Qube Holdings Limited (QUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Qube Holding Limited Half Year Results Conference Call. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Paul Digney, Managing Director. Please go ahead.

Thank you, and good morning to everyone on the call, and welcome to our half year results call. Beside me with his free drilling under the desk now in Qube is our CFO, Mark Ratner, and he's joining me today to speak. To kick off, can we kick off on Slide 5. Qube's half year highlights. I'm very pleased to announce today, Qube delivered very strong revenue and earnings growth in the period, delivering excellent underlying results across all key metrics. The half year results reflect the multiple growth drivers within the Qube business supported by Qube's very robust, diversified business model and our key assets. Today, we have also announced a 25% increase for the half year interim dividend of $0.0375 per share fully franked, reflecting the strong financial performance and our positive outlook. And Qube expects to deliver a strong full year underlying earnings growth compared to last year. Turning to Slide 6 of the deck. Tubes growth continues to be driven by multiple growth drivers across our business. As provided at last year's Investor Day, this slide calls out to as many growth drivers, providing you with a strategic capability to be a GDP-plus growth business. In the first half of 2023, we saw high growth across most of these volume drivers in the period, assisting the 23% revenue growth in the half year. Our growth was achieved without any contribution from any new acquisitions in the period, although we are well progressed on a number of bolt-on acquisitions at present that could complete in H2. However, there's no certainty of ever been completing in the period as we continue to remain disciplined on our strategy, price, terms and our risk assessment on these acquisitions. We won't rush for acquisition's sake. The whole high volume of growth in the first half of the year, we achieved very good margin uplift across most of our value drivers of drivers on the right-hand side of this slide largely achieved within the Logistics & Infrastructure business unit. However, the same margin uplift wasn't achieved in the ports and bulk business unit due to productivity and cost issues mainly relating to ongoing labor shortage issues in some small pockets of the Ports & Bulk business unit and an inability to fully recover inflationary escalations related to some bulk mining contracts in the period. I will touch on this a little bit later. Box is marked with X on this page, we see a potential upside in these areas as we move into next year. Turning to Slide 7. This slide illustrates our diversified revenue within the operating division. -- By geography and the growth per region over the past 12 months. The slide calls out that we've achieved sizable revenue growth in most regions within the operating division. New South Wales, Queensland, Western Australia, Victoria and South Australian regions, all had sizable revenue growth in the period, all way above the GDP growth rate. Turning to Slide 8. Although we had a very strong result in our first half, we still had our challenges. This slide calls out the key challenges that we called out last year and the challenges that we faced last year, and it provides an update -- the items with the green traffic light. We've seen improvement in the period across these challenges compared to last year. COVID extreme weather events, supply chain disruptions and Chinese volume impacts were as severe as they were last year. Even the extreme weather events in the first half, flooding issues, we're able to manage -- we're able to manage fairly well across that period, a testament to our team. The items marketing orange traffic light, as mentioned in the previous slide, we continue to have some challenges with labor and inflation issues in the ports and bulk business, mainly in the lane to areas, as I just spoke about, the inability to fully cover inflationary escalations relating to some bulk mining contracts and the ongoing labor issues in remote areas, such as or mainly the Pilbara and Goldfields bulk operations in WA and forestry regions in Victoria and Western Australia. However, we do expect these to improve over the next 6 months, and we expect upside in full year '24. Just turning the page now to our safety performance on Slide 9. Our LTIFR, our TRIFR continues to trend down, a great safety performance by our operations and our safety teams. We continue to focus our operations on critical safety risk awareness during the period. With our new Qube drive program and our stope safety campaigns, having a heavy focus on critical risk management throughout the period. During the period, we rolled out a new event management system, which provides the business with a further improved capability in safety management. And the team in the period continued and delivered on new innovative safety controls, new prevention methods, all assisting after further to lower our safety risk within our operations. Slide 10, is a little update following last year's update at the AGM on our decarbonization plan. Our journey to be a supply chain leader in transition to renewable fuels in our region in the future. Things we've done since. We've continued to enter into a number of partnerships to trial innovative technologies and alternative fuels over the next 2 years. And after we've completed these trials, we hope to be in a better position to make more informed decisions on how we accelerate our decarbonization team. During the period, we have also invested in additional resourcing to strengthen our in-house capability, to build our expertise, prove our analytics and research abilities in this space to support the execution of our decarbonization plan. And we also commenced in the period customer and supply in games on Scope 3 emissions reporting and management. If I can now move towards divisional performance, H1, first half divisional performance slides, kicking off with the operating division. Slide 12, highlights the operating division very strong revenue earnings growth during the period. Revenue grew up 24% and EBITDA grew up 30%. Logistics and infrastructure earnings contribution being the standout in the business unit on this slide. I will now turn to Slide 13, logistics and infrastructure results. A very strong half year result for logistics and infrastructure. Revenue grew 32%. EBITDA grew near on 70%. EBITDA margins improved from 13.3% and in the prior period to 17.1%. Logistics and infrastructure effectively mitigated any inflationary pressures during the period, a benefited from mixed business and the benefits of scale across our key infrastructure assets. Logistics & Infrastructure also experienced higher volumes across a number of products and services. Higher volumes from container, transport, container handling, storage activities across Australia, warehouse activities across Australia, Rail actives predominantly across New South Wales and Victoria, which includes strong container grain and bulk volumes -- due rail activities from BlueScope East Coast steel contracts, project cargo, general cargo, roll-on roll-off activities across our AAT facilities in Brisbane, Port Canberra and Melbourne and higher agri activities in up-country regional New South Wales and export volumes loadout Newcastle and Port Kembla grain journals. All these areas contributed to the margin improvement within the logistics infrastructure business unit. A very good result. Moving to Slide 14 and staying within the logistics infrastructure business unit. Qube continues to progress with its more bank terminal infrastructure development. A quick update here on the IMEX. We are currently operating the IMEX terminal under Phase 1 of the automated terminal rollout, which is the operational testing phase. The IMAX handled approximately 54,000 CEU in the period were some volumes being diverted to other Qube IMEX terminals in Sydney, while the automation is being rolled out and refined. This testing phase is now scheduled to be complete by September in this calendar year. Now an update on the interstate terminal and its construction. -- terminal construction is progressing well after some were the delays last year, and we are currently on schedule to complete Stage 1A construction and be operational by late October or early November this year, ahead of time. With these terminals, with both these terminals, we expect to see plenty of interest in these terminals once they are fully up and running. Now turning to the ports and bulk results. Revenue grew 18%. EBITDA dropped 18.5%, and the margin fell from 10.3% to 8% compared to the prior period. If I break this -- if I break the result into 3 parts here. The ports and bulk energy in the Australian several business performed well, performed in line with our expectations with growth and its margins. It did get impacted a little bit but poor congestion due to the current motor vehicle import [indiscernible] issues, which did lead to some impact and some profitability in that area. But overall, it was in line and within the expectation. The New Zealand forestry business continued to be impacted by lower volumes at the start of the period. However, the earnings contributions did improve substantially towards the end of the period from rate increases, rate restoration outcome that our management achieved during the period and a gradual recovery in export volumes to shine in the back end of the period. Improvement in New Zealand is expected to continue in the second half. However, in January and February, we've had some weather events, which has hampered that, but we should -- from March onwards, we should be back on the same upward trend. As previously mentioned, probably the third area in the ports and bulk result and although with healthy margins, we had some impact in the [indiscernible] fields bulk operations, Australian forestry operations. Unlike other parts of the operating division, these areas of business were not able to reduce or mitigate the inflationary ongoing labor issues during the period. And as mentioned, we do expect to achieve improvement in these areas over the next 6 months, and we expect further upside in this space as we move into next year. In regards to all other bulk operations and their regions, they performed well and in line with expectations during the period. Now moving to Slide 16. Patrick. Higher revenue and improved margins were achieved during the period. Revenue grew 14%, EBITDA grew 36%. A margins improved from 26% to 31%, and the performance was predominantly driven by higher storage and ancillary revenues during the period. Patrick's contribution to Qube's underlying NPATA was $37 million, up 28% on the prior corresponding period. Patrick continues to generate strong cash flows, distributing $45 million worth of cash in the period compared to $40 million in the same period last year. Moving to Slide 17, staying on Patrick. Patrick's market share across the 4 ports in the period declined slightly to 41%. And impact is mainly due to losing a shipping service to DP Wild in Melbourne during the period. But also during the period, the Patrick's team renewed and secured new contracts, which should see Patrick's market share rebound and sit within that 41% to 43% range over the next 12 months. And Patrick has a number of construction and automation projects, which will be completed by -- throughout this calendar year. They are as on the slide, Paul Botany's rail automated rail terminal Phase 2 is due to complete by September 23. The automated truck handling project at Port Bonney, which has previously been rolled out in Fishman's Island to be rolled out this year.[indiscernible] in Crane automation pilot program expected to be implemented next month. East Swanson's rail terminal facility due to be complete by the mid this year, and Footfalls redevelopment civil burstable around midyear this year. All these projects in Patrick's when completed, will provide future productivity, customer and user benefits. Moving to Slide 18. Just for noting, this slide here as in Patrick's proportional revenue, EBITDA and EBITA with Qube core business as sometimes this consolidated data is in assessing Qube performance. With all that, I will now hand over to Mark with some further financial information on the half year results. Thanks, Mark.

Thank you, Paul, and welcome to everyone on today's call. It certainly has been a fantastic first half result for the Qube Group with a very strong revenue and earnings growth that Paul has just presented to you. I'll now quickly take you through some financial performance slides and then hand back to Paul. So if we start on Slide 20, our statutory earnings for the first half FY '23 as set out on this slide, exclusive and inclusive of the discontinued property division. As with prior reporting periods, our view is that the financial performance of Qube is best reflected in the underlying earnings that Paul has spoken to earlier. The reconciliation adjustments from statutory reported to underlying results are consistent with our past practice with the key adjustments being the reversing of the impact of AASB 16 lease accounting, adjusting to remove any impairment and or fair market gains or losses. And in the first half of this year, we additionally removed the small trading profit of the Property division given this is a discontinued operation. I expect we will have small under and overs in the next few reporting periods relating to as we finalize legacy property and more bank related items. In the appendix to the investor presentation and in our financial statements, there are additional slides and material covering our underlying adjustments. Moving to Slide 21, our underlying results. Paul has already talked in detail to the strong underlying results generated in the first half from both the operating division and Patrick. I'll just take you through a few other points. The underlying net finance cost for the first half, 23 are higher than the prior period. Whilst average debt level was significantly lower this half versus last year, given the more back proceeds, which we received in December '21 or the first tranche of those. The higher base rates during this period have driven that increase in net finance costs. We do continue to capitalize interest on components of the IMAX and also the interstate terminal, which, as Paul said, is well into the construction phase. EBITDA margins improved at a group level from 9.1% to 9.7%, driven by the significant improvement in the logistics and infrastructure margin from 13.3% to 17.1%, partly eroded by the decline in ports and bulk EBITDA -- sorry, EBITDA percentage from 10.3% to 8.0%, and Paul has spoken about those. As Paul also mentioned, underlying earnings per share adjusted for amortization increased by 47% to $0.075 per share. This was mainly attributable to the significant growth in earnings, however, was also helped by the share buyback program, which we completed in May of '22, which reduced huge shares on issue by circa 8%. On the back of this strong performance, the Qube Board declared a fully franked interim ordinary dividend of $0.0375 per share, which was 25% higher than the prior period interim dividend. The dividend will be payable on the 30th of April and the DRP will not apply. In regards to the Moorebank monetization, CB received an additional $220 million of deferred consideration during the first half, with a further $80 million linked to the construction of the interstate terminal, which will be received progressively across the second half of this financial year and into the first half of FY '24. Moving to Slide 22, capital expenditure. In the first half, invested gross CapEx of $211 million, comprising $64 million of growth CapEx, which included warehouses, storage sheds, rail and other mobile transport equipment, $114 million on maintenance and the placement plant and equipment -- this represented a circa 128% of underlying depreciation, which was significantly higher than the 85% to 95%, which I had guided to. The main reason for this was a decision by the business to swap out older leased rail locomotives with new owned locomotives. This alone was circa $30 million in the first half. And adjusting for this, the maintenance CapEx to depreciation ratio would have been circa 94%. We may look at further opportunities to switch leased assets to owned assets in the second half. We also spent $33 million between the Interstate IMEX terminal on that CapEx. This excludes any receipt of deferred proceeds from Logos in relation to the Interstate terminal. During that period, we did receive $20 million of the $100 million deferred proceeds, which were linked to the construction of the Interstate terminal. As Paul mentioned, Qube did not complete any acquisitions in the first half of '23. So no cash CapEx was required in that category. You also mentioned our acquisition pipeline is healthy, and we expect funding will be applied to this area in the second half of this financial year or early in FY '24. Moving to Slide 23 on cash flow. Cubs net debt at December 22 was much the same as we started the financial year at a little under $900 million. In a major first half cash flow items included, as I've mentioned, further proceeds from Moorebank monetization. We've got $236 million in this chart. $220 million is the deferred consideration that I mentioned earlier with another $16 million relating to some other closeout items. We made tax payments of $183 million in the period, the bulk of which was further capital gains tax on the Moorebank transaction, which was paid in December 22, and that included tax attributable to the deferred consideration. Net capital expenditure was $201 million, which I detailed on the earlier slide, and cash received from associates of $46 million, which is predominantly dividends and interest from Patrick. We did have $194 million of operating cash flows, which represents an 83% cash conversion ratio on our underlying EBITDA of $234 million. Pleasingly, cash conversion did improve from the 71% we reported for the full year of last year. And it further improved during January -- in this last month with our year-to-date cash conversion ratio now at 92%. So some good improvements there. We are working hard on that item and expect further improvement on this metric across the year. Last slide, balance sheet and funding. Let me mention a few points here. As mentioned earlier, we ended the half with net debt levels broadly in line with how we started at just under $900 million. During the first half, we did take advantage of our very strong liquidity position to rebalance our debt portfolio, which included reducing some facilities, upsizing and extending tenure on others. We terminated $460 million of revolving bank debt facilities, some of which were close to maturity. We also terminated $100 million of the CEFC facility and shortened the maturity on the remaining $50 million balance, pending discussion and agreement to reset potential new clean energy targets. This was required given the original CEFC facility was linked to clean energy targets specific to the now divested Moorebank warehousing development. We're also put in place $240 million of new facilities and extended tenure on another $190 million. The weighted average tenure of our debt increased to 2.5 years from 2.1 at June 22. Our leverage ratio at 22.8% is in line with our position at June 22 and well within our covenant. We are progressing further extensions of tenure in the second half. However, the $305 million of the ASX-listed subordinated note study mature in October are currently not likely to be extended. Our medium-term funding plan will be reviewed in conjunction with our FY '24 budgets and our medium-term planning cycle, which we will kick off soon. As at December 22, we had $720 million of facilities, including the $305 million of AFX subnotes that mature within 12 months. The drawn amount of these is $600 million, and this is classified as current borrowings within our balance sheet. Our available liquidity, comprising undrawn debt facilities and cash is just under $1 billion, so it remains very healthy. Given our strong revenue and earnings growth, our strong balance sheet and our liquidity position, Qube well positioned to fund future growth both the organically driven opportunities and through new acquisitions. And with that, I'll now hand back to Paul.

Thanks, Mark, for that. Okay. Just before I go to outlook, there's a couple of slides starting at Slide 26. I just want to touch on Qube strategy continue how we continue to deliver on sustainable growth. Slide 26 here. We call out a performance in the period, measuring the performance against some of our key growth deliverables. A key metric that we focus on as an executive team. And I'll just run through a quick one through of our scorecard for the first half revenue growth. Obviously, a good tick there, well above GDP margin growth. We had margin improvements despite the headwinds in some areas that I mentioned, our diversification strategy play there. Return on average capital employed, we've got a midterm objective of being above 10%, and we're getting very close to that as we progress through the next couple of periods. And deficit growth and ordinary dividend growth with big ticks there during the period from the performance. Moving to Slide 27. I'll just touch on it follows probably from the previous slide. The slide looks at Qube's growth over the past 3.5 years in the business and our good track record, highlighting growth by the operating division revenue growth by dividend per share growth by -- and our return on capital performance by the -- broken into the cure Group operating division and Patrick, as I said before, a key focus in this area across the group for us, return on capital employed. Moving to outlook. Before I go into the detail, just an update on our key challenges slide has become pretty familiar slide now. And looking into the second half of the year, calling out -- just calling out 3 areas marking the orange and the traffic light here. Inflation, I think the cost recovery issues facing those pockets of business I spoke about before, will mostly remain in the second half. But as we said before, that will gradually improve and hopefully and will significantly improve be realized in full year something new year in this space. We do expect some softening in import volumes in the second half, particularly around discretionary spending imported items, consumer spending due to the inflation and the higher interest rates sitting -- hitting our economy at the moment. So both the logistics and infrastructure and the Patrick's business is expecting some softening on their import loans in the second half, although our export volumes will remain strong and could offset a fair business. Summing assets new here, which has been probably a short-lived challenge for us is the last 2 months in New Zealand. We've had -- first, we've had severe flooding in January on the North Island. And just recently, in February, we've had the cyclone Gabriel, which are recently impacted the majority of our operations in the North Island, and we're currently in a cleanup progressing the cleanup. -- impacted areas, it's probably especially around our Navan or Kisan operations. But we are hoping to catch up some of that volume over the remaining 4 months as we get the operation up and running, and they're probably not on the call here now, but a big call out to our New Zealand team. The work they're doing helping our employees, getting the business up and running again, customers working and also helping the local communities there's been some really good community support work by barging supplies into [indiscernible] helicopter stuff in there. So the team is not just focused on our business but being focused on the local communities over the last couple of weeks. So to them, but I know they'll be busy helping people say they're probably not on the call. And the last one, again, is the outlook on the labor, our skilled labor availability issues likely to remain in the second half in the areas such as the Pilbara Gold fills and across the forestry business. And as I mentioned before, we expect that to improve and improve further as we get into next year. Turning to the next page full year '23 outlook. -- or the full year '22 results, we provided full year guidance for each division and the overall group. Pleasingly, despite continued challenges in the period, Qube remains on track to meet or exceed all of its previous guidance. Starting with the operating division. We have guided to strong growth in the full year underlying EBITDA. We continue to expect this to be the case. Although we actually delivered a very strong growth in the first half in the operating division -- we expect this to moderate in the second half such that we are maintaining our previous guidance to strong growth in underlying EBITDA for the full year with the second half EBITDA expected to be below the first half performance. As mentioned, the main reasons for this on the previous slide, that we're seeing some slowdown in imported container loans that we think will continue at least in the short term. And we've had some earnings impact from the severe weather events in New Zealand in January and February. However, we remain very positive for the earnings outlook of the operating division, and we still see healthy volumes in most areas of our business and particularly in the export focused areas. This guidance assumes no acquisitions in the second half. And as I mentioned before, we are well progressed with a number of bolt-on acquisitions that could complete in the second half. However, there's no certainty of anything completing in the second half. Staying on Slide 29, Patrick's outlook. We have guided to strong growth in the full year underlying EBITDA and EBITA and a modest increase in the overall NPAT from Patrick's as a result of the higher interest costs in this year relative to last year. We continue to expect this to be the case despite the very strong growth in Patrick's NPAT contributing for Qube in the first half. This is because of the same reasons that I mentioned before, that Patrick is expecting some slowdown in some imported container volumes in the second half of the year. Moving to Slide 30, corporate. We have guided to an increase in corporate costs last year, and this continues to be the expectation and noting that the interest costs in the second half of this year are expected to be much higher than the first half, largely to do with the base rates of increasing base rates that have occurred recently. However, although interest costs will be much higher relative to last year. We now expect the full year interest costs, as Mark mentioned, to be around $5 million lower than what we previously forecasted and guided to last year. So Qube overall, the group. We had guided for full year growth in underlying NPAT and higher growth in EPSA given the benefit of the share buyback we completed in May 2022, which reduced Qube shares on issue by around 8%. At that time, given the uncertain economic geopolitics' and interest rate environment, it was difficult to assess the likely extent of our earnings growth. But based on our very strong first half performance, trading in January and February and the above divisional guidance for the second half, we now expect to deliver strong full year underlying NPATA growth and high FR growth. This outlook assumes the main challenging environment ahead, including the ongoing impact on the inflation and labor shortages in parts of our business and the expected short-term softening of volumes in some import markets. So in finishing, -- and in summary here, due to our diversification strategy, our scale, our favorable markets, our strong market position, our many growth drivers and infrastructure assets and of course, our exceptional workforce and our team culture. We're extremely pleased with the very strong first half performance, and we remain very positive about the remainder of full year '23. And there's certainly have plenty of scope for further long-term earnings growth. That concludes our presentation. I will now hand back to the moderator for questions. Thank you.

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

Just 2 for me quickly. Could you just talk to what's going on in the Patrick's business and how they're seeing those market share and lives? And I guess some of the offsetting factors there would be the increase in the terminal access charge, which you guys have applied for this calendar year. Just talk through some of those dynamics, please.

Yes. So Patrick's volumes are flat. As I mentioned before, there's a small 1% market share drop compared to the prior period. We expect to rebound that 1% or 2% with fines going forward. Obviously, there will be some softening in the second half with some import volume softening. The improvement in the profits come from revenue increased charges on the land side and solar charges and higher storage revenue that we had in the period and also some productivity offsets that we gained through the period...

Great. And then just one for Mark. Can you just talk through something on pricing or maybe that you're seeing across the business, if you can separate it, please, for the operating division between logistics and ports and bulk...

Talking about pricing dynamics. Well, I think Paul mentioned we've been across both businesses, and we've been applying price adjustments and uplifts as the business leaders see fit to make sure that we protect our margins. The bigger issue in parts of the bulk business in the mining sector has been the lag and I guess the significant increase in some input costs, particularly in the sort of October, November, December period of the last calendar year. We saw input price cost for lubricants, tires, parts, travel well into the double-digit increases. And so some of those -- our ability to claw back those quickly is limited by our contracts. But as Paul mentioned, the timing and when the rise and falls apply will help us recover those costs later in '20 -- in the second half and as we move into next year. So that's -- I guess, pricing is very dynamic within our business because we've got we're a very diverse business, Jakob, as you know.

The next question comes from Sam Seow with Citi.

Just maybe continue on from that last question from Jake. Notice there's obviously a difference in the margin performance of the 2 segments. Just wondering if you can talk to the difference on how inflation is recovered differently. And we just said that lag in recovery is something we should expect from the vision going forward if inflation stays high?

Yes, I think I'll let Paul answer some of this probably, but it's not just the inflationary impacts that sort of impacted our margin in the first half in that part of the business. The labor shortages led to large productivity challenges and our ability to move volumes with potentially trucks parked up or having to use contract labor. We're just not getting the efficiencies out of that part of the business. And that, as Paul said, it's in isolated pockets, mostly in very regional areas of Western Australia. So that's as much of an impact on our margins as in the pricing or the input cost challenges.

Got it. No structural difference between how you recover in between the 2 segments?

Yes. Well, I guess in the logistics business, I mean, it's a combination of longer-term contracts and shorter contracts. So there's some ability to move pricing on some of the shorter-term contracts in logistics is much better than in the ports and bulk business, which typically has longer term contracts with, as I said, these set rise and fall dates.

Yes. And I think the larger component of those impacted margins in ports and bulk were probably more labor than actually recovering inflation issues. But we -- it's more of a timing thing with negotiating with certain customers.

Great. And just maybe help us understand this off that kind of second half I mean ex we would you have expected that to be the same as the first half? Or were you seeing kind of the exit rates flow through bar...

Sorry, sorry, Jakob, I didn't hear that. Sorry, Samuel.

I just want to understand the trend of growth through the first half. Is it kind of declining through the first half or stable and just trying to balance that with to kind of softer second half expectations and how much weather is going into that kind of commentary?

Yes. The only weather impact we really have in the outlook is really that New Zealand the first the January, February period because we have been interrupted quite severely, I guess, but not mature in the skin of Qube. But we don't -- obviously, that will get back on track in March. The softness in slowing down and the import volumes, we did see that in December. And it's sort of -- and it has come through in January and February. So that's why in our guidance and outlook we know that there will be some softer volumes on the input side. But we do see even more strength in the export and maybe slightly more strength in the export point offset the import volumes. So there was a bit of a decline in the imports come at the back end of the first half and mainly December...

The next question comes from Justin Barratt with CLSA.

Congratulations on the results. Clearly, labor shortages have had a significant issue in the half despite the record result. I mean a very strong result. I just wanted to understand a little bit more detail about what you guys are doing to try and combat some of those labor shortages and is there much else that you can do to combat them over the next 6 months?

We are. I mean, obviously, it's more of a recruitment drive. And I think it's just around our employee value proposition. So we're looking at things where we can enhance and encourage people to work in certain regions. I mean, we don't have this issue in a lot of regions. We're quite healthy, I think, with our labor force. Maybe it is a difficult environment at the moment. But -- it's just really those -- we're probably now into those 3 pockets of businesses the [indiscernible], the gold fields and who is competing markets in those areas that we've got to be mindful of. So our people and culture, our HR team are working through things and to make Kevin a better place to come and work for in those regions. So we're working through ways of encouraging... New cruise...

Great. And then you made some comments about M&A. So I was just really curious to understand in terms of your M&A pipeline now compared to, I don't know, October when you did the Investor Day of August at your last result. Is there a bigger pipeline of opportunities now? Or is there more attractive opportunities as interest rates sort of continued to rise throughout the period?

We've had -- we've always had a healthy platform. We have always -- the M&A team and the executive team have always working through a number of opportunities on the table. I would say it's, if anything, it's marginally better at this point in time for us, but it's always reasonably healthy. As I said on the call, I mean, we'll take our time on repaint. We're not in a rush, as you can see from the results, and we'll be disciplined in our approach, but it's -- I would say, it's a little bit better than it was 6 months.

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

Can I just delve into the outlook commentary a little bit as it relates to your comments around the guidance in terms of strength versus the full year and soft or weaker than the first half. How would you characterize the second half outlook versus the PCP, please?

We -- in the second half in the prior year, I think we'd have modest growth compared to the prior period at this point in time, given the softness in some import volumes. But we're not -- we haven't -- in our guidance that we haven't considered any potential acquisitions that might occur maybe in the fourth quarter of this year.

Yes. But even though you're expecting a drop versus the first half, it still should be higher than the second half of last year.

Yes.

Okay. That's great. And can I just also -- just looking at some of the more detailed appendices. If I have a look at the sort of agri revenue grew roughly just under $16 million worth of revenue. How much of that is actually effectively flowing through from revenue down to EBIT. I'm assuming a lot of that is -- that incremental volume is pretty high margin? And is that all grain related?

It's probably predominantly growing, but there is other agri items in that space. Some of the revenue would come through the fixed assets, so that would be some higher margin contribution there, but there's also comes through haulage in country stuff, which would be a bit lower margin.

So... Okay. Great. And then my final question is just you did highlight that the full year result. It was like in I forget the numbers like 150,000 square meters of warehousing space that you're going to sort of expand. Where are you in that process? And then how much have you brought online? And how much has that benefited either from alleviation of congestion or how much of it have you been able to utilize...

Good question. I don't probably won't have the exact answer. We have brought on some more warehouse capacity during the period, but it wouldn't have been -- I don't know -- I can't remember that 150,000 over a longer period of time in the next couple of months, but you have the mining facility in Victoria, where late…

In the calendar year. We've got another one in Western Australia that we committed to at... That will -- should complete around June of this year. That's more of a bulk story shed versus a warehouse. I don't know that square meters that have come online…

and potentially win in New South Wales.

But... Okay. Maybe another way to ask the question is, are you building these on spec? Or are they actually contracted value message?

I think a combination of both from our perspective. Sometime…

can I be cheeky and ask sort of for a mix...

You could, but we couldn't get couldn't that because...

I would probably be of the business to be honest.

I would probably be of the business to be honest. I know, for example, for the West Australian one, because it's obviously -- it's got a long construction period that the team have already pretty much got it mostly locked away during -- from the time we committed, which was sort of mostly unsec but not -- but based on discussions with customers to a point now where it's still got a few months to go before it's complete, that I think a fair amount of that is already committed.

The next question comes from Ian Munro with Ord Minnett.

Firstly, looking at the bulk contracts and looking to reprice some of these into FY '24. Are there some sort of larger discussions in that mix? Or is it more across the board? And also, what gives you the confidence that you're going to be able to improve the rates to reflect the cost pressures?

I think... There's a bit of confidence around some discussions have been had. And they're taking some time. Some of those discussions need to be had. So we think there will be a favorable outcome how big that is. We're not too sure. I think... Probably one of the bigger issues in that bulk space more than the contracts with more the labor issues. So we're really trying to fix those. So it's a summer parts for us. We think we will get improvement.

I think there's 2 elements there. One is within detected within the contract. So that's all just waiting for the actual rise-and-fall date to click in, and then it's actually embedded within the contract. So that shouldn't be an issue at all. It's just timing. The second one that the team are working on is just in contract in period sort of renegotiations with customers. And those are normally on the back of other productivity related and operational opportunities, which we've identified, which we can help them with as well. So we try and sort of wrap it up into a more broader discussion around how we can help them.

Just within the bulk segment, including [indiscernible], are you able to talk to any points of spare capacity in that segment at this point in time?

Spare capacity for ourselves or across the market share...

Yes, spare capacity imports involved relative to the assets and facilities across the -- particularly the resource states?

Yes. I think we all have spare capacity around our facilities. I couldn't tell you the percentage of it. I mean we've probably got spare capacity in some of our vehicles and equipment market because we can't get enough people to drive in those certain areas. So there's capacity there for more revenue as well. So there's always a portion of spare capacity, either storage facilities at the port and with some of our equipment at this point in time...

The next question comes from Anthony Moulder with Jefferies.

I can start with acquisitions, and I know you touched on it briefly, but can you talk to how you think about where the opportunities for acquisitions are? Are they adding scale to the business that you've already got? Or are you looking to add capacity or capability, I should say?

Well, when we go on the table classify those. -- scale, yes capabilities, similar capabilities, but expanding... Anthony, probably to answer your question, a combination of all. I think what we've got in the cloud made businesses that well, provide probably some more infrastructure or businesses that complement some of the operating divisions -- or operating units with synergy...

And related, you talked about at the Investor Day back in October and investment into locos for intermodal halls. We've seen horizon this week announced a large intermodal contract. They're not giving that incentive it looks like they are, but how does that change your growth expectations for that part of the business and more importantly, perhaps the return profile for intermodal rail.

Yes. I think with that one, Anthony, is that trust, we or a rail business, we're actually a logistics business with rail solution. So we can watch that space. I mean, if there's too much capacity going on. There's no point that we can operate this train somewhere else. We'll continue to look at niche markets. In that space, we've got terminals that will be in demand whether a freight forwarding domestic trade forwarding business that we can use their capacity. So beauty of our diversification, we can move and change our strategy or we can continue to have a look at these niche markets in these corridors where our customers manage to provide service that we do door-door which will be really good. So that's an interesting movement by [indiscernible] -- that's orcas.

I guess the highlight of diversification that you can move that equipment to where it's needed where your customers need it to be, I guess, that's a good outcome and while they are a growth result...

The next question comes from Scott Ryall with Rimor Equity Research.

I was a couple of questions you've had already on the ports and bulk margins. And I guess I was going to ask that question in a slightly different way. Is there any -- I was hoping you could give some color around where the nature of the activities where you're seeing the most cost pressure. And I'm wondering if there's specific regions you'd call out specific commodities should call out. Mark, you gave a couple of examples about lubricants and things like that. So is it the nature of the activities that you're doing where you're seeing the most pressure and I would have put from what you described there. That's more where you actually own it and infrastructure. So I'm just wondering if there's any specific characteristics that you would call out or whether it's literally just across the board.

Yes. Sorry, you can… but I'll go lumpy. You've probably seen the Qantas result -- so our travel cost was going up extremely first of line for our work…

I wasn't going to mention that…

There's other... But certainly, as I mentioned, October, November, December last year, we saw a significant increase, both on I mentioned, tires, lubricants, spare parts. And that was mostly impacting our bulk mining business and mostly in those same remote locations, which were impacted by the labor shortages. So some of those increases were, as I said, high single digits. They're not the 6%, 7% sort of CPI that we see here in the cities. So that's why these rise and fall adjustments, it's a pretty unique sort of period of time for that part of our business to -- and it's very challenging -- and for our customers as well. They've got -- they're impacted by a lot of these as well.

Yes. Okay. So -- but there's no differences based on the activities you more call out that it's particular regions, and I don't expect you to name them, but it's particular regions where you're seeing the kind of mixture of all of it. I mean you're seeing consumables. Obviously, the consumables are harder to get to some of these places. But...

Yes. No, it is. I mean in most parts of our business, use a lot of lubricants, used a lot of tires. There's a lot of -- and have a lot of -- we've got a lot of mobile equipment, so we need a lot of spare parts. So versus some other parts of our business, a less reliant on that more. And our Port business, for example, is more around stevedoring and labor. So it really depends on the activities and the assets that we're using.

Okay. Great. And then the other question I had is, can you give an update in terms of the -- what you understand to be the timing of the rail duplication completion out of [indiscernible] into Moorebank...

I'm going to Sorry, I can answer this point on...

The next question comes from Paul Butler with Credit Suisse.

Congrats on the result. I just wanted to ask about the very strong margin improvement you had in the logistics and infrastructure business. How do you think about how much of that is structural versus cyclical due to the strong grain volumes and so forth?

That's proportion, thing. I think it's a combination of everything we had in that period. I think most businesses in the container space, as I called out, had pretty good volumes through into our warehousing through into our transport business. AAT facilities were strong with a number of things in storage. Other services that we provided were high. The gain activity was high for our business is good there. The niche markets we work in we sort of built that part up over the last couple of years and the volume comes through and we tick the…

So would you say it's -- sort of the [indiscernible] outcome of everything sort of being very strong in terms of volume or at the same time? Or is there other factors there?

Yes. I think just having higher volume across most is probably the main kicker there and able to be able to sort of pivot around and you get your cost base right and get your inflationary pressure things and reset contracts where we need to in some areas, some as we didn't need to do, one hop -- and working with our customers to be in outcomes as well. So it's a pretty successful business unit in the period.

Just so today, being able to leverage your infrastructure. And as Paul said, our ability to put more volume through fixed infrastructure has those margin outcomes.

Storage will always continue, probably not with the stocking of imports, obviously, that's going to lighten off in the second half, and that was in our guidance. So revenue from import lift revenue and storage revenues in our forecast.

The next question comes from Reinhardt van der Walt with Bank of America.

I just have a quick question on the medium-term target getting to 10%. So let's say that sports and bulk, we get a little bit more margin uplift and a bit of a normalization in the business. What's the next step to getting to 10% ROE? How much of that's going to be acquisitions and maybe a little bit more scale? And how much of that's actually going to be sort of a structural change to how you try...

I think it's just a combination. It's a big -- obviously, as Paul mentioned, there's a strong focus on return on capital across the group well before I got here at a board level all the way through down into the operations. It's a metric that we very much focused on. At the Investor Day in October, I put the numbers up for Patrick and for the group. And I mentioned that both we see upward trajectory. The group, in particular, will get a benefit this year from the fact that on a full year basis, we can have the hangover of the large capital invested in the Moorebank warehouse. So that's partly seen the benefit of this because the H1 number that we've got in here of 8.9% for the group is a rolling 12 months. So most of the benefit of the warehouse sale has come through, but we've got more coming through now with the deferred proceeds being received. So -- but yes, I mean acquisitions could have -- depending on the acquisition, right, could have the impact of dampening return on capital for a period of time until that acquisition kicks through. But again, that's to an earlier question that we had about how we look at acquisitions. I mean that is another metric that we look at. And obviously, we want to make sure that any acquisition can contribute to our target of getting above 10%, and that should be within a reasonably short period of time. Most of our acquisitions will be accretive from day 1. So... It will help.

Yes. No, I appreciate that. And just a quick question on the BlueScope contract. Is there any ramp-up left in that? Is this pretty much what we're going to get at a little bit more of a bit of a sugar head coming in the second half?

No, it's probably been pretty stable. I mean steel volumes have come off a little bit. You may have read that. We have the ability to put up the code on the back of that train that's a niche market, Melbourne, Sydney service that we've been talking about. So I think that's probably business as usual for us on that service, if it's still or other products.

Got it. Excellent. And just on the grain backlog, we have obviously had a bump harvest or a couple of bumper harvests. Now how many years do you think it's going to take to get this backlog out of the system?

I can't -- Jay, I think it looks healthy for the short term short [indiscernible]. And we've got ability to do more of those assets in grain that we currently got.

We yes, I can't give you time frame, but obviously, this looks healthy for the next 12 months.

Got it. And obviously, the acquisitions in that space have been -- there's been a lot of activity in the recent years. Is that still going to be a sector that you're going to be focused on from a rollout point of view going forward?

Yes, we will consider other growth opportunities in that space like we will in any other space. Just we'll diversify our sales and keep the spread across different markets. If the opportunity arises, we'll definitely look at it, potentially looking at things at the matter.

[Operator Instructions] The next question is from Sarah Kerr with Morgan Stanley.

I just have one question, if I may. On cash flow from Slide 23. I was wondering if you could provide more details on the Moorebank deferred consideration adjustment. And if we can expect to see any further adjustments in the second half?

Yes. No, that was just some legacy sort of ins and outs per the sale agreement because there was a period of time between sort of, I guess, the deal was done and completion where Qube and logos were incurring costs, and that's just a square up of some of those things. So that's pretty much most of that done now. So really, what we're expecting going forward is really just that $80 million deferred consideration related to the interstate.

There are no further questions at this time. I will now hand the call back to Mr. Digney for any closing remarks.

Thank you, everyone, for attending the call today. As I said, we're extremely pleased with our strong first half results, and we remain very positive and look forward to speaking to you soon. So good morning. Thank you.

Thanks, everyone...

That does conclude our conference for today. Thank you for your participating. You may now disconnect.