Freightways Delivers Sound Half Year Result

Freightways Limited (NZX:FRE) has again delivered a sound result, this time for its half year ended 31 December 2008.

While Managing Director, Mr Bracewell acknowledges the current economic downturn is impacting Freightways, he says that in a challenging operating environment it has “delivered a sound result from its express package and business mail division and an outstanding result from its growing information management operations.”

Consolidated operating revenue reached a record $177 million for the half year, 10% higher than the prior corresponding period, while earnings before interest, tax and amortisation (EBITA) of $32 million were up 1% over the same period.

Consolidated net profit after tax (NPAT) of $17 million for the half year was also 1% higher than the prior corresponding period.

The result has enabled Directors to declare an interim dividend of $10.3 million which translates into 8.0 cents per share, fully imputed at a tax rate of 33%. While down on last year’s interim 9.5 cents per share dividend, Mr Bracewell says the Directors have given particular attention to:

• the current economic downturn which has resulted in modest overall earnings growth constrained by lower activity from some existing customers, and the difficulty in accurately forecasting near term operating performance; and
• the overall funding requirements of the business, including the company’s investment in two significant capital projects during 2009 to provide future capacity for its operations and the completion of the acquisition of several businesses. These investments add immediate inherent value and are also expected to contribute to future growth in earnings, however they have naturally required an immediate stepped cash outlay for a future incremental cash benefit.

In his half yearly report Mr Bracewell says the decision by Directors to take a more conservative approach than in recent years when determining the interim dividend payout was “both prudent and appropriate at this stage of the year.”

“In looking forward it is difficult to determine the impact of the economic turmoil on Freightways’ operating environment. Due to this uncertainty, Freightways will publish in April a Trading Update that will provide high level financial results for the third quarter. The interim dividend will be paid on 31 March 2009. The record date for determination of entitlement to the dividend is 13 March 2009.

The core express package brands of New Zealand Couriers, Post Haste Couriers, Castle Parcels, NOW Couriers, SUB60, Security Express and Kiwi Express contribute the majority of the group’s revenue. The current economic downturn has translated into lower express package volumes from some of Freightways’ existing customers. In addition, volumes are continuing to fluctuate markedly month to month which creates difficulties when planning near term capacity.”

The report says Freightways first saw signs of slowing activity from existing customers back in 2006. Since then it has strengthened its competitive position through acquisitions and alliances, introduced new service lines, implemented new customer-interface technologies and sought to maximise productivity gains. Mr Bracewell says the success from many of these initiatives “has resulted in excellent customer retention, increased market share, pricing improvement and is evidenced in the delivery of this half year result.

“We will continue our strategy of defending and extending our presence in the express package space and to actively develop the market opportunities expected to materialise in a more challenging operating environment.”

DX Mail, which operates in the local postal services market, had a lean six months with earnings, which while still at a reasonable margin, were down on the corresponding period. The economic downturn resulted in reduced letter volumes, notably in its traditional legal, travel and finance markets.

Freightways entered the information management sector in 1999 and in the last 10 years has grown to be the leading operator in New Zealand in two of its three primary lines, and number two in the third. In 2006 Freightways entered the Australian market and in that time, through acquisition and greenfield development, now has a presence in every major Australian state.

The information management division contributed 18% of Freightways’ total operating earnings in this half year, well ahead of the same period 12 months ago. Mr Bracewell says the economic downturn has “not had any noticeable effect upon either the data or document storage operations, with demand for these services continuing to grow.” However, performance from the document destruction businesses, largely involved in the pickup and secure destruction of paper and the sale of paper to the recycling market, has slowed. A range of initiatives have being implemented which will mean the effect of reduced paper sales prices will not be material to Freightways’ full year result.

The three internal service providers, Fieldair Holdings Limited, Parceline Express and Freightways Information Services each continued to deliver exceptional service. Corporate costs increased during the year primarily to support the group’s expansion into Australia.

Looking ahead, Mr Bracewell says that Freightways will continue to be affected by the current economic downturn. In the medium to long-term however, Freightways is exceptionally well positioned to reap the benefits of any improvement in the marketplace and will continue to explore growth opportunities that complement its core capabilities.

The group expects to continue achieving positive results for shareholders and other stakeholders, subject to business factors beyond its control.

For further information contact:

DEAN BRACEWELL
Managing Director
Freightways Limited
Ph: (09) 571 9670
Fax: (09) 571 9671