The trials and tribulations of the WA iron ore industry, especially in its dealings with Atlas Iron (AGO), appeared in the 2014-15 results of emerging logistics group, Qube (QUB).
The company’s directors yesterday warned that the outlook was “challenging” especially from lower iron ore and oil and gas prices.
And if the worst happens and the troubled Atlas Iron is struggling and can’t pay any more than the lowest charge for using Qube’s WA facilities, then the logistics group’s 2015-16 earnings will be crunched.
But that worst case scenario won’t be clear until well into the current year.
Qube said net profits fell 2.3% to $85.9 million after the company wrote down Western Australian port operations by $38.5 million.
The logistics group cut the value of its Utah Point loading facilities and Dampier transfer facilities due to lower iron ore and oil prices, which it expects to hurt volumes and earnings.
The shares eased 3% to $2.24. A slightly higher final dividend of 2.8 cents a share (2.7 cents a year earlier) no doubt helped stockmarket sentiment.
That saw full year dividend rise nearly 8% to 5.5 cents a share, from 5.1 cents previously.
QUB 1Y – Resources downturn pressures Qube
Qube warned that trading and economic conditions would remain “challenging" in 2015-2016 but said it would use its cash flow to invest in facilities and equipment to build scale and improve its competitive position.
“Qube continues to assess a broad range of acquisition and investment opportunities to provide further scale and competitive advantage and support continued long term earnings growth,” the company said in yesterday’s announcement.
Excluding the impairments, Qube reported a 18.7% rise in underlying net profits after tax to $105.2 million.
Group revenues rose 19.3% to $1.46 billion.
The focus of the market though was on the performance in WA. and Qube seems to have taken a realistic approach to the outlook for its iron ore and oil and gas servicing operations.
Qube provides stockpile management and stevedoring services for iron ore miner Atlas through its Utah Point facility. The slide in iron ore prices and weakening demand from some buyers has forced Qube to renegotiate its contracts with the Atlas following the slump in iron ore prices. The carrying value of the Utah Point facility has been cut, or impaired by approximately $19.6 million.
As part of the refinancing of Atlas, Qube has reduced the rates it charges Atlas to use its logistics services at Utah Point, but can earn higher rates from Atlas if iron ore prices improve.
“Qube has been receiving rates above the base rates as the iron ore price and Australian dollar (compared to the US dollar) have recently been trading favourably to the levels required for Atlas to pay additional amounts to Qube,” the company said yesterday.
Qube’s revenue and earnings from Atlas will be "significantly lower" in 2015-16 compared to 2014-2015 if Qube only receives the base charge for most of the financial year, the company said.
The carrying value of Qube’s Dampier Transfer facility has been cut by by $18.9 million.
