Aurizon Holdings Limited (AZJ.AX) Earnings Call Transcript & Summary

Good morning, and welcome to the full year 2025 results. We're in Brisbane today. Therefore, I acknowledge the traditional custodians of this land, the Turrbal and Jagera people and pay my respects to the elders, past, present and future for they hold the memories, the traditions, the culture and hopes of Aboriginal Australia. We must always remember that under the ballast, sleepers, rail systems and office buildings where Aurizon does business was and always will be traditional Aboriginal land. I'm joined on the call by Gareth Long, Acting CFO and Group Executive Strategy; George Lippiatt, Group Executive, Bulk and Containerised Freight; Ed McKeiver, Group Executive Coal; and David Wenck, General Counsel and Head of People. After 15 years at Aurizon, including 5 leading network, Pam Bains retired earlier this month, having progressed UT6 to the signing of a nonbinding term sheet, a significant achievement. Cat Peppler, who has been at Aurizon for more than 13 years and was most recently Group Executive Corporate, has stepped into the role and joins us today as Group Executive Network. George will be presenting the financial results today for the last time, having been the CFO for the reporting period. Aligned with Aurizon's strategy, the strength of our Network and Coal businesses provides the opportunity to pursue growth in Bulk and Containerised Freight. Our Network business is nearly 2,700 kilometers of track infrastructure in Central Queensland, supporting 90% of Australian coking coal exports. An 8.5% return is currently booked across the $6.2 billion asset with more than half of group earnings coming from this regulated revenue base. Our Coal business is linked to the ongoing demand for Australian coal across global markets. India is already Australia's largest trading partner for steelmaking coal and is expected to be the largest driver of demand over the coming decades. Last year saw another record for steel production in India, up 6% on the prior year, which itself was a record. For thermal coal, last year saw a net increase in global coal-fired generation capacity with 95% of this built in Asia, a continent where nearly all of Australian thermal coal is exported to. The average age of the coal-fired fleet in this continent is just 15 years against a typical economic life of 40-plus years. Coal accounts for 1/3 of group earnings and is backed with long-duration contracts. The Bulk opportunity is based on the growth in global demand for Australian commodities such as base metals, grain and magnetite and the strategic importance of the Tarcoola-to-Darwin rail line. While still a small contributor to our earnings, this is where our strongest growth prospects lie. For Containerised Freight, which is reported in our other segment, the opportunity is based on Australian GDP growth and land bridging volume from the Port of Darwin to Southern capital cities, which is progressing. Turning to our safety performance. We experienced a deterioration in both the total recordable injury frequency rate and the actual and potential serious injury and fatality frequency rate over the past year. Across the business, soft muscle injuries and foot injuries from working on ballast are the most common injuries. Our focus remains on incidents that have the potential for serious injury or a fatality and protecting our employees, our customers and the communities in which we operate. Level crossing safety is a continuing issue for the rail industry and was a focus in this year's National Rail Safety Week. Adding to our existing level crossing campaign, we released a new series of videos called 1, 2, 3 Brace, featuring our drivers once again sharing their personal experiences and urging the community to take greater care around level crossings. Collectively, we must step up efforts and investment to improve safety at level crossings. This includes the rail and road industries, all levels of government, enforcement and road safety agencies and the general community. Turning to the results. As communicated in late June, underlying earnings for the year were impacted by a deferral of network revenue as a result of lower rail volumes and an increase in the provisions relating to 3 Bulk customers. Outside of these 2 items, group EBITDA for the year would have been over $100 million higher. The payout ratio has been maintained at 80% with a dividend of $0.065, fully franked. Today, we announced a new on-market buyback of up to $150 million, following on from the completion of a $300 million buyback last year. It's important to note that commodity prices across nearly all of the major commodities we haul are lower over the past 12 months. When combined with inflationary pressures, it results in a tough operating environment for Australian producers. This doesn't just impact our Bulk business. Both thermal coal and coking coal prices are down 20% compared to a year ago. As a result, we suspended railing for 2 Coal customers, which incurred an associated provision. We're combining the management of our Bulk and Containerised Freight operations under the leadership of George Lippiatt to unlock commercial and operational synergies and streamline accountability. Three significant items have been booked in the half, resulting in the variance between underlying and statutory net profit after tax. George will talk to these items shortly, but I did want to talk to one briefly, the impairment of goodwill associated with the Bulk business. It is important to note this impairment of $57 million represents around 3% of the book carrying value of the Bulk business. It is a result of some changes in timing of growth opportunities plus changes in assumptions of future carbon costs associated with bulk rail haulage. Specifically, in terms of the latter, it relates to the higher assumed cost for Australian carbon credit units, or ACCUs, and emissions intensity. The net present cost of carbon is now around $170 million or 8% of the book carrying value of the Bulk business. Not only is future modeling under the safeguard mechanism challenging, but we still have the perverse policy outcome where most of the trucking industry is exempt and rail, the far more environmentally friendly mode of transport is not. I am of the firm view further reform of the safeguard mechanism is needed to give business greater certainty and address this anomaly. Turning to actions in progress. At first half results, I shared some of the actions we are taking in response to market dynamics. Although Aurizon has inflation protection in the Network business through the regulatory framework and also through our commercial contracting, we are seeing price escalations in some parts of the cost base in excess of this protection. Having initially targeted $50 million in annualized savings in our nonoperational cost base, a further $10 million has been identified. Importantly, all $60 million has been actioned and will flow through in its entirety in FY 2026. This review focused on achieving greater efficiencies and includes a reduction of approximately 200 full-time equivalent roles. During the half, we also successfully priced our inaugural hybrid, which George will speak about shortly. Identified as part of the actions in progress at the first half results, a Network ownership review is taking place. The review is ongoing and no decision has been made. The Aurizon Board regularly undertakes a detailed assessment of the portfolio and capital structure of the company. The outcome of the review was last published externally in 2019 and found that based on the 5 elements, as published on this slide, the benefits of integration outweighed the benefits of separation at the time. We are drawing upon the same elements in the current review, and we have appointed an investment bank to assist with the process. The progression of UTI6 to a nonbinding term sheet with customers supports engagement with prospective investors. Turning to business units. Despite the impact of approximately $50 million of deferred revenue and in addition to lower external revenue, Network earnings increased driven by the step-up in regulatory revenue. To better match the cost of operating and maintaining the Network with the revenue received, we are changing our revenue recognition approach from FY 2026, which George will speak to in more detail shortly. The assumption for regulatory volumes in FY 2026 is more than 6% higher than actual volumes in FY 2025. Under the new approach, any variance in volumes will no longer be deferred to future periods. As noted earlier, we are pleased to report that UT6 has progressed to a nonbinding term sheet with customers. This is a very complex undertaking and now provides the pathway to securing the earnings profile of network from mid-2027. Coal earnings were flat with higher volumes and higher yield, offset by higher operating costs. Contract utilization is still below what is considered a normal level, and our expectations are for this to step up in FY 2026. TrainGuard is operating in the Blackwater and Goonyella corridors and is projected to reduce the number of train drivers by around 50 during FY 2026. Our contract with Whitehaven's Gunnedah mines will cease in June 2026. I am proud of the performance hauling for Whitehaven over the past decade and more generally on our superior operational performance in the Hunter Valley over the last 12 months. We tried really hard to retain Whitehaven, and I am disappointed that we were not chosen as their rail operator going forward. The impact on our Hunter Valley operations from FY 2027 is dependent on the redeployment of capacity, noting we have multiple strategies available in this regard. Bulk EBITDA was lower with contract growth more than offset by the cessation of a rail maintenance contract, lower South Australian grains and an increase in doubtful debt provisions as previously disclosed. In addition to the BHP Copper South Australian contract, we also signed 10-year contract extensions for Minara and Karara in Western Australia. These are decade-long contracts that provide a foundation for the Bulk portfolio to build on. Finally, to Containerised Freight, where although we are not yet breaking even at an EBITDA level, we have stepped up volumes in the 3 months to July, up 30% compared to the same period last year. Non-foundation customer TEUs increased fourfold over the same period, and we have made some operational changes to support both the cost base and customer offering, including the extension of a Bulk Broken Hill to Perth service to Sydney for an added frequency and bringing all of our Containerised Freight services together at a single facility in Adelaide as we showcased at our site visit last month. Land bridging volume began during the year with containers now railing down to Melbourne in addition to Adelaide. We are continuing to work with auto logistics company, NYK, to support the import and distribution of motor vehicles into Australia. I look forward to updating the market on this exciting development in due course. Finally, I want to take the opportunity to talk about our investment in Bulk and the connection to the recently announced BHP Copper South Australia contract. Although a challenging year, the growth opportunity remains. The infrastructure investment and recent contract signings provides a solid foundation to build upon. As recently as FY 2017, Bulk was loss-making at the EBIT level and was best characterized as a grouping of contracts rather than a business unit with a clear strategy. I brought together the business unit under a single group executive bringing both accountability and the opportunity for growth. As shown on the slide, we have delivered growth. Our operations are located in key mining regions of Australia, and we hold the lease of the strategically important Tarcoola to Darwin mine through to the mid-2050s. Central Australia holds 2/3 of Australia's copper resources, about half of Australia's magnetite resources and significant rare earths and phosphate rock resources. Recent contracting for customers such as BHP South Australia, Karara Mining and South32 has pushed out the average contract length of the Bulk portfolio by 3 years to 8 years. When including the Tarcoola-to-Darwin concession, this extends to 12 years. Our investment in Bulk capacity enabled the successful contracting for the largest copper operations in Australia. As announced in June, Aurizon has been awarded a contract for BHP's Copper South Australia operations, including all rail and road haulage tasks with a total contract length of up to 15 years. It is understood to be Australia's largest ever road to rail conversion from major minerals project. The contract begins in October this year and is in addition to Aurizon's existing haulage of copper concentrate from Wirrida to Tennant Creek. The contract is expected to deliver revenue of $1.5 billion over the first 10 years. The integrated logistics solution is highly scalable and means we can quickly capture additional volumes should BHP proceed with identified growth opportunities in South Australia. The transport of copper concentrate and cathode from BHP's Olympic Dam, Carrapateena and Prominent Hill mines as well as inbound freight will shift to rail between Pimba and Port Adelaide. Leveraging our extensive South Australian footprint, including port terminal assets at Port Adelaide and the Gilman Freight terminal was critical to securing these contracts. The largest single new investment is a new rail freight terminal being constructed at Pimba at a cost of $40 million, which will act as a centralized logistics hub for BHP's operations. Our investment in Bulk is built around delivering contracts like this. That is having the assets, capacity and the capability to deliver Bulk commodities over long distances on behalf of customers. This is a major differentiator for Aurizon and stands us in good stead to secure further contracts with such high-quality counterparties. On that, I will hand over to George.

Thank you, Andrew. As published in our guidance update in late June, underlying earnings for the year decreased by 3% to $1.576 billion, below our originally stated guidance due to the deferral of Network earnings and an increase in provisions primarily relating to 3 Bulk customers. As noted earlier by Andrew, outside of these 2 items, group EBITDA for the year would have been more than $100 million higher than the result published today. The deferred Network earnings will be caught up in FY '27, and we're expecting a 9% EBITDA uplift in FY '26 being the middle of our guidance range. We've also increased available capital due to the subordinated note issuance and lower capital expenditure during FY '25. These factors support the $150 million of additional share buybacks announced today and takes the total buyback amount to up to $450 million across FY '25 and FY '26. Revenue increased by 3%, driven by Coal, Bulk and Containerised Freight, which is reported within other. Network revenue was flat with an uplift in regulatory revenue being offset by a reduction in external construction works. Operating costs increased due to higher doubtful debt provisions, which I'll discuss further in the Coal and Bulk slides, higher labor escalation and additional train crew and maintenance required due to growth volumes. Staying at a group level, you can see in the table that depreciation increased by 4%. Approximately 3/4 of this step-up was driven by higher network depreciation due to increased capital investment and therefore, regulatory asset base growth. We also saw a favorable provision release in FY '25 of around $50 million, including the contribution from lower short-term incentive payments and fewer insurance events. Unlike in prior years, you will note that statutory EBITDA is $43 million lower than the underlying figure due to a few significant items. Firstly, a favorable $37 million from the settlement of a long-standing legal matter as we talked about at the half year. Secondly, $23 million of costs related to the review of our nonoperating cost base, $18 million of which relates to redundancies. And lastly, a noncash impairment. This equates to all of the goodwill in the Bulk business of $57 million and represents 3% of the book carrying value. This impairment has been based on an assumed delay to the timing and conversion of future growth opportunities as well as an increase in the estimated net present cost of carbon. The latter is driven by a higher carbon cost forward curve, and I note that our Bulk business is sensitive to this assumption given the longer haul lengths, non-electrified nature of haulage and the current structure of the government's safeguard mechanism. The variance from these significant items at the NPAT line is $45 million. We continue to generate strong free cash flow. And while this was 22% lower than the prior year, it was up 19% in the second half. In addition, approximately $30 million of Network take-or-pay being accrued in FY '25 is due to be received in early FY '26. Note, this free cash flow excludes significant items. The Board has declared a final dividend of $0.065 per share, representing a payout ratio of 80% in the second half, which will be fully franked due to the normalization of cash tax in calendar year '25. This brings the total dividend for FY '25 to $0.157 per share. Moving now to Network. Network EBITDA increased $26 million or 3% to $956 million. This was driven by higher regulatory revenue, the result of the uplift in WACC to 8.51% from 1st July. This has been partly offset by lower external construction works and a volume-related under recovery versus FY '24, which saw a volume-related over-recovery. In FY '25, volumes were 9 million tonnes lower than the regulatory volume assumption of 217 million tonnes, which when combined with higher maintenance spend resulted in deferred earnings of around $50 million. These earnings are expected to be recovered in FY '27 through the usual rev cap regulatory process. In the bridge on the right, you can see access revenue was $60 million higher, driven by the application of the final reset WACC of 8.51%. Note these figures are net of fuel and electricity charges, which are passed through to network customers. Operating costs increased by $22 million due to higher maintenance costs, largely due to labor inflation and a proactive drainage program being undertaken to further increase the weather resilience of the Central Queensland coal network. Compared with the maintenance allowance, we were over by around $15 million in FY '25. Subject to approval under the regulatory regime, we would recover this overspend in FY '27 with it being included in the $50 million rev cap I mentioned earlier. Network benefited from strong nonrecurring third-party construction works in FY '24, which meant in FY '25, this was $9 million lower. In terms of the broader maximum allowable revenue or MAR, we will see a further step-up of around $93 million in FY '26, driven by rev cap of $30 million from FY '24 and the usual regulatory revenue and capital true-ups. I expect about 50% of this to flow through to increased FY '26 EBITDA due to it being offset by a step-up in maintenance costs, rebates and a small reduction in GAP earnings. We've also included FY '27 MAR in the appendix, which will see a further $60 million step-up from FY '26 to FY '27. Moving to Coal. Coal volume and revenue increased by 2%. However, this was offset by the 3% increase in operating costs, which was aligned with inflation and resulted in flat earnings. In the EBITDA waterfall chart on the right, you can see the benefit of the additional 3.2 million tonnes hauled, equating to $19 million net of the cost of hauling the additional volume. Inside of the dotted area, we show the yield increase of $15 million, which includes the contract rate indexation benefit, partly offset by an adverse shift in customer mix. You may recall that at the start of the year, we had expected a lower yield result given higher volumes, particularly in the Goonyella corridor. While this did partly flow through in FY '25, we now expect this yield normalization to complete in FY '26 as volumes in the Goonyella corridor step up again. The next bar is operating costs that are not directly associated with the uplift in volumes, an example being labor and materials escalation. As you can see, these costs increased by $28 million and broadly mirror the benefits seen from contract indexation, highlighting the inflation protection mechanisms in our haulage businesses. Lastly, we had higher doubtful debt provisions as a result of 2 Coal customers entering administration. The amounts provided for represent the entire amounts owing to Aurizon. And while we have suspended rail services for both customers, some of the installed capacity has already been absorbed by additional demand from existing customers. Looking forward, we expect FY '26 to see a small uplift in earnings with a volume increase, CQCN train crew reduction and a reduction in the nonoperating cost base, which will be partly offset by the yield reduction I mentioned earlier and further cost increases, for example, as historic EAs are renegotiated. Moving now to Bulk. Bulk revenue was up 2% at $1.12 billion, driven by new customer contracts being partly offset by the cessation of a rail maintenance contract in the Pilbara, lower iron ore volumes and lower South Australia grain volumes. Operating costs increased by $86 million or 10%, largely driven by an increase in doubtful debt provisions, higher labor escalation and costs to support customer growth. Excluding doubtful debt provisions, operating costs increased by 3%. Earnings for Bulk as a result were 26% lower to $169 million. In the waterfall on the right, you can see $16 million of earnings uplift from customer growth, excluding grain and iron ore. Earnings for grain were $8 million lower, largely driven by South Australian grain volumes, although we saw improved grain volumes in the second half given the strong Western Australian harvest and should see these railings continue into the first half of FY '26. Iron ore was down $12 million and includes the impact of the cessation of the MRL contract, which we talked about at the half year. This will flow into FY '26, given the MRL mines in the Yilgarn region ceased production in December 2024. Doubtful debt provisions for 3 bulk customers, which entered voluntary administration in the second half of FY '25 were $56 million. While there are some potential headwinds in FY '26, such as the reduced iron ore volumes for MRL and OneSteel and any restart of Northern Iron or Centrex operations not expected at scale until at least the second half, we do anticipate a stronger year overall for grain, the start-up and contribution from the new BHP contract and the benefit of cost base reductions mentioned earlier. Now moving to gearing and funding. Looking to the chart on the right of Slide 17, it's pleasing to see the work done during the year to lengthen, smooth and diversify the funding profile. This reinforces what I've said for the last few years that banks and debt investors continue to be attracted to Aurizon's credit profile. During the second half, we saw positive credit market conditions, which supported our inaugural $500 million subordinated notes issuance. These notes provide 50% equity credit and mature in FY '25 with the first optional redemption date in FY '31. This additional source of capital will form part of the group's long-term capital structure and gives additional capacity and flexibility. This completes the group capital structure review we flagged in February and noting that the Network ownership review is ongoing. As we highlighted when we raised the funds, any potential change in Network ownership wouldn't impact the structure or guarantees provided under the subordinated notes. In the second half, we completed a further private placement of $53 million. This is noteworthy because it's Aurizon's longest-dated senior debt issuance, maturing in FY '40 as shown in the chart. This is in addition to the 2 capital markets issuances of $100 million and $300 million completed in the first half. All 3 of these issuances were priced well inside Network's 250 basis point debt risk premium. We also successfully refinanced $1.7 billion of bank facilities across both operations and Network. The funding activities completed throughout the year continue to show that we have strong support from our debt investor base, which includes high-quality Asian and domestic accounts. Looking at some of the other metrics on the page, I note the weighted average cost of drawn debt at 6.3% versus 6.2% in FY '24 and the weighted average senior debt maturity now sitting at 4.9 years versus 4.6 years in FY '24. The funding strategy remains unchanged, that is to ensure we access multiple pools of capital and lengthen the debt maturity profile to align it with Aurizon's long-duration assets. Importantly, we maintain a commitment to strong investment-grade ratings with Aurizon operations and Aurizon Networks credit ratings, both at BBB+/Baa1. This commitment is supported by group net debt at $5.2 billion as well as net debt to EBITDA, which now stands at 3.3x. At a subsidiary level, net debt to EBITDA for Network is still around 4x, while operations is less than 2x. Moving to capital allocation. Aurizon's ability to generate solid free cash flows and reduce growth capital has seen us increase returns to shareholders in the form of dividends and buybacks during FY '25. As shown in the chart on the left, total CapEx for the year was $695 million, a 17% reduction compared to the prior period. Of this, $593 million was nongrowth capital with approximately 60% allocated to the Network business, contributing directly to the regulated asset base As can be seen in the chart, total growth CapEx for the year was $102 million, just over $100 million below the previous year. This variance is mainly due to lower capital requirements in Bulk and Containerised Freight as they ramped up operations. As Andrew will touch on later, we expect growth CapEx in FY '26 to be in the range of $100 million to $150 million. 1/3 of this contract is contract backed to support Bulk, specifically the BHP contract and the remaining 2/3 is Containerised Freight related. It's consistent with the CapEx we announced to stand up the business 2 years ago. This mainly relates to our new container terminal in Perth, the destination for the majority of our services on the corridor that rail has 3/4 of the modal share. Turning to the right-hand side of the slide, and you can see that the percentage of capital allocated to shareholders in FY '25 has returned to levels seen during the FY '16 to '21 period. You will also see a different mix with buybacks and cash dividends equally contributing to shareholder returns during the year. Dividends have benefited from the increase in the payout ratio to 80% of underlying NPAT, which, as noted at our FY '24 full year results, reflects a level we believe to be sustainable. In line with our capital management framework, we are able to maintain our strong investment-grade credit ratings and deliver capital back to shareholders, while at the same time focusing on earnings growth. As mentioned earlier, the additional flexibility from the subordinated notes, combined with lower FY '25 CapEx and an expected FY '26 earnings step-up enables us to return up to an additional $150 million in capital to shareholders in FY '26 through further buybacks. Finally, moving to my last slide on revenue recognition in Network. As Andrew noted earlier, from FY '26, we are changing how underlying revenue is recognized. This is being done alongside an IFRS Draft Accounting Standard for regulated entities. Although not expected to be implemented for a few years, we are making the change from FY '26 as we believe it best reflects the revenue profile of Network and matches underlying revenue with the annual cost of operating and maintaining the network for customers. As a reminder, network regulatory revenue is always recovered via take-or-pay and/or revenue cap within 2 years, where revenue is deferred by 2 years, it can result in earnings volatility. The primary driver of deferred revenue through revenue cap is where volumes differ from the regulatory assumption as set by the Queensland Competition Authority. This occurred in FY '25 as well as FY '23, as shown in the top chart. From FY '26, the estimated future revenue cap will be recognized as underlying revenue. The lower chart shows a worked example using FY '25. Compared to the regulatory revenue set at the start of the financial year, $70 million was under-recovered due to volumes being lower than the regulatory assumption. Take-or-pay recovered $32 million within the year, therefore, leaving $38 million still to be recovered. When combined with $12 million of other adjustments, primarily maintenance overspend, this results in an estimated rev cap of $50 million to be recovered in FY '27. Under the new approach to be adopted in FY '26, this $50 million revenue cap adjustment would also be recognized in underlying revenue within the same year. For FY '26 and '27, the recognized MAR will continue to include any prior period rev cap amounts given they are yet to be recognized. This transition ensures FY '26 and '27 dividends, which are declared based on underlying earnings, reflect the deferral of past period Network earnings from FY '24 and '25. From FY '28, the recognized MAR will exclude prior period rev cap amounts given they will have already been recognized in underlying revenue in prior periods. This change represents a preemptive step toward alignment with international accounting standards, and it will enhance the clarity of our guidance and financial reporting going forward. This will be my final result as CFO, and I've been proud to hold that role for over the past 5 years. I'm equally proud to now step into my new role leading our Bulk and Containerised Freight businesses. We're a critical part of Australia's economy. We have a growing container presence and are the largest hauler of copper, grain, bauxite, alumina, rare earths and iron ore outside the Pilbara. I know this business can perform for our customers, employees and shareholders, and I'm looking forward to demonstrating this over the coming years. Thank you, and I'll now hand back to Andrew.

Thanks, George. Turning to the outlook. Group underlying EBITDA for FY 2026 is expected to be in the range of $1.68 billion to $1.75 billion. Supported by the change in Network revenue recognition, we have introduced full year dividend guidance. Although ultimately determined by the Aurizon Board, we expect total dividends to be between $0.19 and $0.20 per share. Sustaining CapEx is expected to be $610 million to $660 million, including $30 million of transformation capital. Growth CapEx is expected to be $100 million to $150. Network earnings are supported by an increase in the regulatory revenue, partially offset by increased direct costs. Allowable revenue is to be entirely recognized in underlying revenue regardless of volumes railed. Coal earnings are expected to be higher than FY 2025, driven by higher volumes and flat unit costs, partly offset by lower yield due to corridor and customer mix. Bulk earnings are expected to be higher than FY 2025, driven by the nonrecurrence of provisions and increased grain volumes, partly offset by lower iron ore volumes. Earnings in the other segment are expected to be higher than FY 2025 with an improved Containerised Freight contribution, offsetting the nonrecurrence of the settlement of legal matters from FY 2025. As usual, this is subject to no significant disruptions to supply chains and customers such as major derailments, extreme or prolonged wet weather, although I note the continuing investment made by both Aurizon and other rail network operators across Australia in increasing the resilience of respective rail networks. I'm excited about the year ahead and have complete faith in the team to continue making good progress against our clear growth strategy. On that, I will hand over to the operator for questions.

[Operator Instructions] Your first question today comes from Andre Fromyhr with UBS.

Just wanted to start with Coal. Your guidance is essentially pointing to margin pressure next year, if I just base that on the flat unit costs, but lower yield. Just wondering if we could better understand the dynamics around that. I understand the comment earlier about Goonyella expecting to be the source of volume growth next year. And is that a yield pressure because it's just lower pricing on average or you're already recognizing take-or-pay on those volumes, so when they return, they're not as accretive? And maybe that's a question more broadly about the contracting environment in Coal and what you're seeing from pricing pressure.

Well, I might get George to see if he can give some insight into that what is a complex matter.

Sure, Andre. For FY '26 in Coal, it's not about contracted rates. It's more to do with that second point you mentioned that particularly in the Goonyella corridor where we have higher take-or-pay, when those volumes return to a higher utilization, they're not as accretive given the high take-or-pay and therefore, revenue recognized in FY '25. I think I mentioned in my speech, we expected some of that normalization to happen this year. It will just flow into FY '26.

Okay. And then my next question is probably for George again around the provision. So I guess we can see the bad and doubtful debt provisions, $56 million in Bulk and then there's $7 million in Coal. But then you've called out $50 million of provision releases recognized in the period. That's in underlying earnings, I understand. Does that mean that those are flowing through in the other segment? And I just wanted to reconfirm something we discussed at the half. I think does the other still include legal benefits in the underlying earnings, notwithstanding the amount that you've recognized in significant items?

Yes. So let's start with the legal matters. So the legal settlement, there was about $37 million below the line and about $20 million above the line that was booked in other in the first half. So that's the legal part of your question. You're right on the provision for doubtful debts, about $56 million increase in Bulk, that $7-odd million increase in Coal. In terms of the provision releases, it's about $50 million relating to lower STI payments and also insurance events. The vast majority of that is allocated to the business unit. So it does not appear in other.

Your next question comes from Jakob Cakarnis with Jarden Australia.

Two for George and one for Andrew, if we can. George, just on the FY '26 guidance, just noting that you guys provided a DPS guide for FY '26. Can we gross that up by the average payout ratio over the last few years. So can we gross that up at 80% to get a rough guide for core EPS for FY '26, please?

You could do that, Jake. I mean what I would say to you, though, is we've been paying out consistently at 80%. The Aurizon Board maintains the discretion to change that payout ratio. The other things, obviously, you've got to make assumptions on around depreciation and net finance costs rather than give each 3 of those assumptions, we thought we'd jump straight to the end point and give you that $0.19 to $0.20 per share DPS guidance.

Okay. So that wouldn't be miles off, though, if we gross that up by 80%, if I understand your answer correctly?

It shouldn't be. No.

Okay. And then I think you've answered this partially for Andre's question about the allocation of the provision unwind for the STIs. Can you just -- when you're booking that, let's say, we move to '26 and things are performing as you expect and you rebook that, is that an expense that also comes back into the business on the reverse?

Yes. That is correct. Obviously, the STI payments are dependent on us hitting our targets. And then the insurance events are depending really on what events occur in the way of derailments. And that is an item that occurs because we self-insure. So where we have very few events as we did in FY '25, the business gets the benefit of that.

Yes. And I guess that's -- you've hinted on where the angle of the question is going, George. Just that self-insured amount, is there any way that we can reconcile how that's changed through times in the accounts that you provide to us? Is there somewhere in the financial notes that you can point to that I can track that through time, please?

No, there's not. But what I can say is 2 things that I've touched on in prior earnings calls. The first is that over the last 7 or 8 years, we have not had a year where in terms of the liability for property damage, the amount has gone above our self-insurance amount. So we've got a really good track record there. The second thing is to back that up, I've said before, we're paying less in insurance now than we were 10 years ago. That's partly because of that track record.

Okay. I promised one for Andrew. Andrew, just on Slide 9, you're saying that there's a lot of opportunities in Coal for the redeployment of that Whitehaven capacity. Obviously, that's sitting on standard gauge, I assume fully depreciated kit. What's the play there? Do you go after the New South Wales market again? Or do you look at Bulk Central, which has a similar gauge and choose to play deeper there, please?

Yes. Good question. I'm going to get Ed to talk about his thoughts of responding to that challenge.

Yes, thank you, Andrew. To put the volume, the impact of the Whitehaven loss in context, our contract with them is in New South Wales accounts for about 5% of the portfolio, the contract book. We expect the available capacity from '27 that there will be opportunities to replace those volumes by either increasing our railings for existing or potentially new customers. In both -- and as your question goes to Bulk markets where standard gauge markets, where we've got -- as you know, we've got a track record for cascading assets and people to redeploying them as to respond to the market. There's also other contracts in New South Wales in the ramp-up phase, our other customers and several others up for tender over the next 3 years.

So to bring it back -- sorry, Andrew, just to bring it back to you, is the commitment to shareholders that that's going to get an equivalent return on the capital as you look to redeploy it? Like how do we think about what happens, I guess, on a mix and ROIC basis as well as you try and remix that?

Look, as we have -- you should be able to clearly see that we have some good practices about how we actually determine where to allocate the equipment, and it is based on value. And we will be pursuing exactly that same process as we deal with the equipment that we've got that would become available in the Hunter Valley. We'll look at all of the options, and we'll make a considered decision based on the data in front of us at the time.

Your next question comes from Matt Ryan with Barrenjoey.

I was looking at Slide 7, the actions in process -- sorry, progress banner. And I was listening to your comments a bit earlier around the difficult operating conditions that you're hearing about from your customers. And I just wanted to understand, are you sort of linking those conditions to needing to do more on the cost front? Or these are sorts of things that you think you should be doing anyway?

No. The -- don't link them. The reality is there's a normal course of business cost reductions and improvement that you do every year. There's also -- when I spoke about these the basis for some of the cost reductions that you would see in the nonoperational space. We've seen the impact of the application of machine learning in some of the more technical parts of our business and the opportunity to improve cost performance in those areas. And then there's a deep requirement to keep an eye on your competitors and make sure that we manage our costs appropriately in that environment. So you learn from your competitors and you do things that are actually smart in that place. And then we also, on this occasion, looked at what's happening outside of the rail industry in industry in general, both inside Australia and outside Australia for best practice and made some changes that resulted from doing that.

Okay. And the UT6 process from here, I think you made a few more comments around that advancing. I guess the thing that I was wondering about was do you think that there's going to be obvious changes that you could be making considering this is, I guess, the second version of what you put in place a few years ago?

Look, when we put the changes in that led to UT5, that was a very long exhaustive process. And there was considerable change that was made. The idea with -- that you're confronted with when you actually -- what comes at the end of that contract is -- and I think, as I said many times even recently, is that you work really hard to build a great relationship with your customers. You do that through the framework that supported UT5 so that no one wants to change in a wholesale fashion. And you want to build upon what you've got so that it actually works better for the customers and ourselves. And that's the thinking and the work that we've done to get to the nonbinding stage at this stage of the process, which is a significant milestone given the number of players that are in place. And then we work through to finalizing that hopefully by the end of the year.

Your next question comes from Anthony Moulder with Jefferies.

If I can start on Containerised Freight, I appreciate it's a small part of the business, but we're still not -- you're still not at break-even. You're talking about these new contracts that have been added. I wondered if they're contracts or they're still spot volumes. And also just your confidence in whether or not FY '26 will actually see a break-even, albeit to EBITDA, not EBIT for Containerised Freight, please?

See, Anthony, I think I'll get -- George, can you just give us as much color as you can to Anthony to help him understand where we're at and where we're likely to be?

Sure. Anthony, I'll start with contracts. That was the first part of your question, then I'll go to utilization and financial performance. So in terms of contracts, we have 2 additional non-TGE contracted customers. We are, however, moving volumes for more than 30 customers at present. So we're pleased to see that growth. If I then move to volumes and progress throughout the year, you'd remember on our half year results call in February, we were talking at about 60% utilization. Through the financial year, we're now in the high 60s. So that's the exit run rate at the end of FY '25. To give you a bit more color, though, the July container volumes were about 13,000 TEUs. So if you multiply that by 12, you get to about 75% utilization. Having said that, that includes that bulk mineral sands containerized volumes that Andrew touched on in his speech. If you back that out, we are at the high 60% utilization range. So really pleased with the progress. Another data point to give you a sense of it, is we've grown our non-TGE volumes by fourfold over FY '25. So good progress and credit to Gareth and the Containerised Freight team for the work they've done there. In terms of the financial performance in FY '26, given it is a non-take-or-pay market, it's hard to predict, but we are confident that we will see a favorable variance from FY '25. So given those utilization figures that I mentioned, we are expecting that EBITDA performance to improve from FY '25 to FY '26.

Your next question comes from Sam Seow with Citi.

Just a quick one on the Network ownership review. I guess, given you regularly do this kind of capital structure assessment, is there any kind of timing that we can expect on this review?

Yes. We'd be looking at an answer this year, more or less. And the thing that I'd add to how you spoke about this being a regular is that from time to time, over the years, we've gone out to various parts of the groups that -- the decision-making criteria, and we've gone out to various contributors to that group, that decision-making area like, for example, probably better with an example, like the customers. What do the customers think about this? So we go out and we talk to the customers and find out what they think time to time, you get new customers. So at some point in time, we'll do another process like that. On this occasion, I decided that it would be good to actually get an understanding of what the real value of the business was, and that's the process that undertaking with the support of the bank. And the reality is that you will get some information back, and we can act on that information. If you think about it, you got a -- you've probably got a continuum. And at the bottom end of the continuum, you've got pricing that makes the decision really easy because you just can't even possibly go there. At the top end of the continuum, which -- you get values that actually say this is that's extraordinarily high and you have an easy decision. And then you get in the middle of the continuum, you get a whole bunch of numbers that they're in the sobby center, and there's many other issues that you have to actually consider and think about while you're working through that. So hopefully, what I've done is paint for you the fact that we've been through year-on-year processes from time to time, we may go external to seek other information to make sure that our decision-making is accurate and relevant and still current. And that's what we're doing this time. Just when we went to the customer group, for example, they kept it a secret. When we went to the group that we've just spoken about, even though they're under NDAs, they didn't keep it a secret. So that's all that's happened.

Okay. Okay. And maybe just a quick question on Coal. The regulatory volumes expected to kind of tick up quite materially, mid-single digit. But I noticed, I guess, in your Coal division, the contracted volumes as we look out near-term are probably flat to down. Could you perhaps maybe join the dots there and just marry up the 2 kind of data points?

Ed, I might get you to talk about that.

Yes, certainly. Thanks for the question, Sam. So I think you're referring to the -- what's effectively a 6.5% uplift in regulated volumes on the Network and what the impact on the Coal business share would be. I mean, I think if you applied -- 96% of the regulated volumes were rail this year on the Network. And if you apply the same sort of pro rata, that equates to about an 8 million tonne uplift in actuals if that holds. And as with more than half the volume of the Network. That's -- we're seeing -- that's aligned with our modest uplift for FY '26.

George, I might just get you to give your take on that as well.

Sure, Sam. I mean the regulator sets those volumes pretty early in calendar year '25. And so it's based on the information they get at that point in time. My guess would be if they were setting that volume figure now, it would be a lower figure. Of course, that won't impact Network underlying earnings because of the regulatory revenue recognition change that we've talked about this year. So hopefully, that helps bridge some of it. We're not expecting a similar step-up in Coal volumes from a percentage perspective to what the regulatory volume step-up is in Network.

Got it. And just an easy one, maybe on Bulk, but it's just wanted to clarify the terminology you've used in the guidance, in particular, where you mentioned the nonrecurrence of provisions. I just wanted to clarify whether you mean none of your current customers are expected to result in a provision in '26 or if there's something that might reverse that we can add back in FY '26? I guess it's the latter. I mean, the former, but I just wanted to understand that a bit better.

Sam, it is the former. We don't expect to have further provisions for doubtful debts in '26. But what I would say is that we continue to pursue all legal and commercial avenues for recovering those amounts from those 3 companies that are in voluntary administration.

The next question comes from Cameron McDonald with E&P.

Thanks for the update just on the Whitehaven contract. And just as an extension to that other -- to the last question on the contracted volumes within Coal itself, not the Network just coming back from 233 to 229. Can you either confirm or deny that you've actually retained all of the existing contracts? Or is there another contract rolling off within the 2026 year, albeit it won't be material, but it will impact FY '27?

George, do you want to just talk about the...

Yes, sure. Cameron, the shift from, yes, 232 (sic) [ 233 ] to 229 is more to do with customer nominations. So customers are able to nominate plus or minus a band. Each contract is different, but that's the bigger drive of 232 to 229. The Whitehaven contract is an FY '27 outcome. So yes, it's more contract nominations that have resulted in 229 versus 232. And you might remember that at the half year, we took the step of giving an estimate for contracted volumes, and we said it would be circa 230. So 229, it's pretty close to that circa 230.

Okay. So -- but just an extension to that, there are no other contracts that you have lost?

No.

No.

Not that I'm aware of.

Okay. And then just in terms of some recent press reports, particularly around Mount Isa and Glencore, is there anything we should be sort of aware of or concerned about with what they could potentially be doing up there?

I think the situation on the Mount Isa line and the decisions that need to be made, there's there are many different outcomes that could actually occur and they impact the area and ourselves in a number of different ways. And we have to wait and see what the actual decision-making is as you get to the end of the process. The thing I would point out is that there are -- the resources that are in the ground that cause like copper and that are still in the ground and they get mined and they get moved. It's just where they get moved to and in what volume they get moved. If they moved as a concentrate, they get moved as high -- they're a high percentage, if they get moved as a cathode, they actually have much lower volume. So there's just so much complexity in that. It's just not useful to speculate.

Okay. And just on the Network review, I appreciate the comments that you made earlier, Andrew. But -- so just in terms of that process, is there anyone actually conducting third-party due diligence?

No. I'm not going to talk about the process, but we're very early stages in our process that just collecting people's interest and valuation.

And so -- well, in terms of that valuation though, has anyone actually tabled the valuation with you?

I'm not going to get into the details of the process that we're in other than to say that we've got a bank engaged, and we're actually interested this year in understanding the value that the actual network brings rather than actually having our estimate of what we think it is. That's what I'm doing.

Your next question comes from Ian Myles with Macquarie Capital.

Can we just look at the Network for a second? You talked in your guidance, I think, about higher direct costs as one of the counterpoints to the additional revenue. You've shown us that you expect to get or you'll book $93 million of additional revenue. And then in the slides, you've highlighted that overspends on maintenance and the likes, which are recoverable will also be excluded from being expensed this year gets put into or adjusted. So I'm just trying to work out why you said only 50% of the revenue would get converted to EBITDA.

George, do you want to deal with that?

Yes, Ian, there's 3 things. And bear in mind, when we talk $90 million up in the MAR, that includes the rev cap from 2 years prior. And so when I talk about the offsetting items, there's 3. There's maintenance costs, which will go up. The second one is rebates. We're expecting to have higher rebates as volumes increase in Network. And the third one, which is more minor, is the usual roll down of GAPE revenue. It was unusual in '25 with GAPE given we had the risk-free rate step-up, but GAPE will return to the typical reduction year-on-year because the asset base doesn't inflate. So they're the 3 factors.

Okay. You've got a lot of provisions moving. You've got an unwind of a $50 million provision and you've got bad debt provisions sort of going forward. What is -- being more direct, I guess, if we look at the Bulk business, what is the net provisional drag or benefit during the period and likewise with the Coal business?

Yes. I think it's impossible for us to give you an exact number on that, Ian, because bear in mind, some of it relates to insurance events, which we don't know what will occur throughout the year. But to give you maybe a steer, Bulk had a $56 million negative provision for doubtful debt. So that doesn't repeat. That's a $56 million benefit. If you assume that the provision release and Bulk's share of that $50 million doesn't repeat, that will be much less than the $56 million. In terms of Coal, it will have a net headwind from that provision release because the doubtful debt provision that won't or shouldn't repeat in FY '26 was only $7 million.

Okay. And does Network have a -- get much benefit from these provision releases?

Network is different from an insurance perspective in that Network is effectively self-insured given the way the regulation works. So it doesn't get a benefit of that insurance event, but it will have a benefit in FY '25 from lower STI payments.

Okay. Just to be perfectly clear, the -- I think, Cameron asked a question around Containerised Freight and profitability. You said EBITDA improves, but Cameron asked the question, will it actually break-even? Will Containerised Freight be able to break-even in FY '26? And I guess the extension to that is when do you expect it to break-even if it doesn't?

I expect it will be close in FY '26, Ian. I'm not going to give effective guidance by BU, but I expect it will be close. I absolutely expect it to more than break-even in FY '27. Speaker 11

Your next question comes from Justin Barratt with CLSA.

I just wanted to try and reconcile a couple of comments you made around the Coal business and volume expectations into FY '26. So I think, Andrew, you mentioned that you expect your utilization to increase. And then you also expect your growth year-on-year in your actual volumes, but not to the same extent as Network. So if I sort of do my math, it looks like there's actually going to be or you generally expect a relatively significant improvement in utilization in FY '26. Is that broadly correct?

So I think if you go back in history and you look at the high -- the utilizations that we have achieved, they've been in the low 90s. And a couple of years ago, the utilization of contract got -- the book got down to 80%, I think from maybe 81%. And it's been slowly increasing for the last year or 2. And we do expect contract utilization to improve longer-term.

Okay. Great. And then the next one, just on Coal yield. We've seen obviously a mix effect over the last couple of years. Just wanted to confirm, I think you said in your prepared remarks, Andrew, that you expect that impact to, I guess, or FY '26 to be the last year of that impact. I just wanted to confirm that. And then I guess, more broadly, I think the question has been asked before, but also just recheck how the Whitehaven Coal losing that contract may impact yields in terms of mix going into FY '27?

Yes. Look, when we talk the vast majority of the discussion around yield and mix is basically driven by volumes railed in Queensland and which of some of the customers rail well or don't rail. So the challenge is, of course, a customer may not rail well 1 year and then for another reason, they may not rail the next year, and then they might rail well the year after. Predicting when that individual customers are going to do the railings that they say they're going to do and therefore, drives your mix is a pretty difficult task and you're -- because you're relying on the numbers they give you and their ability to actually achieve them. And it's not just that individual customer, you may get another customer that actually rails much better than expected or much worse than expected. So that's what makes mix something that you can't -- to your -- because in part of your question, you said, and you'll get out of this and it will be gone. You don't get out of it and be gone. It's a description of what happens. We make assumptions for what will happen in the year ahead, and then we describe how we went against that assumption at the end of the year. And it all depends on various customers' performance. I hope that ramble actually made some sense.

No, it definitely does. But then just one final one, if I can. Just the nonoperational cost base, I guess, review, I just wanted to understand, is that in terms of this one complete now? Or is it ongoing and there's a potential chance that we hear more about, I guess, some cost rationalization going forward?

Look, I think what we did on this occasion has finished and the -- some of the things that actually caused the changes, we've captured that value and we'll move on. If you look at every year that Aurizon's done business, there's a cost reduction that takes place of some sort in some area for some reason. And the normal course of business is what I'm describing. And you'll -- we'll have reasons to make changes just like other parts of industry. We are, like everyone, looking at the application of that broad suite of -- the broad AI suite as to what can actually -- can that do to contribute to productivity improvement because that's what we've got to do year-on-year.

Your next question comes from Samantha Edie with Morgan Stanley.

Congratulations on the result. I just have 2 questions today, please. So if you go ahead and sell down the Network business, would you then have to pay back the hybrid debt in full? And is there any other debt that needs to be paid back as well?

George, do you want to talk about debt management?

Sure. Samantha, the hybrid was raised at the holdings entity. And I referred in my speech to the fact that the guarantees that exist under that hybrid instrument would remain on foot regardless of any change in Network ownership.

Okay. Cool. And then just the second question. Can we just have an update on the Mount Pleasant coal contract, considering the EPA has knocked backed the 22-year mine extension. So I think that coal mine is meant to expire in 2026.

Yes. I'd have to say I was almost going to hand that question to Ed. Can you say something -- but remember, we're not talking about our customers.

That's right. We -- I was going to -- that's where I was going to start. We prefer not to talk about customers in particular contracts, and that is in the public domain. We're working with the customer to -- and we're hopeful that they will get through the process. We've supported many customers in similar ways in the valley and in Queensland.

Your next question comes from Nathan Lead with Morgans.

Just 2 or 3 from me, if you don't mind. So first up, just in terms of Network, can you tell us what Aurizon's tax cost base is for Network for CGT purposes? Just so we can understand the tax dissynergies that might be involved in a transaction.

Good question, Nathan. I'll give that to George.

We don't disclose the tax cost base of Network, Nathan, but you can get a proxy of it by looking at the PP&E of Network that is in our accounts and then looking at the deferred tax liability, which is a public number. It's about $990-odd million in our most recent accounts. So that should give you a pretty good proxy if you're wanting to calculate it.

That's coming out like $2.85 billion or so. All right. Second question is the Network. Just wanted to get an idea of some key timing. So UT6, when do you expect to have that finalized? Because obviously, there's been a history of these things dragging on well past the end of the regulatory cycle. And then secondly, I suppose, and it tees in with it, but just timing on actually making a decision on what's going on with network ownership?

So as far as the UT6 progress goes -- sorry, I'll pick up that issue you say they drag on past the end of the regulatory cycle. I mean that was the old way that we worked together, where there was an imposed decision by the regulator and sometimes they did, to your point, last go several years past the end of the regulatory period. We're in a different dynamic. It's a customer agreement that we negotiated many years ago. And several years in front of that, which is the mid-2027, we -- our customers and ourselves started a process to work on replacing it with another agreement. Hence, you've seen a nonbinding agreement submission to the QCA put forward and noted briefly by ourselves. So that's happened. There's still quite a degree of work to go from that in principle agreement and take it forward to as usual, they're very complex and lengthy documents, and there's a number of players involved in it or a number of parties involved in it. So that does potentially lead to the situation going longer than one would hope. But as sort of in a way of providing an estimate, we're estimating that we'll finish it by the end of the year. And that we'll get to the end of the year, and then I'll tell you whether we made it or not.

Sorry, that's end of calendar year, Andrew or?

End of the calendar year, sorry, to be more accurate.

Callender year. Okay. Great. And then the ownership decision is ting off that...

So again, the process that we've entered into is to get -- is something that we do every year. And we're getting -- we collect information. We take that information on board, and then we make a decision about what we would do. And you've seen the results of the Board doing that every single year. As far as to when and how we'll make this decision, we'll see how it goes through the year. If I was putting myself in the shoes of somebody who is interested in the Network, I'd be very interested to know the details that are in the next agreement with customers. So that would clearly play into a process like that more from a timing point of view than anything, and it may or may not change anything that people may want to do.

Great. Final question for me, and I suppose it sort of talks to more Bulk's longer-term earnings prospects. But Slide 10, you call out the Karara iron ore recontracting. My understanding that was a pretty hard forward sort of tender process. Can you make any comment about what sort of earnings impact that would have given when you first entered into that agreement, it was a greenfield mine and there's been a long period of inflation-linked tariffs. So if you could just make a comment there?

George, do you want to talk about that?

Yes. Yes, Nathan. So we're really pleased to have recontracted that. It's a 10-year extension with that extension commencing in a couple of years. So about 12 years left to run on the contract. As you said, long-standing customer -- and I think the customer themselves on their website commented that rates would be lower. I'm not going to quantify the earnings impact because we don't do that on individual contracts. But I would say we're focused on delivering for that customer from a volume perspective, and that customer is looking at increased volumes going forward. So we're excited to deliver that additional volume profile for the customer in time.

Your next question comes from Anthony Moulder with Jefferies.

I just wanted to follow up on Bulk. You've got 3 customers, obviously, that drove those doubtful debts. I think you mentioned Centrex is potentially earnings contributing perhaps in the second half. Are you expecting much to come from those 3 customers through FY '26, please?

George?

Yes, sure. I mean let's take each one, Anthony. So we continue to rail for OneSteel, both the internal steelworks and export iron ore out of Whyalla, but the iron ore volumes are lower and expected to be lower in FY '26 compared with FY '25. In terms of Centrex, they are going through a process with a listed company called PRL, who's looking at acquiring that mine to add it to their existing phosphate rock mine. We're talking to them around when the volumes could ramp-up. As I said in my speech, I wouldn't expect that in the first half. And if it is in the second half, it would be small volumes. And then the third one is Northern Iron. They are not railing at present, and I also don't expect them to rail in a meaningful way in the first half. I won't preempt what the second half though could look like, but we are working closely with the administrator and receiver of the Northern Iron or Warrego project.

Right. It doesn't sound like you have a lot of expectations for those 3 customers and your expectations for EBITDA growth from Bulk in '26. Is that fair?

That's fair.

And lastly, if I could, on Coal. We've seen one of the other large coal haulage providers lose a lot of customers. Is that putting -- and now having won more of the Whitehaven -- are you seeing more pricing pressure from that other rail haulage provider in the market, specifically in the Hunter Valley?

Ed, would you like to say a few words?

Yes, sure. The market always -- it's resilient, I'll start with, and freight pricing in the short-term certainly got some headwinds in the Valley. That said, our contract structure and CPI-linked mechanisms help buffer the volatility, and we always compete with a view to stable cash flows through the cycle. The contract negotiations are always price competitive. That's not surprising. We will compete aggressively to retain business and protect those earnings. And as I've said on previous calls, it's difficult to predict what rates will actually do in future or in a particular negotiation because it's a function of the specific customer requirements, the available capacity at the time, but also the timing of negotiations. So rates are always important to our customers given their cost focus, but they also value flexibility and service reliability, which the tenders often factor in.

[Operator Instructions] Your next question comes from Scott Ryall with Rimor Equity Research.

Well, then you've preempted my annual question on the Network review. So I'm going to ask Ed McKeiver a question if that's all right. Ed, Andrew talked a little bit about the need for productivity across the business to face various pressures and things like that, which is very sensible. And I guess just specifically on Coal, I wonder if you can talk or just give us an update on the implementation of TrainGuard, how that's progressing? Is that the main driver of being able to keep operating costs flat next year in your guidance? Just give us an update on where the implementation of that, please?

Yes, sure. Thanks for the question, Scott. I'll start by saying costs are always a focus. And as I reported at the half year, we expect to hold unit costs per NTK flat into FY '26. There's 3 key levers. One is the cost-out program benefits, which Andrew and George just spoken about. The second one, of course, is the train crew costs driven by the TrainGuard implementation. And the third is the productivity dividend we're seeing through embedding cycle time and cancellation improvements in CQCN. We saw the best losses in over 6 years, reduced improvement in 6 years during the last financial year. Just to go specifically to your TrainGuard question, it's going very well. This year, we completed the rollout through the branch line. So now we have all of Blackwater and Goonyella complete. and we're operational do services across those systems. We've got 32 consists operational across 1,900 kilometers. 750 train crew have been trained in the system, 250 technical staff have been trained. We've done about 8,000 do services, driver-only services during the year. So approximately 50 drivers have left the business as a consequence. We retained some during FY '25 to deal with growth and surge. And we've also -- we also expect a further 50 to attrit this financial year, FY '26.

Okay. Great. And does this -- how does it tie in? I noticed in the appendix your EBA expires March '26. Is this something that becomes an issue for the discussion with the unions? Or are they -- you've taken them on the journey sufficiently that it's just part of the annual discussions that you have with them?

Absolutely, Scott. It's the latter. It's taking them on the journey. Our people have been fantastic in relation to embracing the technology. It, of course, makes their role -- their jobs safer. We haven't had a mainline SPAD on a TrainGuard-enabled train since implementation in over 2 years. And right from the outset, our EAs require us to negotiate and consult with our employees around workplace change. And so I couldn't be happier in the way that the workforce and the unions have supported the rollout.

And I think, Scott, just a context when Ed says there's no mainline SPAD in the year. My memory prior to TrainGuard being put in is you're looking at 20 to 30 a year. So reducing that has vastly reduced the safety risk to train drivers from that quite significant event.

There are no further questions at this time. I'll now hand back for closing remarks.

Look, thank you all for joining the call today. I look forward to delivering for investors in 2026 and against our longer-term aspirations. Thank you.