Another Strong Result & Dividend From Freightways

Record revenue of $479 million for the year ended 30 June 2015, an improvement of 11% on the prior comparative period (pcp), has enabled Freightways (NZX:FRE)  to deliver net profit after tax and before amortisation (NPATA) of $51.3 million, when excluding non-recurring items, up 17% on the pcp.

The result has enabled Directors to declare the company’s highest ever final dividend payout of $19.3 million, compared with $17.4 million for the pcp. This represents an 11% increase in the final dividend, which will be 12.5 cents per share, fully imputed at a tax rate of 28%.  The dividend will be paid on 5 October 2015. The record date for determination of entitlements to this dividend is 18 September 2015.

Freightways Managing Director, Dean Bracewell, says the “strong result was particularly encouraging, with all businesses in every region improving their performance through the successful implementation of organic growth strategies and the benefit of recent acquisitions.”

The below table presents the reported 2015 result and the underlying trading result for Freightways compared to the pcp, when excluding the impact of non-recurring items:

Notes:

(i) Operating profit before interest, tax, depreciation and amortisation
(ii) Operating profit before interest, tax and amortisation
(iii) Net profit after tax (NPAT) before amortisation
(iv) Profit for the year attributable to the shareholders

Freightways’ first quarter Trading Update provided a breakdown of the benefit relating to five additional trading days in that quarter compared to the pcp that contributed approximately $7 million of operating revenue, $2 million of EBITDA & EBITA and $1.4 million of NPATA & NPAT. This full year result also includes the benefit of these additional trading days compared to the pcp.

The results discussed below exclude the impact of the following non-recurring items that the Directors believe should not be included when assessing underlying trading performance:

• Full Year 2014: a one-off expense of $1.25 million in the information management division that related to the final earn-out payment for the Filesaver business acquired in 2011; and
• Full Year 2015: A total non-recurring charge of $9 million ($6.5 million after tax) that comprised:
  – a one-off expense of $7.6 million relating to the write-down of the carrying value of the existing Convair fleet of aircraft and related spare parts ($5.5 million after tax). As a non-cash item this write-down will not impact on Freightways’ dividend payments to its shareholders;
  – a one-off expense of $0.7 million expected to be incurred in the 2016 financial year relating to the transition from the Convair aircraft ($0.5 million after tax); and
  – a one-off expense of $0.65 million expected to be incurred in the 2017 financial year relating to the relocation of three of Freightways’ Sydney-based information management businesses into a single purpose-built site ($0.45 million after tax).

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 record 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 $360 million for the year, 8% higher than the pcp.

EBITDA of $68 million and EBITA of $62 million were both 13% higher than the pcp. These earnings amounts exclude $8 million of non-recurring charges associated with the write-down in the carrying value of the existing Convair fleet of aircraft and related parts and the transition from that fleet.

All businesses in this division reported improved revenue and earnings compared to the pcp, with increased volumes from existing customers, quality new business wins and improved pricing all contributing to the result.  Additionally, innovative new and expanded services across our businesses within this division realised new revenue and increased market share. Our larger businesses of New Zealand Couriers, Post Haste, Castle Parcels and NOW Couriers experienced particularly strong growth in the first three quarters of the year, whereas the final quarter experienced lower levels of growth.  The transition to a fleet of Boeing 737-400 aircraft from the existing Convair aircraft fleet in early 2016 is expected to provide increased capacity, faster sector speeds, savings in annual capital expenditure and operating costs and reduced carbon emissions per item of freight carried.

DX Mail continued to gain market share in the postal services market, increasing its postie delivery fleet in response to positive market demand. Dataprint also achieved a strong result through increased market share in its physical and digital transactional mailhouse services.

The information management division, which generates more than 25% of Group earnings, reported operating revenue for the year of $122 million, up 18% on the pcp.  This division has doubled its earnings in the last six years.  Excluding non-recurring items, EBITDA of $29 million and EBITA of $24 million for the year were respectively 18% and 20% higher than the pcp.

According to Mr Bracewell growth in this division was strong on both sides of the Tasman throughout the year.  Demand for physical storage services for both documents and computer media increased, while the newly-introduced digital information management services gained support from new and existing customers. LitSupport, acquired in December 2014, is not yet trading to expectations.  Mr Bracewell says if its earnings targets are not achieved by December 2015, up to A$5 million of the purchase price will be reimbursed by the vendors.

This division operates in New Zealand through the brands of Online Security Services, Archive Security, Document Destruction Services and Data Security Services and in Australia through the brands of TIMG (The Information Management Group), Databank, Archive Security, Filesaver, LitSupport and Shred-X.

All three internal service providers, Fieldair Holdings, Parceline Express and Freightways Information Services, continued to deliver outstanding service, underpinning the service offered by Freightways’ front line businesses.

Looking ahead, Mr Bracewell is confident Freightways Group businesses “are well positioned to benefit from the growth opportunities that exist in the express package & business mail and information management markets.”  Although not at the same rate as the last 12 months, he expects the express package market to continue expanding, “while the business mail operations of DX Mail and Dataprint are also expected to sustain their positive growth, largely from market share gains.”

The information management market is also expected to continue its growth due to the lower cost for businesses of outsourcing document and computer media storage requirements. He says “customers will continue to seek complementary and substitute electronic services relating to the creation and management of business information, which Freightways’ businesses are also able to offer.”

Capital expenditure for the full year of approximately $20 million is earmarked to support the growth and development of both Freightways divisions, with cash flows forecast to remain strong throughout the year.

Freightways will also continue to seek out and develop strategic growth opportunities, including acquisitions and alliances, which complement its core capabilities.

For further information contact:

DEAN BRACEWELL
Managing Director
Freightways Limited
Ph: (09) 571 9670
Fax: (09) 571 9671