Thank you for standing by, and welcome to the Horizon Analyst Teleconference. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Andrew Harding.
Please go ahead.
Mode. Good morning and welcome to the full year results for the 2021 financial year. We are based in Brisbane today, mode. Therefore, I acknowledge the traditional custodians of this land, the Turrbal and Yuggera people and pay my respects to the elders past, present and future mode, but I hold the memories, the traditions, the culture and hopes of Aboriginal Australia. We must always remember that under the ballast, mode.
It's obviously a challenging time with the current COVID situation and our thoughts are with individuals and communities that are being impacted. Mode. We continue to maintain our COVID protocols to ensure the continued well-being of our team. Flexible
mode.
Mode. This call is being made from our Head Office this morning, and I'm here with our CFO, George Lippert. Mode. Joining me on the call, but dialing in from outside of the office are Ed McKeever, Group Executive, Coal Clay McDonald, Group Executive, Bulk mode. Pam Baines, Group Executive Network and Gareth Long, Group Executive Corporate.
We will shortly go through the presentation that we lodged with the ASX this morning, which is available on our website. Mode. At the end, we will take your questions with the rest of the executive team. Mike Carter, mode after the consolidation of various functions as part of our corporate support area review. I thank Mike for his many years of contribution to the company.
Mode. Mike is also on the line and we'll be happy to take any questions. Now turning to safety performance. Mode. Our results have been flat across the safety metrics of total recordable injury frequency rate, TRIFA, mode.
Loss Time Injury Frequency Rate, the LPIFR and Rail Process Safety, RPS. TRUFA mode. Has deteriorated 3% in comparison with last year's 10% improvement. This deterioration has been the result of an increase in low severity strain and sprain injuries. LTIFR has improved 8% year on year, which is a positive trend.
Mode. RPS, a measure designed by Horizon to improve rail safety operations, including derailments, mode. Signals past the danger and rolling stock collisions has been flat in recent years. RPS deteriorated 8% in FY 2021. Mode.
This has been caused by an increase in low severity yard derailments. During the year, we continued the safety leadership mode. Program that equips operational leaders with skills to effectively lead our safety strategy and continually improve safety in their team. Mode. We are also focusing on initiatives to accelerate safety improvement through targeting the main contributors to Trifa and RPS, mode and a specific focus on identifying and learning from events that have the potential for serious injury and fatality.
Mode. Turning to an overview of performance. Before we get into the results for the year, mode. I wanted to take a moment to reflect on the recent Investor Day and some of the key takeaways. This slide shows that each business unit has a unique focus, mode, but they are all aligned to common enterprise objectives.
Horizon has a unique place in critical supply chains across the nation. Mode. Our involvement in improving these supply chains will support long term demand for key commodities on global export markets. Mode. We will continue to deploy capital efficiently to support these supply chains with a view of generating attractive growth and shareholder returns.
Mode. For coal, the focus is return on invested capital and free cash flow. With the contract book well set, mode. This can be achieved through a continuous push on transformation and productivity. Capital will be spent carefully with some assets able to be mode.
Employed into or shared with bulk to support their growth ambitions because of coal's efficiency improvements. Mode. For bulk with growing markets and new adjacencies, the focus is on revenue and earnings growth. Mode. This requires more capital such as the 2 Horizon Port Services businesses, but it can also take advantage of assets from coal mode that can be cascaded to support these growth markets.
For Network, the focus is on embedding UT5 mode to ensure long term regulatory certainty, reducing costs and enhancing the efficiency of the supply chain, which will ultimately increase mode. I just reminded you about the different focus areas of the business units mode and that is because this focus enables coal and network to provide a resilient base, which provides value to our shareholders and supports the growth ambitions of bulk. Mode. Demand for bulk commodities is expected to grow strongly and Horizon is well positioned to capture this growth mode as well as new markets such as bulk port terminals. These new markets provide a much larger profit mode.
Potential profit pool, which underpins our aspiration to move to more than double bulk's current EBIT to $250,000,000 over the next 10 years. Mode. This growth could result in the commodity mix changing within Horizon. Consequently, if Horizon is able to capitalize on this, mode. Revenue from thermal coal could be less than 20% of the above rail portfolio by 2,030.
Mode. The detailed presentation, including transcripts and the webcast is available on our website for those who missed it. Mode. Now moving on to the financial results. We are pleased with the results mode of $903,000,000 underlying EBIT being at the top of the guidance range of $870,000,000 to 910,000,000 mode.
EBITDA of almost $1,500,000,000 was up 1% and it is this measure that we will focus on going forward along with CapEx mode as they are a proxy for free cash flow. The results reflect the continued growth in bulk, mode, which now accounts to 32% of above rails revenue and the commencement of work fees in network. Mode. This offsets the impact from lower volumes in network and a 6% reduction in coal volumes. Mode.
We expect coal volumes to improve this year with improved demand, strong commodity prices and seaborne markets now rebalanced mode to offset the impact of the ongoing trade situation with China. Statutory NPAT mode. Free cash flow was up slightly to $734,000,000 noting that this number includes the after tax proceeds from the sale of Acacia Ridge, mode, which completed in March. And finally, our record of strong shareholder distributions through dividends and buybacks has again been demonstrated this mode. We completed our $300,000,000 buyback, taking the total buybacks completed to $1,300,000,000 since 2016.
Mode. The final dividend of $0.144 is 5% higher than last year and is equal to the interim dividend which was our highest ever. Mode. It maintains our payout ratio at 100% for over 6 years, with the increase reflecting the benefit from buybacks reducing the share count. Mode.
Moving to an update on commodity markets. After being heavily impacted in the first half of twenty twenty, Steel production recovered during the remainder of the year and into 2021, with production returning to pre COVID levels as economic activity resumed mode in major export nations. The month of June was the 11th consecutive month of year on year growth in global crude steel production. Mode. Based on crude steel production in the 1st 6 months of 2021, India is projected to set a new annual record for this calendar year.
Mode. India is of course Australia's largest metallurgical coal export market, representing 1 third of volume in FY 2021. Mode. Thermal coal electricity generation has also returned to pre COVID levels with the International Energy Agency, mode. Noting last month that after declining by 4.6% in 2020, global thermal coal electricity will increase by almost 5% in 2021.
Mode. In further data released by the IEA just last week, the Asia share of global coal trade has reached a record high representing 85 percent of the market. A reminder that this is a continent where nearly all Australian coal is destined. Mode. Southeast Asia now accounts for over 40,000,000 tonnes of Australian export volume, doubling in just 3 years.
Mode. Despite the Chinese ban on Australian coal import volume continuing, our customers are successfully exporting to markets outside of China mode with export volume in the June quarter just 1% lower than the prior year despite 0 export volume to China. Mode. Although not seeing a resolution in the foreseeable future, evidence to date continues to show the resilience of Australian coal in the face of this challenge. Mode.
We've also shown here some indicators of bulk markets, although this is a more challenging task to summarize on a slide, mode given the diversity of the commodities and the multiple drivers of demand. Given Asia is the major key destination of bulk commodities PMI mode. Purchasing Managed Index for Manufacturing Industry is a reasonable starting point. This index of course mode. Measure sentiment with a reading above 50 indicating expansion in the sector and below 50 indicating a contraction.
Mode. As noted on the chart, we've now seen 12 consecutive months of expansion ratings. Mode. Beyond infrastructure development, commodities such as copper and nickel that are associated with battery storage in electric vehicles are at a multi year high. Mode.
From an Australian perspective, the most recent 6 year supply projections from the Office of the Chief Economist shows annual compound growth mode of 5.4% for nickel, 3.5% for zinc and iron ore and some 16% for lithium. Mode. This is translated through to confidence in capital expenditure in metal ore mining as shown on the slide. Annual capital expenditure mode. Was a 6 year high in 2020 and in the latest quarterly data.
March CapEx was over 20% higher than the same period of the prior year. Mode. Turning to the coal business. The focus for the coal business mode. This along with network mode provides a stable base which supports growth ambitions elsewhere in the company.
The financial results of EBITDA mode, down 13% to $533,000,000 this year were mainly driven by a 6% decline in haulage volumes, mode, which we expect to recover and grow around 5% this year. On the contracting front, we are mode. Please to announce that we have executed contract extensions for existing agreements for all our Queensland mines with the Glencore. This is in addition to the new agreement with Anglo in Queensland across multiple mines we announced in June. Mode.
After these announcements, our contracted tonnage position for FY 'twenty two is now forecast at 230,000,000 tonnes, mode, which includes the end of new Aquam mine later this year. Importantly, when looking at our contracting chart, mode. Just 10% of volumes expire within the next 4 years, of which only around 70% is considered contestable. Mode. Progress on the major operational efficiencies continues as we went through in detail at the Investor Day.
Mode. Precision is an enterprise wide program designed to improve throughput for our customers and capital productivity. Mode. We achieved this by reducing asset turnaround time, which is a wider measure of capital productivity compared to measures such as system velocity. Mode.
Asset turnaround time captures the relationship between throughput, the number of train sets deployed mode and the average time it takes each train set to complete a cycle. In its simplest form, mode. Our aim is to achieve faster train cycles to deliver more tonnes using less trains. Mode. This year, Network worked in conjunction with all operators to test the application of these principles in an integrated planning process.
Mode. This voluntary process enabled the network to assist operators in developing optimized weekly train plans in response to customer orders. Mode. The integrated planning approach removes contested access requests whereby 2 or more operators seek the same path on the network. Mode.
This integrated planning revealed that planned throughput improvements were able to be achieved when compared with conventional planning methods. Mode. Also contributing to Precision was work done during the year to reduce the time frame spend in yards. This included streamlining of wagon maintenance into blocks, mode, which combined with on train repair work, reduced the numbers of shunting movements required. A good example of the combined results mode.
Precision initiatives occurred in Mara, where we were able to reduce asset turnaround time by around 1.7 hours on a prior comparative period basis. For Aram, benefits can be seen in reductions in maintenance cost and capital. Mode. Component change out, for example, reduces overhaul costs by 10% to 15% for our 2,800 class locomotives for our bulk business mode and has now commenced in our cold depots. And finally with TrainGuard, there has been some delays in the rollout of this key program of work mode due to supplier issues as we've previously indicated.
Pleasingly, in Blackwater, all locomotive and network hardware installations have been completed, mode. While in Goonyella, installation has commenced on locomotives and rail infrastructure. This project provides safety benefits through enhancements to speed control mode and signal enforcement and also provides a pathway to expanding driver only operations in Central Queensland. Mode. In Blackwater, it is scheduled for deployment in the first half of next calendar year.
Moving to bulk. Mode. The bulk business continues to perform strongly with EBITDA of 112,000,000 mode and EBITDA up 27 percent to $140,000,000 Bulk now represents 32% of revenue mode and 26% of EBIT for the above rail business. And as we've previously said, we expect these numbers to increase in coming years. Mode.
We have commented before how busy the team has been and you will have seen our announcement regarding a 10 year agreement to Hore Grain for CBH. Mode. This comes off the back of a short term deal we announced earlier this year and completes the return to hauling for this customer after 10 years. Mode. We are very happy to be back in the WA grain market in what is shaping to be a strong harvest for the farmers.
Today, we also announced a 3 year extension of our contract with South 32 for the haulage of alumina and associated inputs at their Worsley refinery south of Perth. This continues our long standing relationship with 1 of our largest customers in Western Australia. Mode. We have previously advised of the 2 other major contract moves on the page and that team is working hard on converting more opportunities across all regions mode. When I gave the recap on the Investor Day, I spoke about the long term aspiration of bulk to more than double EBIT mode.
Part of this journey is moving into other parts of the supply chain, including bulk port terminals, mode and we're pleased with how Horizon Port Services is tracking in both Townsville and Newcastle. These terminals are strategically linked to very important minerals provinces mode and provide an expanded service offering to our customers. In addition to this diversification beyond rail haulage, mode. The bulk business is also diversified at a commodity level with no single commodity accounting for more than 28% of revenue. Mode.
Looking forward into FY 'twenty two, we are pleased with the fundamental demand drivers for the bulk business. In the agricultural sector, WA, Queensland and New South Wales have received good autumn rains that are widespread and have supported significant winter planting. Mode in exploration and project development off the back of increasing input requirements driven by the future economy. We expect these conditions to underpin another solid year for the bulk business. Turning now to network.
Mode. EBITDA for network was up 6% to $849,000,000 with revenue from work fees offsetting and under recovery from lower volumes. $60,000,000 of work fees were recognized in FY 'twenty one with $49,000,000 relating to prior years and $11,000,000 being the approximate annual value of fees each mode until 2,035. The appeal of the expert determination commenced last December with the outcome to determine the final amounts of the fees mode. We indicated at the half that based on volumes to date, take or pay would trigger in some of the systems.
Mode. The final volumes resulted in take or pay triggering across all major systems of $88,000,000 mode. Bringing forward the revenue recovery to this year, the revenue cap in 2 years is now expected to be minimal mode. What is called the initial capacity assessment report, it remains our expectation that this will be delivered by the independent expert at the end of September. Mode.
Today's results demonstrate the effectiveness of the revenue protection mechanisms with take or pay offsetting a large part of the volume driven under recovery this year. The chart on the left shows the history of access revenue compared to volumes. Mode. You can see that revenue has remained reasonably stable despite volumes moving, particularly in 2017 and this year mode due to take or pay and revenue caps. We think this is a good visual representation of Networks' resilience and stability over time.
Mode. And before I hand over to George, an update on the progress of some other matters. The sale of Acacia Ridge completed in March, mode, which was a great result after many years of uncertainty. Likewise, the commencement of work fees. As I just said, there remains an ongoing process with the appeal of the
mode.
There remains no significant update on the legal proceedings against Genesee and Wyoming mode with the matter currently before the court with no trial date set as yet. And finally, a date has been set mode with the declaratory relief proceedings with the ATO of March next year. As a reminder, this relates to the treatment of our share capital account mode. And on that note, I will hand over to George.
Mode. Thank you, Andrew, and good morning to everyone on the call. It's my second time talking to you about Horizon's full year results. Mode. And you'll notice Andrew and I are saying very similar things to what we did this time last year.
That's because as this first page shows, mode. The results are consistent with last year, highlighting that the business has performed well enough to offset the demand impacts from COVID and China import bans. Mode. It will be no surprise to listeners on today's call that free cash flow is a measure I often speak of when presenting. Mode.
Not only Horizon's ability to generate strong cash flows, but importantly, the options available to deploy this cash, mode, either through growth opportunities primarily in our bulk business or return to shareholders as we have consistently demonstrated. Mode. With this emphasis on free cash flow, we are focusing more on EBITDA and CapEx given they are a proxy for free cash flow. Mode. This will also be used for guidance as Andrew will present shortly.
The flat EBITDA and EBIT performance mode. There was also an improvement in the other segment with lower central costs and profit on sale of minor real estate assets. Mode. Group revenue declined 1% with revenue growth in bulk driven by new contracts and in network driven by recognizing work fees mode for the first time following the Supreme Court decision in September 2020. Coal revenue decreased by 9%, mode, driven by volume and lower track access revenue.
I will provide more detail for each business unit shortly. There was a flat result for both NPAT and statutory NPAT with the FY 'twenty result including the post tax net gain of $74,000,000 on the sale of Rail Grinding, while the FY 'twenty one result excludes the post tax net gain of $113,000,000 mode. On the sale of Acacia Ridge, although both were asset disposals, Acacia Ridge was treated as discontinued, whereas rail grinding was considered continuing. Mode. The reason for that, as you may remember, is that we announced the sale of Acacia Ridge almost 3 years ago, whereas we started and Completed the sale of Rail Grinding within a single year.
Given the difference in treatment, free cash flow from continuing operations is lower this year, but this is because the proceeds from rail grinding are in the FY 2020 results. To assist in comparison, mode. We have included free cash flow figures that include both continuing and discontinued, which show a 1% increase in FY 2021 mode to $734,000,000 We continue to maintain our 100 percent dividend payout ratio mode with a final dividend of $0.144 per share, up 5% despite the flat underlying NPAT. Mode. The dividend is franked at 70% and takes the full year dividend to a record $0.288 per share.
Moving now to Coal. Mode. EBITDA decreased $83,000,000 or 13 percent to $533,000,000 mode with volumes down 6% to 202,000,000 tonnes, primarily driven by lower end market demand impacted by COVID-nineteen mode and the challenging trade environment with China. Beyond volumes, revenue and also EBITDA was impacted by some access rights mode. Being transferred to end users, non pass through of network take or pay and lower yields shown in net revenue quality on the bridge.
Mode. Lower volumes also resulted in lower operating costs related to fuel, train crew and maintenance, but there was an increase in depreciation and mode. Excluding fuel and access were flat. Operationally, key productivity metrics deteriorated mode with lower volumes and NTKs. However, average payloads and velocity have increased as a result of successful efficiency initiatives, mode, including increasing train lengths in the Hunter Valley and Southeast Queensland, implementing improved driver methodologies mode.
Bulk continues its strong performance with EBITDA growth of 27 percent to $140,000,000 mode. Previously, we spoke of bulk achieving $100,000,000 EBIT, which Clay and his team were not able to not only meet, but surpass. Mode. Volk has shown it's pretty good at outperforming expectations and we hope that's a pattern that will repeat. Mode.
In the table, you can see a 23% reduction to access costs during the year. The driver of that is a Mount Isa Corridor customer mode taking an access agreement in house rather than held through Horizon. Given the pass through nature of access that also reduced revenue by a similar amount mode in FY 'twenty one. While the table shows revenue up 4%, putting aside access, revenue would have increased by 10%. Mode.
Turning to the bridge, and I still remember looking at a bridge for the bulk business in 2017 that started and ended with a negative number. Mode. It's nice to reflect on that and see where we are now. As with previous reporting periods, the EBITDA bridge is straightforward mode with volumes driving revenue growth and higher operating costs to support that revenue growth. If we turn back to the table, mode.
You can see the depreciation increased year on year. It will continue to increase as we invest further capital into bulk, mode both in absolute dollar terms and as a percentage of the overall group. This allocation of capital is based on our confidence mode. In retaining and attracting new bulk customers, as well as our view that Australian bulk commodity exports will grow at GDP plus rates. Mode.
In terms of tonnes, bulk's East Coast volumes were flat, driven by stronger grain volumes in New South Wales and Queensland, mode, offset by lower livestock volumes. In the West, iron ore volumes were up 3,000,000 tonnes, driven by the ramp up of mineral resources volumes, mode due to the commencement of our long term agreement with CBH, Australia's leading grain cooperative. This year saw Initial contribution of both Horizon Port Services businesses and we should see some incremental growth to EBITDA in the future as they ramp up. Mode. In summary, another strong performance from bulk.
Moving to network. Mode. Network EBITDA increased $51,000,000 or 6 percent to $849,000,000 This was due to the commencement of work fees and operating cost improvements offsetting a revenue under recovery due to an 8% reduction in volumes. Mode. As Andrew demonstrated earlier, the regulatory model provides revenue protection in periods of lower volumes.
Mode. A quick reminder on how the two mechanisms operate. Take or pay, or as it would be better called early recovery, is a contractual measure that recovers revenue in the same year, while revenue cap or as it would be better called delayed recovery mode. Is the mechanism which recovers anything left after take or pay and other adjustments 2 years later. Mode.
As usual, a summary of these mechanisms, in addition to a forward view of the maximum allowable revenue or MA is included in the appendices. Mode. Turning to the earnings bridge, and you can see the Track Access revenue increased by $47,000,000 mode with historical work fees and take or pay more than offsetting the volume related under recovery. The tariffs approved by the QCA mode. Based on a regulatory system forecast of 239,700,000 tonnes, while actual tonnes were 208.3.
Mode. As such, and given the low level of the Ryzen network caused cancellations, dollars 88,000,000 of take or pay was booked across the Blackwater, mode. At the half, we indicated that take or pay would trigger in at least 3 systems mode and total around $60,000,000 but it also triggered in Blackwater, increasing the amount of take or pay this year. Mode. This brings forward the recovery from FY 'twenty three and our revenue cap expectation excluding GAAP for that year is now close to 0, given the repayment of WACC due mainly to the delay in the independent expert report.
In relation to the work fee, mode. Looking forward, we expect the annual amount to be around $11,000,000 until 2,035. The final amount will be subject mode to Horizon's appeal of the expert determination and the finalization of a cost variation factor related to work project costs. Mode. Other revenue, as shown in the bridge, decreased by $11,000,000 due to lower external construction works and insurance recoveries.
Mode. Operating costs decreased by around $15,000,000 due to lower external construction costs associated with the lower revenue, mode. Reduced electric traction charges and lower maintenance costs, partially offset by expenditure incurred on the Project Precision railroading initiative. Mode. Turning to cash flow.
Any page with free cash flow in the title is typically my favorite slide and this is no exception. Mode. On the left, we highlight the historical amounts we make from operating the business, less the amount of money we spend to sustain the operations. Mode. What's left, free cash flow is then available to either be distributed to shareholders or invested in further growing the business.
Mode. Following on from IPO in late 2010, you can see a period of heavy investment, while post 2016, mode. You can also see that coal volumes shown by the orange line aren't the key driver of free cash flow for Horizon mode and that should be reinforced as our bulk business continues to grow. Importantly, the black line is very consistent from 2017 onwards. Mode.
It is this stability in cash flows that has enabled shareholder returns with over $4,000,000,000 distributed since 2016 in the form of dividends and on market buybacks. Briefly to CapEx. CapEx totaled $490,000,000 in FY 2021, mode, which is $37,000,000 lower than the prior year and slightly lower than our full year guidance, mainly attributable to lower network asset renewals. Mode. Non growth capital expenditure guidance for FY 'twenty two is $475,000,000 to $525,000,000 mode.
This figure excludes growth capital and any M and A activity. FY 'twenty two growth CapEx is dependent on bulk contracting outcomes mode where there are a few live opportunities. We will be able to provide more detail at the next result, but expect this to be at least $50,000,000 mode. Long term expectations for staying business CapEx remain around $500,000,000 per year, although this is constantly reviewed in conjunction with our long term volume outlook. Turning to the next slide.
And I know this mode. The chart on the left is partly a repeat from our Investor Day in June, but there are 2 important points it emphasizes. Mode. Firstly, you can see the differential between historical free cash flow and dividends. This demonstrates that even at 100% payout of NPAT, we still have surplus cash flow to deploy within the business or return to shareholders.
Mode. Secondly, while aggregate dividends have remained relatively constant, dividend per share has increased mode due to about 150,000,000 shares being bought back and canceled over the last 2 years. This year's record total dividend payment mode. $0.288 per share is 20% higher than 2 years ago. As I have noted previously, mode.
We 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. Mode with 7 to 10 year terms and coupons of 2.9% to 3.3%. This included an inaugural issuance for Horizon mode. A7 year Aussie dollars note had a coupon of 3%. Mode.
The 3 FY 'twenty one issuances can be seen in the chart on the right hand side where we continue to lengthen the tenor of debt facilities mode with no maturities now until June 2023. We also have significant available liquidity mode with over $1,000,000,000 including undrawn working capital facilities. As noted at the half, with interest rates coming down, We expect our interest costs to trend lower, albeit at a slower pace given we have high levels of fixed debt within network mode to align to the regulatory reset period at the end of FY2023. The recent bonds will however help to bring average rates lower mode. And with all debt floating beyond FY 'twenty three, interest costs will come down again from that point assuming rates remain low.
Mode. And finally, can I say how pleasing it is to have taken you through these financial results for FY 2021? While a lot of external mode. Have had an impact on the markets where we operate, not much has changed for Horizon financially. Our earnings have been stable, mode.
Our cash flows are strong and we've lengthened our debt profile, thanks to the continuing support of Capital Markets. Thank you. And I'll now hand back to Andrew.
Mode. Thanks, George. Turning now to the financial outlook for the 2022 financial year. Mode. With our focus on free cash flow, we've determined to provide guidance for both EBITDA and sustaining CapEx as a proxy for free cash flow.
Mode. Our EBITDA guidance range is $1,425,000,000 to $1,500,000,000 which compares to this year's $1,482,000,000 mode and our sustaining CapEx guidance is $475,000,000 to $525,000,000 mode. As George noted before, growth CapEx will be in addition to that and we can provide a firmer picture of that next year with some mode. We have listed our key assumptions by business unit as we believe that Will be the most useful and effective way to help investors and analysts understand the major drivers. For coal, we assume EBITDA will be broadly flat mode with the volume growth of around 5% and lower cost from transformation being offset by lower contracted rates.
Mode. We are not providing a range of volumes given we don't believe there is a strong connection between that assumption and Group earnings. Mode, but we do want to give an indication of volume direction. We will also no longer provide quarterly above rail volumes, but we'll continue to report volumes at each financial results. Bulk is expected to grow with the full year benefit mode of recent contract wins and port acquisitions.
And network is expected to be lower with the retrospective work fees of $49,000,000 not mode. Network volumes will be relevant to the timing of revenue recovery as we saw this year and we will update you on that early next year. Mode. As per our normal practice, we do not assume any material disruptions to commodity supply change such as adverse weather mode or COVID related restrictions. In conclusion, mode.
This slide summarizes Horizon's value creation record over the past few years and provides a platform for the future. Mode. All the activities shown here have set up each business unit and ultimately the Group for the future by ensuring a resilient foundation. Mode. This has resulted in stable cash flow, which has delivered consistent distribution to our shareholders as evidenced by the chart on the right.
Mode. As noted earlier, Horizon has a unique place in critical supply chains supporting Australian commodities in global export markets. Mode. We will continue to deploy capital efficiently to support these supply chains, with a view to generating attractive growth and shareholder returns. Mode.
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. Mode. Capital will be spent carefully with some assets able to be deployed into or shared with bulk to support their growth ambitions because of Cola's mode. For bulk with growing markets and new adjacencies, the focus is on revenue and earnings growth.
Mode. It will need more capital, which has already begun such as the 2 Horizon Port Services businesses, but it can also take advantage of fleet mode from coal that can be cascaded to support these growth markets. The network that focuses on betting UT5 to ensure long term regulatory certainty, mode, reducing costs and enhancing the efficiency of the supply chain, which will ultimately increase throughput for the entire industry. Mode. The result is a business with a stable and resilient call through coal and network, which provides a platform for bulk to achieve its growth aspirations.
Mode. We look forward to continuing the journey for Horizon and to continue to create value for shareholders. Mode. I now welcome your questions.
Thank Your first question comes from Matt Ryan from Barrene Valley. Please go ahead.
Mode. Hi, Andrew. Hi, George. Just with capital management, I think you just mentioned in your last slide that there's still some bulk growth opportunities that are yet to be decided. But can we assume from the lack of the buyback announcement today that that decision has got something to do with the 1 rail process that's still ongoing?
Mode. Hi, Matt. Look, I think we will leave it at the level of mode. To add value through them may occur, we want to actually stay where we're currently at from a buyback
Okay. And I'm not sure whether Clay is on the line or not, but my understanding is that The deal that you did last week with CBH, only about 60% of the 14,000,000 tonnes is on rail at the moment. So mode. Just curious on whether it's going to be possible to move more of those tons to rail over time? And Just any color that you can talk about in regards to what you're going to be contributing for train sets?
I understand that there's only something like 3 of the 3rdane trainsets That need to come from Horizon. So just any color there would be helpful.
And my hope
We're delighted to be working with CBH again. And for those who don't know much about CBH, they're Australia's largest grain exporter with about 40% of the total grain market An average yield of around 14,500,000 tons. You're right about the road to rail split at the moment. Mode. So it's about sixty-forty.
But CBH is on the record as saying that they had been disappointed with the performance of their supply chain, particularly mode. In the rail area, I'm looking for a counterparty who can perform more reliably and add value to their customers' products. So When you think about that, it's about the benefits and efficiency of moving more of that product to rail. Mode. So we're very keen to do that.
Obviously, it's got a symbiotic benefit in a cost improvement for mode. CBH and their customers and a volume benefit for us. If you think about what we tried to do here, I use this as the classic case of 2 years of hard work to achieve an overnight success with CDH. We've been working with them for some time on wagon leasing, mode. Renewal work and providing additional capacity in some of their regions.
And so our RST was all about Utilizing key land and locations to enhance their operational and maintenance outcomes, About that Flexi fleet that you spoke about putting 2 3 additional fleets in, 2 narrow gauge and 1 standard gauge, mode. To increase throughput in the key delivery windows for them, they have this key delivery window where their growers get a higher mode. Price for their product on the international market and are very keen to see that window or volumes through that window increase. And so we'll be targeting that with those 3 additional fleets.
Mode. Can I just ask on that? I mean, how unique is this opportunity whereby mode. There's already train sets in place. Is this something that you think there's more of out there for you?
Mode. Do you mean more CBH Tots style customers?
Yes. Or just the idea that they've already got Something like 10 of their own train sets and that you're only having to contribute a few of your own?
Mode. Well, if you look across our portfolio, Matt, we do something similar with MRL. We've got hook and pull style contracts with Lynfox, this style of or type of contracts are not unusual in the bulk market. Mode. And so whether you're operating and maintaining a customer's fleet and capital or whether you're augmenting that with your mode.
You're always after what's the value proposition here for the customer? What makes your proposition unique? And in this case, it was Those key land locations of Avon and Forestfield and Albany where we've got maintenance facilities mode. And the ability to schedule trains from Avon down to their key port of Kwinana mode. Better than what was happening today, so we can stage them out of Avon to increase throughput on raw.
Those sort of opportunities are around, Probably not on the scale of CBH in the grain market. This is the largest grain producer in Australia by a long way.
Thank you.
Mode.
Thank you. Your next question comes from Jacob Kukhnas from Jarden. Please go ahead.
Mode. Good morning, guys. Can I just start off with maybe Ed and George in the coal business? Can you just describe the dynamic mode. There of the non pass through of the take or pay in the period and what that relates to and whether that's something that we should expect moving forward?
Mode. I'll get George to go first on that and then Ed can come in the back end if needed.
Yes, Jacob. So you can see that in the bridge under coal about $10,000,000 and it was booked in the second half, which is why you might notice that second half earnings in coal were a bit weaker than the first half. Mode. That relates to a small number of customer contracts, where we hold the take or pay risk. They are legacy contracts.
They've been renewed
mode.
Thank you.
And I
don't have anything to add.
Mode.
For FY 2022, are we expecting that the relationship mode. The change between CapEx and the change between D and A keeps missized in the sense that D and A or the change in D and A is going to be higher than the change in CapEx just given the CapEx is going into bulk?
Mode. Jacob, I think I missed the first part of your question, but I think generally it was about Dara and CapEx. So let me answer that and tell me if there's anything else. Mode. So we saw depreciation, amortization increase by about $20,000,000 from FY 2020 to 2021.
We expect it to go up again from 2021 to 2022. Mode. And in terms of CapEx, I think that will largely be a function of growth CapEx in bulk. Mode. So we hope to give a bit more color on that at the half year results.
But generally speaking, you can expect data go up a little bit more year on year from 2021 to 2022.
Thanks, guys.
Your next question comes from Anthony Mulder from Jefferies. Please go ahead.
Mode. Good morning, all. If I can start on coal, please. I think, Andrew, you mentioned that 70% of those contracts that are renewing are contestable. How do you determine the contestability of those contracts please?
Mode. Ed, I might get you to answer that question. Thanks.
Yes. Thank you, Andrew. Thank you
for the question, Anthony. Mode. The reason
we're saying we believe 70% of them are testable is because the other 30% relate to options we have mode. In relation to the 70% testable, we have a reasonable level of confidence around mode. Our ability to re contract, we have a good track record and we have some balance of our customer mode. And also the mechanisms we have served us well, but we never take that for granted, Anthony.
Mode. Yes. If I Anthony, I might just add that a significant amount of the volume relates to the New Hope operation, which is winding down. So by that very nature of it's not contestable. There is another operation that has I can't name for contractual reasons that customer references confidentiality on a repeated basis.
It was A contract that we lost many years ago, but actually terminates in the near future.
Mode. Just related to the competitive dynamic on the core markets, obviously, we've seen 1 Rail going into Queensland. I I don't know whether or not that's part of the Hale Creek 1,000,000 to 2,000,000 tons coming out, but just as to what you're seeing from them and
Probably addressed this question many times over the years, and I don't think it actually changes much, Anthony. We're seeing mode. Very similar levels of competition in the market now for a number of years. Nothing much Has changed from our point of view. As to exactly what One Rail is up to, we don't Actually get a lot of insight into that, so I can't really speak to the detail of what they might be doing, particularly if it's at Competitor hold operation.
Okay. I'll try again. The last question I had It was around CapEx. Obviously, maintenance CapEx seems to be fairly suddenly around that same sort of level. Appreciate there is growth CapEx and that's nice to see growth CapEx, but appreciate that trains are getting longer.
There are less assets required to haul the same amount of Same tonnages effectively. When could we start to see that maintenance level of CapEx starting to come down?
There's a number of what we should say, overlapping issues that you're looking at when you're looking at mode. CapEx spend, for maintenance spend. We I've highlighted in my talking points mode. About the above rail asset management program, that is a program that is designed to cause significant reductions in the cost of maintenance and improvements in the way maintenance is done. And we've been seeing that program rolling out for some time now to good effect and that will continue mode for a very long time.
So that's a tailwind of an improving ability to do maintenance and do it at an improving cost. As far as the actual maintenance task itself, And I think you were just referring to rolling stock in your question. But it kind of does also relate to below rail. It's a very mathematical thing, The maintenance costs, the metal light wheels wear depending on mode. The volume just hold the distance traveled.
So it's not something that goes down if you do more work at a physical level, only if you're actually better at executing the cost of maintenance. So mode. All that said, we will absolutely see improvements in efficiency mode. Asset Management and we have done quite spectacularly in the last year or so, and we'll see that again for a number of years. Mode.
But as the actual activity task goes up, that's not going to help maintenance levels drop. It's actually quite Sort of intrinsically mathematically related if that makes sense.
All right. Lovely. Thank you.
Thank you. Your next question comes from Rob Koh from Morgan Stanley. Please go ahead.
Mode. Thank you. Can I ask excuse me, I just want to ask some, I guess, treasury style questions? Can you give us an update on where you're seeing your debt headroom versus the rating metrics? I presume you're not changing your target ratings.
Mode. Rob, I'm going to hand this very quickly over to George.
Hi, Rob. So we're still BBB plus Baa1 across network And operations, our FFO to debt metrics in network are 13%. We're much closer to 20% than 13%. So when we look at range between 1720, so bit of headroom there. And on operations, while it's the same rating, different FFO to debt metrics.
So the FFO to debt threshold there is 50%. Noting my comments around capacity and balance sheet capacity, that's largely on the operations side mode as well. So compared with that 50% FFO to debt threshold, we're going to range between 70% to 100% when we look forward. That's obviously as we sit here today and depends on how we use that balance sheet capacity, but hopefully that gives you a sense.
Mode. Okay, cool. Thank you. And then just seeing as it seems you guys love treasury questions, I'll ask another one. The rate hedging strategy, did I hear correctly that you're actually largely floating from FY 'twenty three and just the rationale behind that?
That's a Change in policy if I'm not incorrect, if I'm not mistaken?
Rob, it's a continuation. Mode. And the rationale for that is most of our debt sits in network at this point of time. And there is a WACC reset in FY 'twenty three in network. So we're floating in terms of debt beyond that to hedge ourselves to that WACC reset.
Mode. If you look between now and FY 'twenty three, our hedging we're about 80% to 90% fixed between now and FY 'twenty three.
Mode. Okay, cool. That makes a lot of sense. Thank you very much. That's it for me.
Mode. Your next question comes from Justin Barrett from CLSA. Please go ahead.
Hi, guys. Thanks again for your time this morning. Just one quick question for George. I think you highlighted or mentioned very quickly the impact on EBITDA margins from new contracts in bulk. Can you just maybe provide a little bit more detail?
Could broader bulk margins be a little bit mode. Compressed as you onboard these contracts and then expand as they are up and running?
Yes. I mean, I might start that one and then maybe Clay can see if he wants to add anything. If you look Justin at the EBIT margin results for bulk year on year, Our EBIT margins have actually improved. So if you go back to FY 2020, our EBIT margins were around 15%. Mode.
EBIT margins as we look at FY 'twenty one results are closer to 18% and that's EBIT divided by revenue including Access. Mode. In terms of the forward view, it will really depend on where bulk is growing and whether that's growth through taking share off road or whether that's growing with our existing bulk commodity customers. So that's the view as we sit here today. I might see if Clay wants to add anything.
Mode. No, I think you're spot on George. It's a case by case basis. Obviously, competition in some sectors and some corridors, mode. There's more competition there than others.
Sometimes you in a well established contract, mode. The ability to renew that contract on reasonable returns, others when you're trying to break into the market, mode. No, I think that's a fair response.
Great. Thanks very much for your time guys. Mode.
Thank you. Your next question comes from Scott Ryall from Ruma Equity Research. Please go ahead.
Mode. Hi there. Thank you very much. George, I was hoping to follow-up on Rob's question on the balance sheet capacity. Could you just mode.
Specify exactly how much capacity you believe you've got left after the capital management activity you've done in the last couple of years?
It's got about $900,000,000 of balance sheet. 900. Yes. And that's obviously after $300,000,000 buyback we did in FY 'twenty one.
Mode. Yes, got you. Okay, thank you. And then this is it's probably going to end up with it, but Andrew, mode. Maybe you want to start with it.
The coal contracted volumes of 230, down 5% from the year just gone. Is that Mostly New Auckland expiring?
Look, I might actually just give that straight to Ed. Ed?
Okay.
Mode. Hi, Scott. Yes, it is New Ackland, but it's also the contract Andrew alluded to in New South Wales mode. In the Ana Valley system that we're not obliged to comment on. And also it The loss of Stanwell from December soon December 8 months ago, which is not carrying forward as well, of course.
Mode. Okay. And then just to follow on, on that. So your contracted volume is down 5%, but your volumes, you're expecting up 5%. And I understand mode.
Been some disruptions and things in the last 12 months, obviously, but that would get you to a contract utilization rate You haven't seen since fiscal 2018. Is that something I mean, obviously, comfortable with it to talk about it, but mode. What do you think is the driver behind getting back to strong contract utilization rates, please?
Mode. Yes. Well, I would actually thank you. I would actually think that getting back to that sort of 90% contract utilization rates are not Particularly strong on the early 90s. We I mean, we've got as you know, we had 244 mode.
Contracted moving to 230. We railed in the mid or low 80s of that. And historically, mode. We've had a good track record of delivering around those low 90s in the contract utilization. So we're seeing mode.
Now our producers, our customers have found new end markets and seaborne trade has rebalanced. We're seeing A reasonable start to this financial year with July just closed and some Some of our competitors jostling for capacity in the certainly in the Queensland system. So mode. It's always difficult to predict where things are going to be, but gives me some certainty and us some certainty around the 5% volume uplift
All right. Great. And then my last one is probably is for Andrew. There's could you just talk about the Independent expert on network and just clarify, obviously, that's a process that's been delayed and I'm sure a source of frustration. Mode.
You have confidence that the report will come by the end of September?
Yes, Got it. I got a lot of confidence in it. And but I will actually hand over to Pam who lives and breathes this stuff and
Current expectation has not changed as we've talked about at Investor Day. In terms of confidence levels, we've obviously mode. We know they're well resourced and both internal staff and also consultants. Mode. The system operating parameters, which is a key input into that capacity model, has been released to industry for consultation, and that's a key part of the process.
So mode. Obviously, the results can change from consultation, but we do understand that the independent expert is progressing well on the draft model mode. And all the information that we've received from the independent experts indicates that we very much remain on or they remain on track mode to deliver at the end of quarter 1. And then obviously, we have the 20 days to respond to that report.
Okay, great. And just lastly,
mode. Thanks very much on behalf of Mike, unless Mike wants to say something.
Mode. Thanks, Scott. Your questions have always been fantastic and I'm disappointed we didn't talk Traanga, but maybe someday we will again. It's been a great journey. Thank you.
Mode. Thank you.
I can't see his face, but it feels like there's a big smile on it. Mode. Yes, let's
stop there.
Thank you. Your next question comes from Owen Birrell from RBC. Please go ahead.
Mode. Hey, guys. Thanks for taking my questions. Just a general question at the outset as to why the guidance was mode. Can you give us a bit of a sense on where D and A is likely to go into FY 'twenty two?
Mode. George, do you want to pick that one up?
Sure, Owen. You might have seen at our June Investor Day, we're focusing much more on free cash flow going forward. Mode. So what we decided to do is to give guidance on both EBITDA and CapEx as a better proxy for free cash mode. So that's the driver for the change.
In terms of the second part of your question around where DAA is going, mode. It increased $20,000,000 from FY 2020 to 2021. I'd expect it to increase a little bit more from 2021 to 2022, so starting to approach 600. Mode.
And can I ask just, I guess, associated with that, are there any, I guess, operating assets that you expect to move into leases mode? Over the next 12 months to obviously impact that EBITDA number?
Mode. No, Owen, they aren't.
Okay. Thanks. Just a question on network. The
last Couple
of years, obviously, there's been a bit of a structural change in the coal market. And I know that the realized Tons have started to deviate from the forecast tons set out in the UC5. I'm just wondering and so that's basically resulting in under recovery mode on a sort of a go forward basis. And I'm just wondering, is there any facility or when is the next time that that Regular forecast tons reset. Is there a trigger for that to reset?
Mode. Ma'am, do you want to take the question and maybe just cover a bit of the process by which the volumes are set?
Yes. Thank you. Thank you, Owen. Basically, mode. The forecast volumes are only applicable for a year.
So each year, we reset those volumes. So the purpose of volumes is really to recover The agreed revenue for the year, so under other recoveries isn't into the future generally, it's sort of subject to the volumes that you've agreed With the regulators, so they were very high for the year just gone and obviously didn't anticipate the COVID impact. So mode. The next year's volumes have been set at a lower level, so it's an annual process.
That have been reset. Mode. And look, just one for the above rail business. Looking at the margins in coal, mode. They've gradually been slipping year over year as the sort of lower yield started to come through.
Mode. You've done a great job of reducing your operating costs to try and hold that line on the margins. But I'm just given your where you know the yields are going mode. Over the next couple of years, how confident are you that you can continue to remove operating costs to hold the line on the margins there?
Mode. Ed, I'll let you pick that one up.
Yes. Thank you. Thank you, Andrew, and thanks, Owen. Mode. Look, it's always it's been the game for some years now, keeping ahead on the cost front to offset the revenue the rate pressure.
As I outlined at the Investor Day earlier this year, I mean the headroom or the sort of air cover that mode. The secure contract book gives us now really lets us focus on harvesting the investments we've made in technology. So the combination of TrainGuard and the turnaround time improvements we're seeing through Precision along with the new approaches to The cost reduction and efficiency and maintenance through the ARAM project, the combination of those things are it gives me a high level of confidence about our ability to continue to take cost out of the business. We're seeing our employees also respond to the current operating context mode. And high levels of annual leave, our annual leave was up consumption was up 36% during the year.
Now overtime was down 16% as As a workforce also worked with us, I'm proud to say, to help pull in the costs given the volatile market.
Mode. Right. Can I just ask one final question? I did notice that in one of the small print, it said that you'd Sold all these shares in Aquila. Just want to confirm that you've got no interest in Aquila anymore?
I can confirm we have no interest in Accrua. Okay.
Excellent.
Mode. Thank you. Your next question comes from Cameron McDonald from Evans and Partners. Please go ahead.
Mode. Good afternoon, Andrew. Can I just go back to that last question about the rate pressure? Mode. And I think you guided that with the 5% volume uplift and some cost out, you would end up with a flat Coal EBITDA number for FY 'twenty two, so that implies that the rate pressure is mode.
In excess of 5%, probably 6% or 7%. So how do we think about that rate pressure through to FY 'twenty three if you've only got mode. 7% of volumes being contestable?
Okay. George, I might get you to start So on that and then Ed can add if you didn't see the need to. Sure.
Cameron, so you're right. We're expecting broadly flat earnings in coal despite volumes up 5%. Bear in volumes up 5%. Bear in mind, a lot of the contracts that are now flowing through on lower rates We're signed 2, 3 years ago. There's a bit of a lag between when signing contracts and when they come through.
When you start to look out 2 or 3 years, That's more contracts that we're signing today. So we would expect to see beyond FY 'twenty two, depending on where volumes go, An uptick in earnings in coal as not only volumes come back, but the benefit of our transformation programs come through. So above rail asset management, project precision, they will start to take effect And realized cost savings beyond FY 'twenty two that should see those coal earnings increase off the current base.
I don't have anything to add.
I was going to say, you didn't leave you much less.
Mode. So do we imply from that that the rate from FY 'twenty three onwards that the rate pressure isn't
mode. Yes, it's a function of where the new capacity comes into the market. But if you look at where we sit today, we're not seeing a lot of new contracts mode over the next 3 or 4 years and therefore we'd expect rates to be largely set for the next 3 or 4 years.
Cameron, I was just going to add to that. I mean the rates are always it's interesting and we don't it's not mode. It's not an average in terms of the rate pressure, obviously. Some customers actually don't seek any rate. Mode.
They're quite content as we re contract business and they're looking for different flexibility or a different performance mechanisms. Mode. And others, the price is very important. So it is a comment George is correct. There are there's multiple factors and mode.
It really will depend on whether competitors are prepared to reinvest as well. Mode. And I think we're reaching an interesting inflection point in the market and I don't see a lot of downward rate pressure in the next few years given the contestable contracts we have ahead of us in the next 3 to 4 year period.
Mode. Okay, great. Thank you. And just last question for me. In that bulk Market and you've identified that area as being potentially having some opportunities with growth CapEx mode.
And obviously now no new announcement around a buyback. You've previously indicated that you would assess all growth opportunities against Internal capital management and buying back your own stock, is that still the framework that you will be assessing growth CapEx opportunities in mode. Particularly if it's in material amount of growth CapEx?
I can confirm that mode. The way we've described the process in the past is exactly the way we will actually conduct any evaluations that we Currently have underway or would have in the future.
So that sets a pretty high bar for growth CapEx.
Mode. But it's the way we're going to do it.
Okay, great. Thank you very much.
Your next question comes from Ian Myles from Macquarie.
Sorry for probably laboring this. Mode. Just on that coal side of the business, is the Glencore reset sort of the last of the larger sets of contracts which have now gone through repricing? Mode. So from sort of FY 'twenty three onwards, as we see further volume recovery, we should actually see the benefits of Trine Guard and Your other initiatives starting to actually come through the bottom line?
Ed, do you want to answer that? Mode.
Yes. The short answer is yes, Ian. Yes.
Okay.
Although I wouldn't mode. Without going into any terms of the clinical reset or re rollover of the contracts and extensions, mode. Price was not the main factor with that particular contract and it rarely and it often isn't with Glencore. They're much more focused on delivery performance.
Mode. Okay. That's fair to say. And so from an operational point of view, are we now at a point that the Queensland and the New South Wales fleet mode. Coal is fully contracted, may not be fully utilized, but you don't actually have capacity to contract more in without new capacity Or bringing trains back from WA?
Yes. Other than lead sorry, Andrew, did you want to take that one?
I was just going to
say, and don't forget the work we're doing on Project Precision that actually creates capacity from the existing fleet. But other than that, I'll leave it to Ed to
mode. I was going to say the same thing. Capacity release is the name of the game in we're not our aspiration is mode. To improve productivity of our assets to the point where we release capacity rather mode. Then outlay capital.
And if we cannot sell the business, then we cascade the bulk.
That's great. I mean, mode. BHP Nickel West, you canned that contract and maybe I'm a bit ignorant.
Can you just give us
a bit of rundown why That contract couldn't be extended, renewed or repriced given bulk is actually a large part of your business. Mode. I guess the extension is you talk about metals and other opportunities out there. Just sort of maybe color away where you're seeing some of those other
mode. I'll hand that one over to you.
Thanks. Mode. Thanks, Ian. As we communicated before, that Nickel West contract was a significant reform contract for us. Mode.
And in the end, we just could not reach commercial terms with BHP. And so, mode. We weren't willing and they weren't willing to in the end come to an agreement. And so we weren't able to reform that one. Mode.
If you think about what we've done since then, that capacity on that impacted Friday has been backfilled with new customers. Mode. Nickel West has now found its way into supporting other customers on East West Services and I think you see some growth there in the MRL iron ore numbers. Mode. And we've rolled out some of the higher capacity wagons that we use for Nickel Weston.
We deployed those So kind of reform that without Nickel West. In regards to sort of other opportunities, Sort of the brownfield and greenfield growth pipeline in bulk remains really positive. And you recall from Investor Day, The slide with the 1400 projects currently at various stages of development. So now we know all of those won't come through, but the projection is a cargo around 3 mode. And so there's this really rich pipeline in sort of short term, medium term and longer term opportunities that we're looking mode.
I think Andrew mentioned it in, the fundamentals for next year look strong. We've had good broad range for our agribusiness And positive commodity prices underpinning the minerals and metals business for next year.
Mode. Okay. And just one final question on that Nickel West. Did that actually go to rail or has it gone to truck
mode. Listen, I don't entirely know what the end result of their operational
mode.
Thank you. Your next question comes from Sam Seo from Citi. Please go ahead.
Mode. Good morning, all. Thanks for taking my question. On bulk, it looks like it's been a mode. Clearly strong environment with elevated demand for iron ore, base metals and ag.
So just wanted to understand mode and give some more color around that 10% from what you think was an uplift in volumes from existing customers versus, I guess, market share gains
mode. Clay, do you want to give a bit more color on that breakdown? Mode.
Yes, sure. So the year for us was driven by increased volumes or revenue from MRL, Rio, the Port Services business and some spot grain, but offset by Mount Gibson with the closure of the Extension Hill Mine, that's The plant closure and some poor livestock volumes. Going forward, I think it's well publicized. Mount Gibson looking to reopen Shine, mode. But the rest of the sort of volume increase year on year came and the revenue increase came from primarily from those four customers.
Mode. Sure. And I guess also looking at the bulk transformation since FY 'seventeen, I mean revenues Largely look flat. I mean, granted we can't see access costs back that far. It appears that 100 mill turnaround, lower costs and I guess, 50 mil reduction in D and A have been pretty key drivers.
Just interested to know, I guess, mode. If you need to accelerate your top line growth from here to kind of hit your double market share targets. And then in terms of margins, how should we think of cost And Dana E, as I'm assuming you'll be reinvesting into the business to get that growth?
I would say, if mode. George and Andrew have got us doubling the size of the business for the next 10 years. Yes, we've absolutely got to drive that top line growth. And mode. If you think about our investment in the port services in Townsville and Newcastle, that's all part of that positioning to support long term mode.
So we're confident about the market. We're confident about expanding in the market, our So moving out of just a core rail business into port and then road that contributes to our business are expanding in that supply chain and we know that supply chain business as far as the bulk market goes is currently around $10,000,000,000 in revenue moving to $13,000,000,000 in revenue. Mode. So we're looking to take a 20% to 25% market share in that particular market. So yes, mode.
Got to continue to drive the top line growth. On the cost side, since the turnaround, we've continued to be very focused on mode. Cost Management and Transformation and I guess it's best outlined by the fact that in the last 4 years revenue is up 16%, but our operating costs have reduced Real operating costs are reduced by 2%. So we continue to focus on that. There's always opportunities to do more there mode.
And that will be part of our DNA that we embed in the business going forward. On mode. Depreciation, I think we're up $8,000,000 this year from last year, so $20,000,000 to $28,000,000 And a lot of that Increase in depreciation will depend on growth opportunities, but you'd expect if we're growing and we need more capital that G and A will increase in line. Anything else I've missed there, George?
Mode. No, it's a good summary, Clay.
Thanks, Scott.
Mode. Thank you. Your next question comes from Paul Butler from Credit Suisse. Please go ahead.
Mode. Hi. Just one quick question. On Slide 18, where you had that comparison of free cash flow versus poll volumes. Does the free cash flow data on there include asset sales or is that excluded?
Mode.
No, Paul. It includes both asset sales, but it also includes acquisitions during the year. So includes both of those for FY 'twenty one and FY 'twenty.
Okay. So if you took out the asset sales, wouldn't that free cash Will the line look a bit more similar to what's happened to volumes or is that not the case?
Mode. It would be down a little bit in 'twenty one, but bear in mind it would also be down in 'twenty because of rail grinding that we sold in 'twenty, match. Whereas the cash tax for rail grinding was actually paid in the 'twenty one year rather than the 'twenty year.
Mode. Your next question comes from Nathan Lead Please go ahead.
Yes. Good day, team. Thanks for your presentation. Just three quick questions for me. The first one, just mode.
Just interested in the profile for tax going forward, obviously with that the government budget allowing for that immediate expensing of CapEx and just What that might look like in terms of the franking percentage for the dividends going forward?
I I think Andrew is looking at me, Nathan, so I will take that question. Look, I might start with the franking question. Mode. This dividend, Frank, at 70%. It's been that for the last few years, expect that to be the case going forward.
Mode. And that's just driven by the difference between our cash tax rate and our accounting tax rate. In terms of the mode. Absolute quantum of tax, expect that to step down in 2022 and 2023. I won't put a quantum on that yet because we're still working through So we'll step down, but I won't give you a number just yet.
Okay. Sounds good. Second question, I'm just interested that the comments you've made about the $900,000,000 mode. Just interested, are the rating agencies starting to talk about tightening up the metrics you require within Those rating the rating band to do with, I suppose, the growth in bulk, which I suppose is a lower quality earnings stream than And then also I suppose thinking longer term, just as far as you presented those some of the scenarios were negative Call outlook scenarios at the Investor Day, what's your thinking with the debt capacity when you're looking at those longer term negative scenarios?
Mode. So, Nathan, the short answer is no. The rating agencies aren't having that discussion with us. And if anything, I think the scenarios
mode. Okay, great. And then another one, if I look at Slide 53, the Coal Holdings contract expiries, mode. I'm just interested, I suppose there's an assumption there that we might think that you continue to roll those contracts. But mode.
Is there a risk around the mining leases themselves being extended? And I suppose where this has come from is, I believe there's been some concern amongst the potential bidders for the Mount Arthur mine about whether the morning leases would actually extend. Could you make a comment on that, whether there's any risk around significant expiries there?
Ed, I might get you to cover off on that one.
Mode. Yes. Thank you, Andrew, and thank you, Nathan. Look, there's always a risk, Nathan. It's something we certainly model in our scenario analysis George, you're at Investor Day.
That's the that is the regulatory environment. I mean, it is It's a broader problem of course for the industry. And what we typically see though that some of our high quality counterparts Like BHP, are adept at working through the policy and regulatory framework. Mode. So yes, it's a risk.
We think it's a low one currently, but we watch it carefully.
Mode. Thank you. Your next question comes from Scott Ryall from Rimma Equity Research. Please go ahead.
Mode. Sorry, I forgot to ask when I asked Pam about the independent expert before. What is the assumption for your guidance for this year? Mode. What's the assumption in terms of the step up in WACC, the timing at which that takes place, please?
Mode. George, I might get you to cover that.
Yes. Scott, the timing of the IE report won't make any difference to FY 22 because the tariffs approved by the regulator has set it effectively 6.3%. What the timing will make a difference for is the revenue cap Calculation, which will be for FY 'twenty four, so 2 years after 'twenty two. So that's in relation to guidance. I'm not sure, Pam, whether you wanted to add anything?
Mode. No, you've covered it, George. Thank you.
Okay. All right, understood. Thank you. That's all I had.
Mode. Thank you. There are no further questions at this time. I'll now hand back to Mr. Harding for closing remarks.
Mode. Look, I would like to thank all of you for seeing through our results with us. You can see the value creation record mode with China. And hopefully, you can see how we're building through the bulk business and supported by the network and the coal business
mode.
Mode. That does conclude our conference for today. Thank you for participating. You may now disconnect.