Australian rail freight company Aurizon has announced the termination of its Freight Management Transformation (FMT) project, contracted to SAP since 2014, resulting in an impairment charge of AU$64 million.
The FMT project in 2014 attempted to bring 18 separate legacy systems used for logistics planning, scheduling, ordering, and billing into a single platform. However, following a review of the project, the Australian Securities Exchange (ASX)-listed company has decided to pull out of the remainder of the contract, expecting it to provide little benefit by continuing.
“A number of elements of FMT have been executed successfully and have delivered transformational benefits in labour and asset efficiency, together with process improvements such as the coal billing system,” Aurizon said in a statement on Tuesday.
“However, the project scope as originally envisaged was wide-ranging with significant risks to implement a number of subsequent modules.
“Aurizon has assessed the risks of ceasing FMT to the achievement of further transformational benefits as negligible.”
Aurizon managing director and CEO Andrew Harding told shareholders on Tuesday that the focus on his company is now to continue “momentum” with the transformation program, as well as focusing on getting its core business right.
“We will take a very disciplined approach to managing costs and capital to ensure we drive shareholder value,” Harding explained.
“The FMT project was not delivering value for the business, was at high risk of over-spend and delays, and so it was stopped. By undertaking the freight review, we’re getting the granularity we need to make informed decisions and to clearly understand the future value and potential of the businesses in this area.”
When the project kicked off three years ago, SAP hailed the project as the “first rail transport company globally to implement an innovative freight management solution which leverages SAP’s Supply Chain Execution Platform 9.1 and SAP HANA.”
“Aurizon looked for an integration freight solution to replace a collection of legacy and customised applications,”said Greg Pringle, Aurizon Executive Vice President of Enterprise Services, in January 2013.
“This SAP solution is a logical extension on our investment in SAP ERP and Asset Maintenance. SAP came to the table with a global team of rail experts and worked closely with us throughout the process to understand our perspective and business requirements, which ultimately allowed them to conceptualise and scope the solution we have now begun to implement.”
Including the SAP impairment, Aurizon is expecting to take a AU$321 million pre-tax hit, comprising writing down the value of its container freight operations by AU$162 million due to trading performance during the first half of the financial year that was lower than expected.