UPDATE: Freightways reports 4% profit growth; warns economic headwinds will impact growth next year

UPDATED: Freightways [NZX: FRE], the logistics and courier business, lifted annual profit by 4% on increased sales from express packages, business mail, and information management but warned New Zealand's faltering economy is likely to see growth slow in the next financial year.

Profit rose to $43.3 million in the 12 months ended June 30, from $41.7 million a year earlier, the Auckland-based company said in a statement. Operating revenue increased 11% to $749.5 million. The directors declared a final dividend of 12.5c per share, up from 11.25c per share a year earlier.

The express package and business mail division, whose brands include New Zealand Couriers, Post Haste, and DX Mail, lifted operating revenue 8% to $360 million in the period. Earnings before interest, tax, depreciation and amortisation rose 13% to $68 million.

Freightways managing director Dean Bracewell said it had been an outstanding result, with growth in all geographic locations and areas of the business, which is seen as something of a bellwether for the economy.

"In the fourth quarter there was a reduction in growth compared to the first three quarters," he said. "We were still growing but not at the same rate and that's no surprise given the macro economic stuff we've all read about."

He wouldn't be drawn on what rate of growth he expected this financial year, although he said an October trading update should give an early indication. Some 72% of earnings come from express packages and business mail and 28% from information management.

Its DX Mail operations grew market share and increased its postie delivery fleet after New Zealand Post's move to reduce daily mail deliveries to three days a week. The DX Mail growth came from customers who still require overnight delivery for their standard priced letters, in particular the district health boards, Bracewell said.

Freightways added some 250 staff in the past year to deal with growth, taking total staff numbers to about 3500.

The transition to a new fleet of leased Boeing 737-400 aircraft from the existing Convair aircraft fleet is expected to provide increased capacity and faster sector speeds from early next year and annual capital expenditure savings from the 2017 financial year. The new aircraft can carry payload of around 17 tonnes compared to 6.5 tonnes for the existing planes, four of which are now up for sale.

The company's information management services, which operate in New Zealand and Australia, providing document storage, document destruction, and data storage lifted operating revenue 18% to $122 million. Ebitda increased 18% to $29 million, on the back of earnings growth on both sides of the Tasman.

LitSupport, the Australian information management business acquired in December, is not yet trading to expectation with the renegotiation of two major customer contracts at lower rates and an investment in additional sales capacity that is still to deliver results. Bracewell said the former owners, who are under an earnout agreement, are likely to have to write a cheque of up to $5 million back to Freightways, though they do have the opportunity to reverse that before the earnout expires in 2017.

"We're still very positive about this business," he said.

Due to the disruptive threat of alternative storage technologies, Freightways has started providing digital information management services on both sides of the Tasman. While that has had good take-up from new and existing customers, demand is also continuing to grow for physical storage services in New Zealand and Australia.

"Digitisation opens a new area for us and a new competitive environment. But it is easier to compete online and opens up a broader range of competitors," Mr Bracewell said.

While the opportunities are larger for information management in Australia, margins are currently higher in the more established New Zealand operation.

The company is looking for more acquisitions and further alliances on both sides of the Tasman this financial year and capital expenditure is expected to rise to $20 million from $14 million this year.

Mr Bracewell indicated the company is also looking at new geographic locations for all parts of the business, including the courier side which, until now, has remained firmly well-planted in New Zealand.

"We've looked at southeast Asia and looked at the US but not found the right one yet," he said,

Freightways shares were unchanged at $5.55 and have dropped 4.3% since the start of the year.

(BusinessDesk)