Half Year Report December 2012

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 2012, that was above the prior half year in all respects and a record result for the company.

Highlights include sustaining the growth momentum in the express package businesses throughout the half compared to a very strong prior comparative period (pcp), the deployment of several customer-facing technology initiatives which added further value to the service we already provide, and market share growth we achieved in Australia from the winning of some significant nationwide customers.

Operating performance

Consolidated operating revenue of $207 million for the half year was 8% higher than the pcp.

EBITDA (excluding non-recurring items) of $40 million for the half year and EBITA (excluding non-recurring items) of $34 million for the half year were 9% and 8% higher than the pcp, respectively.

Consolidated NPAT (excluding non-recurring items) of $20 million for the half year was 10% higher than the pcp.

Cash flows generated from operations were again strong at $37 million.

Earnings per share (EPS) for the half year (excluding non-recurring items) was 13 cents per share, an improvement of 9% over the pcp.

A one-off $1 million EBITA benefit ($1 million after tax) relating to the reversal of an accrued acquisition earnout payment that is not expected to be payable when it falls due on 30 June 2013 has been recorded in the Income Statement. This amount has been treated as a non-recurring item and has not been included in the above operating revenue and earnings numbers. The business that this acquisition earnout payment relates to is performing well, albeit it is not expected to reach the performance hurdle that would trigger this final earnout payment.


The Directors have declared an interim dividend of 9.0 cents per share, fully imputed at an effective tax rate of approximately 28%, as the last imputation credits at 30% are used and the balance of the dividend is imputed at 28%. This represents a pay out of approximately $13.9 million compared with $13.1 million for the pcp interim dividend of 8.5 cents per share. The interim dividend will be paid on 2 April 2013. The record date for determination of entitlements to the interim dividend is 15 March 2013.

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

Strong results have again been achieved in both the express package & business mail and information management divisions.

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, DX Mail and Dataprint.

Operating revenue of $158 million for the half year was 6% higher than the pcp.

EBITDA of $29 million for the half year was 4% higher than the pcp and EBITA of $26 million for the half year was 2% higher than the pcp.

The sustained performance of the express package & business mail division in the first and second quarters, that again demonstrated steady year-on-year improvement, is encouraging, particularly given the very strong performance experienced in the prior year. Underpinning this result was growth in volumes from existing customers, pricing improvement and some acquired revenue. We have continued to develop and extend our suite of services and how we take them to market. Technology-based innovation plays an important part in our service offer. A number of technology based initiatives have been deployed recently, following the completion of a major IT project in the prior year. Overall margin as a percentage of revenue was slightly below the prior year due to the currently higher cost of servicing the Canterbury region and the impact of reduced postal volumes from existing customers in our business mail operations. The recently acquired Dataprint is performing well and to expectation.

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

Operating revenue of $50 million for the half year was 15% above the pcp.

EBITDA of $11 million for the half year was 21% higher than the pcp and EBITA of $9 million for the half year was 23% higher than the pcp.

The information management division has again recorded a very good result, with growth occurring in all locations that we operate from in both New Zealand and Australia. This growth is offsetting the impact of the currently low prices we continue to receive from the sale of recycled paper from the document destruction operations. A number of contingencies to mitigate the impact of these reduced prices have been implemented, however the contribution from this particular revenue source remains significantly lower than the pcp. Following the recent gaining of another significant nationwide customer, the Shred-X business has invested in resources to extend its paper collection network beyond metropolitan areas to regional areas throughout the east coast of Australia.

Overall, the performance of the information management division has again been very strong.

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 outstanding service, underpinning the service offered by our front line businesses.


Corporate overhead costs continue to be well contained. Net bank borrowings increased by $4 million during the half year; in part to fund the recent acquisition of Dataprint in July 2012.

Capital expenditure of $7 million was invested during the half year to maintain Freightways’ airfreight and IT infrastructure and to support the group’s growth strategies.


Overall we expect to be operating in a slow growth environment for the foreseeable future. We do however remain mindful of any further deterioration in the global economy that will inevitably influence the markets that we operate in.

The positive momentum that we have been achieving in our express package businesses is expected to continue at similar levels for the foreseeable future. Along with gradual growth in our traditional customer base, we are experiencing continued strong growth in volume that originates from businesses and consumers shopping online. Our business mail operations, which are a smaller part of this division, will continue to face declining letter volumes, though we do expect it to offset much of this decline by increasing its share of the market.

The growth that we have consistently been achieving in the information management division is expected to continue. Strong market support for the services we provide and the gaining of a number of nationwide customers following our investment in capacity and resources in recent years is very positive. A number of new digital services to complement our traditional physical information management services have recently been introduced. No near-term improvement is expected in the prices we receive from the sale of recycled paper, that continue to track significantly lower than we were able to achieve in the prior year.

Capital expenditure for the full year ending 30 June 2013 is expected to be $14 million to support the growth and development of both the Freightways’ operating divisions. Overall, cash flows are expected to remain strong throughout the 2013 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 out 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 record half year result. The positive features of the markets it operates in, the resilience of its business models and the successful execution of its growth strategies by a very experienced and capable team, are evident in this result. Accordingly, the Directors have been able to declare a fully imputed 9.0 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 2012 (unaudited)
6 months ended
31 Dec 2012
6 months ended
31 Dec 2011
$000 $000 %
Operating Revenue 206,712 192,183 8%
Transport and logistics expenses (86,638) (80,612) 7%
Employee benefits expenses (53,737) (49,463) 9%
Occupancy expenses (9,129) (8,165) 12%
General and administrative expenses (17,573) (17,616) 0%
Operating profit before interest, income tax, depreciation and software amortisation, amortisation of intangibles and non-recurring items 39,635 36,327 9%
Depreciation and software amortisation (5,871) (5,064) 16%
Operating profit before interest, income tax, amortisation of intangibles and non-recurring items 33,764 31,263 8%
Amortisation of intangibles, excluding software amortisation (140)
Operating profit before interest, income tax and non-recurring items 33,624 31,263 8%
Non-recurring items before income tax* 1,000 1,010 (1%)
Operating profit before interest and income tax 34,624 32,273 7%
Net interest and finance costs (6,661) (6,971) (4%)
Profit before income tax 27,963 25,302 11%
Income tax (6,929) (6,333) 9%
Profit for the period attributable to shareholders 21,034 18,969 11%

* The non-recurring item relates to the reversal of an accrued acquisition earnout payment for which the
financial hurdle required to be met as at 30 June 2013 is not expected to be achieved. The non-recurring item
in the prior period relates to Christchurch earthquake insurance claim proceeds received during that period.

Freightways Ltd Consolidated Balance Sheet

As at 31 December 2012 (unaudited)
As at
31 Dec 2012
As at
31 Dec 2011
$000 $000
Current Assets
Cash and cash equivalents 4,023 5,545
Trade and other receivables 62,549 55,130
Inventories 8,613 7,579
Total Current Assets 75,185 68,254
Non-Current Assets
Trade and other receivables 656 297
Property, plant & equipment 91,514 87,300
Intangible assets 281,027 273,626
Deferred tax asset 588 1,478
Total Non-Current Assets 373,785 362,701
Total Assets 448,970 430,955
Current Liabilities
Trade and other payables 48,721 44,999
Finance lease liabilities 88 26
Provisions 333 349
Derivative financial instruments 649 388
Unearned income 14,067 13,933
Total Current Liabilities 63,858 59,695
Non-Current Liabilities
Trade and other payables 4,179 2,941
Borrowings (secured) 177,624 178,039
Deferred tax liability 6,040 3,788
Provisions 1,615 1,410
Finance lease liabilities 122 79
Derivative financial instruments 14,661 13,637
Total Non-Current Liabilities 204,241 199,894
Total Liabilities 268,099 259,589
NET ASSETS 180,871 171,366
Contributed equity 121,634 121,239
Retained earnings 70,508 59,145
Cash flow hedge reserve (11,373) (10,371)
Foreign currency translation reserve 102 1,353
TOTAL EQUITY 180,871 171,366

Freightways Ltd Consolidated Statement of Cash Flows

For the half year ended 31 December 2012 (unaudited)
6 months ended
31 Dec 2012
6 months ended
31 Dec 2011
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 200,116 188,473
Payments to suppliers and employees (163,321) (152,141)
Cash generated from operations 36,795 36,332
Interest received 8 56
Interest and other costs of finance paid (7,033) (7,016)
Income taxes paid (8,947) (7,742)
Net cash inflows from operating activities 20,823 21,630
Cash flows from investing activities
Payments for property, plant & equipment (6,716) (6,541)
Payments for software (629) (293)
Proceeds from disposal of property, plant & equipment 40 117
Payments for businesses acquired (2,983) (20,944)
Advances to associates repaid 69
Payments for other investing activities (410) (476)
Net cash outflows from investing activities (10,698) (28,068)
Cash flows from financing activities
Dividends paid (14,630) (11,153)
(Decrease) Increase in bank borrowings (679) 18,707
Net proceeds from issue of ordinary shares 159 152
Finance lease liabilities repaid (40) (13)
Net cash inflows (outflows) from financing activities (15,190) 7,693
Net increase (decrease) in cash and cash equivalents (5,065) 1,255
Cash and cash equivalents at the beginning of the period 9,130 4,325
Exchange rate adjustments (42) (35)
Cash and cash equivalents at end of the period 4,023 5,545