Logistics and facilites giant sees bottom line up on business growth and property
Qube Holdings has recorded a huge leap in annual net profits despite a comparatively modest rise in revenues.
Net profits after tax came in at $199.3 million, up 158 per cent on last year’s $77 million, while revenues came in at $1.77 billion, a 17 per cent rise from $1.51 billion.
However, without one-off items mainly due to property issues, Qube’s underlying net profit after tax (NPAT) increased only 4.5 per cent to $106.8 million.
“The statutory results are materially higher than the underlying results mainly due to the positive revaluation of two freehold properties at Culverston Road, Minto (Minto Properties) and Qube’s 99 year leasehold interest in the land at Moorebank to be used to develop an estimated 850,000 m2 of warehousing (Warehouse Trust),” the company says in its results announcement.
“The valuation gains reflect Qube’s substantial progress in the planning, development, leasing and funding of these strategic assets, as well as continued strengthening overall in the demand for, and value of, industrial land in South West Sydney where these properties are located.”
Although Qube believes that these assets would be attractive to a broad range of prospective purchasers, it “has no present intention of selling these assets and believes that the continued development and operation of these assets will deliver further long term shareholder value”.
Direct transport and logistics costs rose from $372.7 million to $398.8 million, while fuel oil and electricity costs also rose, form $78.5 million to $92.7 million.
The Logistics division’s performance was hit by “several headwinds” that saw gross earning fall 5 per cent to $62.8 million, despite revenue rising 7.9 per cent to $714.3 million.
“These headwinds included very low volumes of grain which affected both the bulk rail and containerised grain haulage activities and also had a flow on effect on the empty container park activities, reduced terminal services revenue at North Dynon, Victoria, following the exit of Aurizon from its interstate operations, and the impact of exiting the Sydney Haulage site in April 2017 at lease term end,” Qube says.
Progress was made with the building its new warehouse at Altona, Victoria, scheduled to be completed and operational by the end of this month.
“Reported revenue and earnings reflects the continued competitive environment, and margins were also impacted by an increase in the number of low or no margin ‘pass-through’ revenue items, such as stevedoring infrastructure levies and increasing road tolls, which Qube collects from its customers and pays to third parties, resulting in nil or minimal margin on these revenue items,” the firm adds.
It puts the sale of rail freight forwarder Austrans Container Services back to its original owners last December down to “inconsistencies with certain representations that had been made as part of the sales process” and received around the same amount back, though that amount was not totalled in the commentary.
Expected synergies in New South Wales from its Maritime Container Services (MCS) purchase will be delayed to the following financial year due to Australian Competition and Consumer Commission (ACCC) review delays.
Patrick
Stevedoring subsidiary Patrick exceeded expectations, with post-tax earnings contribution of $26.9 million up 26.9 per cent, though the previous year only included 10.5 months of ownership.
Patrick’s profit after tax was around $9.8 million and it distributed $61.6 million in cash to Qube in the period, “which was well above the corresponding earnings contribution to Qube in the period, as a result of the strong cashflow generated by the business and positive earnings outlook”.
The ACCC will examine that result will interest as it coincides with the imposition of the controversial “infrastructure surcharge” on trucking and rail operators, which will be the focus of its annual Container Stevedoring Monitoring Report in November.
Federal transport and infrastructure minister Michael McCormack pledged in March to examine the surcharge based on the report’s findings.
Read about McCormack’s promise to look into the imposts, here
Despite a contract setback in 2016, Patrick’s shipping container volumes rose around 7.8 per cent for the year and 15.6 per cent for the second half.
“Importantly, Patrick remains the lowest cost, most efficient provider of customer service across all terminals with industry leading vessel performance and truck turnaround times,” Qube says.
“Patrick’s solid financial performance was achieved despite the highly competitive industry dynamics as a result of surplus terminal capacity and continued consolidation of shipping lines which have resulted in further price pressures.
“This has been compounded by increasing cost pressures including labour, rent and power. During the period, Patrick progressed planning for the development of an automated rail terminal within its Port Botany facility.
“This will significantly increase the efficiency of rail operations and volumes of containers to be handled on rail.”
Meanwhile, Patrick is through to the next stage of the Fremantle Port Authority (FPA) expressions of interest process — for the North Quay that includes the Patrick terminal, for a new seven year lease term with two seven year options at the FPA’s sole discretion.
Prixcar
Of Qube’s associated firms, Prixcar’s turnaround has been slower than expected and grains operation Quattro suffered from drought impacts.
“Qube impaired the carrying value of its investment in Prixcar by $6.0 million reflecting its continued weak financial performance and outlook,” it says.
“In June 2018, Qube impaired this investment by a further $3.3 million. Although Prixcar has installed a new senior management team and its financial performance is beginning to stabilise and improve, there is still a high level of risk regarding Prixcar’s turnaround and timing of achieving its medium term forecasts.”
That risk includes an expected “modest” fall in vehicle imports from last financial year’s highs.
That said, both associates are expected to deliver a modest overall improvement in earnings.
Otherwise, Qube expects this financial year to be broadly similar to the one it has just reported on.
“Increased earnings from Minto and MLP are expected to be largely offset by reduced earnings from AAT due to the full year impact of exiting Webb Dock West in late December 2017 and an expected reduction in vehicles and other cargo through AAT’s facilities following a very strong year in FY18. Quattro is expected to report another loss due to expectations of another poor grain harvest,” it says.
On Moorebank, planning issue delays and the need for a new environmental protection licence have seen a six-month postponement the likely start of construction of the rail link to the main freight line to Port Botany, with containers not likey to move before the end of next calendar year.
It is also working through issues with the Moorebank Intermodal Company (MIC) over $40 million in preparation work Qube wants to claim back.