Qube remains in a strong financial position

Despite the continued uncertainty and impact of Covid-19, Qube is in a strong financial position.

Maurice James, Qube’s managing director said in a business update on Monday April 6 that Qube is well positioned to work with all its key stakeholders to address the current challenging environment.

“Qube is in a strong financial position with significant liquidity (cash and available undrawn facilities) of over $450 million after the payment of the interim dividend which will occur on the 7th April 2020. Qube has no near term debt maturities and material headroom to its covenants,” James said.

“Qube is pursuing several initiatives to further increase its liquidity.”

The board of directors of Qube Holdings Limited said in the business update that it is not presently able to forecast underlying earnings for FY20 and is withdrawing previous guidance.

“Qube continues to benefit from its diversified operations and variability in its cost base which has enabled it to continue to generate positive earnings and cash flow despite declining volumes in parts of its business,” the board of directors said.

The board of directors gave an update on the potential major tenant for Moorebank Precinct West, stating that formal agreements have now been finalised and an agreement has been made.

“The agreement is currently expected to be considered by the counterparty’s Board for approval in late April/early May although the current environment may delay this,” they said.

“Qube is continuing to progress the partnering / monetisation process focussed on Moorebank and certain other property assets.

“Qube has received significant interest from a high quality group of prospective partners who are keen to participate in the next stage of the process.”

Qube is continuing to operate as an essential service for transporting goods, however the company expects a decrease in volumes in several of its markets due to the impact of tighter restrictions, demand, and operations.

The board of directors said the effect from the pandemic to March 31 this year has impacted Qube productivity, but noted that bulk activities continue to experience normal volumes with minimal disruptions or slowdowns.

Container volumes across Qube’s operations have been weaker reflecting the general slowdown in economic activity in domestic and international markets, as well as other products including vehicles, bulk and general cargo.

COVID-19 stimulus package: what it means for businesses in rail

The federal government has announced a $17.6 billion economic plan to keep Australian businesses in business, so what does this mean for the rail sector?

As the entire global economy faces significant challenges posed by the spread of the coronavirus, stimulus packages have been implemented across the nation to support small and medium sized businesses.

Prime Minister Scott Morrison said as part of the plan up to 6.5 million individuals and 3.5 million businesses would be directly supported by the package.

Caroline Wilkie, Australasian Railway Association (ARA) CEO said stimulus measures announced by the New Zealand, Australian commonwealth and state governments for small and medium enterprises, such as direct payments, asset write offs, apprentice wage subsidies, accelerated depreciation, and payroll tax exemptions will be of benefit to eligible businesses in the rail supply chain.

“However it is likely that additional government support will be necessary,” she said.

Similarly, Luke Wisbey manager – rail for civil engineering and plant hire company Brefni, noted that there is room for current stimulus measures to go further.

“The $17bn support package offered by the Federal Government is quite a significant sum and highlights the enormity of the situation facing business across all sectors including the rail industry,” said Wisbey.

“Although the package offered is substantial, the individual initiatives represent relatively small spends at a time when the economy faces mass bankruptcies. In order for businesses to survive the likely drops in revenue the crisis will generate, the government needs to be considering corporate level funding rather than ad hoc initiatives.”

Wilkie said passenger rail operators are reporting significant reductions in patronage and visible social distancing between customers on Australian and New Zealand rail networks.

At this stage, services have not been reduced. Other ARA members across the freight, contractor and supply chain are also reporting challenging conditions.

“ARA is uniting its members across all sectors of the industry to collectively address the COVID-19 situation and continues to work with our members to assess the industry impact and to engage with the government on areas where assistance can provide the most benefit,” Wilkie said.

What financial support is available?

The federal government will invest $6.7bn to boost tax-free cash flow for employers. The payment will provide cash flow support to businesses with a turnover of less than $50m that employ staff from the beginning of this year to June.

Up to $25,000 is available to help pay wages or for investment to protect against a downturn in activity.

Businesses with turnover less than $500m will be able to access a 15 month investment incentive by accelerating depreciation deductions. These businesses are also eligible for an expanded instant asset write-off for asset investments of up to $150,000. 

Similar to the relief provided following the bushfires, the Australian Taxation Office (ATO) will provide administrative relief for certain tax obligations on a case-by-case basis. 

If you’re a quarterly pay as you go (PAYG) instalments payer you can vary your PAYG instalments on your activity statement for the March 2020 quarter. Wisbey noted that thresholds here limit the amount of available assistance,

“The 50 per cent allowance on PAYG capped at $25,000 limits the target pool and those companies still need to pay net wages and super. For SME businesses, support with wages are of most concern. We support the wage assistance initiative for apprentices and trainees.”

What about investment in my business?

From March 12, businesses with a turnover of less than $500m will be able to deduct 50 per cent of the cost of an eligible asset on installation, with existing depreciation rules applying to the balance of the asset cost.

A time-limited 15 month investment incentive to support business investment and economic growth over the short term, by accelerating depreciation deductions. 

How will my state support my business?

State governments across Australia have announced their own stimulus packages which includes state support for the waiver of payroll tax, fees and charges for businesses, and additional maintenance and cleaners of transport assets.  

In NSW, the state government has announced that more than $250m will be invested to employ additional cleaners of public infrastructure, including TfNSW’s external operators statewide. This is in addition to the $450m for the waiver of payroll tax for businesses with payrolls of up to $10m for three months and raising the threshold limit to $1m in 2020-21.

Thresholds here also exclude some businesses, highlighted Wisbey.

“The proposed NSW holiday on Payroll tax is good and should be extended until the end of the year at least. The threshold has also been lifted to $1m before it kicks in. However, this is an absolute tax on employment & the threshold should be north of $5m to be more effective.”

The Queensland government will create a new $500m loan facility, interest free for the first 12 months, to support businesses to keep Queenslanders in work and extend the coronavirus payroll tax deferral to all businesses across the state.

Western Australia’s state government stimulus package includes $114 million in measures to support Western Australian small and medium businesses.

Ben Wyatt, WA Treasurer said “the state government’s stimulus package works hand in glove with the commonwealth government, and ensures these additional measures complement the stimulus announced by the Prime Minister last week.”

Specific state and territory information and assistance for businesses can be found on the federal government’s website.

Qube revenue up as Moorebank tenant is finalised

Qube Holdings was able to deliver earnings growth despite challenges in some parts of the business.

According to half-year financial results, underlying revenue for Qube was up 12.9 per cent to $970.1 million – with underlying Net Profit After Tax and Amortisation (NPATA) up 5.1 per cent to $76.3m.

Qube is Australia’s largest integrated provider of import and export logistics services and admitted that the company had reasonable earnings growth despite economic headwinds.

Major contracts signed with Shell Australia and Bluescope Steel helped support medium term growth, as did the completion of the Target warehouse, Import/Export (IMEX) terminal, and commencement of rail operations at Moorebank Logistics Park (MLP) in November last year. 

Commercial and legal negotiations are progressing with a potential major tenant for a material part of Moorebank Precinct West (MPW) and binding agreements are being finalised. It is now expected that the counter party’s board will consider approval of the finalised agreements in the near future.

The unnamed counter party had previously signed the reservation agreement with Qube to secure an area at MLP on MPW. 

Qube board of directors stated that based on the current commercial terms, the area to be leased by this party will be considerably larger and in a different location to that originally contemplated by the reservation agreement and the warehouse construction is likely to commence in calendar 2021, which is earlier than previously expected. 

Based on the extensive negotiations that have taken place, Qube expects that negotiations of the binding agreements will be concluded successfully but are subject to the counter party’s Board approval. 

“The development and lease would represent a key milestone for the MLP project and confirms the significant logistics benefits that the site can offer tenants,” Qube board of directors said in a statement.

Statutory earnings (NPAT) for the period were $51.7m, which was lower than the prior corresponding period’s statutory earnings and Qube’s underlying earnings for the current period.

Qube stated the impact of the new lease accounting standard (AASB 16) that was applied to Qube from 1 July 2019 reduced Qube’s statutory after-tax earnings in the period by around $10.3m, but had no impact on Qube’s underlying earnings or cash flow.

Maurice James, Qube managing director said there has been a steady performance across the Qube group demonstrating again the resilience of our earnings base across our chosen markets. 

“Qube was able to deliver earnings growth despite challenges in some parts of the business including declining motor vehicle and container volumes and the continued effect of the drought,” James said.

Qube has been assessing the potential impact on its FY20 full year results from recent events including the bushfires, adverse weather events across the country in early calendar 2020, as well as the coronavirus. 

“Although these events have not had a material impact on Qube’s first half results, Qube currently expects some weakness in its second half underlying earnings as a result of the above factors that is likely to result in the level of underlying earnings growth in FY20 being lower than previously forecast,” the Qube board of directors said in a statement.

“The uncertainty of these events, in terms of the quantum of their impact on Qube’s earnings and their likely duration, makes forecasting near term earnings inherently uncertain.”

Qube’s board of directors said they believe the company is placed to continue to deliver sustainable, long-term earnings growth from its strategic assets and strong market positions.

 

Billions committed to rail around the world

Global rail investment is set to soar, with two major spending plans announced in January.

In Germany, the federal government and rail operator Deutsche Bahn signed a €86 billion ($138b) to modernise the country’s network.

Spending will be split between the federal government, contributing €62b, and Deutsche Bahn contributing €24b.

The agreement covers the replacement of tracks and 2,000 railway bridges and is a 54 per cent increase in spending when compared to the previous planning period, reported Associated Press.

Germany is seeking to increase the use of rail for inter-city and urban travel, to cut greenhouse gas emissions from transport.

The plan aims to double the number of train drivers and train passengers by 2030.

In addition, Deutsche Bahn hopes to improve the performance of its fleet and services, with one fifth of trains arriving outside the six minute time buffer from the scheduled time, according to Deutsche Welle.

Germany has 33,000 kilometre of railway around the country, much of which has struggled from historical underinvestment. Bloomberg Green noted that Deutsche Bahn hopes to renew 2,000 kilometres of rail a year and 2,000 switches.

In Chile, the government announced a US$5b ($7.24b) investment in rail, hoping to triple the number of passengers and increase rail’s share of freight in the South American nation.

The project is expected to be completed in 2027 and will begin this year. 44 per cent of the spending is earmarked for projects in the capital, Santiago, with the remained split across regional networks, covering 1,000km of rail. Links between cities and also to airports will be critical components of the plans.

According to Dariana Tani, an economist at GlobalData, investment in rail in Chile is hoped to revitalise the wider economy.

“As the economy is weakening and the country is losing ground in terms of competitiveness and overall quality of infrastructure against its major trading peers, it is reasonable to say that the government is trying to reverse this trend by investing more in critical infrastructure such as railways, roads, airports, energy, water and telecommunications.”