Headwinds see Qube take annual profit growth breather


Small fall follows huge rise last financial year as segments defend stoutly

Headwinds see Qube take annual profit growth breather
Qube's ports interests are standing up

 

Just two weeks after swallowing port logistics firm Chalmers, Qube has seen a slight fall in net profits on a much larger rise in revenues and profits before non-recurring items.

Following a 150 per cent profit rise last financial year, net profits were down 1.4 per cent to $196.4 million while revenues rose 3.9 per cent to $1.839 billion and ‘underlying’ profits jumped 15.4 per cent to $123.2 million.

"In the face of some strong economic headwinds, this is a pleasing result. Qube’s diversification strategy has protected the business from a slowing economy and helped deliver our continued good performance," Qube MD Maurice James says.

"Throughout 2019, management focused on growing market share, defending margins in a competitive environment while maintaining tight control of costs across the business units.

"This result also reflects Qube’s significant investment over many years on equipment, facilities and technology to build scale, improve efficiency and reduce costs, thereby enabling it to provide a cost effective, reliable service to its diverse customer base.

"The result also benefited from several acquisitions that expanded Qube’s service capability, geographic and product diversification and brought additional management depth and expertise to the group."

There was even success, with all business units in the Operating Division, Logistics, Ports and Bulk delivering growth despite those headwinds, identified as, the effects of drought, declines in new car sales and imports, a slowdown in container volume growth, tight operating margins and a decline in some commodities.

Of the major segments, $66.7 million rise in Ports & Bulk revenue to more than cancelled out a $5.4 million fall in Logistics revenue to $706.6 million.


Read about how Qube snapped up Chalmers, here


One particular star has been container stevedoring firm Patrick, in which Qube has a 50 per cent stake.

Patrick contributed $30 million in net profit after tax to Qube, up 11.5 per cent on the prior year.

"Patrick’s strong cashflow also allowed distributions of $100 million to Qube in the period through a combination of interest, franked dividends, repayment of shareholder loans and return of capital," the firm says.

Full revenue was $624.3 million, up from $578.1 million the previous year.

"Whilst container market growth is expected to remain subdued and below long term average levels, Qube expects Patrick to continue to deliver solid growth in its underlying earnings contribution to Qube in FY20 (comprising interest income on shareholder loans and underlying share of profit), reflecting the full period impact of market share gains, continued efficiencies across the business and lower interest costs which are expected to be partly offset by cost increases associated with landside operations, maintenance and utilities," Qube comments.

"Consolidation of international shipping lines and restructuring of consortiums present some uncertainties in future volumes/market share.

"During FY20, Patrick is expected to finalise the Fremantle and Melbourne lease extensions and to progress negotiations on the Enterprise Bargaining Agreements that are due to expire in June 2020.

"Cash distributions from Patrick are expected to be lower compared to FY19 due to higher capex requirements relating to the Fremantle lease extension and the rail automation project in Port Botany."

Intermodal

Developments at the Moorebank Logistics Park project continue apace, with the import-export (IMEX) terminal now linked to the Southern Sydney Freight Line and major tenant Target Australia starting  operations there having completed a 37,830 square meter warehouse.

Rail and manual operations at the IMEX terminal  – 250,000 TEU container capacity in manual operation and automated operations to 500,000 TEU, with an application to be submitted to expand capacity to 1 million TEU, along with and 300,000 sq m of warehousing– remain on track to commence in the September quarter.

Two agreements for lease (AFL) are finalised with BRW Logistics and Caesarstone for one new multi-tenant warehouse of 19,020 sq m.

Negotiations are "well advanced" for another new multi-tenant warehouse of 23,262 sq m.

Completion of the two warehouses is expected in the March quarter 2020 and June quarter 2020, respectively.

Meanwhile, in Victoria, Qube highlights its confidence in its option to buy 1,100ha at Beveridge, 60km north of Melbourne.

"Qube believes that the Beveridge Project has the potential to be a major intermodal logistics hub in the medium term," it says of the .

Impairments

Qube reports three main impairment charges:

  • $8.1 million against the carrying value of its loans and investment in Prixcar, which is held through its 50 per cent ownership of K Line Auto Logistics, reflecting "weaker than expected FY19 results as well as uncertainty around timing of the turnaround of the business currently underway, and subdued motor vehicle imports and sales
  • $2.4 million against the carrying value of its investment in Northern Stevedoring Services (NSS), reflecting "a volumes loss expected during FY20 due to a highly competitive environment and non-continuation of the energy related projects, which benefited recent years.
  • $3.5 million against the carrying value of its investment in Quattro Grain, "due the ongoing impact of the drought resulting in poor FY19 financial performance with minimal improvement in grain exports expected in FY20".

While direct transport and logistics costs were down $3.6 million to $385.2 million, employment costs were up $23.1 million to $584.6 million and fuel, oil and electricity costs rose $19.8 million to $111.5 million.

For this financial year, Qube expects broadly similar overall economic and competitive conditions, with "a continuation of the subdued trends in container, grain, vehicle and general cargo volumes.

"Qube will seek to continue to mitigate these pressures through scale, diversification, further cost reductions where possible, and ongoing benefits of its investments."

 

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