Freightways’ Strong Growth Drives Positive Half Year Result
Freightways Limited (NZX:FRE) has been able to produce strong revenue and earnings growth for the half year ended 31 December 2010, in what it says, was still a difficult trading market.
The successful execution of a range of strategies focused on service quality, cost management and growth, along with a return to improving volumes from many existing customers, have resulted in consolidated operating revenue of $176 million for the half year, 7% higher than the prior comparative period (PCP). Revenue from 1 October to 31 December 2010 (Second Quarter) was particularly strong at 9% above the PCP, whereas revenue from 1 July to 30 September 2010 (First Quarter) had been 4% ahead of the PCP.
Earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $34 million for the half year was 6% higher than the PCP, with Second Quarter EBITDA 9% above the PCP, compared with First Quarter EBITDA which had been up 2% on the PCP.
Earnings before interest, tax and goodwill amortisation (EBITA) of $29 million was 7% higher than the PCP, with Second Quarter EBITA 10% above the PCP, compared with First Quarter EBITA which had been up 3% on the PCP.
Consolidated net profit after tax (NPAT) for the half year of $16 million was 9% higher than the PCP.
In his report, Managing Director Dean Bracewell says Freightways delivered a half year operating result that “demonstrates sound progress and is above the prior year in all respects, proving the resilience of the Group, the positive features of the markets it operates in and the high quality of its subsidiary businesses and teams of people.”
Freightways has declared an interim dividend of 7.25 cents per share, fully imputed at a tax rate of 30%. This represents a payout of approximately $11.1 million compared with $10.8 million for the PCP interim dividend of 7 cents per share. The dividend will be paid on 31 March 2011. The record date for determination of entitlements to the dividend is 11 March 2011.
Mr Bracewell says two major events, one on each side of the Tasman, during the period “affected all Freightways businesses in some way, but most importantly none of our team were injured.” Contingency plans implemented following the Christchurch earthquake meant minimal disruption to the Express Package & Business Mail service, except where access was restricted. The document storage operation in Christchurch however, was affected with collapsed racking causing temporary difficulties. The recent flooding in Queensland impacted on the operations of Shred-X, DataBank and Archive Security. “While our facilities were unaffected, access to customers, particularly in the Brisbane CBD, was restricted for some time. In both instances the Freightways team demonstrated its tremendous service ethic and team work to ensure minimal disruption to customers.”
In his review of operations Mr Bracewell says that as the half year progressed, the improving performance of the core Express Package & Business Mail division, which contributes 80% of total Freightways earnings and revenues, gained momentum. Operating revenue of $140 million and EBITA of $23 million were up 5% on the PCP. Stronger performance in the Second Quarter delivered 10% EBITA growth above the PCP, whereas First Quarter EBITA was on par with the PCP.
The improvement was assisted by modest price increases, some market share gains and a return to increasing volumes from many existing customers. In November, the acquisition of a small NZ domiciled international postal provider was finalised and merged with DX Mail, at a total cost of up to $3 million, if certain performance hurdles are met. An immediate incremental annual earnings benefit of $0.7 million is expected to result from the acquisition.
Agreements have also recently been finalised to trial the retailing of parcel products via nationwide retail chains, with the objective of providing customers greater access to a range of express package services.
The Information Management division continues to grow positively on both sides of the Tasman and had an excellent six months. Operating revenue of $37 million for the first half was 14% above the PCP. EBITDA and EBITA for the half year were up 21% and 22% on the PCP, respectively.
Mr Bracewell says that strong revenue growth being experienced in this division will contribute to offsetting the cost of its recent investment in additional document storage capacity in Melbourne, Wellington, Sydney and Auckland. Accelerated demand for Freightways’ information management services will mean additional purpose-built storage capacity in Perth and Adelaide will be leased in the second half of 2011.
The Information Management division contributed around 20% of Freightways’ total EBITA for the half year and its overall performance continues to be outstanding.
Looking ahead, Mr Bracewell says encouraging as the half year performance is, Freightways has not yet experienced increased volumes across all sectors of its customer base. He cautions that “it is also too early to suggest the growth we have experienced, particularly in the Second Quarter, is sustainable.”
He says that the Express Package & Business Mail division, while reliant on continuing growth amongst its existing customer base to sustain its year-on-year performance improvement, has again shown its ability in the Second Quarter of this half year to return double digit EBITA growth. The recent level of revenue growth will need to be maintained for similar levels of earnings growth to be achieved in the future. “We are nevertheless encouraged by this half year result and remain optimistic about a gradually improving marketplace.” The Information Management division is expected to continue its strong growth.
In recent years Freightways has strengthened its earnings profile by diversifying its activities both geographically and deeper into the information management market. Freightways will also continue to seek out and develop new opportunities to support this strategy and also explore other opportunities that complement its core capabilities.
For further information contact:
Ph: (09) 571 9670
Fax: (09) 571 9671