Freightways reports steady earnings rise; forecasts more economic growth in year ahead

Courier company Freightways delivered a steady if unspectacular full-year result with both increased revenue and profits driven by increased migration and higher consumer demand, and is predicting incremental growth in the year ahead.

The Auckland-based company reported a 5.4% revenue increase to $505.4 million for the year ended June 30, 2016, while underlying profit, before one-off items, rose 8% to $54.4 million.

There was a non-recurring charge of $6.3 million relating to the further write-down of the carrying value of its four Convair aircraft, which fully retire by the end of this month, and related spare parts. Half the $15 million dollar book value of the fleet was written down immediately when the decision was made to switch to leasing and operating three Boeing 737-400s which carry higher volumes. The Convair aircraft, which haven't yet attracted any buyers, are now valued at a total $1 million, the value of their spare parts.

Freightways chief executive Dean Bracewell said it was a "good, strong result for Freightways once again" with all divisions showing growth.

Directors declared a fully-imputed final dividend of 14.5c per share, a 16% increase on the previous corresponding period of 12.5 per share. The dividend is a record payout to shareholders of around $22.5 million, and has a record date of September 16 and will be paid out on October 3.

Freightways is seen as a bellwether of the economy and has a good track record on forecasting, though doesn't provide a forecast profit range as most other listed companies do. Mr Bracewell said being an economic forecaster was a mantle he'd "like to side-step" but he was expecting to increase Freightway's year-on-year earnings in 2017 ahead with positive incremental growth, rather than "racing ahead."

Growth this year followed increases from some customers but quieter trading in the larger dairy industry areas of Waikato, Southland and Taranaki, he said.

Freightways doesn't report the split in New Zealand and Australian earnings, though Bracewell said revenue was now more heavily weighted to Australia.

The express package and business mail division, which operates under a number of brands such as New Zealand Couriers and Post Haste, lifted revenue to 2.9% to $370 million but earnings before interest, tax, depreciation and amortisation were down 2.6% to $66.5 million.

The company is spending $11 million on a new purpose-built facility – its first fully automated one – in Christchurch to consolidate operations from three separate facilities into one that will have airside access to the Boeing fleet. There's also been increased resourcing of its IT team, including the appointment of a new chief information officer, Matthew Cocker.

The faster-growing trans-Tasman information management decision reported operating revenue of $137 million, up 12.5%, while ebitda was up 15.8% to $33.2 million. The division, which offers document storage and destruction along with digital services, now accounts for around a third of earnings. The division will operate under one brand in future, The Information Management Group, with the exception of its document destruction business, ShredX, which is a market leader in Australia and will continue to operate under its own name.

Bracewell said the express package and mail division is expected to improve performance in 2017, though the full benefits from the Christchurch consolidation won't flow through until the end of the financial year.

The information management division is expected to perform slightly below the 2016 financial year due to one-off costs of $2.5 million relating to relocating the Sydney premises and the fact this year's result included some large one-off project work.

Capital expenditure for the year ahead is expected to be around $23 million, financed from the business's strong cashflows. Freightways reduced bank borrowings by $18 million during the year after repaying $12 million in debt and now has plenty of headroom for further acquisitions. Mr Bracewell said it had a "steady pipeline" of opportunities to consider. Total assets are down $14 million, primarily due to the writedown on the Convair fleet and spare parts.

The company plans to be a fast follower rather than market leader on both self-driving and electric vehicles. Mr Bracewell said both are inevitable for the industry as is disruption at some stage from an "Uber-like" challenger. Self-drive vehicles could be used for fixed courier runs and line-haul routes, he said, and Freightways was watching closely what international companies such as FedEx and TNT were doing in this area.

"It makes sense for New Zealand to see what these big fish are doing and do it when there is value for us," he said. "We can't get too far ahead of our market and, unless our customers are behind it, we will have an issue."

Mr Bracewell also sees a place for drone deliveries, particularly in more remote areas of the country but again won't be "leading the charge."

Freightways shares fell 1% to $6.67.

(BusinessDesk)