Integrated bulk, rail, trucking, box, warehousing and ports operator Qube (ASX: QUB), has announced weighty full year earnings of A$1.73 billion (US$1.5 billion), a rise of 4.7 percent on the previous year. Sydney, Australia-based Qube also delivered solid growth in underlying net profit after tax of 15. 4 percent to A$123.2 million.
Australia’s financial year runs from July to June.
Management commentary
Qube’s managing director, Maurice James, said, “In the face of some strong economic headwinds, this is a pleasing result. Qube’s diversification strategy has protected the business from a slowing economy and helped deliver our continued good performance.”
James continued, “Throughout 2019, management focused on growing market share, defending margins in a competitive environment while maintaining tight control of costs across the business units. This result also reflects Qube’s significant investment over many years on equipment, facilities and technology to build scale, improve efficiency and reduce costs, thereby enabling it to provide a cost-effective, reliable service to its diverse customer base.”
James also said, “The result also benefited from several acquisitions that expanded Qube’s service capability, geographic and product diversification and brought additional management depth and expertise to the group.”
Overview – revenues
Qube generated statutory revenues of A$1.84 billion for the 2018-2019 period, which was a 3.9 percent rise on the previous financial year. Underlying revenues increased by 4.7 percent to A$1.73 billion. Revenue generation was attributed to strong bulk activity, project cargo and energy-related projects plus increase warehousing revenues. However, these earnings were offset by a decline in new vehicle sales that adversely affected loading and discharge of automotive cargo.
Other adverse factors include an ongoing drought in Australia, which depressed agricultural export volumes, and slowing container growth volumes. According to official Australian government data (ABARES) Australia’s grain export volumes – barley, corn, sorghum, oats, rice and wheat, have been experiencing huge decreases.
Volumes were down by 25.3 percent in the 2018 financial year to 25,000 kilotons from about 34,000 kilotons in the 2017 financial year. That fell again by a further 37.2 percent to just over 15,000 kilotons in the 2019 financial year. A kiloton is 1,000 metric tonnes. One metric tonne is 2,204.6 U.S. pounds.
Of the A$1.73 billion underlying revenues, about 15.3 percent was generated by Patrick, one of Australia’s major marine container terminals. Qube owns 50 percent of the equity in Patrick. A further 44.7 percent was generated by the group’s ports and bulk division and 34.9 percent was generated by the group’s logistics division.
Costs and profits
Qube’s total costs experienced a small (for Qube) rise of about A$60 million from A$1.47 billion in the 2017-2018 financial year to A$1.53 billion in the 2018-2019 financial year. A large chunk both of Qube’s total costs, and the growth in its costs, can be attributed to a rise in the group’s employee benefits expense. That figure rose from A$617.5 million in the prior corresponding period to A$651.1 in the last financial year ending June 2019.
Other major cost items were direct transport and logistics costs of A$417.4 million, depreciation and amortization of A$120.0 million and A$118.8 million of fuel, oil and electricity costs.
Statutory net profit after tax was down by -1.4 percent to A$196.6 million but underlying net profit after tax was A$123.2 million, a rise of 15.4 percent.
Patrick contributed 21.2 percent to NPAT; Qube’s operating division contributed 63.4 percent and the infrastructure and property division contributed the remaining 15.4 percent.
Logistics performance
The group’s logistics division experienced a “modest” 0.4 percent decline in revenues to A$711.3 million. The group’s logistics divisions felt “headwinds” both from low agri-volumes and the end of a rail contract with rail freight operator Aurizon. There was also increased competition in road haulage, intermodal terminals and empty box parks.
Ports and Bulk/infrastructure and real estate
This (non-container) ports division reported revenues of A$913.3 million, which was an increase of 8.6 percent on the prior corresponding period. This was described by the group as “modest” revenue growth due to a pick-up in general oil and gas-related projects along with growth in forestry volumes and project cargo. However, there was a fall in vehicle imports and general cargo volumes. On the bulk side, the group reported high volume growth in most commodities but there was a decline in iron ore, concentrates and mineral sands.
Qube also has extensive logistics real estate assets such as an automotive terminal in Melbourne and container logistics parks in Sydney. The group’s infrastructure and property division reported an 8.8 percent increase in underlying revenues to stand at A$103.8 million.
Patrick Terminals (ocean container shipping terminals)
Patrick operates four marine container terminals, one at each of the ports of Brisbane, Sydney (Botany), Melbourne and Fremantle. Qube does not disclose the volume of container throughput by Patrick either in total or at any location. However, official monitoring by the Australian Competition and Consumer Commission (ACCC) reveals that there were eight million twenty foot equivalent shipping units (TEU) handled in the whole of Australia in the 2017-2018 financial year. The ACCC also notes that the total number of container lifts was 5.1 million.
The ACCC notes that in the 2017-2018 financial year, Patrick had a 41.5 percent market share of the container loading and unloading market, which would give it volumes of about 3.32 million TEU. However, that ACCC report was published in October 2018, so it is now a little out-of-date.
Patrick may well have beaten that throughput figure as it recorded a 5.8 percent growth in lifts and a 6.8 percent growth in TEU volumes because of contract wins throughout the year. Plus there was some subcontracting from other ocean container terminals caused by industrial action.
Most of Patrick’s box lifts took place at Port Botany, Sydney (34 percent) and at East Swanson Dock (32 percent). Fremantle accounted for 17 percent and Brisbane the remaining 17 percent.
Patrick made underlying earnings of A$624.3 million and net profit after tax (pre-amortization) of A$42.7 million. However, Qube said that Patrick’s earnings were lower than expected due to the “slowdown in container volumes in the second half of the period.” The group added that full year box volumes in TEUs grew by about 1.9 percent over the financial year but that growth was decidedly lopsided. In the first half of the financial year volume growth of box throughput ran at 4.4 percent but in the second half of the financial year box volumes actually contracted by minus 0.7 percent.
Qube operates in 130 locations in Australia, New Zealand and south east Asia including Malaysia, Singapore and Papua New Guinea. It employs over 6,500 employees.
Looking forward
As reported above, Qube noted that there had been a weakening in some of its throughput for a variety of reasons including industrial action, drought and the overall economy.
Looking forward to the 2020 financial year Qube expects “broadly similar overall economic and competitive conditions… with a continuation of the subdued trends in container, grain, vehicle and general cargo volumes and no significant change in conditions in Qube’s other key markets including bulk commodities, forestry products and oil- and gas-related activities.”
