Aurizon (ASX:AZJ) reported what management described as a “strong set of results” for the first half of fiscal 2026, highlighting earnings growth across its network, coal and bulk businesses, continued cost discipline, and increased shareholder returns through a higher dividend payout ratio and an expanded share buyback.
Leadership update and safety focus
At the start of the call, the company announced the appointment of Ian Wells as CFO and Group Executive Strategy, commencing in April. Management said Wells is an experienced finance leader across resources and infrastructure and was most recently at Fortescue, including five years as group CFO. Acting CFO Gareth Long will transition to Group Executive Enterprise Services, overseeing asset management, procurement, technology, people and safety.
First-half performance and capital returns
Management said underlying EBITDA increased 9%, supported by network, bulk and coal contributions. Revenue rose 4%, driven by network regulatory revenue and higher volumes in coal and bulk, while total operating costs were flat despite inflationary conditions. The company attributed this cost outcome to the delivery of last year’s cost-out program, which it said achieved AUD 60 million in annualized savings, exceeding the original AUD 50 million target.
Aurizon said underlying free cash flow was AUD 335 million, up 41% from the prior corresponding period. The cash tax rate was 32% for the half due largely to timing differences, including take-or-pay, which management expects to unwind in the second half, resulting in a full-year cash tax rate below 30%.
The board increased the dividend payout ratio to 90% of underlying net profit after tax, declaring a dividend of AUD 0.125 per share, 90% franked. Management also announced a AUD 100 million extension to the buyback program. Aurizon said it had completed AUD 425 million of on-market buybacks over the past 18 months at an average price of AUD 3.36, including AUD 125 million so far in FY2026, and that cancellation of 126 million shares had increased earnings per share by 7.4%.
On the earnings bridge between underlying and statutory results, management cited a timing adjustment related to a AUD 4 million network track access revenue over-recovery, and significant items including AUD 1 million of transformation costs and AUD 6 million of technology upgrade costs. The company has begun a migration of its enterprise resource planning system and expects total implementation costs of AUD 90 million to AUD 100 million over FY2026 to FY2028, treated as a significant item. Management said the expense treatment reflects the software-as-a-service model.
Business unit detail: network, coal, bulk and containerized freight
Network: Network EBITDA increased 4% to AUD 516 million, driven by higher access revenue. Volumes were flat at 109.8 million tonnes. Aurizon said a customer-supported submission for a new 10-year undertaking was lodged with the regulator in December, and management emphasized that the proposal—known as UT5 Plus and intended to apply from July 2027 to 2037—was submitted around 18 months before the current undertaking expires.
Management said UT5 Plus would provide customer benefits including throughput-linked incentive payments, 5-year rolling access agreements, a continuous improvement group, retention of collaborative maintenance processes, and customer oversight of major procurement contracts. For Aurizon, the company said UT5 Plus would deliver an average annual revenue uplift of AUD 45 million that would flow entirely to EBIT, driven by updated WACC parameters, a throughput payment and changes to depreciation that bring forward cash flows. The initial WACC would be set between January and April 2027 based on prevailing market parameters, and the undertaking remains subject to the regulator’s usual process.
Coal: Coal volumes increased 1% to 101 million tonnes and revenue increased 3%, while operating costs fell 4%, contributing to a 13% earnings uplift. Management said yield improved in the first half, as the negative customer mix impact anticipated at the prior full-year result was “limited,” leading to a net positive yield. Unit costs were down 6%, which management attributed to disciplined cost management, TrainGuard benefits, and favorable maintenance scheduling. Two coal contracts were extended to FY2028 and FY2034.
Management cautioned that second-half coal earnings are expected to be lower due to customer mix negatively impacting yield and higher operating costs, including the reversal of favorable maintenance timing. In Q&A, executives discussed the upcoming availability of capacity in the Hunter Valley when a contract ends in June, reiterating three options—pursuing tenders, maintaining spot capacity, and redeploying assets to bulk—and said discussions with several customers are ongoing but commercially sensitive.
Bulk: Bulk earnings rose to a record first-half EBITDA of AUD 117 million, up 39%. The company attributed the increase to higher volumes and the non-recurrence of prior-year impacts, particularly a doubtful debt provision. Bulk revenue increased 6% to AUD 595 million, driven by base metals, grain and new iron ore customers. Management cited increased base metals haulage, including BHP Copper South Australia, new iron ore customers, and additional grain haulage supported by fewer service cancellations amid a record Western Australian harvest.
Operating costs were flat, though Aurizon said that excluding fuel and access costs (largely pass-through), underlying operating costs rose with volume growth. The company expects bulk earnings in the second half to be broadly in line with the first, with potential upside from ramp-up of new contracts offset by weather impacts and third-party track closures experienced in January and expected later in Queensland.
Containerized freight and “other”: The “other” segment declined year-on-year, which management said was entirely due to the prior period including AUD 18 million of legal settlement proceeds. National Interstate TEU volumes increased by almost 30%, and capacity utilization was 69% for the half, near the 70% break-even utilization discussed when the business was established. However, management said EBITDA break-even has not yet been achieved due to higher costs from increased freight frequencies, third-party network outages (including Cross River Rail disruptions in southeast Queensland), and freight mix.
To mitigate Brisbane disruptions, Aurizon entered a three-year agreement with SCT Logistics in November to haul freight into and out of Brisbane from SCT’s southern-side terminal. Management said this resolves local asset access challenges, improves customer frequency options and frees Aurizon capacity. The Kewdale terminal in Western Australia is expected to become operational in the first half of FY2027 and is intended to improve efficiency for east-west services. Management also said discussions with NYK on motor vehicle import and distribution via land bridging have progressed to CEO level.
Funding, capital expenditure and outlook
Aurizon reported group gearing of 55.5%, down from 56.2% in FY2025, and said its commitment to investment-grade ratings remains unchanged, with Aurizon Operations and Aurizon Networks rated BBB+ and Baa1. Net debt to EBITDA was 3.1 times. Management said network refinancing and upsizing of institutional loan facilities was nearly two times oversubscribed and expanded the bank group to 26 lenders. The company noted an upcoming FY2026 maturity of a EUR 778 million network note, expected to be repaid using committed undrawn bank facilities.
Half-year capital expenditure was AUD 327 million, down 5%. Non-growth CapEx was AUD 247 million, down 17%, reflecting lower bulk transformation spend as terminals such as Gillman came online and timing of network renewals. Growth CapEx increased to AUD 80 million, driven by bulk capital requirements for the new BHP contract and containerized freight spending on the Kewdale terminal.
For the full year, Aurizon maintained underlying EBITDA guidance of AUD 1.68 billion to AUD 1.75 billion. The company lifted expected full-year dividends to AUD 0.22 to AUD 0.23 per share from AUD 0.19 to AUD 0.20, reflecting the higher payout ratio. Non-growth CapEx guidance was reduced to AUD 580 million to AUD 600 million (including AUD 30 million of transformation capital), while growth CapEx guidance was unchanged at AUD 100 million to AUD 150 million.
Management said network and coal earnings are expected to be higher than FY2025, with coal benefiting from volume and flat unit costs but facing lower full-year yield due to customer corridor mix. Bulk earnings are expected to be higher on the non-recurrence of provisions and increased grain volumes, while “other” EBITDA is expected to improve with better containerized freight performance offsetting the non-recurrence of FY2025 legal settlement benefits. Guidance assumes no significant supply chain disruptions such as major derailments or extreme prolonged wet weather.
Network ownership review: integrated model retained
Aurizon also disclosed that its review of the Central Queensland Coal Network ownership structure has concluded with a decision to retain the current integrated above-and-below-rail model. Management said an investment bank assisted with market sounding, including discussions with more than 12 institutional investors and consultations with retail brokers, and Flagstaff independently assessed the review and recommendations.
While the company received “numerous expressions of interest,” management said proposed valuations did not meet the threshold required to create meaningful shareholder value compared with the benefits Aurizon said it captures under the integrated model. Aurizon pointed to synergies from operational alignment, which it said could benefit the company by up to AUD 75 million per annum, while estimating a demerger could introduce AUD 30 million to AUD 40 million per annum of dis-synergies from duplicated corporate functions. Management said the potential loss of around AUD 100 million per annum was incorporated into value assessments, leading to the decision to retain 100% ownership of the network.
About Aurizon (ASX:AZJ)
Aurizon Holdings Limited, through its subsidiaries, operates as a rail freight operator in Australia. The company operates through Network, Coal, Bulk, and Other segments. It transports various commodities, including mining, agricultural, industrial, and retail products; and retail goods and groceries across small and big towns, and cities, as well as coal and iron ore. The company also operates and manages the Central Queensland Coal Network that consists of 2,670 kilometers of track network; and provides various specialist services, such as rail design, engineering, construction, management, and maintenance, as well as supply chain solutions.
