Full Year Report June 2017

Full Year Review

From the Chairman and Chief Executive Officer

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.

Operating performance

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:

Note 2017
Revenue 545.3 505.4 7.9%
EBITA, before non-recurring items (i) 89.3 87.7 1.9%
Non-recurring items 3.7 (6.3)
EBITA (ii) 93.0 81.4 14.3%
NPAT, before non-recurring items (iii) 56.6 54.4 4.1%
Non-recurring items after tax 4.3 (4.6)
NPAT (iv) 60.9 49.8 22.3%
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:

  • 2017: A non-recurring benefit before tax of $5.6 million (no tax applicable) relating to previously accrued final acquisition payables that are no longer expected to be required. A non-recurring cost before tax of $1.9 million ($1.3 million after tax) relating to the relocation of the TIMG business in Sydney.
  • 2016: A total non-recurring charge of $6.3 million ($4.6 million after tax) that comprised a one-off expense relating to the write-down of the carrying value of the Convair fleet of aircraft that were retired during 2016, and related spare parts.

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.

Review of Operations

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:

  • The transition to Boeing 737-400 aircraft is in most respects materially complete. The four superseded Convair aircraft and related parts were all sold during the year for a combined book loss of $0.5 million ($0.3 million after tax).
  • A decision in February to introduce additional airfreight capacity through regularly operating an extra inter-island return flight of a 737-400 aircraft and/or the chartering back of a Convair aircraft was made to provide essential capacity, as referred to above, for the greater than anticipated airfreight volume growth and for service reasons. While this additional capacity comes at a cost, due to it not being fully-utilised, it is required to ensure a sustainable premium service offer.
  • Due diligence is underway on permanently introducing a fourth Boeing 737-400 aircraft that will effectively replace this additional return flight/charter for a similar cost and provide continuity in case of maintenance or related issues to the existing aircraft fleet.
  • The Christchurch businesses re-located from four independent sites to one purpose-built air-side facility at Christchurch Airport. This project was completed on time and within budget. The benefits from being in the one modern and automated facility will be seen throughout the 2018 year and beyond.
  • Increased resourcing of the IT team enabled the progression of a number of key projects in support of Freightways’ strategic intent to be a technology leader in the markets it operates in.
  • Auckland’s growth North and West of the city has led to a decision to run a twin-city operation within the greater metropolitan area, commencing during 2018. As such, new premises have been leased in Albany on Auckland’s North Shore to accommodate the current and expected growth in volume from these areas for many years to come. These new premises will complement, and effectively extend, the life of the existing site south of the city in Penrose.
  • Overall volume mix within the customer base is gradually changing as consumers increasingly shop online, resulting in Business to Consumer (B2C) deliveries growing faster than Business to Business (B2B) deliveries. A wide range of initiatives are being implemented to ensure these B2C deliveries are completed as efficiently as possible and to the satisfaction of customers.

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.

Information Management

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:

  • Within TIMG Australia, its LitSupport business performed at the bottom end of the range of expectations set at the time of acquiring the business (and below the pcp). This outcome was anticipated as a possibility at that time and hence the payment for this business was structured to reduce Freightways’ financial risk should this occur, as was explained in the Freightways Half Year result commentary. Restructuring that occurred in November/December and the winning of a number of new contracts has, as expected, improved LitSupport’s performance in the second half of the financial year, but not to the extent that any earn-out is expected to be paid to the previous owners.
  • The relocation of three Sydney-based information management facilities into a single purpose-built facility was completed in the second half of the year, on time and within budget. This new facility provides much needed capacity for the growing Sydney operations and delivers operating efficiencies that will contribute to a positive return on this investment.
  • Demand for the broad suite of digital services offered by TIMG in New Zealand and Australia, and the e-destruction services offered by Shred-X, continues to gain momentum. It is expected that these new revenue streams will become an increasingly important part of the overall information management division’s revenue and earnings in the near to medium term.
  • The severity of the North Canterbury earthquake had repercussions for the division’s document storage facilities in Wellington. While the racking did its job and withstood the impact of the earthquake, its structural integrity was compromised, particularly in the major site located in Porirua. This is likely to result in the need to replace all of the Porirua racking and would involve repositioning boxes to enable service continuity while replacement racking is installed. Freightways carries comprehensive insurance for events such as this. The related deductible was expensed as a corporate cost.
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.

Managing Director

Freightways Ltd Consolidated Balance Sheet

As at 30 June 2017


Freightways Ltd Consolidated Income Statement

For the 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 operations99,55893,047
Interest received78129
Interest and other costs of finance paid(9,820)(10,050)
Income taxes paid(24,559)(21,332)
Net cash inflows from operating activities65,25761,794
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 1,064268
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
Dividends paid(42,608)(39,078)
Increase (decrease) in bank borrowings7,174(11,829)
Proceeds from issue of ordinary shares716658
Finance lease liabilities repaid(174)(81)
Net cash outflows from financing activities(34,892)(50,330)
Net increase (decrease) in cash and cash equivalents1,397(6,658)
Cash and cash equivalents at the beginning of the year7,06513,946
Exchange rate adjustments(39)(223)
Cash and cash equivalents at end of the year8,4237,065