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 2017. This report discusses the result, reviews the operations of each division and provides an outlook for the financial year ahead.
Highlights of the result include the strength of the underlying volume growth and margin in the express package & business mail division, the completion of a number of significant projects that ensure important future capacity for both divisions of the Group, the execution of robust contingency plans that minimised service disruption following the significant impact of the North Canterbury earthquake and the performance of the information management businesses, other than TIMG Australia, which demonstrated improved results in the second half of the financial year.
The below table presents the reported 2017 result compared to the prior comparative period (pcp), both before and after the inclusion of non-recurring items:
|EBITA, before non-recurring items||(i)||89.3||87.7||1.9%|
|NPAT, before non-recurring items||(iii)||56.6||54.4||4.1%|
|Non-recurring items after tax||4.3||(4.6)|
|Basic EPS (cents), before non-recurring items||36.5||35.1|
(i) Operating profit before interest, tax and amortisation, before non-recurring items.
(ii) Operating profit before interest, tax and amortisation
(iii) Net profit after tax (NPAT) before non-recurring items
(iv) Profit for the year attributable to the shareholders
The results discussed throughout this commentary exclude the impact of the following non-recurring items that the Directors believe should not be included when assessing underlying trading results:
The Directors have declared a final dividend of 14.75 cents per share, fully imputed at a tax rate of 28%, being a 2% increase above the pcp final dividend of 14.5 cents per share. This represents a payout of approximately $22.9 million compared with $22.5 million for the pcp. The dividend will be paid on 2 October 2017. The record date for determination of entitlements to the dividend is 15 September 2017.
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.
Divisional results for the year ended 30 June 2017 are provided below for the express package & business mail division and the information management division.
Express Package and Business Mail
Operating revenue of $402.6 million was 8.7% higher than the pcp. EBITA of $65.3 million was 5.1% higher than the pcp.
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.
Volume growth throughout the year was consistently strong, particularly so in the peak month of December. This growth, from both existing and new customers, created pressure on the service capability of this division at a time when it was transitioning to a new model of freighter aircraft, relocating its primary South Island freight hub and implementing wide-reaching operational contingencies in the aftermath of the North Canterbury earthquake. Modest price increases were implemented to offset rising costs and disruption surcharges were introduced to offset earthquake-related contingency costs. Overall, costs were well contained. Key matters:
Freightways’ business mail operator, DX Mail, again expanded its postal delivery network in several locations throughout New Zealand to satisfy increasing demand for its overnight and 5-day per week delivery of standard-priced letters. Despite the decline of the overall letter market, DX Mail’s postal delivery volumes and physical and digital transactional mailhouse services continue to grow profitably.
Operating revenue of $144.2 million was 5.4% higher than the pcp. EBITA of $27.7 million was 2.7% lower than the pcp.
This division operates under the brands of The Information Management Group (TIMG) and Shred-X.
Good results from Shred-X and TIMG New Zealand were in contrast to the performance from TIMG Australia, which was not to expectation. Key matters:
Internal Service Providers
Fieldair Holdings, through its subsidiary of Air Freight NZ, operates a joint venture company that leases and operates the Boeing 737-400 aircraft fleet that provides Freightways’ overnight airfreight linehaul service. Fieldair also provides specialist engineering and contracting services to the general aviation market. Parceline Express provides Freightways’ road linehaul service. Contingencies implemented by these linehaul businesses following the North Canterbury earthquake, which will continue in place until the reinstatement of State Highway 1, are minimising the disruption to the ultimate service provided to customers.
Freightways Information Services provides IT development and support to both operating divisions. This team is responsible for providing the front line businesses with robust and secure information management systems and supporting their technology-related strategic objectives.
Corporate costs increased compared to the pcp, primarily due to expensing the insurance deductibles related to earthquake insurance claims.
Net debt of $158 million is $6 million higher than the pcp, in a year when Freightways has invested $24 million of capital expenditure in its new Christchurch and Sydney premises, IT infrastructure and in the provision of capacity for growth for both divisions.
The markets in which Freightways operates in both New Zealand and Australia remain positive. Volumes and activity levels experienced throughout 2017 are expected to increase during 2018, from both existing and new customers. Accordingly, Freightways is again targeting year-on-year earnings growth.
Within the express package & business mail division, investment will be made during 2018 in capacity, both in regards to airfreight and premises (notably Auckland), to accommodate current volumes and projected growth. Within the information management division, better results are expected following the completion of the Sydney relocation and through maintaining the recent improvement in performance achieved at TIMG Australia.
Overall capital expenditure for the 2018 financial year is expected to be approximately $17 million. Operating cash flows are expected to remain strong throughout the 2018 financial year.
Strategic growth opportunities, including acquisitions and alliances that complement existing capabilities, will be executed where they make commercial sense.
The strength of Freightways’ business models, the expertise of its people and the positive features of the markets it operates in are once again evident in this full year result. This result has been achieved in a year that has included the challenges of a significant natural disaster, the completion of a number of major capacity-related projects and at a time of strong growth in volumes and related activity.
The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team of people throughout New Zealand and Australia.
For the year ended 30 June 2017
|Transport and logistics expenses||(215,883)||(195,060)||11%|
|Employee benefits expenses||(149,896)||(138,868)||8%|
|General and administrative expenses||(53,718)||(49,613)||8%|
|Operating profit before interest, income tax, depreciation and software amortisation and amortisation of intangibles||104,683||92,122||14%|
|Depreciation and software amortisation||(11,652)||(10,761)||8%|
|Operating profit before interest, income tax and amortisation of intangibles||93,031||81,361||14%|
|Amortisation of intangibles||(1,679)||(1,685)||–|
|Profit before interest and income tax||91,352||79,676||15%|
|Net interest and finance costs||(9,570)||(11,055)||(13%)|
|Profit before income tax||81,782||68,621||19%|
|Profit for the year attributable to shareholders||60,856||49,774||22%|
As at 30 June 2017
|Cash and cash equivalents||8,423||7,065|
|Trade and other receivables||77,184||68,865|
|Income tax receivable||705||–|
|Assets held for sale||–||1,000|
|Total Current Assets||91,502||82,178|
|Trade receivables and other non-current assets||2,914||190|
|Property, plant & equipment||101,934||88,621|
|Total Non-Current Assets||448,391||426,715|
|Trade and other payables||65,722||54,679|
|Finance lease liabilities||147||79|
|Income tax payable||3,350||6,145|
|Derivative financial instruments||2,054||779|
|Total Current Liabilities||87,727||79,188|
|Trade and other payables||2,867||6,368|
|Deferred tax liability||35,606||34,491|
|Finance lease liabilities||204||32|
|Derivative financial instruments||6,989||12,122|
|Total Non-Current Liabilities||215,598||214,849|
|Cash flow hedge reserve||(6,490)||(9,417)|
|Foreign currency translation reserve||(5,444)||(5,403)|
For year ended 30 June 2017
|Cash flows from operating activities|
|Receipts from customers||535,943||506,676|
|Payments to suppliers and employees||(436,385)||(413,629)|
|Cash generated from operations||99,558||93,047|
|Interest and other costs of finance paid||(9,820)||(10,050)|
|Income taxes paid||(24,559)||(21,332)|
|Net cash inflows from operating activities||65,257||61,794|
|Cash flows from investing activities|
|Payments for property, plant & equipment||(21,507)||(14,992)|
|Payments for software||(3,689)||(2,051)|
|Proceeds from disposal of property, plant & equipment||1,064||268|
|Payments for businesses acquired
(net of cash acquired)
|Payments to associate||(1,671)||–|
|Payments for other investing activities||(517)||(1,078)|
|Net cash outflows from investing activities||(28,968)||(18,122)|
|Cash flows from financing activities|
|Increase (decrease) in bank borrowings||7,174||(11,829)|
|Proceeds from issue of ordinary shares||716||658|
|Finance lease liabilities repaid||(174)||(81)|
|Net cash outflows from financing activities||(34,892)||(50,330)|
|Net increase (decrease) in cash and cash equivalents||1,397||(6,658)|
|Cash and cash equivalents at the beginning of the year||7,065||13,946|
|Exchange rate adjustments||(39)||(223)|
|Cash and cash equivalents at end of the year||8,423||7,065|