Qube Holdings Limited (QUB) Earnings Call Transcript & Summary

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

Good morning, everyone, and welcome to the call. Before I kick off, I'd like to acknowledge Maurice James, our departing Managing Director. I think the results that we've announced today is very fitting finale for Maurice, not just the results but the achievements in the presentation deck. So Maurice, if you're listening out there, a big thank you from all of us at Qube, and thank you for your leadership over the 10 years. Joining myself today on the call is Paul Lewis, our CFO. And in saying that, I'll start to kick off the presentation. Turning to the presentation. I'll now turn to Slide 4. We're pleased to announce a strong and a record result for Qube, underlying result for the '21 year, which saw underlying revenue grow 8% to over a $2 million mark of sales. This is the first time in the history of Qube. That's our core business. That doesn't include Patrick's revenue, only associates' revenue. Underlying NPATA was up 31% to $159 million. And underlying EPSA was also up 16.7%, which is a very pleasing result. We saw that across most markets, and we saw some very good volumes across all sorts of markets. Statutory numbers do vary a bit, and Paul Lewis will explain more about that later in the presentation. The result was very pleasing for us considering the COVID headwinds during the year. For me, the result reconfirms how robust and diverse our logistics strategy is across many of the import and export supply chains that we work in, confirming that Qube's business model can deliver growth even in a pandemic year. Staying on Slide 4, I will -- just like to touch on a couple of highlights there. In the year, we did make some acquisitions. We made 6 small complementary acquisitions throughout the year. Early in the year, we made an acquisition of 2 upcountry grain storage and handling sites in regional New South Wales, which complemented our Quattro rail -- Quattro grain terminal in Port Kembla and our rail business. We also made 2 acquisitions in New Zealand in the log transport business, which complemented our New Zealand forestry stevedoring and marshaling activities on the North Island of New Zealand. We also acquired 2 woodchip logistics businesses in Australia, one in the Portland Green Triangle area, catchment area, and another one in Western Australia in the Albany forestry catchment area. And we also made an acquisition just recently in Tasmania in the bulk haulage mining space. More details of those acquisitions are on page -- on Slide 19 of the presentation deck. Also throughout the year and as mentioned at the half year was that we made significant progress on the property monetization process. We completed the sale of the Minto property in September 2020. And we've just recently reached a binding deal with LOGOS on the Moorebank property deal, which come -- which that deal come closer to completion in July this year when we reached that binding agreement. Qube also repaid JobKeeper receipts for the '21 year. And today, the Board declared a full year dividend of $0.06 per share for the full year, reflecting the strong performance of '21 and a positive outlook. If I can now touch -- move to slide -- the next slide, Slide 5, health and safety review. I'd like to first touch on COVID and our efforts in Qube around the challenging landscape of COVID. Our management team and our staff responded extremely well to the COVID challenges in 2021 as they did in 2022. Our leadership and our communication around all COVID matters has been exceptional. Our standards within Qube have been acknowledged by government health authorities and transport authorities. Our people, led by our people and culture teams, our safety teams, our divisional heads, their management teams and every employee in Qube has done a truly amazing job for their shareholders during the whole 12 months of this year. We haven't stopped working through the lockdowns, and our customers' freight has continued to move. So again, this is a callout to anyone on the call from a Qube perspective that -- a big well done in a really challenging year, not just 4 months, like last year, it was obviously a whole 12 months of COVID challenges. In saying that, we rolled out some good health and well-being programs that assist us through the COVID times, some mental health programs and diversity programs and some well-being programs, which helped all our employees during some tough times. But I think the biggest therapy of all was us having the ability to continue to work, continue to have everyone employed, to keep everyone busy. And so that really assisted our workforce and obviously assisted our customers. There's more information on the programs that we rolled out throughout the year and other initiatives as today, we've released our sustainability report, which has gone live on the website today, which has a fulsome report on sustainability matters. In regards to safety, in regards to our KPIs, our TRIFR KPI finished a little bit higher than last year. That was muchly to do with acquisitions that we acquired throughout the year and the historical data of their safety data with the Qube core data. LTIFR improved slightly from 0.9 to 0.8. The big mover for us and the most -- one of the most important ones was our critical incident frequency rate statistic moving from 1.5 to 0.3. We had many pleasing highlights throughout the year in regards to a number of safety initiatives that we rolled out. But across -- the biggest thing was really around the focus around critical risk. And as I mentioned before, with that CIFR KPI moving down significantly, that just demonstrates the focus on critical risk and significant outcomes through our return to work statistics and our workers' comp statistics. And a majority of our injuries are very minor in nature. So 2 years ago, we refreshed our critical risk verification program. We heightened the awareness of critical risk with campaigns such as a Stop for Safety campaign, which paid good dividends, which focused each of the site on their critical risks and had management and employees heavily involved with it. So it was very pleasing that we've had some good results around critical risk statistics. Moving to Slide 6, so just want to touch on sustainability and environment for a minute. As I mentioned earlier, we've released our full year '21 Sustainability Report this morning, sets out a focus -- sets out our focus towards a sustainable future for Qube. The report also illustrates many of our highlights that we achieved through 2021. A couple of those highlights on this slide here, I will call out that our reduction in our carbon intensity was at 8.6%. That came about mainly due to lower fuel burns in trucks and front-end loaders and other machinery. And we've now -- over the course of the last couple of years, majority of our fleet are on Euro 5 and Euro 6 technology. Nearly half of our front-end loaders that we use in the bulk space to move bulk products is over 50%. And there's been some -- we've developed a Fleet Monitoring Centre in Perth a couple of years back. And they monitor driver use and behaviors, and that helps to reduce fuel burn as well. Throughout the year, we've engaged with external help to assist us to look at how we achieve a low-carbon future. So that journey continued. It's a big part of our journey now how we look to move away from the reliance of diesel as diesel is our biggest carbon emission. Around 90% of our carbon emissions come from diesel. The challenge we've got going forward is that we are reliant on diesel at this point in time. We move large and heavy freight, and diesel's the only viable, feasible alternative at this point in time. But we did this year, we did some trials in regards to hydrogen and electric technology. And we look -- and we're now focusing on alternative greener fuels, the network, the infrastructure that's needed in Australia for us to make that switch at some point in time. So it's a journey for us. We'll be heavily invested this year, and that will be a huge focus for us. Also in the year on the sustainability front, we implemented our modern-day slavery framework and along with a Supplier Code of Conduct. Moving to Slide 7, touching on the financial highlights for the year. I'll just talk to the blue boxes on the graph there. The 3 areas -- the 3 main drivers for our underlying result, our record underlying result was -- the first one was our Operating Division. And despite many COVID-related headwinds, such as the WA hard border closure, which gave us labor issues; the shutdown in Melbourne in the early part of the year where we had some temporary closures of some customers; some project delays to some revenue that we had earmarked for the year around oil and gas projects and renewable wind farm projects; some delays in getting equipment in for new contracts, and we had to use alternative subcontracts that's in other costs, impacted the business, and there was obviously some ban -- China trade bans, which may be not COVID-related but impacted some of our forestry customers in Australia. With all that, the Operating Division delivered a very good result. It had higher volumes in most markets, mainly in grain, mining, commodities, containers, forestry in New Zealand. And in the second half of the year, after the shock of some closures around the world in car manufacturing, we saw motor vehicle volumes rebound especially in the second half of the year. And we particularly saw strong container and logistics volumes in the second half of the year both in Qube and Patrick's. And I'll come to Patrick's now. So the second area of our strong performance was Patrick's. It was on the back of increased container volumes. It was through -- from the prior year. It was stronger in the second half of the year. We had good growth in our Melbourne and Brisbane terminals. And we also had the benefit in Patrick's of some pricing benefits that we got the full year benefit of some landside pricing increases throughout the year. The third item on the slide there is the benefit from low interest costs for the group in regards to the proceeds of the Minto sale and the capital raising the year prior. If I can turn to the next slide, and I'll just quickly -- I'll just highlight this. It just highlights -- the 5 graphs here highlight the 5 of some tailwind areas in Qube that we experienced in the year, which helped our results. Container -- the container trade, as I mentioned before, and especially the strong rebound especially in the second half of the year. Grain exports, the graph demonstrates the breaking -- basically, the breaking of the drought in Australia, and we saw good agri volumes throughout the year. New car sales, as I mentioned before, we had -- we got the rebound to some normality in the second half of the year with car sales. Base metals and bulk commodities were strong with most of our diverse customer base, and we saw that and in New Zealand with the forestry exports after they had their -- the impacts in the middle part of last calendar year with some closures. We saw some heavy rebound there. That was some good signs for us throughout the year. Slide 9, I'll just touch on one of the core aspects of Qube, innovation and technology. Really here just to call out that it is a continuing focus for us at Qube in regards to delivering innovative projects that increase safety, increase productivity and, mostly important, gives us the market edge and give our customers a benefit. Some of the highlights for the year in this space was -- and this was a big highlight for us. In New Zealand, we had a world-first. We rolled out a new way of loading logs onto vessels without using slings, using a patent grapple attachment to a crane. And that meant there was no more people working under the hook, and it delivered a much safer operation but also a very efficient operation where we could actually -- each lift could do a bigger load than it would normally under the traditional way. So it's a very similar game changer that we've seen this year as we've done in other things -- other aspects of our business like the rotor box in the bulk space where we delivered -- ability to get products to market in a safe and more environmental-friendly way. So that was a big win. We made some further advancements in higher productivity in our vehicles, some warehouse robotics. Around the COVID space, we introduced some new scanning technologies and some new remote learning technologies to assist us to manage through COVID. And we further strengthened our cyber resilience with some big sizable investments in that space. And we also lifted our focus around reducing carbon and putting that on the agenda in our innovation space but also in our sustainability and procurement space. And we've got a working group where the key people in those areas of business started the working group on that -- and innovation will take us a long way there in understanding how we can move away from diesel, as I mentioned before. If I move to Slide 10, I won't spend much time on this one. It demonstrates again just the diversified span by geography across the Operating Division. If I move to Slide 11, this shows the breakdown of revenue in logistics for 2021. It still highlights that the majority of the revenue is on the eastern seaboard of Australia for the logistics business. By industry, we saw growth, as I mentioned before, in the agri space. And that was also benefiting the logistics business with the full ownership of the Quattro grain terminal and the 2 acquisitions in grain storage that I mentioned earlier. Other area there was really the uplift in container handling activities and uplift in rail activities that we benefit from. Probably the only one that was sort of -- that offset that was Victoria in the early part of the year with some of the closures -- some temporary closures of manufacturing in Victoria that impacted some of our revenues in Victoria. Moving to Slide 12, just on Ports and Bulk. Again, the breakdown of revenue here shows that majority -- 40% of our revenue is -- remains in Western Australia. The chart also shows the vast diversification of revenue by product across the Ports and Bulk customer base. What we did see in '21 was a number of areas of growth, forestry mainly in New Zealand through acquisitions we made in '20 and also in '21 plus the organic growth. We saw good growth in iron ore, lithium volumes, copper and nickel and also our oil and gas activities. Moving to Slide 13, we'll just touch on some highlights in the Property Division. Obviously, I mentioned before, the Minto property was sold to Charter Hall for a good price. In regards to construction developments at Moorebank, we saw a majority of the precinct infrastructure at -- on the east side on MPE was completed. On the west side, MPW, we -- progress -- there was progress made on precinct works. Warehouse 5 was completed through for Qube Logistics. And infrastructure works continued on the 2 new -- 2 Woolworths warehouses on the west side, and the IMEX automation works progress as well. On leasing, there's a full benefit from Warehouses 3 and 4 that had full occupancy of tenants in the period. And we also obviously started the Warehouse 5 lease with Qube Logistics. Staying on Slide 13, just on the IMEX terminal. We only saw 18,000 TEU go through the IMEX while it's still in its manual start-up mode. There was no catchment volume that went through the IMEX during the period. This was mainly due to the government's decision that we've mentioned previously about committing higher-capacity AW vehicles to move between Botany and the Moorebank catchment area. And due to this and due to also the separation of sales, the IMEX and the Moorebank warehouse logistics assets, that we did a reforecast of our -- of the volumes through the IMEX, and it -- and it heavily relied in the early years around these catchment volumes. So as a result of that, the forecasted slower ramp-up of volumes mainly relied on the catchment area that we've recognized an impairment of the IMEX for this year at June 30 of $156 million. Graph 13 on the slide does show the decline in rail mode share to Port Botany, and a lot of that's to do with these A-Double permits. But I will say in the medium to long term, we believe that this rail modal share will improve significantly as the market conditions change and IMEX will achieve its full capacity in time. And in 2022, this year, the IMEX terminal does get transferred from the Property Division to the Operating Division, which will benefit from this change in management structure. Moving to the next slide, I'll just -- staying on this slide. So just on the interstate, during the period, there was only minor works done on the interstate terminal. There is currently a disagreement with MIC regarding the completion of stage 1 [ of the interstate ] due to some differing views on some relief events due to some delays. And during the period, MIC issued Qube an Event of Default on the interstate. On this matter, on the Event of Default matter, Qube and MIC are currently in active discussions to resolve it. We expect to have this resolved as a part of the overall agreement with MIC to secure consent. And so this is progressing at the moment. Next slide is -- to touch on is Patrick's. So Patrick's, again, we had a very pleasing result with the Patrick's terminals in 2021. Underlying revenue was up nearly 9% to $680 million. Qube's share of the NPATA was up 47% to $50 million profit. Qube received $120 million in distributions from Patrick's through dividends, interest payments and some loan repayments. We saw increased market share in Melbourne and Brisbane. We saw a bit of market share decline in Port Botany and Fremantle. Across all 4 ports, our market share moved from 46% to 44%, a small decline, but we -- that wasn't unexpected. That market share decline was impacted by some industrial action early in the year at Port Botany. That volume will come back. The other one was Fremantle where we knew that there was going to be some rationalization of services in the shipping industry, and we knew that we'd be impacted by that. So it wasn't unexpected that we would have some small decline. The other thing with Patrick's really to touch on is that the results, the benefit from a full year of those increased landside charges. On the next slide, just staying on Patrick's for a minute. The slide highlight some achievements within Patrick's, which will be achievements -- developments which will help in the future. We saw 2 new cranes arriving in -- one in Port Botany and one in the Port of Brisbane, and they're getting commissioned at the moment. Patrick's completed Phase 1 of a 2-phase project at Port Botany for the automated rail terminal. Phase 2 is now commenced. It's due to complete in mid-2023. When it's fully completed after Phase 2, Port Botany will realize much larger significant rail window capacity and the efficiencies to rail in and out of the terminal, which would not only benefit Patrick's, but it will benefit Qube and it will benefit Moorebank at that point in time. Other highlights, probably the other one to point out is that we achieved -- we got extensions to leases at East Swanson in Melbourne and in Fisherman Island in Brisbane terminals. So we now have long-term security over all 4 terminals with lease extensions. In saying all that, I'll now hand over to Paul Lewis to take you through some of the more financial detailed aspects of the presentation. I'll hand over to you, Paul.

Right. Thanks, Paul, and good morning, everyone. Starting with Slide 16, our statutory results. If you had a chance to look at it, you'll see it's a bit more complicated than normal due to the monetization process. And the reason for that is, effectively, as we expect the monetization process to be completed within the next 12 months, the assets and liabilities as well as the related earnings from the assets being sold to LOGOS need to be reported separately in the financial statements. So from a P&L perspective, they're shown as discontinued operations. And that includes everything to do with those assets. So it includes the fair value gain on the investment property of about $195.6 million, and that's based on the economics of the LOGOS deal. It also includes the warehouse income and other income generated normally from Moorebank as long -- as well as the related costs. However, the IMEX terminal impairment that Paul touched on is not included in the discontinued operations given that asset is being retained by Qube. So if you look at the table on Slide 16, you can see that Qube made a statutory loss from continuing operations but a profit of $91.6 million, including the discontinued operations, the largest component of which is that fair value gain. In addition to the fair value gain and the IMEX impairment, the statutory results include some other noncash nonrecurring items, including the impact of AASB 16, the leasing standard, that aren't in the underlying results. And as was explained previously, we believe the underlying results provide a much better view as to Qube's core earnings and performance and how the business has been performing. So with that, I'll turn to Slide 17, the underlying results. As Paul said, we were very pleased with the strong underlying performance particularly in the second half, which was achieved despite some headwinds and ongoing escalated costs relating to COVID around changes in operation, safety, et cetera. So with a record underlying net profit after tax pre-amortization up 31.7% to $159.6 million and underlying earnings per share pre-amortization up 16.7% to $0.084, pleasingly, there are improved margins overall, which reflected partly the business mix because as we've said, different parts of the business have inherently different margins, but also the benefits of the higher volume across Qube's infrastructure and assets and the benefits of the economies of scale that we've built. The result was very much driven by the Operating Division in Patrick, which Paul has discussed, as well as lower interest costs. Just one thing to flag with the Operating Division. As we flagged with the first half results, for FY '21, the Operating Division results include AAT and Quattro, but they were previously reported in the Property Division. So a simple look at the numbers, it makes the growth in the Operating Division appear higher than they would be on a like-for-like comparison, and the reverse is the case with the Property Division. So when you have a chance to look through the presentation, when you look at the appendices, we've shown both measures, so you can see what the comparable performance was in each division backing out the impact of the change in reporting. With that context, the Operating Division EBIT was up over 20% to $201.2 million on an adjusted basis, i.e., including AAT and Quattro in the prior year's numbers for comparability, which we think is a really strong result. As Paul mentioned, strength across most of our markets, including grain, and that benefited both from a strong harvest overall but also our past investment in moving to 100% in Quattro, the Agrigrain acquisition that Paul talked about and our focus on that area. The containers were strong, forestry, motor vehicles as well as energy. Really pleasingly, a majority of the growth was organic, including from past contract wins, and there was only a modest contribution from FY '21 acquisitions and the prior year acquisitions. In terms of Patrick, as mentioned, EBIT was up almost 42% to over $141 million with strong margin improvement and high cash generation. The Property Division you'll see was roughly breakeven at the EBITA level compared to a small $4.9 million positive EBITA in the prior period, again, adjusting AAT and Quattro out of the prior period results. And what that reflects is roughly a 2-month contribution -- 2-and-a-bit month contribution from Minto Properties until completion of sale, and the earnings from that pretty much offset the small overall loss for Moorebank. And the Moorebank result was the contribution from warehouse and other income, which is a bit higher, but that wasn't enough to cover the start-up losses of the IMEX, which generated an EBIT loss of about $4.8 million, of which $2.6 million was depreciation. And then interest costs, the other thing to call out, they were lower, as Paul mentioned, benefiting from a full period of the FY '20 capital raising, proceeds from Minto Properties sale as well as lower base rates and some margin improvement we're able to negotiate on some facilities. Look, while we're very proud of the record underlying NPATA, we are mindful that earnings per share haven't grown to the same extent as NPATA. And that's really been due to the capital raises we've undertaken to make sure we can prudently fund some very key investments and acquisitions, most notably Patrick, which we completed in late 2016, the Moorebank development and more recently to position ourselves to be opportunistic to pursue growth during COVID with those funds only being partially deployed. But the operating assets are and have been delivering consistent high returns and cash flow, albeit the cash flow has been largely reinvested into Moorebank for a number of years. So although the Moorebank development has certainly delivered very significant value to Qube, it hasn't contributed to regular sustainable underlying earnings per share growth just given the inherent long-term nature of the development where we do have to invest a significant capital upfront, and much of the value created is in capital appreciation rather than annual underlying earnings. So post-Moorebank completion, there will be a renewed or ongoing focus and expectation of more predictable earnings per share growth and improving return on capital employed from the Operating Division and Patrick, albeit that will always depend on the environment and economic conditions. So look, reflecting the very solid result, the high cash flow generation as well as a very positive outlook, the Board approved an increase to the final dividend, bringing the full year dividend to a record $0.06 per share fully franked, being a 15.4% increase on the prior period and broadly in line with the strong growth in underlying earnings per share pre-amortization. Turning to Slide 18, our CapEx. It was another period of large CapEx of around $674 million, of which $304 million was on Moorebank and the balance was in the Operating Division. In relation to the Moorebank CapEx, a large component was the automation of the IMEX, it was around $60 million; the completion of Warehouse 5, which is now occupied by customers of Qube Logistics. We have commenced expenditure on the Woolworths warehouse, and the majority of the balance was on precinct infrastructure. In terms of the Operating Division CapEx, around $95 million was in acquisition, which I'll talk about shortly, around $75 million was on equipment for the BlueScope contract that starts early next year, and we spent just under $120 million on maintenance, with the balance on equipment and facilities to support new contracts mainly in the bulk segment. And that equipment and capital contract CapEx only made a small contribution in FY '21. So it's an important part of the expected earnings growth in FY '22 and beyond. Turning to Slide 19, the acquisitions. Paul has talked a little bit about some of the acquisitions, so I won't go into it in detail, but just to make a few points. Firstly, as you can see overall, the purchase -- the enterprise value we paid across these acquisitions was about $95 million, which represented an EV to EBITDA multiple of less than 4x based on year 1 pro forma expected earnings. So we think that's a really attractive overall acquisition price. But importantly, putting aside the economics, all of the acquisitions were consistent with Qube's strategy, and within our core markets, grain, forestry and bulk, each acquisition was undertaken for more than just financial reasons. They expanded our capabilities across existing supply chains or provided further geographic, service or customer diversification. And importantly, they leverage our existing infrastructure, resources and/or customer relationships. They are all expected to deliver really attractive financial returns well within our hurdle rate for a number of reasons. In almost all cases, they offer cost and revenue synergies. They weren't sourced through competitive processes, which we don't avoid them completely, but our strong preference is to negotiate bilaterally with the vendor. So it's not just about the highest price. And our ability to do that over many years reflects our market knowledge and presence, our patience. In many cases, these discussions are going to go on for months, if not years. And we'll wait for a time when stars align, if you like, where both the vendor is ready to sell at a price that's mutually acceptable. And as part of that pitch when we're talking to potential vendors, they know that we're in the market. If they're someone who's got children or employees, they want to stay in the business, we're always open to that. It's been a key part of our growth strategy. We're very commercial in our due diligence. There's lower execution risk in terms of completing. And while the acquisitions were very attractive from a Qube perspective because of our ability to invest in growth and synergies, it did represent a fair price for the vendor who in many cases wasn't able to generate that growth. And therefore, the price they accepted reflected where the business was at. So we think these are very attractive opportunities. Importantly, in each of those cases, the risks were really understood. We did undertake a detailed due diligence, but it reflected our knowledge, our existing market presence in those areas, our relationships with customers. And where possible, we try and minimize the amount of goodwill as well to make sure that we've got assets that underpin at least the majority of the consideration. So the key message to leave you with from this slide, we continue to see plenty of opportunities for growth within our strategy and target markets. While we never look for acquisitions just for growth's sake, if we are able to deploy even a reasonable portion of the expected Moorebank proceeds in similar opportunities, you can see it will drive very strong earnings per share growth and ROCE improvement. Having said that, we will remain disciplined about acquisitions, but we do have a strong track record over many years in finding and executing on complementary acquisitions. And that will continue to be part of the strategy going forward. Turning to Slide 20, balance sheet and funding. As you'll see, no change to our focus on maintaining a prudent balance sheet. We ended the period with gearing below the bottom end of our target range of 30% to 40%. We had plenty of liquidity and material headroom to covenants. During the period, we proactively managed our debt maturity by extending some of Qube's facilities. And we also work with Brookfield and Patrick to assist Patrick in doing likewise and today also extended the maturity of some of their facilities and also upsized their debt facilities. As you'll see on the bottom right of the chart, this is indicative, but on a pro forma basis before tax and adjustments and receipt of the deferred consideration, Qube will be almost debt-free. And what that means is we'll be very, very well placed post-Moorebank to fund the ongoing Moorebank commitments, which is mainly completing the IMEX and the interstate terminals, which we currently anticipate will be in the order of $200 million to $300 million to pay tax on the gain. And it's a very complex calculation, but we still think it will be in the order of $200 million to $300 million, probably closer to the midpoint, but that's still a work in progress, to fund continued growth in the Operating Division and to undertake capital management initiative. In terms of capital management, obviously, the specifics will be looked at by the Board at the time close to the completion of Moorebank. But -- and that will be around the precise form, the quantum and the timing. And as we've said previously, we do need to first have a discussion with our lenders regarding any debt reduction. But certainly, we'll be very well placed to utilize our strong balance sheet and high franking balance. And things we'll look at, as we've said before, potentially share buyback, potentially a special dividend, but the specific details will be based on all the relevant circumstances at the time. Post-Moorebank, I can assure you there will be no change to our philosophy, which is to maintain a conservative balance sheet that supports Qube's ongoing operations and allows us to invest throughout economic cycles. Turning to Slide 21, cash flow. Just to highlight, it was another period of very strong cash flow generation for Qube. The cash conversion was in the order of 93% of underlying earnings. We had no significant doubtful debt or debtor issues despite the impact of COVID on parts of the business. And just to call out again the high distributions from Patrick, reflecting the very high cash flow generation as well as proceeds from debt upsizing, which partly applied to reduce shareholder loans. With that, I'll hand back to Paul to talk about the monetization process and then the outlook.

Thanks, Paul. Just moving to Slides 22 and 23 and just an update on the Moorebank monetization process. The deal, it remains the same as per the term sheet we saw in February to the binding agreement that we've got now in July. So that is at a high level. The purchase price is still $1.67 billion at a binding agreement. Deferred payments stay the same. The conditions remain the same. And Qube is to retain the terminals, as you're well aware. On Slide 23, this just revisits the rationale and the benefits to Qube and its shareholders in the deal. The deal realizes substantial value in Moorebank's warehouse and land assets. The deal removes project risk. That is the delivery risk of this project over 10 years and who knows what 10 years looks like, so it removes that risk. And the deal reduces the capital requirements and provides significant funds to deploy to support a more stable growth per share profile. Moving to Slide 24, update on the process to completion. We're expecting to close the transaction sometime in quarter 4 this calendar year. In regards to FIRB -- the FIRB approval, LOGOS is still waiting on FIRB for that approval. In regards to the other key approval being gaining MIC's consent, both Qube, MIC and LOGOS are working constructively to address MIC's consent requirements, which include finalizing the appropriate government arrangements -- governance arrangements between the 3 organizations. As you -- as most people are aware, it's not a simple property transaction where, here's the check and here's the keys. We're staying in on the project. We've got a partner in the Commonwealth government and MIC, and we're introducing a third partner there, which brings together a pretty strong team. But in saying all that, we've got to get the structure right to make sure that it sees the test of time out. So that's a part of the process that we're working through at the moment. And also, we're working at some disputed matters that we -- between MIC and Qube, which are progressing each week. Moving just on post-completion of Moorebank. As I've mentioned before, there will be an alignment deed between -- or there's an alignment deed that we've agreed between Qube and LOGOS, which will promote the alignment between the warehousing and the logistics activities at Moorebank. It's basically based on what we currently do today between the Property Division and the Operating Division and to make sure that we both share in the benefits and the rewards of the unique project. And at completion, as we've mentioned before, the Property Division will be discontinued. And all Moorebank activities, being Moorebank Terminals and a few other -- TQ -- the TQ Holdings project and the Beveridge project, will be operated under -- will be managed under the Operating Division. On Slide 25, if we just turn to Slide 25, this slide just shows what Qube is going to look like this year. So the Operating Division will be split into 2. You've got your Logistics and Infrastructure Division there. You've got your Ports and Bulk Division, which you've been familiar with, and Patrick's makes up the third pillar. The Qube -- the Logistics and Infrastructure Division will be made up of the existing core logistics business, AAT assets, the Moorebank rail terminals, so IMEX this year and the interstate terminal in a couple of years' time, the TQ project as we work to prove that up and the Beveridge project. This division will be mainly located across the East Coast of Australia with all those assets. With regards to Ports and Bulk, it remains the same. It's just highly diverse across many markets and many geographies. Then the logistics and division -- Logistics and Infrastructure Division. So that business will stay the same. It's stretching across not just Australia but New Zealand, PNG and South East Asia in a small part. And obviously, Patrick's, again, stays the same. Moving to Slides 26 and 27. These 2 slides just highlights that our vision and our strategy -- our core strategy remains unchanged moving forward. It's a proven strategy, and it's strong. For me, nothing is broken. We've got plenty of scope to continue to expand out. In all the markets here on this slide and the previous slide, on Slide 25, we'll look to bolster our services in each market and build out a stronger supply chain in both the import and export supply chain. We'll still look at some selected markets offshore, but we'll probably put that on hold while we're in COVID, but the main focus is in Australia. We see many -- plenty of opportunity to increase market share in each of our markets that we operate. And as the world changes, we'll look to emerging supply chain markets. As we know, the world's changing around carbon, and the world's changing around technology, and the world might change a bit from COVID. So we'll look for that. And again, just on our business model, just to finish around our strategy and how robust it is, COVID-19 has really demonstrated how robust our diversification strategy has been across import and export supply chains. So we've got a great model, and we've got a very good management team that can deliver on that model. So our vision will be to develop it out -- and develop out our diversification and develop out our depth even further by geography across our markets, which we've done before, by investing into key logistics infrastructure assets, which has been a key to our growth and our success, working with our customers, we've got long-standing customers across the industries and products. And they give us expertise, and we give them expertise, and it works for us. And we'll continue to invest in innovation. It's been a key cornerstone for us, and we'll continue to look at ways to have a market edge. And we'll continue to invest in our people, and we'll acquire new people along the way, and we'll build this business to be even stronger than what it is today. So as I said earlier, the scope of our diversification holds us in a really strong position to compete and grow our business and grow into markets, but it also has enabled us to really mitigate volume risk because we're not reliant on one market. We're so diversified now across many markets. Just to finish, just on the outlook slide on 28. Overall, the outlook looks positive. I will say that we're in difficult times, so there is the unknown around COVID. Businesses have been able to manage COVID better, and we've got vaccination rollouts getting up to hopefully a high percentage by the back end of the year, which will -- gives us a bit of hope. If I look at the Operating Division, we expect solid growth there from CapEx we spent this year and CapEx we'll spend this year with some growth CapEx in our forecasting. And we'll benefit -- we'll see some growth from the current customer base and the organic growth. And some of the key tailwinds that we've got at the moment, we should see through to next year, also the current year. The Property Division, as I said before, it will break even. It will be discontinued post the monetization. Patrick's, we expect some solid growth as we did this year. That's assuming that we don't have any material impacts with COVID or industrial action as we negotiate our enterprise agreements. Corporate costs will be -- won't be material, but it will be a little bit higher due to the closure of the Property Division. I think, Paul -- our CapEx, before any additional acquisitions that are not on the table at the moment, it would be around $400 and $500 million CapEx. So overall, I mean subject to any adverse changes, we expect some solid growth to our underlying earnings for next year. And with that, I'll welcome some question time.

[Operator Instructions] The first question comes from Jakob Cakarnis with Jarden Australia.

Congrats on the first result. I just wanted to focus on the guidance first. You said solid NPATA growth again for FY '22, so you grew NPATA around 31%, 32% in FY '21. Am I right to thinking that solid growth maybe goes back to mid-teens sort of growth from these elevated levels?

Yes.

Look...

Go ahead, Paul.

Look, I'll confirm -- I mean look, as you know, we're not -- given all the uncertainty, we're not going to keep it down to a range. But it's fair to say it's not 30%. 30% is -- look, who knows, but I wouldn't expect to be in that order. So I think it will be -- we're very positive about the outlook, is really the key message.

Okay. And then second part of the question, can you just talk to some of the dynamics in the Operating Division through the second half? Obviously, you had $17 million of JobKeeper repayments, which will have elevated the [ CODD ], but it still looks like you're giving good operating leverage there. Can you talk to some of the main drivers, i.e., the importance of grain and elevated container volumes?

Yes. So grain, we had 20 -- I think, 25% more agri revenues, agricultural revenues for -- and a lot of that come in the second half of the year. So there's some good uplift for that. And again, we benefit from sort of triangulation of import and export containers when it's in the container market. We saw -- with our businesses, especially in the logistics space, we've got some very large facilities. So when we do get the growth, there's a fixed cost element to our facility. So we do get the -- we do get that benefit. And then in the bulk space, so even though we still had a very good year on the mining side of things, and it would have been better if we could get more people for the job in Western Australia. We saw some good growth there in some of our operations, which didn't have as much issues with labor. We had the same sort of effect that -- with some of the fixed costs through facilities, bulk handling facilities and that sort of stuff, we saw a good uplift there.

Okay. Just one final one for me for Paul Lewis. Just with the CapEx guide, $400 million to $500 million, how much of that includes Woolworths CapEx, and how much of that's the IMEX, please?

Yes, yes. So I should clarify, so that doesn't include any CapEx that we expect to reimbursed as soon as we -- as we noted, the guidance assumes the monetization completes. And under that, any CapEx we spend on the assets being acquired by LOGOS gets reimbursed on completion, so it doesn't include any CapEx for property-related. Again, we'll be spending it, then we'll get it reimbursed. So the bulk of that CapEx guidance is -- so it's probably in the order of $150 million to $200 million around the completion of the automation in IMEX and commencing the interstate. Obviously, it will depend on when we get started on that. But that's assumed, there's around $140 million for maintenance CapEx. And the bulk of the balance is sort of finishing off the BlueScope contract and then additional equipment and facilities, things like grain wagons, a warehouse at Altona, harbor cranes in New Zealand, so equipment to support growth in the business and new contracts.

The next question comes from Owen Birrell with RBC.

Just I wanted to dive a little bit deeper into the impact of the A-Double permits on the rail share and the rail volumes. I'm just wondering, firstly, did you get any qualification by the government as to why they decided to issue those A-Double permits? And are they likely to be issuing more going forward?

We're a little bit blindsided, to be honest. We didn't understand the magnitude of it, and we're hoping that this will be limited from now on. Obviously, it's inconsistent with policy about moving to more rail modal share out of Port Botany. So we believe it's probably a short-term impact over the next 4 to 5 years. And yes, if we -- to be honest, if we knew that at that point in time what they were going to do, then we probably would have timed our capital expenditure. We need to build this terminal to where it needs to be at 1 million TEU, but it would have been helpful from a staging point of view for us.

And can I ask, how does it impact the economics of bringing container from Port Botany to Moorebank? Are the economics on rail still advantageous versus road on that journey? And just also -- this is also, I guess, impacting NSW ports in their view to move more volume on to rail. Have they made any comments? Or what's their view around this?

Well, it's very advantageous to -- for any Moorebank tenant to move it by rail. It's close on the catchment volumes. But obviously, you want a price differential. And so we think that will come in the next 4 or 5 years. On the New South Wales port side of things, obviously, they've invested -- helped invest with us and Patrick's to expand that terminal. So that rail terminal at the port will expand fully by 2023, which will give more capacity as well. And we understand the other terminals are starting to work through their developments as well, so which is really good for us and gives us some confidence that there's going to be really enough capacity to move. And given 4 or 5 years' time, I think we'll be seeing some really good volumes through the IMEX.

And can I ask you just in terms of, I guess, how this impacts Moorebank -- kind of you talked about the downward revisions to IMEX volumes. Can we confirm that -- I guess the 1 million TEU at full ramp-up number is still valid in terms of the way we should be thinking about this, and the ramp-up profile, is there a revision to the ramp-up rate? Or is it just the point at which you get to that 1 million TEU?

The biggest issue for us in our modeling was nearly 80% to 90% of the volume early doors was catchment volume while all the warehouses got built. And so that's the biggest issue for us that, that was going to fill some volume while the warehouse side of the property got developed out to its full capacity. So that's the impact to our model.

So it's fair to say that the -- I guess the 10-year rollout is still 10 years, just that it's going to come a lot further in the tail rather than having some upfront volume.

Yes, exactly, Owen. Yes.

Okay. And just one final one for me if I may, just a housekeeping question with regards to how you guys are going to report Ports and Bulk and the logistics business. Are we going to get earnings numbers for those 2 separate divisions post-monetization of Moorebank?

Paul...

Yes, sure. So effectively, the way we'll be reporting it, so we don't -- there's corporate -- the corporate segment, which is corporate costs. Within the Operating Division is a separate corporate. They don't get allocated. So what we'll be showing is separate Logistics and Infrastructure and Ports and Bulk revenue and earnings but before divisional overhead. And then we -- so as a total reporting segment, it will still be the Operating Division, but we'll be showing revenue and earnings pre-corporate overheads down to the EBIT line for each of those areas if that makes sense.

Okay. That's great.

The next question comes from Matt Ryan with Barrenjoey.

I just had a follow-up to the question a minute ago on Moorebank. Just hoping if you could, I guess, give a bit more of an explicit reason as to how rail becomes competitive with road in that 4- to 5-year time period?

The cost of road, we believe, will increase. Obviously, there's inflationary requirements around obviously labor, tolls, cost -- and from a rail point of view, there's not -- we don't -- there's not a high amount of labor. It's a lot of fixed costs. And so our modeling demonstrates over time that rail becomes more superior than road as costs -- as inflationary costs impact the road.

Yes. And the other point worth noting is it's not to say road volumes won't increase, but if you assume there's market growth in total container volumes, rail will just sort of pick up a higher share. So absolute numbers of road over time will still go up because we still cap it at 1 million TEU for Moorebank, but it will start to pick up more of that volume. And as Paul mentioned earlier, once Patrick's has completed stage 2 of the automated terminal and the other stages that will follow, there'll be some -- not -- it's not just cost of this and availability, benefits of rail versus road and particularly in the current environment where online is more important, we think those dynamics have become more important -- well, not -- more important than they are now and will mean the discount between road and rail will also narrow.

And the other point is that obviously, over time with volume and traffic congestion, time on the road, it won't change from a rail perspective because the rail perspective, the infrastructure is going to get better and better. It's a bit of a false -- there's not much traffic on the road. But once we get back to a normality, the roads will get congested again. So -- and there is the ability to get freight day 0 at Moorebank for urgent essential products. So there is that benefit as well.

Got it. And then just a question on Patrick. I think there's lots of comments in the slides about landside charges coming through, but just hopeful that you could talk about the quayside charges and what you're seeing in the market around lift rates and those sorts of things.

Yes. I think they're pretty neutral at the moment. There's potentially for some uplift -- as capacity builds out, as you're probably aware, shipping lines are doing very well at the moment, so maybe a little bit more pressure on their cost. So yes, it's probably -- it's neutral at this point in time, but we could be seeing some -- maybe some improvement there as well in the near future.

Which is sort of a decent turnaround on where we've been for the last few years, right?

Yes, yes, yes.

The next question comes from Paul Butler with Crédit Suisse.

I just wanted to ask about the acquisitions that you've announced, the 6 bolt-on acquisitions. Can we sort of expect that, that might be what you expect going forward? Or were some of these deals sort of participated by COVID pressures or otherwise or the fact that -- I think you've not sort of done many of these for a while and therefore potentially had a backlog of opportunities to look at?

Yes. Paul, of these 6 acquisitions, yes, some of them will be a backlog from COVID. We actually put them on hold. So you can probably look at it as 3 in 1 year and through the other year -- but we'll continue to look at acquisitions that complement our strategy and build it out, being, as Paul said, off-market ones, which we've been very successful in building a relationship and finding the right time to acquire an acquisition that adds some value to us, not just the accretive -- the financial aspect to it, but gives us some expertise and also fits our strategy. So we've always got a pretty healthy pipeline. On that pipeline of considerations, I would say sometimes it's more than 50% are off-market that we've got on our list then things that are coming on market. So if that answers your question, it's a combination of both, but it has to fit what we're doing from a strategic point of view. We have to obviously look at the risks associated with that acquisition. More importantly, now we've got to work out which are the emerging markets and which are the markets we not -- may not want to be in. And then price and value comes into it. And as Paul mentioned, some of these off-market ones, we obviously buy a lot cheaper than you do on-market.

Okay. And then just another one. On the -- when do you expect the interstate terminal to be completed at Moorebank? So I think that's the hurdle for the deferred compensation.

Mid-'23.

Right. And just to be clear, the consideration is paid progressively. It's not at the end. It's not on completion as we spend money.

Okay. Understood. And then just a question for -- on the accounts. It looks like there's a $14 million AASB 16 adjustments included in the underlying result at Patrick's. Can you just explain what that is? And then are you expecting that to continue going forward?

It's the same issue as with Qube because both of us have long-term leases. Every time you amend a lease, so in that case, the Fremantle lease extension or entering an extension of it, it triggers a remeasure of that liability. So it can have a material impact on your statutory P&L in any period for any amendment to a lease, a change, change in CPI, et cetera. And that has no bearing -- I mean extending a lease is obviously very good in terms of certainty of tenure and value and doesn't adversely impact your core business, but it does go through the P&L. So we'll continue to back out the impact of AASB 16 and include the actual rental payments or the lease payments in the underlying earnings. And we'll provide adequate disclosure so people understand what it is, but that's the reason for it.

The next question comes from Cameron McDonald with E&P.

Just a question for Paul Lewis. Just the JobKeeper repayment, just a bit confused as to how the accounting treatment of that is actually working. In the slides, you're saying you're adding that back to statutory to get to your underlying, but it doesn't...

No, the other way -- sorry, the other way. So the voluntary payment is treated as an expense. So for statutory earnings, that repayment is an additional expense that reduces profit. What we said is we haven't booked that expense in underlying earnings for the reasons we mentioned at the half year results because it was a post event, like we did -- the actions we would have taken had we known that we were getting JobKeeper to reduce costs, stand down people, et cetera, we didn't take because we had JobKeeper. So we felt it was a more appropriate recognition of the performance. The decisions were made with that, all the operating decisions, that was the underlying earnings. And the decision of the Board to repay it because going forward, the outlook was much more positive, we didn't need the benefit of JobKeeper to keep those people employed meant it was appropriate for Qube to repay it. But if we're trying to show what are the core earnings, to add that additional expense would be understating what we believe were the real earnings of the business. So that was the rationale.

So you're effectively saying that if you hadn't have had that JobKeeper, you would have saved 16-point -- or $16-odd million?

Exactly, correct.

In other manner in another way. Okay. That's fine.

Correct, exactly.