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The head of Aurizon's bulk business has moved to Perth to sort out the troubled division, as more of the rail group's executives are relocated away from Brisbane.
Investors were surprised by hefty write-downs in Aurizon's bulk business announced late on Wednesday after the rail group said its performance was deteriorating, necessitating a $526 million impairment charge.
The bulk business includes the haulage of iron ore and other mineral resources as well as agricultural products and dangerous goods, and includes operations in Queensland, NSW and Western Australia.
The write-downs were particularly heavy in Western Australia, which accounted for $362 million of the impairment charge, leading some analysts to question whether Aurizon was winding down its west coast business.
But Aurizon is understood to remain committed to Western Australia, where it has about 1000 employees.
Clay McDonald, who was put in charge of Aurizon's bulk division in July, has relocated to Perth from Brisbane to keep a closer eye on the business.
Aurizon chief executive Andrew Harding, who took over from Lance Hockridge at the end of 2016, has been urging executives to move into regional hubs. The new head of the rail group's coal business, Ed McKeiver, is based in Mackay.
The bulk impairments come after Mr Harding rearranged Aurizon's corporate structure, making each division responsible for its own costs.
The bulk rail haulage market has also become tougher amid pressure on freight rates and competition from the trucking industry. Total freight volumes fell 5 per cent in 2016-17 compared to the previous year.
While Aurizon's coal business has been performing better than expected, analysts remain concerned about the long-term outlook for the rail group.
Macquarie Wealth Management said it was unclear whether Aurizon's continued cost-cutting would be sufficient to offset the "coal pricing cycle that is about to begin," while Citigroup said management was "running out of time" before coal customers started to renegotiate long-term contracts in about 18 months.
"While coal revenues and earnings could be higher than currently forecast, this is offset by the ongoing decline in the revenue and earnings quality of the freight division, and specifically the bulk business," Citigroup analyst Anthony Moulder said.
UBS, which estimates the book value of Aurizon's bulk division at $225 million, said investors should question how many of the company's bulk contracts were "sub-economic" or unable to be returned to profitability.
Morgan Stanley said it had not expected such a severe deterioration in Aurizon's bulk business, estimating that a 5 per cent drop in Western Australia volumes would lower the company's 2017-18 group earnings before interest and taxation by about 1.2 per cent.
Aurizon intends to explain how it plans to turn around the bulk business when it reports its annual earnings on August 14. The company's shares closed up 1¢ at $5.06.
The rail group has taken a total of $1.6 billion in impairments over the past four years, according to Citigroup. Aurizon will take $401 million of other asset impairment and redundancy costs in its full year earnings in addition the $526 million of bulk impairments.
This article first appeared on www.afr.com
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