Full Year Report June 2014

Full Year Review

From the Chairman and Managing Director

The Directors are pleased to present the consolidated financial result of Freightways Limited (Freightways) for the year ended 30 June 2014. This report discusses the 2014 full year result, reflects on some of Freightways’ achievements over the past year and provides our outlook for the future.

Highlights include; the widespread strength of this result, good first half earnings growth followed by even better growth in the second half, organic growth strategies well executed, recent acquisitions successfully integrated and overall a record consolidated result for Freightways, enabling a record dividend to shareholders.

Operating Performance

Consolidated operating revenue of $432 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), Net Profit after tax (NPAT) and NPAT before amortisation (NPATA) discussed below and throughout this commentary exclude the following non-recurring amounts that the Directors believe should not be included when assessing the underlying performance of the Freightways group:

  • Full Year 2013 – a one-off benefit of $2.1 million ($1 million in the express package & business mail division and $1.1 million in the information management division) relating to the reversal of accrued acquisition earnout payments that were not expected to be paid; and
  • Full Year 2014 – a one-off expense of $1.2 million in the information management division that relates to the expected final earnout payment for the Filesaver business acquired in 2011.

Excluding the above non-recurring items:

  • EBITDA of $84 million for the year and EBITA of $72 million for the year were 9% and 11% higher than the pcp, respectively.
  • Consolidated NPAT of $43 million for the year and NPATA of $44m for the year were 12% and 14% higher than the pcp, respectively.
  • Earnings per share (EPS) for the year was 27.9 cents per share, an improvement of 12% over the pcp.

Cash flows generated from operations were again strong at $85 million.


The Directors have declared a final dividend of $17.4 million compared with $15 million for the pcp final dividend. This represents a 15% increase in the final dividend to 11.25 cents per share, fully imputed at a tax rate of 28%, compared to 9.75 cents in the pcp. The final dividend will be paid on 6 October 2014. The record date for determination of entitlements to the final dividend is 19 September 2014.

The non-recurring item described above has been excluded from NPATA in determining the final dividend.

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

Divisional results are provided below for the express package & business mail division and the information management division for the full year ended 30 June 2014.

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, Stuck, Pass The Parcel, DX Mail and Dataprint.

Operating revenue of $332 million for the full year was 8% higher than the pcp.

EBITDA of $61 million for the full year and EBITA of $54 million for the full year were 11% and 12% higher than the pcp, respectively.

The widespread improved performance evident in our first half year result continued and gathered further momentum through the second half year. The execution of strategies to retain existing and attract new customers has been successful and we have seen an overall increase in volume growth from within this customer base. Pricing improvements to offset rising costs have also been well implemented.

Freightways’ express package brands are positioned to service different niches of the market, including urgent one hour delivery, premium through economy metropolitan, and overnight to two day nationwide deliveries. Our brands service a broad range of industry sectors.

The large majority of Freightways’ express package volumes are collected from businesses and delivered to businesses (B2B). The B2B volume increase we are experiencing from within our existing customer base reflects a growing domestic marketplace. The balance of our volume is collected either from businesses or consumers and delivered to consumers (B2C and C2C). A large amount of this volume is new to the industry as consumers increasingly shop online. With growth trends prevalent in both B2B and B2C the overall growth in the express package industry is positive.

The new B2C volume means that we are often delivering to addresses that we may not have delivered to in the past. A wide range of B2C specific strategies have been implemented to ensure the expectations of both the sender and receiver of the item are satisfied. These strategies have included the establishment in 2011 of the Pass The Parcel service that is dedicated to TradeMe’s members and latterly the introduction of an expanded suite of online services to enable consumers to manage the delivery of their own items either to their own preferred secure drop-zone or to arrange re-delivery options when they are not at home to receive an item, possibly to an alternative address. We have also increased our network of agents to provide collection points in local neighbourhoods and introduced applications so that communication can be easily conducted from mobile phones or tablets. B2C and C2C volume can be challenging, particularly during peak buying periods such as in the lead-up to Christmas. Capacity planning within our linehaul and delivery fleets well in advance of these peaks contributes to our ability to provide a quality service at these times. This B2C and C2C volume growth is an exciting and challenging aspect of our industry that will continue to grow as consumers increasingly buy online.

Our smaller business mail operator, DX Mail, has been successful in growing its share of the postal services market, despite the industry’s overall decline as increasingly more of us communicate electronically. DX Mails growth has come from businesses that still require overnight delivery for their standard-priced letters. Accordingly, DX Mail has introduced additional postie runs in many locations around New Zealand. To satisfy the demand from those businesses seeking electronic delivery of their mail, Dataprint was acquired two years ago. Dataprint positions our services higher on the supply chain than previously with a full suite of both physical and electronic mailhouse services. Dataprint’s customers can choose from the options of physical or electronic delivery of their mail or a combination of both services, as most do. Dataprint has successfully grown its customer base in a variety of industry sectors. Dataprint is well positioned in the marketplace with an experienced team operating from modern premises and with new equipment. Dataprint has also recently joined a small number of New Zealand businesses in achieving Enviro-Mark® Diamond Certification, in recognition of its sustainability efforts and comprehensive environmental management system.

Overall the express package & business mail division has delivered a strong 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 $103 million for the full year was 3% above the pcp.

Excluding non-recurring items, EBITDA of $24 million for the full year and EBITA of $20 million for the full year were 5% and 8% higher than the pcp, respectively.

The translation of this division’s results from its Australian operations into New Zealand dollars (NZD) was naturally impacted by the higher NZD that prevailed throughout 2014, compared to the pcp. A comparison of the division’s performance using the 2013 average exchange rate shows revenue growth of 11%, EBITDA growth of 18% and EBITA growth of 14%, compared to the pcp.

Growth on both sides of the Tasman has been equally strong. Increased revenue relating to document and computer back-up tape storage, document destruction service activity and a growing take-up of the digital services offered by this division have all contributed to this strong performance.  Five acquisitions with operations in Hawkes Bay, Otago, Queensland, New South Wales and Victoria were completed during the latter stages of the half year and early in the second half. All these acquisitions have been well implemented, are delivering against our expectations, have added scale and further geographic reach to our existing operations and expanded our customer base.

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. Acquisitions during the full year have been funded from operating cash flows and an increase of approximately $6 million in net debt drawn from existing finance facilities.

Capital expenditure of $19 million was invested during the full year, primarily to provide capacity for growth, including expenditure on facilities and related equipment, IT infrastructure and airfreight capability. This capital expenditure also included $3 million to acquire two properties adjacent to our main Auckland site. These properties will assist in ensuring that we have sufficient physical capacity to accommodate future growth in our express package businesses.


We expect the positive performance evident in this full year result to continue and expect to achieve year-on-year earnings growth again in 2015, subject to business factors beyond its control.

Within our express package businesses we are particularly encouraged by the increased activity amongst our existing customer base. We expect this growth to continue both from Business to Business (B2B) and Business to Consumer (B2C) deliveries.

Our smaller DX Mail business will continue to operate in a challenging market, despite which it is expected to continue to attract customer demand, particularly for its overnight street delivery service. Demand for Dataprint’s physical and particularly its digital mailhouse services is expected to continue to increase.

The growth that we are experiencing in our information management businesses is expected to continue, including from the digital services that we offer. Revenue earned from the sale of recycled paper is expected to remain at similar levels to those which have been achieved within this full year result.

Capital expenditure for the year ahead is expected to be approximately $17 million to support the growth and development of both Freightways operating divisions. Overall, cash flows are expected to remain strong throughout the 2015 financial year.

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


Freightways has delivered a record full year result. The positive features of the markets it operates in, the resilience and adaptability of its business models to accommodate growth and changing market circumstances 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 11.25 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 2014
2014 2013 Percentage variance
$000 $000 %
Operating revenue 432,279 406,117 6%
Transport and logistics expenses (181,080) (169,613) 7%
Employee benefits expenses (111,132) (106,703) 4%
Occupancy expenses (18,752) (18,290) 3%
General and administration expenses (37,453) (34,360) 9%
Operating profit before interest, income tax, depreciation and software amortisation, non-recurring items and amortisation of intangibles 83,862 77,151 9%
Depreciation and software amortisation (11,864) (12,139) (2%)
Operating profit before interest, income tax, non-recurring items and amortisation of intangibles 71,998 65,012 11%
Amortisation of intangibles (1,060) (355) 199%
Operating profit before interest, income tax and non-recurring items 70,938 64,657 10%
Non-recurring items before income tax (1,249) 2,079 (160%)
Profit before interest and income tax 69,689 66,736 4%
Net interest and finance costs (11,672) (13,014) (10%)
Profit before income tax 58,017 53,722 8%
Income tax (16,315) (13,375) 22%
Profit for the year attributable to the shareholders 41,702 40,347 3%

Freightways Ltd Consolidated Balance Sheet

As at 30 June 2014
2014 2013
$000 $000
Current Assets
Cash and cash equivalents 3,880 3,484
Trade and other receivables 60,774 54,894
Inventories 8,776 8,562
Total Current Assets 73,430 66,940
Non-Current Assets
Trade and other receivables 279 456
Property, plant & equipment 93,576 89,522
Intangible assets 286,600 276,034
Deferred tax asset 313
Total Non-Current Assets 380,455 366,325
Total Assets 453,885 433,265
Current Liabilities
Trade and other payables 53,973 44,242
Finance lease liabilities 70 114
Income tax payable 5,320 4,452
Provisions 443 313
Derivative financial instruments 143 440
Unearned income 14,561 13,833
Total Current Liabilities 74,510 63,394
Non-Current Liabilities
Trade and other payables 2,763 3,250
Borrowings (secured) 159,098 160,763
Deferred tax liability 8,881 6,561
Provisions 2,200 1,858
Finance lease liabilities 32 121
Derivative financial instruments 6,965 10,019
Total Non-Current Liabilities 179,939 182,572
Total Liabilities 254,449 245,966
NET ASSETS 199,436 187,299
Contributed equity 122,108 121,660
Retained earnings 87,215 75,974
Cash flow hedge reserve (5,421) (7,854)
Foreign currency translation reserve (4,466) (2,481)
TOTAL EQUITY 199,436 187,299

Freightways Ltd Consolidated Statement of Cash Flows

For the year ended 30 June 2014
2014 2013
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 428,892 405,035
Payments to suppliers and employees (343,805) (327,674)
Cash generated from operations 85,087 77,361
Interest received 52 92
Interest and other costs of finance paid (10,684) (12,024)
Income taxes paid (14,919) (12,552)
Net cash inflows from operating activities 59,536 52,877
Cash flows from investing activities
Payments for property, plant & equipment (15,913) (11,508)
Payments for software (1,629) (1,355)
Proceeds from disposal of property, plant and equipment 113 86
Payments for businesses acquired (net of cash acquired) (16,758) (4,128)
Cash flows from other investing activities (331) (231)
Net cash outflows from investing activities (34,518) (17,136)
Cash flows from financing activities
Dividends paid (30,461) (28,477)
Increase (decrease) in bank borrowings 5,676 (12,994)
Net proceeds from issue of ordinary shares 423 302
Finance lease liabilities repaid (86) (92)
Net cash outflows from financing activities (24,448) (41,261)
Net increase (decrease) in cash and cash equivalents 570 (5,520)
Cash and cash equivalents at the beginning of year 3,484 9,130
Exchange rate adjustments (174) (126)
Cash and cash equivalents at end of year 3,880 3,484