Full Year Report June 2007
Full Year Review
From the Chairman and Managing Director
The Directors are pleased to present the financial results for Freightways Limited (Freightways) for the year ended 30 June 2007. It has been an eventful year for Freightways in which it has performed soundly in New Zealand, established its presence in Australia and delivered a record result.
Consolidated operating revenue for the year of $283 million was 10% higher than the prior corresponding period.
Earnings before interest, tax and amortisation (EBITA) were $56.5 million, 6% higher than the prior corresponding period.
Consolidated net profit after tax and before amortisation (NPATA) was $30.9 million, 6% higher than the prior corresponding period.
Cash generated from operations before interest and tax was $62.3 million.
The Directors have declared a final dividend of $11.6 million, delivering a full year payout in line with the dividend policy. The final dividend translates to 9.0 cents per share (fully imputed), which will be paid on Monday, 1 October 2007. The record date for determination of entitlements to the dividend is Friday 14 September 2007. This brings the total payout in respect of the year to $23.2 million or 18 cents per share (fully imputed), 4% higher than the prior corresponding period.
Reveiw of Operations
The New Zealand marketplace has been challenging for Freightways’ subsidiaries. A combination of low organic growth and a generally higher cost operating environment has combined to test the resilience of Freightways’ operating model and market strategies.
Freightways’ core express package businesses have delivered an on-par result compared to the prior year. Its emerging growth businesses, operating in the information management and business mail segments of the market, have again delivered strong growth.
Freightways’ core express package businesses contribute the majority of its revenue and earnings. Freightways operates the brands of New Zealand Couriers, Post Haste Couriers, Castle Parcels, SUB60, Security Express and Kiwi Express in the New Zealand domestic market.
Revenue generated in Freightways’ core business has been growing relatively slowly compared to prior years. This slower growth has been occurring at a time when key costs, particularly labour and occupancy, and most other general overhead costs have continued to increase. Given this context, Freightways’ express package businesses have shown their resilience by delivering a sound earnings result.
Despite the quieter operating environment, Freightways’ express package businesses have continued to make considered investment in areas where additional capacity will be required to accommodate future growth and also in areas where it can further enhance its competitive advantage. This has included the relocation of all Freightways businesses operating in the Hamilton region into a purpose-built facility to service the growing Waikato and Bay of Plenty regions. Investment has also continued in Freightways’ technology platform with the initial introduction of in-van scanning systems that provide customers with the real time transmission of pick-up and delivery information and through the continued progression of Freightways’ core IT operating system on to a next-generation platform.
DX Mail has again grown very successfully in the business mail niche of New Zealand’s Postal Services market. This growth was accelerated with the acquisition of the franchisor rights of the Pete’s Post mail delivery business in December 2006. This business operates in Taranaki, Manawatu, Wanganui, Hawkes Bay and Bay of Plenty. DX Mail operates the same mail delivery services in other business centres around New Zealand and also offers an extensive range of other postal services that are now on offer to Pete’s Post customers.
In the context of Freightways total earnings, DX Mail’s contribution remains relatively modest and our growth strategy is one which will be implemented over a number of years. Strategically, DX Mail is integrated with New Zealand Couriers which picks up and delivers mail bags for DX Mail’s growing customer base. Hence, as DX Mail grows New Zealand Couriers also receives the benefit of this growth.
DX Mail is a nationwide business mail competitor to NZ Post and is seen as an emerging growth opportunity within Freightways’ portfolio of businesses.
Within the information management market Freightways provides data storage, document storage and document destruction services to a wide range of business customers. Its more established businesses are located in main centres throughout New Zealand. In July 2006, Freightways extended its geographical reach to Australia with the acquisition of DataBank.
DataBank is a data storage business with established branches in the states of NSW and Victoria. It started up its third branch in January 2007 in Queensland. A document storage service was also introduced to the Queensland market through this branch at the same time, using Freightways’ document storage brand of Archive Security.
In July 2007, Freightways announced the acquisition of the document destruction businesses of Shred-X and Document Destruction & Paper Recycling in Queensland. These acquisitions enable Freightways to now offer its Queensland customers a full suite of information management services.
During 2007, Freightways also purchased its existing information management warehouse and expansion land in Porirua, Wellington. This expansion land ensures Freightways has sufficient capacity to accommodate the future growth it expects from the Wellington region.
Increased outsourcing of the storage and management of backed-up computer data, archived documents and document destruction has contributed to the strong growth of Freightways’ information management businesses. Outsourcing decisions are being driven by an increasing awareness in the market for the need to professionally and securely manage business information, and also in regard to document destruction, the growing market demand to securely destroy documents and recycle paper.
The acquisitions Freightways has completed in the information management market have strengthened Freightways’ overall offer, increased the depth of talent on the Freightways team and been immediately earnings per share positive.
Internal Service Providers
Fieldair Holdings Limited provides airfreight linehaul services to Freightways’ express package brands through the operation of our fleet of freighter aircraft by its subsidiary Air Freight NZ Limited. The benefits derived from directly controlling our core airfreight linehaul requirements continue to be evidenced through the consistent provision of outstanding service by this division. Our aviation engineering business, Fieldair Engineering Limited, provides design, manufacturing and maintenance services, both internally and externally to the aviation market. Externally generated revenues have been lower in 2007 than in recent years due to a lesser requirement for major project work.
Parceline Express Limited provides road linehaul services throughout New Zealand to link our nationwide branch network. It has continued to accommodate the growth from our front line brands while providing them with a premium service.
Freightways Information Services Limited, our in-house IT services provider, has successfully progressed the transition to a next-generation information systems operating environment, while maintaining the development and integrity of our existing system. This major IT project is scheduled for completion in 2008. Capital expenditure associated with this project is running to expectation.
Corporate costs continue to be managed within expectations. An additional corporate office was established in Australia during 2007 to support the requirements of our Australian interests. All acquisitions made during 2007 and the property purchase in Wellington were funded using existing finance facilities.
Freightways’ core express package business is expected to continue to perform soundly, although growth in this market will again be influenced by the performance of the New Zealand marketplace it operates in. Freightways’ emerging growth businesses in the Business Mail and Information Management markets are expected to continue their positive growth and development.
The recent Australian acquisitions are important initiatives for Freightways as it continues on its path to diversify its activity both geographically and further into the information management market. These recent acquisitions create a broader platform from which Freightways expects to develop further growth opportunities.
Management will continue to take consistent strategies to each of the markets Freightways operates in, to maintain and strengthen the positioning of our brands, to retain and develop our teams of people, to deliver premium performance to our customers and to ensure the benefits of these strategies continue to be enjoyed by our shareholders. These strategies include exploring acquisitions that complement our existing capability.
Capital investment of approximately $15 million will be spent during the next financial year in areas that support the growth of our core and emerging businesses. This includes the initial development of our recently acquired information management site in Wellington. Investment will also continue to be made to enable the achievement of our positioning and performance objectives and to support the development of our people.
Freightways will move to reporting under International Financial Reporting Standards (IFRS) from 1 July 2007, commencing with its results for the half year ending 31 December 2007. The only material impact anticipated from this change to IFRS is that goodwill amortisation will no longer be charged against profits, resulting in an equivalent lift in net surplus to shareholders for the relevant period reported.
In a challenging environment, Freightways has successfully executed its strategies to again deliver a record result. Investment in growth opportunities and service enhancement initiatives will continue in all three of Freightways’ market segments.
Freightways’ performance will in the near term be influenced by a challenging New Zealand marketplace. Medium to longer term and subject to business factors beyond its control, Freightways is exceptionally well positioned in all aspects of its business to continue to achieve positive performance for its shareholders and all other stakeholders.
The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team.
Consolidated Statement of Financial Performance
For the year ended 30 June 2007
|June 2007||June 2006|
|Earnings before interest, tax, depreciation and amortisation (EBITDA)||62,929||58,318||8%|
|Earnings before interest, tax and amortisation (EBITA)||56,531||53,360||6%|
|Amortisation of goodwill||(5,810)||(4,970)||17%|
|Earnings before interest and tax (EBIT)||50,721||48,390||5%|
|Net surplus before income tax||40,104||39,043||3%|
|Net surplus after income tax (NPAT) attributable to shareholders||25,091||24,306||3%|
Consolidated Statement of Financial Position
As at 30 June 2007
|June 2007||June 2006|
|Cash and bank balances||1,673||1,652|
|Other current assets||110||–|
|Total Current Assets||46,807||40,605|
|Other non-current assets||275||–|
|Total Non-Current Assets||246,061||205,546|
|Payables and accruals||39,941||23,501|
|Hire Purchase liabilities||86||–|
|Total Current Liabilities||61,473||42,887|
|Non Current Liabilities|
|Hire Purchase liabilities||367||–|
|Deferred tax liability||167||324|
|Total Non-Current Liabilities||153,438||128,324|
|Foreign currency translation reserve||(8)||–|
|Total Shareholders’ Equity||77,957||74,940|
Consolidated Statement of Cash Flows
For the year ended 30 June 2007
|June 2007||June 2006|
|Cash flows from operating activities|
|Receipts from customers||284,643||255,797|
|Payments to suppliers and employees||(222,348)||(202,497)|
|Cash generated from operations||62,295||53,300|
|Interest and other costs of finance paid||(10,691)||(8,786)|
|Income taxes paid||(14,233)||(14,174)|
|Net cash inflows from operating activities||37,561||30,492|
|Cash flows from investing activities|
|Payments for fixed assets||(17,753)||(7,486)|
|Payments for businesses acquired||(23,901)||(3,959)|
|Proceeds from disposal of fixed assets||58||59|
|Investment in short term deposit||(115)||–|
|Payment for other investments||(278)||–|
|Net cash outflows from investing activities||(41,989)||(11,386)|
|Cash flows from financing activities|
|Dividends to ordinary shareholders||(22,799)||(21,637)|
|Increase in bank borrowings||26,233||1,000|
|Proceeds from unpaid shares fully paid||369||942|
|Hire purchase liabilities repaid||(589)||–|
|Net cash outflows from financing activities||3,214||(19,695)|
|Net decrease in cash held||(1,214)||(589)|
|Cash at beginning of year||1,652||2,237|
|Cash acquired through acquisition of businesses||488||–|
|Exchange rate adjustments||747||4|
|Cash at end of year||1,673||1,652|
Freightways Sales Revenue
Note: Historic EBITA amounts above for the years ended 30 June 1999 to 2003 have been presented
on a pro-forma basis consistent with the Freightways Investment Statement and Prospectus issued
in August 2003.