Full Year Report June 2015

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 full year ended 30 June 2015. This report discusses the result, reflects on some of Freightways’ recent achievements and provides an outlook for the future.

Highlights include:

  • a strong annual result;
  • an 11% increase in the final dividend compared to that of the prior comparative period (pcp);
  • improved performance from all businesses, in all regions; and
  • the successful implementation of organic and strategic growth strategies.
Operating performance

The below table presents the reported 2015 result and the underlying trading result for Freightways compared to the pcp, when excluding the impact of non-recurring items:

$ million Note 2015 Result Non-recurring items Underlying 2015 Trading Result Underlying 2014 Trading Result Increase %
Revenue 479.5 479.5 432.3 11%
EBITDA (i) 86.5 9.0 95.5 83.9 14%
EBITA (ii) 73.8 9.0 82.8 72.0 15%
NPATA (iii) 44.8 6.5 51.3 44.0 17%
NPAT (iv) 43.3 6.5 49.7 43.0 16%
EPS (cents) 28.0 4.2 32.2 27.9 15%

(i) Operating profit before interest, tax, depreciation and amortisation
(ii) Operating profit before interest, tax and amortisation
(iii) Net profit after tax (NPAT) before amortisation
(iv) Profit for the year attributable to the shareholders

Freightways’ first quarter Trading Update provided a breakdown of the benefit relating to five additional trading days in that quarter compared to the pcp that contributed approximately $7 million of operating revenue, $2 million of EBITDA & EBITA and $1.4 million of NPATA & NPAT. This full year result also includes the benefit of these additional trading days compared to the pcp.

The results discussed below exclude the impact of the following non-recurring items that the Directors believe should not be included when assessing underlying trading performance:

  • Full Year 2014: a one-off expense of $1.25 million in the information management division that related to the final earn-out payment for the Filesaver business acquired in 2011; and
  • Full Year 2015: A total non-recurring charge of $9 million ($6.5 million after tax) that comprised:
    – a one-off expense of $7.6 million relating to the write-down of the carrying value of the existing Convair fleet of aircraft and related spare parts ($5.5 million after tax). As a non-cash item this write-down will not impact on Freightways’ dividend payments to its shareholders;
    – a one-off expense of $0.7 million expected to be incurred in the 2016 financial year relating to the transition from the Convair aircraft ($0.5 million after tax); and
    – a one-off expense of $0.65 million expected to be incurred in the 2017 financial year relating to the relocation of three of Freightways’ Sydney-based information management businesses into a single purpose-built site ($0.45 million after tax).

The Directors have declared a final dividend of 12.5 cents per share, fully imputed at a tax rate of 28%. This represents a payout of approximately $19.3 million compared with $17.4 million for the pcp dividend of 11.25 cents per share; an 11% increase. The dividend will be paid on 5 October 2015. The record date for determination of entitlements to the dividend is 18 September 2015.

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

Review of Operations

Divisional results for the year ended 30 June 2015 are provided below for the express package & business mail division and the information management division. Both divisions had record results.

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 $360 million was 8% higher than the pcp.

EBITDA of $68 million and EBITA of $62 million were both 13% higher than the pcp. These earnings amounts exclude $8 million of non-recurring charges associated with the write-down in the carrying value of the existing Convair fleet of aircraft and related spare parts and the transition from that fleet.

All businesses in this division had improved revenue and earnings compared to the pcp. Increased volumes from within our existing customer base, quality new business wins and some improved pricing all contributed to this result. Additionally, innovative new and expanded services across our businesses within this division realised new revenue and increased market share. Our larger businesses of New Zealand Couriers, Post Haste, Castle Parcels and NOW Couriers experienced particularly strong growth in the first three quarters of the year, whereas the final quarter experienced lower levels of growth.

Freightways’ business mail operator, DX Mail, continued to grow market share in the postal services market. DX Mail’s growth has come from customers who still require overnight delivery for their standard-priced letters. DX Mail has increased its postie delivery fleet in response to this positive market demand. The Dataprint business, which is positioned higher on the supply chain than DX Mail with a full suite of both physical and digital transactional mailhouse services, also achieved a strong result through increased market share in all of its service lines.

Branch relocations to larger premises that occurred during the year or are planned to occur in the coming year include Auckland’s North Harbour & East Tamaki, New Plymouth, Tauranga, Dunedin and Palmerston North.

The transition from Convair aircraft to Boeing 737-400 aircraft will occur between February and May 2016. Boeing 737-400’s are expected to provide increased capacity, faster sector speeds, savings in annual capital expenditure and operating costs and reduced carbon emissions per item of freight carried.

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 TIMG (The Information Management Group), DataBank, Archive Security, Filesaver, LitSupport and Shred-X.

Operating revenue of $122 million was 18% above the pcp.

EBITDA of $29 million and EBITA of $24 million were 18% and 20% higher than the pcp, respectively. These earnings amounts exclude the non-recurring item discussed above of $0.65 million in the 2015 financial year and $1.25 million in the pcp.

Growth on both sides of the Tasman has been consistently strong throughout the year. Demand for physical storage services for both documents and computer media continues to increase. Newly-introduced digital information management services have gained support from existing customers and assisted the winning of new customers. The document destruction businesses, particularly Shred-X in Australia, have seen increased demand for secure destruction services and improved prices from the sale of shredded paper for recycling. LitSupport, acquired in December 2014, is not yet trading to our expectations. The renegotiation of two major customer contracts and investment in additional sales resource since acquisition has meant that earnings are not yet at anticipated levels. If earnings targets are not achieved by December 2015, up to A$5m of the purchase price will be reimbursed by the vendors. Investment in larger document storage facilities in Queensland and South Australia occurred during the year, as well as the establishment of new document destruction facilities in New South Wales and the Australian Capital Territory. A new facility has been identified in Sydney to enable the consolidation of TIMG’s business units, which are currently operated from 3 existing locations, and will be operational in 2017. A one-off charge of $0.65 million ($0.45 million after tax) relating to the future relocation of these businesses has been treated as a non-recurring item in this full year result.

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 quality service, and in doing so have strongly underpinned the service offered by the front line businesses.


Corporate overhead costs continue to be well-contained. Acquisitions during the year have been funded from a combination of operating cash flows and borrowings from existing finance facilities.

Capital expenditure of $14 million was invested during the year, primarily to provide capacity for growth, including expenditure on facilities and related equipment, IT infrastructure and airfreight capability.


Freightways’ businesses are well-positioned to benefit from the growth opportunities that exist in both the express package & business mail and information management markets.

The express package market is expected to continue to expand, albeit not at the same rate as seen in this full year result. This outlook is consistent with general economic forecasts and has been evident in express package volumes in the fourth quarter of the 2015 financial year. The business mail operations of DX Mail and Dataprint are expected to sustain their positive growth, largely from market share gains.

The information management market is expected to continue to grow due to the service and cost advantages for businesses of outsourcing their document and computer media storage requirements. Privacy of business information will continue to be a primary driver of demand for secure document destruction services. Customers will continue to seek complementary and substitute electronic services relating to the creation and management of business information, which Freightways’ businesses are also able to offer.

Capital expenditure for the full year is expected to be approximately $20 million to support the growth and development of both Freightways operating divisions. Overall cash flows are expected to remain strong throughout the 2016 financial year.

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


The positive features of the markets Freightways operates in, the resilience of its business models to accommodate growth and adapt to changing market circumstances and the successful execution of its growth strategies by a very experienced and capable team are again evident in this record result. Accordingly, the Directors have been able to declare a fully imputed, 12.5 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 2015
Percentage Variance
$000 $000 %
Operating Revenue 479,458 432,279 11%
Transport and logistics expenses (189,546) (177,680) 7%
Employee benefits expenses (126,789) (111,132) 14%
Occupancy expenses (21,133) (19,344) 9%
General and administrative expenses (46,509) (40,261) 16%
Non-recurring items (8,975) (1,249) 619%
Operating profit before interest, income tax, depreciation and software amortisation and amortisation of intangibles 86,506 82,613 5%
Depreciation and software amortisation (12,685) (11,864) 7%
Operating profit before interest, income tax and amortisation of intangibles 73,821 70,749 4%
Amortisation of intangibles (1,599) (1,060) 51%
Profit before interest and income tax 72,222 69,689 4%
Net interest and finance costs (12,579) (11,672) (8%)
Profit before income tax 59,643 58,017 3%
Income tax (16,360) (16,315)
Profit for the year attributable to shareholders 43,283 41,702 4%

Freightways Ltd Consolidated Balance Sheet

As at 30 June 2015
2015 2014
$000 $000
Current Assets
Cash and cash equivalents 13,946 3,880
Trade and other receivables 70,034 60,774
Inventories 5,870 8,776
89,850 73,430
Assets held for sale 5,797
Total Current Assets 95,647 73,430
Non-Current Assets
Trade and other receivables 273 279
Property, plant & equipment 84,511 93,576
Intangible assets 318,237 286,600
Total Non-Current Assets 403,021 380,455
Total Assets 498,668 453,885
Current Liabilities
Trade and other payables 57,436 53,973
Finance lease liabilities 32 70
Income tax payable 6,780 5,320
Provisions 1,413 443
Derivative financial instruments 338 143
Unearned income 16,041 14,561
Total Current Liabilities 82,040 74,510
Non-Current Liabilities
Trade and other payables 12,327 2,763
Borrowings (secured) 177,007 159,098
Deferred tax liability 7,731 8,881
Provisions 2,932 2,200
Finance lease liabilities 32
Derivative financial instruments 8,827 6,965
Total Non-Current Liabilities 208,824 179,939
Total Liabilities 290,864 254,449
NET ASSETS 207,804 199,436
Contributed equity 122,858 122,108
Retained earnings 94,571 87,215
Cash flow hedge reserve (6,781) (5,421)
Foreign currency translation reserve (2,844) (4,466)
TOTAL EQUITY 207,804 199,436

Freightways Ltd Consolidated Statement of Cash Flows

For year ended 30 June 2015
2015 2014
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 480,180 428,892
Payments to suppliers and employees (381,349) (343,805)
Cash generated from operations 98,831 85,087
Interest received 143 52
Interest and other costs of finance paid (11,369) (10,684)
Income taxes paid (19,160) (14,919)
Net cash inflows from operating activities 68,445 59,536
Cash flows from investing activities
Payments for property, plant & equipment (11,613) (15,913)
Payments for software (1,870) (1,629)
Proceeds from disposal of property, plant & equipment 292 113
Payments for businesses acquired
(net of cash acquired)
(22,363) (16,758)
Payments for other investing activities (918) (331)
Net cash outflows from investing activities (36,472) (34,518)
Cash flows from financing activities
Dividends paid (35,927) (30,461)
Increase in bank borrowings 13,579 5,676
Net proceeds from issue of ordinary shares 394 423
Finance lease liabilities repaid (38) (86)
Net cash outflows from financing activities (21,992) (24,448)
Net increase in cash and cash equivalents 9,981 570
Cash and cash equivalents at the beginning of the year 3,880 3,484
Exchange rate adjustments 85 (174)
Cash and cash equivalents at end of the year 13,946 3,880

The graphs below demonstrate the strong historic performance of Freightways.