News

• Underlying EBIT up 52% to $584 million compared to $383 million in FY11
• Statutory EBIT of $593 million compared to $222 million in FY11
• Significant improvement in safety performance with a 22% reduction in LTIFR
• Transformation program delivers $121 million in cost efficiencies, productivity improvement and coal revenue quality
• Delivered growth projects with significant capital works program completed during the year
• New projects commenced or announced including Wiggins Island Rail Project and a further 25 million tonnes p.a. expansion of Goonyella to Abbot Point
• Earnings per share increased by 18%, an unfranked dividend of 4.6 cents per share to be paid on 28 September 2012

Major Voluntary Redundancy Program

• Implementation of the functional organisational model has allowed further restructuring, targeting increased productivity and lower costs
• Company to accept approximately 750 voluntary redundancy applications which combined with staff reductions which have already occurred in FY12, will mean a total reduction of 900 people in calendar year 2012
• A one off cost of $75 million applies in respect of the 750 voluntary redundancies which will have a payback period of approximately 12 months

On-market buy-back of up to 10% of shares

• Capital management initiative which consists of an on-market program to buy back up to 10% of the QR National issued share capital (244 million shares).
• Transaction is expected to be EPS accretive for shareholders
• Reflects a strong balance sheet
• Maintains capability to pursue and fund a range of growth opportunities to create value for shareholders

QR National today announced a substantial lift in underlying earnings before interest and tax (EBIT) to $584 million for the year ended 30 June 2012, up $200 million in total despite lower than expected volumes.

It also announced a significant outcome from the current voluntary redundancy program which will reduce the cost base of the Company and facilitate further efficiencies from the new organisational model and a capital management program involving the buy back of up to 10% of the Company’s shares over the next 12 months. (refer separate ASX announcement)

While EBIT increased 52% year on year to $584 million, the Company recorded a 25% improvement in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $1,048 million and Statutory EBIT of $593 million was achieved compared to $222 million in FY11.

The Directors declared an unfranked dividend of 4.6 cents per share, which will be paid on 28 September 2012 to shareholders on the register at the record date of 7 September 2012. (The conduit foreign income component of the dividend is nil)

QR National Managing Director & CEO Lance Hockridge said the strong result had been underpinned by EBIT improvements across all three reporting segments and a sustained campaign to reduce costs.

Coal volumes during the year were adversely impacted by the slow recovery from Queensland’s FY11 floods, ongoing industrial action at BHP Mitsubishi Alliance’s (BMA) Queensland mines, lower than anticipated customer demand for coal rail transport and wet weather. These events contributed to a 47 million tonne reduction in coal haulage volumes compared to Offer Document forecast.

“We have delivered a substantial improvement in underlying EBIT in FY12, slightly ahead of the Offer Document forecast, and without the benefit of almost 50 million tonnes of forecast growth in Queensland coal volumes,” Mr Hockridge said.

“Substantial margin improvements have been driven by enhanced revenue quality, cost outs and efficiency gains. Combined, these have more than offset the impact of lower tonnages.

“The benefits of transformation and restructuring, including the strong expected uptake for the current voluntary redundancy program, will deliver sustainable cost savings and efficiencies in coming years.”


Transformation

Transformation initiatives delivered during FY12 included:

• A 22% reduction in the Lost Time Injury Frequency Rate and 44% reduction in Medically Treated Injury Frequency Rate, demonstrating improving safety performance and broader cultural change.
• Improved revenue quality producing higher returns, with conversion of legacy contracts into performance-based contracts for customers now covering 38% of railed tonnages. This produced $59 million additional revenue in FY12.
• Continued drive to improve the commerciality of the business including bringing treatment of rollingstock depreciation and ballast undercutting into line with international best practice. These changes had the effect of increasing EBIT by $36 million and $15 million respectively.
• Improvements in operating performance which triggered the Company's ability to recognise $33 million of performance payments under the Queensland Transport Services Contract for the first time since its inception.
• Introduction of a new functional organisation structure in December 2011, modelled on the high-performing Class One North American railways, which is the platform for transformation and cultural change across the Company.
• Operating ratio improvement from 88% in FY11 to 84% in FY12.

Voluntary Redundancy Program Update

Following the implementation of the functional organisation model, the Company has considered further restructuring for optimal productivity. The next phase of this restructure, with a range of proposals targeting improved productivity and lower costs, has been the subject of extensive consultation with employees and unions.

In addition to the on-going changes implemented over recent months, the Company will be accepting approximately 750 applications for voluntary redundancy in the coming weeks, with all staff to leave by December 2012.

Combined with other reductions during the year, this will mean a total reduction of 900 people during calendar year 2012.

The one-off cost of the 750 redundancies will be approximately $75 million which will be incurred in FY2013. The payback period for this is approximately 12 months.

Capital Management

QR National today announced an on-market program to buy-back up to 10% of its issued share capital (244 million shares).

The buy-back demonstrates QR National’s commitment to managing its balance sheet efficiently, whilst maintaining appropriate flexibility to invest in future growth opportunities.

The combination of the Company’s focus on capital efficiency and a slower than expected pace of growth projects supports this initiative at this time.

The Company believes that the buy-back will be Earnings Per Share (EPS) accretive for shareholders.

QR National has available a range of sustainable funding solutions that will secure our leadership position in providing resource infrastructure in Australia whilst optimising returns to QR National’s shareholders.

Growth Projects

QR National has strengthened its medium to long-term position during FY12 with projects concluding in Queensland (Goonyella to Abbot Point Expansion - GAPE, coal rollingstock & facilities), Western Australia (iron ore rollingstock & facilities) and New South Wales (Hunter Valley rollingstock). The next wave of committed projects includes the Wiggins Island Rail Project (+ 27 mtpa) and the recently announced expansion of Goonyella to Abbot Point (+25 mtpa).

Outlook

Mr Hockridge said QR National expected the softer demand environment for coal haulage services to continue in the near-term however anticipated a modest increase in coal volumes to a range of 195 to 205 million tonnes for FY13.

“The medium to long-term outlook for Australian resources remains robust and we don’t believe the fundamental drivers of Asian demand have changed,” he said.

“There’s a strong pipeline of new and expansion projects committed in the resource sector, especially for coal and iron ore, which will underpin QR National’s growth.”

Mr Hockridge said the Company was committed to maintaining the pace of transformation in FY13 and beyond, focusing on improvements in revenue quality and cost efficiency, as well as volume growth.

“The Company-wide changes with the new functional model are delivering a fundamentally lower cost base, as well as allowing us to better focus on market and customer outcomes.

“The Company is very well positioned to continue to execute on its key platforms of transformation and growth.”

Supporting information - Divisional Performance

Network Services

Full year revenue of $1,210 million and underlying EBIT of $341 million were up on the prior year by 3% and 13% respectively.

The improvement in revenue reflects an increase in regulatory tariffs and first contribution from GAPE earnings. Improvement in EBIT was further helped by more profitable external infrastructure work.

The lingering impacts of Queensland’s record floods in 2010-11, softer global demand and industrial action at some Queensland mines reduced railings across the network to 166.7 million tonnes, up 2% on the prior year.

Any shortfall in access revenues is able to be recovered through the regulatory revenue cap mechanism in 2014 subject to regulatory approval.

Coal

Despite flat volumes and Net Tonne Kilometres (NTK), revenue grew 8% compared to the prior year. This was due to improved revenue margins from the renegotiation of contracts, resulting in full year revenue of $1,828 million (FY11: $1,691 million).

The coal business is continuing to deliver on a range of productivity and efficiency improvements, including the Reliability Centred Maintenance Program which delivered approximately $18 million in maintenance savings during the year.

In the Hunter Valley, coal volumes increased 15% to 33.9 million tonnes compared to 29.6 million tonnes in the prior year.

Freight

Revenue of $1,524 million was up 19%, or $247 million, on the prior year with bulk, general and intermodal freight volumes all contributing.

Iron ore in Western Australia continues to track to its 30 million tonnes a year haulage target by 2014 and delivered a doubling of EBIT in FY12 compared to prior year. Revenue growth and improved cost management in Intermodal delivered the objective for the business of being EBIT neutral or better in FY12. Improved revenue of $33 million was booked for delivery of the Transport Services Contracts (TSC) with the Queensland Government for regional and livestock services in Queensland.

Underlying EBIT grew by 226%, or $69 million, to $100 million. Capital expenditure grew from $196 million to $332 million to support iron ore growth projects.

This included delivery of 22 locomotives and 438 wagons for iron ore customers, as well as construction of the Esperance Depot and Narngulu East Rail Yard near Geraldton.

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