Thank you for standing by, and welcome to the Qube Holdings Limited half-year results conference call. 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 ahe
Thank you. Good morning to everyone on the call, welcome to our half year results call. Beside me with his feet curling under the desk now in Qube is our CFO, Mark Wratten. He's joining me today to speak. To kick off, can we kick off on Slide 5, Qube's half year highlights. I'm very pleased to announce today Qube has delivered very strong revenue and earnings growth in the period, delivering excellent underlying results across all key metrics. The half year results reflect the model growth drivers within the Qube business, supported by Qube's very robust, diversified business model and our key assets.
Today, we have also announced a 25% increase to the half year interim dividend at AUD 0.0375 per share, fully franked, reflecting the strong financial performance and our positive outlook. Qube expects to deliver a strong full year underlying earnings growth compared to last year. Turning to Slide 6 of the deck. Qube's growth continues to be driven by multiple growth drivers across our business. As provided at last year's Investor Day, this slide calls out Qube's many growth drivers, providing Qube with the strategic capability to be a GDP++ growth business. In the first half of 2023, we saw high growth across most of these volume drivers in the period, assisting the 23% revenue growth in the half year. Our growth was achieved without any contribution from any new acquisitions in the period.
Although we are well progressed on a number of bolt-on acquisitions at present that could complete in H2. However, there's no certainty of any of them completing in the period, as we continue to remain disciplined on our strategy, price, terms, and our risk assessment on these acquisitions. We won't rush for acquisition's sake. The high volume of growth in the first half of the year, we achieved very good margin uplift across most of our value drivers, the value drivers on the right-hand side of this slide. Largely achieved within the logistics and infrastructure business unit.
However, the same margin uplift wasn't achieved in the ports and bulk business unit due to productivity and cost issues, mainly relating to ongoing labor shortage issues in some small pockets of the ports and bulk business unit, and an inability to fully recover inflationary escalations relating to some bulk mining contracts in the period. I'll touch on this a little bit later. Boxes marked with X on this page, we see as potential upside in these areas as we move into next year. Turning to Slide 7. This slide illustrates our diversified revenue within the operating division by geography and the growth per region over the past 12 months. The slide calls out that we've achieved sizable revenue growth in most regions within the operating division.
New South Wales, Queensland, Western Australia, Victoria, and South Australian regions all had sizable revenue growth in the period, all way above the GDP growth rate. Turning to Slide 8. Although we had a very strong result in our first half, we still had our challenges. This slide calls out the key challenges that we called out last year and the challenges that we faced last year, and it provides an update. The items with the green traffic light, we've seen improvement in the period across these challenges compared to last year. COVID, extreme weather events, supply chain disruptions, and Chinese volume impacts weren't as severe as they were last year.
Even the extreme weather events in the first half, the flooding issues, we were able to manage fairly well across that period, testament to our team. The items marked in orange traffic light, as mentioned on the previous slide, we continue to have some challenges with labor and inflation issues in the ports and bulk business, mainly relating to areas as I just spoke about, the inability to fully recover inflationary escalations relating to some bulk mining contracts and the ongoing labor issues in remote areas such as, or mainly, the Pilbara and Goldfields bulk operations in WA and forestry regions in Victoria and Western Australia. Other. However, we do expect these to improve over the next six months. We expect upside in full year 2024.
Turning the page now to our safety performance on Slide 9. Our LTIFR, our TRIR, continues to trend down. A great safety performance by our operations and our safety teams. We continued to focus our operations on critical safety risk awareness during the period. With our new Qube Thrive program and our stops or safety campaigns, having a heavy focus on critical risk management throughout the period. During the period, we rolled out a new event management system, which provides the business with a further improved capability in safety management. The team in the period continued and delivered on new innovative safety controls, new prevention methods, all assisting us to further to lower our safety risk within our operations. Slide 10 is a little update following last year's update at the AGM on our decarbonization plan.
Our journey to be a supply chain leader in transition to renewable fuels in our regions in the future. Things we've done since. We've continued to enter into a number of partnerships to trial innovative technologies and alternative fuels over the next two years. After we've completed these trials, we hope to be in a better position to make more informed decisions on how we accelerate our decarbonization journey. During the period, we have also invested in additional resourcing to strengthen our in-house capability, to build our expertise, improve our analytics and research abilities in this space to support the execution of our decarbonization plan. We also commenced in the period, customer and supplier engagements on scope three emissions reporting and management. I can now move towards divisional performance, H1 first half divisional performance slides, kicking off with the operating division.
Slide 12 highlights the operating division's very strong revenue and earnings growth during the period. Revenue grew up 24% and EBITA grew up 30%. Logistics and infrastructure earnings contribution being the standout in the business unit on this slide. I will now turn to Slide 13, logistics and infrastructure result. A very strong half year result for logistics and infrastructure. Revenue grew 32%. EBITA grew near on 70%. EBITA margins improved from 13.3% in the prior period to 17.1%. Logistics and infrastructure effectively mitigated any inflationary pressures during the period. They benefited from mixed business and the benefits of scale across our key infrastructure assets. Logistics and infrastructure also experienced higher volumes across a number of products and services. Higher volumes from container, transport, container handling, storage, activities across Australia, warehouse activities across Australia.
Rail activities predominantly across New South Wales and Victoria, which include a strong container, grain, and bulk volumes. New rail activities from BlueScope East Coast steel contract, project cargo, general cargo, roll on, roll off activities across our AHT facilities in Brisbane, Port Kembla and Melbourne. High agri activities in upcountry regional New South Wales and export volumes loaded out via Qube's Newcastle and Port Kembla grain terminals. All these areas contributed to the margin improvement within the logistics and infrastructure business unit. A very good result. Moving to Slide 14 and staying within the logistics and infrastructure business unit. Qube continues to progress with its Moorebank terminal infrastructure development. A quick update here on the IMEX. We are currently operating the IMEX terminal under phase one of the automated IMEX terminal rollout, which is the operational testing phase.
The IMEX handled approximately 54,000 TU in the period, with some volumes being diverted to other Qube IMEX terminals in Sydney while the automation is being rolled out and refined. This testing phase is now scheduled to be complete by September in this calendar year. An update on the Interstate Terminal and its construction. Terminal construction is progressing well after some weather delays last year, and we are currently on schedule to complete Stage 1A construction and be operational by late October or early November this year. Ahead of time. With these terminals, with both these terminals, we expect to see plenty of interest in these terminals once they are fully up and running. Turning to the ports and bulk results. Revenue grew 18%.
EBIT, EBITDA dropped 18.5%, and the margin fell from 10.3%- 8% compared to the prior period. If I break this, if I break the result into three parts here. The ports and bulk energy in the Australian stevedore business performed well, performed in line with our expectations with growth and its margins. It did get impacted a little bit by port congestion due to the current motor vehicle import quarantine issues, which did lead to some impact in some profitability in that area. But overall, it was in line and within expectation. The New Zealand forestry business continued to be impacted by lower volumes at the start of the period.
However, the earnings contribution did improve substantially towards the end of the period from rate increases or rate restoration outcome that our management achieved during the period. A gradual recovery in export volumes to China in the back end of the period. Improvement in New Zealand is expected to continue in the second half. However, in January and February, we've had some weather events which has hampered that. From March onwards, we should be back on the same upward trend. As previously mentioned, probably the third area in the ports and bulk result. Although with healthy margins, we had some impact in the Pilbara goldfields bulk operations, the Australian forestry operations.
Unlike other parts of the operating division, these areas of business were not able to reduce or mitigate their inflationary or ongoing labor issues during the period. As mentioned, we do expect to achieve improvement in these areas over the next six months, and we expect further upside in this space as we move into next year. In regards to a lot of bulk operations and their regions, they performed well and in line with expectations during the period. Now moving to Slide 16, Patrick's. Higher revenue and improved margins were achieved during the period. Revenue grew 14%, EBITDA grew 36%. EBITDA margins improved from 26%- 31%, and the performance was predominantly driven by higher storage and ancillary revenues during the period. Patrick's contribution to Qube's underlying NPATAR was AUD 37 million, up 28% on the prior corresponding period.
Patrick's continues to generate strong cash flows, distributing AUD 45 million worth of cash in the period compared to AUD 40 million in the same period last year. Moving to Slide 17. Staying on Patrick's. Patrick's market share across the four ports in the period declined slightly to 41%. The impact is mainly due to losing a shipping service to DP World in Melbourne during the period. Also during the period, the Patrick's team renewed and secured new contracts which should see Patrick's market share rebound and sit within that 41%-43% range over the next 12 months. Patrick has a number of construction and automation projects which will be completed throughout this calendar year. They are, as on the slide, Port Botany's Rail Automated Rail Terminal, phase two is due to complete by September 2023.
The automated track handling project at Port Botany, which was all previously being rolled out in Fisherman's Island, to be rolled out this year. Fisherman's Island crane automation pilot program, expected to be implemented next month. East Swanson's rail terminal facility, due to be complete by the mid this year. F03 Manual redevelopment civil works will be due to be complete around mid-year this year. All these projects in Patrick's, when completed, will provide future productivity, customer, and user benefits. Moving to Slide 18, just for noting, this slide here adds in Patrick's proportional revenue, EBITDA, and EBITDA with Qube's core business, as sometimes this consolidated data is missed when assessing Qube's overall performance. With all that, I will now hand over to Mark with some further financial information on the half year result. Thanks, Mark.
Thank you, Paul, and welcome to everyone on today's call. It certainly has been a fantastic first half result for the Qube Group with the very strong revenue and earnings growth that Paul has just presented to you. I'll now quickly take you through some financial performance slides and then hand back to Paul. If we start on Slide 20, our statutory earnings for the first half, FY 2023 are set out on this slide, exclusive and inclusive of the discontinued property division. As with prior reporting periods, our view is that the financial performance of Qube is best reflected in the underlying earnings that Paul has spoken to earlier.
The reconciliation adjustments from statutory reported to underlying results are consistent with our past practice, with the key adjustments being the reversing of the impact of AASB 16 lease accounting, adjusting to remove any impairment and/or favor market gains or losses. In the first half of this year, we additionally removed the small trading profit of the property division, given this is a discontinued operation. I expect we will have small unders and overs in the next few reporting periods relating to, as we finalize legacy property and Moorebank-related items. In the appendix to the investor presentation and in our financial statements, there are additional slides and material covering our underlying adjustments. Moving to Slide 21, our underlying results.
Paul has already talked in detail to the strong underlying results generated in the first half from both the operating division and Patrick. I'll just take you through a few other points. The underlying net finance costs for the first half of 2023 are higher than the prior period. Whilst average debt levels are significantly lower this half versus last year, given the Moorebank proceeds which we received in December 2021 or the first tranche of those, the higher base rates during this period have driven that increase in net finance costs. We do continue to capitalize interest on components of the IMEX and also the Interstate Terminal, which as Paul said, is well into the construction phase.
EBITA margins improved at a group level from 9.1%- 9.7%, driven by the significant improvement in the logistics and infrastructure margin from 13.3%- 17.1%, partly eroded by the decline in ports and bulk EBITDA. Sorry, EBITDA percentage from 10.3%- 8.0%, and Paul has spoken about those. As Paul also mentioned, underlying earnings per share adjusted for amortization increased by 47% to AUD 0.075 per share. This was mainly attributable to the significant growth in earnings, however, was also helped by the share buyback program, which we completed in May of 2022, which reduced Qube's shares on issue by circa 8%.
On the back of this strong performance, the Qube board declared a fully franked interim ordinary dividend of AUD 0.0375 per share, which was 25% higher than the prior period interim dividend. That dividend will be payable on the 13th of April, and the DRP will not apply. In regards to the Moorebank monetization, Qube received an additional AUD 220 million of deferred consideration during the first half, with a further AUD 80 million linked to the construction of the Interstate Terminal, which will be received progressively across the second half of this financial year and into the first half of FY 2024. Moving to Slide 22, capital expenditure. In the first half, Qube invested gross CapEx of AUD 211 million, comprising AUD 64 million of growth CapEx, which included warehouses, storage sheds, rail, and other mobile transport equipment.
AUD 114 million on maintenance and replacement plant and equipment. This represented circa 128% of underlying depreciation, which was significantly higher than the 85%-95%, which I had guided to. The main reason for this was a decision by the business to swap out older leased rail locomotives with new owned locomotives. This alone was circa AUD 30 million in the first half, and adjusting for this, the maintenance CapEx to depreciation ratio would have been circa 94%. We may look at further opportunities to switch leased assets to owned assets in the second half. We also spent AUD 33 million between the Interstate and IMEX terminal on that CapEx. This excludes any receipt of deferred proceeds from LOGOS in relation to the Interstate terminal.
During that period, we did receive AUD 20 million of the AUD 100 million deferred proceeds, which were linked to the construction of the Interstate Terminal. As Paul mentioned, Qube did not complete any acquisitions in the first half of 2023, so no cash CapEx was required in that category. He also mentioned our acquisition pipeline is healthy, and we expect funding will be applied to this area in the second half of this financial year or early in FY 2024. Moving to Slide 23 on cash flow. Qube's net debt at December 2022 was much the same as we started the financial year at a little under AUD 900 million. Major first half cash flow items included, as I've mentioned, further proceeds from Moorebank monetization. We've got AUD 236 million in this chart.
AUD 220 million was the deferred consideration that I mentioned earlier, with another AUD 16 million relating to some other closeout items. We made tax payments of AUD 183 million in the period, the bulk of which was further capital gains tax on the Moorebank transaction, which was paid in December 2022. That included tax attributable to the deferred consideration. Net capital expenditure was AUD 201 million, which I detailed on the earlier slide, and cash received from associates of AUD 46 million, which is predominantly dividends and interest from Patricks. We did have AUD 194 million of operating cash flows, which represents an 83% cash conversion ratio on underlying EBITDA of AUD 234 million.
Pleasingly, cash conversion it did improve from the 71% we reported for the full year last year, and it further improved during January 2023 in this last month. With our year-to-date cash conversion ratio now at 92%. Some good improvements there. We are working hard on that item and expect further improvement on this metric across the year. Last slide, balance sheet and funding. Let me mention a few points here. As mentioned earlier, we ended the half with net debt levels broadly in line with how we started at just under AUD 900 million. During the first half, we did take advantage of our very strong liquidity position to rebalance our debt portfolio, which included reducing some facilities, upsizing and extending tenure on others.
We terminated AUD 460 million of revolving bank debt facilities, some of which were close to maturity. We also terminated AUD 100 million of the CEFC facility and shortened the maturity on the remaining AUD 50 million balance, pending discussion and agreement to reset potential new clean energy targets. This was required given the original CEFC facility was linked to clean energy targets specific to the now-divested Moorebank warehousing development. We also put in place AUD 240 million of new facilities and extended tenure on another AUD 190 million. The weighted average tenure of our debt increased to 2.5 years from 2.1 at June 2022. Our leverage ratio of 22.8% is in line with our position at June 2022 and well within our covenant. We are progressing further extensions of tenure in the second half.
However, the $305 million of the ASX-listed subordinated notes due to mature in October are currently not likely to be extended. Our medium-term funding plan will be reviewed in conjunction with our FY 2024 budgets and our medium-term planning cycle, which we'll kick off soon. As at December 2022, we had $720 million of facilities, including the $305 million of ASX subordinated notes that mature within 12 months. The drawn amount of these is $600 million, and this is classified as current borrowings within our balance sheet. Our available liquidity, comprising undrawn debt facilities and cash, is just under $1 billion, so remains very healthy.
Given our strong revenue and earnings growth, our strong balance sheet, and our liquidity position, Qube is well positioned to fund future growth, both the organically driven opportunities and through new acquisitions. With that, I'll now hand back to Paul.
Thanks, Mark, for that. Okay, just before I go to outlook, there's a couple of slides starting at Slide 26. I just wanna touch on Qube's strategy, how we continue to deliver on sustainable growth. Slide 26 here, you know, we call out a performance in the period, measuring the performance against some of our key growth deliverables. A key metric that we focus on as an executive team, and I'll just run through a quick run-through of our scorecard for the first half. Revenue growth, obviously a good tick there, well above GDP. Margin growth, we had margin improvements despite the headwinds in some areas that I mentioned, our diversification strategy at play there.
Return on Average Capital Employed, we've got a midterm objective of being above 10%, and we're getting very close to that as we progress through the next couple of periods. EPSA growth and ordinary dividend growth with big ticks there during the period from the performance. Moving to Slide 27. It follows probably from the previous slide. The slide looks at Qube's growth over the past 3.5 years in the business, and our good track record, highlighting growth by the operating division revenue, growth by dividend per share, and growth by EPSA. Our return on capital performance by you know, broken into the Qube group, operating division, and Patrick's.
As I said before, a key focus in this area across the group for us, Return on Capital Employed. Moving to outlook, before I go into the detail, just an update on our key challenges slide. It's become a pretty familiar slide now. Looking into the second half of the year, calling out, just calling out the three areas marked in the orange amber traffic light here. Inflation, I think, The cost recovery issues facing those parts of the business I spoke about before will mostly remain in the second half, but as we said before, that will gradually improve and will significantly improve and be realized in full year 2024.
Something new here in this space, we do expect some softening in import volumes in the second half, particularly around discretionary spending on imported items, consumer spending due to the inflation and the higher interest rates that's sitting in our economy at the moment. Both the logistics and infrastructure and the Patrick's business is expecting some softening on their import volumes in the second half. Our export volumes will remain strong and could offset a fair bit of this. Something else that's new here, which has been a probably a short-lived challenge for us, is the last two months in New Zealand. We've had.
You know, first we've had severe flooding in January, on the North Island. Just recently in February, we've had a cyclone event, Cyclone Gabriella, which recently impacted the majority of our operations on the North Island. We're currently in a cleanup progressing the cleanup. Impacted areas is probably especially around our Napier and our Gisborne operations. We're hoping to catch up some of that volume over the remaining four months as we get the operation up and running. They're probably not on the call here now, but a big call out to our New Zealand team. The work they're doing helping our employees, getting the business up and running again, customers working, and also helping the local communities.
There's been some really good community support work by barging supplies into Napier and helicoptering stuff in there. The team is not just focused on our business, but been focused on the local communities over the last couple of weeks. Call out to them, but I know they'll be busy helping people, so they're probably not on the call. The last one, again, is, you know, the outlook on the labor. Our skilled labor availability issues are likely to remain in the second half in the areas such as the Pilbara goldfields and across the forestry business. As I mentioned before, we expect that to improve and improve further as we get into next year. Turning to the next page, full year 23 outlook.
At the full year 2022 results, Qube provided full year guidance for each division and the overall group. Pleasingly, despite continued challenges in the period, Qube remains on track to meet or exceed all of its previous guidance. Starting with the operating division. We had guided to strong growth in the full year, underlying EBIT, EBITDA. We continue to expect this to be the case. Although we actually delivered a very strong growth in the first half in the operating division, we expect this to moderate in the second half, such that we are maintaining our previous guidance to strong growth in underlying EBITDA for the full year, with the second half EBITDA expected to be below the first half performance.
As mentioned, the main reasons for this on the previous slide, that we're seeing some slowdown in imported container volumes that we think will continue at least in the short term. We've had some earnings impact from the severe weather events in New Zealand in January and February. However, we remain very positive for the earnings outlook of the operating division, and we still see healthy volumes in most areas of our business, and particularly in the export-focused areas. This guidance assumes no acquisitions in the second half, and as I mentioned before, we are well progressed with a number of bolt-on acquisitions that could complete in the second half. However, there's no certainty of any of them completing in the second half. Staying on Slide 29 Patrick's outlook.
We had guided to strong growth in the full year underlying EBITDA and EBITA, and a modest increase in the overall NPATA to Qube from Patrick's as a result of the high interest costs in this year relative to last year. We continue to expect this to be the case despite the very strong growth in Patrick's NPATA gross contribution for Qube in the first half. This is because of the same reasons it was that I mentioned before, that Patrick's expecting some slowdown in some imported container volumes in the second half of the year. Moving to Slide 30, corporate. We had guided to an increase in corporate costs last year. This continues to be the expectation.
Noting that the interest costs in the second half of this year are expected to be much higher than the first half, largely to do with the increase in base rates that have occurred recently. However, although interest costs will be much higher relative to last year, we now expect the full year interest costs, as Mark mentioned, to be around AUD 5 million lower than what we previously forecast and guided to last year. Qube overall, the group. We had guides for full-year growth in underlying NPATA and higher growth in EPSA, given the benefit of the share buyback we completed in May 2022, which reduced Qube's shares on issue by around 8%.
At that time, given the uncertain economic, geopolitical, and interest rate environment, it was difficult to assess the likely extent of our earnings growth. Based on our very strong first half performance trading in January and February and the above the divisional guidance for the second half, we now expect to deliver strong full-year underlying NPATA growth and high EPSA growth. This outlook assumes the known challenging environment ahead, including the ongoing impact on inflation and labor shortage in parts of our business and the expected short-term softening of volumes in some import markets.
In finishing and in summary here, due to our diversification strategy, our scale, our favorable markets, our strong market position, our many growth drivers and infrastructure assets, and of course, our exceptional workforce and our team culture, we're extremely pleased with the very strong first half performance, and we remain very positive about the remainder of full year 2023. We certainly have plenty of scope for further long-term earnings growth. That concludes our presentation. I will now hand back to the moderator for questions. Thank you.
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 are on a speakerphone, please pick up your handset to ask your question. The first question today comes from Jakob Cakarnis with Jarden Australia. Please go ahead.
Just two from me quickly. Could you just talk to what's going on in the Patrick's business and how they're seeing, both market share and lifts? I guess some of the offsetting factors there would be the increase in the terminal access charge, which you guys have applied for this calendar year. Just talk through some of those dynamics, please.
Patrick's volumes are flat. As I mentioned before, there's a small 1% market share drop compared to the prior period. We expect to, you know, rebound, you know, that 1% or 2% with volumes going forward. Obviously, there'll be some softening in the second half with some import volume softening. You know, the improvement in the profits come from revenue, you know, increased charges on the land side and ancillary charges and higher storage revenue that we had in the period, and also some productivity offsets that we gained through the period.
Great. Just one for Mark. Can you just talk through some of the pricing dynamics, maybe that you're seeing across the business? If you can separate it, please, for the operating division between logistics and imports and bulk.
Talking about pricing dynamics. Well, I think Paul mentioned we've been, you know, across both businesses and, we've been applying price adjustments and uplifts as the business leaders see fit to make sure that we protect our margins. The bigger issue in parts of the bulk business in the mining sector has been the lag and I guess the significant increase in some input costs, particularly in the sort of October, November, December period of the last calendar year. We saw, you know, input price costs for lubricants, tires, parts, travel, well into the double-digit increases. Some of those, our ability to claw back those quickly is limited by our contracts.
As Paul mentioned, you know, that the time-timing and the, and when the rise and falls apply will help us, we, you know, recover those costs, you know, later in the second half and as we move into next year. So that's, you know, I guess pricing is very dynamic within our business because we're a very diverse business, Jakob, as you know.
Thanks, guys. Appreciate it.
Thanks, Jakob.
The next question comes from Samuel Seow with Citi. Please go ahead.
Good morning, guys. Thanks for taking my question. Just maybe continuing on from that last question from Jakob. Noticed there's obviously a difference in the margin performance of the two segments. Just wonder if you can talk to the difference in how inflation's recovered differently. Would you say that lag in recovery is something we should expect from the division going forward if inflation stays high?
Yeah, I think, I think, I'll let Paul answer some of this probably. It's not just the inflationary impacts that sort of impacted our margin in the first half in that part of the business. The labor shortages led to large productivity challenges and, you know, our, you know, our ability to move volumes with, you know, potentially trucks parked up or having to use contract labor, you know, we're just not getting the efficiencies out of that part of the business, you know. That's, as Paul said, it's in isolated pockets, mostly in very regional areas of Western Australia. That's as much of an impact on our margins as in the pricing or the input cost challenges.
Got it.
Yeah.
There's no structural difference between how you recover inflation between the two segments?
Yeah, well, I guess, you know, in the logistics business, I mean, there's a combination of, you know, longer term contracts and shorter contracts. There's, you know, there's some ability to move pricing on some of the shorter term contracts in the logistics is much better than in the ports and bulk business, which typically has longer term contracts with, as I said, these set rise and fall dates. Yeah. I think the larger component of those impacted margins in ports and bulk were probably more labor than actually recovering inflationary issues. We, you know, it's more of a timing thing with negotiating with certain customers.
Great. Just maybe help us understand the softer kind of second half. I mean, X weather, would you have expected that to be the same as the first half or were you seeing kind of the exit rates slow through the half?
Sorry. Sorry, Jakob, I didn't hear that. Sorry. Sorry, Sam.
No, sorry. I just wanna understand, the trend of growth through the first half. Was it kind of declining, through the first half or stable? Just trying to balance that with the kind of softer second half expectations and how much weather was going into that kind of commentary.
Yeah. The only weather impact we really have, you know, in the outlook is really that New Zealand, the first, the January, February period, because we have been interrupted, you know, you know, quite severely, I guess, but not material in the scheme of Qube. We don't. Obviously they will get back on track in March. The softness and slowing down on import volumes, we did see that in December, and it has come through in January and February. That's why, you know, in our guidance and our outlook, we know that there will be some softer volumes on the import side. What we do see even more, you know, we see strength in the export, and maybe slightly more strength in the export, but it probably won't offset the import volumes.
There was a bit of a decline in the imports come the back end of the first half and mainly December.
Great. Thanks for that. Congrats on the result.
Thank you, Sam.
The next question comes from Justin Barratt with CLSA. Please go ahead.
Hi, guys. Congratulations on the results. Clearly labor shortages have had a significant issue in the half, despite the record result. I mean, or a very strong result. Just wanted to understand a little bit more detail about what you guys are doing to try and combat some of those labor shortages and is there much else that you can do to combat them over the next, you know, six months?
We are. I mean, obviously it's more of a recruitment drive and I think it's just around our employee value proposition. We're, you know, we're looking at things where we can enhance, encourage people to work in certain regions. I mean, we don't have this issue in a lot of regions. We're quite healthy, I think, with our labor force. Maybe it is a difficult environment at the moment, but it's just really those. We're probably now into those three pockets of businesses that, you know, the Pilbara and the goldfields, and there is competing markets in those areas that we've got to be mindful of.
Our people and culture, our HR team are working through things and to make sure there's a better place to come and work for in those regions. We're working through ways of encouraging new recruits.
Great. Thanks for that. Then, you made some comments about M&A. I was just really curious to understand, in terms of your M&A pipeline, now compared to, I don't know, October when you did Investor Day or August at your last result, is there a bigger pipeline of opportunities now or is there more attractive opportunities as interest rates sort of continued to rise throughout the period?
We've always had a healthy pipeline. We always. The M&A team and the, and the executive team are always working through a number of opportunities on the table. I would say it's, if anything, it's marginally better at this point in time for us. It's always reasonably healthy. As I said on the call, I mean, we'll take our time and we'll be patient. We're not in any rush, as you can see from the results. We'll be disciplined in our approach. It's I would say it's a little bit better than it was six months ago.
Fantastic. Thanks, Paul .
The next question comes from Cameron McDonald with E&P. Please go ahead.
Hi. Good morning, guys. Can I just delve into the outlook commentary a little bit, as it relates to the comments around the guidance in terms of you know, strength versus the full year and soft or weaker than the first half? How would you characterize the second half outlook versus the PCP, please?
Second half on the prior year, I think we'd have modest growth, compared to the prior period at this point in time, given the softness in some import volumes. We haven't, in our guidance yet, we haven't considered any potential acquisitions that might occur maybe in the fourth quarter of this year.
Yeah. You know, even though you're expecting a drop versus the first half, it still should be higher than the second half of last year.
Yeah.
Yeah. Okay. That's great. Thank you. Can I just also, just looking in some of the more detailed appendices, you know, if I have a look at the, at the sort of agri revenue, grew, you know, roughly sort of just under AUD 16 million worth of revenue, how much of that is actually effectively flowing through from revenue down to EBIT? I'm assuming a lot of that is, you know, that incremental volume is pretty high margin. Is that all grain related?
It's probably predominantly grain, but there is other agri items in that space. Some of the revenue would, you know, come through the fixed asset, so there would be some, you know, higher margin contribution there's also flowing through haulage and our country stuff, which would be a bit lower margin, so.
Okay. Great. Thank you. My final question is just, you did highlight at the full year result, it was like in, I forget the numbers, like, 650,000 sq m of warehousing space that you're gonna sort of expand. Where are you in that process? How much have you brought online and how much has that benefited either from alleviation of congestion or how much of it have you been able to utilize?
Good question. I probably wouldn't have the exact answer. We have brought on some more warehouse capacity during the period, but it wouldn't have been. Wouldn't been, I don't know. I can't remember if that's 150,000 is over a longer period of time than in the next two months.
We opened one facility in Victoria earlier late in the calendar year. We've got another one in Western Australia that.
Committed to.
Should complete around June of this year. You know, that's more of a bulk storage shed versus a warehouse.
Yeah, I don't know the square meters that have come online.
Potentially one in New South Wales.
Mm-hmm.
Okay. Maybe another way to ask the question is, you know, are you building these, you know, on spec or are they actually contracted, you know, volume usage?
I think a combination of both from our perspective.
Can I be cheeky and ask sort of for a mix?
You could, but we probably couldn't give.
I probably couldn't give you an answer. I would probably have to go back to the business, to be honest.
I know for example, for the West Australian one, you know, like, because it's obviously, it's got a, you know, a long construction period, that the team have already pretty much got it mostly locked away during, you know, from the time we committed, which was sort of mostly on spec, but not. Based on, you know, discussions with customers, to a point now where, you know, it's still got a few months to go before it's complete. I think a fair amount of that's already, you know, committed.
Okay. That's really helpful. Thanks, guys.
Thanks, Cameron.
The next question comes from Ian Munro with Ord Minnett. Please go ahead.
Hi. Hi, Paul. Hi, Mark. Thanks for taking the questions. Just firstly, looking at the bulk contracts and looking to reprice some of these into FY 2024, are there some sort of larger discussions in that mix or is it more across the board? What gives you the confidence that you're going to be able to improve the rates to reflect the cost pressures? Thank you.
I think there's a bit of confidence around some discussions that have been had, and they're taking some time. Some of those discussions need to be had. We think there'll be a favorable outcome. How big that is, we're not too sure. I think probably one of the bigger issues in that bulk space, more than the contracts, is more the labor issues. We're really trying to fix those. It's a sum of parts for us. We think we will get improvement.
I think there's two elements, Ian. One is within, you know, protected within the contract. That's, that's all just, you know, waiting for the actual, you know, renew or rise and fall date to click in, and then it's, then it's actually embedded within the contract. That shouldn't be an issue at all. It's just timing. The second one that, the team are working on is just.
Right.
In contract, in period, sort of renegotiations with customers. Those are normally on the back of other productivity related and operational opportunities which we've identified, which we can help them with as well. We try and sort of.
You know, wrap it up into a more broader discussion around how we can, you know, help them.
Just within the bulk segment, excluding forestry, are you able to talk to any points of spare capacity in that segment at this point in time?
Spare capacity for ourselves or across the market generally?
Yeah. Spare capacity in ports and bulk relative to the assets and facilities across the particularly the resource states.
Yeah, I think we've all have spare capacity around our facilities. I couldn't tell you the percentage of it. I mean, we've probably got spare capacity in some of our vehicles and equipment at the moment because we can't get enough people to drive them in those certain areas. There's capacity there for more revenue as well. There's always a portion of spare capacity, either storage facilities at the port, and with some of our equipment at this point in time.
Thank you.
The next question comes from Anthony Moulder with Jefferies. Please go ahead.
Good morning, all. If I can start with acquisitions, and I know you've touched on it briefly, but can you talk to how you think about or where the opportunities for acquisitions are? Are they adding scale to the business that you've already got, or are you looking to add capacity or capability, I should say?
Oh, what have we got on the table? We can discuss all of those. Scale, yes. Capabilities, similar capabilities, but expanding. Anthony, probably to answer your question, a combination of all. I think what we've got on the table at the moment are businesses that are that fit Qube well, provide probably some more infrastructure, or businesses that, you know, complement some of the operating divisions, or operating units with synergy value, economies of scale.
Okay. Thank you. Related, you talked about the invest today back in October, an investment into LOGOS, for intermodal hauls. We've seen Aurizon this week announce a large intermodal contract. They're not getting back into intermodal, even though it looks like they are. Can that change your growth expectations for that part of the business and more importantly, perhaps the return profile for intermodal rail?
Yeah, I think with that one, Anthony, is that for us, we're not a rail business. We're actually a logistics business that delivers a rail solution. We can watch that space. I mean, if there's too much capacity going on, there's no point in us. We can operate these trains somewhere else. We'll continue to look at niche markets. In that space, we've got terminals that'll be in demand. We've got a domestic freight forwarding business that we can use spare capacity. Beauty of our diversification, we can move and change our strategy, or we can continue to have a look at these niche markets and niche corridors where our customers want us to provide a service that we'll do door-to-door, which we'll do really good.
That's an industry movement by Aurizon, but, that's their call.
Yeah. Well, yeah, I guess it highlights your diversification that you can move that equipment to where it's needed and where your customers need it to be, I guess. That's, that's a good outcome and well done on a great result. Thank you.
Thanks. Thanks, Anthony.
The next question comes from Scott Ryall with Rimor Equity Research. Please go ahead.
Hi there. Thank you very much. On some, couple of questions you've had already on the ports and bulk margins, and I guess I was gonna ask that question in a slightly different way. Is there any. I was hoping you could give some color around where, you know, the, the nature of the activities where you're seeing the most cost pressure. I'm wondering if there's specific regions you'd call out, specific commodities you'd call out. Mark, you gave a couple of examples about, you know, lubricants and things like that. Is it the nature of the activities that you're doing where you're seeing the most pressure? I would have thought from what you described there, that's more where you actually own kit and infrastructure.
I'm just wondering if there's any specific characteristics that you would call out or whether it's literally just across the board?
Yeah. Oh, sorry. I know, Paul.
I'll go first, and you can each go next. I'll go one thing. You've probably seen the Qantas result. our travel costs-
Amazing.
Our travel costs have gone up extremely for our flying coworker.
Yeah. I was gonna mention that too.
There's other items.
Certainly, as I mentioned, October, November, December last year, we saw significant increases, those ones I mentioned, tires, lubricants, spare parts, and that was mostly impacting our bulk mining business and mostly in those same remote locations which were impacted by the labor shortages. You know, some of those increases were, as I said, high single digits. You know, they're not, they're not the 6%, 7% sort of CPI that we that we see here in the city. That's why it's, you know, these rise and fall adjustments, you know, it's a pretty unique sort of period of time for our, for that part of our business to, and a very challenging, and for, you know, our customers as well.
You know, they've got to, you know, they're impacted by a lot of these as well. Yeah. Okay. There's no differences based on the activities. You'd more call out that it's particular regions, and I don't expect you to name them, it's particular regions where you're seeing the kind of mixture of all of it.
Yeah. I mean.
Some of the consumables. Obviously, the consumables are harder to get to some of these places, but.
Yeah, no, it is. I mean, those parts of our business use a lot of lubricants, use a lot of tires, use a lot of, and have a lot of, you know, we've got a lot of mobile equipment, so we need a lot of spare parts. Versus some other parts of our business, you know, are less reliant on that and more and, you know, our ports business, for example, is more around stevedoring and labor. You know, so it really depends on the, on the activities and the assets that we're using.
Okay, great. The other, the only other question I had is, can you give an update in terms of the, what you understand to be the timing of, the rail duplication completion out of Port Botany into Moorebank, please?
I've lost you, sorry.
Rail duplication.
Yeah. Yeah. I haven't got an update on that. Can you, do you know? Okay. Sorry, I can't answer this point in time.
Okay.
Not from here, sorry.
I'll follow up with you separately. Thank you. That's all I had.
Thanks, Scott.
The next question comes from Paul Butler with Credit Suisse. Please go ahead.
Hi. Congrats on the result. Thanks for taking my question. I just wanted to ask about the, you know, very strong margin improvement you had in the logistics and infrastructure business. How do you think about how much of that is structural versus cyclical, you know, due to the strong grain volumes and so forth?
As proportioned, I think. I think it's a combination of everything we had in that period. I think most of our businesses in the container space, as I called out, you know, had, you know, pretty good volumes through into our warehousing, through into our transport business. AAT facilities were strong with a number of things in storage. Other services that we provided were high. The grain activity was high. The rail business was good. They're the niche markets we work in. You know, we sort of just built that part up over the last couple of years and, you know, the volume come through and we tick the box.
Would you say it's sort of the fortuitous, outcome of everything sort of, being very strong in terms of volume all at the same time, or is there other factors there?
Yeah, I think just having high volume across most of those areas is probably the main kicker there and able to be able to sort of pivot around and you get your cost base right and get your inflationary pressure things under, and reset contracts where we needed to in some areas. Some areas we didn't need to do it. We just, the volume helped. Working with our customers, to give them outcomes as well. It's a pretty successful business, you know, in the period.
Just shows the value of being able to leverage your infrastructure, you know. As Paul said, you know, our ability to put more volume through fixed infrastructure, you know, has those margin outcomes.
Yeah. Sort of a similar question on Patrick. I mean, you flagged the margin step up there was partly because of higher storage. Is that something you expect to continue or has that been a one-off benefit in the half?
Storage will always continue. With the softening of imports, obviously that's gonna lighten off in the second half, and that was in our guidance. You know, revenue from import, you know, from lift revenue and storage revenues are now in our forecast.
The next question comes from Reinhardt van der Walt with Bank of America. Please go ahead.
Good morning, folks. Thanks for taking our questions. I just have a quick question on the medium-term ROACE target, getting to 10%. Let's say that ports and bulk, we get, you know, a little bit more margin uplift, and a bit of a normalization in the business. What's the next step to getting to 10% ROACE? You know, how much of that's gonna be acquisitions and maybe a little bit more scale, and how much of that's actually gonna be sort of a structural change to how you price?
I think it's just a combination. You know, there's a big. Obviously, as Paul mentioned, there's a strong focus on return on capital across the group, well before I got here, at a board level all the way through, down into the operations. It's a metric that we is very much focused on. You know, at the Investor Day in October, I put the numbers up for Patrick and for the group, and I mentioned that both we see upward trajectory. The group in particular, you know, will get a benefit this year from the fact that, you know, on a full year basis, we don't have the hangover of the large capital invested in the Moorebank warehouse.
That's partly seen the benefit of this, 'cause this, the H1 number that we've got in here of 8.9% for the group is a rolling 12 months. It's most of the benefit of the warehouse sale has come through. But we've got more coming through now with the third proceeds being received. But yeah, I mean, acquisitions could have, you know, depending on the acquisition, right, could have the impact of dampening return on capital for a period of time until the acquisition, you know, kicks through. But, you know, again, that's.
To an earlier question that we had about how we look at acquisitions, I mean, that is another metric that we look at. Obviously we wanna make sure that any acquisition can contribute to our target of getting above 10%, and that should be within a reasonably short period of time.
Most of our acquisitions will be accretive from day one, so it'll help.
Yeah. No, I appreciate that. Thanks. Just quick question on the BlueScope contract. Is there any ramp up left in that? Is this pretty much what we're gonna get, or have we still got a little bit more of a, bit of a sugar hit coming in the next, in the second half?
No, it's probably been pretty stable. I mean, the steel volumes have come off a little bit. You may have read that. We have the ability to put other freight on the back of that train. That's a niche market. You know, Melbourne-Sydney service that we've been talking about. I think that's probably business as usual for us on that service.
Right.
If it's steel or other products.
Got it. Excellent. Just on the grain backlog, we have obviously had another bumper harvest or a couple of bumper harvests now. How many years do you think it's gonna take to get this backlog out of the system?
I can't say. I think it looks healthy for the short term/short to medium. We've got ability to do more with those assets in grain that we currently got. Yeah, I can't give you a timeframe, obviously this looks healthy for the next 12 months.
Got it. Obviously the acquisitions in that space have been, there's been a lot of activity in the recent years. Is that still gonna be a sector that you're gonna be focused on from a rollout point of view going forward?
Yeah, we'll consider, you know, other growth opportunities in that space like we will in any other space. Just we'll diversify ourselves and keep the spread across different markets. If the opportunity arises, we'll definitely look at it and potentially looking at things at the moment.
Got it. Great. Thanks again, folks. Congratulations.
Thank you.
Once again, if you have a question, please press star then one on your telephone keypad. The next question comes from Sarah Kerr with Morgan Stanley. Please go ahead.
Thank you, congratulations on the result. I just have one question, if I may. On cash flow from Slide 23, I was wondering if you could provide more details on the Moorebank deferred consideration adjustment and if we can expect to see any further adjustments in the second half.
Yeah. No, that was, that was just some legacy sort of ins and outs per the sale agreement because there was a period of time between sort of, I guess, the deal was done and completion where, you know, Qube and LOGOS were incurring costs, and that's just a square up of some of those things. That's pretty much most of that done now. Really what we're expecting going forward is really just that AUD 80 million deferred consideration related to the Interstate.
Great. Thank you so much.
You're welcome.
There are no further questions at this time. I'll now hand the call back to Mr. Digney for any closing remarks.
Thank you for everyone for attending the call today. As I said, we are extremely pleased with our strong first half result, and we remain very positive and look forward to speaking to you soon. Yeah. Good morning. Thank you.
Thanks, everyone.
That does conclude our conference for today. Thank you for your participating. You may now disconnect.