Full Year Report June 2013

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 2013. In its 10th year since listing on the New Zealand Stock Exchange (NZX) in September 2003, Freightways has delivered another record result. This report discusses the 2013 full year result, reflects on some of the many achievements of the Company over the past decade and provides our outlook for the future.

Operating Performance

Consolidated operating revenue of $406 million for the year was 6% higher than the prior comparative period (pcp).

Earnings (operating profit) before interest, tax, depreciation and amortisation (EBITDA), Earnings (operating profit) before interest, tax and amortisation (EBITA) and Net Profit after tax (NPAT) amounts used in calculating the movements between years discussed below exclude the following non-recurring income amounts:

  • Full Year 2012 EBITA included $1.5 million and NPAT $1 million relating to Christchurch earthquake insurance claim proceeds recorded against corporate costs.
  • Full Year 2013 EBITA and NPAT both include $2.1 million relating to the reversal of accrued acquisition earnout payments that are not expected to be paid. Of the $2.1 million, $1 million was recorded in the express package & business mail division, while $1.1 million was recorded in the information management division.

The Directors believe that the non-recurring income amounts detailed above should not be included when assessing the underlying operating performance of the Company.

EBITDA (excluding non-recurring income) of $77 million for the year and EBITA (excluding non-recurring income) of $65 million for the year were 7% and 5% higher than the pcp, respectively.

Consolidated NPAT (excluding non-recurring income) of $38 million for the year was 6% higher than the pcp.

Cash flows generated from operations were again strong at $77 million.

Earnings per share (EPS) for the year (excluding non-recurring income) was 24.9 cents per share, an improvement of 6% over the pcp.


The Directors have declared a final dividend of 9.75 cents per share, fully imputed at a tax rate of 28%. This represents a pay out of approximately $15 million compared with $14.6 million for the pcp final dividend of 9.5 cents per share. The final dividend will be paid on 1 October 2013. The record date for determination of entitlements to the final dividend is 13 September 2013.

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

Record results have been achieved in both the express package & business mail division and the information management division for the year ended 30 June 2013.

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, DX Mail and Dataprint.

Operating revenue of $308 million for the year was 6% higher than the pcp.

EBITDA (excluding non-recurring income) of $55 million for the year and EBITA (excluding non-recurring income) of $49 million for the year were 3% and 1% higher than the pcp, respectively.

2013 has been characterised by good revenue growth, yet only modest operating earnings (EBITDA & EBITA) growth (excluding non-recurring income). A changing business mix in both our express package and business mail businesses and the cost of related investment to capture new growth has contributed to this outcome.

The express package business mix has continued to progressively change as increasing numbers of consumers buy goods online. This has meant faster growth in Business-to-Consumer (B2C) volume than Business-to-Business (B2B) volume. Our strategy to ensure we capture our share of this B2C growth and that we appropriately service it has included increased investment in customer support, IT development and in recent years the establishment of our ‘Pass The Parcel’ service. These strategies have proven successful, hence the growth we are achieving. Compared to B2B volumes, a feature of the B2C market is typically smaller packages and consequently lower revenue/margin per item. Over time we expect that margins relating to this work will increase, particularly as delivery density increases. Express package volumes are back to pre-earthquake levels in Christchurch. The cost of doing business in Christchurch is however higher than in the past and it will remain so for some time due to the disparate nature of B2B delivery addresses now compared to the previously compact CBD.

Our business mail division has continued to experience a change in business mix as its traditional box-to-box letter volumes and general business mail have declined through digital substitution. Our strategy to address this natural decline has been three-fold:

  • Investment in a network of DX Mail posties in most centres throughout New Zealand to enable the capture of a greater share of street delivery mail. We expect the aggressive network changes proposed by our competitor, NZ Post, will ultimately slow down the delivery of its customers’ letters. We expect those customers will in increasing numbers talk to DX Mail about its alternative services.
  • The acquisition of Dataprint, a full service mailhouse that offers both ‘digital and physical’ mail delivery to its customers. In its first year of Freightways ownership this acquisition has performed very well. It has successfully leveraged its new sister companies’ capabilities and customer reach to support its business development plans and vice-versa.
  • The establishment of a Business Process Outsourcing service that brings together the capability of DX Mail, Dataprint and Freightways’ Information Management division to assist in transitioning customers to a digital workflow environment.

Overall the express package & business mail division has delivered sound performance in a challenging year.

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 $100 million for the full year was 8% above the pcp.

EBITDA (excluding non-recurring income) of $23 million for the year and EBITA (excluding non-recurring income) of $19 million for the year were both 13% higher than the pcp.

The information management division has again recorded a strong result. Highlights within this division include:

  • Strong growth of stored archive boxes, with similar levels of growth being achieved in all locations.
  • Stepped growth in service activity and revenue achieved by our document destruction operations in Australia has contributed to increased utilisation of our recently established regional collection runs. This growth has also helped mitigate the lower prices we are receiving for the sale of recycled paper.
  • Growth in our emerging digital services, which enable us to participate in the digital management, archiving and back-up of business information.

Overall, the performance of the information management division has again been very strong.

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 and were lower than the prior year. Strong operating cash flows enabled bank borrowings to be reduced by $13 million during the year.

Freightways’ finance facilities of NZD110 million and AUD70 million have been extended by two years with effect from 26 July 2013, at existing pricing. This has resulted in the profile of the facilities being restored to maturities spread equally between 3-years, 4-years and 5-years.

Capital expenditure of $13 million was invested during the year, primarily to provide capacity for growth, including expenditure on facilities and related equipment, IT infrastructure and airfreight.

A Decade of Achievement

Freightways is in its 10th year since listing on the NZX. In its 2003 investment statement & prospectus Freightways was described to potential investors as “a strong successful business … positioned to deliver continuing earnings growth … offering an attractive dividend yield.” By any measure, Freightways has delivered upon these statements.

A strong successful business…

Freightways’ core operating culture has stood the test of time, its business model has been progressively enhanced through investment in the development and retention of its people (that number approximately 3,000 across New Zealand and Australia), progressive capacity expansion to accommodate growth, the successful acquisition and start-up of a number of new businesses, the introduction each year of innovative new services and on-going investment in the technology that supports our core business processes and the services that we offer our customers. Our customers ultimately tell us if we are on the right track and the retention and growth of our large customer base is a particularly pleasing aspect of the Company’s development.

Diversification into the information management industry, that in 2013, has seen our information management division reach $100 million in revenue and contribute operating earnings of $23 million (EBITDA, excluding non-recurring income), has been a highly successful strategic move for Freightways. The information management strategy, while strengthening Freightways’ overall earnings profile, has enabled our entry into the Australian market and today we operate businesses in every state and territory within Australia.

Freightways is a stronger and more successful business today than it was in 2003.

… positioned to deliver continuing earnings growth…

Freightways’ performance has seen its revenue and profits more than double since listing on the NZX:

  • Revenue growth since 2003 of 107%;
  • Operating Earnings (EBITDA & EBITA) growth since 2003 of 102%; and
  • NPAT growth since its first NZX published result in 2004 of 137%.

Freightways is better positioned today than it was in 2003 to deliver continuing earnings growth.

…offering an attractive dividend yield.

Freightways policy since its listing in 2003 has been to pay 75% of NPATA as dividends each year. The strong annual cash generation achieved by Freightways has meant that Directors have been able to consistently comply with this policy objective.

  • Gross dividends since listing of 241 cents per share
  • Total gross shareholder return (i.e. dividends plus share price appreciation) from September 2003 to July 2013 of 387%

The very positive cash generating ability of the Company is such that Directors remain comfortable with the current dividend policy for the foreseeable future.


Overall we expect to be operating in a positive but slow growth environment for the foreseeable future. Based on Freightways’ current forecasting, 2014 is expected to demonstrate similar overall year on year improvement as was achieved in 2013.

Within our express package businesses we expect incremental volume growth from our existing customers. Price increases and efficiencies generated from this anticipated increase in volume are expected to offset cost increases. We will again step up our investment in technology solutions to support our expectations for market share growth. B2C retail deliveries generated through online shopping are again expected to grow more rapidly than B2B retail volumes, albeit this latter volume is expected to also increase compared to the prior year.

Our smaller DX Mail business will continue to operate in a challenging and overall declining market, yet it is expected to attract increasing customer demand for its street delivery, mailhouse and digital services (that also leverages the information management division’s capabilities).

The information management division is again expected to return good year-on-year improvement, underpinned by strong volume growth. Accordingly, we will step up our investment in capacity with related lease costs increasing in 2014 by around $1m. The revenue we receive from the sale of recycled paper will be slightly lower than that achieved in 2013 due to the closure of a paper mill in Queensland. The paper volumes that previously went to this mill are likely to be exported in the near term at a lower margin due to related increased transport costs. The impact of the recent loss of two customers from our media storage business is expected to be offset by new customers won during the year.

To address the increasing demand for the digitisation of business processes we have established a Business Process Outsourcing service that leverages the existing capabilities of Dataprint, DX Mail and our information management division. Encouraging progress has been made in establishing this service alongside our existing customers, including within government agencies. We expect our digital service revenues to continue growing.

Capital expenditure for the year ending 30 June 2014 is expected to be approximately $14 million to support the growth and development of both Freightways’ operating divisions. Overall, cash flows are expected to remain strong throughout the 2014 financial year.

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

Subject to business factors beyond its control, Freightways is well positioned to benefit from any further improvement in the markets in which it operates.


Freightways has delivered a record full year result. The positive features of the markets it operates in, the resilience and flexibility of its business models and the successful execution of its growth strategies by a very experienced and capable team are evident in this result. Accordingly, the Directors have been able to declare a fully imputed 9.75 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 2013
2013 2012 Percentage variance
$000 $000 %
Operating revenue 406,117 382,455 8%
Transport and logistics expenses (169,613) (156,851) 8%
Employee benefits expenses (106,703) (100,079) 7%
Occupancy expenses (18,290) (17,398) 5%
General and administration expenses (34,360) (35,843) (4%)
Operating profit before interest, income tax, depreciation and software amortisation, non-recurring income and amortisation of intangibles 77,151 72,284 7%
Depreciation and software amortisation (12,139) (10,374) 17%
Operating profit before interest, income tax, non-recurring income and amortisation of intangibles 65,012 61,910 5%
Amortisation of intangibles (355) (89) 399%
Operating profit before interest, income tax and non-recurring income 64,657 61,821 5%
Non-recurring income before income tax 2,079 1,459 42%
Profit before interest and income tax 66,736 63,280 5%
Net interest and finance costs (13,014) (13,975) (7%)
Profit before income tax 53,722 49,305 9%
Income tax:
– Tax applicable to operating earnings (13,375) (12,352) 8%
– Tax credit as a result of tax law changes 52 (100%)
Total income tax (13,375) (12,300) 9%
Profit for the year attributable to the shareholders 40,347 37,005 9%

Freightways Ltd Consolidated Balance Sheet

As at 30 June 2013
2013 2012
$000 $000
Current Assets
Cash and cash equivalents 3,484 9,130
Trade and other receivables 54,894 53,401
Inventories 8,562 8,129
Total Current Assets 66,940 70,660
Non-Current Assets
Trade and other receivables 456 674
Property, plant & equipment 89,522 90,343
Intangible assets 276,034 275,295
Deferred tax asset 313 563
Total Non-Current Assets 366,325 366,875
Total Assets 433,265 437,535
Current Liabilities
Trade and other payables 44,242 41,918
Finance lease liabilities 114 26
Income tax payable 4,452 3,348
Provisions 313 363
Derivative financial instruments 440 345
Unearned income 13,833 13,937
Total Current Liabilities 63,394 59,937
Non-Current Liabilities
Trade and other payables 3,250 3,991
Borrowings (secured) 160,763 178,971
Deferred tax liability 6,561 4,553
Provisions 1,858 1,479
Finance lease liabilities 121 66
Derivative financial instruments 10,019 15,234
Total Non-Current Liabilities 182,572 204,294
Total Liabilities 245,966 264,231
NET ASSETS 187,299 173,304
Contributed equity 121,660 121,263
Retained earnings 75,974 64,104
Cash flow hedge reserve (7,854) (11,451)
Foreign currency translation reserve (2,481) (612)
TOTAL EQUITY 187,299 173,304

Freightways Ltd Consolidated Statement of Cash Flows

For the year ended 30 June 2013
2013 2012
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 405,035 378,640
Payments to suppliers and employees (327,674) (308,554)
Cash generated from operations 77,361 70,086
Interest received 92 142
Interest and other costs of finance paid (12,024) (13,584)
Income taxes paid (12,552) (11,548)
Net cash inflows from operating activities 52,877 45,096
Cash flows from investing activities
Payments for property, plant & equipment (11,508) (14,886)
Payments for software (1,355) (609)
Proceeds from disposal of property, plant and equipment 86 170
Payments for businesses acquired (4,128) (22,425)
Advances to associates repaid 69
Cash flows from other investing activities (231) (536)
Net cash outflows from investing activities (17,136) (38,217)
Cash flows from financing activities
Dividends paid (28,477) (24,230)
Increase (decrease) in bank borrowings (12,994) 21,761
Net proceeds from issue of ordinary shares 302 314
Finance lease liabilities repaid (92) (26)
Net cash outflows from financing activities (41,261) (2,181)
Net increase (decrease) in cash and cash equivalents (5,520) 4,698
Cash and cash equivalents at the beginning of year 9,130 4,325
Exchange rate adjustments (126) 107
Cash and cash equivalents at end of year 3,484 9,130