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Australia’s largest rail freight operator Aurizon has defended its decision to carry out share buybacks rather than offering a special dividend.
Chief executive Lance Hockridge said the company (AZJ) had lifted its dividend payout ratio to 100 per cent for the second half and was in the process of buying back more than 100 million shares.
“We don’t have the ability to do large, very significant offmarket buybacks because we’re not blessed with a very significant capital reserve in our balance sheet,†Mr Hockridge told the company’s annual general meeting in Brisbane on Thursday. “We have some limitations around how we can get capital back to shareholders.†Aurizon earlier announced it had paid $184 million for 38 million shares in an on-market buyback over the past year.
“All shareholders get the benefit of that buyback,†Mr Hockridge said.
The company has lifted its total dividend for the year by 45 per cent to 24 cents a share after underlying profit rose 15 per cent to $604 million in the 2014/15 financial year.
Mr Hockridge said Aurizon aimed to lift its gearing to 55 per cent.
“A high dividend payout ratio and some modest share buyback is the best way to try and lift that gearing in the short term,†he said.
Aurizon is also looking to make further productivity improvements and remains confident in continuing strong demand for Australian coal and iron ore despite lower commodities prices. Mr Hockridge said market conditions had been challenging over the past year and growth expectations continued to be tempered. “In this lower price environment for commodities we are working closely with our customers to enable further supply chain efficiencies,†he said.
Aurizon has maintained its coal haulage forecast for the 2016 financial year in the range of 210-220 million tonnes and iron ore haulage of around 24 million tonnes.
Meanwhile, the company is continuing to assess a proposal to develop a multi-user railway and port to unlock iron ore deposits in the Pilbara region of Western Australia.
Aurizon and its project partners Baosteel, Posco and AMCI are carrying out technical and commercial feasibility studies and plan to make a final investment decision by the end of next year.