- In her nine years at rail freight company Aurizon, CFO Pam Bains CA has helped move it from a functional to a business unit model, and sliced A$380 million in costs.
- Bains champions connections between the finance and strategy teams, as it aligns Aurizon’s short-term planning with longer term goals.
- Artificial intelIigence is being used to power productivity efficiencies and value creation in assets maintenance, but also within the finance team.
By Deborah Tarrant
Pam Bains CA was busy preparing to deliver the half-year results for Top 50 ASX-listed Aurizon when she took time out to talk to Acuity. The leading finance executive at Australia’s largest rail freight operator was sticking to the rules, staying tight-lipped on the latest news of the company fortunes that she would soon deliver to the market. It was unpleasant news that the UK-born and educated chartered accountant had to deliver, but it was necessary.
On 11 February 2019, the company announced a 19% drop in interim profit after deciding not to appeal against the Queensland Competition Authority’s (QCA) final ruling on how much it can charge clients on its Queensland coal rail network. In effect, the QCA’s decision means A$1 billion less in Aurizon’s coffers over four years.
Bains is a specialist in business transformation, and turning around the operations at Aurizon, formerly a division of the state-owned Queensland Rail known as QR National, has been the focus of her energetic career since she signed on as its group financial controller in 2010 and was promoted to the role of general manager finance within a matter of weeks.
“I enjoy… exploring better ways of doing what we do. You never really get there – there’s always something you can do to raise the bar.”
She arrived at a critical point in the organisation’s 150-plus-year history. There was a proposal on the table to demerge and list QR National. Back then, change agent Bains was in Australia on a two-year sabbatical from her job with Telefonica 02, the UK subsidiary of the giant Spanish telco. For her, participating in the business’s next phase held high appeal. “I thought I’d stay a few years,” she recalls, but compelling career propositions in the rail freight business just kept rolling in.
Nine years on, Bains holds two vital roles at the company that was renamed Aurizon (a combination of Australia and horizon) in 2012. Appointed in December 2016 as chief financial officer by CEO Andrew Harding, and adding group executive strategy to her role in July 2017, she’s aligning finance with refreshed strategic directions and plans, and forging a clearer way ahead.
Hers is a mega-job at the company that, each day, moves more than 700,000 tonnes of minerals and general freight around Australia and manages the 2670km Central Queensland Coal Network.
Moving Aurizon to a business unit model
Aurizon continues to cast off legacy systems as it drives productivity improvements to shape up to fierce competition in the rail haulage industry.
Moving Aurizon from a functional to a business unit model with three product-aligned businesses – network, coal and bulk – has simplified the enterprise for customers and employees, and aligned performance and accountability at a business level, Bains says.
A 2017 review of the under-performing freight business was Bains’ first priority. The upshot was a divestment of Aurizon’s loss-making intermodal containerised freight business – part closure, part sale. After a battle for regulatory approval, Melbourne-based logistics company Linfox eventually received the green light to pick up Aurizon’s Queensland intermodal business in January 2019.
A turnaround of the commodities-hauling bulk business is looking effective, with a return to profitability in 2018. “We believe bulk is our key strength,” says Bains.
Last year, she introduced a new strategy for Aurizon. “It’s about putting the focus back on what we do best – delivering bulk commodity transport solutions.”
Simultaneously, it proposes a role for Aurizon in the growth of regional Australia. This has prompted a move for group executives in the coal and bulk groups to Mackay, 950km north of Brisbane, and to the Western Australian capital, Perth, so they’re living closer to where it all happens.
Last year, Aurizon delivered on its three-year transformation target, slicing A$380 million in costs from its bulk and coal rail businesses, and corporate and support areas.
“We’re continuously driving transformation initiatives – cost reduction, efficiency, productivity initiatives,” explains Bains, who’s also made a commitment to disciplined capital management to drive shareholder value, returning A$1 billion to shareholders since 2017 through dividends and buybacks.
Managing change and its challenges
Regulatory challenges are having an impact. Beyond the Australian Competition and Consumer Commission’s scrutiny of the intermodal deal, Aurizon entered 2019 with uncertainties in its network business because of its battle with the QCA over how much it could charge clients to use its coal network.
Bains is matter-of-fact about change and its inevitable challenges. “I enjoy change, pushing the boundaries and exploring better ways of doing what we do. You never really get there – there’s always something you can do to raise the bar,” she says.
Her bent was honed by a background in professional services and stints with Telefonica 02 and US conglomerate General Electric during the Jack Welch era where she embraced the Six Sigma continuous improvement methodology.
“Very early in my career I had a lot of exposure to skills I’ve found invaluable – a lot of the change management and the ability to constantly challenge the way you do things,” Bains says.
At Aurizon, these skills have come into their own.
Finding growth opportunities for Aurizon
Much of the change focus at Aurizon has involved cost cutting, and Bains is frank that in the years after the business’s separation from Queensland Rail she spotted plenty of “low hanging fruit”.
What about growth? It’s a popular question from Aurizon’s investors. In a climate-aware world, the company is substantially exposed to the CO2 generating coal industry. Roughly one-third of its revenue comes from hauling thermal coal, used in power stations, and it announced a 10% boost in hauled volumes in 2018.
Looking decades ahead, Bains still sees demand for high-quality metallurgical coal, used in iron and steel manufacture, and thermal coal due to Australia’s proximity to emerging Asian markets and India.
“Few people know our biggest end market [for metallurgical coal] is India as opposed to China,” she adds, noting the International Energy Agency’s prediction that, while coal will become a smaller proportion of the global energy mix, demand from developing nations over the next 10-plus years is expected to increase. “Absolute demand actually increases roughly 1-2% over the next decade.”
While the business case seems to make sense longer term, Aurizon leaders are not oblivious to the related reputational risks. Chairman Tim Poole told the 2018 annual general meeting that Aurizon’s board and management feared disruptions to its business and becoming “public enemy No. 1” because of its requirement to provide track access for Adani’s contentious Carmichael mine under an open-access agreement on its Queensland rail tracks.
Meanwhile, the bulk business is gathering momentum as it helps feed soaring demand for newly trending commodities such as lithium, which is used in the manufacture of batteries, electric vehicles and new tech devices.
How artificial intelligence improves Aurizon’s operations
Within Aurizon, technology is also powering the transformation effort with productivity efficiencies and value creation, Bains reports.
Artificial intelligence is improving operations with predictive fleet and assets maintenance. Lasers and cameras take 20,000 images each time a train speeds by at 80km/hour and use machine vision algorithms to analyse the condition of components such as wheels, brakes and doors. A GPS-based Internet of Things program has also enabled fleet size, fuel consumption, maintenance costs and insurance premiums to be cut by 10% or more.
“We’re all challenging the way we work with the business by using robotics and technology to automate some manual back-office tax and compliance work.”
“Smaller scale, within my team, we’re all challenging the way we work with the business by using robotics and technology to automate some manual back-office tax and compliance work, which can take a lot of time but be very quick with a robot,” explains Bains. But she’s quick to add there’s no one tool that allows them to get these tasks done faster, just an innovative approach to seeing what’s possible.
However, it’s already freeing time for the finance team to work with the business on strategic insights and driving performance.
Melding strategy and finance into one team
A member of the executive committee of the G100 Network, a global peer-to-peer network and learning organisation for C-suite executives, Bains’ sights are on the mammoth cultural change that’s transforming finance teams worldwide from “transactional and backward-facing” to increased value-adding, strategic analysis and deep insights.
That’s why she seized the “great opportunity” to combine finance with strategy at Aurizon. “It’s absolutely exciting,” she says, “and we’re doing a lot of work in bringing the different skills together.
“In the past, with the two areas sitting separately, there would be an element of duplication or areas where you think, ‘if we put the two areas together, you really have a greater strength of people capability’,” Bains observes. A more cohesive approach aligns “short-term planning, which you often find in finance teams,” with the long-term strategic objectives for corporate planning and performance, she finds.
Aurizon’s combined finance and strategy team of about 130 features the expected general technical finance functions and governance – tax, investor relations, treasury, compliance – along with finance partnering teams and strategy.
Individuals from the finance team are assigned to work with and advise a particular Aurizon business unit. “They are appointed to senior key roles that support the business with commercial decisions and remain connected with the enterprise strategy,” Bains explains.
Developing new skills in finance professionals
In future, finance professionals will be expected to have a greater involvement in stakeholder engagement and work very closely with the business, Bains says.
“In terms of building that resource and broadening the skillset, the more we can do to develop people across different areas the better for them, and also for the organisation.”
Can she define who works in finance and who works in strategy these days?
“Initially, they were quite independent, but over the last year we’ve started to see movements between areas – whether that’s through secondments or transfer of people – which has allowed skills that have been developed in the strategy team to be embedded in the finance team and vice versa.
“As operational and financial data become more integrated, that’s going to require development of our people because it is a different skillset.”
Looking ahead, a new type of finance professional will be required. Where do you find them?
“That’s a very good question, because in the past you often built your experience through more transactional roles, whether it was audit or industry. You developed your skills by working in those areas and that allowed you to develop as a leader,” says Bains.
“With those activities being automated, you’re starting to see a gap between the graduates and the trained qualified staff that come in. How do you close that gap? It’s something we’re all grappling with today.”
Universities and institutes need to adapt more quickly to the changing world, Bains believes. “For example, we introduced robotics within the finance team, so we’re training some of our team to understand how you manage robots, which is not something they necessarily have had much exposure to.
“Similarly, as more AI is used in the business and more data is available, how can we maximise the opportunity from that data being more accessible?”