Another Strong Full Year Result From Freightways
Record revenue of $505 million for the year ended 30 June 2016, an improvement of more than 5% on the prior comparative period (pcp), has enabled Freightways (NZX:FRE) to deliver net profit after tax (NPAT) of $54.4 million, when excluding non-recurring items, up 8% on the pcp.
The result has enabled Directors to declare a record final dividend of 14.5 cents per share, fully imputed at a tax rate of 28%, being a 16% increase above the pcp dividend of 12.5 cents per share. This represents the company’s highest ever final dividend payout of $22.5 million, compared with $19.3 million for the pcp. The dividend will be paid on 3 October 2016. The record date for determination of entitlements to this dividend is 16 September 2016.
Freightways Managing Director, Dean Bracewell, says the “strong result was particularly encouraging, with all businesses performing well through the successful implementation of organic growth strategies and the benefit of recent acquisitions.”
The below table presents the reported 2016 result compared to the prior comparative period (pcp), both before and after the inclusion of non-recurring items:
|EBITDA, before non-recurring items||(i)||87.7||82.8||5.9|
|NPATA, before non-recurring items||(iii)||54.4||50.3||8.0|
|Non-recurring items after tax||(4.6)||(6.5)|
(i) Operating profit before interest, tax, depreciation and amortisation, before non-recurring items
(ii) Operating profit before interest, tax and amortisation
(iii) Net profit after tax (NPAT) before non-recurring items
(iv) Profit for the year attributable to the shareholders
Freightways’ first quarter Trading Update released in October 2015 provided a breakdown of the benefit relating to five fewer trading days in that quarter compared to the pcp of $7 million of operating revenue, $2 million of EBITDA & EBITA and $1.4 million of NPATA & NPAT. This 2016 full year result also does not include the benefit of those additional trading days recorded in the pcp.
The results discussed exclude the impact of the following non-recurring items that the Directors believe should not be included when assessing the underlying trading results:
- 2016 – a total non-recurring charge of $6.3 million ($4.6 million after tax) that comprised a one-off expense relating to the write-down of the carrying value of the Convair fleet of aircraft, soon to be retired, and related spare parts. As a non-cash item this write-down will not impact on Freightways’ dividend payments to shareholders.
- 2015 – a total non-recurring charge of $9 million ($6.5 million after tax) that comprised one-off expenses relating to the initial write-down of the carrying value of aircraft, related fleet transition costs and property relocation costs.
Mr Bracewell says the positive features of the markets in which Freightways operates, the resilience of its business models to accommodate growth and adapt to changing market circumstances and the successful execution of growth strategies by an experienced and capable team are again evident in this result. Both the express package & business mail division and the information management division posted record results.
The express package & business mail division, which operates a multi-brand strategy in the domestic market through New Zealand Couriers, Post Haste, Castle Parcels, NOW Couriers, SUB60, Security Express, Kiwi Express, Stuck, Pass The Parcel, DX Mail and Dataprint, reported operating revenue of $370 million for the year, 2.9% higher than the pcp.
EBITA of $62 million was consistent with the pcp, although allowing for the five extra trading days in the pcp this result would have been ahead of the pcp.
In addition to the many initiatives implemented during the year to further enhance the overall service provided to customers, the express package & business mail division also made a number of key investment decisions, including:
- Upgrading the aircraft fleet, as announced, from Convair aircraft to three Boeing 737-400s. The scheduled arrivals of the 2nd and 3rd Boeings were delayed due to the conversion from passenger to freight configuration in the USA taking longer than anticipated. All three Boeing 737-400s will now be operating in the early part of the 2017 financial year.
- Leasing a new purpose-built, fully-automated facility in Christchurch to enable the consolidation of operations from three separate facilities into one with airside access to the Boeing 737-400s. Capital expenditure for this new facility, expected to be fully operational in the second half of the 2017 financial year, is in line with the budgeted cost of $11 million. Other property initiatives during 2016 included relocating to larger facilities in Dunedin and Tauranga to meet the demand of current and expected future growth.
- An increase in the IT team and the appointment of a Chief Information Officer to assist in the positioning of Freightways as a technology leader in the markets in which it operates.
DX Mail continued to grow its postie network and is now servicing most urban locations across New Zealand and the demand for its suite of services, including overnight delivery of standard priced letters 5 days a week is increasing. Dataprint also increased market share in all its service lines, both physical and digital.
The information management division, which now generates more than 30% of Group earnings, reported operating revenue for the year of $137 million – up 12.5% on the pcp, while EBITA of $28 million was 18% higher. Mr Bracewell says key decisions made during the year that will contribute to the long-term performance of this division include:
- Consolidating the established information management businesses on both sides of the Tasman under a common brand – The Information Management Group (TIMG). The one exception is Shred-X, which is uniquely positioned and has a particularly strong brand presence across Australia.
- Investing around $2.5 million during 2017 to complete the relocation of three Sydney-based information management facilities into a single purpose-built facility.
Performance in this division has been strong throughout 2016, with increased utilisation of existing facilities, the successful integration of several small acquisitions, improved performance from recently-acquired LitSupport and a particularly strong result from Shred-X.
All three internal service providers, Fieldair Holdings, Parceline Express and Freightways Information Services continued to deliver outstanding service to underpin that provided by Freightways’ front line businesses, and as volumes have grown they have adapted to ensure the provision of quality long-term capacity.
The results announcement notes corporate overhead costs continue to be well-contained, with acquisitions during the year funded from operating cash flows. Overall, net bank debt has been reduced from $163 million to $152 million.
Looking forward, Mr Bracewell says Freightways will continue to adapt and position itself to realise the growth opportunities that exist in the markets it operates in and subject to factors beyond its control it expects to again improve its year-on-year performance, albeit results from the express package & business mail division will partly be offset as a result of planned investment in increased capacity in the information management division.
He expects the express package & business mail division to benefit from increasing volumes and improve its performance compared to the pcp, while the full benefits of the new Christchurch airport facility will start to be realised from the end of the 2017 financial year.
The information management division “may perform slightly below the pcp, due to the strong year just completed, which included some large one-off project work and also due to the costs of establishing the new purpose-built Sydney facility during 2017, offsetting the otherwise positive trading performance expected of this division.”
Capital expenditure of approximately $23 million for the year ahead is expected to support the growth and development of both Freightways operating divisions, while overall cash flows are expected to remain strong.
Freightways will continue to seek out and develop strategic growth opportunities, including acquisitions and alliances, which complement its core capabilities.
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