Aurizon Holdings Limited (AZJ) Earnings Call Transcript & Summary

Good afternoon, everyone, and thanks for your time here today in Newcastle and for those of you on the webcast as well. I think we've got a pretty good agenda for you from the Aurizon team, who are all sitting down the front here. Just a reminder that we will do 2 presentations from Andrew and George first, then we will have a break. Then we'll come back for the other 3, and we'll do Q&A at the very end of the day, just so we're clear on that. But without further ado, please, I'd like to welcome up to the lectern first, Andrew Harding, our Managing Director and CEO.

I'd like to start with an acknowledgment of country. We acknowledge the Awabakal and Worimi people, the traditional custodians of the land we're on today. We pay our 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. Welcome, everyone. It's great to be here today in Newcastle with all of you in the room and those watching online. Starting with the team who will be presenting to you today, and as you can see, there are many familiar faces. It will be the first time many of you are meeting George Lippiatt, who was appointed CFO and Group Executive Strategy last year when Pam Bains moved roles to be Group Executive Network. The agenda we have for you today will see myself and George first up as we step through Aurizon's strategic objectives and how we think about capital allocation and free cash flow under a broader range of potential scenarios. Given there will be a lot of detail in the first 2 presentations, we will then have a short break and come back for presentations from Clay, Ed and Pam as they talk about their individual business units' key priorities for the coming years and how that aligns with the enterprise. There will be an opportunity for questions and answers after the final presentation with the entire team. The objectives today are to provide a detailed look into the longer-term drivers of coal demand, including how we draw upon scenario analysis to consider and respond to these drivers in our business and to provide greater information about the potential opportunities for our Bulk business. However, before we go into this detail, I will walk you through a brief overview of Aurizon, including our safety performance, environmental and coal contribution and a look at the commodity markets that drive demand for Aurizon's services. As always, we start with safety. Here is the key data across key safety measures for year-to-date at 30th of April 2021. The total recordable injury frequency rate, or TRIFR, is marginally higher than the rate for the previous 12 months. However, at 10.06 incidents per million person-hours worked, it has shown significant improvement since we reported the half year performance in February when it was tracking at 12.38. The 18% improvement we've achieved in the past 4 months is encouraging. The highest contributors continue to be low severity strain and sprain injuries. The lost time injury frequency rate, or LTIFR, has continued to show improvement with a 28% decrease year-to-date. Again, this is a positive trend which we aim to sustain. Rail process safety, a fatality-prevention measure, which measures operational safety, including derailments, signals passed at danger and rolling stock collisions, remained steady at 4.79 incidents per million train kilometers traveled. We've maintained our vigilance with COVID-19 protocols for the health and well-being of our workforce and have responded appropriately to the community outbreaks that have occurred. These include restrictions on nonessential travel and continuing to promote flexible and remote working where we can. Aurizon is also actively encouraging employees to get vaccinated to protect themselves, work colleagues, their families and local communities. We will begin with an overview of Aurizon for those less familiar with the company. Aurizon is the largest rail-based transport business in Australia, but we are expanding beyond that in our Bulk business, as we will talk through later. About half of our earnings and assets belong to the below rail Network business, which is our regulated infrastructure in Central Queensland. The other half of the group is above rail with our Coal and Bulk businesses operating across Australia with strong growth resulting in Bulk being accountable for 1/3 of revenue and 1/4 of EBIT. We are exposed to many commodities outside of metallurgical and thermal coal, including iron ore, nickel, alumina, copper and lithium. And also, our agricultural sectors include grain, livestock and fertilizers. The vast majority of commodities we haul are destined for the export markets of Asia in order to supply their needs for steel production and energy generation as well as emergency -- emerging technologies such as electric vehicles and renewable energy. I'd now like to turn to the ESG aspects of our business. Last year, we released our seventh annual sustainability report. The sustainability report remains the primary document for reporting on our ESG matters, including our response to climate risks and opportunities in alignment with TCFD. Our approach to ESG reporting has been recognized by the Australian Council of Superannuation Investors in rating Aurizon as leading for the seventh consecutive year last month. Last October, we released Aurizon's first Climate Strategy and Action Plan. This plan expands on the initiatives we've previously included in the sustainability report and provides a road map through to 2050 on how we will seek to decarbonize Aurizon's operations and contribute more broadly to a low-carbon freight transport sector for Australia. I will speak to this in more detail shortly. We've also extended support into the community with grants to charities and volunteer groups from our Community Giving Fund. More than 80% of our employees work and live in regional communities in Queensland, New South Wales and Western Australia. So it's important we support these communities. As part of our efforts to strengthen our connections and our investment in these communities in which we live and operate, I was proud to announce last month a 3-year partnership with national charity, Orange Sky, an organization that provides free laundry and shower services via mobile vans for people experiencing homelessness. Orange Sky is making a positive difference for the 1 in 200 people who are estimated to be homeless in our communities by providing a safe and supportive environment. Our objective is to continue to deliver a productive, sustainable and socially responsible business that, in turn, creates value for our customers, employees, communities and shareholders. I just mentioned the release of our Climate Strategy and Action Plan. The strategy includes the key commitments of: our target of net-zero operational emissions, Scope 1 and 2, by 2050; a $50 million investment over the next decade in a Future Fleet Fund, this will target low-carbon technologies for our fleet; and using more renewable energy to our electrified rail network and other rail facilities and using carbon offsets where emissions reduction is not possible. As we've said in prior years, Aurizon accepts the scientific consensus on climate change and supports collective efforts to limit global warming to less than 2 degrees C, aligned to the 2015 Paris Agreement. Aurizon wants to be part of the global solution, supporting an effective transition to this lower-carbon future. We've already made some good progress. But like other companies, we know more must be done. Over the past decade, Aurizon has achieved a 20% reduction in our carbon emissions intensity by investing in new locomotives, better technology and improving train driving techniques. We aim to reduce this by a further 10% by the end of this decade. One of the natural advantages we have is that a large proportion of our locomotive fleet uses electric traction on the Central Queensland's Coal Network. Not only are electric locomotives inherently more efficient with fewer emissions, but emissions will also decrease further over the coming decades as more renewable energy feeds into the grid. Ongoing technology development will be a fundamental driver in reducing Aurizon's carbon emissions. Our biggest focus will be on sourcing low-carbon technology for our locomotive fleet, which currently accounts for more than 90% of Aurizon's CO2 emissions. Similar to the motor vehicle and energy industries, the rail freight industry globally is developing low- or zero-carbon solutions to power freight trains. This includes battery, hybrid and hydrogen-powered locomotives. The work we do in the next 5 years is critical to firming up our pathway to net-zero operational emissions by 2050. This is because locomotives have a working life of 20 to 30 years. The investments we make in renewing our locomotive fleet need to capture benefits for the decades that follow. These decisions will also factor in business benefits for Aurizon in safety, our cost base and operational efficiency. We look forward to continuing the journey for Aurizon and to continue to create value for shareholders. Further updates on our progress will be made in our next sustainability report, which will be released in October this year. Now I want to spend some time talking about the key commodity markets in which we operate. First, the metallurgical coal market, where Australia is, of course, the largest export nation globally. Around 2/3 of the volume hauled across the Central Queensland Coal Network and around half the coal volume hauled by above rail is metallurgical coal. Steel is, of course, an integral link to economic development with modern economies built upon the material. Crude steel production occurs primarily via the blast furnace or integrated grid, which currently accounts for 1.3 billion tonnes of annual crude steel production, almost 3/4 of global production. In this process, metallurgical coal currently has no large-scale, economically viable substitute. Already Australia's largest met coal trading partner, India is projected to be the largest contributor to the global seaborne demand growth over the decades ahead. Although doubling in production over the past decade and now the world's second-largest steel producer behind China, India is considered at an early stage of development with consumption per capita around 1/3 of the global average. Faced with the structural deficiency of metallurgical coal, India turns to the seaborne market for about 90% of its requirements. And in turn, Australia supplies about 3/4 of India's import demand. Turning back to global steel production. We do expect the integrated method of steel production to reduce in share at a global level over the decades ahead. This is primarily driven by greater availability of scrap product. However, the complete replacement of coking coal in steel production, such as through hydrogen-based production at scale, in the next 2 decades is, in our view, a low likelihood. This is driven by cost competitiveness, in addition to practicalities regarding adequate supply of high-quality iron ore, electrolyzer capacity and associated hydrogen distribution. Furthermore, it is anticipated that the incentive will remain for nations in Asia to continue to run their young fleet of blast furnace capacity through to the end of the typical lifetime, rather than reinvest in alternative technology. Turning to thermal coal, which, of course, is the remaining 1/3 of network volumes and half of above rail coal haulage. At around 6 billion tonnes per annum currently, it is anticipated that thermal coal consumption at a global level will reduce in the decades ahead. However, rather than global consumption, the demand for Australian coal is dependent on the traded market. The global trade market is less than 1/5 of global consumption and, as shown on this slide, is increasingly dominated by Asian trade, from just 35% in 1990 to now being over 80%. This is the continent where 98% of Australian export volume was destined last year. This 900 million-tonne per annum Asian import market is backed by both a young fleet of existing capacity with the average age of capacity across the region at just 17 years against a typical operating life of 40 years. Beyond existing capacity, there is currently 120 gigawatts under construction in Asia, equivalent to around 5x the operating capacity in Australia. Contributing to this growth is Southeast Asia. As profiled on this slide, worth 30 gigawatts has been added over the past decade. From almost 0 export volume from Australia 5 years ago, Vietnam is now Australia's fifth largest thermal coal trading partner with 14 million tonnes exported there last year. It is expected that the growth profile will slow for new coal-fired generation in the decades ahead, but the application of global consumption projections to the seaborne market is not consistent with the reality playing out in Asia. Finally, bulk markets. Historically supported by more traditional drivers of bulk commodity demand such as infrastructure development and food consumption, the opportunity for our Bulk business is also supported by new technology commodities supporting the global energy transition. These are commodities used in the manufacture of mobile phones, wind turbines, battery development, electric cars, solar panels and other high-tech applications. The specific commodities I referred to include cobalt, copper, lithium, nickel and rare earth elements. Under its stated policy scenario, the International Energy Agency projects a doubling of minerals associated with clean energy technologies by 2040. In a less than 2 degrees scenario, the IEA projects a fourfold increase over the same time period. As demand for such minerals grows, there are significant opportunities for Australian export volume. This is supported by increased exploration seen over the past 5 years and projections by the Office of the Chief Economist. Already the world's largest producer of lithium, annual growth of 16% per annum is projected over the 6 years. Global food consumption supports the export of agricultural products such as grain but also associated bulk products such as phosphate for use in fertilizer. We will continue to talk of the bulk market opportunity throughout today's presentation. I want to take a look at our value-creation record over the past 5 years as this has been significant and provides a platform for the future. All the activities shown here have set up each business unit and ultimately the group for the future by ensuring a resilient foundation. This has resulted in stable cash flow, which has delivered consistent distributions to our shareholders, as evidenced by the chart on the right. When including the completion of this year's buyback and the payment of the interim dividend, distributions have totaled more than $4 billion over the past 6 years. I want Aurizon to be known as a company that is predictable, resilient and is constantly striving to create value and reward shareholders with strong returns. To remind you of what the objectives are for today, we want to give you a detailed look into the long-term demand drivers for coal, how we apply various scenarios and how we use them in a practical sense today. Investors have asked for more information about the Bulk business and the markets in which they operate. We will provide details on why we think this market is now a significantly larger opportunity for the Bulk team and why we think we are well positioned to take advantage of this larger market. We will provide more detail on our capital and how we can redeploy assets to support growing areas like Bulk. With that objective in mind, I want to take you a step below into each business unit as they all have a unique focus ultimately aligned to enterprise objectives. Aurizon has a unique place in critical supply chains across the nation. Our involvement in improving these supply chains will support long-term demand for key commodities on global exports. We will continue to deploy capital efficiently to support those supply chains with a view to generating attractive growth and shareholder returns. For Coal, the focus is return on invested capital and free cash flow. With a contract book well-set, this can be achieved through a continuous push on transformation and productivity. Capital will be spent carefully with some assets able to be redeployed -- to be deployed into or shared with Bulk to support their growth ambitions because of Coal's efficiency improvements. For Bulk, with growing markets and new adjacencies, the focus is on revenue and earnings growth. It will need more capital, which has already begun such as the 2 Aurizon Port Services businesses. But it can also take advantage of fleet from coal that can be cascaded to support these growth markets. For Network, the focus is on embedding UT5 to ensure long-term regulatory certainty, reducing costs and enhancing the efficiency of the supply chain, which will ultimately increase throughput for the entire industry. Each group executive will take you through these focus areas later in the afternoon. A central part of today's presentation is our coal scenarios, how we construct them and how we use them. We've been using them for a number of years now as part of our strategy in uncertainty framework. George will go into a lot more detail about what our scenarios are, what are -- assumptions we use and what the limitations are. What I want to reinforce is, these are possible scenarios that we use in various ways in our business, including the way we think about our strategy, about the allocation of capital and, importantly, about sustainability in the context of climate change risks. We have modeled these same scenarios to test the resilience of our business and possible cash flows across a range of scenarios, and we will take you through the results of this analysis today. It is important to note that these are only scenarios. They're not predictions of the future or forecast of any kind about how our business may perform in the future. The scenarios span a wide range, but they do not represent a floor or a ceiling in terms of potential outcomes. The 2 outlying scenarios depicted in this presentation do not represent a possible worst or a possible best outcome. Scenarios are also heavily dependent on assumptions which underpin them, and we can't always pick the right ones. The slides being presented today explain these scenarios and their limitations in detail, and I'd encourage you to read the slides again after today. Resilience is a recurring theme you will hear today, which is very important in today's environment. It's important for us to demonstrate how we test the resilience of our business and to show you the value that this can bring. It's also important because it demonstrates our confidence that the Coal and Network businesses can provide a foundation to support Bulk's growth ambition as it expands into new markets. These new markets provide a much larger potential profit pool, which underpins our aspiration to more than double Bulk's current EBIT to $250 million over the next 10 years. This growth opportunity could result in the commodity mix changing within Aurizon. And consequently, if Aurizon is able to capitalize on these opportunities, revenue from thermal coal could be less than 20% of the above rail portfolio by 2030. But what does this mean in the long term for earnings and ultimately cash flows? We've modeled this intensely, given the market's interest in coal demand. As George will go through in some detail shortly, this has involved modeling the impact of various scenarios and then what levers we have at our disposal to mitigate downside risks. The capital and cost levers are within our control and provide a platform to offset much of the impact from lower coal volumes. The scenario analysis George will talk through is a good test of the resilience of Aurizon's free cash flow. In all of the scenarios we have modeled, the modeling indicates that the company can generate an average free cash flow of approximately $500 million to $650 million per year. As noted, our scenario outcomes are not predictions, forecasts or projections and nor are they -- the scenarios themselves representative of the best or worst possible outcomes. Further details of the key assumptions and analysis underpinning the scenarios is set out in the presentation. And finally, before I hand over to George, I will take you through our assessment of the bulk market opportunity now in front of us. Strong growth is coming from new economy markets such as renewables and batteries, increasing infrastructure development and growing food consumption. This, when combined with new markets, has resulted in an estimated market size of $1.25 billion in 10 years, which is 5x what we had previously thought. This estimated market size is about 1.8x the size of the coal rail market. Our aspiration to achieve 20% to 25% market share would imply a $250 million to $300 million EBIT over the same time frame. We are proud of the journey of Bulk over the past 4 years. And this has been achieved in the traditional rail market, where we have a strong presence in Western Australia and Queensland. We've said this market size was around $250 million, but strong growth has seen this market grow to around $350 million today, with Aurizon being about 1/3 of this. But there are new market opportunities in front of us, and this is partly being driven by our customers as they are seeking end-to-end solutions. These markets are fragmented, and there is value from integrating services along the supply chain. They are larger than bulk rail at around $600 million and include road and coastal shipping to support rail, port services and rail maintenance. Our 2 acquisitions in Townsville and Newcastle under the Aurizon Port Services banner are examples of these new markets, and we're excited by the opportunity they bring. The growth in rail and these new markets is expected to be significant and is not correlated to coal demand and, therefore, provides a growth avenue for Aurizon. This is assisted by the ability of the company to cascade fleet and the resilient cash flows from Coal and Network. With that, I will hand over to George.

Thanks, Andrew, and good afternoon, everyone. Thank you to those joining us virtually and those who've made the journey to be with us here today in Newcastle. I've been in the CFO role for a year now but have only had limited opportunity to meet most of you face-to-face. So this is something I've been looking forward to. While the first page has the title Context, it's also a chance to reflect back on the last 12 months. As a company, we've seen softening coal volumes due to COVID and the China import ban. Volumes for FY '21 will likely be the lowest since 2017. Despite that, we are today reaffirming our FY '21 earnings guidance of $870 million to $910 million and highlighting that we expect FY '21 free cash flow to be around $700 million, inclusive of Acacia Ridge net proceeds. It's these figures that underscore the resilience of our business, have enabled us to maintain a dividend payout ratio at 100% of net profit after tax, including up to the most recent half year, and ensured we have the support of debt markets. Turning to the future. And I think what we can all say, having lived through the last 18 months of COVID, is that the future is incredibly hard to predict, which is why at Aurizon, we don't use one view of the future. We use scenarios. I'll take you through those in a few minutes. When we model our current 6 scenarios, it highlights that our business and our cash flows are resilient across those scenarios. One of the reasons for that is that our trains don't care what commodity they carry. As mines are developed or switched off, we can shift our fleet. There are limitations such as gauge and weight, but this generally affords us a high degree of flexibility to respond to shifting market dynamics. That flexibility is a good thing for our customers, and it also supports our focus on capital productivity and free cash flow. This context is demonstrable of our track record of capital discipline, and that track record over the last 6 years has enabled shareholder distributions of $4.3 billion. Now that's from a company with a market capitalization of around $7 billion. I've mentioned free cash flow a number of times now, so let's look at some historical data on it. And before I turn to the chart, I'll just reconfirm for everyone that free cash flow is the amount we make from operating the business, less the amount of money or capital we spend to sustain the operations. What's left, free cash flow, is then available to either be distributed to shareholders or invested in growing the business. It's been more than 10 years since the IPO. And the first thing you notice in the chart, from 2011 to 2016, is that there was a period of heavy investment in new rolling stock and track infrastructure. Those investments enabled growth in volumes. For example, back in 2011, our network and above rail coal volumes were 25% and 15% lower than FY '20. If we shift along the chart to 2016 and 2017, Aurizon instigated greater focus on capital and efficiency. We were no longer going to sacrifice cash each year to sustain loss-making Intermodal and Bulk businesses. While Intermodal was exited, the Bulk business was retained and successfully turned around to the point where we're now looking to actively grow it, something Clay will focus on later. What you can also see on this chart from point number 3 is that the black line, free cash flow, is pretty consistent. While volumes have moved over the last 4 years, and as I said earlier, they've been soft this year, our free cash flow hasn't missed a beat despite the global disruption caused by COVID and a China import ban on Australian coal. I mentioned earlier that at Aurizon, we don't believe in using one possible view of the future. Instead, we use 6 scenarios. That process is something we call Strategy in Uncertainty, or SIU. We've used this process for the last few years, and it's a framework that starts by understanding the key macro drivers for the commodities we haul. It's built on the belief that if you want to understand how much metallurgical coal we might haul in 20 years, you don't start by looking at the mines in Australia. You start by understanding how many bridges, highways, buildings, rail infrastructure and other steel-intensive products are going to be built in countries like India. And that's just one example of the types of inputs that go into our SIU model from a demand perspective. We also, of course, consider GDP growth, government and climate policy, steel production methods and import reliance to name a few more. Armed with that demand side view, we then assess whether Australia might meet that demand or whether other competing countries like Russia or Indonesia will meet it. As I'll come to later, predicting supply relies on mine approvals and capital being allocated to new mines. Given that's inherently hard to predict, that's where our scenarios come in. Of course, not to be forgotten and a growing part of our business, you can see on the far right-hand side of this slide that we apply similar rigor to estimating the bulk market. The output of that work is what Andrew highlighted earlier and Clay will take you through in more detail. What you'll hear is that we're excited about the opportunity that growing demand for new economy minerals creates for us. Whether it's copper for electric vehicles or rare earths for iPhones, we can see how Bulk will be a much larger part of our business in years to come. Now it's important for me to emphasize that these scenarios are not predictions of the future nor do they generate forecasts or projections. They are possible scenarios that we use in various ways in our business, including the way we think about our strategy, about the allocation of capital and, importantly, about sustainability in the context of climate change risks. On Slide 17, we highlight the limitations of scenario analysis. Please bear that in mind as I now take you through each of the scenarios. One of the outcomes of our Strategy in Uncertainty process is shown on this slide, our 6 coal volume scenarios, showing Australian coal export volumes over 20 years to 2040. We use 20 years because it's short enough to enable detailed assumptions to be used but long enough to align with some of our key assets such as rolling stock and the depreciation period used to calculate regulatory tariffs in our Network business. I'll go through on the next slide the key assumptions under each of these scenarios. But if we focus on the outputs, firstly, you can see that there's a wide variance between each of them. There's over 300 million tonnes difference between the top scenario, commodity strong, and the bottom, rapid decarbonization. Secondly, if we focus on the first 10 years, from 2020 to 2030, you can see that there's 5 green arrows. That means that under all but one of our scenarios, there is positive growth in Australian coal exports to 2030. The second decade, however, 2030 to 2040, naturally sees greater divergence, with export volumes falling under 4 of 6 scenarios over that 10-year period. Given these are scenarios and not predictors, it's important to understand the key assumptions underpinning each of them. Just as the volumes diverge, so, too, do the key assumptions. I'll go through some of the key assumptions to give you an understanding of them, noting that there's additional detail in the appendix to the pack we've loaded onto the ASX platform earlier today. Let's start on the left and work our way across. Commodity strong. This scenario assumes no new climate policies being enacted, and Indian steel production rises from 100 million tonnes a year to 280 million tonnes by 2040. Australian coal exports grow to over 500 million tonnes by 2040, meaning that Australian mines and enabling infrastructure would need to be expanded to meet the Asian demand. Now to current economics. This scenario starts to see changing steel production methods in Europe by 2040 and sees coal's share of the energy mix in Asia drop to 20% from where it stands today at 59%. Unlike commodity strong, Indian steel production only raises to 250 million tonnes by 2040. I say only because the Indian government target is 250 million tonnes by 2030. So this scenario assumes India meets that target but is a decade late in doing so. Next, I'll take you through our 2 supply-constrained scenarios. The first of those is port-constrained Australia. This scenario sees demand from Asia being the same as current economics yet port terminal infrastructure not being expanded to meet the coal export growth. That sees Australia's share of the seaborne coal market drop from an assumed 40% in current economics to 35%. The second constrained scenario is called mine- and regulatory-constrained Australia. As the name suggests, this sees no greenfield mines being developed in Australia beyond 2025. And those that are developed are limited to where they are considered advanced in terms of development and approvals as at today. So while Asian demand remains, under this scenario, Australia's share of the seaborne market drops to 25%. Russia and Indonesia exports are the main winners and fill the assumed supply gap. Turning now to carbon-constrained Asia, our fifth scenario. The key changes here are to energy and how it's produced. Coal's share of the energy mix in Asia drops to 10% by 2040. But Asian steel production continues to grow, with coal-based steel production remaining the dominant method in Asia at 70% of the mix. Despite that and Australia growing its share of the seaborne market to 40%, Australian total exports reduce to 300 million tonnes by 2040. Large and least in terms of volumes, rapid decarbonization. This assumes significant shift towards decarbonization and that the transition is fast. How fast? No coal-fired power globally by 2032. Plants in places like India, China and Southeast Asia which have only been built in the last year are shut down after only a decade in operation. And the average Asian power plant only has a 20-year life in operation. To give you a sense for the change required, China would go from coal-fired energy production of 4,800 terawatt hours today to 0 in 2032. Australia produced 265 terawatt hours from all energy sources in 2019. So that China shift would be significant. Steel also sees changes with the coal-based BOF method only accounting for 40% of global steel production by 2040 and Indian steel production growing to only 160 million tonnes by 2040. For those of you wondering which scenario aligns with meeting the goal of limiting global warming, I'd say it depends on how much heavy lifting non-Asian countries do. So what do I mean by that? It's recognized that there is no single pathway in reaching a decarbonized future. For example, the International Panel for Climate Change (sic) [ Intergovernmental Panel on Climate Change ] produced a report in 2018 projecting 90 pathways that limit global warming to below 1.5 degrees, each with different implications for global coal consumption. In saying that, it's unlikely, in a less than 2-degree world, that scenarios 1 to 3 would play out. I'd also say that our scenario 6, rapid decarbonization, features a faster closure of coal-fired generation compared with the IEA's Net Zero by 2050 report released just last month. More important than the scenarios themselves is how we use them. That's what we cover on this slide. What I want to convey to you is that we don't just have these scenarios at an Australian export level. We also look at them by coal type, by corridor and at a mine level. Modeling at that level of detail allows us to stress test key decisions. Let me give you some examples. On fleet, which is shown as growth CapEx and stay-in-business CapEx, we've had 2 fleet decisions recently. Firstly, do we invest to further grow our Queensland coal fleet? Or do we rely on Project Precision to create capacity? For now, we aren't investing further. That aligns with the bottom 5 scenarios. But if a commodity-strong scenario eventuates, we either need to buy fleet and risk being late to the game or rely on Project Precision outperforming to create further capacity. The second fleet example is around overhauling Hunter Valley fleet, which we continue to do. Now this decision aligns with the top 5 scenarios. But if scenario 6 comes to be, we would have some stranded fleet. It's a minimal amount and certainly very low compared with the returns we generate under the other scenarios. So it's a good risk/return equation when we look at our scenarios. The next example is customer contracts. When we assess a new customer contract, we test whether that mine will continue to operate under each of these scenarios. The more scenarios the mine ticks, the more secure the volume. This is valuable to assess counterparty risk and the contract terms we offer. In other words, this process informs the return profile and payback period we target for each customer contract. The next way we use scenarios is to stress test free cash flow, and that's what I want to cover next. While volume scenarios are of great interest to many stakeholders, what's critical to analyze is how that potentially translates to a rise in cash flows. The first step in that process is the one I've just taken you through, assessing the resilience of Australian coal volumes. In other words, just because there are coal reductions in Europe and America doesn't mean that Australian exports decline, particularly given more than 90% of our exports are consumed in Asia. The second step, shown as B on the slide, is to look at Aurizon's revenue sources, including the regulatory protections of our network infrastructure business and, in our coal haulage business, the contract positions and coal type that our business is exposed to. C and D are all about how we operate our business. Should volumes reduce, and we have confidence that it's a permanent decline, we would not be doing our job if we didn't reduce our cost base. Not only does lower volumes mean lower fuel and track access costs, but it also means you need to maintain less fleet for coal haulage. That means we have available fleet, which can be used to replace fleet at the end of its life in other Coal hauls or Bulk hauls. Whichever it is, this reduces CapEx and increases free cash flow. Lastly, our Bulk business has current and future target customers that produce copper, zinc, nickel and lithium. Growth of these commodities is expected regardless of the coal volume outlook. And in fact, a lower coal volume outlook could potentially enable Aurizon to shift fleet and grow noncoal earnings without material new CapEx. This is an example of the process I've just described, and it's a worked example of carbon-constrained Asia, our fifth scenario. To start with the headline, what you can see is that while global coal volumes might decline, that doesn't translate into a significant shift in a rise in free cash flow under this modeled scenario. The way to read this slide is across the top are the market segments where Aurizon operates. And on the left, going down the page, are the key drivers of free cash flow. The arrows and the colors highlight the range of impact over the 20-year period. Firstly, global coal volumes under this scenario fall by more than 2% per annum for 20 years. Despite that, Australian volumes outperform, given they're exported to Asia's young coal-fired power plants and growing steel mills. In terms of how that translates to Aurizon revenues, there is a marginal increase in group revenue, while thermal coal-related revenue reduces, metallurgical coal less so, and Network and Bulk revenue increases. The volume decline of around 25% by 2040 provides the opportunity for operating cost reductions, which are assumed to drop by 20%. Similarly, CapEx reduces in Coal and, to a lesser extent, in Network, which you'd expect. But it also shows how CapEx would reduce in Bulk. An example of that is standard gauge fleet replacement in Western Australia, which, under current economics, would happen in the early to mid-2030s. However, in a carbon-constrained Asia world, instead of spending money on fleet replacement in Bulk, we shift no-longer-utilized standard gauge fleet from Hunter Valley across to Western Australia and avoid the capital spend. Lastly, free cash flow. Our Bulk business continues to grow regardless of coal headwinds. And at a group level, under this scenario, Aurizon's future free cash flows are only marginally lower relative to today. I've spoken about these levers over the last few minutes, but this slide just gives you a more holistic view of how we think about them. These are the levers we would use to seek to mitigate any assumed free cash flow decline. Firstly, OpEx levers. These generally account for half of our assumed cash mitigation, depending on the scenario. These include direct costs, which are largely variable with volume, as well as indirect costs that would need to be rightsized. For example, it would be reasonable to assume a smaller head office and management team if we find ourselves in a rapid decarbonization world. Secondly, CapEx levers, and these generally account for slightly less than half of our assumed cash mitigation. For Coal, if volumes reduce, we'd not require the same scale fleet to be maintained. That reduces sustaining CapEx and provides a useful pool of spares for the fleet that remains operational. For Bulk, as I explained earlier, there are also fleet renewals and parts spend that would be significantly reduced for certain classes of locos if a coal downside scenario came about. Finally, the third and fourth levers, which account for minimal residual cash mitigation. These are about enabling further Bulk growth or selling or scrapping fleet. We are conservative in that we don't assume much Bulk growth despite the scale of the market opportunity, and we are conservative in that we don't like selling or scrapping locomotives. We'd rather Ed and Clay find a good value contractor put the assets to work. This next slide outlines some of the key assumptions we've used to come up with our free cash flow scenario range. Starting with volumes, while Aurizon has capacity charge protections in our coal haulage contracts, and mines are known to continue to operate when marginally out of the money, we haven't assumed that occurs. In other words, we assume that where Asian coal demand drops, mines high on the cost curve stop operating, and Aurizon receives no capacity charge. Then to revenue, and there's a few assumptions to work through here. Firstly, we assume no market share gains or losses, which means that competitors with older coal fleets are assumed to invest to maintain scale. We also assume rates reduce, particularly in downside scenarios. This is on the assumption that fleet capacity exceeds coal demand. But as I've outlined, that assumes rail operators invest to renew fleet or don't shift fleet to service noncoal customers. In terms of our Network business, we've assumed the current regulatory model holds and that our WACC rates lift in line with the current risk-free rate or yield curve. In terms of OpEx, we assume operating ratio is held flat, just above 70%, and that no further automation beyond TrainGuard is achieved. To give you a sense for this assumption, in rapid decarbonization, coal haulage volumes drop by about half. But we only assume that the addressable cost base falls by about 1/4. Moving then to CapEx, and the key assumption is that CapEx reduces by less than 80% of the volume reduction. So to use rapid decarbonization as the example, while volumes fall by about half, we assume that CapEx reduces by just over 1/3. In terms of Bulk growth, we don't assume in these free cash flow numbers that I'll talk through in a few minutes that Aurizon invests to enter other parts of the Bulk supply chain. We do, however, assume that there is additional fleet available from coal haulage volume reductions longer term. This enables Bulk to increase its share of the rail market by 1 percentage point. And finally, the other row shown is our gearing assumptions. While we've assumed -- where we've assumed gearing is held flat, there's no major step-up in debt margins. But overall debt costs increase, aligned with our risk-free rate or yield curve assumptions. I've spoken a few times about fleet, so what I thought I'd do next is provide a snapshot of Aurizon's fleet. This slide breaks it down by state and value. You can see that the carrying value of our fleet is a bit more than $2 billion with 55% of that value from locomotives and 45% from wagons. In terms of a state-by-state breakdown, you can see that our largest fleet is in Queensland. That's by both dollar value and number, which means from a fleet perspective, it's clear who wins the state of origin with our engineers. In terms of a state-by-state breakdown, you can see that our largest fleet is in Queensland. And sticking with that Queensland theme briefly, that's a state where we hold 70% of the coal haulage market and they're the major player in Bulk. But you can also see that there is much lower thermal coal exposure in Queensland compared with Hunter Valley. So it's a good market to be long on fleet, particularly when you've got the contract position we do. Turning then to New South Wales, mainly thermal coal and a market where we hold a bit more than 1/4 of the coal haulage market. Given it's thermal, this is where the greatest downside risk exists under our scenarios. Should a downside scenario come to be and we have surplus train sets that used to haul thermal coal, we can do 2 things. For the 40% of the fleet that's interoperable, that can be shifted to any standard gauge bulk market in Australia. For the other 60% of the fleet, the restriction is the gauge and weight of the locomotives. But they can either be used for parts used to haul noncoal commodities into the Port of Newcastle, which those in this room will see tomorrow, or be used in the Pilbara where there are similar track axle loads, which allow the locomotives to be used there. What's shown on this slide is the output of all these workaround scenarios and free cash flow, where the modeling indicates an average annual range of circa $500 million to $650 million. This is not a forecast or a prediction but rather a range of potential outcomes based on the modeled scenarios. Specifically, it's a range that represents scenarios 2 through to 6, and the range is an annual average over the 20-year period. On text, we have shown that compared against the last 5 years free cash flow performance and dividends paid. Andrew has already talked to the chart on the right of this slide, and I've mentioned the $4.3 billion of shareholder distributions, so no need to cover that further. But what I do want to highlight is our capital allocation framework shown on the left-hand side. It's that framework, combined with the strong free cash flows of the Aurizon business, that's enabled these distributions. The numbers on the left are averages over the 5-year period. Operating cash flows have averaged $1.1 billion, which, after average CapEx of $500 million, has provided $600 million of free cash flow. We're very proud of declaring a dividend at 100% of net profit after tax over the last 5 years. That's equated to $500 million, on average, which has meant there has been $100 million of surplus cash. That cash can be used for growth or for capital management, which is a good point to remind you of the $900 million of surplus debt funding capacity Aurizon has under our targeted BBB+/Baa1 rating metrics. This means we not only have had stable cash flows, but we have also maintained a strong balance sheet. This strength in cash flows and balance sheet has been recognized by debt markets. We've raised $1 billion from debt capital markets over the course of this financial year. This has included a 10-year Aussie dollar bond for Network and a 7-year debut Aussie dollar bond for operations, the haulage side of our business. So we're very pleased with our credit profile and pleased with the support we are receiving from debt markets. Finally, can I just say that we are proud of our business, and we're proud of the role it plays in supporting Australian bulk commodities to complete -- compete globally. As I hope you could tell from this presentation, we're excited about the way our future cash flows could be used to grow our Bulk business while continuing to deliver strong shareholder distributions. Thank you.

All right. Thanks, George. As promised, we will have a break now before our last 3 presentations. So I've got 1:59, so let's do 2:15. So about 16 minutes' time, we'll come back for the last 3 presentations. Thanks. [Break]

All right. All right. Thanks, everyone, for joining us again. I'll hand straight over to Clay McDonald, the Group Executive of the Bulk business.

Thanks, Drew. Good day, everyone. Welcome to Newcastle. For those of you that are attending the field trip tomorrow, looking forward to hosting you out at Aurizon Port Services. Over the last 4 years, the Bulk team has been delivering on the first phase of our growth plan, primarily focused on stabilizing the business, customer service delivery and transforming our cost and contracting base to return the business to profitability. This afternoon, I look forward to taking you through the next growth phase where we aspire to double in size by expanding across the bulk supply chain and developing comprehensive supply chain capability, infrastructure and operations. We've spoken previously about the pathway we pursued on the Bulk turnaround. This phase was all about getting the basics right, simplifying the business and focusing on what was important. In the cost space, we completed a comprehensive benchmarking process and put a disciplined transformation program in place to create a more efficient cost base. The work of transformation and continuous improvement has become embedded within the Bulk business. However, the work that we completed in 2017 has delivered real value. Over the last 4 years, revenue, net of access, has increased 16%, whilst operating costs have reduced 2% despite CPI headwinds and the cost of supporting growth. The general managers and their teams continue to work hard on asset efficiency and transformation today. On the contracting side, we took a retain, reform or exit approach. In 2017, we held numerous legacy and long-term contracts that required significant reform. Some of these contracts related to our ex government ownership, where contracts were established to support regional economic growth rather than commercial return. We are almost through that recontracting cycle with one reform and retain contract to go in Queensland. The recontracting effort over the last 3 to 4 years has been significant with most results exceeding our expectations. Now on the growth side. We look to utilize spare capacity, aggregate volumes and convert road to rail and, where opportunities present, move more quickly. We have been able to leverage our strategic land and locations in key corridors to enhance the customer proposition and provide real value to their operations, and I'll take you through a couple of examples of this later in the presentation. Now trying to measure growth. With the different types of products we haul, services we provide and contracting models we now use in Bulk, volumes are no longer an accurate way to follow or forecast our growth. Besides revenue growth, the best way I could explain what's happened over the last few years in the incremental growth space for us in rail is through the deployment of locomotives, wagons and people. At our lowest point in 2018, the Bulk business was operating 146 locomotives, 2,500 wagons and had an FTE base of 820. Today, less than 3 years later, we operate 166 locomotives, up 16%; 3,070 wagons or up 20%; and we have an FTE base of over 1,200. And so now we look to pivot to Phase 2 of our growth plan, where our aspiration is to double the size of the Bulk business. To achieve that growth, we need to know 2 things. What is the size of the expanded bulk market? Is that market large enough for us to get excited about? And secondly, if it's big enough, is the strategy of integrated supply chains supported by the customers? Building off the back of detailed analysis we had already completed on the bulk rail segment, we have expanded our assessment to quantify the size and scale of the full addressable bulk market. Our detailed analysis started with capturing all bulk commodities by product, location and value chain step. The first cut volume assessment was broad and comprehensive, tracking the movement of ore volumes from point of origin to either point of export or manufacturer. We then worked through the volume portfolio and excluded a number of specific products and supply chains that we considered were not addressable by the Bulk business. On [indiscernible] excluded, we then applied margin assumptions across the remaining commodity types by region to establish profit pools by value chain step and each corridor. Andrew has already covered this, but I'll reinstate the key supply segments we covered were bulk rail; road and possible road-to-rail convertible volumes; all other bulk road volumes, including first-mile, last-mile and line haul; bulk port services; and rail-based maintenance services. However, here, we focus on the iron ore majors in this segment due to the scale and spend. The output of all that analysis was the establishment of basin plans, which we then aggregated to calculate our aspirational growth target. And as Andrew outlined earlier, the outcome of our analysis indicated that by 2030, the profit pool in the bulk market would be circa $1.25 billion on revenues of around $13 billion. Now this is exciting news for Bulk as the profit pool is approximately 5x larger than the pure rail market that we had previously identified. So why are we considering these adjacencies? Well, first of all, it is about scale and the opportunities that scale presents. The bulk supply chain market is 5x larger than the stand-alone rail market that we have traditionally focused on. Today, we calculate we have approximately 30% or 1/3 of that bulk rail profit pool. But if you expand that out to the full supply chain, we have less than 10% of the segments and volumes that we included in the review. Secondly, feedback from our existing customers and recent experience with market-based opportunities indicates that the market is moving to more integrated solutions. Again, it's worth understanding, from a customer's perspective, why integrated solutions are attractive. There's 2 primary reasons. First of all, for the customer, it embraces efficiency, simplicity and accountability. Secondly, integrated supply chains support the changing nature of the bulk market. As products flow through the supply chain, if each of the steps is not well connected, it creates friction, lowers velocity and can add cost. If there are multiple suppliers in that supply chain, a single supplier can choose to optimize their part, thereby creating suboptimization throughout the supply chain. A single or lead logistics provider can bring simplicity and accountability to a complex supply chain by applying consistent systems, operating methodology and contract accountability for the customer. And as I said, this becomes increasingly difficult under a multi-supplier scenario. I'll give you a simple example or an easy example. At the mining end, there is a materials handling supplier. That supplier reduces -- takes out a unit that is supplying the speed of load-out to the rail or road operator to reduce their costs. That delays the load-out time, creating -- slowing the velocity in the supply chain. The road or rail operator gets to the port later, possibly creating delays in demerging the shipping stand. It then possibly ends up with a delay for the product landing at the customer end. In competitive markets or time- and inventory-critical operations, you can imagine this has a significant impact. Now sophisticated customers are aware of these issues and are looking for suppliers who can smooth the process flow, take out wastage and provide value-adding services at each step. The second major demand signal in support of integrated supply chain is influenced by the changing nature of the bulk market. Projects are becoming smaller, more capital-light and quite often are moving further away from fixed infrastructure. Contemporary logistics solutions look for flexible, cost-efficient, multimodal solutions to match those market dynamics. In Bulk, going forward, we will develop capability and services in the road-to-node space to either accumulate unit train volumes or deliver customers the benefit of aggregation at one of our terminals. For shorter distance and lower volumes, we'll look to grow in the road-to-port space but only where the road is part of a broader Aurizon offering. Now if you're in business development within Bulk, this is a slide to get excited about. This slide illustrates the level of activity going on in the bulk market with each dot representing exploration or preproduction activity. Now we know many of these exploration or projects will never come off, but it is illustrative of the level of activity going on in our market. Also, I don't want you to get hung up too much about which commodity and where -- which commodity -- more so where, and I'm going to grab the little pointer here for those of you who haven't left the state for a while. All right. Critically, Northwest Queensland, up here, Mount Isa minerals province. Here, Central New South Wales, Cobar minerals province. Here, West Australia goldfields. In fact, everywhere in West Australia, but West Australia goldfields and Midwest. Why don't I start over here? Mount Isa minerals province, we now own a port at Townsville that is serviced direct by rail, heavy haul rail there. Down here, we now own a port down in Newcastle, direct rail access to the Cobar minerals province. Thanks, [ James ]. So if the market size is attractive and integrated operating model is preferred by our customers, how do we successfully expand or transition out of our traditional core rail business and into the extended supply chain? We're going to apply the principles that have underpinned our turnaround, and we're going to apply these to the broader market. And those principles include, first of all, focusing on the customer. Solving customer problems and creating safe, efficient and cost-competitive solutions remains a centerpiece to success. Some of these solutions may use existing infrastructure or may require new or enhanced infrastructure. To solve these problems and to develop competitive supply chain operations, we are prepared to deploy capital where the opportunity presents and the returns are right. Second principle, build and develop capability. Extending in the supply chain will require different type of capability, both operating capability and infrastructure capability. Within Bulk, our capability is rapidly changing as we move from a rail play to a supply chain operator. That includes capability in the management, specialist and operator ranks, where our teams now include port, road and material handling operators and specialists. We also support this change by engaging consultants and experts who are long and deep in supply chain experience in specialist fields to augment our business development and design teams. In the infrastructure space, we already have a comprehensive network of strategic sites, and we are enhancing those with additional flow connecting structures like ports and storage operations. Finally, the third principle, creating an agile and flexible mindset. Whilst the market size and growth rates look attractive, global demand can change and product flow can vary. Our customers expect us to be able to respond to those demand changes. As we develop our extended operating model, Bulk is very aware that we'll need to be more flexible and agile and take more risks than we had traditionally done. The photos on this slide demonstrates some of the recent steps we have taken to -- in extending our supply chain services in both New South Wales and Queensland. In Townsville, on the left-hand side of that slide, it's a picture of the 2 -- former TBH business, where we've now established Townsville -- Aurizon Port Services Townsville. This operation links the Mount Isa minerals province to the Port of Townsville and provide storage, material handling and stevedoring services for inputs and outputs to the mining and agricultural sector. We are currently upgrading the site by investing in additional hardstand to increase capacity and creating a unique direct rail access by renewing and extending Aurizon owned rail lines that are adjacent to the site. The plan here is to link our Cloncurry and Mount Isa rail terminals directly with the port operation, thereby removing last mile transport and handling costs. i just want to point [indiscernible]. So on the left-hand side, thank you, there's our rail lines being reestablished in there, right there, and we will build that out so that we can service that loading and unloading as a rail and port terminal. Here, you can see the expansion in the footprint in our paid storage. It's enabled us to go from stacking 4 high to stacking 6 high, increase our capacity by about 1,000 TEU on that site. If you think about and divide it by trains, it's like 5 or 6 equivalent trains out of the Mount Isa minerals province. The second example of increasing capability is our recent acquisition of ConPorts, and you'll get to see this tomorrow. I really like this business. It's simple, it's efficient and it's strategically located. What we also like, it was previously owned by a miner, and that's no offense to the miners. So whilst it was well run, it wasn't deployed as part of a broader value proposition for customers. We see the advantages and benefits to customers in linking the port operation more closely to shipping, rail and other logistics operations to better service the New South Wales minerals province. The second exciting aspect of this site is its ability to grow. It's currently operating at around 50% utilization and has spare land that we can develop for new or expanding customers. The General Manager of Bulk New South Wales, Adrian Brown, who you will meet tomorrow, in fact, he's here listening to what he needs to say and do tomorrow, is busy working on supply chain opportunities linked to the port, and we'll look to take advantage of that simplicity, efficiency and spare capacity. Again, just pointing out, this is our existing shed. This is land that we can expand on. So why is expansion in those 2 ports so important? Today, if you use our base tonnes, let's just say we're moving 50 million tonnes, and you applied a cargo growth rate over those 50 million tonnes, in 5 years, we'll need to move 58 million tonnes. And in 10 years, we'll need to move 67 million tonnes. And if there are export tonnes, they've got to leave the country somehow. So we're investing in excess -- additional capacity on those port sites looking to support that growth. All right. As I previously said, the bulk market is changing. And to be successful, we need to be more agile and flexible. Our recent win with MRL is an example of that flexibility and agility. As MRL ramped up iron ore volumes, they turn to Aurizon for support. In compressed timeframes, Bulk was able to deliver the equivalent of 4 consists and 65 staff to ramp volumes from 5 million tonnes to a run rate of around 12 million tonnes, annually. Key to this opportunity was our available rolling stock and the strategic Esperance Port and yard. Both these assets were able to be reinstated and deployed quickly and safely. MRL continues to look for operational flexibility from our team. Recently, we were requested to provide additional services to Kwinana Bulk Port to access available port capacity with iron ore prices at record highs. This required additional locomotives and wagons, a number of which were redeployed in the WA from Coal New South Wales to support the task. The GM responsible for that deal and ultimately for the MRL relationship, Anna Dartnell, is with us today, and you'll get an opportunity to meet with her tonight and tomorrow. But needless to say, her team's ability to deliver for MRL has positioned us very well with that customer. The 2 examples on the right are short-term opportunities that were established quickly to support significant grade and volumes in both Western Australia and Southeast Queensland. In Queensland, we worked with a customer to convert grain on-road to rail, so they could accelerate their export program. One grain train replaces 30B doubles from the line haul task. These trucks were then redirecting into hauling from the farm to the stockpile, generating increased velocity in the supply chain. To support this operation, we established a flexible labor model, which enabled us to scale up quickly and without long-term fixed costs. The second grain opportunity was with CBH in the West. Again, under Anna's leadership, we put a proposal to CBH to support their export program through the Port of Geraldton off the back of a significant harvest. Within weeks, we were able to pivot drivers and rolling stock into CBH that had previously been hauling for Mount Gibson, until the planned closure of their mine weeks earlier. The Kwinana team is doing a great job delivering for CBH, which is timely as their tender of evaluation is currently underway. Final slide. Our Phase II growth ambition is to double the size of the Bulk business. This is not growth for growth's sake. We will always focus on solutions that provide unique value to the customer, provide the basis for sustainable growth and achieve returns to our shareholders. Our detailed market analysis gives us confidence that the Bulk supply chain market is big enough and growing fast enough to support that ambition. We can also see the market is changing and customers are demanding more efficient, harmonized and value-creating services. Both these market trends are favorable for our Bulk business. For us to reach our aspiration, we'll need to grow into the nonrail segments of the supply chain by around 10%. We can do that in 3 ways: grow our own; partner; or to acquire. And we will look for the best option on a case-by-case basis. Going forward, we will continue to take a disciplined and deliberate approach to growth via acquisition to support either brownfield, greenfield or new commodity growth. And as I've covered today, we have already commenced that journey with the acquisition of port anchor points in New South Wales and Queensland. These additions to the Bulk business are great examples of small value-adding bolt-on acquisitions that build capability and muscle in other segments of the bulk market. They also, as I've indicated before on the cargo growth rates, set us up to have the capacity for that future growth. And finally, to grow successfully, we need to support the support and resources, of which we have both. We are incredibly fortunate to have the broader enterprise resources at our disposal and ability to deploy available capital to underpin our Phase 2 growth strategy. Thank you.

Well done, Clay, and thank you. My name is Ed McKeiver, for those I haven't met, and it's wonderful to be here today. I've traveled from the second largest export coal port precinct in the world at Mackay to be here today, and the largest export coal precinct. Probably the best thing I was told in the break that we had to compete with wales and dolphins just out the window, so I'll try to keep your attention. And the best thing in fact coming here is actually getting my jacket out of the closet because I didn't get a winter last year. And it's a little tighter after COVID, I've got to say. So today, I'd like to talk to you about the coal haulage strategy, our complementary role in the portfolio and our clear priorities for this decade. I'll first touch on our contract book and our latest customer success. But what I really want to talk to you about today is how we're rewiring the operation with a multiyear integrated transformation program designed to enhance the customer experience, improve ROIC and preserve cash flows. The key message I want you to take away from my 6 or 7 slides is that coal has a strong contract book, an unrivaled install asset base, and with that air cover in place, our mission is delivering excellent customer service and a relentless improvement of our asset productivity and cost base to offset revenue pressures and deliver consistent returns for shareholders. When Andrew implemented the business unit model around 4 years ago, and I move to Mackay to run the coal haulage division, we had approximately 50% of contract volumes facing recontracting by 2025. We knew that we had to derisk the coal contract book and needed a fresh customer-focused strategy to do so. We also knew that increased competition would bring downward pressure on tariffs, so we'd have to work hard to secure returns above investment hurdles. Four years on, we have successfully executed deals with 10 customers, including our recent significant off-market negotiation with Anglo in Queensland. Collectively, that means we have secured over 80 million tonnes of volume per year, previously at risk, and now have less than 20% of coal contract book volumes contestable by 2025. And that, too, remains a key focus. What's this space? The team responsible for doing many of those deals was previously led by Sam McSkimming, who recently swapped his CBD suit for high VIS and relocated to Newcastle with his family late last year to be our local operations General Manager. Like Adrian, Sam joins us here today, and he'll host us at our Hexam facility tomorrow, where you'll have the opportunity to engage with him directly, and at dinner tonight. Again, with the air cover in place, coal management can now focus -- continually focus on the customer service, the capital productivity and unit cost improvement to offset revenue pressures and maintain coal earnings, which will be broadly flat of an FY '21 base. Now I'd like to provide you further insight into our integrated transformation program. Coal has ambitiously set out to rewrite the customer experience and, therefore, cost base through targeted investments in technology and process and reengineering that is resulting in faster, heavier and safer delivery performance. Today, I'd like to walk you through 4 key projects at each clear hurdle rates on a stand-alone basis, but more excitingly, are synergistic when combined together. And we're setting the operation up for a 15% to 20% uplift in asset productivity before 2025 when our next re-contracting horizon emerges. This will enable coal to compete on a better relative footing throughout this decade. And as explained by Andrew and George, go on to release stable cash flows and/or rolling stock capacity to the organization to bulk to pursue growth outside the coal portfolio. The 4 projects I'll now step through briefly are illustrated on this slide around the outside, which is designed to give you some insight into how the program works together. Project precision is a multiyear supply chain efficiency program led by network, which Pam will elaborate on. The objective is to deliver more volume with existing capital for all users through faster schedules and better adherence to those schedules. With disciplined train operations, reduce train dwell and increased transit velocities, we were able to haul more coal with fewer trains or more coal with less -- with the same amount of trains, depending on the system, resulting in higher yields and lower crew and energy costs. To ensure we have the underlying fleet reliability to run faster, our maintenance optimization project, ARAM, is simultaneously delivering improved service reliability at reduced cost. This is achieved by optimizing our maintenance strategies, leveraging our investments in condition monitoring and predictive maintenance, standardizing shop floor work practices and making sure we have the right parts, quality and availability on hand. As we experience less failures in traffic, which I'll get into a little later, and we experienced reduced yard dwell for maintenance events, we, therefore, speed up the train cycles even more to support precision objectives. Meanwhile, shown on the right, train guard technology will provide us with supervising breaking control. It enables our trains to operate even more safely as they move faster. The technology is an Australian first and essentially eliminates the risk of signals past the danger. It also has the potential to deliver significant productivity and cost benefits by providing a pathway to closer time separation between trains on the network, which we call headways and subject to consultation with our workforce, single drive operations on the mainline. Finally, my personal favorite, shown in the bottom right, Train Health. With real-time data streaming from our trains, we are able to simultaneously now monitor train handling and equipment condition. Train driver has now received immediate feedback on their performance against the target run and our live run center is able to alert us to impending equipment failures, so we can schedule a pit stop and avoid a failure and traffic. This technology amplifies the gains being made in our maintenance optimization project and complements it, reduces well further to support precision and is also delivering energy and equipment were benefits through standardized train handling. I'd now like you to walk through some recent case studies down the level to illustrate the progress being made to date and the early value flowing to our bottom line. A great way to understand the tangible impact the project decision is having is to look at the efficiency gains in our large Queensland rail yards, where we have approximately 15 trains in circular -- 50 trains in circulation, I'm sorry. In the Blackwater system that services at Callemondah and export coal terminals, we have seen cycles per consists -- sorry, we have recently achieved a 2.5-hour reduction in turnaround time per train at our Callemondah rail yard. Similarly, in the Goonyella system that services Mackay export coal terminals, we've seen cycles per consist increased 9% through reduced downtime and improved on-time performance. With both rail yards now running at 98% on time departure, we have released 330 hours of train time per week in Gladstone alone in the last 12 months. Or in other words, the equivalent of 2 full train sets released for alternative duties, and this is the point of project precision and the release of capacity. In Mackay, trained downtime for maintenance has decreased by 40 hours per week on average, collectively. Gains have been achieved in both yards through the implementation of initiatives like Wagon Block maintenance and reduced provisioning time per train, which I'll briefly explain the meaning of. Wagon Block maintenance is a process where we arrange our fleet of approximately 5,000 wagons into blocks of 26 in the South and 42 in the North in order to facilitate pit stop style swap outs with waiting wagons that have previously been refurbished. In Gladstone, yard shunting has been reduced by 35% over the last 12 months as a consequence, resulting in safer, faster yard operations. Similarly, we have taken 20 to 30 minutes out of train provisioning times. Provisioning is a term we use to describe the process of refilling the sand and water, refreshing the toilets and putting diesel fuel in our diesel locomotives. 12 months ago, we stopped every time -- every train, every time it came through the yard for provisioning. The train -- teams work systematically to identify constraints and remove them. So trains will stop less often and speed up the yard cycle. In Mackay, we've recently seen an electric train travel 7 cycles without provisioning. A great example of this in action is a process control gains made with our locomotive sanding equipment and standards. Sand is used by the train driver to -- in low traction conditions to create grip at the wheel and rail interface. When we ask ourselves why do we need to add sand in the locos every day, our technicians discovered a significantly different consumption of sand in each locomotive caused by WAN components or poorly calibrated flow rates over hundreds of locomotives. Designed to deliver 500 grams of sand per minute flow rate. Our sand discharge was anywhere from 100 grams on one locomotive or none to 6 liters on another per minute. So it was no wonder, we were using more sand than necessary and stopping every time to refill. By resetting the equipment condition and calibrating it, we're now much better at predicting our sand consumption, ensuring the driver has enough sand onboard to navigate wet weather conditions. Costs have gone down and safety and productivity have improved. And during the recent bad weather, we had no stores on some of our significant banks in the Queensland system. In order to run our fleet faster for longer, it is imperative to have excellent rolling stock availability and reliability. This is good for customer service. It's with the safety, and it's great for asset utilization and optimizing costs. On this slide, I'd like to give you some idea of how we're improving performance by optimizing our OpEx and CapEx, deploying new maintenance strategies and approaching our life cycle overhauls more cost effectively. The first graph at the top left shows you, in the calendar year 2020, we averaged 20 rolling stock cancellations per month in the Hunter Valley, where we are today. And in 2021, year-to-date, it has dropped to 5 per month. This has been achieved through the application of our ARAM principles, improved recovery times, which you'll see some evidence of how we have done that at Hexam tomorrow. And a new strategy to which have recently led us to double the period between 5,000 class inspections from 90 days to 180 days, leaving those locomotives and service more often and reducing the cost of those inspections. The picture on the top right is the picture of our newly commissioned state of the art wagon overhaul facility in Jilalan or Sarina just south of Mackay. This is a one of a kind facility in the country, designed to overhaul our 5,000 wagons in Queensland over a 10-year period at a cost of about 25% of their replacement value. George talked earlier in his capital slide about the capital investment made in 2011, significant investments being made. Enrolling stock. Well, that -- those wagons that were then purchased and for the growth are now due for their midlife overhauls. So as we work through those in the 2020s, we'll emerge with a fleet fit-for-purpose to run on the field well into the 2030s, and that facility can be put to use for other customers and other activities. A keynote I might pick, a QR signal symbol, I was asked when this slide was put together, do you want to put an Aurizon overlay on that QR sticker on that wagon hanging in the air? I said, no. I mean, it's an active strategy of ours to not pull wagons if off-service and out of service to replace stickers. We knew we had this overhaul process to do, and that shows you -- us the attention to detail in relation to cost management and asset utilization we have. So they will come out with fresh bogies, new springs, repainted and fresh Aurizon logos. On the bottom of this slide, as an example, the last example I'd like to use, is our new component change out strategy. And this one here is a 2800 class example used at Stuart. Traditionally, we've had an approach to overhauls, which is taking a locomotive out of service at a fixed period and overhauling the whole locomotive, rebursting it to get another 20-year life depending on the asset. And new approach is to use condition monitoring and target the components because the problem with that approach is you often replace some components prior -- before their life expired. And so it costs you more, it takes you longer. So in this example, we've seen a 10% to 15% reduction in overall costs and a 25% less time in overhaul, which means that locomotives, again, are more available for revenue service. What's exciting about this, we piloted in Stuart this year. These are real results, and we're rolling it through the coal business starting in FY '22. Another example is at Jilalan, where we overhaul our 3,700 locomotives by making changes in our traction motor combo overhauls, we previously overhauled the traction motor comes on a locomotive. Every 5 years, wheel sets gears traction motor at the cost of about $90,000. What we've worked out is that the gearbox and particularly the windings can last 10 years. So they're now done every second time-saving $90,000 a locomotive on the overhaul. Turning now to investments in technology. In the interest of time, I'll provide a brief update on TrainGuard and then move straight into the case study on train health. As mentioned earlier, TrainGuard involves the installation of track and locomotive infrastructure to pinpoint the precise location and velocity that a train is traveling. The control systems know the section speed and the aspect of the approaching signal. And if the driver does not respond adequately, the system will assume control and slow or even stop the train. The systems an Australian first adoption of Level 2 European train control technology and actually a world first when overlaid the digital radio communication system that we have. Our first deployment of the technology is now planned for the first half of '23 from July 20, following a 12-month project delay driven by COVID complications impacts last year and the troubleshoot associated with pioneering an application of this complexity with a global principal supplier like Siemens. Once deployed, the technology is a pathway, as I said earlier, the closing of headway distance between trains, speeding up the systems, releasing further rolling stock capacity and also a pathway to drive operations drive only operations subject to consultation with our people. On the right-hand side of the slide, I'll give you a quick case study in train health. This technology is already installed on our Central Queensland electric fleet. Train health is an exciting technology that provides real-time data up to 600 channels of information as possible on train handling and locomotive performance. It allows us to monitor improve driver performance, and act as an early alert on impending equipment issues in surface. It's also an important cultural enabler as it's empowering our people to improve their own performance with real information. The case study shown illustrates the early benefits of the technology. Using machine learning, we've mapped all 36 mainline sections in Blackwater and Goonyella, over the last 12 months, to develop the optimum train journeys with our trains and our topography that we have. The section shown in the top-right, the graph is the 20-kilometer section of track between the Grosvenor and Stanville, just inland from Rockhampton. And the red line on the graph shows the target velocity of the train as it's navigating the topography of the system. That's the target run to get the optimum fuel burn, the optimum train handling to reduce wear and the best section run times. The top graph illustrates the gray shaded area, the variation in driver performance over 400 journeys in October 2020. Post the implementation, and in April, the bottom graphic illustrates our performance today with 1,000 services last month, a much tighter distribution between the same drivers. This has led to a 5% improvement in Transit times across the -- this particular section, 136 which supports the objective of the precision. Since January, we've also seen an 80% reduction in over speed restrictions in the southern system and a 42% reduction in emergency brake applications. Turning to my final slide. And given our on-site location and new castle today, I'd like to wrap up with my presentation with a summary and an overview of improvement activities in this corridor. We're pretty proud of our business in the Hunter Valley. From starting with humble beginnings with 3 trains in 2005, we've grown the business to 30% of the system volumes with 21 consists deployed. And you can see the last 10 years trajectory. About FY '15, we built the Hexham train support facility, for close to $200 million, which is shown in the bottom right, is where we're going to visit tomorrow. And you'll get to go on a train and see some of the new technology we've been deploying. But for the outlook from here is relatively flat. Our operation is well scaled and well sized, the facility is at full capacity. And now similar to the Queensland portfolio, we're looking with flat volume outlook. We're looking to pull value levers to ensure that we can defend earnings and improve productivity. So I'll just talk through the 4 value levers on the left-hand side. Firstly, footprint consolidation, and Sam will elaborate on this tomorrow. We're looking at reducing 4 operating sites to 3 in particular, moving our local Mayfield depot to -- so the trainer also -- the train crew are also based in dispatch from the Hexham depot. This could pretend dial savers in the order of $2 million a year in lease costs. We're optimizing the crew deployment models to better align resources for demand. We know what our contract pipeline and our nominations are. We have taken -- and Sam has taken early steps to recently resize the workforce and create 20 FTE reduction in the system achieved through both redundancy and attrition. Now with that work done, now the focus is on renewing our enterprise agreements in November '21. In terms of capital efficiency, the disciplined use of capital in the system is evidenced by the lending out of our trains in zone 3 recently. We increased the train sizes to 96 wagons, which has delivered about $1.5 million in value this year through additional capacity without further cost base. We've cascaded locomotive to bulk for revenue opportunities, realizing that demand was -- well, supply was constrained in this system with the NCIG problems, and we've had the China trade issues as well. We don't like lazy assets in Aurizon and particularly in the coal business. So we identified 5 locomotives that we could dispatch to bulk, 2 given to Adrian for transferred to Adrian for the bulk is local grain business in New South Wales. 3 in a matter of weeks, we'll move to Western Australia, and we're hauling the iron ore for the MRL opportunity that Clay spoke about before. The Hexane turning angle is an exciting one. The Hexane turning angle is a small piece of infrastructure we put in. You'll see it tomorrow, which allows us to turn locomotives at Hexham it wasn't included originally as part of the Hexham scope. So what was happening as we got into as a business grow to scale, we will find thing we needed -- it took about 6 hours to turn a locomotive. So if you have a locomotive facing the wrong way, it's -- you can't just turn it around. What we had to do is run it down through the system true balloon loop and back to have it facing the way we might have needed it for maintenance or for a recovery exercise. 6 hours to turn a locomotive, 2 people on the locomotive at $80 an hour, cost about $1,000 per run. Since putting the turning angle in last and commissioning at last July, we've used it 77 times between July and December, 77x saving 462 locomotive hours, and about 1,000 hours on labor hours in terms of cost benefit. The value is about $800,000 over 6 months and a clear payback. The last point I'd like to just comment on this slide, we still -- I've touched on the extension of the 5,000 class overhaul period cities. But the very last bullet point is just to call out for the leveraging of our Branxton condition monitoring supersite, pioneered in Queensland, again, a world-first condition monitoring sites, can take 10,000 photos of a train moving at line speed and then convert those trains through algorithms to maintenance tasks. So we can predict what's going to fail and we can pull those trains off and do in situ maintenance. We commissioned that system in the Hunter Valley last year, and we've already seen about $1 million in savings generated through the reduction in Q1 and Q2 inspections and a reduction in Mackay wagon maintainers or at least using the wagon maintenance to fix rather than inspect rolling stock going forward. In summary, I'd like to reiterate my key message that coal has a strong contract book, an unrivaled asset base and a focus on continuing customer service and the relentless improvement of our asset productivity cost base in the way shown. We have to start of a 3-year journey to keep pace with revenue pressures and deliver consistent returns to shareholders. We're proud of our reputation in the industry. And as Australia's premier coal haulage operation, we have a resilient business with 30% EBIT margin and a well-developed action plan to keep it that way. I'll now hand over to my colleague, Pam Bains. Thank you.

Thank you, Ed. Good afternoon, everyone. For those of you online and also in the room today, it's great to see so many familiar faces. Thank you for the opportunity to speak to you today. Some may say we save the best to last, but others may say that there's no surprises here. It's pleasing to see that network is not the key focus of our discussions today with investors, as it has been in the past. And it is now playing its important role in the portfolio as it should be, delivering stable and predictable cash flows. The objective for the network business is to provide safe, reliable, efficient services for our customers to strengthen the Queensland supply chain. So it's about improving network performance, cost efficiency, building trust through transparency and supporting our customers to compete on the global market. Our efforts are focused on delivering for our customers through the commitments we made as part of UT5. And for our investors, it's about delivering stability of earnings and cash flows to support the growth for the enterprise. So let me start with a recap of UT5. UT5 was approved by the Queensland Competition authority in December of 2019, following negotiations between our customers and network. The agreement provides greater operational and commercial certainty for all users across the central Queensland coal network and an improved commercial return for Aurizon network. So a quick reminder of the key elements of UT5. UT5 provides long-term certainty for all stakeholders, by extending the term of UT5 for 10 years, which takes us out to June 2027 as opposed to the historic 4-year resets. A WACC of 5.9%, which was set in May of 2019, increasing to 6.3% on completion of specific milestones, which relates to the delivery and response to the independent capacity report, and I'll come back to this on a later slide. Establishment of the independent expert, and development of an initial capacity assessment report to assess the capacity of the network. Aurizon network would address any network capacity deficits identified in the initial capacity assessment, this could include capital funding of up to $300 million. Introduction of a performance rebate, noting that the performance rebate provisions in UT5 only apply once the ICA has been published. On operational efficiencies, UT5 provides a mechanism for network to drive efficiencies through the business. With operating cost efficiencies to be retained by network for the term of the agreement and maintenance cost reductions to be passed through to customers and, finally, increased transparency through reporting and engagement with our customers. With greater involvement of customers in the pre-approval of maintenance and capital expenditure. Moving to the next slide on the independent capacity review. Throughout UT5 negotiations, customers sought clarity on the real app throughput of the CQCN. Aurizon committed to providing this through the implementation of the independent expert or the IE. The IE's initial role is to assess the deliverable network capacity of the CQCN and develop an initial capacity assessment report or the ICAR. The IE will also be responsible for annual ongoing capacity assessments and will undertake specific reporting requirements. Aurizon Network's initial response to the ICAR would trigger, both the increase in the WACC to 6 -- from 5.9% to 6.3% and the commencement of the performance rebate. If no capacity deficit is identified, there is an automatic uplift in the WACC. However, if a capacity deficit is identified, Aurizon network has 20 business days to provide its initial views on potential transitional arrangements that could be implemented to restore capacity. Network will need to work with stakeholders to remedy that deficit by either inviting access holders to voluntarily relinquish the access rights, consider changes in operational practices or a WACC [indiscernible] up to a total of $300 million. A customer consultation process would commence an Aurizon Network has a further 60 days to provide a final response. This will incorporate the agreed outcomes from the customer consultation process and provide Aurizon's recommended transitional arrangements. We highlighted at the half year that there has been a delay with this process for a number of reasons. The assessment by the independent expert is expected to be completed towards the end of the first quarter of FY '22. This modeling has never been done before, and it is complex. It relies on information inputs from a large number of stakeholders across the supply chain to complete and test the model outputs. All parties continue to focus on this delivery and remain committed to achieving this key milestone as soon as possible. As ICAR has not yet been delivered, the rebate mechanism is not applicable at this stage. The rebate mechanism will require a rebate of access charges to customers in certain circumstances. Where network pulp performs below target levels, noting these have not yet been determined. It will, following the IE's capacity assessment. So moving to capital and maintenance. As part of UT5, we agreed to increase transparency on the maintenance and capital allowances to our customers. This engagement allows customers to consider alternative options and consider the appropriate balance between cost, scope and access. In relation to maintenance, customers can influence strategy and tailor requirements by our system, consider future asset requirements, amend or respond to operational conditions throughout the year, approved budgets through a consultation process. The rail industry group or the rig proves -- provides pre-approval of annual maintenance and renewal strategies and budgets for each coal system. This preapproval process reduces risk of overspend and any contention around maintenance claims post the financial year. Maintenance will become a cost pass through, provided the cost aligned provided the costs aligned with the approved budget and strategy or otherwise agreed with customers or the QCA. We submitted our draft maintenance and renewal strategy and budget for FY '22 in November of last year, and this was our first time through this new process. Following significant engagement with our customers and consultation with the rig, this was one of the major milestones and hence, it was a great achievement to see that we have now maintenance budgets for each coal system approved. Now we will focus and work hard on ensuring we deliver on what we promised. The approved budgets will be incorporated into the FY '22 reference tariffs setting process by the QCA. Moving to capital. Like maintenance, customers also have influence over capital expenditure strategy and budget. However, unlike maintenance, if agreement cannot be reached with customers on capital, Aurizon will submit a capital plan to the QCA and complete the capital works in accordance with its plan. The annual capital indicator will reflect that plan with the QCA undertaking a post expenditure review for efficiency and prudency as per the current process. As shown on the graph on the right-hand side of the slide, following completion of 2 large expansion program -- projects, namely Gate Goonyella, Abbot Point expansion and work Wiggins Island Rail Project, capital is now mainly focused on renewal expenditure. As a percentage of the RAB, we spend approximately 5% per annum, hence, it's relatively fixed in nature, replacing life expired assets. Funding commitments from network on growth based capital expenditure going forward includes a potential $300 million in capital to rectify any capacity deficit identified in the IE's assessment report and an annual $30 million for expansions that benefit more than one customer, noting that these amounts will be included in the RAB for pricing purposes. On the next 2 slides, I'll talk about some of the work that we are doing in the network business to drive efficiency in our operations. Ed touched on project precision. This project -- project position is the way that Aurizon has organized a suite of value levers designed to increase throughput and improve capital productivity across the CQCN. Precision will improve performance of the network for the benefit of all users in the supply chain. I want to highlight 2 of the levers that are being delivered by network as part of Project Precision. The first is disciplined train operations, or DTO. CTO is a process designed to remove the variability on and improve schedule adherence and on-time running performance of all kinds on the network. Over the last year, we have implemented DTO in all systems on the CQCN. Within -- which has resulted in an improvement in on-time performance of between 20% and 40%. The CQCN is not a timetable network in the same way that passenger or general freight network is configured. However, on-time performance is no less important because plans for individual train sets in the coal system are connected by a series of unique mine support combinations. As each train set completes one cycle, it must return to the departure, dep up on time, so that it meets the next connection to its next scheduled path. If this does not occur, the scheduled path is preserved, but is utilized by a different train set. However, this cause is churn in the connection plan, which manifests as cancellations in later stages of the weekly execution cycle. This improvement in on-time performance has contributed to a reduction in rail related cancellations over the course of the year of approximately 40% to 50% in each of the 4 rail corridors. And we've achieved similar results in the reduction of MT wagons caused by the late arrival of trains at mine loadouts. The second lever I want to talk about is the improvement made to planning of the network asset on a week-to-week basis. By embedding advanced planning and scheduling technology, we have been able to preserve capacity reserve for the running of trains by ensuring that maintenance activity is appropriately planned and resourced. This includes optimal spacing of maintenance events so that priority is given to train running. The smoothing of availability has resulted in an even flow of trains into coal terminals. This is sometimes called feeding the constraint. And means that the rail system is always ready to provide a train to each load slot, each of the unlost at the terminal service by CQCN. We have commenced a trial whereby netbox takes on the task of proposing optimized weekly train plan for all operators in the CQCN. These modernized planning and scheduling techniques have resulted in an increased number of revenue trying cycles we commit to each week. And this lever alone has lifted planned throughput outcomes by between 4% to 6% across the CQCN systems and is reflected on the chart on the right-hand side of the bottom. On the next slide, I'd like to talk about 2 further initiatives. The first one being an exciting new technology that we are piloting, which will automate some of our inspections. ATIS, or automated track inspection system, uses geometry measuring equipment attached to coal revenue locomotives to measure and trend the condition of the track, to identify defects before they become false and that can impact on the safety or the velocity of coal services. Currently, the inspection methods we use include weekly road rail inspections and a 6-monthly track recording car, which consumes access and provides either less accurate or less frequent information. This IT system will directly measure and capture data on track geometry under operational load. Currently, we have one track geometry measuring unit operational in the Blackwater and [indiscernible] systems, measuring track geometry and providing data to track inspectors who then validate the defect and raise a work order to repair it. We are also installing wire geometry measuring system on the same locomotive as a track geometry. This unit will measure the location of the overhead wire relative to the 2 rails. And we'll be trialed to confirm that both the track and wire measuring systems can work together and substitute the measurements that we receive today from our current methods. The tracked geometry unit is already paying dividends. For example, while demonstrating the process of using track geometry data in the Blackwater depot, the data identified a sharp geometry defect. The Blackwater civil superintendent inspected the identified location and watched a train traverse the defects and immediately imposed a temporary speed restriction to provide time to plan the rectification of the defect. Temporary rectification works were planned at the following day. However, our on-site inspectors considered that it was highly likely that this defect would have resulted in a rail break or a potential derailment. These defects had not been picked up by either a track -- weekly track inspections or the track recording car. So the goal of ATIS is, firstly, to increased system capacity by removing the requirement of the truck recording car and the weekly road rail inspections to reduce break in maintenance by early trending of defects, which means that repair is planned to occur before it becomes a service disrupting fault. And thirdly, to improve the safety of our people by sending -- by only sending them to locations to repair faults as opposed to finding faults. ATIS is exciting as it significantly increases the frequency of track inspections and allows a shift to condition-based track maintenance and forward-looking rather than reactive maintenance that impacts the revenue service less, a journey that the above our business have been on. And finally, the last example I'll call out, this is an example of one of a range of initiatives being implemented to streamline our maintenance practices, one of which is value-added tooling. Network is focused on making sure that we provide our teams with the right equipment at the right place at the right time. An example of this can be seen in our heavy vehicle renewal program, where we are testing modernizing vehicle fleets to assist carrying out work in the field. The trucks are used to transport the team to work sites and also use as a mobile workshop. They've been designed with input from our frontline leaders. The tasks we usually perform out in the field with these trucks include rail repairs, so rail welding, rail replacement, mobile servicing of field equipment with fuel and oils. On maintenance of renewal of signaling telecommunications and overhead equipment. We are improving and standardizing the design across all corridors to ensure that works are complete -- are able to be completed more efficiently with less delay. And importantly, with fewer safety risks, the new welding trucks are fitted with a crane to lift rail on and off the truck, a water tank and pump for fire prevention. And the trucks are making use of improvements in battery technology by replacing petrol or pneumatic tools with modern battery tools that are lighter and more ergonomic to use. The trucks have battery charging stations. And they comply with modern vehicle standards and have lower emissions. So in summary, while these initiatives do not directly benefit network from a cost and revenue perspective, benefits flow through to our customers and all operators in the supply chain, including Aurizon operations and allows cash to flow into our area of growth in bulk. So increased throughput and capital productivity is what we're targeting. Thank you. And now I will hand back to Chris.

All right. Thanks very much, Pam. That's obviously the end of our presentation. So we're going to go to Q&A now. So if I could ask Ed, Andrew, George, Clay and Pam. We're going to have a couple of mics for the questions. Just a moment. Lanita, if you could just bring one up to the front. And then whoever wants to ask a question, Lanita will walk around with a mic. So whoever is keen to go first, please raise your hand. Just here. We'll go just here. Just please tell everyone your name.

I'm Xindi Shao from Morgan Stanley. just start with the question about coal. So could you provide an update on the China import coal haul situation, what your customers are telling?

Yes. Okay. That is -- this is working. I think, it's -- the best way to position it was 6 months ago or nearly 6 months ago results, I talked about how much coal had been diverted to other customers because of the -- outside of China because of the ban from China of Australian coal. And I think the number at the time is around 60%. In the last 2 months, that has moved to, as we understand it of where that coal's end-port is, 100% of the coal is now being diverted to other places. So the ban itself obviously is continuing. It's just that the Coal volumes are flowing to different markets.

Great. Maybe a second question about bulk. So for your bulk market EBIT estimate of about $1.25 billion by 2030 on $13 billion of revenue. So can you provide some color on how to benchmark your 10% margin assumptions? And will the margin should be higher if you kind of shifting some of your fleets to bulk?

I think this is a great opportunity for George to talk more about it and then, possibly, Clay as well.

Sure. Thanks for the question. So if you remember, Clay talked about the different market segments. So there was rail, road volumes converting to rail and then port volumes. Each of those have different EBIT margins in our model. So if you look at our rail business, we think the sustainable rail EBIT margins are about 15% to 20%, consistent with what we're earning at the moment. If you look at converting volume from road to rail, road is a more competitive market. So naturally, you're going to have to compete for that volume, but the benefit is it's incremental onto your train. In terms of ports, broadly similar EBIT margins to what we get on rail. So that's how to break it down in general terms. I'm not sure if you want to add anything.

Great. Maybe the last one. So for your coal demand scenarios, 3 of them are constrained and have lower demand than now. Have you run the investment-grade credit rating constraint in your scenarios? When do you model that amortization?

George, I think, back to you.

Sure. Thanks for your question. Yes, if you look at the scenarios, coal volumes are lower longer term. But if you look and you break down our credit rating, we've got a credit rating for Network and then a credit rating for a rise in operations. In terms of Network, not much changes in Network over that 20-year period given Network has volume protection mechanisms. So that's first part. On Aurizon Operations, I think it really depends on the scenario and how successful Clay is in growing our Bulk business. That would be the broad way I'd answer your question.

Okay. Next question. Back there.

It's Sam from Citi. Just on your $13 billion TAM. Can you give us an idea of, I guess, what exists at the moment and, of the $13 billion, what you expect to grow over the next 10 years?

I think I'm going to hand that to Clay.

Yes, our market analysis says that the revenue base is 10.7% today, projected forward to 2030 at $13 billion.

And then maybe of that, I guess, additional TAM, is there a specific year that you see it dropping in?

Time frames?

Yes, time.

By 2030, we'll double the size of the business. There's a number of pathways, right? Depends on the size of the opportunity, brownfield, greenfield, M&A. And so the size of the opportunity will dictate quite often how fast you can hit that. And I'm sure if we hit it early, the expectation and that aspiration may change.

Scott Ryall from Rimor. I was -- Andrew, you mentioned minimizing the emissions of your locomotive fleet in your presentation. What's your view on whether customers would be willing to pay more for that, please?

Yes. So there's a range of customer sort of responses and attitudes when you have early-stage discussions. Everyone is interested in improvement at no cost, right? But we actually do have some of the customers, particularly -- and not just solely but particularly in some of the bulk areas where they're very much fronting renewable and/or agricultural-type products. They themselves are under question about what are you doing to get to a net zero position by some date, whatever that date is. So there's definitely interest and exploration about what you can do. It's -- or it's an impossible position at this moment in time to actually say what is the net business opportunity out of that, but there is clearly some. And part of positioning ourselves to be somewhat in the lead in the market, at least in Australia, in responding is to allow ourselves to understand what that looks like and actually gain some of it where it's possible. But too early to put a number on it. There are clearly very interested customers there.

Okay. And then the rest of my questions is probably going to be for Clay, I think. Clay, you mentioned in your presentation that you saw some offshore competitors gearing up to this market. Could you give us a bit more clarity on -- from that?

Were we doing the same presentation? Offshore?

No, no, no. Of competitors coming into Australia from offshore. I'm sure it said that somewhere. Hold on. Do you want me to...

I'm sure they are, Scott. I'm sure they are. We compete in a whole bunch of corridors with a whole bunch of commodities. And so we've got different competitors depending on where you are in the country and what commodity you haul. So I mean, if I can summarize it...

Well, let me ask it different way, then.

Okay. Yes.

Because really, the crux of my question is, are you seeing an increase in competition in these areas and particularly in the end-to-end capability that you're trying to move towards?

It probably relates to how I was answering it. There's kind of a -- there's a sweet spot for road, and there's a sweet spot for rail, and we've talked about that before. And the sweet spot for rail is longer distance, heavier commodities. And road is less volume, less distance, right? And so there's a sweet spot there somewhere around 250,000 tonnes, we think is a sweet spot, rule of thumb, where the distance is further than a single truck driving shift. And so that's where sort of road and rail tend to compete, and that's why we look at aggregation as an advantage to us in -- with those volumes and distance, right? As far as competition goes, like I said, it's quite a fragmented market -- I think Andrew mentioned that -- both from the road, mainly from a road and material handling perspective. There's less probably rail operators and fewer even port operators. So I guess, yes, competition is in each of those segments. There's not as many competitors across the whole integrated supply chain.

Okay. And given the little things you did, the circles you did with the pointer, are you thinking that a port in WA would be a good idea as well?

I think that would be a great Christmas present: a port in WA. Of course, if you look at size of market, profitability in the value chain step and demand, there's a Western -- you're drawn to Western Australia, of course. But of course, there's other opportunities as well in -- when you look at that map, where those commodities have got to either end up in manufacturing or be exported from. But Western Australia has a very active bulk market, yes.

Okay. And then the last question I had. You -- in looking at an end-to-end market, you put on Slide 43 a look at the types of activities that you would entertain. Are you thinking at all of concentration or other value-add mechanisms for the actual commodities themselves? Or is it literally just transportation?

No, I think those principles of efficiency, simplicity and accountability, and we try and apply those right across the supply chain from sort of point of origin to point of either manufacture or export. So we've got a really strong rail core. So we kind of start from there, fundamentally. But we know now and through those distances and the competitive nature that we spoke about with road is we've got to look at those additional supply chain services, one, to grow; but two, to satisfy what our customers are looking for. And they're looking for that accountability, and they're looking for simplicity and operating methodology and systems to help them compete globally.

Anthony Moulder from Jefferies. If I can start with the cash flow expectations for you, George. The scenarios, obviously, we're probably going to focus on scenario 6, the most downbeat of those expectations. But is the best way to think about that, the $500 million, that's currently the level of dividends? What level of investment do you need to make to achieve that into the Bulk business?

Yes. I think the first thing I'd say, Anthony, is I wouldn't call the $500 million to $650 million range in expectation. I'd call it a modeled scenario. It's the first point. The second point is what's included in that does not assume that we hit the aspiration in Bulk of doubling it within 10 years, right? So if we are to achieve that, clearly, there will be additional earnings. And then how much more capital we need will depend on how we grow. So if Clay ends up taking more rail share, hopefully, that will be more free cash flow accretive because you're getting earnings, but you're using, hopefully, existing fleet to do it. If, however, he's growing more in nonrail parts of the supply chain, that will meet capital. We'll be disciplined around that. The one thing I said today is our capital allocation framework hasn't changed, and we've got long-term ROIC targets that are in our annual report. So we'll be disciplined about it. But the short answer to your question is it will depend on how we grow in Bulk. If it's more rail, it should be less capital intensive. If it's more nonrail, it will be more capital intensive, but it really depends on the opportunity.

Sure. So if I look at the loco fleet in Hunter Valley, the 40% that is well suited to moving into Bulk, what's the average age of that fleet? Is that the 2800s that have been now refurbed?

No, it's not the 2800s. There's the 5000 class, 6000 class. A bit more than 10 years old would be the simplistic way to look at it on average. So depending on which engineer you ask, it could have 20 years left or it could have a bit longer.

Okay. So -- and the other thing about that is that when you come up for renewal on Coal, is the discussion around how to better you utilize that equipment into Bulk as opposed to whether or not you recontract for that Coal customer?

That's exactly right. So we're fortunate that we don't have many Coal contracts coming up over the next 5 years. Ed's done a great job making sure of that. But when they do come up, that's very much the discussion we'll have: what locomotives are hauling that product for the customer at the moment. And ideally, we want locomotives hauling for that customer that can't be moved to Bulk. If, though, they are locomotives that can be moved to Bulk, then there's a trade-off discussion that we had. Do we move it to Bulk at a certain rate of return? Or do we keep it in Coal at a certain rate of return? And part of the process we go through is using those 6 SIU scenarios to look past that contract to say, well, actually, we could sign that contract now, and then we might have that fleet remain in Coal, and it might not have that life after that contract. Or we can move it to Bulk, and hopefully, it's got a longer runway and longer life and use.

Last question on locos then. So you've already started to move from -- you've already moved some of the 6000s into Bulk. How many are left in New South Wales Coal? And is it still either the 5000 class that is still in coal?

[ So that's actually muted. ]

You can have a go.

Okay. Yes. I think, Anthony, I'm at risk of becoming the resident engineer here, so I'll avoid much of it. But I think I mentioned in my presentation the amount of our fleet that's in New South Wales versus Coal -- versus Queensland, versus WA. It's about 100 locomotives in New South Wales, right? So about 40% of that can be moved, about 60% harder to move.

All right. I will switch over to Clay, if I can. The growth in Bulk, you've obviously talked to a lowering of the market share. Is that -- are you expecting greater market share growth out of coastal and road within that growth profile that you've got now for Bulk.

Yes. So first of all, the first thing we discovered, Anthony, was the -- I think I told the market we calculated the bulk rail market initially is $1.7 billion in revenue and $250 million in profit pool. So that's expanded. And that's up around a sort of $350 million, $370 million type number now. So it's -- that's increased. And we think we've got about 30% of that market today. In regards to the other supply chain services, we're looking to expand by that 10% into those. I probably wouldn't put coastal shipping on the top of my list. And that's more in there just as illustrative of the processes that our product can follow -- or the flow of a product from its origin to its end destination. And coastal shipping is now competing with rail, as you guys are probably aware. And so it's more so -- not -- either is there a relationship there that we rail it into coastal shipping and that's the best solution for the customer, again, going back to what solves their problem? Or is it a conversion from coastal shipping back onto rail for our core rail business?

I'll move to Ed just for a couple of questions, if I could, please. Single-driver trains, we've talked about this for a little while. Any update as to what the thinking on timing is on single-driver trains, please, Ed?

Well, the first thing is -- the first thing, we're -- first of all, I'll say we're obligated to consult with our workforce about changes in work practices of that scale. And so where we are at the moment is we're still in the mode of developing a concept capable of implementation. We're very -- the technology is quite refined, and we're looking at rolling out in -- as I said in the presentation, from July next year. So coincident with that or leading up into that, if we believe that we've got the payback benefit and that we've got the processes in place to move to drive operation, we'll be going to our -- to consult with our workforce early next calendar year and work through where that is and what that will mean.

And lastly, if I could, on competition for Coal. And obviously, further north in Queensland, we're seeing One Rail go into Queensland. We've now seen the change in management for Pacific National. What are you seeing, if any, changes in the competitive dynamic for Coal?

Not really noticed a change in the competitive dynamics recently. I mean, I think I mean we stayed focused on what we can control in the Coal haulage business, and that's about great customer service and good value for the customer. We find that the customer is not always chasing the lowest tariff, but they're chasing a fair tariff with the right risk positions, and that's the spot that we've played into with some great success. I think what I'd say is of competition will come and go. I think the changes are healthy for the industry, and it keeps us focused on reforming our business, as I said, to put ourselves on a better competitive footing by the mid-decade to compete for some of our larger recontracting risk.

Ian Myles from Macquarie. A couple of questions. Firstly, in your scenario analysis, how did you think about a carbon tax? The European seem to be pretty keen on a carbon tax in some form. And I'm just saying, where does that fit within your scenario analysis?

Yes. Ian, it is an input into them, and I don't think you'll get the kind of change that is implicit in the rapid decarbonization case or the carbon-constrained Asia case without a carbon tax or some form of incentive mechanism of the like in Asia. So yes, it's assumed. It's one of our key drivers that push you towards scenario 5 or 6. That's a short way to answer your question.

If you think about the port expansions, it seems that -- I thought that case is quite interesting. Do you just think it's viable that we'll get someone actually to fund a port expansion in the next -- actually, in the life of the next -- the current management team?

Yes, I'd probably cop out on answering that and say that's why we use scenarios. I'm not paid to form a view on likelihood of that happening or not happening. And that's why we test those downside scenarios. So it's -- I think I mentioned this, that we don't aim to ascribe a likelihood to each of those. So I won't try and put a probability on your question because you're really asking how likely is it that, that port-constrained Australian scenario eventuates.

I guess, or, I guess, you have the best view of your miners and what they are saying. And I know miners tend to talk a big game that we want to export every tonne possible. But when it comes to the crunch, they are very disciplined financial investors. Should we be thinking it's actually a viable outcome because [ there -- that ] will push it that -- they're pushing that concept, yet it seems quite inconsistent with the rhetoric in the market.

Yes. Well, maybe let me have a go at answering this way. I think an expansion of ports will be similar to the discussion we'll likely have with customers around whether we put more capital into our network if there's a capacity deficit. And I think it will depend on the amount of additional volume you get for the investment you make. And so not every port expansion is going to be considered equally. It will depend on whether there's incremental expansions you can make, low capital to get incremental volume. I think it's harder to see big expansions of the likes that we talked about at Abbot Point, for example, 8, 9 years ago.

That's a good segue to PAM. You talk about the capacity review. How much has Precision railway and the efforts that you've made in that whole program made a lot of that exercise sort of that you actually are delivering the capacity of the contracts themselves?

I think, at this stage, it's difficult to say, Ian, because it is subject to the independent expert review and assumptions. So whilst we all do our own modeling, when we come to solutions, we'll need to think about the different ways. And I think operational changes will be one thing that we will look to. And what we're doing is just getting ahead of the game with that.

Have they got your assumption sets around Precision routing? Or are they taking a different set of assumptions?

It will be looking back at how the rail system has operated as opposed to capturing what we're doing going forward.

Sort of back to the ESG. You talk about the concept of clean locos and being efficient. And at the same time, you talk about the bulk participants wanting to be green. And you've told us you're going to put the dirtiest locos into the Bulk fleet. So I'm just wondering how that's going to reconcile with their desire to be green. Sorry to say they're the dirtiest locos.

Yes, they're actually quite clean locos. They're just not zero. The reality is, in the $50 million fleet fund, there's a number of subactivities that we're actually pursuing. And they're around battery technology that's got current type of battery technology, like lithium cells and that sort of thing. And then there's a future step that looks at hydrogen. And that sort of technology can be under one of our more interesting options deployed with locomotives that you've got currently running in the field and that sort of stuff. A lot of work to be done in that area, and we're not at the point where we make any announcements about it, but that's the sort of things that you can do to add to an existing fleet of locomotives.

Just -- probably just 2 more points I'd make there, Ian. It's not possible to cascade electric fleet over to Western Australia because the track infrastructure is not electrified. So that's not a choice we make. It's a factor of the constraint that's there. And the second thing I'd say is where we're taking younger locomotives from New South Wales and we're replacing older locomotives in Bulk, there is an efficiency and, therefore, an emissions benefit that flows.

And you can put batteries behind them. So...

Do you put batteries? Or do you -- hydrogen, is it a choice...

You can do either.

Do the locos actually work on hydrogen?

Sorry?

Do the locos work on hydrogen?

That's another field of technology that you pursue. So you can pursue battery loco that's got -- then it can be a hydrogen loco, and then you can do towable battery packs. They're all stuff under consideration and under development somewhere in the world, including in Aurizon's world.

If we -- sorry to cast back to the scenarios again. If you think about the scenarios, they're really good. One of the issues you see with this industry is that scale is really important. And falling volumes, even a lot of those scenarios actually undermine the concept of scale, not just in the industry and your business but the port business, the mine business and the like. How do your scenarios deal with that issue that scale actually goes in reverse and lifts prices to operate?

Yes, it's something we've spent a fair bit of time looking at and in particular in the Central Queensland Coal Network. Let's take the most extreme: rapid decarbonization. And if you look at our regulated asset base, 75% of that regulated asset base is in Blackwater and Goonyella. So we took the rapid decarbonization case, and we modeled it out. And we said, well, what is the tariff in real terms? It's actually flat in real terms in those 2 scenarios in rapid decarbonization. In nominal terms, it does increase but not more than $5 a tonne. Now that's important because if you overlay that with a long-run metallurgical coal price, that's less than 5% of the [ miner's cost stack ]. So they're the 2 ways we looked at it. It's something we test, to your point here.

And then just on the -- [ tell me if I'm spending too much ] time here. On the Coal side, congratulations on winning the Anglo contract, but I looked at the little chart -- and I clearly can't read the chart. But it looks like the movement of the volume in the 2 [ little extra bars ] has sort of equaled each out -- other out. And I was wondering, have you actually got more volume? Or have you just sort of changed what you've got?

No, there's both the extension of the Dawson contract, which expired mid-decade, and also additional volume in Anglo's premier blue-chip met coal mines in the Goonyella system, Moranbah North and Grosvenor, which have both come back online in the last month.

Okay. And when do those contracts start? Is that middle of '22?

They start -- no, they start early '22.

Down the front. Anyone here?

Andrew Greenup, First State, infrastructure. Ed, can I just confirm? You said that you expect a 15% to 25% increase in asset productivity by 2025. Is that...

I said a 15% to 20% increase, yes.

And how are you measuring asset productivity when you talk about...

We measure it in a couple of ways. Asset -- essentially, loco -- NTK's per locomotive and per wagon. And on a people's perspective, we measure it as crew per NTK.

So implicitly, that assumes some sort of single-driver pathway over that time period?

Yes, there's a number -- yes, it does, fundamentally, but also is subject to consultation. But also, I mean, there are other ways to drive crew productivity, like the current relocation of our -- like relocation of depots and improving our deployment models in various systems. So to give you an example, as -- our train crew depots in some systems have been there for 30 or 40 years. And over the last 30 or 40 years, the profile of volume and contracts has changed. The center of gravity of the business has changed in those corridors. And so what we can do and what we're finding is that, given the average, we've got about 90 trains running around on the eastern seaboard. Average cycle time is about 25 hours. So in a 25-hour journey, you have to change the crew at least 3 times. And it's not as neat as those trains being in a certain location at a certain time with the crew waiting. People have to drive to those trains, relieve the drivers, and those drivers drive back. And you've got to do that all within the shift length. So you can see the placement of our depots. We have about a dozen depots up and down the eastern seaboard, can be optimized. And so we're looking at -- we're doing new things like remote sign-on in the Moura system and in the Blackwater system, where traditionally, our enterprise agreements have prohibited remote sign-on, which is drivers going to remote locations and jumping on the trains there because it's the best location from a supply chain logistics perspective. We recently tested employee interest in that voluntarily, and we've been surprised by the number of employees that are prepared to take that up are of 48 in the Blackwater system, for example, and 18 or more in the Moura system. So there's other ways to improve productivity in addition to driver only.

What changes have you seen from PN with the arrival of Mike Cory so far?

Well, I didn't -- yes, sure. That's a good...

Yes. So we don't usually talk about how other businesses are reacting and -- with the change of leadership and that sort of thing. We haven't noticed anything in -- since the arrival of the Mike Cory or before that for months that we would make comment on. That was a very political answer. I'm sorry.

Andrew, given the change in asset productivity you have line of sight to in the Coal above rail and you put out big aspirations in Bulk business today, what stopped you putting out sort of an ROI or a ROIC target on the above rail Coal business? I understand you never want to put out cost-out targets for cultural and business reasons. But what stopped you going further on the ROIC targets for that business?

Look, we very strongly showed ROIC targets for the business on an annual basis. You can find that. And it's linked to KPIs, [ which link to pay ]. So that's -- it's kind of there at an enterprise level, and you can see that every year. The reality is, if I have my way, I would prefer not to put out any targets about anything and just demonstrate from behavior and outcome how we were improving. But there was clearly the size of the opportunity that presents itself with Bulk, which is something that I wanted to talk about. And as being -- as somebody who has, for years, said the Bulk business can't double, and that was from when it was minus 14%, it's EBIT all the way up until this year. I've got that wrong. I've finally come to grips with that. So it made sense to put out a target there. In addition, it involves changes to the way we are positioning on the supply chain, not massive changes but changes to the position of the supply chain and why we've touched on and done some work in each of those spaces. Like, we have 2 port terminals that we operate. We have some long-haul trucking that we've continued to operate. So we've got small examples of that. For this to work, we have to do it in a larger way more across the country. And just saying that without putting out a "and this is what it's worth" didn't seem consistent or makes sense because the first question you get asked is how much is that worth. So telling people how much it's worth seem to be quite sensible.

Yes. But productivity improvement in above rail Coal is a much bigger driver of your business in the next 3 years and, well, whatever you do in Bulk, most likely.

Yes. I do understand where you're coming from. But you've got an existing business that's operating there, and you can actually -- to some degree, you can work out what that means to you, whereas it was a much harder task, if not impossible, to work out what we just told you about bulk. Like -- so that's why we've made it easier for people to understand in the bulk space. And in the coal space, it's much more about showing you, I think, very credible, practical, real examples of what's changed and what's numerically been available to us in the things like Project Precision [ in ERM ] and Train Guard and TrainHealth, how they're all joined together. And it's actually not insignificant, but it's not an existing business the footprint of which investors, analysts understand particularly well. So there's a sudden need to put out any more information in that area, notwithstanding the fact it is worth quite a lot of money.

The $500 million to $600 million free cash flow, should we implicitly -- that implicitly assumes small acquisitions into -- in Bulk over time.

I think if you look at the last year, it has included that. Whether that's what we look at going forward will be a matter as to what opportunities present themselves. I think what's pleasing when you look at the free cash flow of the business over the last year relative to -- which has been about $600 million ex Acacia Ridge net proceeds is that has been $100 million higher than the dividend paid out at 100%. So if that was to continue, it would afford us the opportunity to make small incremental acquisitions out of free cash flow.

And I think the other complexity -- well, it's not the complexity. It's a positive thing -- is there are multiple pathways for the Bulk business to get where it's going. We don't want to put out multiple pathway by year targets because that wouldn't be even remotely sensible or practical. What we could show you is a likely end result by certain days, but there are multiple ways to get there. And it's -- yes. It's just not practical to start. And where things rely on M&A activity, someone's got to want to sell you something, and you've got to decide you want to pay that price and all those sort of things.

Free cash flow [indiscernible]

Yes. It wasn't guidance, wasn't forecast, but it was a range over that period, Andrew, yes.

It's Paul Butler from Credit Suisse. A very basic question just to start. Just to understand this $500 million to $650 million range, that's the range for the 6 scenarios, i.e., in scenario 6, it's $500 million. Is that -- am I understanding that correctly?

It's for ranges -- it's for scenario 2 to 6. And we are not saying that scenario 6 is equal to $500 million. We're saying if you look at scenarios 2 to 6, the average over that 20-year period is between $500 million and $650 million.

Okay. Okay. But is the average cash flow out of scenario 2 to 6 $500 million to $650 million?

All of those scenarios fall within that range.

Are they all -- okay. Or independently, they all fall -- okay.

Yes.

Cool. I understand. Second question is, Andrew, you made the comment that your view is that hydrogen steelmaking is not going to be widely commercially used in the next 20 years. I'm sure we could spend hours talking about why. But I just wondered if you could give us some key points of why you're confident about that view.

Well, working -- so the first phase is you've got to have the price of producing hydrogen get to a level where it's actually something that's attractive in steelmaking. Notwithstanding that, you do see -- and we do expect some take-up in Europe because there was a desire to do it at any cost in a sense, particularly in places like Germany, but we don't think that, that will become an issue in 2 decades. That could become something that comes on later. So it's the price of it actually has to be competitive. The second thing is you actually have to produce the product at any -- at a scale that actually feeds one steel mill, let alone all of the steel mills that are sitting out there or many of the steel mills that are sitting out there. So it's the scaling of it in a reasonable time frame. And then lastly, you've got, particularly in Asia, a new fleet of steel mills that has recently been built, is being built that are going to run for a certain amount of time before they're actually replaced. And they're unlikely to be terminated too quickly in a sense unless there's a black swan event that we haven't been able -- you can't map black swan events in scenario plans. At least, that's how I understand it, really. So those are -- so it's the price. It's the scale -- and it's the price, the scalability and the replacement of what is essentially new fleets in our target market. There'll be hydrogen running quite strongly in Europe and somewhat in North America, I would expect, quite convinced that's the case. It's just how long it takes to get it into Asia.

Okay. And just a question around these -- your scenarios. In your scenario 5 and 6, do you -- are you making some assumptions about asset stranding in Network? And sort of what are those? How does that play out?

No. So I mean, I think this goes to the question Ian asked, Paul. So when we look at those 5 or 6 -- scenario 5 or scenario 6 and you have volumes falling in Network relative to where they are today, the tariff actually stays flat in real terms in the majority of the systems. So we don't see asset stranding because the volumes can support the RAP is the short answer to your question.

Okay. Okay. And look, just one more question, which is sort of partially based on my experience of my own institution in recent times, is -- what insurances do you need to be able to run this business? And if we have a focus on ESG, which means that insurances for coal-exposed businesses are not as available, is that an issue for Aurizon?

Yes. I think we'll get George to talk about what we're seeing now and what has been made apparent that will occur in the next decade or so.

Yes. Paul, so there's 2 things I'd say to that. Firstly, some insurers have come out and said that if you have a certain percentage of your business reliant on thermal coal, then they won't be able to insure you at a future point in time. And so some of them have said, for example, 30% of your business by 2030 needs to be thermal coal -- less than that is thermal coal. We think we'll hit that, and we'll get that before 2030. The second thing I'd say is we have more than 10 insurers today. So we're pretty happy with our stable of insurers. We also set up a captive insurer back 6 years ago. And in fact, we're paying less in FY '20 on insurance costs than we were in FY '14. So that gives you a sense for how demand is for insurance for Aurizon at the moment.

I might just -- before we go there, I just got some questions from Nathan Lead from Morgans, probably for you, George. Nathan's question is $500 million to $650 million free cash flow is an annual average and is in nominal terms. What's your CPI assumption? That's question one.

Do you want to read them all out?

Sure.

Yes.

And also, the next one is, is it fair to assume that free cash flow declines over time versus the average? If so, in 2040, what is the range of the free cash flow? And then there's a follow-up on Bulk, but...

Okay. Well, 3 questions in that. So first one, CPI is around 2%. So that's an easy one. The second one, how does it compare? I'll say in the second decade as opposed to the first decade. In the top 2 or 3 scenarios, it increases a little bit more, second decade versus first decade; in the bottom 2 or 3 scenarios, decreases in the second decade versus the first but only marginally under our assumptions. In terms of the last question and Nathan asking what free cash flow looks like in 2040, I'm not going to answer that because, the next time, Nathan will ask me what it is in 2030 and then 2035. And after 3 or 4 times, I've given him a whole profile, which I'm not keen to do, and that's why we had averages.

There was one more on what free cash flow can the Bulk business throw off at $250 million EBIT.

Yes. Okay. Do you want me to answer that one? So yes, I think the way to think about that is, clearly, free cash flow, there's some group-level free cash outflows, interest and tax. But if you think about EBITDA and CapEx as a proxy for bulk cash flow. If we're successful with that aspiration to get to $250 million EBIT, historically in Bulk, depreciation, amortization has been about 20%. So that would infer you're at $300 million EBITDA. Then in CapEx, it really goes to how we're growing. Is it more rail intensive where we've shifted fleet from Coal to Bulk? If so, you won't have as much CapEx. If it's more other parts of the supply chain that are more capital intensive, you expect CapEx to go up. So I think about it as EBITDA less CapEx. If we hit that aspiration, $300 million EBITDA, CapEx anywhere from the low double digits up to $100 million.

Just over here.

Mark Couchman from ANZ. Clay, back onto the Bulk part of the business. You mentioned the competitiveness between rail and road and that sweet spot, 250 tonnes (sic) [ 250,000 tonnes ]. Is there also a distance to port sweet spot?

Yes. That's -- so rule of thumb here, right? So when we look at distance, we look at what is the maximum distance that a single truck driver can get in a single shift. So that's what we look at. Then you start -- because you're starting to look at how many truck cycles you've got to do to replace a single rail cycle. So then that's how we calculate. Again, rules of thumb, I'll say, 600, 700 kilometers is a sweet spot for our -- beyond that, we become more and more competitive. With the tonnes going up, we become more and more competitive.

Yes. And then in terms of your target to double the Bulk business by 2030, how reliant is that on any upgrade to a below rail infrastructure and, potentially, relaxation of below rail tariffs? So I guess the example I'd give is around North West Minerals Province into Townsville. The last 5 years, we've seen a lot of -- a number of proponents moving away from rail back to road. And I note it's obviously a key focus for the Bulk business.

Yes. So first of all, just about all our contracts have access pass-through. So that's -- it does impact competitiveness for the miner or the component that's using the RAB, but it's a pass-through from us. Below rail efficiency, as Pam and Ed demonstrated, is pretty important for Bulk as it is in the Coal fields. So yes, it's something that we watch. And we work with -- we've got like 4 or 5 below rail providers if you think from Western Australia into New South Wales. Queensland, we have 2. And so -- yes, it's something we work with those below rail providers with on an ongoing basis. In regards to the Western Minerals Province (sic) [ North West Minerals Province ] out at Mount Isa, the government there has provided incentives to support volumes on rail. So they have -- they provide subsidies to move from road to rail to support some of those sort of mining industries out in that western province.

That subsidy to support is not ongoing for life because it's not something you want to rely on. The idea with the subsidy was there's a bunch of small mining projects that just simply didn't have the volumes by themselves to cause a change in the rate that access was charged at. But if you actually -- the idea was provide a subsidy. It helps a number of these projects become more competitive using a rail system because they're trying to move product from road to rail. So it's a shorter-term, 3 years, I think, from memory, subsidy process to start a virtuous spiral upwards rather than one downwards.

Just -- yes. I've got just one more from Cameron McDonald from E&P. I think this has already been asked and answered, George, but it's a quick one. Is the $500 million to $650 million free cash flow scenario average inclusive of Bulk getting to $250 million to $300 million?

No. It assumes a small amount of rail market share growth, 1 percentage point, but it does not assume Bulk hits that doubling of EBIT by 2030. That would be upside.

In the past, we've talked about productivity dividend of -- through a lot of these initiatives which you've got -- you've been doing. And unfortunately, Coal volumes haven't sort of gone the way you'd like to. What's the latent capacity or latent productivity given you think sitting in the business that if Coal volumes can sort of restore in the next year or so to something reasonable that you can actually see leverage coming through? Because I think -- because at the same time, we get comments of -- I think, in your slide presentation, you've renewed Anglo's contracts, but the prices are coming down. So we're losing some of that through repricing.

I think I followed that question, Ian. I think you're saying if -- kind of restated is just checking that if Coal volumes return to something, increased contract utilization, what cost benefits would flow through from scale?

Yes, I guess, so you -- we shouldn't be seeing a material shift in your cost base. There should be obviously some minor variable changes, but you should actually have a marginal margin, like a 50% [ breakup ] number as opposed to 25%. So this is a huge amount of leverage in your business. And just because it hasn't happened for so long, the market sort of lost sight of potentially that productivity dividend that you've been building on but haven't been able to tap. And I guess the extension of that is, if you don't believe you can tap it, when do you downsize the business and release those wagons over into Bulk?

Yes. Yes. Yes, exactly. So I mean it is -- and it is in the order of the 50%, which you called out. Essentially, I mean, as Andrew opened up today, it's very -- we are in an unpredictable operating environment. And as you know, our contracted volumes are somewhere close to 240 million tonnes a year, but our utilization of those is somewhere in the mid-80s at the moment, around -- with a range this year of 200 million to 210 million. So the upside potential for us, when -- you're right. It's largely a fixed cost business. And where we do have some of those variable costs, we actually pass some of those through to the customer like energy costs. So the dividend upside is typically, if you can scale the business, we have some fleets stowed. I talked about 2 trains at Callemondah. If the demand comes back, we get -- we do get pure revenue for those, and there's a healthy margin that flows with that, which is the essence of product -- of Project Precision, of course, and the objective. Hopefully, that answers your question somewhat. It's a tricky one.

I'm [ Aaron Inset ]. Just on the balance sheet, just balance sheet capacity, you didn't touch on those explicitly today. But if we're able to do everything you wanted to do in Bulk, I suspect that wouldn't use the available balance sheet. So what are the options today aside from a large acquisition, which you -- just put that aside. But if do you what you want to do in bulk, then what are you going to do with the rest of the balance sheet?

Yes. [ Aaron ], so one of the things I touched on is we have within our BBB+, Baa1 metrics $900 million of available debt funding capacity. So that's there today. And we've spoken about that at results, previously. In terms of Bulk and Bulk growth, there are numerous ways to fund Bulk growth using that debt capacity but also out of free cash flow, as we mentioned earlier. It will depend on the nature of the growth, as I've said before, and whether it's more M&A led or whether it's more organic and rail based, where we don't think it will be as capital intensive if it's organic rail growth. The only thing I'd say, to reiterate the point I made earlier, is our capital allocation framework hasn't changed. Our long-term ROIC targets have not changed. And each dollar of investment in Bulk growth needs to compete against the alternatives of capital management. So that hasn't changed how we look at it.

Sorry, my question was largely just answered. But just the $900 million capacity that you just mentioned, what's the likelihood that, that is sort of drawn upon in the near-term and the likelihood that it could be used for buybacks that you have done quite a bit recently?

It's hard to put a likelihood on it. But the reality is that if the -- we will pursue the most value-adding proposition that we can. I like buybacks. I've demonstrated for quite a few years that I like buybacks. We've had -- I think it's 6 years now -- 100% payout from a dividend point of view. So I mean that is the base case of what we want to do. If we decide that we're going to do an alternative use of our funds, then it's got to be, as George just said, competitive with an alternative like a buyback. But the reality is I can't put likelihood on what we're going to do from that point of view, but you need to understand what the base case is.

So it's Scott Ryall again. Could you just give us some -- Andrew, I know I ask this regularly, but an update on the Genesee & Wyoming court case, where that's at and if you've got any update on the timing. And that's had a couple of owners since, and it looks like it's looking for a new owner. So leaving aside the fact that it may get split up, is that business still of interest to you, notwithstanding the outcome of the court case?

Okay. So from a court case point of view, that -- nothing's changed there. We started proceedings back on the 17th of September in 2019. That is a matter in the Supreme Court in New South Wales. The next part is highly predictable. I said last time it's because it's a matter before the court. I'm not going to say anything more about it, and there has been -- there's nothing more to say.

The timing, do you have a time in your mind?

I don't. I can't give you a sense of timing, unfortunately.

Okay. You got a pretty good hit rate though. I don't expect you to comment on...

You know I won't. The second question was, are we still interested in the One Rail business? George said that back in the results, and our interest still stands.

Okay. I think we're running out of questions. Is there any last question? Otherwise, we can call it a day. All right, no hands. So I think we'll call it today. Thanks, everyone, for your time. Andrew, do you have anything, last words?

Yes. Look, I think just in closing, what I was hoping to get out of the day, as I said at the very beginning, I'll just repeat now, is hopefully what you've seen: we have a resilient business. We've tested it under a broad range of scenarios to test that resilience. And at the same time, what we can see is an ability to grow the Bulk business is much higher than we originally thought back in the days when we were just trying to figure out how to get the Bulk business back from losing money to, hopefully, aspiring to make money. So those were the 3 things that I'd like to leave you with. Thank you very much.