Those who know Andrew Harding will not be surprised to find it has taken him no time to identify and account for the disappointments and indulgences of leadership past at Queensland's national rail freighter, Aurizon.
Harding was the contender who left Rio Tinto's iron ore business promptly after losing out in the race to succeed Sam Walsh as managing director of the Anglo-Australian miner.
Harding has never been one to dither. He left Rio in July in concert with the assumption of power at Rio by Jean Sebastien Jacques. He was almost immediately recruited to Aurizon by chairman Tim Poole. His new gig was announced on September 1 and Harding was officially inducted as the Thin Controller by the start of December.
And now, just two months later, Harding has surprised the market with confirmation that February's interim results will account for $321 million of impairments and "transformation" costs, that the long-dated effort to build a base in the interstate container freight business is under deeply informed review and a systems standardisation program celebrated by immediate past management had been "terminated" for want of a business case.
In his last interview as Aurizon MD in late November, Lance Hockridge admitted to frustrated disappointment with the recent past performance of an intermodal business that was proving slow to deliver on its potential to become the next locomotive of growth for a business whose fortunes are still excessively shaped by its enriching legacy of train tracks and coal freight in central Queensland.
Among the many challenges Hockridge was delivered at Aurizon, from running its privatisation to rendering some sort of commercial logic to its structure and employment arrangements, the toughest was translating growth strategies outside of coal freight into productive reality.
This time last year Aurizon's interim numbers were blurred by $426 million, a number that included a $153 million full and final writedown of a last-cycle bet on iron ore growth in the Pilbara and a $125 million impairment on a pair of coal growth projects.
New broom sweeps in
Move ahead a year and Aurizon has a new boss with a new broom that has swept away almost half of the book value of the freighter's intermodal assets, while offering a narrative that says there has been "no final decision on the future" of the business.
To put that into blunt numbers, Aurizon's board has accepted the advice to impair the intermodal assets by $162 million, leaving it with a residual book value of $177 million.
In total then, the cost of the growth plans that have not cut the financial mustard now stands at $440 million and could rise to $560 million should Harding pull the pin on the intermodal business.
Aurizon's statement captured pithily the quantum of the challenge ahead. It reported that the intermodal business had carried 10 per cent more freight through the December quarter but that profitability had gone backwards because costs had risen.
"Accordingly, the impairment does not anticipate the impact of any decisions that may be made following completion of this review," Aurizon's statement said. "The review is expected to be completed by mid-year 2017."
To ensure the business gets every opportunity to justify a future under brand Aurizon, Harding has delivered it a simplified organisational and management that will, for the first time, have routine access to its own profit and loss performance and will report directly to the managing director.
Promise to act on review
But that reconstruction arrives with no promises. Harding promised to "act swiftly" on the recommendations of the review, which he expects to see around June.
We hear there are two tracks to this review and one is developing more positively that the other.
The first is intermodal and it is hard to read Tuesday's commentary without leaping to the conclusion that Harding reckons Aurizon would be better off without it. The second is a study of the bulk commodities business outside of coal. There the economics are rather different and the competitive framework rather less challenging, given the business is built around long-dated, single customer contracts that are contestable every few years.
Harding has demonstrated significantly less patience with another part of the Hockridge legacy. A plan to create one platform from the 18 separate IT platforms that supported planning, scheduling, ordering and billing has been scrapped because "it was not delivering value to the business". It has so far cost $91 million and the program's death will result in a $64 million impairment.
The other two contributors to Aurizon's latest package of impairments are the product of the transformative workplace change Hockridge released in securing the right to hire, fire and locate his Queensland staff where good sense dictates change, and from other people's errors.
The first half cost of finally releasing Aurizon from its Queensland public service past will be impairments of $85 million. The company's affirmed guidance offer last August said that the reformation still in train would cost up to $100 million. And, forget what the accountants might say, this should be received by shareholders as an investment rather than an impairment.
And what of other people's mistakes? Well, there is an odd tale.
The loss of a Glencore contract to transport mining raw materials (fuel and equipment) from Townsville to Mt Isa left Aurizon to stop running a daily multi-customer freight train between the port and Queensland's home of hard rock mining.
The result for Aurizon is $10 million worth of impairments on the assets and $6 million in unanticipated redundancy costs as 81 people were either moved or lost to the business.
Oh, and the mistake?
Well, it turns out that Glencore's switch of its business to relative Queensland newbie, the private equity owned Pacific National, was forced by excessive ambition that saw the miner sign-up to a take or pay contract to carry stockpiled magnetite iron ore from Mt Isa to Townsville's port. The exports stopped last year but Glencore had to keep paying for its train capacity.
Zero to hero
Mick McCormack's decision to chase the regulatory approvals needed to build a $500 million gas pipeline that would link Narrabri's coal seam gas resources with Sydney's gas market is the best news to happen in the east coast gas market for half a decade.
McCormack's APA Group is Australia's dominant gas pipeliner and he has no interest in wasting time nor money on futility. So his move to resurrect and redirect a long-proposed link to the Narrabri indicates a sea-change in attitudes to the project by both its developer and the state government that ultimately controls its fate.
The Narrabri gas project is owned by Santos and its fate sits firmly in the hands of a NSW government that has, in the past, shown little appetite for coal seam gas developments and even less backbone in the face of the community protest that is fuelled by unconventional gas technologies.
Santos spent $1 billion buying the Narrabri resource back in 2012 and its development sat in a third corner of the strategy that left the driller confident it could build and fuel an $US18 billion liquid natural gas project while sustaining its existing domestic gas base.
Community agitation, commercial and financial incapacity and government indifference meant that Santos was unable to meet its schedule for the introduction of Narrabri gas. Last year Santos wrote the project value down to zero and new management dispatched it to a new naughty corner of non-core assets.
Like most, we received this as very bad news indeed for Santos and for an east coast gas market that will become ever more short of supplies from this year onwards.
Narrabri an obvious answer
However you cut it, the east coast gas crisis is a supply side problem and Narrabri is its most obvious answer. Santos has consistently said the Narrabri can produce gas enough to sate 50 per cent of NSW's demand. The APA pipeline would start life as a 200 terajoule a day capacity. Yes, you guessed it, that is equivalent to 50 per cent of current NSW demand.
As it turns out, both Santos and APA have been the focus of consistent state government pressure over the past year and more to get on with the introduction of the Narrabri gas.
The encouragement has been enough to convince APA to present a changed pathway for its pipe. It will now go directly west before cutting a path southwards to meet APA's existing Moomba to Sydney link. This new path eases any controversy over a link that was previously going to find its way through state parks and comparatively rich pasture.
The plan is to get the environmental and planning approvals bedded down by the end of 2018 in the full expectation that the owner of the Narrabri gas project will be closing on a final investment decision by then. Whether that decision is made by Santos or another owner, well, time will tell on that one.
But first the first time since OPEC triggered an oil price crash in November 2014, the Pilliga is on track to be a real project rather than a lost cause.
