Freightways Delivers Again
Freightways Limited (NZX:FRE) has been able to achieve record revenues and earnings for the year ended 30 June 2009, despite a challenging operating environment.
Managing Director Dean Bracewell acknowledges that while the current economic downturn has impacted on the group’s performance, the resilience of Freightways’ business model, the strength of its brand positioning, the importance of its recent strategic growth and capital management decisions “have all helped contribute to a satisfactory overall result.”
He says “in a difficult operating environment Freightways’ core express package business has performed soundly overall, albeit below last year and our information management business has achieved a very good result. So while the current economic turmoil will clearly continue to impact on our performance near term, looking further ahead Freightways expects to continue to achieve positive results for shareholders and other stakeholders and is very well positioned to benefit from any improvement in the economy.”
As a consequence, Freightways has been able to add to its string of record results since listing on the NZX back in September 2003, with consolidated operating revenue of $340 million for the full year, 5% ahead of the prior corresponding period.
Earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $70.5 million for the full year was 3% higher than the corresponding period, while earnings before interest, tax, and goodwill amortisation (EBITA) of $61 million, was 1% up on the previous year.
At the same time consolidated net profit after tax and before amortisation (NPATA) of $34.6 million, was 7% higher than the prior corresponding period, while cash generated from operations before interest and tax was $66.7 million.
These EBITDA and EBITA numbers include a one-off profit of $4 million (NPAT included $3.9 million) generated from the sale and lease-back of a property in Wellington.
Mr Bracewell says that in addition to the sale of the Wellington property, Freightways completed a number of capital management initiatives during the year, including the raising of $49 million of new equity via an institutional placement and a subsequent retail share purchase plan. The proceeds from these initiatives were used to reduce net bank debt and strengthen Freightways’ balance sheet.
Freightways has declared a final dividend of $12.7 million which translates to 8.5 cents per share (fully imputed at a tax rate of 33%). This dividend is in accordance with its stated dividend policy of paying out 75% of NPATA, using NPATA exclusive of the one-off profit on the property sale, which Freightways had previously advised would not be included in determining the 2009 final dividend.
In light of the current uncertain operating environment, and as a further capital management initiative, Directors have elected to introduce a Divided Reinvestment Plan (DRP). The first dividend that the DRP will apply to will be the final dividend for the financial year ended 30 June 2009, payable on 30 September 2009. Directors have determined that on this occasion a discount of 2.5% will be applied against the VWAP (measured over the 5-trading day period commencing on the dividend record date of 18 September 2009) in calculating the issue price for the DRP and that the DRP will be underwritten. Full details of the DRP will be sent to shareholders during August and posted on the NZX website. The Company has also signed an underwriting agreement in respect of this upcoming dividend.
In his review of operations Mr Bracewell reported that the core express package business experienced lower volumes, resulting in full year earnings down on the previous year for those businesses, with the just completed fourth quarter “a particularly quiet period”.
Freightways first saw signs of slowing activity in this sector from customers in 2006. Steps taken since that time that have assisted in mitigating the impact of the current economic downturn have included the completion of a number of acquisitions, the development of key strategic alliances, the introduction of new service lines and the implementation of new customer interfacing technologies. These initiatives have resulted in excellent customer retention and also strengthened Freightways’ competitive position in this sector.
Freightways will continue to defend and extend its presence in its core express package market and actively develop market opportunities expected to materialise in the still challenging operating environment.
The Information Management businesses contributed 19% of the group’s total operating earnings in 2009 with a solid full year performance. It is 10 years since Freightways entered the Information Management space and Mr Bracewell reports during that time it has grown to be a leading operator in New Zealand in two of its three primary service lines, and number two in the other. In 2006, Freightways entered the Australian Information Management market and has quickly established a presence in every major state.
As flagged in recent announcements, margins in this division contracted in the fourth quarter due to lower paper prices in the paper recycling market and as a result of recent investment in increased capacity. Full year earnings for the Information Management division were however well up on the previous year.
Corporate costs have increased year on year, primarily to assist and support strategic growth opportunities. Capital expenditure during 2009 of $21 million included investment in two significant property developments that are expected to underpin Freightway’ ability to drive stronger earnings in the future.
Mr Bracewell signals that until the New Zealand economy experiences a sustained period of recovery, performance of the core express package and business mail divisions “is expected to continue to track behind that of the previous year. While organic growth initiatives are being accelerated where possible, existing customer activity will ultimately determine volumes and revenues.”
In the information management division he expects near-term performance to initially also track behind that of last year because of the recent cost of capacity investment, coupled with lower revenue from paper sales. This is however expected to improve as the year progresses and spare capacity is utilised.
Forecast capital expenditure for the next 12 months of $13 million is significantly lower than 2009 levels. Overall, cash flows are expected to remain strong throughout the year.
While Freightways will continue to be affected in the near term by the current economic downturn, Mr Bracewell is confident in the medium to long term “the company is exceptionally well positioned to reap the benefits of any improvement in the marketplace.”
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