Impairments spoil otherwise solid growth in returns
Qube Holdings has seen its net profit slip slightly on the previous year, though underlying figures and revenue continue to rise.
The terminals and logistics firm’s underlying net profit after tax rose 19 per cent to $105.2 million on underlying revenue growth of 18 per cent to $1.43 billion but iron ore- and wine logistics-related impairments helped push the bottom line down 2 per cent to $85.9 million.
“The statutory result was impacted by impairments included in the Ports & Bulk division relating to Qube’s Utah Point and Dampier Transfer facilities,” the company explains.
“The impairment of the Utah Point facility reflects the outlook for lower iron ore prices which is likely to have an adverse impact on sustainable volumes and earnings at this facility.
“The impairment of the Dampier Transfer Facility is due to Qube’s expectation of lower oil prices which is likely to reduce oil related activity in Dampier compared to the forecasts when the facility was initially approved.
“These impairments were partly offset by fair value gains in the Strategic Assets division reflecting the increased value of Qube’s strategic investment properties at Minto and Moorebank.”
Qube impaired the carrying value of its Dampier Transfer Facility by $18.9 million.
There was also a $2.5 million impairment of relating to a Qube Logistics loan to the Mackenzie Hillebrand wine logistics joint venture that is not expected to be recoverable based on the current forecasts for the business.
The logistics division reported underlying revenue of $616.9 million, 4 per cent up on the prior year’s underlying results.
Underlying earnings before interest, tax and amortisation (EBITA) rose by 2 per cent to $58.7 million.
The division faced modest overall market container volume growth and lower rural volumes, particularly movement of cotton and grain in northern New South Wales and southern Queensland.
Other headwinds included severe weather in New South Wales in April that affected rail activities, as well as rail disruptions at a Port Botany container terminal in the first half of the financial year that continued to have an impact in the second half of the financial year.
Qube says it has successfully integrated the December CRT acquisition and is already achieving the target cost synergies with additional benefits expected to flow into this financial year.
The warehouse development at Victoria Dock was completed in June 2015, and volumes have been successfully transitioned from the Somerton facility, which Qube has now left, to Victoria Dock as part of cost savings initiatives.
The near-complete growth at Fremantle port will allow it to consolidate and expand operations and reinforce its position as the largest port logistics operator there.
The ports and bulk division delivered very strong growth in the period. Underlying revenue and EBITA increased by 33 per cent and 28 per cent respectively to $785.1 million and $102.4.
“The record result was achieved on continued growth in overall bulk commodity volumes despite weakness in iron ore volumes at the end of the period as well as weakness in project cargo,” Qube says.
Acquisition of Oztran in July 2014 provided a sizeable bulk haulage capability in Port Hedland, as well as suitable land to construct an employee accommodation camp that was recently opened and is expected to generate continuing cost savings.
Vehicle stevedoring volumes grew modestly and Qube maintained its high market share. Oil and gas activity was strong with an 11 month contribution from the Yara contract, which completed in May 2015, utilising the Dampier Transfer Facility.
New oil and gas related business was also secured in both Dampier and Darwin. The weak oil price has impacted some oil and gas related activity in the second half of the financial year, and the reduced activity is expected to continue this financial year.
Of its associate companies, Australian Amalgamated Terminals (AAT) increased earnings through Appleton Dock as a result of the closure of the competing Webb Dock East facility and growth in motor vehicle import volumes. However, project cargo and roll on roll off equipment volumes were below expectations, particularly in Brisbane, due to a decline in major new projects which is not expected to improve significantly in the medium term.
Qube’s share of net profit after tax was $7.6 million, up from $6.8 million but this is expected to decline as AAT moves to exit the Melbourne market by December 2017.
The outcome of the tender for a new facility in Fremantle, where AAT is one of two shortlisted parties, could provide additional earnings growth for AAT.
Northern Stevedoring Services (NSS) delivered a result ahead of expectations due to a positive contribution from its new bulk shed and a renewed focus on costs. Its growth is expected to be limited in the absence of major new projects in north Queensland.
Qube’s share of NSS’s NPAT decreased 28 per cent to $2.3 million.
Prixcar Services reported a lower contribution but progress was made during the period in repositioning its transport business away from domestic distribution towards an integrated import supply chain, which was reflected in much stronger second half earnings compared to the first half.
Qube’s share of its NPAT fell from $1.4 million to $600,000.
“We are pleased with Qube’s ability to grow underlying earnings per share despite volatile market conditions that impacted several of Qube’s key markets and customers,” managing director Maurice James says.
“This reflects the benefits of Qube’s investment in facilities, technology and equipment to achieve scale, reduce costs and deliver a high level of customer service.”
Though much of the coming financial year will focus on developing the Moorebank intermodal hub in Sydney and building on its fuel storage and grains joint ventures, the group expects its ports and bulk division will face lower income from the conclusion of three significant contracts, its revised Atlas Iron contract and continued modest national economic growth.
Against that, the company expects to benefit from organic growth, the full year contribution from acquisitions and earnings contributions from Moorebank and the Quattro grains operation.