Thank you for standing by, and welcome to the Qube Holdings Limited fiscal year 2025 half-year results investor briefing. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Paul Digney, Managing Director. Please go ahead, sir.
Good morning, and thank you for joining this morning's call. I'm joined on the line also by Qube's CFO, Mark Wratten, and Head of Investor Relations, Paul Lewis. Starting on slide six, Qube has delivered a very pleasing set of results for the half, slightly ahead of our expectations, providing us with positive momentum for the full year. As per our headline in our ASX announcement this morning, "Diversification delivers again." As we always say on these calls, our strategy to build quality businesses, diversified by market and geography, is a key source of our strength for our combined business, and this is proven again by different markets performing better than others in the period in comparison to 12 months ago.
As during the period, as we expected, firstly, we saw negative growth in our automotive market and a flat Patrick's performance in the period, as both businesses come off a very strong half-year performance last year for different reasons. We also incurred startup losses at the Moorebank Interstate Terminal and impacts from industrial action in the period. However, on the positive side, these negative growth impacts were more than offset by a very strong agri performance and strong earnings from both our forestry and energy businesses in the period. I'll touch more on this as we go through the results. Slide seven, safety performance. The strong safety culture at Qube is something I'm very proud of, and it was pleasing to see further improvement in our total recordable injury frequency rate during the half, and during the period, we launched a newly refreshed safety awareness program called Be Safe.
Be Safe is a strong and simple message and represents a continuing evolution in our safety leadership program. Heading to slide eight, segment overview. We'll dive into these numbers shortly, but I think this slide really sets the scene. It shows the strength of earnings growth across the group and the operating division since full year 2021, a track record that has continued through this half, which highlights the ongoing double-digit EBITA growth trend within Qube. Now, turning to key markets on slide nine, and as always, I'll spend a little bit of time on this slide because it shows the value of our diversification.
I think the key takeaway is that across our key markets, our performance for the half was generally in line with the outlook we took you through in August, with the only exceptions being automotive, which was impacted by industrial action and lower volumes, and also the delay in the MIRRAT acquisition. While the other one was on the upside, it was in forestry, where stronger Australian volumes and benefits from the New Zealand cost-out program saw the business exceed our expectations in the period. Staying on slide nine and across the other markets, I called out the strong performance of agri earlier, and it's a real big highlight of these results. It shows our ability to change up our strategy and deliver for customers and our shareholders. It's a core attribute of Qube to be agile and to move quickly.
The team have done a great job to build up our trading capability from scratch here, to make the business more efficient, and to better utilize our assets. The results speak for themselves. Qube was the largest exporter of grain out of New South Wales in the first half of the full year 2025, which is a pretty remarkable outcome by Qube. Onto other markets. In containers, we expected traffic to moderate during the half within the Patrick's business. Resources was a bit lumpy during the period due to some mine closures over the period. However, this was offset by some new business that came on stream during the period as well. Finally, we continue to grow in the energy space, and the team are doing a really good job here, delivering on new growth from existing and new customers in this space. Moving to slide 10, Qube's revenue diversity.
I won't elaborate on this slide, but it shows the value of our geographic diversity. In addition to our diversification across markets, the pie chart on the right-hand side also tells a powerful story. It underscores the value of our customer diversification. Qube's top 20 customers still only account for around 30% of Qube's group revenue. Now turning to the divisional performance, and if I can head to slide 12, the operating division. Before we get into the detail of each business unit, this slide breaks down the headline revenue and EBITA numbers, and it shows good growth across the operating division during the half. Moving to slide 13, Logistics and Infrastructure business unit. Overall, a really solid performance. I've already covered the strong contribution from agri during the period, so I won't elaborate on that again.
I've also spoken about the reduction in automotive revenues during the half compared to the very high levels that we saw last year at the same time. Elsewhere in Logistics and Infrastructure, the business benefited from almost 50% increase in the New Zealand revenue, thanks to a full period of the Pinnacle ownership in New Zealand. The New Zealand business is performing well. With the IMEX, the IMEX at Moorebank continues to see volume growth, and our operations are now cash flow and EBITA positive, which is pleasing. The IMEX terminal's current annual run rate is approximately 350,000 TEU. With new customers and tenants, including a large retailer due to come online soon, and with the relocation of our Minto's operations to Moorebank happening this month, we'll see a steady increase in the TEU volume at Moorebank in this calendar year and over the coming years.
The last point I want to make on Logistics and Infrastructure is with respect to the acquisition of MIRRAT. As you know, an ACCC decision on that acquisition was originally expected in this reporting half. That's now been delayed again by at least another month by the ACCC. This is obviously frustrating, but we remain hopeful of a positive resolution soon. Turning to Ports and Bulk on slide 14, we saw significant margin improvement and strong earnings growth in the division in this business unit during the half. This was despite the headwinds from industrial action and some mine closures in the bulk sector. As noted on the slide, bulk-related revenues benefited from new business wins across a range of commodities, as well as from the acquisition of Colemans throughout the period or in the period.
As already stated earlier, earnings grew across most activities, with energy, forestry, and Southeast Asia having good growth. Also mentioned, margins were pleasingly high across most activities in the period. This was mainly reflected by management initiatives from improved productivity outcomes, the benefit of higher volumes pushed across Qube's infrastructure, and exiting from some contracts which had margins well below Qube's average target. Slide 15, Patrick. You'll recall that this time last year, we were talking about significant growth in Patrick's market share due to the consequences of industrial action at DP World. This result reflects a return to more normal conditions, with market share around 42%, as expected. Also, the result was a little bit above our expectation due to a couple of reasons.
The result benefited from an increase in container market volumes of around 7.5%, higher than we expected, and from higher ancillary revenue, and from a more favorable mix of higher quality revenue, both from the quayside and land side activities. During the period, Patrick's also extended several customer contracts. Moving to slide 16, other associates. In terms of the other associates, the results are generally in line with the same period last year. The notable addition to this slide is MICCO, which is Qube's 65% interest in the Interstate Terminal at Moorebank. As I've already highlighted, Qube's share of the losses at the facility impacted on our overall result for the half. At this stage, the terminal has not secured any volumes, and we don't anticipate that changing in the second half.
I will now hand over to Mark Wratten to take you through some further financial information from the half.
Thanks, Paul, and thank you to everyone on today's call for listening in. As Paul has already highlighted, it has been another positive financial result for the Qube group for the first half of the FY25 financial year. I'll now take you through a few financial slides, starting with slide 18, Qube's underlying results. Paul has already given some color to our Logistics and Infrastructure, Ports and Bulk business units, and Patrick's results. A few other points to note include the strong first-half result in our operating division contributed to an increase in EBITA of 14% over the prior period. Pleasingly, Qube's EBITA margin, excluding the high-revenue, low-margin grain trading business, increased 10%. As we have earlier guided to, this EBITA improvement was partly offset by an increase in net finance costs in the half, as well as lower contribution from our associates.
Net finance costs increased by AUD 12.5 million against the prior period due to higher average debt balances and base interest rates versus last year, as well as no capitalization of interest on the MLP terminals, which alone was a AUD 6 million period-on-period impact. The impact share from associates reduced by AUD 4.9 million and was mainly attributable to Qube's share of the losses from the new MICCO joint venture, which owns the Moorebank Interstate Terminal asset and is in its early startup stage. At the underlying NPATA line, we delivered a slightly improved result against the first half of FY24, being up 1.3%. This was a small improvement against what we guided to at our AGM last November, where we mentioned that we expected to be slightly under the prior period at the half.
On the back of these results, the board has declared an interim dividend of AUD 0.041 per share, which will be payable on April the 10th, 2025. Moving to slide 19, capital expenditure. In the first half of FY25, Qube's net CapEx was AUD 317 million. This is broken down into the four major categories on this slide. In August 2024, we acquired the Colemans business and assets for approximately AUD 116 million. This asset is now reported within our Ports and Bulk business unit and has been performing in line with the business case, and the integration is progressing well. Qube spent AUD 92 million on growth-related assets in the categories set out in the table below. The major spend was on new bulk storage facilities in Queensland and Western Australia and mobile assets to support new or expanded contracts.
The bulk of the expenditure on rail assets related to final progress payments on locos and wagons. In the period, we also spent AUD 112 million of replacement CapEx, mostly on mobile fleet assets and materials handling equipment. This represented circa 94% of our first-half depreciation expense. Finally, we spent AUD 20 million on the two Moorebank rail terminals, split relatively equally between the IMEX and the interstate. Taking you now to slide 20, cash flow. Qube's net debt increased by circa AUD 380 million from June 30th to the end of December 2024, driven by a number of factors. Our cash conversion, excluding grain trading working capital, which I'll talk to shortly, was 79% for the period, driven by typical first-half negative working capital movements, including insurance payments and short-term incentive payments. These items will unwind in the second half.
As I guided to back in August, our grain trading business has required a significant investment in working capital as we built inventory levels on the back of a very strong New South Wales harvest. Working capital for this part of our business grew AUD 132 million in the half to be over AUD 210 million at the end of December 2024. We do currently expect a material unwind of grain trading-related working capital in the second half as our grain is moved through our logistics network to our two export terminals in Newcastle and Port Kembla and then loaded for export and invoiced. By way of example, since January 1st, 2025, we have received over AUD 161 million of cash from bulk grain shipments, with another AUD 36 million expected before the end of this month.
Our first-half cash flows also included the AUD 317 million of CapEx that I spoke to on the previous slide, as well as AUD 64 million in distributions received from our associates, mainly Patrick, as well as the other items highlighted on this chart. I do expect our second-half cash flows to be stronger due to working capital unwinding, lower taxation installments, and further distributions from associates, and gross receipts of approximately AUD 248 million from the asset sales we have completed, the biggest of which was the sale of our Minto property in New South Wales.
Excluding the expected completion of the MIRRAT acquisition, our closing net debt position for June 2025 should be materially lower than our first-half balance. Our full-year cash conversion, excluding grain trading working capital, should revert to circa 95%, consistent with historical levels. Finally, if I can now take you to slide 21, balance sheet and funding.
One of the highlights of the first half was our announcement that Qube had obtained and made public investment-grade BBB credit ratings from both Fitch Ratings and S&P. These public credit ratings now provide Qube significantly more strategic flexibility in how we set our future capital structure. On the back of the credit rating process, we tapped into the Australian medium-term note market for our inaugural issuance in early December 2024 and successfully issued AUD 600 million of long-tenured senior unsecured notes, comprising AUD 350 million of seven-year and AUD 250 million of 10-year notes. During the period, we also repaid AUD 50 million relating to the first tranche of the USPP notes, which expired in October 2024. These major changes for our funding have extended our weighted average maturity to four years, with no facilities maturing until FY26.
On the back of the increased net debt, which I mentioned in the earlier slide, Qube's gearing ratio increased to 32.5%, which is at the bottom end of the board-approved range. Overall, we retained significant headroom against our bank covenants. Our available liquidity increased to AUD 1.15 billion as of December as a result of incremental funding from the AUD 600 million of Australian medium-term notes that I mentioned earlier. That's it for me, so I'll now hand you back to Paul. Thank you.
Thanks, Mark. Summary and full-year 2025 outlook. On slide 23, first-half summary for Qube. To summarize, we had a solid first half. We built significant momentum as we head into the back end of the year. We have achieved margin improvements across the business due to the benefits of scale and our ongoing focus on productivity. In particular, it's pleasing to see the Ports and Bulk division continue to improve in this area. We continue to track towards our 12% return on capital medium-term target, and if you exclude Moorebank rail terminals, we're already at 10.5%, and we continue to deliver EPSA and dividend growth, noting that we have come off a very high prior period. Moving to slide 24, full-year 2025 outlook. Looking ahead, with the momentum we built in the first half, we're positive about the period ahead.
The operating division is performing well, with positive to stable outlooks across all markets. We anticipate that Patrick's and other associates will perform marginally better than we previously expected in August last year, although this will be offset by MICCO being a little bit worse than expected. On interest costs, interest costs will now be around $20-$25 million higher than last year, which is approximately $10 million lower than we previously guided to in August, mainly due to the MIRRAT acquisition delay. CapEx is also expected to be broadly in line with guidance, noting that the CapEx spend will now be partly offset by around $300 million in asset sales, which we expect to complete a majority of these sales in the second half of the year.
So, on the basis of all of that, we are confident that we will deliver NPATA and EPSA growth to be at least 5% at the full year. We've made a good start, and notwithstanding the geopolitical and economic challenges that remain, I believe we're well placed to continue on our positive growth journey. I will now hand you back to the moderator. Thank you for listening and happy to take questions.
Thank you. If you wish to ask a question, please press star, then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star, then two. If you're on a speakerphone, please pick up the handset to ask your question. And our first question will come from Jakob Cakarnis with Jarden Australia. Please go ahead. The next question will come from Cameron McDonald with E&P. Please go ahead.
Sorry.
Good morning.
Sorry, we didn't hear that first question. Sorry.
Yeah, I think he had you on hold.
Okay. You got in early. Hi, Cameron.
Hi, Cameron.
Hey, guys. Can I just run through a couple of quick things? So just with regards to your resources exposure, is there any impact on the weather events of Cyclone Zeta in the Pilbara?
There is some impact, probably, but not material. We lost a couple of days' work in some of the operations in the Pilbara, or all the operations. And yeah, so there is some impacts, and we're still assessing that, but we don't assume at this point, we're not forecasting them to be material impacts. We're still waiting for some roads to be reopened for some haulage lines, but the actual operations at the port, at both Port Hedland and Dampier and Karratha, are back up and running now.
Okay. Perfect. Thank you. In terms of the grain handling and grain trading, what's the grain terminal capacity or utilization that you delivered in the half, please? And then how do we think about that from a modeling perspective going forward? I mean, obviously, it's running through the revenue line, which has boosted the revenue in that division. So, it's more of a modeling question, I suppose, but how do we think about that from our forecasts, please?
probably difficult for us to articulate exactly the utilization factor because, given what we've done so far with probably streamlining the efficiencies, we're actually getting better utilization. All I can say is we did 1.2 million tons combined through the two terminals in the first half, and we'll do a larger volume than that in the second half.
Sorry, Cameron, it's Mark. You will remember a couple of years ago, we did over three million, I think, for the full year with the harvest a couple of years back. The expectation is that those terminals just can actually do high volumes in that. So the 1.2 was really that we just handled all of the volume that we had available, and the second half, as Paul said, should be high volumes.
Okay. Perfect.
Sorry, what I was saying is it'll be circa three million. It'll be above.
Yeah. Okay. Just in terms of Patrick's, you've highlighted that you've received a AUD 60 million distribution in terms of the cash flow. It doesn't look, though, and it doesn't look like the shareholder loans have been repaid, if I'm reading that correctly, from the full year 2024. So just how's that distribution come through, please, given that the profit from Patrick's obviously lower than the 60?
Yeah. It's really through, I mean, we are anticipating that later in the year, the shareholder loans will probably get almost fully repaid. But yeah, mostly it's just come through as dividends, franked dividends.
Okay. Thank you, and then finally, just with the liquidity that you've taken on board with the additional 600 coming through, you've been pretty quiet on the M&A front. Is there anything that sort of is on the radar from an M&A perspective?
All right. We're still working through the MIRRAT acquisition, and we've always got an opportunity pipeline that we're working through at the moment, but nothing that we can, nothing that's sort of progressed to any stage or anything that we can disclose. But we've got a healthy pipeline, so we're considering things that are in front of us at the moment, but there's nothing significant to sort of talk about.
Okay. Thank you. The next question will come from Rob Koh with MS. Please go ahead.
Oh, good morning. Thank you for the presentation. Just if I can drill down into the energy results, which you called out as one sector that's helping out a little bit. Can you maybe just give us a bit of color if that's some renewables activity or if it's in the oil and gas space? Are you seeing more decommissioning activity, maybe?
Yeah. It's a combination. We're seeing existing scope from our oil and gas customers, and some of that is around decommissioning. I think decommissioning is probably more of an opportunity going forward than what we're actually seeing right now. And we are doing some work in the renewables space, especially with wind farms, onshore wind farms, not offshore wind farms at the moment. So it's a bit of a combination. But as I said on the call, the team's done a really good job with the existing customer base and new customers and building out bigger scope of work and doing a really good job and providing good service to the customer base.
Cool. Sounds good. All right. And then maybe just a question, just to make sure I understand how to think about the interaction of your new grain trading operation and your agriculture business, because I see that you'll have intercompany revenue. Should we still be thinking that the revenue that your trading operation, the money that your grain trading operation pays to your agriculture division, is at an appropriate margin so that overall, with the increase in agriculture, you should have seen an improvement in margin there?
Yeah. Overall, we do. I mean, obviously, as we've highlighted, we take a pretty conservative approach on the trading of the grain itself, but we cover the trade through the cost of capital and the desk and so forth. But the margins for what we call the logistics activities are margins that are appropriate margins or good margins that we keep, obviously, as we fill our assets and as we utilize our assets more. The benefit is really on the logistics side and the terminal side.
Yeah. Yeah. I guess putting it simplistically, you've done AUD 154.5 million in revenue in agriculture, up AUD 50-ish million year on year, and a lot of that's from the grain trading business, but that 154 million is all at a commercial margin, yeah?
Yeah. So internally, there's AUD 45 million. I think in one of the appendices, there's about AUD 45 million in the grain trading revenue. That's intercompany revenue, which goes back, which is in the agri revenue as well. So yeah, there's a contribution. Yep.
Yeah. Okay. Thanks so much.
Again, if you have a question, please press star, then one. Our next question will come from. Excuse me. Our next question is a follow-up from Mr. Darcy White with Jarden. Please go ahead.
Hi Paul. Hi, Mark. Thanks for the presentation. Can you talk to Patrick's performance in the first half 2025? Market share has stabilized, but underlying earnings look to remain quite resilient. How sustainable are the ancillary fee contributions to profitability, and should we make anything of the increase in Patrick's valuation presented in the materials today?
I think, as I said on the call, our Patrick result was slightly better than expected. The overall market was a bit stronger than expected. Now, that can be reflected about the DP World issues, where there were some delays in ships. And if you compare half-on-half market volumes, they might have been a bit down because of the delay. So even though our market share went to 42%, our volumes were a bit higher than we expected in overall volumes. And then we had a better quality of revenue mix on the quayside and the land side. So better than expected. Cautious in the second half that the volumes might not be exactly the same as the first half. And so yeah, but business is tracking well, secured contracts that were up. So yeah, it's in a good space.
The valuation that we put on that slide is basically Patrick's market valuation that they do, the Patrick's management do each year. We previously disclosed that a couple of years ago, so we just continue to provide that. That's based on a DCF model, so that's the Patrick's management valuation for their purposes.
Okay. Great. Thanks for that. And can you talk about the logistics EBITA margin changes excluding grain? They look to have declined by about 160 basis points on the disclosures. Can you just help us understand some of the drivers there? How's the pricing and competitive environment? Thanks.
Yeah. The key driver on that is really the downturn in automotive business. I mean, in some of the terminals there, we had really high volumes and really great margins in the prior year. So it has come off a lot, and there's been impact through industrial relations through those terminals and so forth. So there's not really. That's the only driver, really, that's really impacted those margins. So it's come off a really, really high base. It's been. There's been some upside on the agri side of it. I guess the general containerized business and logistics business has held firm. So it's a dynamic of what's happening with the automotive industry now. It's still been a reasonable result on the automotive side, but we've come off a really, really big high in the first half in 2024.
Okay. Great. Thanks a lot.
The next question will come from Ian Munro with Ord Minnett. Please go ahead.
Good morning, Paul. Good morning, Mark. Thanks for taking my questions. Just firstly, looking at the run rate in Moorebank, 350,000, just to clarify, does that include Minto and perhaps give us a sense of any other recent customer kind of movements at the site and what that might do to the run rate this half? Thank you.
Yeah. Minto has just occurred now, so it's not sort of factored in. So Minto will be upside over the course of the year. There are some new customers coming on board, but we can't disclose them at this point in time because they're not disclosable. But there's some good news happening in the near future around some tenants.
And just thank you. And then just in terms of the Patrick business, obviously, enterprise agreement sort of negotiations tend to sort of pop up every three or four years. I may have missed it, but can you provide an update on where the general industrial activities so levels are at in Q Ports, where's that negotiation at? And is there any kind of retry, I guess, for Patrick's negotiation this year? Thank you.
Yeah. In regards to Qube Ports, thankfully, we're at the end of that. We've gone in principle agreement with the MUA, which happened about a month ago. All the stop work actions have stopped, and we're back to normal. Transmission has recommenced. So yeah. At the end of the day, it went longer than we expected or it should have. We've got a good outcome in those negotiations, a four-year deal for Qube Ports. So the next time we'll run through this is in four years' time. Hopefully, the IR landscape is a little bit better around the IR reforms and so forth. But what I will say is that we were in the negotiations that we had, we've got a reasonable—we've got a good outcome and an outcome that doesn't send us backwards with productivity or efficiency.
So we're able to hold our line, which it's probably difficult to do in the current environment. So yeah. Unfortunately, workers had to go through this, and this thing could have been dealt with even quicker. But it is what it is, and it's the environment we live in. But the team did a very good job, and everything's back online. In regards to Patrick's, Patrick's agreement is up at the end of the year. So some discussions will commence or have commenced, and we'll work through that. And I think we should get a reasonable outcome there, but it's all in time, so.
Thanks, Paul.
There are no further questions at this time. I'll now like to hand the call back over to Mr. Digney for any closing remarks. Please go ahead, sir.
Thanks for everyone for joining the call. Hopefully, it was helpful. Look forward to catching up with some of our shareholders over the course of the next couple of weeks. So thank you again, and see you soon. Cheers.
This concludes our conference for today. Thank you for your participation. You may now disconnect.