Qube Holdings Limited (QUB) Earnings Call Transcript & Summary

Good morning. My name is [ Abby ], and I will be your conference operator today. At this time, I would like to welcome everyone to the Qube Holdings Limited Full Year 2023 Results Conference Call. [Operator Instructions] Thank you. Mr. Paul Digney, Managing Director, you may begin your conference.

Thank you, and welcome, everyone, to Qube's -- Qube Holdings full year 2023 results call. We released a presentation this morning, so I'll refer to that presentation throughout the call. I will start on Slide 5, which is a plan to thrive. In 2023, we saw the launch of our plan to thrive, clearly identifying our values and our priorities. So it's worth spending a few minutes on it to reinforce what drives Qube, a clear vision and strategy that has remained consistent since Qube was established with an ongoing focus on all key stakeholders to thrive, our people, our customers, and most importantly, our shareholders, delivering improved returns, positive outcomes in a manner consistent with prudent ESG and risk frameworks. I'll now turn to page -- Slide 6, financial highlights. The numbers speak for themselves. Exceptional financial outcomes across all metrics despite challenges this year. In addition to record underlying NPATA of $239.6 million, up 19.4% on last year, cash flow was also very strong at around $498 million, representing a cash conversion of 107%. Underlying EPSA increased by 28.3%, and pleasingly, our return on average capital employed at 9.1%, improving towards Qube's target of 10% plus. This was driven by the operating division's return on capital increasing in the period to 10.5%, up from 9.6% in the prior year. As a result of these strong results, the Board has declared a [ $0.0435 ] per share final dividend, bringing the full year dividend to [ $0.081 ], a substantial increase from last year. Turning to Slide 7, safety performance. Overall, we achieved another excellent safety result exceeding industry benchmarks. In 2023, management continued its focus on critical safety risk through introducing new awareness programs, engineering controls, and enhancing innovative ways to mitigate safety risk. Today we released our Sustainability Report, which highlights a successful year across safety, health, and sustainability factors, including decarbonization, which I'll touch on in the next slide. Slide 8, decarbonization. We continue to make good progress on our decarbonization plans with a 3% reduction in our absolute Scope 1 emissions and a 3.6% reduction in our absolute Scope 2 emissions. There's a range of things that contributed to that, but most notably, the fact that 90% of our heavy vehicle fleet has now been transitioned to Euro 5 and Euro 6 technology, a significant investment -- asset investment by Qube over a number of years. That's put us well on track to meet our target of 95% by 2027. We also made investments in electrifying our mobile asset fleets, and we continue to roll out solar and LED lighting across our assets. In terms of our emission intensity goals, we achieved an 18% reduction in our emission intensity compared to last year and a 30% reduction based on our 2018 baseline, which is a very positive result. But we know we have to do more, and we obviously operate currently in a very hard-to-abate sector, but we are determined to actively seek out opportunities to drive out our emissions while balancing commercial considerations. We have conducted a number of alternative trials through 2023, and we'll continue to scan the market and test new technologies and innovation in '24. And with the new reporting standards also on the horizon in '24, we'll also be considering what additional steps we need to take to meet those standards, including a full implementation of the TCFD. Now turning to Slide 9, growth drivers. As we said at the half year, Qube has multiple volume and value drivers that will support revenue and earnings growth. Not all apply in every period, and some markets will have different growth outcomes to others in any given period. Overall, as a whole, in 2023, we're proud to say, we have ticked all the boxes on this slide. We want to again emphasize here that it's no need to change our vision or our strategy or move into new unrelated markets or riskier services or products just to keep growing. However, we will continue to explore new logistics markets, such as the renewables market, which we are now exploring at present, for the New Zealand containerised logistics market, which we've done through a recent acquisition in Pinnacle, and as I will cover later, we expect further growth in '24 despite some unavoidable challenges, and we see plenty of organic and acquisition growth opportunities ahead of us. Now turning to Slide 10, performance overview and 2 key markets. I plan to spend a bit of time on this slide as it gives me an opportunity to go through how we performed in each of our key markets this year and to demonstrate that the diversity of our business means we do not need or expect all of our markets to perform each year to deliver overall earnings growth. In our experience, as you can see on this slide, in '23, we had 5 green traffic lights, 2 reds, one orange across our core markets, and we were still able to deliver a very strong earnings growth. I'll now take you through each of these markets. Containers. In '23, we had solid activities across all levels, road and rail haulage, warehousing, container parks, container repairs, freight forwarding and customs and quarantine services, which all delivered good earnings. We saw high container volumes across most of our logistics infrastructure, significant infrastructures that we have built over many years. And we have benefited from the prior year's rate rebalancing outcomes in the year. These 2 factors delivered pleasing revenue and earnings and margins in the logistics and infrastructure space, although, there was some softening in the second half which mainly impacted Patrick's. In regards to agri, we had higher volumes, which were broadly in line with the prior year, across Qube's 2 grain terminals in New South Wales, rail haulage and upcountry storage facilities. Newcastle agri terminal contributed 12 months of volumes compared to 9 months for the prior year, and this was the largest uplift in revenue in Agri for 2023. Agri margins benefit from effective utilization of infrastructure and rail assets in this space. Automotive sector, a positive year for Qube on the back of the recovery in the motor vehicle import volumes, followed by the easing of global supply chain issues. The automotive and general cargo facilities, AAT, which sits within the logistics and infrastructure business unit had a great year as they benefit from the recovery of import car volumes and high general cargo throughput in 2023 as well as higher storage volumes due to quarantine-related congestion issues. AAT is a typical infrastructure asset with highly -- with a high fixed cost base, and therefore, margins benefit when high volumes get delivered during the period. Qube Ports and Prixcar also benefit from higher vehicle volumes, which supported stevedoring and processing, storage and delivery activities. However, congestion at the onward facilities at AAT and [ MIRRAT ] during the period resulted in some operating inefficiencies for Qube Ports which slightly reduced margins in this part of the business. Forestry, New Zealand. Qube has invested significantly in this business to build out its integrated offering, including marshaling, transport, storage and stevedoring logs in New Zealand. More recently, investment has been made on lifting equipment and scanning technology to improve safety and productivity outcomes. Like most of Qube's activities, this substantial investment means Qube delivered healthy margins in an average year -- average volume year, exceptional margins in high-volume periods, but lower returns when volumes are below trend and lower volumes is what occurred in 2023 as we experienced extreme weather events, including 2 cyclones in the first part of the second half of the year, which impacted most of the operations in the North Island and New Zealand, and then there was some reduced demand for logs from China later in the year. This meant that log volumes were down 10% on the prior year and around 20% lower than 2021. On the positive side, as we flagged in our first half results, management has successfully implemented out of contract rate increases for all of its customer base, has also implemented a number of cost-saving initiatives. So we have a business with a strong market position and offering. All we need is a return to normalized volumes and there's significant upside for this part of the business. While we expect some improvement in 2024, and we think the first quarter of this year will continue to be subdued will probably be not until 2025, this part of the business to realize its real earnings potential again. Forestry Australia, main activities here are harvesting, marching transport, stevedoring activities focused on South Australia and Northern New South Wales in Australia. Although volumes were in line with expectation, the shortage of drivers meant that earnings were well below target due to the cost of overtime and additional subcontractor costs, and the driver shortage also resulted in missed opportunities in this sector. So we're seeing improvement in 2024. The resources sector and our bulk business. In 2023, volumes were fairly stable and in line with expectations. All expiring contracts were extended and new projects and mines were secured. So generally, revenue was pleasing with good growth. Margins and earnings were reasonable, but would have been better, but not for 2 following reasons. Firstly, labor shortages in regional areas such as WA, Queensland and South Australia resulted in higher costs as well as missed revenue opportunities. While there was some improvement at the end of June, there still remains some labor challenges for us. Secondly, as I discussed at the half year, in the bulk business, some contracts had a longer lag time to recover inflationary cost rises. However, the Qube Bulk team has proactively addressed the lag impact through recovering costs earlier within current customer contracts or through negotiating new contract terms. While these initiatives helped, they weren't able to mitigate the entire impact of the inflationary environment in 2023 in this sector, in this part of our business. However, as a result of these initiatives, an improved result is expected in 2024. We completed the acquisition of Kalari, which will also help revenue and earnings in 2024 in this part of our business. We're excited about the acquisition. The acquisition provides further geographic and product diversification and opens up opportunities for Qube to get more exposure in inbound mine supply logistics, which creates a new growth opportunity as Qube's bulk business currently today mainly focuses on outbound mine logistics. So the acquisition is very complementary for Qube. Energy. The energy activities delivered solid revenue earnings growth from its supply base facilities and services. The BOMC facility in Southeast Asia missed [ the ] expectations, mainly due to a delay in the start of a major project. We see it eventually commence in June 2023. The Energy business also benefited from further growth in providing services to the renewable sector. The last item on this slide is Other. In that bundle, most other products had decent volumes during 2023, and given the number of products and services that we are involved in, there will always be positives and negatives here. But for example, this included healthy volumes in 2023 from other rail activities such as steel and cement, general stevedoring activities, project cargos and other logistics activities such as general freight and bulk activities. Staying on Slide 10 for just 1 more minute. Just a quick outlook of Qube's key markets for 2024. We currently expect all markets to perform roughly in line or ahead of the 2023 performance. The one potential exception could be of the container market, which we expect some weakness, given the expectation of an economic slowdown, which could impact Qube and Patrick's. But having said that, July was the highest lift volume we have ever handled at Patrick's. So while it's too early to say, if that was a trend or whether the market has improved, or just Patrick's share, we're certainly [ pleasantly ] surprised by the start of 2024. And there are a number of opportunities for our container logistics business to gain market share in 2024, including the acquisition of Pinnacle in New Zealand. The other exception I'll call out here would be due to the uncertainty in the New Zealand log market to China at this point in time. However, we are still confident of that being a better result in 2023 in that space. Moving to Slide 11. I won't spend much time on this. Again, it just demonstrates the geographic diversification of Qube, highlighting WA, Queensland, New South Wales has been the 3 most important states from a revenue perspective. Moving on to Slide 12. Key challenges, and more importantly, our ability to offset these challenges. Other than adverse weather in New Zealand and other parts of Australia and the impacted operations, there were 3 main challenges that impacted Qube in 2023, which we expect to be reduced in 2024: lower inflation; labor and skill shortage; and the economic downturn. I've largely already covered the first 2 of these challenges, so I'll go through them briefly. Inflationary pressures which impacted the business in a number of areas, including labor, parts and new equipment, as well as higher interest rates. As our results show in 2023, we're able to effectively mitigate a majority of this through contractual protections, rate adjustments and unit cost reductions from productivity initiatives and benefits of scale. We expect a reduced operational impact in 2024, given the benefits of our 2023 actions and initiatives and the likelihood of an improved inflationary environment. However, we can't avoid higher interest costs from the full year impact of the higher base rates in 2024. Skilled labor shortages. We're mainly limited to regional areas such as Western Australia, Queensland and South Australia, impacting the Bulk resources and the domestic forestry businesses. However, we made progress on these challenges through the year through our recruitment and retention initiatives during the year, which will further benefit 2024. Going on Slide 12. The final key challenge relates to the impact of an economic downturn. I want to make this point. To understand how an economic downturn can only have a limited impact on Qube's total financial performance, I will take you through each of Qube's key markets. Containers. This is definitely where Qube's earnings could -- or could be seen to be potentially exposed in 2024 from an economic -- major economic downturn. However, we're not overly concerned because most goods still need to come through the ports. So it's mainly consumer discretionary items that are impacted in a slowdown. And from a container perspective, the impact is also reduced to the extent that consumers will still consume, but just purchase lower-value products rather than no products, and as our business is driven by volume of goods and not by their value. Since 2009, the imported container market has only had negative growth twice and has an average of 2.5% compounding growth on each year, which highlights the resilience of this market and that weaker periods are usually followed, or always followed by stronger periods. And that in this space as well, our logistics container business continues to grow market share each year, even when the container market is soft, mainly due to the industry being highly fragmented with many opportunities for growth in this space for us. In regards to vehicles, vehicles could be impacted in an economic slowdown as new vehicle purchase can be deferred in challenging economic times. However, while new car sales may decline, there was currently a 12-month backlog in the supply chain, which should support good volume for Qube Ports and AAT at least for the next 12 months. Volumes in most of Qube's other key markets are driven by the factors other than short-term economic conditions, for instance, agri. Agri is weather-dependent and global pricing dependent. At this stage, volumes may be a little bit softer than 2022 and 2023. We see 2024 still looks like being a reasonable year for volumes for us. Resources. Once a mine is operational, volumes are generally fairly stable, unless the mine becomes uneconomic or the mine life ends. As Qube is involved in a wide range of customers, commodities and mines, it would need to be a material or sustained decline across multiple commodities in Australia for Qube to be materially impacted, [ and ] we don't see that likely. Energy. Qube is servicing major projects that reflect many years of planning and billions of dollars of investment by large energy companies. Therefore, we think it's very unlikely that these major energy companies will change their operations or activity levels based on short-term economic conditions or any shutdown has over a decade of logistics work to demobilize. Forestry, New Zealand. Volumes are influenced by low pricing, which is largely a function of Chinese demand. So weakening Chinese economy may impact volumes in a period or for 2 periods. However, should this occur, there's likely a stimulus measure introduced by the Chinese government at some point in time, and there will be a recovery. Qube is also has -- it's got exposure to other range of products such as renewables, fertilizers, cement, steel, et cetera. Some of these will be impacted by a downturn, while others will benefit from government policies on ESG or any economic stimulation. Overall, the diversity of Qube's activities mean that we're not expecting a [ similar ] impact on activity levels overall. Obviously, a more positive economic environment is helpful, but it's not essential for Qube. Our strategy to diversify has offset every time any impacts or major impacts of any slowdown. I'll now move to divisional performance. Slides 14 and 15 just highlights a strong performance driven by logistics and infrastructure business. I won't go through these slides, as I've already covered a lot of the key information on the previous slides. So I'd just like to highlight the EBITDA result here in logistics, infrastructure of $225 million, up 54% and a margin improvement of -- 3.8% margin improvement, despite Moorebank being in its early stages and having a loss of $5.5 million in 2023. This result just demonstrates the strength of the infrastructure that we've built across logistics and infrastructure, across the infrastructure such as agri, auto, containers and rail terminal infrastructure. Moving to Slide 16, Moorebank terminal update. This morning with our ASX announcement we also have released a video showcasing the Moorebank terminal, and it's worth a watch. Update on the IMEX Terminal. Construction and testing is progressing nicely. The final phase of completing the automation is going well, and the IMEX remains on track to commence operations in early 2024 in its full capacity of automation. The [ costings ] remain consistent with our previous total estimate of around $400 million. We've also decided to incorporate an empty container park within the terminal footprint, which we think will really benefit volumes and operational efficiencies of the terminal and for all users of the precinct. While we are in the testing phase, the terminal is generating losses. And in 2023, underlying losses, as I mentioned before, was $5.5 million. We have -- On this slide -- we have provided some indicative volume and financial targets on this slide to give a feel for the sort of returns the IMEX can generate on a standalone basis in the future. It is important to note, the actual volumes and final taxes here could vary from these indicative targets, but the targets hopefully provide an indication of a minimum base case that we are working towards, and these indicative targets are for the terminal handling activities only. Please note, they don't include significant revenue and earnings that Qube expects to generate from related logistics activities, such as running trains into the terminal, road and haulage from the terminal to catchment areas, empty container park operations, warehouse operations, general container storage and other ancillary services from Moorebank. Interstate terminal update. There has been progress during the period with some positive developments and some less so. On the positive front, the partners in the terminal, National intermodal company, LOGOS and Qube have collectively agreed to appoint Qube as the initial operator of the terminal for the first 5 years commencing in 2024. There's been a high interest. There's been a lot of interest from the major interstate rail operators to use the Moorebank interstate terminal from day 1. We're very confident of reasonable volumes within a short time frame of the terminal being operational, and this is likely to include Qube operating services as well. Recent challenges with the terminal. There has been some delays and cost increase mainly due to the scope changes and weather delays. There is a current disagreement with the head of construction contractor to agree on the revised cost and timetable, but our best estimates based on the current information is that the total cost is likely to increase from the previous estimate of $154 million up to potentially $200 million. And the completion date is now likely to move to where we were hoping to have all completed before Christmas to early in the new year just after Christmas. This is not expected to have a material impact on the project or the final pricing model. Slide 17, Ports and Bulk results. I've already covered the key information on the previous slides. So I'll move now to Slide 18. Patrick's financial performance, reasonable underlying revenue and earnings, EBITDA and EBITA growth. Although the second half was a little -- was weaker than the first half. Qube's NPATA from Patrick's declined slightly from the previous year, mainly due to higher interest expense within the Qube resulting from the higher base rates and higher net debt. However, cash distributions were very strong, increasing by over 50% from '23 -- from '22 to $129 million. Next slide, Slide 19, market volumes and market share. Despite the market growing 3.5% in the first half, market volumes softened in the second half. And as noted earlier, this is -- there is a long history of the market volumes growing by around 2% to 3% each year, with weaker periods followed by stronger periods within 2 years. So while at this stage we aren't expecting '24 to be a strong year for market volumes, we don't think long-term trend has changed, so we expect strong growth in the periods ahead. From Patrick's perspective, full year volumes were down by 2.6%, so market share did decline only slightly. Following a number of service changes throughout the year, Patrick's market share had rebounded by the end of the period. We continue to expect Patrick's long-term market share to be in the range between 41% to 43%. And during the year, Patrick's continued to progress a number of projects aimed at increasing productivity and capacity, as well as having safety benefits, and these projects should continue to support revenue and earnings growth, as well as model shift to rail. Moving to Slide 20, Patrick's valuation. We have provided this indicative valuation of Patrick for the first time. The reason for providing this information is that Patrick's converted some shareholder loans to equity at the end of the period, which required a calculation of the equity value and the share price. Process and the methodology for evaluation was consistent with the internal DCF valuation that Patrick's undertakes every 6 months as a part of its impairment assessment, utilizing a range of assumptions based on their business plan. We ordinarily don't share the output of this valuation exercise by Patrick's. However, the latest valuation can be determined by Patrick accounts, which will be publicly available once lodged. So we felt it was important to provide transparency to ensure all shareholders are aware of this and confirm their own views as the implications for the value of Qube. The output of this valuation was an enterprise value at 30 June 2023 for 100% of Patrick's of just over $6 billion, resulting in equity value of Qube's 50% shareholding being around $2.43 billion. This compares to our original investment of $1 billion in August 2016, and noting that we have already received around $549 million in cash distributions to 30 June 2023. So based on this valuation and the cash we have already received since Qube's investment in August 2016. Qube's total pre-tax return on its investment is almost $2 billion, a pre-tax IRR of around 19%. Obviously, any valuation exercise is highly dependent on the achievability of the key assumptions and the actual value that would be realized through a sale process could be much higher or lower. I note here, Qube is currently not a seller of its interest in Patrick's as this has been an outstanding investment for any measure and we believe there's plenty of further value creation to come. Moving to Slide 21. Slide 21 just shows the proportional results when you add in Patrick's 50% EBITDA, revenue and [ EBITA ] financial results. So this slide just gives a flavor of the size of Qube's revenue and earnings on a proportional basis that includes Qube's 50% revenue, EBITDA and EBITA, as I just said, [ showing ] the Qube's -- on that basis, Qube's [ EBITA ] was over [ $270 million ] in 2023. I've said enough now, and I'll hand over to Mark Wratten to continue the presentation.

Thank you, Paul, and welcome to everyone on today's call. It certainly has been another great result for Qube and with very strong revenue and earnings growth that Paul has just presented to you. I'll take you through some -- now some financial performance, cash flow and debt slides, and then I'll hand back to Paul to close off. Starting with Slide 23, our statutory results. Qube's statutory earnings are set out in 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 and that I'll focus on. The reconciliation adjustments from statutory reported to underlying results are consistent with past practice, with the key adjustments being the reversing of the impact of AASB16 lease accounting and adjusting to remove any impairment, fair market gains or losses and other one-off items such as M&A transaction costs, Oracle implementation costs and other software -- major software development costs. There's further information in the appendix to the investor presentation and in our financial statements, which went up to date as well. Moving on to Slide 24, our underlying results. Paul's spoken already in detail around our results. So I'll just focus on a few other items. A few points to note. Underlying net finance cost for FY 2023 were circa $20 million higher than the prior period, reflective of the material increased base rates experienced during FY 2023. We do continue to capitalize some interest, although smaller -- on smaller components of the IMEX Terminal and also the Interstate Terminal, which is now well into the construction program. Both terminals should be completed during FY 2024 and so capitalization of interest, which was circa $11 million in FY '23 will wind down during the FY '24 year. The shareholder loan to Patrick has also halved from $200 million to $100 million, and so, interest income will reduce in FY '24. That said, $64 million of that loan reduction was in cash and was applied against Qube on debt. The share of profit from associates increased 24.9% on prior period, driven by materially stronger results from our other associated -- non-Patrick associates, particularly Prixcar and IMG, which between them improved something like $8.6 million against FY 2022, which is a great improvement for both of those businesses. EBITA margins improved from 8.6% to 9.4%, driven by the significant improvement in the logistics and infrastructure margins. This gain was partly eroded by the decline in Ports and Bulk [ EBITDA ] margins, and Paul has covered off factors driving those earlier in his commentary. Also as Paul highlighted earlier, underlying earnings per share adjusted for amortization increased by over 28% to [ $0.136 ] per share. This was mainly attributable to the significant growth in earnings. However, it was also assisted by the share buyback program completed in May '22, which reduced Qube's shares on issue. On the back of this strong performance, the Board declared a fully franked final ordinary dividend of [ $0.035 ] per share, bringing the total full year dividend to [ $0.081 ], which is the top end of our dividend payout ratio policy. The FY 2023 total dividend is over 15% higher than last year's dividend, which you will remember also included a [ $0.07 ] per share special dividend on the back of the successful Moorebank warehouse divestment. Ordinary dividends increased by 28% versus 22%, which was in line with our EPSA growth. The final dividend will be payable on the 17th of October, and the DRP will not apply. In regards to Moorebank and the monetization, Qube received an additional $247 million of deferred consideration from LOGOS during the period. A final $53 million linked to the construction of the Interstate Terminal will be received progressively across FY '24. Moving to Slide 25 on capital expenditure, in FY '23, Qube invested gross CapEx of $583 million broken down into a number of components. $132 million was on growth CapEx, which included warehouses, storage sheds, rail assets and other mobile transport equipment; $217 million on maintenance or replacement plant and equipment. This represented around 118% of underlying depreciation, which was significantly higher than the 85% to 95%, which I guided to you at this time last year. The main reason for this was a decision by the business to swap out older leased rail LOGOS with new Qube owned LOGOS. This CapEx was circa $41 million in FY '23 and adjusting for this the maintenance CapEx to depreciation ratio would be 96%. Most of these new LOGOS will be delivered by the end of Q1 FY '24. And so some further final CapEx of this nature will flow into FY '24. We also incurred $90 million on Interstate and IMEX Terminal CapEx. That included the $11 million of capitalized interest I spoke about earlier. Gross CapEx spent on the Interstate terminal was approximately $74 million However, given Qube will ultimately only own 65% of this terminal, we account for an adjusted amount of $48 million in our CapEx line. The balance goes against provisions which we have created for National intermodal and LOGOS's, 35% share of this asset. IMEX CapEx spend was circa $31 million in FY 2023, bringing the total project to date spend on that asset to $367 million. The Interstate amount, I just mentioned excludes any receipt of deferred proceeds from LOGOS. As I mentioned, we received -- well, in the $247 million, $47 million of that is -- relates to -- is linked to the construction of the Interstate Terminal. Qube completed 2 acquisitions at the back end of FY 2023, being 100% of the Kalari business from Swire and a 50% share of the Pinnacle business in New Zealand for a total cash CapEx spend in the year of $142 million. We did spend a few extra million in working capital adjustments early in FY '24. I'll talk to both of those on the next slide. Our acquisition pipeline does remain healthy, and we are expecting funding will be applied to this area again in FY '24. Although due to the uncertainty, we have not guided to any specific quantum as yet. Moving on to Slide 26, focusing on the acquisitions. As I said in early May, we announced the acquisition of 50% of Pinnacle and 100% of Kalari, and both on the same day, both after lengthy periods of due diligence and negotiations. We are very pleased to have both businesses become part of the expanded Qube Group, and today both are exceeding expectations in regard to operational and financial performance and are expected to deliver return on average capital invested of at least our target hurdle of 10% and the EPS accretive in FY '24. I'll spend a minute on both businesses. The Pinnacle 50% was acquired for around AUD 30 million, and that business will generate revenues of around NZD 70 billion to NZD 80 million. Key services, as Paul has said, include empty container parks, container transport and refrigerated container maintenance and repair, which is very similar to the Australian container business. This is a low-risk entry into the New Zealand containerized logistics market, partnering with experienced operators in an industry we have fast experience in. Intention is to leverage our combined customer relationships and operational expertise to grow this business. We do expect to move to 100% ownership later in the first half of this year at which time it will become part of the logistics and infrastructure business unit. Until then Pinnacle is -- will be equity accounted for. Moving to Kalari. That business was acquired for $117 million which was mostly underpinned by an extensive asset base. Revenues for this business are expected to between $140 million to $150 million on an annualized basis. Kalari is a high-quality business, well managed and has been integrated now into our Bulk business. It provides further geographic and product diversification as well as bringing in a high-quality and deeply experienced management team and workforce. There is a significant opportunity, as Paul mentioned, to leverage the Qube and Kalari operational capabilities given to expand the range of services provided to both of our customer bases. Given Qube has historically been more focused on outbound mine supply logistics, while Kalari's strength has been inbound mine supply. Moving on to Slide 27, return on capital. As we spoke about at our Investor Day last October, we continued to focus on improving Qube's return on invested capital. And with our strong performance this year, we have further improved this key metric with Qube lifting to 9.1% at the end of FY '23, and Patrick also increasing its returns to 8.3%. It should be noted that both Qube and Patrick have material amounts of capital that are either currently not generating returns or at their targeted returns as they're either capital work in progress or the assets have only recently been completed or deployed. In Qube's instance, the main asset in this category relates to the 2 Moorebank terminals, which I've spoken about. If we adjust just for the Moorebank terminal assets alone and their current returns, Qube's return on capital would be closer to 9.8%. Taking you on to cash flow, Slide 28. Qube's net debt at June 2003 was $945 million. Major cash flow items for the year included the Moorebank monetization proceeds a total of $258 million, which included the $247 million I spoke about earlier and a few other items. Our tax payments of $195 million. Most of that was the capital gains tax paid on the Moorebank transaction in December 2022. Net capital expenditure, which I spoke about earlier of $562 million, which included those acquisitions. Cash received from associates of $68 million. That was predominantly dividends and interest payments from Patrick and also the $64 million re-payment of shareholder loans. The other $36 million of shareholder loans was converted into equity at June 2023. And so our shareholder loans to Patrick has accordingly reduced by $100 million that was -- the conversion of shareholder loans was mostly driven by the tax rule changes. During FY '23, we funded dividends totaling $136 million. And finally, but most importantly, Qube generated $498 million of operating cash flows, which represents circa 107% cash conversion ratio, however, underlying [ EBITDA ] of approximately $465 million. Pleasingly, our cash conversion improved materially from the 71% that we reported at this time last year. And so there's a bit of a catch-up is being above 100%. And as a business, we will continue to sharply focus on our cash management. Moving to my last slide, balance sheet and funding. As mentioned earlier, we ended the year with net debt levels a little over $945 million. During FY 2023, we undertook -- we took advantage of our strong liquidity position to rebalance some of our debt portfolio, which included reducing some facilities and upsizing and extending the tenure on others. We terminated $610 million of revolving bank debt facilities, some of which were close to maturity. We also put in place $380 million of new or upsized facilities and extended tenure on another $385 million of our existing facilities. The weighted average tenure of our debt increased to 2.5 years, up from 2.1 in June 2022. If we excluded the subordinated notes, which expire in October of 2023, our weighted average maturity increases to 3 years. Our net leverage ratio -- or sorry, our leverage ratio was 23.7, and that's similar to what we ended last year at and were within our covenant. As at June 2023, we had $425 million of facilities, including the $300 million of ASX sub notes that mature around October of 2023. The drawn amount of these is $335 million, which is classified has current borrowings in our financial statements. Our available liquidity comprising undrawn debt facilities and cash was just over $1 billion at June 30. Our medium-term funding plan has now been prepared and was recently approved by the Qube Board. We'll commence implementing the plan over the next few weeks with the aim to have it completed by the back end of first half 2024. This plan includes paying down the ASX listed sub-notes and putting in place additional funding facilities to further strengthen Qube's available liquidity. Given our strong revenue and earnings growth, sound balance sheet and strong liquidity position, Qube remains well positioned to fund future growth, both the organically driven opportunities that the business brings forward as well as through new acquisitions. And with that, I'll hand you back to Paul.

Thanks, Mark. Moving to Slide 31, Qube strategy. I'm not going to go through this slide into -- it's just here to emphasize, as I said at the start of the presentation that our consistent strategy is the key to our success. All the points on this slide have enabled us to build a quality business with strong market positions and to deliver increasing shareholder returns that I'll talk about in the next few slides. Slide 32, Qube's financial targets. At our Strategy Day last year, we outlined our key financial targets. Pleasingly, for 2023, we've comfortably hit all targets here, other than the return on average capital employed which was achieved by the operating division and was vastly improved from -- at a group level, heading towards our target. And we remain confident of meeting the group hurdle in near to midterm -- in the midterm. Please note, as Mark just [Technical Difficulty]

Excuse me, ladies and gentlemen, this is the operator. Our speaker's line has disconnected. Just hold one moment while we reconnect our lines. And Mr. Digney, we have connected into the call. You may proceed.

Hello. Are we back on?

We are live,. Mr. Digney, you may go ahead.

Sorry, I apologize for that. We dropped out for some reason. So staying on Slide 32, Qube's financial targets. At our Strategy Day last year, we outlined our key financial targets. Pleasingly, in full year '23, we've comfortably hit all our targets rather than the return on average capital employed which was achieved by the operating division. As I mentioned before -- I don't know if I was cut off or not, but where I was at is that we are getting close to the target at a group level, and as Mark mentioned, if we back out some of the development CapEx and the Moorebank terminals, we would be very close to that target right now at 9.8%. Staying on -- moving to Slide 23, staying on Qube's financial targets. These charts here on the slide highlight that we have consistently delivered a very strong growth. Over the past 4 years, we have delivered compound annual revenue growth of 18.7%, compound annual EPSA growth of 23.6%, enabling compound annual DPS growth of 15.9%, with all dividends having been fully franked. And as I said earlier on, the growth opportunity is far from complete, with multiple volume and value drivers outlined earlier, which will enable Qube to continue to generate positive financial outcomes into the future. Turning to Slide 34, full year '24 outlook. We expect 2024 to be another positive year for Qube, despite ongoing challenges. In the operating division, expect solid growth -- we expect -- solid growth expected overall, albeit we expect some moderation from the exceptional performance of the logistics and infrastructure business unit and an improved performance from the Ports and Bulk business unit. This mainly reflects an expectation of some moderation in volumes and activity levels from containers, agri and AAT volumes compared to the 2023 year. But with stable and high volumes across other key markets including resources, energy, general stevedoring, plus other benefits from the recent acquisitions, and some improvement in volumes of export logs from New Zealand compared to last year, although there's significant uncertainty given the Chinese weakness. I'm sure there will be some unexpected challenges for the business in some parts of the market during the full year '24, but hopefully, they'll be more than offset by new opportunities. And that has been Qube's experience historically and we see no reason for that to change. Moving to Patrick's. We expect that Patrick's will be able to deliver another year of operating earnings growth at an EBITDA and an EBIT level, despite our expectation of a broadly flat overall volume market. The growth will come from the full period impact of the additional volume commitments and services secured in the second half of for year 2023 and will be driven by the full period benefit of higher landside and other ancillary charges that were implemented last year and some productivity and issues I touched on earlier which will help mitigate and impact higher costs such as labor and rent. Although the earnings should be higher, the operating earnings should be higher, Patrick's overall NPATA contribution to Qube is expected to be flat due to the high interest costs as we've mentioned before. Moving to Slide 35, corporate. The largest drag on Qube's full year '24 earnings outlook is expected to be the high interest costs. We currently forecast Qube's net interest expense will be around $40 million to $45 million higher than last year. Similar to Patrick's is mainly due to the full year impact of rate rises that occurred in 2023. It's also partly due to lower capitalized interest in 2024 relating to the Moorebank, IMEX and Interstate Terminals. In regards to CapEx, although this is hard to accurately forecast, given it depends on suitable investment opportunities, however, our current estimate is around $400 million to $500 million total CapEx, excluding any potential acquisitions. Staying on Slide 35. For the Qube Group, we are currently -- we are going to another year of NPATA and EPSA growth for Qube, although the growth rate is expected to be modest compared to the strong 2023 growth rates. This guidance is subject to a number of assumptions as noted on this slide, and we will provide an update if there's any material developments. However, I'm pleased to note in finishing that trading so far in 2024 has been ahead of our expectations. Container volumes have been better than expected, and Patrick's July volumes, as I mentioned before, were the highest ever month. There's been continued high volumes across Qube's automotive infrastructure facilities and steady volumes in most other parts of the group. This has partly been offset by lower-than-expected forestry volumes in New Zealand due to the weaker global log prices, which has reduced export volumes. In finishing today, Qube's ability to continue delivering earnings growth, despite much higher interest rate -- interest costs, increasing losses from the IMEX, while it's ramping up and ongoing challenges in the economy and some of key markets, really demonstrates the breadth of growth opportunities across the group and the resilience of Qube's operation and strategy. I thank you all. We'll now hand back to the moderator for any questions-and-answers.

[Operator Instructions] Your first question comes from the line of Justin Barratt from CLSA.

I just wanted to ask around your Patrick internal valuation. Just wanted to see if you're willing to share I guess some of the longer-term metrics or assumptions that really underpin your DCF for that valuation, please?

Paul, do you want to share?

I guess, firstly, to clarify, it's not Qube's valuation. It's Patrick's valuation.

Sorry.

And secondly, no, I mean, it reflects their business plan. So like most companies, they are the sort of medium-term forecast, which looks at a whole range of assumptions, market growth, market share, steep growing, [ a lot of ] infrastructure charges, CapEx, all those sort of issues. And that's commercially sensitive, given they're in a competitive environment. So we can't share that. But obviously, it's no different, as Paul said, to the process they go through every 6 months. So there's a lot of assumptions that need to be proven out, but it reflects our best judgment around the medium-term forecasts.

And then really keen to try and explore a little bit more about -- some of the commentary about the positive start that you've had to FY '24 from your container exposure. I appreciate your commentary around that July being the highest ever month. Can you sort of draw on that a little bit more? What do you think is driving that? Is it around new customer acquisition or contract acquisition? Or is there something else sort of at play there?

We just -- we've seen better numbers. I think -- some of the businesses that we've won extra volume that we secured in '23 is a part of that reason, and in the logistics space as well, the same. So probably a little bit more unexpected that we got better volumes out of our customer base overall. Is that going to be an ongoing trend, it's probably too early to tell.

Your next question comes from the line of James Wilson from Jarden.

It's Jakob Cakarnis just on James Wilson's line. Can I just ask a question about the net interest guidance? Obviously, the Patrick shareholder loan got repaid as you mentioned, in 2023. You also got $10 million of income -- interest income from that loan. Does the guidance encapsulate that you won't have that income in '24, please?

Yes. That's right, Jake. Yes. So that guidance is comprehensive of everything around a reduction in the capitalized interest that we expect, the reduction in the interest income from that Patrick loan reduction as well as the high -- the biggest impact is the higher base rates over the full year versus this year, we've had climbing rates over the course of the year.

Paul, just one for Mark, if I can, please. Just looking at the operating division, is it right to use the second half '23 EBITDA and EBIT margins for the operating division, is the appropriate base into '24? Or is there something that's going to be changed there? And just in your commentary, was there any skew to the timing of the price increases within the divisions there, please?

Yes, that was me -- that was a market answer that Mark went through, Jake.

Sorry, man.

Paul and I joined it -- I'll probably let Paul Digney answer that one around the momentum. I mean, the business does have some moving pieces around -- and not necessarily around some…

Price.

Yes, price, or just the timing of the year. So it's really probably not something that you can just take for granted that you just take the second half and roll it.

Yes. It's -- there are some lumpy moments. There's some issues around -- in the Ports and Bulk business around just labor shortages and additional costs to provide the service. So we think -- we believe that a lot of that has been fixed in some ways. Some of it still remains. So all going well, there's margin improvement there. So we should do it more efficiently with less additional costs. So that's an area where we will see that. We've got a magnitude of different businesses and pricing has changed somewhat in some areas. We've got some benefit of that pricing this last year. So it's a combination of volume, pricing and cost initiatives. And we see overall there will be improvement across those 3 metrics, across the group.

Your next question comes from the line of Matt Ryan from Barrenjoey.

Just had a question on the guidance and whether there's anything you wanted to call out in terms of, I guess, the first half and the second half, and just anything lumpy that might impact some of the things that you said?

In 2024?

Yes.

Yes. Not that we could say. I mean, we expect -- not that we can really put our finger on at this point in time. I mean, I guess there is volatility. There's some economic slowdown. There could be some lumpiness in some of our volumes. We might see some good container volumes in periods and might soften. We may see that in the forestry in New Zealand that we think that will be -- quarter-by-quarter will be different. But will it be first half and second half, will it be first quarter, second quarter, third quarter, fourth quarter, we just feel that there will be moments. We've had a good start for 6 weeks or 7 weeks. We've just been cautious about that being sustainable, given what other people are saying about outlooks.

So I guess, where you call out growth within your divisions. And then, again, at the group level, that should apply to the first and the second half?

We believe so.

And I mean, just -- as you've just touched on, I mean, I think you guys are in a pretty privileged position in terms of how broad that your business reach is, and I'm guessing you have a pretty good sense of the economy from talking to customers and the like. I mean, how are you guys feeling about things at the moment? And I guess, again, coming back to your guidance, are you assuming no further deterioration, if you like, within the macro situation?

I think on the macro, I mean, we felt a bit of slowdown in the container market at the back end of 2023. I mean, our view was that the first part of '24 would be bit slow, but it's been a bit stronger for us, but it may be just our market share and what we've been able to win market share there. The automotive side of things, we think there's a lot of backlog in that even if the car sales -- as I've mentioned this before on the call, forestry, we believe, in New Zealand will be lumpy. I think in Australia, it's going to be better, general stevedoring business, commodities to go through there. The energies will be solid. Resources business will be solid. It's just a matter of making sure that we get the cost base [ right ] and the margins right there. So I think I called that out when I went through the slide, I think it's Slide 10, that I was trying to give some color around that. Yes, so I think overall, it's probably what we're seeing. We are cautious -- I guess, at this point in time, that's our best judge. I think agri we believe that there's -- we've got solid bookings at the moment. We've got -- maybe the backend of the year might be a little bit softer than we faced in '23, but we'll need to get to that at the end of the year, but at this stage, the first half looks reasonable for us.

And just a quick one on Patrick. Just interested on how the sort of redemption of those shareholder loans came about or what the motivation was? And is that something that Brookfield did as well?

I can talk to that. Yes, that was driven by the changes of the [ Fincap ] rules, Matt, and we -- yes, so it was done equally. So during the year, the business also refinanced. And so we've got, obviously, the $100 million of shareholder loan repayment applied equally to Patrick -- sorry, to Brookfield. $64 million came back to us from that refi in cash and out of $36 million it was determined to be the prudent approach around that change of the tax legislation.

Your next question comes from the line of Ian Munro from Ord Minnett.

Thanks for the extra disclosure around the MLP. Maybe just looking at your existing tenant book that's coming in over the next 12 to 18 months, does that get you towards 500,000 [ TEUs ] or around those levels? And then secondly, just while the terminal is ramping up, just can you perhaps give us a sense of the magnitude of losses that we might see between now and then? Is it sort of 2 to 3x FY '23 or a similar amount?

Yes.. We'll probably see -- next year, we'll probably see a slightly larger -- a little bit more loss, I think, given that we've got more depreciation that will flow through.

Not depreciating most of -- more of the asset in, and so that will come through in the outline.

Full automation is starting this year.

Yes. So that -- from a financial perspective, that -- Paul, you can talk to volumes, I guess.

Yes. And I think once we get it fully operational, which is sort of halfway through the year, then we're -- from a business point of view and a marketing point of view and an operation point of view, we did take some volume away from Moorebank and put it through some of our other facilities. So that will move through there from a volume point of view. The video that we put on our website today sort of shows where Moorebank's out at the moment, and we know LOGOS are starting to build a number of sheds. I don't know commercially in confidence who they are at this point in time, but I know they're actively building facilities on the West side and getting ready. So that's -- from a precinct point of view, we're in a really good place, [ and now ] it's really tracking. And it will be a number of years before we get to that 500,000 TEU now. But we won't have as many impediments or speed [ ups ] probably come halfway through next year. We can get from logistics and infrastructure management team point of view and the precinct and working with LOGOS. We have terminals up and running and ready to rock and roll.

And just maybe a quick one, please on the Ports and Bulk segment margins. I'm going back a couple of years or sort of high-teens, 19%, 19.5%. We're kind of just recalibrating expectations medium-term from what you're saying, it sounds like there's some cost escalations to build into contracts and maybe a bit of upside. But are those kinds of levels still attainable or sort of halfway between?

That's the expectation. So that's -- we believe that we can take it back to where it was, I think through the current issues coming out of COVID, and the labor issues that sort of stuff really impacted some of these margins. And we need to do some work around our contracts in regards to reducing that lag in an inflationary environment. I mean, once inflation goes down, might work the other way for us. But -- so yes -- to answer your question, yes, we assume.

The other element to that, Ian, is that with the New Zealand business, its performance for last year, it's had a bit of a tough time for various reasons that Paul has mentioned. When that business gets back to what its capability is that alone will drive quite a large margin improvement within the Ports and Bulk business. And then the other factor, as we spoke about at the half was obviously these large inflationary cost increases that the Bulk business had to absorb in and now they're pushing -- they're working with their customers on [ rising ] forwards and other -- within contract renegotiations to sort of bring our margins back to where they need to be. So that's in progress, and it's been working quite well. So we do expect to see those margins improve.

Your next question comes from the line of Reinhardt van der Walt from Bank of America.

Just one on Patrick. Is there upside risk to terminal access charges maybe over the next couple of years? Do you think that if the volumes maybe start to slow to potentially offset some of that weaker activity with higher tax given that the ACCC looks at sort of the overall margin of the business?

I just think that will be a fundamental of us getting a return on our capital employed and looking at -- I mean, the ACCC monies that volume -- extra volume from shipping line rate tariff increases, productivity and reviewing the investment on the landside and getting a return on the landside will be effective. I mean, everything is a risk in the business, but I don't think it's a risk because we keep delivering on a terminal that's delivering more rail access, more modal share access, better infrastructure, better delivery to our customers.

And just on the container business. I'm conscious that July was a strong month for you, but it seems pretty clear that the market overall is starting to slow a little bit. Have you started to see pricing move in container recently as some customers maybe anticipate a slowdown?

Pricing in shipping line -- shipping line pricing or what pricing?

Just general ability for you to price across the supply chain?

No. I think the pricing at this stage stayed the same. I mean, pricing are fundamental different conversations in the commercial conversations with different shipping services. Obviously, windows and scheduling comes into it and performance. So we're not seeing any real change at this point in time.

Your next question comes from the line of Scott Ryall from Rimor Equity Research.

I had a couple of questions. One is in the Ports and Bulk. Your outlook statement, I'm just trying to clarify, given you've had some timing issues around cost pass-throughs over the last 12 to 18 months, so is your -- is the more positive outlook for 2024 fiscal based on your expectation around volumes? Or is it really that catch-up of cost pass-throughs that you're expecting to get over the course of the next 12 months, please?

There's been some new business wins over the period, so we'll get full benefit of those. And as you said there's some areas of business where the margins did deteriorate because of issues around mainly labor and having a lag on inflationary cost increases that we felt that we've done -- we've got a better position on that contractually and in fairness with our customers to make sure that we recover the right costs aligned with a shorter lag time to recover these costs and that should improve our margins in 2024.

We also -- sorry, Scott, I was just going to add that in Ports and Bulk, we also get the full year benefit of the Kalari acquisition, where it's just short of 2 months of earnings this year.

Yes. No. I mean, that one I can kind of carve out. It's more just you're expecting to do cost recoveries over the course of this fiscal year, right? That's really what I'm -- the number that you had?

Yes, that's ongoing, and the team have done a really good job in improving those just as from the time when we spoke to you guys last in February. And so, we'll get the benefit of that, but it's an ongoing challenge for the team, I can tell you.

Ongoing battle [indiscernible] numbers.

Yes.

And then the second one, just if you could give a bit of an update on how you see LOGOS going in terms of signing up new tenants to Moorebank? And just the latest update on when you expect all the rail duplication works will be completed? Because that's pretty imminent was -- the plan not so long ago. And so, I guess I'm just wondering when does the rail become far more competitive from a service proposition perspective, please?

Yes. In regards to -- I guess, I think I mentioned before, I don't have a complete line of sight exactly and probably in commercial and confidence who they talk at the moment, but they have got a lot of construction going on and a lot of builds and even spec builds going on at the moment on the West side. So I think that's looking positive. In regards to the rail, the duplication of the rail lines, I think off the top of my head, it's mid-'24 or maybe early '24 that will bring some good capacity. Also aligned to that is Patrick's finishing its second phase of its rail terminal at Port Botany and how that links to the terminal on [ doing ] last work, and that's November this year. So there's -- that will bring on a lot of capacity just from -- between Patrick's and Moorebank and hopefully the other terminal operators, which we think they will bring on some more capacity, too. So there's ability to have a large modal shift between road and rail from Port Botany to the [ lots of ] Moorebank. 2024, 2025 year, that's when the infrastructure is going to be really good, and I think that our infrastructure is going to be ready before that time. So, we're in a good place when that occurs.

Your next question comes from the line of Rob Koh from MS.

Congratulations on the result. Just I guess, a minor question on the balance sheet and funding slide. I just wanted to just double check my understanding, your gearing ratio there at the year-end, well below the level. And -- but I'm guessing that's not because you keep -- especially wanting to keep powder dry, but it's because the [ sub debt ] is getting replaced with senior. Is that the right way to think about it?

Well, yes, we'll be -- our liquidity, as I said, is $1 billion cash and available facilities at the end of June. We've obviously got -- we've got that $425 million that we're going to -- that will come off in the first half, and so our funding plan will replace that, maybe top it up a little bit. I mean, we do like to have -- the business has been quite conservative in terms of having a good amount of liquidity available to it, just to take advantage of I guess more M&A or other large organic growth opportunities as they present themselves. So, yes, so we'll have really good available liquidity. We have it now, but by the time we finish the first half, it will be, I guess, recharged.

And then I guess -- and apologies if this has been asked on the call. I joined late because of other company calls. But the slide on the Patrick DCF, which I take you probably wouldn't have wanted to have given us for the Fincap rule change. Do you have a sense of where that valuation sits versus your valuation or consensus valuation? I presume you think it's a good start?

Yes. Look, I guess…

Falls closer to the consensus [indiscernible]…

It's above the average analyst valuation for those analysts who publish valuations, and there is a broad range. So, I can certainly say that it's sort of broadly in line with probably the top end, but above the average analyst valuation. Obviously, bearing in mind the analysts are sort of, I guess, generally applying a multiple 1 year, whereas the Patrick valuation is based on discounted cash flow. So, they're like different approaches. From a Qube valuation, look, we're not a seller, as Paul said. So for us, we've never really valued it per se. We don't revalue it. We know Brookfield obviously do as part of their fund. We don't have visibility in terms of how they report it. But hopefully, won't mind me saying, I think their view is, it's a realistic, if not conservative valuation from their perspective. From our perspective, look, as I said, we're not a seller. When Brookfield go to sell, we'll have a look at whether we want to buy it. We'll be very sensitive to is it EPS accretive, is it going to -- what's going to be our [ ROCE ]. And so I've sort of said publicly at the valuation, and we'll look at the time based and all factors, but we're certainly a happy holder, is probably the best way to put it.

And just to cut for your info, it's $29 million higher than my valuation.

Very good.

Well, probably the only other thing to add is we do think it's a very, very high-quality business, and we've got pretty good earnings potential. So, we certainly don't think it's a crazy valuation.

Your next question comes from the line of Nick Daish from RBC.

Just a quick one on New Zealand and Forestry specifically. I'm just interested in your views around to what degree that issue and softness relates to China versus issues in New Zealand specifically? I know we had some weather impacts in New Zealand during the year. So yes, I'm just interested in your view on what is driving that underlying softness, please?

So last year we had some impacts on both. And I think the start of the second half of the year, we had that -- those cyclones which really impacted the business. And then volumes recovered, and there was a ramp-up of volumes, and then we saw probably the last 2 months that there was a real downturn, and we've seen that in July as well on volumes. But our view is that there'll be probably periods -- maybe quarters, every 3 months, there will be softness, and there will be some rebounding and restocking of volumes, and that's what we're hearing at this point in time.

So some ongoing volatility, but altering [ equally ] weather [ at the moment ], you'll probably see a little bit of pluses and minuses throughout the year, or at least that's what you're expecting?

We're expecting to be moderately better overall, but volatile and lumpy.

And just -- the second one is just around your return hurdles. I think you quoted 10% again, which is something you've spoken to in the past. I'm just interested in how a rising cost of capital world influences that hurdle? Is it something that you take us through the cycle view or do you move relative to the current cost of capital, please?

Yes. We do -- I mean, we do take a longer-term view. You're right. I mean, we might -- I mean, a lot of our investment decisions, we factor in other -- a lot of other factors, right, the type of business that we're looking at the industry. So we might apply other sort of factors and premiums that we -- premium type returns that we'd like to get on that type of the business. But we see it as a longer term at the moment. Obviously, I got asked that question back in October around would we be increasing it. And I think my answer was that let's get to 10% first and then we'll have -- we'll take a view on going further. But from a WACC perspective, we do -- we've done a fair bit of work just on our rates across the different parts of our business. And obviously, those take a longer-term view around debt as well, not just the short-term increase, but we're constantly looking at those types of things. I guess the most important thing, Nick, is that, I guess, to highlight to investors back in October and again in February now is that it does remain a very strong focus of the management team to improve our return on capital performance.

Your final question comes from the line of Adrian Atkins from Morningstar.

Just wondering if supply chain constraints start to lessen, could that actually be a negative for Qube and Patrick's tariffs or ancillary charges?

No, I think at the end of -- I try to explain how diversified we are. And when supply chains are constrained, we've got facilities and we get more volume through it. When it's not, our operations become more efficient. How tariffs move is, I guess, a fundamental thing around how good our service is, what our customers want to pay and what we want to charge and the disciplines around that. So historically, no, and I don't think that's going to change for us.

Just one more question if I can fit it in. Just wondering if you could just briefly explain the long-term strategy of expansion into New Zealand and Southeast Asia, what we should kind of expect?

Yes. The news -- the Pinnacle acquisition in New Zealand, I mean we've been predominantly forestry over in New Zealand, and we've looked at the logistics space. The Pinnacle acquisition -- and I don't know how long you followed us, but when we started in -- before we started Qube, we bought the P&O Trans acquisition in Australia, very similar to Pinnacle in some ways, a network of depots and container parks. And we saw Pinnacle has been a similar platform to how we started this business in Australia. So we felt that was a good and not -- I wouldn't say safe but a really good foundation to buy a business and then look to expand from there. So I think our expansion will be probably more organic than acquisition, but not to rule out other acquisitions in New Zealand in that space. So -- and being that very complementary with common customers across Australia and New Zealand. So that's what we've been looking at in recent times in New Zealand. And I think we've executed a very good acquisition in New Zealand. Southeast Asia has been more around the energy space. Oil and gas, but now also looking at some renewable opportunities that can operate in the facilities that we've got in Southeast Asia. So it's fundamentally around, I guess, some markets that we think that we can --- is a part of our core, and we can add value and we can do it -- basically offshore from Australia. So that's the fundamentals of Southeast Asia and the fundamentals in New Zealand in regards to our strategy. And we set to…

That concludes our question-and-answer session. Mr. Paul Digney, I turn the call back over to you.

Thank you for everyone for joining the call. And if there's any other questions that -- anyone who didn't have an opportunity today, please reach out to Paul Lewis, and he will happily answer any of your queries or questions from today's results and announcements. So thank you very much, and I'll end the call now.

This concludes today's conference call. You may now disconnect.