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Freightways dips after a decade of growth

After a decade of consistent expansion and growth, express package and business mail company Freightways posted a drop.It's interim ebita was a 12% drop to $31.8 million for the six months to December 2009 compared with the same period the previous year.H

Liam Baldwin
Mon, 15 Feb 2010

After a decade of consistent expansion and growth, express package and business mail company Freightways posted a drop.

It's interim ebita was a 12% drop to $31.8 million for the six months to December 2009 compared with the same period the previous year.

However, the 2008/09 year included five extra trading days accounted for at the beginning of the reporting period, with those removed, the comparison showed a drop of 8% against the prior comparative period.

Net profit after tax for the period was $14.5 million, down 14% on the previous period, including the extra week last year.

Freightways is working on shaking this uncharacteristic dip in returns off and points to a domestic economy showing signs of improvement with positive signals emerging from some areas of its group of businesses.

Much is pegged on benefits to be realised from market share wins achieved during the first half of the fiscal year, although it was noted the company was reliant on growth among its existing customers to improve year-on-year performance.

Lower volumes in Freighways core express package division, about 80% of the company’s total revenue, led to reduced revenue of $164.9 million, down from $177.4 million for the first half of the previous year representing a 7% drop.

With the extra week in the 2008/09 year removed from the calculation, the drop was 4%. The extra week in the previous year contributed $6 million to the company’s revenue, $1.5 million to ebitda and $1.1 million to net profit after tax (npat).

While Freightways has enjoyed growth over the last decade, much of last year’s increase was due to strengthening returns in its information management division and a one-off profit of $4 million from a sale and lease back of a property in Wellington.

The final ebita last year was $34.6 million, 7% up on the previous year. Without the property sale, earnings would have been down 5%.

After the full year results, announced in August last year, Freightways managing director Dean Bracewell predicted the first half of this year was unlikely to show any improvement, but expected some cost savings to come through in the second half.

Those savings are still on track with a $7 million drop in capital expenditure to $13 million with $6 million spent in the first half. It has also reduced debt from $218 million for the previous comparable period to $159.5 million.

While the company line has changed little – Freightways will continue to seek and investigate growth opportunities to support strengthening its earnings profile through diversification – there is truth to its claim that it has weathered the storm of the global economic quagmire well.

Express Package & Business Mail
Freightways claims some growth in market share in its core express package and business mail businesses.

The company operates New Zealand Couriers, Post Haste Couriers, Castle Parcels, NOW Couriers, SUB60, Security Express and Kiwi Express.

It also has DX Mail, a small but growing division in direct competition against NZ Post.

Freightways has gone into battle against NZ Post with a complaint to the Commerce Commission, accusing the state-owned mail giant of attempting to stymie competition with price changes to access its network.

The company explained that has asked the government to facilitate the appointment of an independent regulator to take control of the postal industry “for the good of the overall marketplace.”

Information management
Low global prices for recycled paper continue to dog Freightways, however, Mr Bracewell said there were signs of improvement.

As part of its document destruction service, Freightways is largely reliant on global trends as part of its revenue.

Reduced global demand for paper, however, was offset by the growth and evelopment of the document and data storage businesses, both in New Zealand and Australia, along with efficiency gains through consolidating operations in a number of locations.

While investment in additional capacity to facilitate this growth increase the division’s costs, it was expected the company would reap future rewards as utilisation increased.

Market demand remained strong for the services offered by the information management arm which contributed about 20% of Freightways total operating earnings.

New shares
The interim dividend of 7c a share is a distribution of $10.8 million – 75% of napta – nearly half a million dollars more than last year. However, this was due to the issue of new shares following raising $49 million of new equity last year.

The extra funds were used to reduce bank debt.

Change of director
Soon after releasing its interim results, Freightways announced the retirement of Warwick Lewis from its board of directors.

In his place professional director Mark Verbiest has been appointed, effective immediately.

Mr Lewis remains on the board until March 24.

By midday Freightways shares dipped 4.3% following the interim announcement (NZX: FRE).

Liam Baldwin
Mon, 15 Feb 2010
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Freightways dips after a decade of growth