Half Year Report December 2009

Half Year Review

From the Chairman and Managing Director

The Directors are pleased to present the financial result of Freightways Limited (Freightways) for the half year ended 31 December 2009. This result, while below the prior half year, again demonstrates Freightways’ resilience and is considered to be very satisfactory by your Directors, given the impact of the economic downturn on domestic activity during this period.

Operating Performance

To ensure a like-for-like comparison for the purposes of this commentary only, references to the prior comparative period (pcp) are after normalising the actual result to remove 5 extra trading days that were accounted for in July of the pcp. This was also highlighted in Freightways’ October 2009 Trading Update. These 5 extra trading days had contributed approximately $6 million to revenue, $1.5 million to EBITDA and EBITA and $1.1 million to NPAT in the pcp.

Consolidated operating revenue of $165 million for the half year was 4% lower than the normalised pcp.

Earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $32 million for the half year was 8% lower than the normalised pcp, while earnings before interest, tax and goodwill amortisation (EBITA) of $27 million for the half year was 10% lower than the normalised pcp.

Consolidated net profit after tax (NPAT) of $14.5 million for the half year was 8% lower than the normalised pcp.


The Directors have declared an interim dividend of 7 cents per share, fully imputed at a tax rate of 30%. This represents a payout of approximately $10.8 million compared with $10.3 million for the pcp interim dividend. The dividend will be paid on 31 March 2010. The record date for determination of entitlements to the dividend is 12 March 2010.

Capital management initiatives executed in 2009 have positioned the company with an appropriately structured balance sheet for the foreseeable future. Accordingly, the Dividend Reinvestment Plan (DRP) will not be offered in relation to this interim dividend. As a capital management tool, the application of the DRP will be reviewed for each future dividend.

Reveiw of Operations

Express Package and Business Mail

The core express package business contributes the majority of Freightways’ revenue and earnings through its brands of New Zealand Couriers, Post Haste Couriers, Castle Parcels, NOW Couriers, SUB60, Security Express and Kiwi Express.

Overall lower express package volumes from existing customers have meant lower revenue was earned in this half year than the prior comparative period. Strategies implemented in this division to ensure the economic factors external to its direct control have not had a more serious impact on performance have contributed to the company’s overall satisfactory result. The commitment of the Freightways team throughout this period and the benefit of the depth of experience in this team underpinned the successful implementation of these important strategies. While a great deal of focus has naturally been on service quality and cost management, which has seen costs reduce compared to the prior comparative period, Freightways has been careful to continue to very actively seek quality market share growth and to continue to develop strategic growth opportunities. Among a number of key successes has been the winning of Australia Post’s international inbound express mail service, air parcels and courier product deliveries into New Zealand.

The fluctuating customer activity that was evident through the early and mid-2009 calendar year has been less so towards the end of the year. While volumes remain lower than the previous year in some of our businesses, encouragingly this is not the case across the entire division. Until however a more broadly-based performance improvement is evidenced, we anticipate the recovery of the economy, and how it translates into the performance of Freightways’ express package businesses, will be gradual.

DX Mail operates in New Zealand’s postal industry and competes directly with NZ Post across a wide range of postal services. DX Mail has over many years established itself as a viable alternative to the state-owned NZ Post and has developed many important customer relationships. This market support demonstrates the value that customers attribute to DX Mail’s provision of a competitive postal service. Due to NZ Post’s inherent advantages, obtained from the era during which it had a statutory monopoly, and the high barriers to establishing a competitive postal network, DX Mail remains in the formative stage of its development. As such it must access NZ Post’s network for the final delivery of some of the mail it manages. DX Mail has an access agreement with NZ Post that was required under the terms of a Deed of Understanding between NZ Post and the Government and which formed a key part of the deregulation of the postal market in 1998. While rights of access to the incumbent’s network exists in New Zealand’s telecommunications market, the difference with the postal industry is that access to NZ Post’s network is controlled by NZ Post itself, rather than an independent body. NZ Post determines how and where and at what price this access occurs. A recent attempt by NZ Post to radically change access arrangements for independent postal operators, including DX Mail, is viewed by Freightways as an attempt to simply thwart competition. As a result, Freightways has lodged a complaint with the Commerce Commission and asked the Government to facilitate the appointment of an independent regulator to take control of the postal industry for the good of the overall marketplace. DX Mail is a small contributor to Freightways’ consolidated results and forms a strategic part of the Group’s overall service portfolio.

Information Management

Freightways’ Trans-Tasman information management businesses have shown great resilience to the economic downturn. While the document destruction arm was severely affected by lower revenue from the sale of its recycled paper, due to reduced global demand, this impact has largely been offset by the growth and development of the document and data storage businesses and efficiency gains as the benefits associated with consolidating operations in a number of locations were realised.

Investment in additional capacity has increased the cost base of this division, however this investment will reap future rewards as utilisation of this capacity increases. Market demand for all existing services offered by the information management division remains strong and new complementary service offers continue to be developed. While highly competitive, the information management market continues to perform to expectations, including providing Freightways with a very real and important platform for strategic growth.

The information management business has contributed approximately 20% of Freightways’ total operating earnings in this half year and its overall half year performance has been very good.

Internal Service Providers

Fieldair Holdings Limited provides airfreight linehaul services, Parceline Express provides road linehaul services and Freightways Information Services provides IT support to the Freightways front line express package and business mail businesses. All three internal service providers have continued to deliver exceptional service.


The capital management initiatives executed during the 2009 calendar year have resulted in a lower overall debt position for the company than in the prior comparative period. This lower level of debt has contributed to Freightways’ ability to offset the higher margins that are currently being charged by its lenders. Freightways’ finance facilities were renegotiated during the half year and came into effect on 9 September 2009.

Corporate costs have been contained and reduced compared to the pcp, as have all other major areas of cost within the operating businesses, other than for occupancy. Occupancy costs have been impacted by investment in increased capacity for our growing information management division and the sale and lease back of a property in Wellington in mid-2009.


External indicators suggest the domestic economy is showing signs of improvement and some positive signs have emerged in some areas of the Freightways group of businesses. We have not yet however experienced a sustained, across-the-board improvement, which indicates to us continuing market volatility and suggests that the impact on Freightways of an improving economy will be gradual. In the meantime, Freightways will continue to actively manage its cost base, seek to improve its service quality and develop growth initiatives wherever possible.

The express package division, while reliant on growth amongst its existing customer base to improve its year-on-year performance, will also benefit from the quality market share wins it has achieved in the first half of the financial year.

The information management division is expected to continue to demonstrate earnings resilience to the slower economic times we are still experiencing. The division’s performance will be assisted by the sale of its recycled paper at the improving prices we are now seeing as global demand for paper returns. Increased capacity has been committed to in Melbourne and Adelaide to accommodate the growing demand for the services of this division.

Capital expenditure was $6 million for the half year. Forecast capital expenditure for the full year remains at the previously indicated $13 million.

In recent years, Freightways has strengthened its earnings profile by diversifying its activities both geographically and deeper into the information management market. Freightways will continue to seek and investigate growth opportunities to support this strategy and will also explore other opportunities that complement its core capabilities.

Subject to business factors beyond its control, Freightways is exceptionally well positioned to reap the benefits of further improvement in the marketplace.


Freightways has delivered a satisfactory half year result that, while below the prior comparative period, again demonstrates the resilience of the company. Accordingly, the Directors have been able to declare a fully imputed 7 cents per share dividend.

The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team in a very difficult trading environment.

Managing Director

Freightways Ltd Consolidated Income Statement

For the half year ended 31 December 2009 (unaudited)
6 months ended
31 Dec 2009
6 months ended
31 Dec 2008
$000 $000 %
Operating Revenue 164,919 177,392 (7%)
Transport and logistics expenses* (75,011) (80,894) (7%)
Employee benefits expenses* (37,335) (39,156) (5%)
Occupancy expenses (5,751) (4,775) 20%
General and administrative expenses (15,037) (16,447) (9%)
Operating profit before interest, tax, depreciation and software amortisation 31,785 36,120 (12%)
Depreciation and software amortisation (4,925) (4,628) 6%
Operating profit before interest and income tax (EBITA) 26,860 31,492 (15%)
Net interest and finance costs (6,871) (8,402) (18%)
Profit before income tax 19,989 23,090 (13%)
Income tax (5,532) (6,198) (11%)
Profit for the period (NPAT) 14,457 16,892 (14%)

*Employee benefits of $5,466,000 (2008: $5,161,000) have been included in Transport and logistics expenses, due to the function performed by the relevant employees. The total Employee benefits expenses of the consolidated group for the six months ended 31 December 2009 were $42,801,000 (2008: $44,317,000).

Freightways Ltd Consolidated Statement of Cash Flows

For the half year ended 31 December 2009 (unaudited)
6 months ended
31 Dec 2009
6 months ended
31 Dec 2008
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 162,451 175,420
Payments to suppliers and employees (134,193) (142,202)
Cash generated from operations 28,258 33,218
Interest and other costs of finance paid (8,897) (8,167)
Income taxes paid (8,061) (5,355)
Net cash inflows from operating activities 11,300 19,696
Cash flows from investing activities
Payments for property, plant & equipment (5,867) (13,213)
Payments for software (487) (813)
Proceeds from disposal of property, plant & equipment 83 105
Payments for businesses acquired (389) (12,037)
Advances from (to) associate 3,783 (2,538)
Payments for other investing activities (16)
Net cash outflows from investing activities (2,877) (28,512)
Cash flows from financing activities
Dividends paid (9,709) (11,916)
Increase (decrease) in bank borrowings (20,298) 20,946
Net proceeds from issue of ordinary shares 9,423
Finance lease liabilities repaid (191) (264)
Net cash inflows (outflows) from financing activities (20,775) 8,766
Net decrease in cash and cash equivalents (12,352) (50)
Cash and cash equivalents at the beginning of the period 16,970 2,423
Exchange rate adjustments 24 163
Cash and cash equivalents at end of the period 4,642 2,536

Freightways Ltd Consolidated Balance Sheet

As at 31 December 2009 (unaudited)
As at
31 Dec 2009
As at
31 Dec 2008
$000 $000
Current Assets
Cash and cash equivalents 4,642 2,536
Trade and other receivables 45,413 47,601
Inventories 7,170 7,014
Total Current Assets 57,225 57,151
Non-Current Assets
Trade and other receivables 303 4,039
Property, plant & equipment 76,782 76,659
Intangible assets 245,850 239,213
Deferred tax asset 1,008 3,450
Other non-current assets 24 72
Total Non-Current Assets 323,967 323,433
Total Assets 381,192 380,584
Current Liabilities
Trade and other payables 36,078 41,550
Finance lease liabilities 262 321
Provisions 1,019 801
Derivative financial instruments 500 392
Unearned income 14,503 16,991
Total Current Liabilities 52,362 60,055
Non Current Liabilities
Trade and other payables 1,859 500
Borrowings (secured) 159,545 218,843
Deferred tax liability 1,216
Finance lease liabilities 249
Derivative financial instruments 4,707 17,198
Total Non-Current Liabilities 167,327 236,790
Total Liabilities 219,689 296,845
Net Assets 161,503 83,739
Contributed equity 120,453 58,892
Retained earnings 45,366 36,220
Cash flow hedge reserve (4,058) (11,539)
Foreign currency translation reserve (258) 166
TOTAL EQUITY 161,503 83,739
Freightways Operating Revenue

Freightways Operating Revenue

Freightways EBITA

Freightways EBITA

Note: Historic EBITA amounts above for the years ended 30 June 1999 to 2003 have been presented on a pro-forma basis consistent with the Freightways Investment Statement and Prospectus issued in August 2003.