Full Year Report June 2012

Full Year Review

From the Chairman and Managing Director

The Directors are pleased to present the financial result of Freightways Limited (Freightways) for the year ended 30 June 2102, that is above the prior year in all respects and a record result for the company.

Highlights include the consistently strong financial performance of the company throughout the year and the successful execution of growth strategies across both operating divisions. In addition, the integration of recent acquisitions in New Zealand and Australia have added to the depth of Freightways’ presence in the Australasian information management industry and the renegotiation of Freightways’ finance facilities has provided the benefit of reduced funding costs.

Operating Performance

Consolidated operating revenue of $382 million for the full year was 8% higher than the prior comparative period (pcp).

EBITDA (excluding non-recurring items) of $72 million for the full year and EBITA (excluding non-recurring items) of $62 million for the full year were both 9% higher than the pcp.

Consolidated NPAT (excluding non-recurring items) of $36 million for the full year was 17% higher than the pcp.

Cash flows generated from operations were again strong at $70 million.

Earnings per share (EPS) for the full year (excluding non-recurring items) was 23.4 cents per share, an improvement of 15% over the pcp.

A one-off $1.5 million EBITA benefit ($1 million after tax) relating to proceeds from Christchurch earthquake insurance claims made in the prior year has been treated as non- recurring and has not been included in the above revenue and earnings numbers. Similarly, a one-off $1.3 million EBITA charge ($0.9 million net of tax) relating to Christchurch earthquake costs subject to insurance claims was treated as non-recurring in the prior year and is also excluded from the above pcp revenue and earnings numbers. Non-recurring items are included in the full year financial statements.


The Directors have declared a final dividend of 9.5 cents per share, fully imputed at a tax rate of 30%. This represents a pay out of approximately $14.6 million compared with $11.2 million for the pcp final dividend of 7.25 cents per share. The final dividend will be paid on 1 October 2012. The record date for determination of entitlements to the final dividend is 14 September 2012.

The Dividend Reinvestment Plan (DRP) will not be offered in relation to this final dividend. As a capital management tool, the application of the DRP will be reviewed for each future dividend.

Review of Operations

The industry and geographical diversification strategy embarked upon by Freightways in previous years has broadened its revenue and earnings base and created a wide range of growth opportunities that are being successfully developed by the Freightways team. Within this full year result the contribution to both revenue and earnings from the Express Package & Business Mail division and the Information Management division was approximately 75% and 25%, respectively. Over half of the Information Management division’s revenue and earnings contribution was generated in Australia.

Express Package and Business Mail

The Express Package & Business Mail division operates a multi-brand strategy in the domestic market through New Zealand Couriers, Post Haste, Castle Parcels, NOW Couriers, SUB60, Security Express, Kiwi Express and DX Mail. Subsequent to year-end DataPrint was acquired and will operate as a separate brand alongside DX Mail.

Operating revenue of $292 million for the full year was 5% higher than the pcp.

EBITDA of $53 million for the full year was 7% higher than the pcp and EBITA of $48 million for the full year was 8% higher than the pcp.

A particularly strong first quarter underpinned a very good first half year. As expected, revenue in the second half was comparatively not as strong as in the first half, yet revenue growth nevertheless remained positive and consistent throughout the period. Increased volumes from many existing customers, quality market share gains and price increases underpinned the revenue growth in this division. Revenue from fuel surcharges used to offset the impact of higher fuel prices is also included in this result. Revenue growth in this division came from all locations in New Zealand and from most industry sectors. Online shopping continued to generate our fastest growing source of volume. Costs continued to be prudently managed, albeit the impact of stepped increases in property insurance and road user charges relating to the linehaul of inter-city volumes will continue to be felt throughout the next financial year.

Activity levels in most of our businesses located in Christchurch have returned to pre-earthquake levels, with the exception being DX Mail that continues to be affected by relatively low tourism-related mail volume. The overall cost of doing business in Christchurch has however lifted due to the increased difficulty in moving around Christchurch to effect pick-ups and deliveries and also in regards to labour and related costs.

During the year, our Hawkes Bay businesses relocated to new larger premises and work was all but completed on the redevelopment of the Post Haste and Castle Parcels depots at our main Auckland site. This redevelopment enables the accommodation of NOW Couriers that has operated from a separate Auckland location.

Our latest acquisition, DataPrint, is a full service mailhouse that provides its customers with both a physical and an electronic service for their transactional mail. DataPrint will work alongside DX Mail. Customers of both these businesses and the wider Freightways group will be offered a broader suite of services as a result of this acquisition, including the ability to send electronic invoices to their respective customers who can then also pay these invoices online.

Overall, Freightways’ Express Package & Business Mail division has been able to once again demonstrate its resilience and its growth attributes to deliver a very good full year result.

Information Management

The Information Management division is established 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 DataBank, Archive Security, Filesaver and Shred-X.

Operating revenue of $92 million for the full year was 21% above the pcp.

EBITDA of $21 million for the full year and EBITA of $16 million for the full year were both 18% above the pcp.

During the year, Freightways acquired Iron Mountain’s New Zealand operations and the business and assets of Filesaver Pty Limited in Sydney. The Iron Mountain New Zealand business has been fully integrated into Freightways’ existing New Zealand information management business. The Filesaver business is operating from within Freightways’ existing information management business in Australia as a stand-alone brand. Restructuring and relocation costs relating to these acquisitions were expensed primarily within the first half of this full year result. The expected financial contribution from these acquisitions, including the value of synergies achieved under Freightways’ ownership, is tracking to expectation and evident in this division’s strong second half year result.

The very strong growth experienced in this division has assisted in offsetting the increased costs associated with leasing significant additional capacity in both Australia and New Zealand and related premise relocations. Part of this growth has come from winning nationwide customers in Australia that would not have been achieved without this investment. The storage and management of archived documents continues to be our fastest growing revenue stream in this division. In our document destruction operations the reduced demand for recycled paper in the global market has not yet recovered and accordingly the price we receive for the sale of this product declined further in the second half of the year. A number of contingencies to mitigate the impact of these reduced prices were implemented, however the contribution from this particular revenue source was significantly lower than the pcp.

New service lines have been added to Freightways’ suite of information management services, adding breadth to our revenue and earnings growth profile. Strategic growth opportunities continue to be explored and executed where they make commercial sense.

Overall, the performance of the Information Management division and its demonstrated ability to sustain high levels of growth has been outstanding.

Internal Service Providers

Fieldair Holdings provides airfreight linehaul services, Parceline Express provides road linehaul services and Freightways Information Services provides IT development and support to the Express Package & Business Mail division. All three internal service providers have continued to deliver outstanding service, underpinning the service offered by our front line businesses.


Corporate overhead costs continue to be well contained.

Newly-negotiated finance facilities came into effect on 1 September 2011. These include facilities of NZD110 million and AUD70 million, spread equally between 3-year, 4-year and 5-year maturity dates. This multi-currency facility, with an evenly spread maturity profile, demonstrates the support of Freightways’ banking syndicate and provides funding certainty for the company and important diversity of duration. The reduced cost of these facilities is clearly evidenced in the decreased interest charge to the company for the full year.

Bank borrowings have increased above the pcp to fund the acquisitions completed during 2012.

Capital expenditure of $15 million was invested during 2012 to maintain Freightways airfreight and IT infrastructure and to support the group’s growth strategies.


We are mindful of the current issues relating to the global economy that may have a further adverse impact on the economies of New Zealand and Australia. Inevitably these global issues will influence our business performance. Against this uncertain background we do nevertheless expect to see continued overall gradual improvement in the markets that our businesses are positioned in, as has been experienced in recent times. Drivers of business success, other than the performance of the economy, have and will continue to contribute to future performance. These drivers include our ability to execute our growth initiatives, actively managing costs, striving to further improve service quality and innovating, not only in regard to our suite of services, but also in regard to our internal processes to assist productivity.

Growth trends evident in this latest full year result within the Express Package & Business Mail division are positive. If this growth amongst our existing customer base is sustained it will contribute to further year-on-year performance improvement. Our Express Package and Business Mail teams have consistently demonstrated their ability to compete successfully in an openly-competitive environment and we expect them to continue to do so. Our Express Package brands are among the most recognised in New Zealand, our people have a depth of experience second to none and our service culture will continue to set us apart from our competitors.

As has occurred in 2012, we expect the Information Management division to deliver sound overall year-on-year earnings growth, despite stepped costs related to investment in new capacity and the impact of lower prices for the paper we sell from our document destruction operations. Within this division we expect continued good earnings growth from our document and data storage and related services businesses. Conversely, our document destruction businesses on both sides of the Tasman will continue to be impacted by the aforementioned lower global paper prices, meaning a relatively flat year ahead is forecast for this particular segment.

Capital expenditure for 2013 is expected to be $14 million to support the growth and development of both of Freightways’ divisions. Overall, cash flows are expected to remain strong throughout the 2013 financial year.

In recent years, Freightways has strengthened its earnings profile by diversifying its activities both geographically and deeper into the information management market. Freightways will continue to seek out and develop growth opportunities to support this strategy and will also explore other opportunities that complement its core capabilities.

Subject to business factors beyond its control, Freightways is well positioned to reap the benefits of further improvement in the markets in which it operates.


Freightways has delivered a strong full year result that is above the prior year in all respects and a record for the company. This result again demonstrates the resilience of the Group, the positive features of the industries it operates in and the high quality of its subsidiary businesses and their teams of people. Accordingly, the Directors have been able to declare a fully imputed 9.5 cents per share final dividend.

The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team of people throughout New Zealand and Australia.

Managing Director

Freightways Ltd Consolidated Income Statement

For the year ended 30 June 2012
2012 2011 Percentage variance
$000 $000 %
Operating revenue 382,455 352,520 8%
Transport and logistics expenses (156,851) (149,484) 5%
Employee benefits expenses (100,079) (91,855) 9%
Occupancy expenses (17,398) (13,833) 26%
General and administration expenses (35,843) (30,915) 16%
Operating profit before interest, income tax, depreciation and software amortisation, non-recurring items and amortisation of intangibles 72,284 66,433 9%
Depreciation and software amortisation (10,374) (9,782) 6%
Operating profit before interest, income tax, non-recurring items and amortisation of intangibles 61,910 56,651 9%
Amortisation of intangibles (89) 100%
Operating profit before interest, income tax and non-recurring items 61,821 56,651 9%
Non-recurring income (expenses) before income tax 1,459 (1,289) (213%)
Profit before interest and income tax 63,280 55,362 14%
Net interest and finance costs (13,975) (15,511) (10%)
Profit before income tax 49,305 39,851 24%
Income tax:
– Tax applicable to operating earnings (12,352) (9,800) 26%
– Tax credit (charge) as a result of tax law changes 52 (152) (134%)
Total income tax (12,300) (9,952) 24%
Profit for the year attributable to the shareholders 37,005 29,899 24%

Freightways Ltd Consolidated Balance Sheet

As at 30 June 2012
2012 2011
$000 $000
Current Assets
Cash and cash equivalents 9,130 4,325
Trade and other receivables 53,401 49,774
Inventories 8,129 7,423
Total Current Assets 70,660 61,522
Non-Current Assets
Trade and other receivables 674 85
Property, plant & equipment 90,343 80,193
Intangible assets 275,295 256,007
Deferred tax asset 563 1,362
Other non-current assets 18
Total Non-Current Assets 366,875 337,665
Total Assets 437,535 399,187
Current Liabilities
Trade and other payables 45,266 42,599
Finance lease liabilities 26 26
Provisions 363 246
Derivative financial instruments 345 174
Unearned income 13,937 14,830
Total Current Liabilities 59,937 57,875
Non-Current Liabilities
Trade and other payables 3,991 1,000
Borrowings (secured) 178,971 158,222
Deferred tax liability 4,553 6,570
Provisions 1,479 1,217
Finance lease liabilities 66 93
Derivative financial instruments 15,234 6,441
Total Non-Current Liabilities 204,294 173,543
Total Liabilities 264,231 231,418
NET ASSETS 173,304 167,769
Contributed equity 121,263 120,713
Retained earnings 64,104 51,329
Cash flow hedge reserve (11,451) (5,011)
Foreign currency translation reserve (612) 738
TOTAL EQUITY 173,304 167,769

Freightways Ltd Consolidated Statement of Cash Flows

For the year ended 30 June 2012
2012 2011
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 378,640 346,557
Payments to suppliers and employees (308,554) (283,478)
Cash generated from operations 70,086 63,079
Interest received 142 141
Interest and other costs of finance paid (13,584) (15,520)
Income taxes paid (11,548) (10,277)
Net cash inflows from operating activities 45,096 37,423
Cash flows from investing activities
Payments for property, plant & equipment (14,886) (11,436)
Payments for software (609) (2,616)
Proceeds from disposal of property, plant and equipment 170 156
Payments for businesses acquired (22,425) (1,869)
Advances to associates repaid 69
Cash flows from other investing activities (536) (623)
Net cash outflows from investing activities (38,217) (16,388)
Cash flows from financing activities
Dividends paid (24,230) (21,892)
Increase in bank borrowings 21,761
Net proceeds from issue of ordinary shares 314 369
Finance lease liabilities repaid (26) (192)
Net cash outflows from financing activities (2,181) (21,715)
Net increase (decrease) in cash and cash equivalents 4,698 (680)
Cash and cash equivalents at the beginning of year 4,325 4,996
Exchange rate adjustments 107 9
Cash and cash equivalents at end of year 9,130 4,325