Second Half Lift For Freightways
Encouraging growth in second half earnings has enabled Freightways Limited (NZX:FRE) to deliver a financial result before non-recurring items for the year ended 30 June 2010 only marginally down on the previous 12 months.
Managing Director Dean Bracewell acknowledged that despite a challenging domestic economic environment “this result demonstrates progressively improving Freightways performance in line with the gradual but patchy recovery we are starting to see in the New Zealand marketplace, which is encouraging.”
Operating revenue of $328.5 million for the full year was 2% lower than for the normalised* prior comparative period (pcp), but second half revenue (Jan-Jun 2010) was 1% above the normalised pcp. Earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $63.7 million were also 2% lower than the normalised pcp, but second half EBITDA was 5% above the corresponding normalised pcp.
Earnings before interest, tax and goodwill amortisation (EBITA) of $53.9 million were 3% lower than the normalised pcp, with second half EBITA 6% above the normalised pcp. Net profit after tax (NPAT) of $28.9 million for the full year, before a $5.7 million abnormal tax charge, was 2% lower than the normalised pcp, while the second half NPAT was 4% above the normalised pcp.
Freightways reported that the abnormal tax charge relates to the previously announced tax changes arising from the Government’s Budget in May this year, that removed the tax deductibility of depreciation on buildings with a life of 50 years or more and reduced the corporate tax rate from 2012. These changes required an overall increase in the deferred tax liability.
A final dividend has been declared of 7 cents per share, fully imputed at a tax rate of 30%, representing a payout of approximately $10.8 million. This brings the full year’s dividend payout in line with Freightways’ dividend policy of paying out 75% of annual NPAT before goodwill amortisation (NPATA), prior to the $5.7 million abnormal non-cash tax charge. The dividend will be paid on 30 September 2010. The record date for determination of entitlements to the dividend is 17 September 2010. No Dividend Reinvestment Plan (DRP) will be offered in relation to this final dividend.
In his review of the group operations Mr Bracewell said “the core Express Package & Business Mail division contributes approximately 80% of group revenue and earnings from its brands (New Zealand Couriers, Post Haste Couriers, Castle Parcels, NOW Couriers, SUB60, Security Express, Kiwi Express and DX Mail), and as the year progressed the performance of this division gradually improved.”
Operating revenue from that division of $263.5 million for the year was 4% lower than the normalised pcp, while the second half revenue was only down 1%. Second half EBITDA and EBITA figures were 3% and 4%, respectively, above the normalised pcp. Among the key successes were winning Australia Post’s international inbound express mail, air parcels and courier product deliveries into New Zealand; and the launch of two innovative sub-brands – ‘STUCK‘ positioned to satisfy demand for hard-to-deliver express freight jobs and ‘Pass the Parcel’ positioned to service Trade Me customers.
Mr Bracewell said “that while overall volumes improved in recent months to be on a par with the previous year and we are seeing some improvement, this is not yet the case across all the brands.”
DX Mail, which competes directly with NZ Post in the postal sector, has established itself as a viable alternative to the SOE and developed many important customer relationships.
The Information Management division, now firmly established on both sides of the Tasman, reported operating revenue of $66.2 million for the full year, 9% above the normalised pcp with EBITDA of $15.5 million up by 12%. This division operates Online Security Services, Archive Security, Document Destruction Services and Data Security Services locally and the brands of DataBank, Archive Security and Shred-X throughout Australia.
In his report Mr Bracewell said “this division has contributed almost 22% of Freightways’ total EBITA this year and its overall performance has been very strong. It continues to demonstrate positive revenue and earnings growth, particularly as paper sales revenue has returned to more normal levels with global demand and pricing for paper rebounding from 2009 lows”.
While highly competitive, Mr Bracewell said “the information management market continues to perform to expectations and provides Freightways with a very real and important platform for strategic growth.”
Forecast capital expenditure for the next 12 months is $13 million. This will be distributed evenly between the two operating divisions.
Looking ahead Mr Bracewell said that in recent years Freightways has strengthened its earnings profile by diversifying its activities both geographically and deeper into the information management market. “We will continue to seek and develop growth opportunities to support this strategy and also explore other opportunities that complement our core capabilities.”
While below the result of the previous year, he said Freightways still “delivered a sound operating result, demonstrating the resilience of the group, the positive features of the markets in which it operates and performance in the second half of the year was particularly encouraging for the year ahead.”
*Note: 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 and the removal of the one-off $4m benefit of a property sale that was accounted for in June of the pcp. These one-offs had contributed approximately $6 million to revenue, $5.5 million to EBITDA and EBITA and $5 million to NPAT in the pcp.
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