Qube Holdings Limited (QUB) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Qube Holdings Limited FY '24 Full Year results. [Operator Instructions]. I would now like to hand the conference over to Paul Digney, Managing Director. Please go ahead.

Good morning, everyone, and thank you for joining this morning's call. Joining me, as always, is Mark Wratten and Paul Lewis. I want to start by acknowledging the traditional custodians of country around Australia. Starting on Slide 6 of the investor presentation, Full year '24 highlights. Numbers on the slide really speak for themselves. 2024 year now marks the fourth consecutive year that Qube delivered double-digit growth. That's a testament to our strategy and the quality of our assets, systems and our people. It highlights the benefits of our diversification that enables the business to navigate inflationary pressures and economic challenges that have persisted throughout the year, but over the last couple of years since COVID. It just demonstrates just how robust the Qube business is. Now if I can turn to Slide 7, Qube's key markets. As you can see, we saw positive performance across most of our key markets in 2024. And in most cases, we expect this situation to be the same in 2025. Qube is well established across these key markets, and we continue to see good growth opportunities across all the markets. Now I'll just touch on each markets briefly. Containers. Very solid performance across logistics and infrastructure with continued market share growth in the sector in 2024. We expect the container logistics business to continue to grow at a similar rate in 2025, like it has in the past. Patrick had a strong result and was above expectations, mainly due to having high market share than normal for a good portion of the year. That market share now has normalized back to 42% market share, leading to the 2025 year. Agri, 2024 was materially lower than the 2023 year for Qube. However, in 2025, we expected -- we're expecting to have a strong year for agri. How strong that is? We'll know better in the coming months as we finalize volume commitments and terms with our customers in the short term. Automotive, we saw continued high automotive volumes across all parts of our auto businesses throughout the entire year, which we expect will ease a little in 2025. However, volumes still to be healthy through the 2025 year. Forestry. New Zealand log exports remained flat in 2024. However, earnings improved due to a cost reduction program that we conducted in the first half of this year. Australian Forestry improved on the back of China lifting its bans on Australian wood and growth in the India export market. We expect our Forestry volumes to be overall similar in 2025 with an earnings uplift around productivity benefits in 2025 year. The resources sector. Qube saw overall steady volumes across most customers in 2024, despite having some lumpy volume challenges with a couple of customers. We expect ongoing growth in 2025 to continue with some ongoing challenges due to commodity prices and labor shortages like in 2024. However, labor and inflationary challenges have improved somewhat since 2023 for us. Energy. In 2024, we continued to grow again in this energy space. In 2025 and beyond, we expect healthy growth with a pipeline of work ahead with the oil and gas and renewable customers. And the last item here are other businesses. Overall solid earnings from other business sections such as non-containerized logistics, domestic logistics lifting and project work activities in 2024. And this is expected to continue to grow in 2025. Now turning to Slide 8, safety. We have a strong safety culture at Qube, and it's something the team has worked very hard over the 7 years journey to build. Throughout the year, consistent with our program of continuous improvement, we continue to strengthen and enhance our safety systems across the business to continue to be at the top on safety in our sector. Our performance across our safety -- our key safety metrics all improved in 2024, which is a pleasing outcome. However, sadly, we had a Qube employee tragedy died in an incident at our South Australian Forestry operations. Worksafe South Australia investigated that incident, and we were advised last month that the regulator had closed its investigations and had not identified any filings in Qube's work, health and safety obligations. However, consistent with our commitment to continuous improvement, we have made investments into an industry-first digital communications network to increase monitoring for these remain operations, which will have the potential to strengthen safety standards for the whole industry, not just Qube. Turning to Slide 9. Qube's revenue diversity. I won't [indiscernible] on this slide. However, it shows how important our diversification strategy is from a geographic point of view. During 2024, we continue to grow that geographic footprint organically and with acquisitions in New Zealand, New South Wales and Western Australia. And as you would have seen recently the proposed acquisition of Maraki Melbourne, which we hope to complete late in the first quarter of this year, and an acquisition of Colemans in Western Australia, which we have announced today. Mark will cover these acquisitions in his presentation shortly, and I'll be happy to answer any questions on these later in Q&A. Now can I turn to Slide 10. Ongoing focus on our return on capital employed. Although we still have $780 million of capital that is not generating any earnings for Qube, which includes 2 terminals at Moorebank, new locomotives and wages not yet in operations, land that we've purchased to develop sometime in the future. Infrastructure assets currently under construction. We continue to track towards our target of 10% return on capital employed, and we will cross that threshold soon. That has given us the confidence to review our internal target and set a new target of 12% over the midterm. And we are confident that we should be able to achieve this in the coming years, while importantly, investing in [indiscernible] assets for long term like we have done in the past. Now if I can turn to the divisional performance. I'll turn to Slide 12, operating division. The operating division reported another year of strong underlying revenue and earnings growth, as you can see on this slide. I'll now move to the next slide, Slide 13, Logistics & Infrastructure business unit. We saw higher volumes across most container activities in this business unit and high utilization across AAT's infrastructure in 2024. This was partially offset by a weakness in our agri-related volumes, which included a 55% decline in our grain terminal export volumes for 2023 in New South Wales from 2023 in New South Wales. As we have flagged previously, we commenced a grain trading capability in December 2024. And the aim here is to optimize and utilize Tubes New South Wales grain infrastructure assets across 12 months of the year. This has already proven to be a good strategic step for Qube. And we are well positioned to take that benefit into 2025. Moving to Slide 14, Moorebank IMEX terminal. Many of you attended our recent Investor Day at Moorebank. So you'll be familiar with the progress that we've made on the IMEX terminal and our volume ramp-up aspirations for year on. Last year the IMEX terminal lost $7 million of EBIT. In July, the combined IMEX and the adjacent container pack activities made a profit for the first time of $100,000 EBIT profit in July, compared to a $600,000 loss for the same time last year. In July, we handled around 24,000 TEUs for the IMEX and that was without relocating some regional trains and other volumes to the IMEX yet. We are targeting for approximately 400,000 TEU to be handled by the Moorebank's IMEX in 2025. So we're now on the way to making money on this investment as we now ramp up. Over to Slide 15, looking at ports and bulk now. We saw strong growth in revenues and earnings with higher volumes across most areas, in particular, motor vehicles, energy customers and most bulk commodities. The energy business benefited from a ramp-up of projects and increased the scope of work from the core warehousing and supply based services that it provides to its customers. Qube's, New Zealand forestry volumes were flat. However, earnings benefited from a cost restructure that was completed in October, as I mentioned before. The results also benefited from a full period contribution from the Kalari acquisition, which is tracking in line with our expectations. And overall margins improved in the ports and bulk business unit during the year. Moving on to Slide 16, Patrick. We talked at the half about the impact of the industrial action of DP World on Patrick's market share, which increased from 42% to 47% in the 2024 full year on an average basis. And that being one of the key drivers in the profit uplift for 2024 for Patrick's. Patrick's ability to efficiently handle these high volumes reflects the benefits from the substantial investment in landside infrastructure and equipment that Patrick has and continues to undertake. These investments were also the key to the strong earnings growth and productivity benefits achieved in the period. Now moving to Slide 17, Moorebank Interstate JV. This will be the final slide for me before I hand over to Mark. After completion of the Interstate Stage 1A in May, the terminal was handed over to the JV to undertake ongoing management. As a result, we will now report the Interstate as an associate. The opening in May was a significant milestone for Qube, it was great to have the primary out there to cut the ribbon. Currently, there are active discussions underway for potential users of the channel, although no agreements have been made yet or being signed yet. In conjunction with that, we are also assessing our right ownership structure for the terminal going forward, and that could include Sundown equity in this asset. I will now hand over to Mark to take you through some of the key financial information in the presentation there. Thank you, Mark.

Thanks, Paul, and thank you to everyone on today's call for listening in. As Paul has already highlighted, it was another very strong financial result for the Qube group for the FY '24 year. And I'll now take -- quickly take you through a few financial slides, starting on Slide 19. As I said, Paul has given color to logistics and infrastructure in ports and bulk I'll just cover a few other points. At the group level, Qube delivered revenue growth of over $0.5 billion over FY '23. This revenue growth was boosted by the establishment of our grain trading business, which contributed over circa $140 million of that increase and was predominantly delivered in the second half. Excluding grain trading revenues, our growth at the revenue line would have been circa 12.5%. Our underlying EBIT grew by almost $40 million or 14.5% of FY '23. However, that growth was offset, as expected, by a much higher underlying net finance costs which was circa $32 million to $33 million higher than FY '23, which was reflective of the combination of increased base rates, higher debt balances and lower interest income from our shareholder loans to Patrick, which have been progressively repaid. Net finance costs also included circa $10 million benefit from the capitalization of interest linked to the construction costs on the IMEX and interstate terminals at Moorebank. We see capitalizing interest during the second half and so this amount will be part of our step-up in finance costs as we move forward to FY '25. Reported EBITDA margins for the group is showing a decline from 9.4% to 9.1%. However, our margins have been negatively impacted by the commencement of the grain trading business, as I just mentioned, this business deliver circa $140 million of revenue in FY '24 with no margin directly attached to it. Adjusting for this, the group's reported EBITDA margin would be slightly higher than FY '23 at 9.5%. Contributing strongly to our FY '21 financial results with share profit from associates. It's mostly coming from Patrick, as Paul had said out earlier, few other investments in associates entities also performed well in FY '24 with Prixcar particular, having a very strong year. Late in the year, as Paul also mentioned the instate JV or MITCo, as we call it, was formally established, and this entity holds now our investment in the Moorebank Interstate terminal, a 65% investment. Given this asset is in the early stages, it did incur losses in the contribution to Qube at the share of NPR with a loss of $900,000 for FY '24. And as set out in our FY '25 guidance, the expected loss in FY '25 will be materially higher. The net result of all of this was an increase in underlying NPATA of 13% to $271 million and underlying earnings per share of also 0.3% to $0.053 per share. And on the back of this strong performance to Q4, yesterday declared a fully franked final ordinary dividend of $0.15 per share which brings our full year dividend of 9.15%, which is 13% above last year and is at the top end of our dividend payout ratio of 60%. Moving to Slide 20, capital expenditure. In FY '24, Qube's net CapEx was $615 million. We did complete 3 acquisitions in the first half, albeit the Narrabri acquisition was predominantly an asset purchase. And we completed a very small asset purchase in June. These acquisitions totaled $104 million, and I'll cover them in more detail in the next slide. In FY '24, we invested $179 million on growth CapEx, which included strategic property, warehouses and storage shares, rail assets and other mobile transport and materials handling equipment. A number of these assets will not yet be contributing to Qube earnings. However, most will do at some point in FY '25. We also invested -- sorry, $224 million of maintenance and replacement plant and equipment as set out in the table and $124 million on the Interstate and IMEX terminal CapEx, which included that $10 million of capitalized interest I mentioned earlier. For both those terminals, the final CapEx spend in FY '25 will be circa $20 million to $25 million combined and will be mostly incurred in the first half. Now taking into Slide 21, acquisitions. As I mentioned, we spent $104 million on acquisitions during the course of the year with the last 1 in June being a small asset purchase of about $5 million or $6 million in South Australia. In November, we acquired the remaining 50% of Pinnacle, which we originally bought the first 50% in May of '23, you'll remember, the integration and rebranding of this business has been completed. And pleasingly, it had a very strong performance in FY '24 and is well positioned for further growth in '25. In September '23, we acquired strategic rail terminal and grain storage and handling assets in Narrabri. And although these assets were not expected to contribute to earnings in any meaningful way in the short term, they have been important for us in setting up our grain trading business, particularly in regards to the containerized grain we are now trading, and we expect this asset will start to get very busy given the New South Wales harvest outlook. Finally, in November, Qube acquired 100% of Stevenson, which is a well-established container transport logistics operator located in North Vermilion in Western Australia, and the integration of that business is also well progressed and should be completed in the first half. Taking you to Slide 22, acquisitions to complete in '25, although 1 completed yesterday. On May, we announced that we'd entered into an agreement to acquire the Melbourne International RoRo and Automotive terminal, referred to as MIRRAT for a total consideration of $332 million plus cost which will be funded from Qube's available undrawn debt facilities. MIRRAT is the only dedicated role on roll-off terminal servicing the Victorian market with a long-term lease over key port infrastructure. This acquisition is expected to be EPS accretive in '25, and we'll meet Qube's return on capital hurdles over the medium term. Completion is conditional on ACCC and Port of Melbourne approval and is expected to complete in the first half of '25. Accompanying the release that we put out this morning on our results was the announcement of the acquisition of Colemans business in Western Australia, which completed yesterday afternoon. Colemans is an integrated transport logistics and storage business with a portfolio of specialized license infrastructure supporting the SSAN supply chain in Western Australia. Consideration for that acquisition was $19 million plus cost. And again, that acquisition was funded through our available liquidity. Including in the Colemans' acquisition, we acquired over $90 million worth of property and assets, including higher security storage sheds in key mining centers of Kalgoorlie, Port Hedland and Wyndham as well as another important shed in Kwinana. This gives the Qube -- this acquisition gives the -- provides Qube entry into the West Australia SSAN supply market and complements our East Coast services, which we acquired through the Kalari acquisition in May '23. As with MIRRAT acquisition is expected to be modestly EPS accretive in FY '25 and will exceed Qube's minimum ROCE target when synergies have been fully realized, which is expected to be within 2 years. I'll now back you to Slide 23. This is a busy slide, and I won't talk to each item. Qube finished FY '24 with a net debt at June '24 of $1.215 billion, which while a material increase over where we started the year, it's actually $30 million less than what we reported at December '23. This was due to a stronger second half cash flow result, no material [heads to] acquisitions and the unwind of sub-working capital items, which I had spoken about back in February. Key outflows in FY '24 included the CapEx, which I spoke about. Dividends, interest and tax of $274 million grain trading working capital of $80 million, which is mostly comprised of grain inventory on hand at June 30, and I'll talk about that a little shortly in a few minutes. Key inflows included cash received from associates of $100 million, which is predominantly dividends and interest payments from Patrick. Patrick also repaid $45 million of its shareholder loans in late FY '24. In FY '24, Qube received another $53 million of deferred payments relating to the Moorebank terminals and the only deferred receipts remaining from the terminal transaction now relates to the logos share of the Interstate terminal and the first tranche of $8 million was received in July. In regards to our working capital performance, it improved in the second half, as I said earlier, our prepayments were non-grain inventories reduced and we continue to focus on receivable management. Our full year cash conversion was 92% if we exclude the buildup of grain inventories and the associated working capital with that new business, including the impact of the new grain trading business, our cash conversion was at 77%. The 92% number was impacted by the taking on of working capital balances from those acquisitions that I mentioned earlier. The commencement of our grain trading business has required an investment in working capital. I did speak about that in February. And as at June, that stated $80 million, $70 million of that was grain inventory that we held on storage at June 30. But during July, circa $38 million of that grain has since been delivered invoiced and paid for, so it does cycle. As we look forward to FY '25 and the expected strong grain season in the areas that Qube operates, we do expect that our working capital needing to be deployed in that business will increase further in the first half, mainly in Q2 and then progressively unwind in the second half. Finally, moving to Slide 24, balance sheet and funding. As I mentioned back in February, we had a very active first half in regards to our balance sheet and our funding. We put in place new facilities totaling $740 million. Most of those had 5-year terms. We terminated $515 million of expiring facilities, including our highest cost debt, which was the ASX listed note. And we -- in the second half, we extended a further $150 million of bank debt. And with all of that, average tenure our facilities increased from 2.5 years to 3.2 years at June '24. Our gearing ratio increased to just over 27% on the back of the increased debt balances. However, it's still well below the board lower range, policy range of 30% and well within our covenant. At June 24, we had $990 million of available liquidity, comprising undrawn debt facilities and cash. The MIRRAT an Colemans acquisitions that I just spoke about will absorb a good chunk of our current available liquidity, and we'll take our temporary -- sorry, our gearing ratio temporarily into the middle of the Board, 30% to 40% range. And as you have seen in our '25 guidance, we are considering some asset sales, which may generate between $180 million to $250 million of cash, which will assist in topping up our liquidity. Finally, management have always got ongoing initiatives in place to ensure the business has the appropriate funding structures and options available to it to ensure that we continue to take advantage of the numerous growth opportunities that come across our desk. And with that, I'll pass it back to Paul.

Thanks, Mark. So turning to Slide 26 now, full year '24 summary. So to summarize, today's results shows that we have the right strategy, the right mix of quality assets, people and systems to consistently deliver sustainable growth. As I mentioned at the start, 2024 marks the fourth consecutive period in which had Qube delivered double-digit earnings growth and the business consistently delivers revenue growth well above GDP, through organic and inorganic growth avenues. And also as mentioned earlier, our [indiscernible] performance and the road map ahead when it comes to return on capital, has given us the confidence to increase our target to 12% over the medium term. Turning to Slide 27, Qube strategy. I won't spend too much time on this. This slide really underscores the benefit and the value of the Qube strategy. Qube's multiple growth drivers have supported sustainable high growth across our key markets. Despite times, challenges in certain markets. And in a tough year, Qube has prospered with our diversification strategy where some of our peers in the transport and logistics space may have struggled. Turning to the last slide to finish our presentation for today, Slide 28, Full year '25 Outlook. Having achieved another strong financial performance in 2024, we are well placed to navigate the economic uncertainties ahead and to continue to deliver earnings growth. We've had a positive strong start to the year, but it's only 1 month out of 12, and we're not going to get ahead of ourselves and there's a long way to go. In full year '25, we expect to deliver strong underlying revenue and EBITDA growth includes improved agri volumes, and continued high volumes in most areas of our business as well as the contribution from the 2024 and the 2025 acquisitions that Mark just spoke about, and growth CapEx and new contracts that we've won recently. We also expect continued underlying NPAT and [FSA] growth in 2025. Although the growth rate at this point in time is expected to be modest compared to the strong growth rate we achieved in 2024. This is mainly due to a lower NPATA contribution from Patrick with Patrick's market share normalizing back to 42%, and due to initial losses with the Moorebank in estate JV as it starts. And in finishing, the diversification of our business is our strength. And we continue to see both organic and inorganic opportunities across our key markets and geographies. I'm very confident in our strategy, and it's very proven, which will continue to generate shareholder value now and for the long term. That finishes our presentation today, and I'm happy to take questions, and I'll hand back to the moderator. Thank you.

[Operator Instructions] Your first question comes from Anthony Moulder with Jefferies.

If I can start with the sale of these assets of the Moorebank and state terminal, just the justification of why you're looking to exit that asset.

Yes, Anthony, we've just flagged it. It's a consideration. As you are probably aware that a core part of our strategy, a core part of our assets at Moorebank is the IMEX terminal. The interstate terminal is a part of our deal with the government was an obligation. And under a joint venture arrangement with Open Access, if there is interest from others, we're not really losing too much strategy benefit. We can still use the asset and our core focus is around IMEX. So we're just considering all options, and there's interest, we will consider it. That's what -- that's where we're at this point in time.

Okay. And what does that mean? Does that suggest that the lower interest in joining the congestion on the interstate rails with a rise in Pacific National and what we take for.....

Sorry, you got to finish first, sorry.

I just can also ask us what that means for beverage, do you really need to exercise that option around beverage.

We'll consider everything. I mean, beverages is maybe a different circumstance for us as well. So probably answer the first part of your question. we're not active in that intermodal interstate space at this point in time. We did put a pause on it. Given the [indiscernible] entered back into that market. So that's a part of our consideration on the interstate at Moorebank. It is a joint venture structure. So we're just considering do we need to own it? Is it the best use of our capital. Can we use it in the future? Yes. Beverage is probably a different consideration for us.

Okay. understood. Can I ask on the acquisition of Coleman's. We've seen a lot of bolt-on acquisitions, but obviously a lot of acquisitions over WA. At what point do you think you've got sufficient scale in the WA market that you're more likely to go for growth that's more organic than acquisition led?

Yes. We saw the Colemans acquisition is pretty unique. It's a unique sort of supply chain asset. It's sort of some ways hard to replicate, given the licensing and the type of facilities they were. So we saw it as definitely an infrastructure play. And so when these assets come to market or there's discussions about we looked at it, we complement Kalari complements our inbound mine supply logistics with the Kalari acquisition. So given the timing of it, given what we do on the East Coast in that space, we saw it as a really good opportunity. So we didn't want to miss that opportunity.

If I start on acquisitions, the MIRRAT [indiscernible] Melbourne, will also is obviously a key user of that term. Do they have a long-term contract to continue to use were at MIRRAT in Melbourne?

They don't have a contract. But at the end of the day, MIRRAT is the only railroad terminal in Melbourne. So we'll be using that terminal.

Yes. obviously, there's leveraging opportunities that others are talking to, I wonder. And they're using vehicles [indiscernible] if anything from MIRRAT [indiscernible] guidance, take the fact that it's more back to our qualitative guidance on the quantitative guidance just here in August, 10.5 months out from the end of the year as opposed to something that you're having more definitive of more visibility to in February?

Potentially, yes. Yes. Like last year, I think.

So we'll still get that....

As we get deeper in the year. Yes. we can...

And last question, if I could. This 6% of net interest cost of the debt, how does that profile of less mixed in interest rate cuts next year? And how leveraged is that to how quick can that come through the net interest line.

Yes, very quickly. We do have some hedging in place, Anthony, but we would benefit from an interest rate cut without a doubt.

The next question comes from Jakob Cakarnis with Jarden Australia.

Just going to start with Patrick, if I can, please. You've given us an average market share for FY '24 of 47%. You've told us it was 49% in the first half. do look like the average share that you retained through the second half was 45%. I think the commentary so far on the call has been that you're trending back at that 42% level. I think the commentary at the Investor Day was surrounded around, you wouldn't see market share back to DP World unless there was volume growth back in the market. Can you just talk to some of those dynamics and how we think that plays through the earnings guidance, please?

We've got back to 42%. Everything is normalized. Now I think in the first half, at some point, we were closer to 49%. And then it's on its way back to 42%, which is really on the back of all the industrial action that occurred at DP World. So we're already at 42% at this point in time. And we believe that's going to be that's going to be stable throughout the year.

Just in the ports and bulk business in the second half, it looks like you had pretty strong uplift in both EBITDA and EBITA margins -- can you just give us a sense of what's going on there? Is there some mix issues that we need to be considerate of. Is there operating leverage that's flowing through there? Just give us a little bit more than what's in your presentation materials on that [indiscernible].

I think we've spoken over the last year or so that the ports and bulk business going through some of the challenges around inflationary rises, cost and cost and catch up and some of the issues around labor supply and having additional cost around contractors. I mean that's minimized a fair bit, and the team has been working hard to improve their margins. So we were at the bottom of the curve, probably last year was sort of moving the way back up with our margin improvement, it's a mix of things, and that's a focus from the management team to do it what they always do.

We also -- as we remember, we spoke about in February around the cost out or the right sizing of the New Zealand business. That was in sort of October, November of last year. So we've got a full 6-month benefit of that. that contributed to that improved second half.

Okay. So there's a few months, I guess, about operating leverage or the shape of that operating leverage to come in the first half of '25. .

Yes, yes.

Just 1 final one, Mark, just while you've got the mic. The net interest guidance, can you just confirm that, that includes some of the acquisition funding in those 2 that you've announced today? .

Yes, that's correct, Jakob, that our guidance includes assumptions that Colemans is coming on board and that MIRRAT will complete in the first half. And so we've included those funding costs within that guidance range.

The next question comes from Anthony Longo with JPMorgan.

Paul, Mark and Paul again. Just again following up on the guidance commentary in light of the comments that you have made thus far and the expectations from your '25. Am I right to assume that at an operating level, you're still expecting some reasonable earnings growth on that front. And then ultimately, that more modest guidance you have given out in [indiscernible] is largely the Patrick drag, the Moorebank drag and also that interest step up.

Yes, that's exactly right, Anthony. So good -- a strong continued good growth in the operating business. Patrick coming back because of its over performance last year, higher interest costs and then the impact predominantly of the increased losses on the Interstate JV. It's really -- it gets down to those big numbers.

Perfect. And then in terms of thinking about the 12% target that you've spoken to today, I mean how do some of those new acquisitions fit in with that? So I'm assuming it's probably accretive to your initial 10% target, but if you can perhaps sort of help us understand multiples, what the implications and ramp-up of earnings might look like over the next little while that would be great too.

Yes, they're broadly in line. The synergy value needs to kick in over the next 1 to 2 years on both acquisitions. Yes, they're broadly in line, and they're good quality assets.

And then a final 1 for me. So I appreciate the working capital, and thanks, Mark, for all the details in the slide there. but your cash conversion this year looked a little bit softer and I appreciate the reasons for it. But how do you think about cash conversion going forward? What once you sort of cycle some of these working capital issues and the businesses sort of start growing from .

Yes. Well, there's always a lot of moving pieces. As I spoke about in February. I wasn't really -- we weren't really sure how the grain inventory or the grain trading business would impact our working capital. After that It was only sort of circa $10 million at December. But as I said, it's gone up to $80 million. As I've guided to, it will go up again in the first half, predominantly in the second quarter when the harvest comes through and then unwind in the second half. We've certainly -- we have a first half, second half sort of cycle around certain lines, which I spoke more about in February around insurance payments, which become prepayments in the first half unwind in the second half. STI payments and a few other things like that. So, they're all the same. Acquisitions when we take on board their working capital sort of tend to sort of throw that number out a little bit as well. Overall, the biggest item really is around our receivables, and that has gone up. We've got obviously revenue growth that's driving that, too. But some of our bigger customers, as I've said, few times, make a bit of an art form of delaying their payments for as long as they can, which is where we -- our management team are heavily focused on trying to improve their behavior. Put it that way. But I'm not concerned about -- I think typically, the business has delivered really good strong cash, but there's just a few of these things that, Anthony, that sort of would mean that, that number might flip up improve above 100% or come back down depending on some of those things. And I think the key for me is to be really transparent with you guys.

Perfect. And sorry, 1 last one for me. Look, the CapEx guidance, it looked a little bit higher than what I was expecting, both from -- so excluding acquisitions, sort of your maintenance and nongrowth or other growth acquisitions. I mean can you perhaps let us understand what that CapEx phasing and profile looks like going from here, like given the investments that you have made in the business over the past few years? And what sort of acquisition sort of CapEx guide that you sort of manage the business to?

Yes. Again, excluding M&A because there's a big chunk, as you can see in the 2 that we've got here lined up. Maintenance CapEx, I think you'll see maintenance CapEx. I mean, I know I spoke about for last few years, but we'll definitely sort of be in that 90% or there or maybe even lower range in FY '25. So, I think that will probably be the case for the next couple of years. I think guys are very focused on that. And then it's really growth CapEx, and that number could be much higher or much lower. We get enormous amount of opportunities across our business. And I think the focus is that we deploy that capital effectively. And now we -- as Paul mentioned, we've increased our return on capital hurdles. We've had that 12% hurdle sort of internally for a while, but we're now brave enough now to go out and sort of share that with the market. So yes, it's hard to sort of on the growth CapEx, we could dial that right down if we needed to. But likewise, the guys have all got long pipelines of opportunities in front of them, and we evaluate them one by one.

The next question comes with Matt Ryan with Barrenjoey.

Mark, Paul. I had a question on grain trading and whether you can give us some I guess, color or better understanding about that business. I can see that it had about a 2% impact to your logistics margins. So can you just talk about I guess, the inherent volatility in that business and I guess, how we think about margins in that context? .

Yes. I mean as I mentioned, we kicked that off in December. It's going to be proven to be very strategically beneficial for us. We're already seeing that probably better than expectations in the first quarter of this year, the amount of grain that we've been able to I guess, buy ourselves and trade ourselves in the first quarter before the harvest starts, and we've been able to fill infrastructure up. So strategically, not just the trade itself, but how it actually feeds our infrastructure. We probably -- we've got a bit of benefit out of that last year. But coming into this year, we can see -- and as I mentioned before, we don't know how strong this will be. And a part of this is really how effective this strategy is going to be, but we're pretty confident that we're going to get asset utilization over 12 months of the year where some of the people don't get asset utilization over 9 months. So in regards to trading, we've got a trading mandate that has guardrails around how we trade and what we trade and what risk we take. It is an opportunity to make some profit on some trades this year, potentially there is. But we've got a good mandate and process in place. And we're -- within that time frame, we'll put together a pretty smart team. So we're really confident what that brings to us this year.

And with your upgrade to your return hurdle to 12%, I'm just interested in your comment a second ago that you had that target internally for a while. Can you just talk about, I guess, what you're seeing out there? You seem to have been reasonably active with M&A, at least at the larger end over the last year or so compared to prior years. But are you sort of thinking that, that hurdle rate needs to be higher? And if so, can you higher than in the past but it's can you sort of dig into, I guess, the drivers of, say, sort of why you landed on a higher number?

I think we think can achieve the quality of our business, the size of our business, have we get synergy benefit going forward with putting acquisitions or better infrastructure and buying assets quality after our business that allows us to get more synergy value. But in saying that, we'll buy businesses that may not achieve that rate. But we know in the long term, they're a great asset. So I'm not going to go away from that. So it's been a bit of a balance for us mean that we set 15%, but then we have highly the short-term thinking. So 12% becomes the number that we feel that we can continue to do what we do and invest for the long term, but also deliver good earnings.

Just to put more color on that, Matt, on Slide 10, which includes the ROCE slide, we sort of talked about and Paul spoke about the $700 million -- sorry, of capital that's employed as at June, it's not really generating target earnings. In fact, some of them are losses. If you just exclude the 2 moorebank terminals, our 9.5% ROCE would be 10.5% it's just taking that capital out. Once we get all that $718 million working effectively plus there's other parts of that business where the returns are not where they want to be, so we want them to be. So I think that's where we sort of gives us confidence to move it to 12%. I mean, we'll -- again, as our investment committee and we look at things we might want to invest in something that's lower than that, but we know that 3, 4, 5 years down the track, it's going to start to deliver returns well above, say, 10% if we chose that one. So Yes. I think we're confident that we can get to 12%, and it's some -- I think, just focusing on those ones that we've already got that aren't contributing, will get us almost there anyway.

And just a really quick one to finish, the $190 million to $250 million range that you've given them for asset sales, does that include any part of the interstate terminal at or bank? .

It could. We've got a number of assets that we feel like do we actually need to keep them? Is there a better owner of those assets? Is there a better use of our capital? And we're flagging that potentially -- there potentially might be some divestments. We're not selling anything. We don't think that we'll need in the long term or if we do sell it, we can use it out of the way, like I mentioned before in the interstate. So to answer your question, yes, but it may not be the interstate terminal.

The next question comes with Andre Fromyhr with UBS.

Firstly, on the proposed MIRRAT acquisition. Could you give us a bit of an update on your level of confidence or progress on achieving the required approvals, for example, with the ACCC? And then whether or not you've got strategic plans for that asset that are greater than just continuing the railroad services? Are there options to use the space differently.

Yes. We -- yes, we're making good progress. There is the ACCC has given a date for a decision being 20th of September. We're working towards that. We're confident that that can be achieved with what we're doing in regards to getting the approval process and our undertaking except that we've already got an undertaking. We just -- we need to overload the AAT undertaken with MIRRAT. So Yes, we're in a good space, but we're always in the hands of the ACCC from a time frame point of view. In regards to the asset, that's an asset we know really well. It's an asset we can actually manage very well going forward. So we like the asset. We've made that assessment, we have the opportunity to buy the asset. And most people are probably well aware that the [ ACCC ] assets and what we've done with those assets. Yes, we're really excited to own that asset when we do.

Okay. And there's a comment in your presentation about the potential for special dividends when circumstances justify it. Could you say more about what those circumstances justified? And does it relate to your earlier comments around potential asset sales?

Yes. Look, I think there's always sort of an opportunity for that. But from our perspective, it would really need to be on the back of a sort of a major sort of capital return, as was, for example, the Moorebank Warehouse precinct. That obviously was a huge return back, and we wanted to give some back to shareholders, but in the absence of that, I said $180 million to $250 million, as I said earlier, that will help top up our liquidity. So -- and we're quite conservative on our liquidity. So we'd like to sort of keep that there ready. And we've -- and as I also said earlier, we've got numerous investment opportunities in front of us. So I don't think they should be holding out for special -- anyone should be holding up a special dividend and on sort of a large sort of capital return, which is not being as sale of a large asset to get a huge amount of money back in, which has not been contemplated at all.

Sure. And just 1 last one, following up on the commentary around the grain trading business. Mark, you made a comment around it contributing about $140 million revenue and that's being predominantly second half weighted. So should we think about a full year run rate of roughly double that. And I know there was a comment around sort of the volatility, sometimes profit and sometimes losses on the actual trading. But given the role that it plays in strategically underwriting some of the volumes through your terminals. Is it -- should we think of it as a longer-term breakeven or even loss-making through the cycle?

Yes. Look, I think you should longer term think it's going to have a small contribution to the group. We don't -- and that's net of paying for the investment of the people and resources required to run that part of the business. And also its working capital contribution to pay for its working capital that it's using. In terms of -- it's key -- the strategic reason is that it allows us to sort of feed our infrastructure in a really controlled manner, which just helps to deliver profits in those parts of the business. From a trading perspective, per se, we've got a very prudent position. We hedge. Hedges aren't perfect, but the grain is not a very volatile commodity. So we don't think that there's going to be -- there's really much in the way of downside risk for us in that regard. In terms of revenue numbers, given the outlook for the New South Wales crop, it's probably, take our first -- sorry, second half number double it, but add a little bit more, I'd say, too, because we were only just ramping up, don't forget, during the course of the second half. So I think it's hard to predict what it will be, but we think it's going to be materially higher than double. But again, like I said in February and like what we did now, we will be, again, very transparent around what that business revenues and margins are and the impact, because we do need to carve it out when you look at the group margins because it will have the impact of maybe dampening them down as it does at face value with the numbers that we've got here.

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

So a couple of questions from me. Just in terms of the Patrick guidance. So you've said NPATA down 10% to 15%. How much of that is actually the higher interest costs versus the underlying normalization of volumes at the EBITDA level?

It's mostly the latter. The volumes and the market share and that line. The finance cost is just slightly coming up.

Perfect. You've previously talked about New Zealand and wanting -- and Pinnacle and just, any opportunity to create a footprint in New Zealand with -- that sort of represents more like what you do here in Australia. Can you give us an update on how you're thinking about New Zealand more broadly?

Yes. It hasn't changed. The team's obviously embedding down Pinnacle, which is now called Qube Logistics New Zealand. We rebranded it. There's some opportunities to bolt on organically and they're working through at the moment. So yes, it's a step in the right direction. Is it going to be large in the next year or 2 years? No, it's going to just be incremental?

Okay. And then just in terms of those asset sales. So are you suggesting that MITCo could be completely sold or just sold down to a more minority stake? And are you talking about selling any assets that are currently sort of strategically being held rather than anything that's income producing?

With MITCo, anything is on the table. The only assets we're looking to sell assets that we don't probably need long term strategically, because of things have changed since we owned it 6 or 7 years ago. All the assets that we don't really need to have anymore. And if there's a right buyer with the right value there's a number of assets at [indiscernible]. But I mean, it's just -- we're just looking at our capital management at the moment and just -- and if there's an opportunity, do we sell anything? Maybe not. I don't know. But we think between 2 or 3 assets we're looking at the moment, probably one of them we will do this. So that's why we've given that guidance.

So maybe ask that in another way. Have things changed in the last 5 or 6 years with some of these assets that the alternative use of these assets is actually worth more than what could potentially be used from an operational perspective? .

Potentially or what we've been -- we've developed another part of our business that we can consolidate into. So it's just a combination of things. .

Okay. And then sort of linking into that, I mean, Mark has also talked about the gearing going up to the midpoint of the guidance range. How much pressure do you have to sort of bring that back down before you need to -- have got the capability to do something larger in terms of the CapEx?

Yes. No -- I mean, no real pressure. I mean we're well within our covenants. So we've got plenty of headroom there. Look, I think we will peak probably at December in terms of the gearing and then see it tick down a bit at -- by June of next year. And that's on the assumption there's no more big M&A and just with the sort of the capital that we've guided to. But yes, there's no real pressure in that regard. So, we'll continue to look at opportunities. But the bigger ones like Colemans and/or MIRRAT, they don't come along that often.

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

I was wondering if I could ask a slightly different question on Patrick. The primary union down there is part of the CSM in view, which is the best what we put into administration. It could be as early as the end of next week. What does that mean for Patrick, please?

I don't think it means anything to be honest, the [indiscernible] is a separate branch. That's not going into administration.

It's not?

No, not the Maritime branch of it to say in the construction.

Yes. Okay. Is there the potential, though, that maybe there's some sort of change in I guess, behavioral aspects from the union, do you think? Or is that unlikely?

I'd like to say potentially. But I'm not too sure. .

Oaky. All right. we'll leave it there. You also released today a sustainability report. I was just wondering, you've been trialing a range of different technologies to decarbonize your broader fleet. I was wondering if you could just give us an update as to what you're finding is working, what's not working so well, just in terms of thinking about the next few years of change in use of technology.

I think the road map on our scope II is pretty clear in regard to having green energy to operate our facilities in the midterm. Technology around light vehicles and EVs, around that, there's a good road map there and we started to replace our equipment that way. large heavy voltage equipment, it's still difficult. I mean we're looking to find the real solution there. We have been trying a number of different technologies and with different OEMs and I think our position at the moment, we will continue to do that. We haven't got -- we haven't got the game changer yet, but we're trying as much as we can and keeping it commercial at the same time.

Yes. Okay. And then the last question is just on Colemans, and you've answered a couple of questions on this, but I was just wondering how given the nature of activities with highly sensitive freight movement. Can you just explain to me how that actually has synergy with a broader network in Western Australia, please? I guess the business might make a perfect financial sense on a stand-alone basis, and you've highlighted the assets you're buying and the price you're paying and all of that. So I'm not questioning that side of it. I'm just wondering, you made a few comments on how it fits with your network. And I'm just a bit confused on that just given what it does.

Yes. So in all the locations, we've already got locations. We're already -- we've got management teams. And so there's a real alignment around in that bulk space around synergies. With the Kalari acquisition, we were -- before Kalari, we were more about the outbound logistics getting mining commodities from the pit to the port. This complements our sort of inbound service supplies and abilities and a bit like Kalari -- and given the quality of the asset, the uniqueness of it, it fits in. So we can store and deliver SSAN product [indiscernible].

Can you use the same trucks to go into a mine site as you used to take commodities from it to port?

No. That was not on this type of product.

Yes. That's what I thought. Okay.

You won't get the synergy with regards to the haulage part, but there's a range of synergies around location, what we offer to customers.

The next question comes with Owen Birrell with RBC.

Just I guess the first question for me, just on the logistics business. I wonder if you can provide a bit of color around what happened in the first half with respect to your margins. I look at EBITDA margins running at around about sort of just a little bit over 21% last year. first half, they jumped by about 200 basis points. And then the second half has come back down just below 21% again. And I just wondered what caused that jump in that EBITDA margin in the first half.

Yes. So on the first half, even though we had a very poor, I guess, outcome from the agri with the volumes being down there, we had a very strong performance in the other parts of the business and particularly automotive, and that's quite a high-margin business as well. So it's sort of -- it's really just the balance of those things.

And so what you're saying is in the second half, has automotive come backwards or.....

It's come back a little versus the first half for sure. Yes.

And I guess I'm asking, should we truly take second half as being kind of more normalized levels of, I guess, portfolio margin.

I probably take the blended for full year. But we've got a whole.

You've got a whole different scenario with Agri in that space being much better than the year and last year. So I wouldn't take that approach.

Yes. We need to -- grain trading in the second half to Port Lewis, just chipped in and is correct because that -- if you take off the $140 million of revenue.

[indiscernible] adjusted for that?

[indiscernible]. Already done it. [indiscernible]. Yes.

And just a second question for me. The increased target to 12% over the medium term. Acknowledging the comments that you said there that the operating ROCE is around sort of kind of 11% to 13%. And the group rose around 10.5%. Just wondering in terms of what you see as the key drivers to improve that ROCE. Is it really just about increasing utilization of underperforming assets? Or is it more about the cost out? Just trying to get a sense of how you're going to drive that ROCE up that extra 200 basis points.

It's really -- it's a whole -- we've got a whole toolkit really. It's improving earnings, which could be through from cost management. Higher utilization is always good. Price management is another one of those. Extracting underperforming assets out as well. [indiscernible] those types of things. So there's it's not one focus. Each -- I think there is such a strong focus within the group around return on capital at all levels. that management even at the operating management line are always focused on how they can do more with what they've got, improve their productivity, et cetera. So, and then obviously, we've got -- as I said, we've got pricing opportunities, cost out opportunities, et cetera, et cetera. So all of those things will hopefully work towards getting us above that target.

Just that increase in that target. How much of a trigger has that been or the comments around selling assets? Are these predominantly going to be underperforming assets that you just don't think you can turn around?

Not necessarily. No.

The next question comes from Robbie Koh with MS.

Congrats on the result -- just a couple of quick questions. Just for your asset sales, and I hear what you're saying about assets you don't strategically need. Included in those things under consideration, is there any like real estate that you'd sell and then lease back?

Potentially, but not -- yes, potentially maybe not leaseback. Yes.

And then in financial engineering. I'm not trying to just book a profit or whatever it's about wholesale assets. We just don't need anymore because we can consolidate or similar to what we did with the [indiscernible] transaction to prove that.

If there's a better owner and there's a value to it that we think we want to take at this point in time, we'll consider it. Yes, yes.

Yes, I hear that is the primary driver. I just wanted to double check on the other bit, and so that's clear. All right. I guess my next question relates to the grain business that you set up, and thank you for all of the granularity of detail there. How should we think about how the business would go in like a really tough drought year, like, I don't know, 2019, 2018? Is that where utilization even in those years goes down? Or are there maybe other crops that you can use the infrastructure for?

There'll be some assets we can't utilize again. That's reality. The grain trading arm is -- one of the reasons we've done that is really to help us out in medium to low seasons where we can be able to trade or to pick up going where the grain is available to move through assets. So the volumes aren't as low as probably been waiting on customers to use our assets. that gives us some leverage during those tougher periods. So that's part of that strategy as well.

Okay. That makes sense. All right. And then just last question for me is on the long-term incentive plan from -- I guess, from FY '24 where you've got, amongst other metrics, you've got an EPS, a CAGR range and you're off to a very good start there, so hoping for the best. Just wondering if you could give us any color on where the adjustments would be made for acquisitions. Is there like a threshold size? Or does MIRRAT fall within the existing target? Or is there -- if you could give us any color on that, please?

Good question. I think it would be a matter for the Board at the time there but to answer that last part, no, there's no adjustments from MIRRAT. I think the intention is more just that under the plan, you wouldn't want to be a different incentive for doing a significant acquisition like [indiscernible] an example, if Patrick, for example, happens in the last year. And by doing that, the right thing strategically makes a lot of sense to remain you wouldn't hit a hurdle that you otherwise would, and that would be a consideration. [indiscernible] Board will need to be comfortable with to drive balance between shareholder value creation and being fair, but there's no hard and fast rules for the Board to determine having regard to the relevant consideration.

The next question comes with [ Andrew Hodge ] with ACC.

I've got 3 questions. First is for the asset sales. I think you made a comment before about Moorebank 6 7 years ago from memory cent you've made in that period would have been more bank as well as MCS, and so I'm just trying to figure out like whether or not you're -- if we're looking at Moorebank as well I have to comment about saying it's not something you can't turn around. Can you give a little bit more explanation for why you'd want to sell something, which you still think you can turn around?

The Moorebank, the Moorebank in estate terminal was always secondary to the IMEX in our strategy. And it was an obligation that was basically put on us by the federal government to build. Our view at the moment, we may hold it. We may stay there at 65%, but given the open access regime and given the -- and we always said it won't make it -- the earnings won't be as great as the IMEX going forward, the [indiscernible] IMEX. So to make that work and if there's other players that want to have an equity stake in it and potentially bring volume, we're listening to, that's basically what's happening.

And I think the other point about just with the joint venture is unlike the IMEX, we don't control it, the joint venture partners. So what we've typically done in other sites that we can take an asset and optimize it, there's much less ability to do that because there is -- there are other stakeholders and therefore, the approval process is not about Qube, it's about the joint venture. So it's much more a stand-alone asset, which as Paul said, operation-wise, we can use it to run trains where we want to. But strategically in terms of what we normally do, where we maximize value, much more limited.

Second question is for the FY '25 growth, how much of that is based on MIRRAT and Colemans?

We haven't sort of -- we haven't guided to that, but it's a contribution for sure. I mean, I wouldn't -- I don't want to throw off the top of my head because I couldn't tell if it's 25% or 30%, and I probably wouldn't if I did know. But it's -- they're going to contribute without a doubt. Not a huge amount at NPAT because there will be funding costs as well. But that will be part of our growth for sure. [indiscernible] stuff Sorry.

I'm just cognizant of the ACCC stuff.

Yes, yes. That's right. Yes. Well, we're sort of -- obviously, MIRRAT, in particular, because that hasn't completed. We've sort of -- within our guidance, we've got it pegged in the first half. And if that sort of is a delay for whatever reason that will have a small -- potentially small impact. .

In Qube some were goes down somewhere else, and we always get where we need to get to.

And my last question is on the common transfer business. I mean the brothers are trying to sell this business about a decade ago and couldn't get it done. And I'm just curious like why now? Like did you guys look at it then when they tried to sell it? And what gives you comfort now given it's, I guess, leverage to mining that you guys can do it better?

I think 10-years older and they're willing to sell being 10 years old at the time of age that was -- that was -- that's probably why the transaction occurred actually.

Yes. And we've -- part of our due diligence. We've obviously done a really close assessment around all of the customers and where the product ends up, et cetera. And obviously, we're very cognizant of lithium and nickel prices and what's happening in that space. So we're pretty confident that this business is not going to be impacted by that.

[Operator Instructions] The next question comes with Ian Munro with Ord Minnett.

With respect to the outlook slide with resources, I noticed some green and some amber on that outlook slide. Just conscious of keen to understand how your key resource customers indicating forward volumes and perhaps whether you have any customer, I guess, contracts up for renewal over the next couple of years and how you're generally thinking about that exposure into the mining cycle at this point in time?

Yes. I think it's -- given it's the same sort of half and half grain is no different to what it was last year. We'll continue to grow as we do. We'll grow modestly in that space. We've got some challenges with some customers, we had some challenges last year and that, that's some one's going to care, and we manage through that and transition around that. We've got some contractual protections working through with 1 of the customers at the moment. But overall, we see growth, and we've taken that into our guidance. There is some challenges that's factored into our forecast.

I think we're going to have to actually wrap up.

I think that's last question. That's the last question.

Moderator?

And there are no further questions at this time, and I'll now hand back to Mr. Digney for closing remarks.

Thank you for everyone on the call, and I'll see some of you guys soon. Thank you. Bye for now.

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