The Directors are pleased to present the financial result of Freightways Limited (Freightways) for the half year ended 31 December 2013.
Highlights include the widespread strength of this result, which has delivered record performance in the express package and information management businesses, the successful execution of a number of acquisitions that has enhanced the strategic positioning of the Company, and express package market leader New Zealand Couriers reaching the 50th year milestone.
In respect of the prior comparative period (pcp) for the half year ended 31 December 2012, a one-off $1 million non-taxable benefit to operating profit relating to the reversal of an accrued acquisition earnout payment that was not payable was recorded in the Income Statement as a non-recurring item. The Directors believe that this non-recurring income amount should not be included when assessing the underlying operating performance of the Company and again this benefit has been excluded from the pcp numbers referred to in this narrative.
Consolidated operating revenue of $218 million for the half year was 6% higher than the pcp.
Earnings (operating profit) before interest, tax, depreciation and amortisation (EBITDA), of $42 million for the half year and Earnings (operating profit) before interest, tax and amortisation (EBITA) of $36 million for the half year were 6% and 7% higher, respectively, than the pcp.
Consolidated net profit after tax (NPAT) of $22 million for the half year was 9% higher than the pcp.
Cash flows generated from operations were again strong at $40 million.
Earnings per share (EPS) for the half year was 14.1 cents per share, an improvement of 8% over the pcp.
The Directors have declared an interim dividend of 10 cents per share, fully imputed at a tax rate of 28%. This represents a pay out of approximately $15.4 million compared with $13.9 million for the pcp interim dividend of 9 cents per share. The interim dividend will be paid on 7 April 2014. The record date for determination of entitlements to the interim dividend is 21 March 2014.
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.
Divisional results are provided below for the express package & business mail division and the information management division for the half year ended 31 December 2013.
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.
Operating revenue of $168 million for the half year was 7% higher than the pcp.
EBITDA of $31 million for the half year and EBITA of $28 million for the half year were 6% and 7% higher than the pcp, respectively.
Freightways’ express package brands are positioned to service different niches of the market, including urgent one hour delivery, premium through economy metropolitan, and overnight to two day nationwide deliveries. Our brands service a wide range of industry sectors. A particularly positive characteristic of our half year performance is that it was widespread, with all Freightways brands recording improved performance compared to the pcp. Underpinning this result is the successful execution of a range of business strategies that have been rewarded with continuing support and progressively increasing activity from our existing customer base. Quality market share gains and pricing improvement, that has assisted in offsetting cost increases, have also been achieved during the period.
Freightways’ suite of express package brands includes the iconic New Zealand Couriers, or NZC, as it is often labelled. NZC was the pioneer of New Zealand’s express package industry when it started as a local door-to-door delivery company in 1964. Demand grew quickly and so did the services it offered. Today NZC services every New Zealand town and city and delivers to around 98% of all addresses throughout the nation. NZC’s business model is supported by a large team of employees and a fleet of independent contractors who provide the physical pick-up, linehaul and delivery of packages, including some individuals who have contracted to NZC for over 30 years. NZC’s growth and development has been characterised by constant operational and service innovation and, most importantly, by a service culture that sets it apart as a market leader. 2014 sees NZC reach its ‘50th year’ milestone.
Our business mail operator, DX Mail, is successfully executing a wide range of growth strategies. At the half year its performance, as expected, was behind the pcp, however the traction it is achieving in the market is encouraging, particularly in regards to its physical postal delivery business. On the back of customer demand, DX Mail continues to expand its nationwide offering of ‘overnight’ delivery for standard-priced letters. DX Mail’s strategies also include working alongside its existing and new customers as they contemplate the benefits of moving to increased digital communication, and accordingly is experiencing good activity levels in the digital services offered by its Dataprint mailhouse business.
Overall the express package & business mail division has delivered a strong result.
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 $51 million for the half year was 3% above the pcp.
EBITDA of $12 million for the half year and EBITA of $10 million for the half year were 5% and 8% higher than the pcp, respectively.
The information management division has again recorded a strong result on both sides of the Tasman, with revenue growth in their respective currencies of 13% in New Zealand and 9% in Australia ahead of the pcp.
Growth in document and computer back-up tape storage, increased document destruction service activity and a growing take-up of the digital services offered by this division have all contributed to this strong performance. Four acquisitions were completed during the latter stages of the half year that add scale to our existing operations and significantly expand our customer base. All these acquisitions have migrated successfully and are at this early stage performing to expectations.
Overall, the performance of the information management division has again been very strong.
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. Acquisitions during the half year have been funded from operating cash flows and an increase of approximately $9 million in net debt drawn from existing finance facilities.
Capital expenditure of $9 million was invested during the half year, primarily to provide capacity for growth, including expenditure on facilities and related equipment, IT infrastructure and airfreight capability.
We expect the positive growth evident in this half year result to continue for the foreseeable future.
Within our express package businesses we are particularly encouraged by the growth that has led to this half year result. We expect this growth to continue both from Business to Business (B2B) and Business to Consumer (B2C) deliveries.
Our smaller DX Mail business will continue to operate in a challenging and overall declining physical letters market, despite which it is expected to continue to attract increasing customer demand for its street delivery, mailhouse and digital services (that also leverages the information management division’s capabilities).
The growth that we are experiencing in our information management businesses is expected to continue and will be compounded by the benefit of our newly-acquired businesses. Revenue earned from the sale of recycled paper is expected to remain at similar levels to those which have been achieved within this half year result and are not expected to recover in the near term.
Capital expenditure for the half year was $9 million and is expected to be approximately $16 million to support the growth and development of both Freightways operating divisions. Overall, cash flows are expected to remain strong throughout the 2014 financial year.
Freightways will continue to seek out and develop growth opportunities, including acquisitions and alliances that complement its core capabilities.
Subject to business factors beyond its control, Freightways is well positioned to benefit from any 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 and flexibility 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 10 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 and in particular acknowledge NZC’s 50th year.
|6 months ended
31 Dec 2013
|6 months ended
31 Dec 2012
|Transport and logistics expenses||(91,916)||(86,638)||6%|
|Employee benefits expenses||(55,490)||(53,737)||3%|
|General and administrative expenses||(19,389)||(17,573)||10%|
|Operating profit before interest, income tax, depreciation and software amortisation, amortisation of intangibles and non-recurring items||42,033||39,635||6%|
|Depreciation and software amortisation||(5,869)||(5,871)||–|
|Operating profit before interest, income tax, amortisation of intangibles and non-recurring items||36,164||33,764||7%|
|Amortisation of intangibles||(478)||(140)||241%|
|Operating profit before interest, income tax and non-recurring items||35,686||33,624||6%|
|Non-recurring items before income tax*||–||1,000||–|
|Operating profit before interest and income tax||35,686||34,624||3%|
|Net interest and finance costs||(5,942)||(6,661)||(11%)|
|Profit before income tax||29,744||27,963||6%|
|Profit for the period attributable to shareholders||21,743||21,034||3%|
* The non-recurring item in the prior period relates to the reversal of an accrued acquisition earnout payment
for which the financial hurdle required to be met as at 30 June 2013 was not expected to be achieved.
31 Dec 2013
31 Dec 2012
|Cash and cash equivalents||1,120||4,023|
|Trade and other receivables||67,781||62,549|
|Total Current Assets||77,560||75,185|
|Trade and other receivables||419||656|
|Property, plant & equipment||91,195||91,514|
|Deferred tax asset||–||588|
|Total Non-Current Assets||379,036||373,785|
|Trade and other payables||59,342||48,721|
|Finance lease liabilities||107||88|
|Derivative financial instruments||320||649|
|Total Current Liabilities||74,675||63,858|
|Trade and other payables||2,828||4,179|
|Deferred tax liability||9,139||6,040|
|Finance lease liabilities||72||122|
|Derivative financial instruments||6,228||14,661|
|Total Non-Current Liabilities||187,241||204,241|
|Cash flow hedge reserve||(5,017)||(11,373)|
|Foreign currency translation reserve||(5,028)||102|
|6 months ended
31 Dec 2013
|6 months ended
31 Dec 2012
|Cash flows from operating activities|
|Receipts from customers||207,145||200,116|
|Payments to suppliers and employees||(167,270)||(163,321)|
|Cash generated from operations||39,875||36,795|
|Interest and other costs of finance paid||(6,021)||(7,033)|
|Income taxes paid||(9,489)||(8,947)|
|Net cash inflows from operating activities||24,397||20,823|
|Cash flows from investing activities|
|Payments for property, plant & equipment||(7,915)||(6,716)|
|Payments for software||(1,089)||(629)|
|Proceeds from disposal of property, plant & equipment||49||40|
|Payments for businesses acquired||(15,511)||(2,983)|
|Payments for other investing activities||(229)||(410)|
|Net cash outflows from investing activities||(24,695)||(10,698)|
|Cash flows from financing activities|
|Increase (decrease) in bank borrowings||12,721||(679)|
|Net proceeds from issue of ordinary shares||206||159|
|Finance lease liabilities repaid||(88)||(40)|
|Net cash inflows from financing activities||(2,199)||(15,190)|
|Net sdecrease in cash and cash equivalents||(2,497)||(5,065)|
|Cash and cash equivalents at the beginning of the period||3,484||9,130|
|Exchange rate adjustments||133||(42)|
|Cash and cash equivalents at end of the period||1,120||4,023|
The graphs below demonstrate the strong historic performance of Freightways.