Asciano punished, but is it deserved?

Former Toll infrastructure component Asciano Group has reported its preliminary unaudited results for the period ended 31 December 2007.

Revenue from continuing businesses for the period to 31 December increased by 8.3% whilst underlying earnings before interest, tax, depreciation and amortisation increased by 21%.

Reflecting a number of special items relating to the demerger of Asciano from Toll Holdings, and the restructure of Asciano’s grain business, Asciano reported a net loss after special items and tax for the period to 31 December 2007 of $71m.

Commenting on the results, Asciano managing director and chief executive officer, Mark Rowsthorn, said: “The growth in underlying earnings and the associated improvement in margins reflect a strong half-year for Asciano.

"Operationally, our Patrick Ports businesses have continued to trade well during the period. Continued robust demand from customers has underpinned growth in our Container Ports business. Our Auto, Bulk and General ports have benefitted from strong vehicle and steel volumes in particular, together with ongoing efficiency improvements.


"Similarly, the Pacific National Intermodal business has enjoyed solid growth during the period, with record volumes and revenues from the Express business.

"The results from the Pacific National Bulk business reflect continuing capacity constraints in the Hunter Valley coal supply chain, together with the ongoing impact of the drought on the rural rail business."

In respect of the outlook, Mr Rowsthorn commented: “Asciano remains extremely well-placed to deliver growth and value to our securityholders. In the short term, addressing the capacity constraints in the Hunter Valley coal supply chain, and completing the restructure of the Pacific National rural rail business remain high priorities for Asciano. Specifically, Asciano has commenced the downsizing program in our grain business. While discussions continue with the grain industry, in the absence of volume risk being mitigated through the introduction of take-or-pay contracts, Asciano will close the business.

"In the medium to longer term, we have a clear strategy in place to drive increased returns for securityholders, focus on core business, leverage our operating capabilities into growth opportunities, and to optimise our capital structure.

"Our diverse business base, and particularly our exposure to growing commodity exports, containerised and motor vehicle imports, and domestic freight, should see Asciano continue to generate organic EBITDA growth in the range of 10% to 15% per annum over the longer term.”

Asciano has also provided further detail on its existing debt arrangements. In particular, Asciano notes that:

• Total outstanding bank debt as at 31 December 2007 was $4,930m.

• Asciano believes that this debt level is appropriate given Asciano’s underlying assets and cashflow profile.

• Asciano is complying with all covenants within its existing debt facilities, and the facilities do not contain any ‘share price’ or ‘market capitalisation’ covenants.

• Following recent extensions to Asciano’s short-term facilities, Asciano now has no debt maturing until 2009, and 92% of Asciano’s total outstanding debt matures during or after May 2010.

• Asciano has existing interest rate hedges in place today equivalent to 70% of its outstanding debt, with a weighted average maturity of hedges of 3.5 years.

• There is minimal outstanding debt against Chief Executive, Mark Rowsthorn’s stake in Asciano with no risk of margin calls, and the independent directors have no loan facilities of any type over their Asciano holdings.

Most of Asciano’s troubles can be traced back to the ill-advised raid on the much bigger Brambles business, whose shares Asciano is now obliged to hold on to owing to their much-reduced value. Mr Rowsthorn has put the holding cost of this shareholding at over $ 10 million p.a.

Investors punished the company today, with Asciano shares falling to an all-time low of $ 3.61 before recovering slightly to close at $ 4.01.

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