Aurizon will sell its Queensland Intermodal business to a consortium of Pacific National and Linfox for a combined value of $220 million, and close its intermodal sites outside of Queensland, as a result of a twelve-month review of the company’s freight business.
Aurizon managing director and chief executive Andrew Harding announced the outcomes of the review during the company’s annual report on Monday.
Aurizon finished with a $188 million loss in FY17, after taking significant impairments.
“My aim is to take decisive action, no matter how unpopular or difficult those decisions those decisions may be,” Harding said.
“In making the decision to exit, we considered the significant financial losses that have been sustained year on year by Aurizon Intermodal. The business has not been able to establish significant scale and a customer base to support a profitable business in such a highly competitive market.”
The Queensland Intermodal business – including 350 employee positions, assets, and commercial and operational agreements – and the Acacia Ridge Intermodal Terminal south of Brisbane, will be sold off to the consortium in two separate transactions. The Acacia Ridge terminal is a 66-hectare site which includes narrow-gauge and standard gauge freight terminals, marshalling yards and warehousing.
At this stage the sale is a binding agreement between the sides. It will be subject to approval by the Australian Competition & Consumer Commission, and the Foreign Investment Review Board.
Harding said the additional closure of Aurizon’s intermodal terminals outside of Queensland would affect roughly 250 jobs.
Aurizon’s Interstate Intermodal business includes freight terminals at Forrestfield, Perth (freehold), Enfield, and Sydney (lease), along with locomotives, wagons and road vehicles. It also includes the import-export service between Enfield and Port Botany.
“The transaction and the shutdown actions are necessary given the history of significant losses to the business, the long-term industry sector attractiveness, and my view that in this industry sector we lack some fundamental characteristics for success,” Harding said.
The former Rio Tinto iron ore boss said his recent arrival at Aurizon provided him with a “fresh set of eyes” with which to consider Aurizon’s Intermodal business.
“The Intermodal business has made a loss in all but three of the last ten years,” he said. “The last two years, were the first- and third-largest loss years.
“The market conditions are also not favourable. Market volume growth is forecast to be sub-GDP, and the long-term dynamics are shifting to shorter hauls, favouring road transport, as Australian manufacturing volumes are replaced by imported volumes.”
In addition to a poor market outlook, Harding was not optimistic about Aurizon’s chances of success in the competitive interstate market.
“Outside of Queensland, Aurizon lacks scale and is third in the east-west corridor, which is the largest profit pool,” he said. “Aurizon has considerable skills in bulk haulage and below rail operations, however it has huge capability gaps in trucking and logistics systems.”
Ultimately, the former mining boss said the decision was not a “complex” one.
“I do not consider it practical to turn the business around,” he said. “I need to pursue the next-best alternative.”
Pacific National is in a good position to buy the Aurizon Intermodal business, thanks to the support of its major international backers, who have owned the business since the breakup of Asciano in 2016. PN’s chairman Russell Smith is among the partners of Global Infrastructure Partners, which holds a 27% share in PN.
According to an AFR report, Aurizon’s market testing also attracted interest from Qube Holdings and SCT Logistics.
Pacific National confirmed it had entered into the deal on August 14.
“The Acacia Ridge Terminal supports Pacific National’s goal of providing consistent and reliable freight rail services to our customers,” PN chief executive Dean Dalla Valle said.
Dalla Valle said the Acacia Ridge Terminal would supplement PN’s national network of terminals, and would provide security for the operator’s interstate operations.
“[The acquisition of] Queensland Intermodal supports PN’s strategic objective to grow in important markets and allows for PN to offer new northbound services and southbound services within Queensland on day one,” he added.