Tough Economic Conditions Reflected in Freightways Half Year Result
Freightways Limited (NZX:FRE) has produced an overall satisfactory result for the half year ended 31 December 2009, however tough trading conditions during the last 6 months has meant that this result is lower than the prior comparative period (pcp).
According to the half year report, to ensure like-for-like comparison, references to the pcp are after normalising the actual result to remove 5 extra trading days that were accounted for in July of the pcp. This approach was also taken for Freightways’ October 2009 trading update. These extra 5 days contributed approximately $6 million to revenue, $1.5 million to EBITDA and EBITA, and $1.1 million to NPAT in the pcp.
Consolidated operating revenue of $165 million for the half year was 4% lower than the normalised pcp. Managing Director Dean Bracewell says the result, while below the previous 6 months, is a clear demonstration of Freightways’ resilience to market conditions and is considered “very satisfactory by Freightways’ Directors, given the impact of the economic downturn on domestic activity during this period”.
Earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $32 million for the half year were 8% lower than normalised pcp, while earnings before interest, tax, and goodwill amortisation (EBITA) of $27 million for the last 6 months were 10% lower than normalised pcp.
Consolidated net profit after tax (NPAT) of $14.5 million for the half year was 8% lower than the normalised pcp.
Freightways has declared an interim dividend of 7 cents per share, fully imputed at a tax rate of 30%. This represents a payout of approximately $10.8 million compared with $10.3 million for the pcp interim dividend. The dividend will be paid on 31 March 2010 based on a dividend record date of 12 March 2010.
Capital management initiatives executed during 2009 have positioned the company with an appropriately structured balance sheet for the foreseeable future and therefore the Dividend Reinvestment Plan (DRP) will not be offered in relation to the interim dividend. As a capital management tool, the application of the DRP will be reviewed by the Directors for each future dividend.
In his review of operations Mr Bracewell says the core Express Package division, which contributes the majority of Freightways’ revenues and earnings, showed lower volumes from existing customers, leading to lower revenue for the last 6 months than the pcp. The Express Package brands are New Zealand Couriers, Post Haste Couriers, Castle Parcels, NOW Couriers, SUB60, Security Express and Kiwi Express.
According to Mr Bracewell “strategies implemented across this division to ensure economic factors outside of its direct control did not impact more seriously on performance, helped contribute to the company’s overall satisfactory result”. He points out that while much of the focus has been on service quality and cost management, which has seen a reduction in costs, Freightways has continued “to actively seek quality market share growth and to develop strategic growth opportunities.
“Among a number of key successes has been the winning of Australia Post’s international inbound express mail service, air parcels and courier product deliveries into New Zealand,” he says.
DX Mail, which competes directly with NZ Post across a wide range of postal services, has over many years established itself as a viable alternative to the state-owned enterprise. According to the half year report this is a space NZ Post has long controlled, going back to the time when it operated as a statutory monopoly. The high barriers to establishing a competitive postal network have been a challenge for DX Mail and its postal service remains in a formative stage of development.
Mr Bracewell says the recent attempt by NZ Post to radically change access arrangements for independent postal operators, including DX Mail, is viewed by Freightways as an attempt to thwart competition. As a result, Freightways has lodged a complaint with the Commerce Commission and asked the Government to facilitate the appointment of an independent regulator for the good of all stakeholders in the postal industry.
The Information Management division, which contributes around 20% of Freightways’ total operating earnings, had another good 6 months, with the Australian businesses in particular showing great resilience to the economic downturn. While the document destruction arm was affected by lower revenue from the sale of recycled paper, this impact was largely offset by the growth and development of the document and data storage businesses.
According to Mr Bracewell “investment in additional capacity has increased the cost base of this division, however this investment will reap future rewards as utilisation of this capacity increases.
“While highly competitive, the information management market continues to perform to expectations, providing Freightways with a very real and important platform for strategic growth.”
Looking ahead Mr Bracewell says the domestic economy is “showing signs of improvement and this has also been evident in some areas of the group. However we have yet to experience sustained, across-the-board improvement, which indicates there is still continuing market volatility. It also suggests the impact on Freightways of an improving economy will be gradual.”
The group will continue to actively manage costs, seek to improve service quality, and look to benefit from quality market share wins. Mr Bracewell says Freightways “has strengthened its earnings profile by diversifying its activities, and subject to factors beyond its control, is well positioned to benefit from further improvements in the marketplace.”
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