Qube Holdings Limited (QUB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Qube Holdings Half Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Maurice James, CEO for Qube Holdings. Thank you. Please go ahead.

Thanks very much, and good morning to everybody. With me this morning, as usual, is our CFO, Paul Lewis. And between the 2 of them, we're happy to run through quick presentation, assuming that you have the releases and the presentation pack available. Look, in summary, we were pleased with the results. Qube continued to grow our earnings in a somewhat challenging environment. And Paul and I will talk about that challenging environment a little bit more as we go through. As you can see from the results, and I won't spend a lot of time on the numbers, but statutory earnings are up and is at the 5% level at the NPATA level; earnings per share, up 4.4% to $0.047; and the Board has declared an interim dividend of $0.029 fully franked, which is an increase of 3.6% on the prior year. The result for us was pleasing, really giving -- given some of those challenges that I know you're all aware of. And what I'd put firstly into the basket of general economic activity during the second half, you would be well familiar with the declining new car sales across Australia, the downturn in -- particularly towards the end of the half year in container volumes across our ports, continuation of the drought in New South Wales and Queensland, and in some areas of our ports business some decline in some commodities, which I think were related to housing downturns, products such as cement and a few break bulk products like scrap steel. So those results, we think, are very pleasing given those challenges in the market. And I'll talk about the challenges in the next 6 months in a few moments. But before we go there, I really would like to just call out some highlights for the half year. It was a very busy half year for Qube on a whole lot of fronts, and really, I just want to work through a couple of the key points. First of all, I think our result continues to reflect the diversification strategy we've been engaged in all the way along as Qube, diversifying by product, by geography, by imports, by exports. And it also reflects our strong market positions in some sectors that we operate in. We are continuing to invest where we see opportunities on strategic acquisitions that fit the strategy. We will continue to acquire businesses at the right price. We're continuing to invest in existing sites with warehouses and the like, in new equipment, in technology, in particular, around some of our operations where we can improve the performance but also in a much safer environment for our employees. And our continued focus on our people is really important for us right across the business such that we can continue to grow Qube and the Qube brand. Some of the achievements in the past 6 months, we talked about at our AGM in November, securing the Shell contract, a 4PL logistics contract, if you like, covering all of their supply base needs across Australia, particularly Queensland, Northern Territory and Western Australia. More recently, in the results, you would have seen that our Operating Division, Logistics division, in particular, secured a new contract with BlueScope Steel. That's moving steel from Port Kembla and from -- steel from Hastings into Melbourne, Sydney and Brisbane on the East Coast. That contract doesn't commence until January 2022. Between now and then, we're sourcing new locomotives and leasing -- we have leasing options around wagons. And really, we have 2 years to put all the equipment into place necessary to fulfill that contract. It's worth noting that when fully operational and implemented, the BlueScope Steel contract and the Shell contract will become our 2 biggest customers on a revenue basis across our operating divisions going forward. At Moorebank, certainly a number of achievements with the Target warehouse commencing operations in the 6 months. We commenced the rail operations in and out of the IMEX terminal, which was fully approved and implemented. And finally, I think, really, it is finally, we received the [indiscernible] planning approval for Moorebank West Stage 2. For those that have followed that, that's been -- it was 2.5 years going through that process. I will call out -- now some of you may say, our leasing has been a bit slower than expected, but you can't commit to sites until you've got planning approvals. And that's been primarily the delay in terms of potential activities on the west side, and I'll talk about that more a little later. We have commenced the Moorebank monetization process. Most of you will be familiar with that. We included the Minto property in that process, and we also included the option we have on Beveridge in Melbourne into that process. The Minto property is the fully leased freehold property that we effectively have leased to the motor vehicle industry. It's not the Minto logistics [indiscernible] property. Phase 1 of that process completed last week, and we are pleased with the level of interest from industry participants in that. Over the next couple of weeks, we expect to move into Phase 2. And as we've highlighted in the pack, we think it will be 2 to 3 months before the process is finalized. Lastly, I think in the half and more recently, we've progressed with commercial terms and agreements with a major tenant for the West at Moorebank. We expect the document to be finalized and the counterparty board approval in the near future. Unfortunately, there's not much more we can say on that apart from the fact that it is the party that has the reservation and they previously agreed to the reservation agreement, reserve land on the West. And those negotiations have been progressing very strongly. I think at an overview level, that summarizes the 6 months. If I quickly then just move through the pack and Paul and I'll share pages on the pack. If I can move to Page 5, really just trying to give you a bridge from NPATA in the prior period to NPATA in the half year just finished. Really, that highlights the Operating Division, the strong results out of the Operating Division, really reflecting a combination of the acquisitions -- of recent acquisitions, LCR and Chalmers, the CapEx into the Operating Division and some organic growth across it. The Infrastructure & Property division was negative, really on the back of lower car volumes, AAT in particular. It was impacted by a reduction in car volumes. And on the right-hand side, you can see the decline in new vehicle sales year-on-year for the last 2 years. There was also in AAT a decline in some break bulk cargo during that period, so that contributed to the lower results. And in addition, there was lower ancillary revenue from the Moorebank project where we collect fees for Moorebank-funded works -- Moorebank Intermodal Company-funded works. With the delays in those planning processes, we weren't able to commence land preparation works on the west side. It has now started, but that's the main contributor there, combined with a few increased costs in the Moorebank team associated with all the processes that are happening at the moment to facilitate that development. On the Patrick side, again, lower, as I said, container volumes through our ports. It is fair to say that, over the 6 months, Patrick increased its market share, and I'll talk a little bit more about that later. But there was a decline towards the end of the period. It's really a reflection also of the infrastructure charges that we had for the full period compared to the prior period and also the successful debt refinancing within Patrick's, which was undertaken in March 19. So they're the main movers, slightly higher cost in corporate due to the increased size of their business [ and managing their business ]. But if I can move to Slide 6, through the continued improvement in health and safety. But this probably falls under an umbrella of our people, and we continue to focus on our people on many fronts and managing our people proactively is a real key driver within Qube. And part of that is the safety and the safety performance. Other parts are around health and well-being in the workplace, et cetera, et cetera. We have, I think, as we mentioned at the AGM introduced social media across Qube. We have a Qube app engagement with employees and a real focus on sending messages to employees not just about health and safety but about our business and about our environment we're working in. I will take this point to just note that we have done a significant review of our wages in light of the recent underpayment concerns across sectors in the market. And we're very comfortable that we have no issue with that particular issue as a result of that audit of our internal system. If I could move to Slide 7, just a bit more detail around the Operating Division and the improvement in performance. If I really go across the activities that we're on, logistics benefited, as I touched on, from acquisition and CapEx in particular. We still have had the continued impact of drought in New South Wales on our rail operations and empty container park activities. The Chalmers acquisition was completed in September '19, so there was a part benefit. But it is fair to say that cost synergies have already been achieved there, and we're ahead of expectations on that and that we have entered into an agreement to sell the surplus freehold property in Melbourne at a significant premium to the pre-transaction book value on that property. All in all, that's become a very good acquisition for our Logistics team. And then finally, on Logistics, we have commenced rail operations in and out of Moorebank. It's fair to say that they're not positive earnings activities at this point in time. There is a negative until we build scale. We've talked about that in the past. In relation to ports, a fair bit of activity there across implementation of the new Shell contract, some improvement in our oil and gas activities, and a higher contribution compared to the prior year on our forestry ISO business, offset by the decline in market of new car sales, which impacts [ exports ] of our stevedoring motor vehicles, whereas earlier, I touched on the impact on AAT and our facilities as well as a decline. There's been a decline in scrap metal and steel-related products. So those areas, I think are general economic activities that have impacted the ports business. And then on the bulk side, really benefited across all of the areas in organic growth, some of the past CapEx into commodity activities, which were stronger compared to the prior year and a small proportion of the LCR acquisition, we have included into the bulk area, where it fits better into that part of the business. Turning to Slide 8. I've touched on this already. I won't spend too much time. The decline really heavily driven by AAT and the decline in motor vehicle general cargo-type activities, was partially offset with some higher container volumes in Brisbane, in particular but overall, a decline in AAT. Moorebank, I've touched on before, whilst we have had some higher rental income compared to the prior year, the lower results overall are really associated with ancillary income and start-up losses from the IMEX terminal, which we expected to carry forward for a period. Minto in itself was pretty much on track and as expected. Turning to Slide 9. I've covered off a fair bit of this already, just the planning approval we did receive on the 11th of November. That's for the interstate rail terminal on the west and another 215,000 square meters of warehousing. Stage 3 planning approval is well advanced, and we're on track to submit that at the end of the year. I won't go over the construction activities. I've already mentioned commencement of the IMEX terminal, rail operation. We've started receiving components in January for the gantries for the IMEX automation project. They'll start assembling and commissioning soon. And we've really started most of the -- or some of the land preparation works on the west. The majority on the east is now completed. In regard to the new warehouses on the east, 3 and 4 should be -- reach practical completion March, April. There'll then be a fit out period for those tenants taking up. We expect contributions towards the end of the year or more than likely next financial year from those income streams. I touched on the progression of a new major tenant on the west side. There's really nothing more to say apart from what we said earlier. And we are hopeful that the counterparty board approval will be in the near future. Slide 10 is really just some photographs showing the changes that's happening at Moorebank in relation particularly to warehousing, the IMEX terminal and the bottom left, the land prep on the west that started -- we started [ to tender ] after that November planning approval. In regard to Patrick, on Page 11, a couple of graphs there. Market went back 4.4% in lift terms. Patrick went back with 9.9%, so nearly 1%. Flip that the other way, that -- Patrick's market share increased during that 6-month period. But as I touched on earlier, towards the end of the period, Patrick's market shares declined with some of the rationalization and services that's happening. And in fact, one service, in particular, coming to Patrick was ceased in the end of late November, and the new constructive consortium is not expected to start until March or April. So there's been a shift there as a result of consortium changes, but the future is still not determined in terms of that new consortium. I think there still continues to be a little bit of uncertainty around some of the consortium changes that are happening. We expect that, that should work its way through the industry in the next 3 to 4 months. The financial performance in respect to Qube, we had strong earnings despite some of the rate pressures in that industry. We got the full period benefit of prior infrastructure charges and ancillary charges, and we also received the benefit of interest savings from that refinancing of Patrick's debt in March. The margins have been impacted slightly by the high fixed cost nature of the business as volumes declined. But all in all, we're still very pleased with Patrick's performance. You will all note that we recently -- or Patrick recently announced increase in landside infrastructure charges to apply from the 9th of March this year. And for those familiar, there's a differential rate between landside charges being charged for imports and exports, clearly designed to facilitate the opportunity for more export cargo through the Patrick facilities. I won't spend too much more time on Patrick, but things are well managed with respect to the rail terminal development, the construction works happening on the site. And we expect that to be completed later in the calendar year. It has been replacing its terminal operating system. That's been successfully transitioned in Melbourne, now moved to Fremantle, and we expect that to be completed by the end of the year as well. New cranes arrived across the Christmas, New Year into January in -- 1 in Fremantle and 2 into East Swanson, and we have another 1 on order for Brisbane and Botany each. I think the most critical aspect for Patrick has been in -- particularly, well, in relation to Melbourne's operation has been the recent approval by the government for the larger vessels to get to Swanson Dock. For those familiar with that, originally 300 meter length was the limit. Now have got approval from the government to bring 336-meter vessels. Previously, it was 42.9 meter beams. It's now up to 48 meter beams and different combinations of length. So that's been a significant outcome for Patrick. It really means that the larger ships that can't get to the VICT Webb Dock can now get up to Swanson Dock. Admittedly, there are some restrictions around movement on daylight hours and implementations, but that's a really good outcome. You would have -- most people who follow have seen that the Victorian government's review of the landside infrastructure charges were completed, and the outcome of that [ one ] review was there's no compelling reason why the government should legislate that or overall regulate. The government has asked the industry to improve its transparency around pricing and access of terminals, and Patrick is working with the industry to look at moving ahead on that. Also, you would have seen to be Victorian government announce the on-dock rail deal with the Port of Melbourne. And Patrick is in negotiations with the Port of Melbourne at the moment around the provision of an on-dock rail facility in Swanson Dock. On that note, I think that's pretty much a summary across the business activities. I'll hand over to Paul, who'll talk around the financials.

Great. Thanks, Maurice, and good morning, everyone. Turning to Slide 12, Qube statutory results. Consistent with past periods, they're broadly similar to Qube's underlying results subject to a small number of differences. The main call-out this period is that our statutory results include the impact of the new leasing standard, AASB 16 for the first time. That does impact our statutory earnings and balance sheet but not our underlying earnings or cash flow. And I'll talk a bit more about the specific impact on a later slide. The other key differences between our statutory results and underlying results are an impairment of Prixcar around $6.9 million and a fair value gain on our Minto property, investment property of $8 million, so they largely offset each other. Both of those items are noncash and unrealized as well as a small number of other adjustments consistent with past practice. Turning to Slide 13, Qube's underlying results, as Maurice mentioned, we believe are very pleasing overall underlying results given the headwinds we faced. You'll note from this slide that, overall, our margins decreased slightly in the period. That was driven by 2 key factors. To some extent, there was continued increase in no or low-margin items, things like coal, infrastructure levies, which are largely a pass-through. And therefore, they're in our revenue but no contribution to earnings. Probably the bigger impact this period is business mix. As I mentioned before, different parts of our business have higher margin. Typically, where we’ve invested capital, we have infrastructure. They generate higher margins. So as Maurice mentioned, AAT, in particular, was impacted by lower vehicle volumes. So the Infrastructure & Property division, as you'll from the appendices, had the biggest decline in margins because that division has a relatively higher fixed cost base, and volumes have declined. Obviously, that leverage works the other way. So when volumes do return, margin and earnings should increase correspondingly. Overall, our markets, they do remain competitive. With volumes down, we do see our competitors chasing customers. But overall, that hasn't really deteriorated significantly from what we've conveyed in the past. Interestingly, of the larger customers, we see some who are, if you like, sacrificing quality and safety for margins, but pleasingly, in the Shell contract and the BlueScope contract are really good examples where some of the larger customers, they want value for money on the commercial terms, but they really do place paramountcy on safety and systems. And so our investment over many, many years in building out very high-quality systems and safety is very important in winning major contracts like that and retaining a number of our larger customers. We continue to respond to the competitive market conditions through delivering value-added services to our customers and optimizing our earnings through effective cost management. While the challenging conditions remain, we do have plenty of capacity across our sites, our equipment and our people. So we can quickly scale up when market conditions do return to more positive growth, which would have a very pleasing impact on our earnings in the future when that does happen. Turning to Slide 14, our capital expenditure. Again, we continued our track record of investing for long-term growth with around $296 million spend in the period, and that included $43 million of Qube scrip that we used as part of the Chalmers acceleration. And again, it was a combination of acquisition, investment in property and facilities as well as equipment to support contracts. The largest component in the period was Moorebank around $145 million on developing the IMEX terminal, the import-export rail terminal, largely completing the [ precinct ] infrastructure on Moorebank Precinct East and progressing several new warehouses. Other major items to call out was the Chalmers acquisition, $55.4 million, which completed in December; and new warehouse in South Australia for Qube Logistics, which completed in November and so had limited earnings in December but will contribute in the second half; equipment for new contracts, including the Shell contract, as Maurice touched, on as well as a contract we picked up with BHP Nickel West involving road construction and maintenance and haulage of ore from the ore body to the smelter, and that contract commenced in January. Look, I think it's worth spending a bit of time on 2 of the CapExes in the period. As you'd be aware, we do spend a lot on CapEx. We've always said, we don't just spend, whether it's acquisitions or CapEx, just for earnings' sake. It's got to be strategic and add value. And I think these 2 examples really typify our approach to CapEx. Firstly, the Chalmers acquisition, which Maurice talked about, was a very, very good acquisition for the group. And that typifies our approach to bolt-on acquisitions. As some of you may be aware, Chalmers was underperforming as a stand-alone business largely because it lacks scale, but it did control some key sites and had very valuable assets with complementary operations. So we identified very early on there was significant near-term cost synergies and medium-term revenue synergies. We offered scrip -- Qube scrip as part of the consideration so that Chalmers' shareholders were able to share in the synergies and growth, and it made it easier in terms of the commercial negotiation and alignment. Following our initial review, we confirm there was the opportunity to consolidate Chalmers' operations on Qube's existing land, particularly in Victoria, a big dock in North Dynon, thereby freeing up the freehold land that Chalmers owned at Yarraville. Shortly after the acquisition, we entered into a binding sales agreement to sell that property for $65 million free of cost, which was more than the total consideration of that acquisition. As Maurice said, it's already delivering cost synergies as we've already integrated it into our operations. So it was a great example of an acquisition that was very much on strategy, delivered an attractive financial return, had low execution risk given we knew the business, we knew the asset, a successful implementation in a short space of time and in a seamless manner, so no disruption to the customers and the operations. The other acquisition worth touching on is -- it's more on CapEx in nature, where we've ordered 6 mobile harbor cranes for ISO. They haven't commenced operations yet, but the cranes that we have ordered were especially fitted out with purpose-built log grabs and we modified log trailers as well to maximize lift size. For that particular asset, we worked with the crane manufacturer to design and test. It was the first time the cranes had been used for this purpose, and so we want to make sure it worked and delivered the expected productivity before we actually committed to go ahead with it. The innovative design, which met all our testing criteria, will deliver significant cost savings, also productivity benefits to the customers and equally importantly, would deliver significant safety benefits. So our customers will love it. The port authorities will obviously like the enhanced safety, and it delivers very sound financial return to Qube. So both those examples highlight that in every CapEx we undertake, first and foremost, it's got to be on strategy. It's got to generate our target returns, and it's got to do so at an acceptable risk. But in each of the CapEx that we look to do, we do look to be innovative and creative, and there needs to be some value add to what we're doing rather than just buying earnings. And I think those 2 examples really highlight what our management tries to do. Just on CapEx, it's worth noting the majority of the CapEx we undertook in the first half did not contribute to earnings in the half, though it does set a platform for future long-term earnings growth as they start to achieve their target returns. In terms of sort of indicative CapEx for the full year, as always, it's very much a function of opportunities and timing. But indicatively, I think the upper end of our original guidance of $500 million to $600 million for the full year is a reasonable guide, but as always, it could be higher or lower. The largest component, again, is expected to be Moorebank as we start the precinct infrastructure works on Moorebank Precinct West, continue the development of the IMEX and spend additional CapEx on warehouse construction. There'll be additional bolt-on acquisitions as well as the completion of some of the CapEx items that I've touched on. Turning to Slide 15, our balance sheet. It was particularly pleasing that despite the large CapEx spend, Qube finished the period in a strong financial position, liquidity of over $550 million and cash and available undrawn debt facility. Our leverage of 35.2% was almost smack bang in the middle of our long-term target range of 30% to 40%. We had no near-term debt maturities and sizable headroom to our covenants. So we are in a great position to continue investing for growth where there are suitable opportunities and potentially taking advantage of any opportunities that arise if there is any sustained downturn in the market. As part of our ongoing assessment of our capital structure and our ideal funding structure to drive continued long-term shareholder value, as Maurice mentioned, we commenced the monetization and partnering process focused on the Moorebank logistics part but also including Minto properties and Beveridge. And the timing of this review really reflects the significant progress we've already made with the development of Moorebank as well as the strong market fundamentals in terms of cap rates and demand for quality industrial properties. The objective of this process is to determine if there is a suitable opportunity to realize some of the significant value that has already been created in these assets and in so doing, reduce Qube's future funding needs, noting that the future CapEx to fully develop the Moorebank side is likely to be substantial. As Maurice mentioned, we are pleased with the level of interest we have received in the initial stages from the targeted list of parties we've invited to participate. And really, we're looking to identify those parties that understand the value, unique attributes of Moorebank and then see if a mutually acceptable transaction structure can be reached. The process is ongoing. It's likely to take several months, and there is no certainty a transaction will proceed, and the Board will only do so if it does deliver appropriate shareholder value. The outcome of that process will obviously be very important in determining Qube's optimal funding structure, both from Moorebank as well as the broader group going forward. But irrespective of the outcome, there will be no change to our approach of maintaining a prudent balance sheet. To that end, in the period, we did put in place an additional $300 million in debt facilities to increase our liquidity, while the monetization and partnering process was ongoing. And we will continue to review a broad range of funding options going forward, having regard to all relevant considerations, including the outcome of the monetization process to ensure that we maintain a very strong financial position. Turning to Slide 16. It shows during the period, our net debt increased by $235 million. It's largely due to CapEx spend. We were pleased with the level of operating cash flow we generated in the period, although we do expect our cash conversion will be higher over the full year period as several factors did impact the first half, including -- we did have sizable prepayments on things like insurance and registration as well as the prior year interest payments that are in the first half. The expense will be in the second half but no cash outflow. And our working capital in each period can also be impacted by the works that we do on behalf of the Moorebank Intermodal Company in Moorebank. Under that agreement, works which are mixed responsibility, we fund them and then seek to recover from MIC. So to the extent there's any additional clarification or any disputes arise, there can be a timing mismatch between our expenditure and the recovery in the first half. That was around $5.7 million. So overall, we're happy with the cash generation, and we expect good cash flow over the full year. Slide 17, the impact of the new lease accounting standard. Again, I'll deal with that very quickly. As flagged, it applies to Qube from the 1st of July. And in very simple terms, it treats operating leases as finance leases. So for companies like Qube and Patrick that have a lot of property leases, many of which are long-term, it brings significant assets and liabilities onto our balance sheet when previously they weren't recognized. So it will have a large effect on our statutory earnings and balance sheet, as shown on this slide, but to reiterate, no impact on our underlying earnings, cash flow or our compliance with covenants. With that, I'll hand back to Maurice to talk about the outlook and guidance.

Thanks, Paul. In respect of the outlook for the second half, we have touched on some of the challenges in the first half, which was very much linked to continuation of the drought and the slowing economy, particularly housing market and its impact on volumes in some sectors of our business. When you add that together with the floods that we've had, cyclones in Port Hedland, et cetera, in the second half, early part of the second half and the coronavirus, it's very difficult for Qube to predict the quantum and the duration of the impact of all of those things on our business. I will say that to January, including January results, there was no material impact. And I'll also say that structurally, our business is sound. The real issue is that all of these factors place some downside risk on volumes, volumes through some of our Qube activities and volumes through our Patrick activities in the second half. As a result, Qube currently expects some weakness in second half underlying earnings as a result of these factors. And it's likely that the underlying earnings growth in FY '20 will be lower than previously forecast. On a divisional basis, you can see in our outlook statement that we do expect -- continue to expect growth in the full year underlying revenue and earnings from our operating divisions and associates, a decline in underlying earnings from the Infrastructure & Property Group. And at this stage, our best view is that Patrick will be broadly flat on underlying earnings contributions to Qube in the second half. The actual level of divisional earnings and Qube's ability to deliver underlying earnings growth will depend on a range of factors, including these direct and impact -- indirect impacts on volumes, market share and activity; our ability to undertake accretive CapEx that contributes to our FY '20 earnings; and the timing or ramping up of Moorebank Avenue works on the west, which has implications for ancillary revenue fees from Moorebank. Given that, we do strongly believe that Qube is well placed to continue to deliver sustainable long-term earnings growth from its strategic assets and our strong market positions in many markets. On that note, I'm happy to hand over to question time.

[Operator Instructions] Your first question today comes from the line of Matt Ryan from UBS.

Just a question on the large contract win for BlueScope. From memory, that was a pretty significant contract for the previous operator of that contract, and it fit pretty well into their business, given the synergies that they had across their network. Can you just share any color on why you think you were chosen for that contract and I guess how it fits into your business?

Yes. I think we pitched to BlueScope that we're a logistics company and not just a rail operator. And as part of that pitch, we were able to demonstrate that there's some value for them in us being able to maximize the fleet and use of the fleet. And when I say maximize, to be able to operate trains, for example, that are 1,800 meters long. And so we have agreed with BlueScope that where there's some capacity that, that third-party freight to that train, that we can assemble as a freight operator, we can do that provided we still continue to make BlueScope's obligations. I think the other thing I'll add is that, that contract traditionally also included East-West. And we only have the contract on the East Coast, which is by far the majority of work.

And just a question on Moorebank CapEx. There's been a couple of increases over the last 6 months, [ given ] the most recent move at the AGM. Can you just talk about the cost pressures that you're seeing at the moment and, I guess, the confidence that you've got that the current guidance is going to be met?

Look, we'll give -- it's obviously a moving piece because a lot of the CapEx is tenant-dependent. So as we're in discussions with tenants and their particular requirements, particularly around the enabling infrastructure, the warehousing can vary. So we'll give a more detailed update with the full year results. At this stage, I mean, overall from the project, there's no material change to expectations. But it is a moving piece. So it's not appropriate to update all the time because...

I think the other thing I'd just add is that we did go through that 2.5-year, I think it was, planning process till we got planning approval in November. Some of the things that have come out of that process had added costs to I'll call them precinct infrastructure works. And in particular, I'm referring there to things like on-site detention work, the runoff from buildings in the sites, et cetera, how you treat that water. Those sorts of things have added some costs into the precinct infrastructure works.

Was that the majority of the increase that was announced at the AGM?

Yes. So the government and the precinct infrastructure, that's correct.

Okay. And the Patrick CapEx outlook, there's some industry press, I guess, talking about a number of $150 million for this year, which is obviously meaningfully ahead of what you've been spending over the last few years. Can you just talk about whether that number is accurate? And I guess, what you're spending it on this year?

No. The Patrick CapEx is actually more modest this year because some of the growth CapEx has been deferred. So the numbers here will be materially lower. The full year will be under $100 million for 100% on our share, and that includes maintenance and growth.

And I'll just touch on the deferral in the context of the Fremantle lease negotiations have been delayed, protracted. And so some CapEx associated with that won't happen this year.

Your next question today comes from the line of Anthony Moulder from Jefferies.

Just if I can startd on the Infrastructure & Property division. Back in August last year, you were expecting only a modest decline in that division. You mentioned AAT weakness in the current half, but new car sales were already down, I guess, in the 6 months to June 2019. Just talk through what you think are the key changes that you saw in that division relative to your expectations in August.

Well, I think we do have the table. New car sales have gone further down than perhaps what we would have expected, another 7% or 7% on the prior half. So that's contributed to it. I think as I touched on earlier, a slowdown in some of the project-related-type cargoes that go through AAT. Prior year, we had some really strong growth in things like windmill projects and project Target that has slowed down in the period. And then I think we've also seen some impacts, as I touched on, like scrap steel declining. So AAT, as you would appreciate, is a very high fixed cost business. So volumes do impact the returns from that business.

And the other impact in that division, I think, is with Moorebank. Some of that ancillary income has been delayed because of delay in MPW. So it hasn't disappeared. It's just been pushed into FY '21. And again, some of that is high-margin.

Right. Okay. That's more of a delay, which is -- how large is that ancillary income deferral?

Look, it's not material in the overall scheme of things. But I mean, given the total earnings for the Infrastructure & Property division at large, it has an impact percentage-wise.

All right. On to the BlueScope Steel contract but also the Shell contract. How long are those contracts in duration, please?

We don't normally comment on them. But it's fair to say it's -- BlueScope is in the order of 10 years-plus. Shell is less than that but with options.

That's sort of better outcome than I think PN when they redid their contract, it was for a 7-year duration. So I guess, the importance of that intermodal contract or that steel contract is the ability, as you say, to add intermodal volumes to the end of those trains. How many services does that contract give you up and down the East Coast? Weekly, I guess, is the best way to think about that initially?

Yes. Look, from memory, it's a fully dedicated service doing round loops of 6 times a week. So it's a daily -- effectively, a daily service.

Right. But -- so it's just not a lot of ability to add container volumes to the end of those trains?

Well, there is because their requirement is not 1,800 metric tons.

Okay. Just a cry.

Yes, in the order of 1/3 of the -- about 2/3 is their demand, and a 1/3 is third-party volume. What's interesting at the moment, I will comment, is that you shouldn't think about third-party volume as necessarily being containerized intermodal volume. We've got a lot of inbound inquiries around other commodities on road, building materials, aggregates, you name it, those sorts of products.

But if I'm right, intermodal is a logical extension given the work you're already doing in import-export supply chain as well as the interstate intermodal terminal within Moorebank?

Look, you could draw that conclusion, but it's a possibility that's all at this stage. I think it's fair to say, historically, we were keen -- a keen party to acquire the Aurizon intermodal business. That didn't happen. It's clearly a completely different market now, 12 months on from that.

Understood. And lastly, on Patrick, obviously, some weakness in the end of the last half from a contract perspective. Do I hear that -- obviously, the change in services, some of that could be reversed March, April, once new contract terms or new contract services are refined.

Yes. That's a fair assumption. If the balls land the right way, it could be returned, yes.