these five areas representing the focus areas for change, the focus areas for improvement in the business. We've spoken about safety, I'll talk a little more about customers and revenue quality in a moment. The transformation, as Keith has outlined, has been multifaceted. The improvement around the VR being a major example of that but things like payload, the degree of granularity here, is something that we know that you want to understand as we do look towards 75% and better and I can say to you that our expectation is that at around the full year, Mike Franczak, having had his feet on the ground for a sufficient period of time will be happy to discuss with you at that additional level of detail, just what that plan is, that roadmap, that degree of granularity, around the ongoing momentum that we see that underpins this continuing improvement in the performance and operating ratio in the Company.

We've spoken about lots of elements with respect to the capital efficiency of the Company but the mere fact that we have not had to buy rolling stock on the back of the contracts that we've signed is a good example of what we're talking about and growth set out here but we'll also talk a little more about that in a moment. One of the key areas has of course been the translation from the legacy contracts to the new style contracts. Keith has touched on this in the sense that by the end of this fiscal year we expect to be at 41% and Keith mentioned the earnings power of the shift to the new style contracts. So again set out here are the continuing legacy contracts that Paul and his team are and will continue to renegotiate over the next couple of years. We remain confident and optimistic about continuing to achieve the commercial goals that we've set for ourselves in those contract renegotiations as well as the new contracts that will come along.

Volume growth, I think we're pretty well aware of, underpinned by the changes in our network in Queensland, that additional 76 million tonnes and I think I spoke sufficiently to that in the earlier part of my remarks. Iron ore though continues to be an example of this kind of execution capability, starting with the customer focus, being able to fully execute effectively around the expenditure in this case of AUD350 million and now seeing those tonnes flow through in exactly the way that we have been saying to you and the financial benefit flow to the bottom line in exactly the way that we have been saying to you and I emphasise that all of that, which is on this chart, relates to the Midwest and the Yilgarn. Any of our aspirations with respect to the Pilbara, about which more in just a moment, is separate from these results.

So thinking about those further out opportunities we do continue to work on a range of opportunities and a range of initiatives. In Queensland, for example, in the northern Bowen Basin we continue to work there, we continue to work around the prospects in the Galilee Basin, albeit that as we observed at the full year and the AGM, clearly delay is the order of the day around a number of these projects. We do, however, remain confident that some number of these projects are going to go ahead and that is consistent with what we've been saying all along, that we were never in the space of believing some of the more hyped up numbers as we continue to work and work closely with our customers around the opportunities in this space, including Surat Basin, Galilee as I say.

In Western Australia our big opportunity as you know has been to have a look at the prospectivity of a multi-user open access rail line in the Pilbara. As you know with our partners, Atlas and Brockman, we completed that first phase study at around the end of last calendar year. I can tell you that that has given the collective us sufficient confidence to continue with that study and with that work and so in that three-way partnership which is being equally funded by us all we are continuing to move forward with our investigations and our project development work in that part of the world and of course as time goes by we will continue to update you with respect to that progress.

Picking back up on then my closing remarks in the first part of this statement and thinking about the outlook for the current financial year, when put together the impact that I was talking about, the operational and financial impact of all of that, we have re-cast our guidance, if you will, to 192 million to 195 million tonnes of coal for the full year. To put that a little in context, however, that is assuming the full loss of those tonnes unmitigated by any ability to be able to recoup any of those tonnes. Unlike what we saw in 2011 this has been a localised impact and this has been an impact which has not dramatically impacted at least our customers in terms of their ability to produce.

So as you would appreciate from what other companies are saying, albeit with some impact, but overall, continue to produce and there are stockpiles on the ground, significant stock piles on the ground, as we speak. The challenge for our Group therefore is to work with the customers, in order to be able to recover as much, if not all, of that lost tonnage as we can during the remainder of the year. Again, to put a little further context around that, as we have indicated to you, in the three months leading up to the arrival of the wet, the floods, we were railing at an average weekly rate of 3.94, which roughly translated, of course, is an annual rate of 208 million tonnes.

So in other words, I paint the picture that yes, we have had an impact and we have taken a conservative view with respect to that impact. Paul, Mike, the entirety of our team, are single minded in the way that I'm more generally describing about working with our customers and driving every effort to recovery those tonnes throughout the remainder of this year.

In summary, this is, I believe, a half which further validates and underpins the message of reformation in this business across all of the dimensions that we've spoken about. We have taken the hard decisions. We have executed effectively on all of those decisions. We are delivering on all of our promises, especially, as you see, the impact of that is it adds up to the operating ratio. As we look forward, the changes in our business from a commercial point of view, particularly from a customer focus point of view, have seen a level of success with respect to the recontracting and ability to be able to write new contracts, which is further providing the foundation for growth in this Company, over the coming months and years.

We are effectively planning for that and effectively executing around that with respect to the existing growth projects and those things that we're working on, that are beyond the implementation horizon.

Thank you for the opportunity again, to be able to give you that brief and Keith and I would be happy to take your questions. Perhaps we can start with any questions here in the room in Sydney.

 QUESTION AND ANSWER

 Matthew Spence  - Merrill Lynch - Analyst 

 Hi Lance, Keith. Matt Spence from Merrill's. Can you just run us through what drove the restatement of revenues that you've presented today?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Of tonnages, you mean Matt?

 Matthew Spence  - Merrill Lynch - Analyst 

 No, the revenues -- I'm on slide 47. Effectively stated restated revenues down which consequently means margins are up.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Oh, that's just a realignment of the segments within the business. We've removed a lot of the inter-segment trading, because it was not effective following the functional restructure. So there is little or no impact on the Group.

 Matthew Spence  - Merrill Lynch - Analyst 

 Okay. I'll put it to you, there is a big impact on the EBIT margin. The EBIT margin would have been low 18% and yet, you're giving us -- presenting us something today that would have -- is 19%. I mean, so you are fiddling around with the segmental revenues. That EBIT margin optically looks higher. So optically, you're closer to this 25% hurdle rate that you've set yourself in FY15.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The restatement was not aimed at fiddling around with the numbers. The restatement was aimed at restructuring the business following the functional restructure last year. We've laid out the detail of it here, so it's totally transparent. We're not trying to fiddle--

 Matthew Spence  - Merrill Lynch - Analyst 

 It's totally transparent but it totally increases the EBIT margin, which totally brings you closer to the 25% and for no cash earnings benefit to shareholders at all.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 I neither understand nor accept the point that you're making. We've been completely transparent and the bottom line is the bottom line.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The EBIT is the EBIT?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Mm.

 Matthew Spence  - Merrill Lynch - Analyst 

 Yes. The EBIT is the EBIT. But just to give you one example. So on fuel, fuel used to run through as revenue and then run through as a cost and was completely passed through. But it inflated the revenue line and so the EBIT margin was lower. Now you've taken that out, the EBIT margin is higher and again, there is no cash earnings benefit to shareholders. So it's bringing you closer to that 25%, but there is no cash benefit to shareholders.

I'll take it offline with you.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Let us just say categorically we don't accept the point that you are making, that the whole of the initiative here is to increase clarity and transparency, not do to otherwise.

 Matthew Spence  - Merrill Lynch - Analyst 

 Okay, thanks. Just one last one then. Are you looking at sticking more debt into the network side of the business? You talked about the capital management initiatives. How would that be structured, if you did do it?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Clearly, we're not going to get into hypotheticals. We have though said and reinforced at the AGM, that this broad area of capital management and Keith this morning reinforced that we continue to look at opportunities to make that balance sheet more effective. That broad sweep of initiatives is something that we have under active consideration, but for the obvious reason are not in a position to say more than that at the moment.

Perhaps if we go to Scott, maybe.

 Scott Ryall  - CLSA - Analyst 

 Sorry, Matt usually goes on for much longer than that. Sorry, Scott Ryall form CLSA. What -- just to follow on from Matt's question, given the 25% EBIT margin makes up a portion of your long term incentive plan for management remuneration, will there be an adjustment in the long term incentive plan for a change in the accounting treatment here?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 There is no change in accounting treatment here, Scott.

 Scott Ryall  - CLSA - Analyst 

 Okay, for the restatement, sorry.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 No.

 Scott Ryall  - CLSA - Analyst 

 No, okay. In terms of -- so Keith, you were talking about capital structure, capital management and looking at the strategy there. Is this literally just normal diversification of funding sources and things like that? I want just to tie it in and Lance will probably take this part of it. What is the -- there has been a lot of write up in the press on the potential for sale of a minority interest in your network business. Could you talk to how that might impact your thinking around capital management and your optimal capital structure, as well?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The review of capital and the capital management strategy we have in place, the first step in that is clearly to restructure our funding onto a basis that is more consistent with an organisation like ours. The structure we inherited came from the RPO and it was vanilla bank debt. We are looking at other diversity sources as we go forward, changing the maturity profile and obviously, changing the tenure as well, to be more consistent with what you'd expect.

 Scott Ryall  - CLSA - Analyst 

 Okay and maybe there is a lead in to Lance's answering the question, that one of the things that's, I guess, unique about your business is you have a large regulated business and a large unregulated business. S&P in looking at their credit rating, clearly don't take that into account, because your structure of your debt is corporate debt. So, is there a way, I guess, to, in your words, look at a more appropriate capital structure for your business mix as well as part of that?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 In short, yes. But I'm not going to be drawn into exactly what that might look like, because that's part of the very process that Keith is referring to. But not to be disingenuous about the response Scott, we agree with what you are saying and not (indistinct), as we've said many times, to -- for example, the assumption of gearing that the regulator himself has with respect to the network.

So these are the kind of building block considerations that go to the study that Keith is talking about.

 Scott Ryall  - CLSA - Analyst 

 That's what I wanted to confirm. It's all part of the same?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Yes.

 Scott Ryall  - CLSA - Analyst 

 Okay and then just -- perhaps I missed what was saying Keith. But when you were talking about the coal division you mentioned most of the restructuring benefits were going to flow into the coal division, going forward. Is that correct, from the redundancies just done?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The majority of the redundancies came from the coal segment. So yes, naturally the benefit will follow the cost.

 Scott Ryall  - CLSA - Analyst 

 So, what are the nature of those redundancies? Given, I can't imagine you getting rid of train drivers and front office, what I would call front office, in the coal division. So, can you just give us a little bit more clarity around where the redundancies are in terms of functional roles?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 It actually has been across the Board, albeit to the very point that lies behind your question, Scott, disproportionately falling in the -- as it were, in the support areas. But there has -- to the observation that you make, there has been train driver redundancies. Why? Because it's a function of the very productivity that we're talking about, that as we've been able to lift the footplate hours, lift the productivity, make all of those kinds of changes.

That flows right across the business. That said, it's consistent, I think, with the observations that we've made in the past. But a good deal of the focus has been around the support areas, the overhead type areas in the business, as well as, of course, in the corporate office.

 Scott Ryall  - CLSA - Analyst 

 Then my last question, on the network side, it was obviously quite a strong increase in revenue and flowed down to EBIT. Can you give us quantification on what was the catch up from the flood impacts in fiscal '11 and I apologise, it's bound to be in the details somewhere. But I haven't got there that. So just in case it's not.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 It was in the order of about AUD25 million.

 Scott Ryall  - CLSA - Analyst 

 Revenue?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Yes.

 Scott Ryall  - CLSA - Analyst 

 Obviously, EBIT as well. Okay. Thanks.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Okay. Why don't we go to the -- one more in the room and then we'll go to the telephones.

 Toby Bucks  - Platypus Asset Management - Analyst 

 Hi. Just a quick question -- sorry, Toby Bucks, Platypus. Can you just explain to me in plain English the total sales revenue of AUD149 million in network services, what exactly that -- where that's gone and we've had a few questions on it. But just very quickly, just so you guys can tell everyone exactly where it's gone, because it doesn't seem to flow through.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The reduction?

 Toby Bucks  - Platypus Asset Management - Analyst 

 Yes.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The reduction has occurred because network is not providing the same level of external services as it was in the prior period. We were contracted to facilitate the building of the Nebo facility for PM. That's completed, so the revenue has fallen away.

 Toby Bucks  - Platypus Asset Management - Analyst 

 So it's just a change in the level of activity?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 This goes to the earlier question. In other words, it's not that the numbers are being shuffled someplace. The level of activity is reduced.

To the phones then. I think Simon Mitchell.

 Simon Mitchell  - UBS - Analyst 

 Good morning. I think I've got a couple of questions left after Scott's attempt. Just the first one the revenue catch ups. I think Scott asked about the revenue cap adjustments. What about the deficit tonnage charges? I think you were due to receive about AUD30 million in the first half. Has that come through?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Yes it has, Simon.

 Simon Mitchell  - UBS - Analyst 

 Okay and also, did you mention racks, the external services part of that has been moved to non-core. Is that perhaps suggesting the potential for asset disposals in that area?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 That part of the racks business, Simon, providing services to external customers, is not core business to us and it's that component that's been put into unallocated.

 Simon Mitchell  - UBS - Analyst 

 Okay and what is the asset value attaching to that part of the business?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 There wasn't a huge amount attaching to it, Simon. It was more services provided. So labour cost was the prime driver there. The EBIT impact on the first half '12 was AUD4 million. That was it. It gives you some idea of the scale of the operation.

 Simon Mitchell  - UBS - Analyst 

 Sure and just lastly, you've reiterated the targets on GAPE earnings in 2015. Could you tell us roughly what the earnings were in the first half or annualised for this year?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 In the first half, Simon, it was AUD50 million. That's disclosed in the notes.

 Simon Mitchell  - UBS - Analyst 

 Okay. Thank you.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Thanks Simon. Anthony, Anthony Moulder.

 Anthony Moulder  - Credit Suisse - Analyst 

 Good morning all, just a couple of questions, starting with coal, if I can. If I look at plate revenue pre-NTK, that in the half was up 1.8% on first half '12. But that's obviously a slowing growth profile. Can you talk to what's driving or failing to drive that to the levels that were seen delivered over the last year and a half?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Sorry. Did you say the coal business, Anthony?

 Anthony Moulder  - Credit Suisse - Analyst 

 Correct, yes or plate revenue for NTK. So excluding [track out].

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Obviously, the switch or the change in mix between Queensland and New South Wales is a key driver in terms of the freight rates that we're achieving and they're different markets, different commercial terms.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 And different length of haul.

 Anthony Moulder  - Credit Suisse - Analyst 

 You are also getting -- did you also get a higher level of total pay revenue in the first half '12 than you considerably got in first half '13?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Can you say that again Anthony?

 Anthony Moulder  - Credit Suisse - Analyst 

 I guess first half '12 you have considerably got more total pay revenue out the Hunter than you got in first half '13. I'm just wondering as to whether or not that was a contributing factor for that lower growth rate as well.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 No I don't think the numbers were material. I'm not seeing that as driving it. The driver is predominantly and if you look at the -- as Lance mentioned, the whole length as well as the change in mix, the 15% switch into the increase in the New South Wales business over the prior period is the key driver there.

 Anthony Moulder  - Credit Suisse - Analyst 

 Looking at the freight business. Obviously, earnings declined outside of iron ore. Can you talk to your commitment to intermodal and also comment as to whether or not that is still earning break even result, above a break even result?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Perhaps I'll take that one Anthony. Firstly, an observation around the result that we're talking about. We, like the rest of the industry, saw a very soft Christmas period and our volumes were below expectation in the lead up to Christmas. I can observe that the throughput has actually picked up a little bit, just in recent days and weeks.

I think your question though, goes to the broader policy issues. My observation going back in time was that the objective with respect to that business was to eliminate what was the AUD34 million/AUD40 million a year losses in that business by the sort of timeframe that we're talking about here.

But the second half of that phrase was on the way to achieving the same outcomes, financial outcomes, as the rest of the business. We have achieved the first and particularly with some of the reconfiguration of the business that we've lead. We've been pretty successful from a cost and efficiency side. We have certainly seen the contracted volumes in the business improve. The job is still there to be done though, Anthony, in terms of being able to drive that to critical mass and to be able to demonstrate that we can and do achieve the same kinds of returns, which are the hurdle rate for the remainder of the business.

 Anthony Moulder  - Credit Suisse - Analyst 

 Of course. Lastly, if I could. The voluntary redundancy program, obviously you've got EDAs that will end in December. Is there a consideration for this 75% operating ratio that you can do? You have the scope to do redundancies that are more targeted than what you've been able to achieve under the two VRs?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 It's an interesting question, Anthony. I guess the observation that I'd make is that beyond the two VRs, we've taken -- this is an off the top of the head number. But I think it's between 200 and 300 people out of the business. As I say, outside of those major VR programs. So in that sense, the answer to your question is yes.

More generally, as we look toward the renegotiation of those contracts at the back end of this year, whilst I've said on a number of occasions that we don't accept that the contracts stop us from being able to achieve the kind of goals that we've been discussing with you this morning, nonetheless, this is an important opportunity for us, to be able to underpin a number of elements of flexibility in the way that we run the Company and the way that we're able to deploy labour. Those kinds of things. So, we certainly have that as a goal.

What the ultimate impact or connection is, with respect to headcount, it's too early to tell and obviously, as much as anything, it will depend upon the level of external activity at the time.

 Anthony Moulder  - Credit Suisse - Analyst 

 Thank you very much.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Okay. Cameron, Cameron McDonald from Deutsche.

 Cameron McDonald  - Deutsche Bank - Analyst 

 Good afternoon guys. Just a couple of questions, if I can. Firstly, given the public comments around the mining sector with cost pressures and the like, and weakness in demand. What sort of changes are you seeing in the negotiations with some of the contracts in particular? Obviously, the speculated BHP, BMA contracts are coming up. Any sort of movement in the style of the contracts more recently, or upcoming around cost service or shared risk?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 All of the above, I guess, is the answer, Cameron, and it adds up to the point that we've been making, I think, pretty consistently, that it's ultimately about value. It's about value in the eyes of the miner. Now, the components of value have shifted and the emphasis today is less, of course, about absolute throughput and more about the kind of things that you're talking about. So that has reflected in the nature of the conversations, the nature of the negotiations that we've been having with our customers.

Let me observe that I believe that whilst, of course, we have to be alive to the pressures that our customers are under, at the end of the day, ultimately, we're part of the same value chain and we're part of the same value efficiency chain; that it puts a premium not just on the things that we can do from the point of view as we talk with you about the renegotiation of our contracts from a price point of view, but from the point of view of the efficacy of the contracts -- and we've emphasised again this morning the value of the change from the legacy contracts to the new style contracts. That doesn't come at the expense, as it were, of the customers. In return for those sorts of elements it is around predictability, certainty, consistency of performance, KPIs, those kinds of things.

The other element that I would observe is that we've paid a great deal of attention, beyond those things even, to innovation in the way that we have been dealing with our customers. What is it that we can do or, more particularly, we can do holding hands, so to speak, with our clients that increases the overall system efficiency, rather than the more traditional transaction -- win, lose type of discussions? My view is that those processes that Paul and his team have been leading have significantly underpinned -- to the extent that we have the degree to which we've been able to recontract and win these new contracts.

 Cameron McDonald  - Deutsche Bank - Analyst 

 Okay. Just two very other simple questions. Just on page 17 you talked about the sustainable reform benefits, and you've said other initiatives implemented during the period. What's the quantum of those things that have been implemented during the period that have effectively -- haven't been reflected in the half year numbers?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 There was AUD28 million in the half. That was the impact in the half, but many of the things that are set out in those charts are ongoing. So, for example, the payload reform continues. We're running trials of longer trains, for example. The kind of system efficiency that the chart around Goonyella speaks to is very much ongoing. We didn't close out those things, so to speak, at the end of the half, so those things are ongoing. More broadly, to come at your question slightly differently, each of the functions has (technical difficulty) in talking to this morning that, as you would expect, go to a level of detail around what are the elements of change, the elements of reform that (technical difficulty) improvement in the business.

 Cameron McDonald  - Deutsche Bank - Analyst 

 Okay. Just finally, just touching on the (technical difficulty) in -- you talked about (technical difficulty) in the mid-west region -- (technical difficulty) the joint venture with the -- in the Pilbara, looking at that opportunity (technical difficulty) that Fortescue has had bids on their rail asset. Have you had a look at that, and what's your view around that asset?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Well, our view around the asset is that it's a great asset. Our business though, as I observed on the way through, is multi-user open access. That's the context in which we are and will continue to think about any interest that we do or, in fact, don't have in that part of the world.

 Cameron McDonald  - Deutsche Bank - Analyst 

 Okay, thanks.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Then to Scott Kelly.

 Scott Kelly  - Morgan Stanley - Analyst 

 Oh, good afternoon. Keith, you did a really good job as Acting CFO today, but I was just wondering if you and Lance could give an update on where that process is at.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 I'm all ears.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Suddenly, people are paying attention, where--

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 I'll pay you later for that one.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 We're well advanced. If the subtext of your question is whether it's going to take as long as the operations role to fill, let me be candid and say no, completely not. We are relatively advanced, and we're talking weeks, I think, before we're in a position to be able to make an announcement.

 Scott Kelly  - Morgan Stanley - Analyst 

 Okay. I'm wondering if you can strip out the non-regulated earnings from the network division for me, Keith.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Sorry, can you say that again?

 Scott Kelly  - Morgan Stanley - Analyst 

 Just wondering if you're able to strip out the non-regulated apart from the regulated part of the network EBIT.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 I don't have the numbers to hand, no, but I can come back to you on that one.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Maybe we can get John and Chris to come back. There's some definitional issues there as well about the different parts of network and the degree to which we achieve above reg returns in GAPE and Wiggins et cetera so, as I say, perhaps if you don't mind, we can take that offline.

 Scott Kelly  - Morgan Stanley - Analyst 

 Appreciate that. Last question -- the revenue per NTA in the coal business didn't improve as much as I would have expected, given you've moved from 36% to 41%. I know it's small in terms of those under -- contracts under new terms, but also because of the increase in New South Wales. What's happening in the mix there? What am I missing as to why there hasn't been better pricing?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 I think it's more -- again, we're happy to go through this in a greater degree of granularity, but I think what you're missing, if you are missing it, is the substantial difference in haul distance. That makes the biggest single difference in that equation, frankly, Scott.

 Scott Kelly  - Morgan Stanley - Analyst 

 Okay. All right, thank you.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Matt Crowe.

 Matt Crowe  - CBA - Analyst 

 Oh, good afternoon, guys. Just on the 25% EBIT target by FY15, I mean it's clear you've got quite a few fairly low margin revenue sources within your business, like infrastructure services or intermodal or -- can you just rule out that you'll achieve that margin by changing the mix of business, in particular by getting rid of some of those lower margin revenue streams and, I guess, confirm that the target of 25% is predicated on a mix of business that is similar to what we've got now?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Well, I'm not going to rule anything out in terms of what we do. At the end of the day, as you guys have reminded us many times, the bottom line is the bottom line, and that's what we're managing. We will do the things that we need to do to get there, but I'd go as far as saying though, Matt, that we're not going to hide behind some of those. If those things were to happen we're not going to hide behind them in terms of what the impact is on the OR. The goal was set to achieve that number in the current mix of business, so we'll be -- where we can make any change -- and I'm certainly not signalling anything -- then we'd be transparent about it.

 Matt Crowe  - CBA - Analyst 

 Okay. Just another question, if I can? You mentioned earlier that the benefit of the voluntary redundancy program are mostly flowing to coal in the second half. Was that also the case in the half you've just reported; that most (technical difficulty) were in the coal division?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Yes, so -- well, it's operations, I think. We should just be a little more specific. We're talking operations as a function which, out of the total 8000 population, has about 5500 of the people, Matt. So that's Keith's observation, that the benefit follows the numbers.

 Matt Crowe  - CBA - Analyst 

 Right. Just finally, labour costs are up about AUD10 million, despite -- I think you're about 1100 fewer in your staff -- total staff count. What sort of, I guess, salary and cost per employee rises should we expect over the next couple of years?

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 I should turn the question round and ask you the same question, Matt. We make assumptions that are, I think, consistent with the general kind of industry and community views about those things. Within the organisation, as you'd expect, we take a more granular view and a more specific view about that, but at a broad level we have a view which, as I say, is consistent with the kind of community movements.

 Matt Crowe  - CBA - Analyst 

 Well, perhaps if I can just restate it, that the staff numbers have come down by more than 10%, suggesting average salaries running at -- if labour costs are about -- pretty flat -- average salaries or payments are up by more than 10% per annum. Is that what you --

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 No, no. Matt, what you've got to bear in mind is, with the nature of the business, that -- coming out of Government ownership -- the length of service that many of our employees have is substantial. When we see a CPI increase come through there is a very significant additional cost in terms of uplifting their accrued benefits as well, which has a significant impact on the business.

 Matt Crowe  - CBA - Analyst 

 Okay, thanks Keith. Thanks Lance.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Thanks, Matt. Scott Carroll?

 Scott Carroll  - JP Morgan - Analyst 

 Hi, guys. Just a quick question. I wanted to confirm something Keith said when running through coal. I think you mentioned that there would be AUD40 million of benefits in the second half from the transformation program. I just wanted to confirm if that was the case.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Yes. We're expecting a full year run rate, once the full program's completed, in the order of AUD80 million.

 Scott Carroll  - JP Morgan - Analyst 

 Within the coal division?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 No, no, no. AUD80 million for the entire organisation. A significant proportion of that will rest within -- as Lance said earlier -- the operations group. Obviously, the largest component there is the coal group.

 Scott Carroll  - JP Morgan - Analyst 

 Okay. Just when you were running through coal it sounded like you were suggesting there would be AUD40 million coal in the second half. So that was in reference to the redundancy program at a group level, not the coal division.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Correct.

 Scott Carroll  - JP Morgan - Analyst 

 Okay. Thanks very much.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 David McGregor.

 Russell Shaw  - Macquarie - Analyst 

 Oh, it's actually Russell Shaw, but that's fine -- from Macquarie. Two quick questions. Just firstly, Keith, on the cash flow. I guess, relative to EBITDA the underlying cash looks a little weak. I know you explained the difference between the P&L and the cash impact on the voluntary redundancies. What else was making up that shortfall?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 We paid tax and we've got a higher interest bill, if you're talking about net operating cash.

 Russell Shaw  - Macquarie - Analyst 

 I'm just looking above that line. Was there a build-up in your debtor balance or working capital getting sucked up there?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Sorry, above which line, Russell?

 Russell Shaw  - Macquarie - Analyst 

 We're looking at cash and operations, so we've added back tax and net interest paid, so an (inaudible) basis.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Yes, if you look at our EBITDA it's AUD515 million. If you take out the VR Program of AUD116 million it brings you to AUD399 million. We've got AUD384 million cash from operations, so that there's a small adjustment for some other expenses.

 Russell Shaw  - Macquarie - Analyst 

 Okay, well --

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Sorry, I -- the other point to note, Russell - I've just been reminded -- is on the GAPE revenues. There is a timing difference on the cash flow. So whilst we are recognising network take or pay, we don't get the cash until post the period.

 Russell Shaw  - Macquarie - Analyst 

 How much is that roughly?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 AUD50.5 million.

 Russell Shaw  - Macquarie - Analyst 

 AUD15 million, fifteen, okay.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Five-zero.

 Russell Shaw  - Macquarie - Analyst 

 Thank you. Then the other question I had was just around the regional freight TSCs. Did that contribute at all to EBIT in the half? Or is it timing of any payment more likely to be in the second half if you hit all your targets?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 No, no. It contributed as per contract to performance in the half.

 Russell Shaw  - Macquarie - Analyst 

 So it's the bulk of that five? Or should I infer that the -- excluding the TSCs the residual freight business is loss making?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The TSC is a commercial contract, Russell. It's negotiated with the Government as we've just completed the renegotiation for the remaining two and a half years, and it is a commercial contract. It's not a subsidy. It is a commercial contract for services that we deliver within the Queensland network. So we regard it as a totally commercial contract.

 Russell Shaw  - Macquarie - Analyst 

 Okay, so just to clarify or confirm, there's the -- there's no (technical difficulty) on the first or second half.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 The TSC revenue is included in the revenue for the freight business, yes, in accordance with the contract and the services that we've provided and costs that we've incurred.

 Russell Shaw  - Macquarie - Analyst 

 Thank you.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Thanks, Russell. Finally, I think, on the line, Paul Ryan.

 Paul Ryan  - Evans and Partners - Analyst 

 Afternoon, gentlemen. Just on slide 22, CapEx, Keith. Wondering if you can give us a sense of what the committed expansionary CapEx is in the business, so the AUD1.05 billion for '13. What will you still have to spend, effectively, on projects such as Wiggins Island, Hay Point et cetera, in '14?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 I guess we're expecting in '14 something in the order of AUD1.2 billion as the total CapEx spend. Within that we have about AUD350 million to AUD400 million put aside for sustaining CapEx, and the balance is a combination of committed growth projects and uncommitted growth projects, the majority being, of that balance, committed projects, in particular Whitehaven...

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Hexham.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 Hexham, sorry.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Finalising paperwork.

 Paul Ryan  - Evans and Partners - Analyst 

 Thank you.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 Nathan, I think, from Morgans.

 Nathan Lead  - RBS Morgans - Analyst 

 Yes, thanks, Lance. Just want to get confirmation on slide 22. There's a spend in the network services business. Just want to get confirmation that you're expecting all that to be able to rolled into regulated asset base and generate revenues in future periods.

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 That's correct, yes.

 Nathan Lead  - RBS Morgans - Analyst 

 Okay. Just in terms of the network services revenue, just how much of it relates to the writing off of the access facilitation deed in this period?

 Keith Neate  - Aurizon Holdings Limited - Executive VP and Acting CFO 

 We'll have to come back to you on that one, Nathan. I don't have that answer.

 Nathan Lead  - RBS Morgans - Analyst 

 Okay, thanks.

 Lance Hockridge  - Aurizon Holdings Limited - Managing Director and CEO 

 That takes us out from the point of view of the telephone lines. Are there any final questions from the floor? If not then, I think it remains again to say thank you very much for the attendance and for the questions. We'll follow up on those issues that we promised. Again, in closing though, to make the point that we do remain confident, in the way that I spoke about, that each of the elements of those five platforms upon which the transformation of this Company is founded, we pay every attention to -- we're delivering against those things.

We will certainly be working hard around the recovery of the lost tonnes in this year, and with the benefit of the renegotiations and the transformation program. Again, I'm very confident about our ability to be able to do 75% and better and to capture the kind of growth that we've spoken about. We thank you for your interest, and good afternoon to you all.

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