Half Year Report December 2011

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 2011. Highlights of the half year include the positive financial performance of the group that is above the prior year in all respects, the completion of two acquisitions (one in New Zealand and one in Australia) that add to the depth of Freightways’ presence in the Australasian information management industry, the benefit of reduced funding costs following the renegotiation of Freightways’ finance facilities in September 2011 and the continued successful execution of growth strategies across both the express package & business mail division and the information management division.

Operating performance

Consolidated operating revenue of $192 million for the half year was 9% higher than the prior comparative period (pcp).

EBITDA of $36 million (excluding non-recurring items) for the half year was 8% higher than the pcp and EBITA of $31 million (excluding non-recurring items) for the half year was 9% higher than the pcp.

Consolidated NPAT of $18.3 million (excluding non-recurring items) for the half year was 16% higher than the pcp.

Cash flows generated from operations were again strong at $36 million.

A one-off $1 million EBITA benefit ($0.7 million after tax) relating to proceeds from a Christchurch earthquake insurance claim made in the prior year has not been included in the above revenue and earnings numbers. This amount is recorded as a positive non-recurring item in the half year accounts.


The Directors have declared an interim dividend of 8.5 cents per share, fully imputed at a tax rate of 30%. This represents a pay out of approximately $13.1 million compared with $11.1 million for the pcp interim dividend of 7.25 cents per share. The interim dividend will be paid on 30 March 2012. The record date for determination of entitlements to the final dividend is 16 March 2012.

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.

Review of Operations

The Freightways team of people throughout New Zealand and Australia have again demonstrated their ability to deliver superior performance in a half year that has seen significant growth in both operating divisions. The benefit of the successful industry and geographical diversification strategy embarked upon by Freightways in previous years is also evident in this result.

Express Package and Business Mail

The core express package & business mail division currently contributes approximately 80% of Freightways’ revenue and earnings through its brands of New Zealand Couriers, Post Haste, Castle Parcels, NOW Couriers, SUB60, Security Express, Kiwi Express and DX Mail.

Operating revenue of $149 million for the half year was 6% higher than the pcp.

EBITDA of $28 million for the half year was 8% higher than the pcp and EBITA of $26 million for the half year was 9% higher than the pcp.

A particularly strong first quarter was followed by good sound performance throughout the division in the second quarter. Increasing volumes from many existing customers and price increases underpinned the revenue growth in this division. Revenue from fuel surcharges used to offset the impact of higher fuel prices is also included in this result.

A consequence of the Christchurch earthquakes has been a decline in revenue and earnings from the Canterbury region for a small acquisition Freightways completed in November 2010 that services the international postal market. Customers in Christchurch who utilise this service were severely disrupted in the February 2011 earthquake and consequently activity levels in this business have been running at around 80% of our initial expectations since then. While we expect activity levels to recover in time, this initial decline in earnings has meant that the performance hurdle that would have triggered an earnout payment to the vendor of the acquired business was not achieved. Accounting rules dictate that this earnout payment, previously recorded as an amount payable by Freightways, be written back to earnings. As such a positive non-cash earnings benefit of $0.25 million is included in this half year result.

During the half year, our Hawkes Bay businesses relocated to new larger premises. Work also commenced on the redevelopment of the Post Haste and Castle Parcels depots at our main Auckland site to enable the future accommodation of NOW Couriers that currently operates from a separate Auckland location.

Overall, Freightways’ express package & business mail division has been able to once again demonstrate its resilience and its growth attributes to deliver a very good half year 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 and Shred-X.

Operating revenue of $44 million for the half year was 19% above the pcp.

EBITDA of $9 million for the half year was 10% above the pcp and EBITA of $7 million for the half year was 9% above the pcp.

During the half year, Freightways acquired Iron Mountain’s New Zealand operations and the business and assets of Filesaver Pty Limited in Sydney. Financial performance relating to these entities is tracking to expectation. Restructuring costs relating to both these acquisitions and the relocation of our Perth operations, totalling approximately $0.5 million have been expensed during the half year. The synergy benefits relating to these costs will start flowing during the second half of the financial year.

The very strong growth experienced in this division has assisted in offsetting the increased costs associated with leasing significant additional capacity in both Australia and New Zealand. Part of this growth has come from winning nationwide customers in Australia that would not have been achieved without this investment. In our document destruction operations the demand for recycled paper on the global market has again decreased and accordingly the price we receive for the sale of this product has declined. The implementation of a range of contingencies to offset the impact of these reduced prices has been successfully completed; meaning the impact on our margins is at this stage immaterial.

New service lines have been added to Freightways’ suite of information management services, adding breadth to our revenue and earnings growth. Strategic growth opportunities continue to be explored and executed where they make commercial sense.

Overall, the performance of the information management division and its demonstrated ability to sustain high levels of growth has been outstanding.

Internal Service Providers

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

Finance Facilities

Newly negotiated finance facilities came into effect on 1 September 2011. These include facilities of NZD110 million and AUD70 million, spread equally between 3-year, 4-year and 5-year maturity dates. This multi-currency facility, with an evenly spread maturity profile, demonstrates the support of Freightways’ banking syndicate and provides important diversity of duration and funding certainty for the company. The reduced cost of these facilities is clearly evidenced in the decreased interest charge to the company for the half year.


Corporate overhead costs continue to be well contained. Bank borrowings have increased to fund the recent acquisitions.


Based on our experiences in the first half of the 2012 financial year, we expect to see continued gradual improvement in the market segments we operate in. While Freightways expects it will benefit from this improvement, it will also complement any natural growth by continuing to actively manage its cost base, by striving to further improve its service quality and by continuing to execute growth initiatives wherever possible.

The express package & business mail division remains reliant on growth within its existing customer base to sustain its year-on-year performance improvement, albeit the market share gains and pricing improvement achieved during 2011 and pricing initiatives implemented to date in 2012 will contribute positively to its overall performance. Freightways has consistently demonstrated its ability to compete successfully in an openly competitive environment and it will continue to do so. Our express package brands are among the most recognised in New Zealand, our people have a depth of experience second to none and our service culture will continue to set us apart from our competitors.

The information management division is transitioning successfully through a period of significant investment in capacity. It is expected to complete this transition while still delivering sound year-on-year earnings growth. This new capacity has already enabled the winning of customers who have a nationwide presence and demand. The restructuring and relocation costs expensed in the first half of the year are expected to drive synergy value from the second half of the year. Although some further restructuring costs are expected they will not be of the same magnitude as those expensed during the first half of the year.

Capital expenditure for 2012 is expected to be $20 million and includes a one-off $4 million depot refurbishment at our main Auckland site to accommodate the relocation of NOW Couriers, that is currently based off-site, and costs associated with the integration of the recently acquired businesses. Overall, cash flows are expected to remain strong throughout the remainder of the financial year.

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 develop 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 well positioned to reap the benefits of further improvement in the markets in which it operates.


Freightways has delivered a very strong half year result that is above the prior period in all respects, again demonstrating the resilience of the Group, the positive features of the markets it operates in and the high quality of its subsidiary businesses and teams of people. Accordingly, the Directors have been able to declare a fully imputed 8.5 cents per share interim 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 half year ended 31 December 2011 (unaudited)
6 months ended
31 Dec 2011
6 months ended
31 Dec 2010
$000 $000 %
Operating Revenue 192,183 176,166 9%
Transport and logistics expenses (80,612) (74,999) 7%
Employee benefits expenses (49,463) (45,849) 8%
Occupancy expenses (8,165) (6,268) 30%
General and administrative expenses (17,616) (15,511) 14%
Operating profit before interest, tax, depreciation, software amortisation and non-recurring items 36,327 33,539 8%
Depreciation and software amortisation (5,064) (4,858) 4%
Operating profit before interest, income tax and
non-recurring items
31,263 28,681 9%
Non-recurring income before income tax* 1,010
Operating profit before interest and income tax (EBITA) 32,273 28,681 13%
Net interest and finance costs (6,971) (7,795) (11%)
Profit before income tax 25,302 20,886 21%
Income tax (6,333) (5,090) 24%
Profit for the period (NPAT) 18,969 15,796 20%

*Non-recurring income relates to Christchurch earthquake insurance claim proceeds received during the period.

Freightways Ltd Consolidated Statement of Cash Flows

For the half year ended 31 December 2011 (unaudited)
6 months ended
31 Dec 2011
6 months ended
31 Dec 2010
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 188,473 171,747
Payments to suppliers and employees (152,141) (140,651)
Cash generated from operations 36,332 31,096
Interest and other costs of finance paid (6,960) (6,965)
Income taxes paid (7,742) (7,148)
Net cash inflows from operating activities 21,630 16,983
Cash flows from investing activities
Payments for property, plant & equipment (6,541) (5,791)
Payments for software (293) (456)
Proceeds from disposal of property, plant & equipment 117 18
Payments for businesses acquired (20,944) (1,603)
Advances repaid by associates 69
Payments for other investing activities (476) (495)
Net cash outflows from investing activities (28,068) (8,327)
Cash flows from financing activities
Dividends paid (11,153) (10,754)
Increase in bank borrowings 18,707 1,000
Net proceeds from issue of ordinary shares 152 25
Finance lease liabilities repaid (13) (187)
Net cash inflow (outflow) from financing activities 7,693 (9,916)
Net increase (decrease) in cash and cash equivalents 1,255 (1,260)
Cash and cash equivalents at the beginning of the period 4,325 4,996
Exchange rate adjustments (35) 135
Cash and cash equivalents at end of the period 5,545 3,871

Freightways Ltd Consolidated Balance Sheet

As at 31 December 2011 (unaudited)
As at
31 Dec 2011
As at
31 Dec 2010
$000 $000
Current Assets
Cash and cash equivalents 5,545 3,871
Trade and other receivables 55,130 48,978
Inventories 7,579 7,527
Total Current Assets 68,254 60,376
Non-Current Assets
Trade and other receivables 297 378
Property, plant & equipment 87,300 79,688
Intangible assets 273,626 255,347
Deferred tax asset 1,478 1,229
Other non-current assets 26
Total Non-Current Assets 362,701 336,668
Total Assets 430,955 397,044
Current Liabilities
Trade and other payables 44,999 40,565
Finance lease liabilities 26 10
Provisions 349 281
Derivative financial instruments 388 49
Unearned income 13,933 15,142
Total Current Liabilities 59,695 56,047
Non-Current Liabilities
Trade and other payables 2,941 1,000
Borrowings (secured) 178,039 160,756
Deferred tax liability 3,788 7,234
Provisions 1,410 939
Finance lease liabilities 79
Derivative financial instruments 13,637 3,951
Total Non-Current Liabilities 199,894 173,880
Total Liabilities 259,589 229,927
Net Assets 171,366 167,117
Contributed equity 121,239 120,681
Retained earnings 59,145 48,364
Cash flow hedge reserve (10,371) (3,200)
Foreign currency translation reserve 1,353 1,272
TOTAL EQUITY 171,366 167,117

The graphs below demonstrate the strong historic performance of Freightways.