Rail Freight Operator Aurizon posted an 88% drop in its Net Profit After Tax (NPAT) falling to $72 million for year ended 30 June 2016.   The financial result was mainly impacted by impairments ($528 million) associated with the company’s investment in Aquila Resources and the West Pilbara Iron Ore Project. Reduction in volumes also weighed on the group as it witnessed a 9% fall in revenue to $3.5 billion.   The company continued its share buyback during the year but this has currently been discharged to manage near term balance sheet capacity and look for other growth opportunities. This poor performance impacted the group’s financial strength with increase in 7.2% increase in gearing to 37.4%.   With the company laying off more than 300 employees, transformation benefits (cost reductions and efficiency improvements) will attempt to achieve financial stability going forward. The company has already witnessed $131 million in benefits over the past year and a further $380 million has been targeted by 2018   Although we take some comfort in the Network’s (the issuer) regulated revenue structure (which should continue its stable revenue growth) its credit rating remains capped by the parent. This means the credit profile of the Network is tied to that of the group. Given the group’s failed investments and projects and poorly timed share buyback, we now have less confidence in management and credit profile deterioration is likely.   Click here for updated research.