Qube Holdings Limited (QUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Qube Holdings Limited Half Year Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Maurice James, Managing Director. Please go ahead.

Thanks very much, and welcome to everybody on the call. It's a significant day for Qube today on many fronts, and we'll cover those off in a pretty compact pack, but a lot of details to talk about. But before I start, I'd also just like to welcome Paul Lewis, as usual, with us, the CFO of Qube. And today with us, we have Paul Digney, our current Chief Operating Officer, but as you all know, but are aware now, Managing Director designate from July 1 this year. I must say I'm extremely pleased that the Board of Qube decided to appoint Paul. I think Paul and I have worked together for a long time, and he is clearly the best person to continue the growth and the development of Qube into the future. I'm happy to talk a little bit more about that later. In the interest of time, as I said, we have a fair bit to get through this morning. I will flick through the presentation pack that no doubt you all have quickly. Paul, again, Lewis, will do the financial aspects, and happy to take Q&A at the end. For us, overall, the half year results was very pleasing. As you saw, a slight reduction in underlying and statutory revenue but significant growth, 8.5%, in underlying NPATA and 10.5% at the statutory level. So we're really pleased with the results, given the challenges that the company has faced and we've all faced with COVID. That growth is at a high level predominantly related to stronger volumes across a number of our services, particularly container volumes. Also our mining volumes in our bulk operations, a strong volume growth through our forestry operations in New Zealand, some growth in our project cargo areas. And it really does demonstrate the diversification and the resilience of Qube and the strategy that we've embarked on for many, many years. Those stronger volumes, I'll talk a little bit more about that, across our business were slightly offset by some declines in a couple of areas, really a small decline in our forestry exports out of Australia, principally related to the Australia-China trade issues and some challenges we had around labor, particularly our fly-in fly-out workforces into Western Australia with a strong board advisers and those workforces predominantly involved in our bulk operations, which we felt could have been stronger, apart from these labor sort of shortages and getting products from mine to port, which we're not the only company that's suffered from those issues. The Board declared a $0.025 fully franked dividend per share. And really, I think, in summary, we were very pleased with the half year results. If I flip over to Page 5 on the pack, really the bridge diagram gives you a demonstration of the areas of growth in our underlying NPATA, and it really comes across the business, particularly the Operating Division, as I said, that's benefited from a rebound in container volumes, solid volumes, as I said, in bulk and forestry, New Zealand, project cargoes, et cetera. Our Property division, and I will call that out, the reduction in NPATA at the Property division area is predominantly now because we're excluding AAT and Quattro. They are now reported through our Operating Division, and, of course, the sale of Minto, so less revenue income -- rental income into the Property group. The Property group also has suffered from losses on the IMEX operation at Moorebank with lower volumes as we expected. And as we've talked about a lot, we don't see the IMEX operations making profits for -- until we get scale and substantial volume coming through that facility at Moorebank. The other areas of growth for us are really at the Patrick level. Again, as I said, the rebound in container volumes has been strong at Patrick. I'll talk a little bit more about Patrick later. And lastly, really, interest cost savings related to both the sale of Minto and the proceeds from Minto and the capital raising that we did last year. That, obviously, capital raising had a slight impact on our EPS, which I should have mentioned earlier, because of that capital growth. Just moving on through the pack, Slide 6. I won't talk too much about in terms of safety and sustainability and the COVID. We talked a lot about this at full year last year. We are continuing to focus very much on the lead indicators in our safety area. The stats we produce, obviously, the lag ones. When you're below 1 on a lost time injury frequency rate, you really need -- you're in a good position, but you need to continue to focus on those lead indicators, lead initiatives to keep on top of all of the issues that we face in our workplace. Obviously, COVID-19 increased that level of focus on workplaces right throughout Australia and New Zealand. And every facility we operated, we did talk about it, the development of our action plans on sites. It has been challenging with particularly border closures in Australia and short-notice border closures impacting day-to-day operations around the country. In the sustainability area, I'll let you all read that. We've been doing a lot of work around modern slavery frameworks statement and human rights policy, which will be released in March. We've obviously been continuing our engagement in particularly regional areas. We're focused very much on innovation and technology that Paul Digney leads our group on, fuel-efficient technologies, carbon footprint, et cetera, diversity initiatives across the group and we're working with Wayfinder on a review of underrepresentation of women in supply chains generally and how we can focus on improving our diversity within Qube. Pleasing to announce that today, Paul Digney announced a new cadet program for Qube across the country where we'll be recruiting cadets into our workforces, particularly in most of the major capital cities around Australia. And so I'll leave that for you all to look at. And there's plenty of engagement around what we're doing in both health and safety and sustainability and opportunities to talk to us about that. Slides 7 and 8, again, focus on Logistics and Ports & Bulk, respectively. If I start on Logistics, top 10 customers represent about 12% of the division's revenue. From a regional perspective, we've seen, in the 6 months, strong growth in New South Wales on the back of Quattro coming into Logistics. But also the end of the drought, we're starting to see volumes flowing through our Quattro facility, but also the recent acquisition in the Agrigrain areas, strengthening our New South Wales revenue stream. That's really been impacted or offset in Victoria. I think it's fair to say the lockdowns and COVID impacts in Victoria had a major impact on volumes, as we know, throughout our businesses and particularly in the Logistics business in Victoria. On the sort of an industry by industry-wide basis, we've seen some growth in the food processing area, securing some meat processing customers and, generally, higher revenues from our existing customer base. The same things we've been seeing in our infrastructure and project area where cargoes have been generally stronger from existing customers. In our terminal and shipping area, we've seen a couple of new contracts and, again, higher volumes through our freight forwarding activities and container volumes. And I think we talked generally about it at the last results briefing around the surprising rebound in container volumes and into the country and, obviously, now agri going out of the country as a result of COVID, and we've certainly benefited from that and expect to benefit from it in the next 6 months. Slide 8 focuses on the Ports & Bulk activities, again, top 10 customers representing about 18% of the division. A bit of a mix around regional changes. Queensland revenue down, essentially on the back of project activities, LCR activities and coal activities in Queensland. Those coal activities also reflected in reduction in coal volumes by product in the bottom graph. Similarly, as we've talked about for Logistics, there's been strong growth in other states, particularly in Western Australia for our Ports & Bulk, and that's really new contracts that we had secured plus generally higher volumes, as I said, partially offset by some labor shortages around border closures in Western Australia. But those volumes and new contracts relate to nickel and other products that's been positive for the Ports & Bulk area. We also see -- and that nickel here is represented in our other metals base that you've seen has grown from 9.3% to 11.2% in the first half of FY '21. The forestry products I've talked about, 2-plus percent growth in that within the division. And I think the other pleasing area of activity is BOMC, our investment into some of the energy areas that -- and Shell contract gets increased our oil and gas revenues in that division. So generally all around, positive and, I must say, as I said before, continuing to be positive in the Ports & Bulk base -- division for the balance of this year, at least. If I turn to Slide 9, a little bit more focus on Patrick's, a slight decline in volumes in Patrick in the 6 months compared to the prior year principally driven by one major customer ceasing operations and some of the industrial disputation that we had, particularly in Port Botany in that first half. It is pleasing to say though and report that there's a couple of new services that came into Australia late in that first half that Patrick has secured. We did see as at 31 December market share around 45% -- 43%, where we've seen a drop. We're expecting that to move back closer to that 45% mark this half on the back of those new contracts. So for us, a very pleasing result, increased underlying NPATA at Patrick of 14.5% also contributed to by the landside charges and the increases in those landside charges that were implemented in March 2020, so a really positive result. We also saw productivity improvements in East Swanson Dock and Fisherman Island, all contributing to that really positive result there. Patrick's strong cash flow enabled a $30 million distribution to each of the shareholders, and as we've got on the last stock point, there was another $17.5 million distributed to each shareholder towards the end of this month -- or just last week. So our view, a really positive result from Patrick. On top of the financial performance and operating performance of Patrick, a number of the initiatives have been closed out in that 6 months, which was really positive. The first phase of the Port Botany Rail development was completed. We're now in the process of commissioning all the automation for the gantries and the interfaces into the automated rail terminal. Patrick has successfully -- and I'd say this has been very successful in replacing its operating IT system with the new Navis N4 Terminal Operating System. In experiences have had in the past, changing over terminal operating systems is a real challenge and often incurs significant costs and delays. And I'm pleasing to report that neither of those happened with Patrick. It was really done -- it was really well done by the management team there. And obviously, there's some efficiencies that will flow from the new operating system. We successfully negotiated an extension of the Port of Melbourne lease through until 2066. We also finalized the 10-year term on the Fremantle port through to 2031. Patrick also entered into new arrangements with the Port of Melbourne for the creation of on-dock rail along Coode Road, which is north of the current terminal sites. And Patrick has the leases over that site to develop that. Most of that capital will be spent by the Port of Melbourne with Patrick contributing some capital to the interface between that Coode Road rail terminal and the existing container terminal replacing and shutting that Coode Road. So pretty good news out of Patrick's. Patrick's has now, given that it only recently signed the Fremantle lease, is just in the process of coordinating the redevelopment of some of the terminal as part of that deal. Clearly, that CapEx spend is not huge, given it's only a 10-year lease, but there are some investments in equipment and the like that Patrick will be doing over there. Just the final thing on Patrick really is to just update everybody that the enterprise negotiations are continuing. You will recall the union agreed to defer any industrial action prior to Christmas, that has still happened. I think it's fair to say that discussions are continuing with the union. We're hopeful of getting a resolution. There are some issues around Port Botany. However, that we are focused on improving and delivering some productivity improvements for us in that area. So really work in progress for the enterprise agreement. The next slide really is just an aerial -- Slide 11 is an aerial photograph of Moorebank. Clearly, I'll move on to that very quickly. Most of you are familiar with warehouse 1, warehouse, 3, 4 and 5, 5 recently committed -- completed, warehouse 2 being existing warehouses. And on that aerial photograph, you can see the site that's been prepared for the Woolworths facilities. At Moorebank, it's pleasing to say the future sites for warehouse 6, 7 and 8 on the East, all the infrastructure work -- currently, most of the infrastructure and land preparation works for that has also been completed. We spent about $176 million on the Moorebank project in the 6-month period. As I said, quite a lot of work. You can see from that photograph, that's happening, particularly on the west side, where there's significant land preparation works, and it was pleasing to report that we did reach agreement with the Moorebank Intermodal Company for their funding of their obligations in regard to the remediation and land prep works on the west. In regard to the IMEX terminal, as you'd be all familiar with, it's operating in manual mode. We made commitments to purchase gantries and automated straddles to automate that. But testing some of the equipment has already been installed out at Moorebank and testing is happening on the automation. So that's going through an automation commissioning phase, if it's fair to say. I did touch on slightly lower-than-expected volumes through the IMEX terminal and what we had modeled. Part of that is really being driven, and we're extremely disappointed, to be honest, with the New South Wales government. We started issuing permits in the second half of last year for larger A double trucks to have direct access to Port Botany. We believe that was strongly against the New South Wales government's strategy of modal shift from road to rail and has obviously given idle trucks an advantage in the short term. And that has had an impact on some of the volumes that we expected to have through the IMEX external. Slide 13, I'll skip through. Most of you are familiar with that. That's a plan just showing the warehouses and where we are. It is pleasing to say that there is a significant amount of interest in warehousing at Moorebank from serious parties, and we're very encouraged by that. Obviously, with the LOGOS transaction. We're working through that issue with them. On that note, I'll hand over at this point to Paul to quickly run through some of the financials for you.

Great. Thanks, Maurice, and good morning, everyone. Slide 14, key statutory results. Consistent with past periods, the key differences between our statutory and underlying results are generally a range of noncash and nonrecurring items that are in the stat sheet, but which we excluded from underlying results. In the current period, there's probably 5 key items. The first one is the inclusion of statutory results of a fair value gain relating to Moorebank of around $13 million. It's worth noting that based on desktop valuations, that's not comparable to the transaction we announced with LOGOS that Maurice will talk about shortly. Given the LOGOS transaction at the time was nonbinding but also includes a range of elements not taken into account in that desktop valuation. It also includes the impairment of our investment in TQ during the particular holding being the future development of a fuel terminal land we leased at Port Kembla. During the period, we bought out the other 50% holder moving to 100%. The transaction was phenomenal consideration. There are various reasons why that party wanted to get out. So we impaired our business at the same value. Having said that, there's no change to our strategy of doing the planning and working towards building a future fuel terminal at Port Kembla, albeit there's a long way to go to say that we have a viable, commercially supportable transaction there. The other key adjustments, lease accounting standard AASB 16, which reduced our statutory profit by about $14.8 million, and that includes $7.3 million being our share of Patrick's. Profit impact from the lease standard, and as we've disclosed before, that's not cash. It's just a reflection of the long-term nature of a lot of Qube and Patrick leases, which has a significant impact as regards to these standard. We've got some adjustments, too, with the finalization of the accounting for the Minto sale and the Quattro purchase last period amounting about $5.6 million. And the last item is a tax benefit to do with the capital gain on the sale of Minto Properties. We realized a taxable tax gain of around $128 million in the prior period. That enabled us to recognize some available fraction losses that we hadn't previously recognized that effectively reduced the tax we paid by about $4.1 million. So our statutory tax rate is lower because of that. But as I said before, from an underlying perspective, we use a 30% tax rate on pretax earnings being a proxy for what we believe our long-term tax rate will be. Turning to Slide 15, underlying results. Maurice has covered a lot of this, I'll just go through it very quickly. As Maurice said, we're very pleased with the overall results in a challenging environment, and it did reflect the quality and diversity of our businesses. In terms of the key drivers in the operating division, the key positives included AAT, which benefited from general project cargo. As we've said before, given AAT has a very high fixed cost basis and depreciation and rent, the improved volumes had a very favorable flow through to margin. So that was good, and that offset the decline we had in the previous period for the opposite reason. I'm pleased that Quattro has generated a profit in the period compared to a loss previously, reflecting improved grain volumes, and we expect that to continue in the second half. Increased contribution from the Shell contract that ramped up. As we've said, when fully operational, that will be one of our largest contracts by revenue and ISO benefited from the contribution from the NFA acquisition we made last year as well as increased volumes. And the key negatives, as has been touched on, volumes in a number of areas in the ports stevedoring areas, particularly the regional ports as well as some of the logistics areas were weaker, largely reflecting the impact of COVID and the lockdown in Victoria. And there was also some slowdown in oil and gas-related activities. Patrick, strong contribution. I won't spend time on that. Volumes were lower, but it really benefited from productivity improvements and the landside charge increases. In terms of the Property division, it's worth just noting that now the Property division really includes Moorebank only. In the first half, it did include 2 months of Minto, given the sale completed on 2nd September. Effective benefit from increased warehousing revenue as some of the new leases come on stream as well as higher ancillary income, but we're now fully depreciating the manual IMEX terminal so the run rate on that depreciation is about $2.6 million per annum, so for half around $1.3 million. And there was only 1 month of depreciation in the prior corresponding period and the prior period also had the full period of AAT as well as 6 months of Minto Properties. And that's the key reason why the Property division looked lower, and the net interest benefited from the factors Maurice talked about. The only contributor there, the capitalized interest in the period was around $8.4 million, which predominantly related to Moorebank development. So that's cash interest that we pay, that's not in our interest expense. And as those assets being mainly warehousing and the automated terminal commenced operations, then that capitalization ceases. And the earnings per share, as Maurice said, was dilution from the capital raising last year. As we're progressively deploying that capital into growth opportunities, we expect that will reverse. Turning to our CapEx slide on Slide 16. Again, another period of significant growth CapEx, Moorebank being the largest component of $176 million. And the key items there were the completion of -- mostly completion of warehouse 5, progress in the IMEX automation. In the period, we did pay around $27 million related to the voluntary planning contributions, most of which went to transports in New South Wales as a contribution to upgrade the road network and to the planning approvals. We also bought some agri assets from Agrigrain, some equipment for ISO that's going to drive future productivity improvements as well as safety enhancements. And we spent about $62 million on maintenance CapEx, which was around 89% of depreciation, which is a much higher percentage of depreciation than is typically the case. And the main reason for that is we brought forward some of the maintenance CapEx for LCR assets taking advantage of some favorable terms, given the depressed environment. And we also brought forward some maintenance on some rail assets to get ready for the grain season. So we'd expect maintenance as a percentage of depreciation to be lower in the second half, probably in the order of 50% to 60%. And worth noting the majority of the CapEx in the first half didn't contribute fully or at all to first half earnings. So again, it will be a driver of future earnings growth in the second half and beyond. In terms of indicative guidance for second half CapEx, it's always hard to judge because it is opportunity-driven. But indicatively, we think it'll be broadly comparable to the first half. The main items are continued CapEx around Moorebank, again, progressing the IMEX automation through the warehouse and increase its infrastructure. We'll continue to fund the BlueScope assets, which, again, we did spend in the first half, which is the locomotives and wagons for that contract, which commences in January '22 and some further equipment for ISO, again, to support that continued growth. We are also looking at a small number of bolt-on acquisitions consistent with our strategy as well as other growth CapEx to new contracts. Turning to Slide 17, balance sheet and funding. As noted here, we finished the period in a very solid position. We had plenty of liquidity, low gearing, below the bottom end of our target range, no near-term debt maturities with the next maturity not until FY '23 and very cost-effective, diversified funding sources to support our growth. One of the things to note, assuming the monetization process completes as planned, we obviously will see significant cash proceeds back. At that time, we'll review our appropriate capital structure for the business as it will look like going forward. And that will help us determine the optimal use of the after-tax proceeds. At this stage, we would expect to apply some of those proceeds to reduce our debt, make sure we've got plenty of liquidity to fund future growth consistent with our strategy. And then we'll also look at possible capital management initiatives. We'll do more detailed work on that as we get closer to the transaction completion. Turning to Slide 18, cash flow. Again, another period of very strong cash flow generation. It would have been higher, but the working capital in the Property division was impacted by the timing of recovery from the Moorebank Intermodal Company of -- their share of that contribution that I touched on the voluntary planning contribution. Under this agreement with MIC, we fund their share and then seek to recover it. So we outlaid their share in December, and we recovered that in January. Also, as Maurice touched on very pleasing high distributions from Patrick in the period and just noting the net cash CapEx reflects the gross proceeds received from the sale of Minto Properties and just noting that the actual tax we have to pay on the capital gain is not in this period, we'll be paying that during calendar year '21. With that, I'll hand back to Maurice to talk about the monetization process and give an update...

Thanks very much, Paul. Yes, the monetization process. So as we've indicated, we've entered into a nonbinding commercial term sheet to sell 100% of the interest in the warehousing and property components of the Moorebank project, the MLP project, to LOGOS. We're very comfortable and feel that LOGOS is a great partner to work with into the future. It has a strong record of industrial development, not only in Australia, but offshore as well, and we're very positive about this transaction. Now the transaction is subject to completion of formal documentation. It's also subject to the customary completion adjustments and also any FIRB and MIC, Moorebank Intermodal Company, approvals for the transaction. You might question to us that it's taken a while for us to get to this point. It is a complex transaction. We're effectively building a city out of Moorebank. And we have spent enormous amount of time with LOGOS to address most of the key issues that we feel are important in finally doing transaction documentation. So we are pretty comfortable that we've addressed most of the issues around that transaction that will obviously flow into the formal documentation. There's a lot of benefits for Qube to this transaction, and we can talk a little bit more about that now. And I'm sure Paul might want to add a little bit more. The transaction itself, as I said, is subject to final documentation as a purchase price of around $1.65 billion before tax, transaction costs and other adjustments. There's a deferred component within that of around $340 million. And so the balance of that is payable on financial close. That deferred consideration is essentially into 2 baskets. It's related to the funding and development of the interstate terminal, which is a commitment that Qube has for stage 1 of that interstate terminal, and it's also linked to final planning approvals for the remainder of the warehouse development. For those familiar with it, we have planning approvals for around 550,000 square meters. And the planning -- the last set of planning approvals take it to the full 850,000 square meters. Importantly, the transaction -- in relation to the transaction, Qube is to retain the intermodal terminals so that both the IMEX terminal and the future interstate terminal and maintain all of the logistics-related activities. As part of the transaction, the parties have agreed to an interface deed. It is really pleasing that LOGOS has very much embraced the vision of Moorebank and -- as an integrated warehouse and logistics intermodal development. And that interface deed between us really governs us going forward together as a party and then, obviously, MIC, Moorebank Intermodal Company, has an important role in that going forward. And we do intend to establish a new governance structure with MIC, LOGOS and Qube to proceed with the development. Obviously, there's a significant number of benefits for us in this transaction. I probably should have just mentioned earlier that the property monetization process that we've been going through, if you recall, we included Moorebank, we included Minto and we included Beveridge in that process. We previously sold Minto that we've talked about. And out of the discussions with LOGOS, we decided to retain the options for Beveridge going forward. It doesn't mean to say that we won't be working with LOGOS, but we've retained that at this point in time. Clearly, that alliance agreement is designed for both parties to focus on development of the site and of logistics. And so clearly, we would be beneficial -- the beneficiary of increased activities and logistics through Moorebank into the future. Importantly, this transaction derisks for us delivering some of that warehouse development, the warehouse leasing. And also, it obviously reduces our future CapEx obligations to the Moorebank project. So all-in-all, we believe it's a really positive step forward. Paul touched on the proceeds following completion of the transaction, and obviously, there's a few steps to get to that yet. But obviously, the Board would consider those issues at that time. Slide 21 really just is designed to illustrate the separation of the property-related assets, as I touched on that will go to LOGOS, the warehousing, the freehold land and the interest in land trust. For those familiar, the Moorebank Intermodal Company, the government-owned 2/3 of land, Qube owns 1/3. Both of those parcels of land have gone into the land trust. We had a roughly 1/3 interest in land trust, and so they will acquire that interest. That package of assets generated around $9.2 million of revenue in the first half. That's predominantly around leasing revenue, a little bit of project revenue, but -- and ancillary fees, et cetera. But the book value of those assets is around $1.2 billion at 31st of December. On the right is the assets that Qube will retain in the IMEX and interstate terminal assets at 31st of December around $300 million and, obviously, the obligation to invest into the interstate terminal. And those arrows there are really the interface between us, and that's been a really important document for us, as I said, between both parties. One of the clear benefits of the transaction for Qube is that, in my mind, it will reposition Qube back to a logistics company, predominantly a logistics company. Obviously, I'm delighted. But as I said earlier, Paul Digney will be the future MD. His background is around logistics and the best man in the country for that job, the best person, I should say, for that job. And I was delighted that the Board supported my view that Paul was the right person to lead Qube. I touched on some of the benefits of the transaction to us as Qube and to the future Qube, and it obviously simplifies the portfolio for Qube going forward. We retained some of those upside potentials out of the logistics activities, the broader rail model shift, the freight objectives and that strong tenant relationship that LOGOS has. And we've seen that very strongly through this process, their engagement with potential tenants. I touched on the reduced development risk and leasing risk associated with the transaction. In addition, as part of the transaction, most of you will recall that a Commonwealth government-funded the rail access infrastructure outside the terminals between the Southern Sydney Freight Line and a boundary of the terminals. And the obligation for paying those future rail access charges has also been moved, too, and LOGOS has accepted that obligation going forward. So I'm sure there'll be lots of questions. That's a pretty high-level summary of the transaction. As I said, that has been quite complex. It's not just a straight disposal of leased assets. Hope you don't get too much of the thunder in the background here that we're experiencing in here, so just outside the office. But if I move on to Slide 23, just to spend some time on JobKeeper. In the 6 months to 31st December, we qualified for and claimed around $16.8 million of JobKeeper subsidies. Majority of those were for, as we discussed, I think, at full year results, for original port activities, where we had been and expected to be impacted most from volume declines as a result of COVID. We've estimated that the incremental cost to Qube of the impact of COVID around the country and all our businesses is just short of $21 million. The largest component of that by far relates to labor and labor cost, inefficiencies in labor, revised operating practices from COVID worksite plans, changes in schedules and activities in supply chains. And that $20.8 million was offset slightly by some cost savings, a little bit of cost savings around less travel through COVID and the like. But it is fair to say that our costs in the first half associated with COVID are higher than those subsidies that we received. For the period, however, given the rebound in volumes being certainly higher than we expected at the point when we did make our submissions and qualified for JobKeeper and the outlook for the next 6 months, the Board decided that it was the right thing to do to return that $16.8 million in JobKeeper subsidies. That, in our view, the Board's view, was the right thing to do given that unexpected rebounding volumes and the forecast for the remainder of this financial year. I just do want to point out that this has been a really challenging process. We qualified for JobKeeper on the basis of an expectation, as I said, of significant impacts, particularly in regional ports on volumes. As a result of that JobKeeper subsidy, we were able to keep the majority of our Qube employees employed without imposing redundancies within our workforce. Had we not had access to JobKeeper, our view is we would have made in the order of 250 to 270 employees redundant. We retained those employees within our workforce. That benefited our regional ports, in particular, our regional communities and the supply chains in which we are operating. And some of those supply chains, as you would appreciate, we're delivering essential services for communities. So not only did we retain those employees but had we not had JobKeeper, as I said, we would have been more aggressive in our job cuts. That would have run the risk of losing key resources and regional ports. Those individuals no doubt would have been looking for employment and run the risk that we lost those employees to Qube for the future. And so I think we've been able to manage through that process very, very well. And clearly, as I said, the rebounding volumes is the main reason why -- and in addition to the fact that it is the right thing to do, given the rebound, why the Board made the decision to, it will hand back that $16.8 million. We don't expect much JobKeeper at all in the second half of the year. I think that probably summarizes JobKeeper. I'll just conclude really by moving to Slide 24. And as you've heard, our expected trading for the remainder of '21 is positive. Based on our first half performance and that expectation, we currently expect to deliver solid growth in underlying NPATA and pre-amortization and EPSA in the full FY '21 year compared to the prior year. That is, generally, as a result, as I said, of positive volumes, but particularly through our Operating Division and Patrick and the net interest cost savings that we've endured, as we've talked about in the first half. So I think at that point, it's probably time to us stop talking and hand over for questions, happy to take questions.

[Operator Instructions] Your first question comes from Owen Birrell with Goldman Sachs.

Just a first one for me, just looking at the Moorebank. And congratulations on getting that sale through and giving us some color around, I guess, the level of proceeds. Can I just ask how much debt is sitting at the corporate level that was used to fund the warehouse build? So when you're talking about repaying debt, I'm assuming that's the debt that you're looking to repay. And just looking going forward post the sale, what are you looking at in terms of target gearing levels at the group level?

Yes, sure. We don't have any debt specifically against Moorebank. So all our debt is just corporate debt, not secured against the asset specifically. So it's impossible to sort of allocate specific debt because, obviously, we use debt to fund warehousing or infrastructure. We generate cash flows that are used to reduce it, et cetera. So there's no specific answer. What I can say is, one, under our banking covenant requirements, when we do sell, we have to go talk to our banks and offer to repay the proceeds. Now the reality is given our performance and our credit, we expect some banks may be happy to reduce our debt, others are very happy lending. So that's why the first step is really to have those discussions and see what the banks want. And then the second part, which is your second question, is we need to work through based on the operating division metrics and outlook what do we think is the right level of debt. What I can say is consistent with the approach we've taken, we want to set ourselves up as an investment-grade credit. Even though we're not rated, we have run the balance sheet internally on that metric from the operating division perspective, and we'll continue to do that. And so we'll look at that post. So we've currently got our 30% to 40% net debt on net debt plus EBITDA as one metric. We also do look at net debt over EBITDA internally but as it applies to the operating division earnings, and we'll continue to look at that.

And so I guess, post the repayment of debt and, I guess, moving to a target gearing level, with the surplus funds, how much -- is there a portion of that, that you wish to retain for future investment purposes? Or in other words, are there any particular investments on the horizon that you think you'll need to fund in the near term?

So look, we're always looking at various opportunities, as we've said. But the reality is that exercise will be that combination, saying what is the right long-term gearing, making sure we've got plenty of liquidity. As we've said in the past, one of the benefits to looking at a secure attractive acquisitions in noncompetitive processes has been -- we've never had to make things conditional on financing. We've had that liquidity. So we want to make sure we do that. How much liquidity we retain will be a function of the opportunities we're looking at that time. And that's where that capital management initiatives will be the other piece of that puzzle. So it's too early to give specific numbers, but that's the exact exercise we'll be looking at as we get closer to completion, and the Board will make those decisions.

That's great. Just second question for me, just on the Moorebank assets that you're retaining. Just looking at the IMEX terminal, it's been operating for roughly 12 months now. I'm wondering if you can give us a sense of what volumes you've had through the terminal during the course of the last 12 months and what your year-end run rate was?

Yes, look...

Yes. It has...

Yes, it's about 10,000 in the 6 months TEU, and it's really been related to servicing those existing tenants that we have there. And the point I was trying to raise is we had an earlier expectation that in the early years of the IMEX that we would be able to rail considerable volumes to Moorebank and then truck to warehouses off Moorebank as we develop the warehouses on Moorebank. That's the market that's really been affected by the New South Wales government's decision to open up AA access to Port Botany. Previous to that, the government policy was essentially to run AA out of intermodal terminals to facilitate that rail. So that's a short-term -- we think, short to medium-term issue. It will just be a slower take-up of volume.

Are you very much relying on the tenants within Moorebank now as opposed to...

At this point, at this point, yes.

Yes. Okay. And just finally, in terms of, I guess, the operating and logistics business, you mentioned a surprising increase in agri volumes. Obviously, we've had a very strong recovery in the funding outlook. Can you tell me what you're expecting in terms of, I guess, the volume growth in agri into the second half '21?

Look, we don't have a specific number on agri. I think the point I would make is that, as you're aware, particularly in New South Wales, drought is over. We move to 100% of Quattro. So that adds value. We acquired the assets -- we recently acquired the Agrigrain assets. And so the outlook, as best we can see, is very positive forward bookings on grain. And I think that's been documented not only by us but by others in the industry. So we don't usually give a specific figure, but it is positive for us certainly through the second half of the year.

Great. It looks -- sorry, just one final question for me. The proceeds from Patrick, I think you just said $17 million or so. Just wondering if you're expecting to hold on to that or will pass that through, similar to what you did last time.

Are you referring to like a special dividend, you mean?

Yes.

No, look, we have announced an ordinary dividend. Any other capital management initiatives will be considered post the monetization completion.

And just finally, Maurice, just want to appreciate -- I just want to thank you for your efforts with Qube. And yes, I just want to -- I wish you all the best in the future.

Thanks very much, Owen. I mean, I should have probably mentioned that whilst Paul will be taking over. I'll -- the Board has asked me to stay on in a non-executive role, which I will sit on the Patrick Board, be involved in Moorebank going forward and, obviously, available to Paul, should he require. And that will continue on not only to the end of the year but through the calendar year, therefore -- calendar year '22. Thanks for your comments.

Your next question comes from Matt Ryan with UBS.

I just got a question on Moorebank to start with and whether you've got, I guess, any rights to ensure that the warehouse tenants use the IMEX facilities through the interstate that you mentioned.

It's not so much that we have a right, but I think it's fair to say a few things. Firstly, the value they've paid requires them to get tenants, if you like, who can pay appropriate rents, and we believe those tenants are people who need the IMEX to get the logistics benefits. Certainly through the alliance agreement, there are mechanisms around who an approved tenant is and mechanisms if they do, where we get some form of compensation circumstances, should they want to bring a tenant on who's not likely to use the IMEX. So through that interface deed and alliance agreement, we have taken that into account. But it's fair to say their concern to make sure we run the IMEX efficiently is as high as our concern to make sure they get the right tenants. So they see an efficient IMEX is key to the implementation of their strategy. And that's why we said at the outset, one of the reasons we went exclusive with LOGOS early on is they very much demonstrated an understanding of the unique logistics benefits of Moorebank and what that means for getting the right tenants. So we're very comfortable with that alignment.

And just thinking about the benefits that LOGOS could bring, is there anything outside of, I guess, just signing up new tenants that you think you're going to benefit from?

I think they've demonstrated that not only is it just new tenants but it's their ability to deliver new warehouses. They're building a significant number of high-bay automated top warehouses in Asia. So it's the customer relationships, but it's also their ability to deliver is what we saw as a really positive.

Yes. And we expect, to Maurice's point, that they -- if they execute their plan, we expect that the site utilization will be very, very significant, and that will be very supportive of getting to the maximum utilization of the IMEX earlier, which is another benefit.

I think that's sort of -- just to finish that off that we've talked about this in the past when we set about on the Moorebank project, we -- like everyone in the industry, we expected the warehouse to be pretty much a standard box warehouse that's 20 or 21 meters high. And our strategy and plans were around standard warehouses to be built on the site into the 850,000 square meters. As this project has evolved, so has technology, so has automation. And to be now seeing facilities, high-bay warehouses like the Woolworths warehouses that are in excess of 40 meters high with a high degree of automation, much stronger site density, that's obviously very beneficial for logistics and volumes throughout -- through the terminal. So I think that's clearly the expertise in that area as well is a positive from LOGOS.

Your next question comes from Anthony Moulder with Jefferies.

Just to start, if I can with -- I'll stay on Moorebank for a little bit longer. The book value of the assets that you're selling to LOGOS is $1.2 billion. Paul, can you talk to whether or not that's a good guide for an estimate of the tax payable on this transaction, please?

Yes. So look, we are still doing the work on the tax because allocation between the IMEX and the warehousing is quite complex. But it's fair to say that the tax book value is lower because the accounting book value takes into account the cumulative fair value gains over the period, which is in the order of $270-odd million. So the tax cost base is probably close to $800 million to $900 million. We're still doing the numbers. So that's very much indicative, but that's a rough guide, so lower than the 1 point...

Sure. Okay. And the future CapEx spend outside of what was shared, can you give us an indication as to how much that you were expecting that you would have to spend to complete future warehouses?

Yes. I mean, it's always going to be a function of warehousing. So if you look at I think our June '20 presentation had our future minimum expected CapEx, which is the enabling infrastructure, if you like. It's everything that we knew excluding warehousing because warehousing would be a standard warehouse, as Maurice said, which isn't that expensive to a fully automated Woolworths top warehouse, which is. What I would say is post the monetization, we expect our remaining CapEx will be in the order of probably $200 million $250 million, which is completion of the automation of the IMEX and the interstate. Now again, that's indicative because it will depend on the final design of the interstate terminal, but it will probably in that order. So it's materially less than -- if we retain the project, where it would be, I guess, well north of $1 billion, including all the warehousing. That's a significant future CapEx.

Sure. But just to be clear that, obviously, you know Woolworths shared cost had known, but there were additional warehouses that would have had to be done for the full implementation on the sense of 850,000 square meters.

Correct.

Exactly.

So LOGOS is back in the real -- so how much of that's going to be highly automated, high-bay warehouses, et cetera, assuming that cost of capital, cost of the work and then, obviously, the benefits that they get from that. So is it fair to expect the cap rate on this transaction at below 4?

It's complex because you have a cap rate on the developed warehouses, where, again, I mean, they've got their own calculations. So they gave us a number. We've got our own calc. So we'd expect to be very attractive cap rates on the developed warehouses. But then for the undeveloped warehouses where it's effectively land, again, they would have done their feasibility analysis around what warehousing they'd build, when they'd build, what rents they get, to come up with a number. We've got a lot of model. So it's not a specific number we can quote. But clearly, we're very pleased with their numbers relative to our internal valuation.

Understandably. And lastly, this issue with transport in New South Wales showing [indiscernible]. Is that more associated with just the velocity that the supply chain speed to move out of the current point? What's your read as to why they've done that against the benefits that Moorebank offers to the wider congestion argument of New South Wales?

I'll put it into the basket of possibly, it's my view only, that the left arm of the New South Wales government didn't know what the right arm was doing, and there's been powerful truck lobbies to increase permits for these AA doubles, and that's been processed through one arm of the transport to New South Wales without the other really being aware of it in the context of its model shift to rail strategy.

Yes, disappointing.

Yes.

Your next question comes from Paul Butler with Crédit Suisse.

I just want to ask, I think one of the original attractions of rail transport of containers to Moorebank was that you'd get the containers at Moorebank quicker than collecting the light truck. Is that the case or has the trucking logistics picked up there game?

No, Paul, that still continues to exist, and that is certainly part of the marketing strategy about Moorebank and will be in the future. The reason that happens is because, as you know, the port stevedore has discharged and then we've been able to prove through our existing Qube logistics operations into Minto and into -- you know, I've spoken about this before. What we've done and changed our processes a few years ago is we just say that the terminal operators, all those containers, put them on a train to Moorebank, put them on a train to Minto, and they go out of the terminals very quickly. And we were getting a while ago before this congestion issues but 12 months ago, 60% of the volume was heading to those intermodals on what we call day 0. So day 0 for the port terminals is the day that the ship finishes discharge. And under the normal processes for road, the terminal declares the cargo available on day 0, and the industry then books time slots for day 1, 2 and 3. So the industry starts picking up containers the next day and the day after. And so that advantage will continue to exist, and we see even a higher level of advantage once Patrick finishes its automated rail terminals and interface at Port Botany where containers will be able to go virtually direct from ship to the rail head and on to trains very quickly.

So what do you reckon the time benefit is?

Well, I think we've suggested that 60% of the volume getting out to intermodal on day 0 is in the order of 24 hours quicker than rail-based traffic. There's always exceptions to that, but that's certainly our expectation going forward.

Okay. And Maurice, over the past few years, what proportion of your time would you say you've spent on Moorebank versus the rest of the business?

Good question, Paul. Hard to answer. It varies month by month. It is fair to say that I have spent a considerable amount of my time on both Moorebank and Patrick's. And Paul Digney has been running the rest of the business very, very well. And if you are familiar with what happened historically, Paul was running the Logistics division, and we had someone else who retired. Don Smith was running Ports & Bulk. I put all of those businesses under Paul. So Paul and I have had a good working relationship. So he's effectively been running the Operating Division with some involvement of me, but a lot is his doing. So I think to answer the question, considerable amount of time.

Okay. And just one last one. I mean, as Qube looks at potentially developing the Beveridge side, I mean, are there any key lessons learned from Moorebank of things you'd do the same or things you'd do differently? I mean, I'm talking particularly from a strategic perspective.