The Directors are pleased to present the consolidated financial result of Freightways Limited (Freightways) for the half year ended 31 December 2016. This report discusses the result, reviews the operations of each division and provides an outlook for the financial year ending 30 June 2017.
Highlights include the strength of the underlying volume growth and margin in the express package & business mail division, progress to timetable and budget of establishing major purpose-built facilities in Sydney and Christchurch and the related relocation projects, the execution of robust contingency plans that ensured minimal service disruption following the significant impact of the North Canterbury earthquake and the performance of our information management businesses, other than TIMG Australia, which was primarily affected by a poor result at LitSupport.
The below table presents the reported half year result compared to the prior comparative period (pcp), both before and after the inclusion of non-recurring items:
|Underlying trading result|
|$M||Note||Dec-16 result||Non-recurring items||Dec-16||Dec-15||Increase|
i. Operating profit before interest, tax, depreciation and amortisation.
ii. Operating profit before interest, tax, and amortisation.
iii. Net profit after tax (NPAT), before amortisation.
iv. Profit for the half year attributable to 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 the underlying half year trading results:
The Directors have declared an interim dividend of 13 cents per share, fully imputed at a tax rate of 28%, being a 2% increase above the pcp dividend of 12.75 cents per share. This represents a payout of approximately $20.1 million compared with $19.7 million for the pcp dividend. The dividend will be paid on 3 April 2017. The record date for determination of entitlements to the dividend is 17 March 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.
Divisional results for the half year ended 31 December 2016 are provided below for the express package & business mail division and the information management division.
Operating revenue of $202.5 million was 8% higher than the pcp. EBITA of $34.8 million was 7% 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 and revenue growth throughout the half year was strong, particularly so in the peak December month. Increased activity amongst existing customers and the winning of new customers contributed to this growth. Disruption surcharges were introduced during December to offset increased linehaul and delivery costs following November’s North Canterbury earthquake. Overall, costs have been well contained and the higher operating costs involved with the transition to a new aircraft operating model reduced through the second quarter. Key matters:
Freightways’ business mail operator, DX Mail, further expanded its postie network and now businesses in most urban locations throughout New Zealand are able to choose DX Mail for overnight and 5-day per week delivery of their standard-priced letters. Despite the decline of the overall physical letter market, the demand for DX Mail’s suite of services is increasing. Dataprint, which provides physical and digital transactional mailhouse services, increased market share in all of its service lines, both physical and digital.
Operating revenue of $71.1 million was 3% higher than the pcp. EBITA of $13.4 million was 6% lower than the pcp.
The information management division operates under the brands of The Information Management Group (TIMG) and Shred-X.
Strong results from Shred-X and TIMG New Zealand were primarily offset by poor performance from TIMG Australia’s LitSupport business, which led to some restructuring and related costs. Key matters:
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. As volumes have grown, the services provided by these businesses have adapted to ensure the provision of quality sustainable capacity.
Freightways Information Services provides IT development and support to the express package & business mail division. 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 have increased compared to the pcp, primarily due to expensing the insurance deductibles related to earthquake insurance claims.
Net debt levels are unchanged from the pcp at $159 million. A finance facility has also been established with a US-based lender on the same terms as those that are in place with Freightways’ existing banking syndicate.
Capital expenditure during the half year of $10 million, including the investment made in the new Christchurch and Sydney premises, has been funded from operating cash flows.
Volumes and activity evidenced in this first half result support Freightways’ expectations of again improving its overall year-on-year performance. The markets in which Freightways operates in both New Zealand and Australia remain positive and the company is experiencing increasing demand for the services it provides.
As had been stated in the prior annual result announcement and as is evident in this half year announcement, results from the express package & business mail division will be partly offset by the investment being made in increased capacity in the information management division to accommodate current and future expected growth and poor performance of LitSupport in this half year. Expectations are for improved performance from LitSupport in the second half of the financial year.
The next six months will see the completion of the major projects that are underway to relocate the businesses in Sydney and Christchurch, with the full benefits relating to these projects on target to be realised in the 2018 financial year.
Capital expenditure for the full year is expected to be approximately $24 million. Overall cash flows are expected to remain strong for the remainder of the 2017 financial year.
Strategic growth opportunities, including acquisitions and alliances that complement existing capabilities, will be executed where they make commercial sense.
The strength of the Freightways business models, the expertise of its people and the positive features of the markets it operates in are once again evident in this half year result.
The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team of people throughout New Zealand and Australia.
|6 months ended
31 Dec 2016
|6 months ended
31 Dec 2015
|Transport and logistics expenses||(107,862)||(97,104)||11%|
|Employee benefits expenses||(75,157)||(70,140)||7%|
|General and administrative expenses||(25,920)||(24,759)||5%|
|Operating profit before interest, income tax, depreciation and software amortisation and amortisation of intangibles||55,792||51,187||9%|
|Depreciation and software amortisation||(5,690)||(6,188)||(8%)|
|Operating profit before interest, income tax and amortisation of intangibles||50,102||44,999||11%|
|Amortisation of intangibles||(806)||(963)||(16%)|
|Operating profit before interest and income tax||49,296||44,036||12%|
|Net interest and finance costs||(4,711)||(5,741)||(18%)|
|Profit before income tax||44,585||38,295||16%|
|Profit for the period attributable to shareholders||33,987||27,748||22%|
31 Dec 2016
31 Dec 2015
|Cash and cash equivalents||10,690||12,378|
|Trade and other receivables||77,483||73,062|
|Income tax receivable||222||–|
|Assets held for sale||750||5,797|
|Total Current Assets||95,335||97,669|
|Trade and other receivables||1,950||421|
|Property, plant & equipment||91,946||84,851|
|Total Non-Current Assets||406,389||394,363|
|Trade and other payables||64,460||57,954|
|Finance lease liabilities||70||9|
|Income tax payable||1,690||4,411|
|Derivative financial instruments||871||72|
|Total Current Liabilities||84,236||80,317|
|Trade and other payables||3,034||6,019|
|Deferred tax liability||5,239||7,182|
|Derivative financial instruments||7,555||8,777|
|Total Non-Current Liabilities||188,347||195,786|
|Cash flow hedge reserve||(6,097)||(6,509)|
|Foreign currency translation reserve||(6,411)||(4,829)|
|6 months ended
31 Dec 2016
|6 months ended
31 Dec 2015
|Cash flows from operating activities|
|Receipts from customers||264,165||258,554|
|Payments to suppliers and employees||(214,918)||(208,114)|
|Cash generated from operations||49,247||50,440|
|Interest and other costs of finance paid||(4,957)||(5,168)|
|Income taxes paid||(15,829)||(13,048)|
|Net cash inflows from operating activities||28,504||32,287|
|Cash flows from investing activities|
|Payments for property, plant & equipment||(8,098)||(6,764)|
|Payments for software||(1,865)||(881)|
|Proceeds from disposal of property, plant & equipment||23||20|
|Payments for businesses acquired (net of cash acquired)||(1,991)||(5,805)|
|Payments to associate||(1,667)||–|
|Payments for other investing activities||(231)||(521)|
|Net cash outflows from investing activities||(13,829)||(13,951)|
|Cash flows from financing activities|
|Increase (decrease) in bank borrowings||11,143||(645)|
|Proceeds from issue of ordinary shares||338||296|
|Finance lease liabilities repaid||(38)||(38)|
|Net cash outflows from financing activities||(11,023)||(19,732)|
|Net increase (decrease) in cash and cash equivalents||3,652||(1,396)|
|Cash and cash equivalents at the beginning of the period||7,065||13,946|
|Exchange rate adjustments||(27)||(172)|
|Cash and cash equivalents at end of the period||10,690||12,378|