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Freightways' net profit rises despite NZ slowdown

By Rebecca Howard

Aug. 26 (BusinessDesk) - Freightways reported a lift in earnings as it raises prices and seeks to increase its efficiency against the backdrop of a slowing economy. It is targeting year-on-year earnings growth in the current financial year.

Freightways, which delivers some 50 million items annually through brands including New Zealand Couriers and Post Haste Couriers, reported a 2 percent lift in net profit to $63.4 million in the year to June 30.

Total revenue rose 6 percent to $615.7 million. Earnings before interest, tax and amortisation were $99.1 million, up 2 percent on the year.

The company will pay a final dividend of 15.5 cents per share versus 15.25 cents in the prior year. The record date is Sept. 13 while the payment date is Oct. 1. The total dividend payout for the year will be 30.5 cents, up 2.5 percent.

"It was not a bad result given the economy did seem to slow down in the second half of the year," chief executive Mark Troughear said.

The company had previously signalled some slowing same-customer growth for its Express Package & Business Mail division in the second half.

Today it said had been a "year of two halves with respect to organic growth levels.” The first half was characterised by strong growth while same-customer volume flattened off noticeably in the second half of the year.

Troughear said growth had been flat in March and April and slightly negative in May and June "and we are not seeing anything that will necessarily turn that around in the next few months. And beyond that - who knows?"

The Express Package & Business Mail makes up around 70 percent of the business.

The division's operating revenue was $453 million, up 5.6 percent on the year. Ebita was $72.2 million and 6.3 percent higher than the prior year.

The company said hard calls were made on low-margin business during the year, with pricing reviews for customers where margins were unacceptably low for the value provided through our networks.

According to Troughear, "we've got a real focus on getting our prices right, for our residential items in particular, so we have raised our prices for residential delivery. Not radically, but on average just under a dollar."

The aim is to return some of the money to contractors and some to the company to improve the margin per residential delivery. The ebita margin was 15.9 percent in the year to June 30 versus 15.8 percent in the prior year

Troughear said customers were on board and "really to maintain a sustainable residential service, it's what you have to do."

Despite the slowdown, management remains optimistic that pricing and efficiency initiatives in express package and Freightways’ diversification strategy in information management will provide "growth opportunities in 2020," Freightways said.

It said there are “strong indications” that volume growth will be lower in 2020 but “there will be a strong focus on maintaining and improving margins, along with improving visibility to customers and receivers for express package deliveries.”

"If we can get our efficiency right and a little bit more in price for those items that should help us return a positive result for the year," Troughear said.

Ebita at the information management division was down 1.9 percent at $29.3 million. While utilisation of facilities improved in Australia and New Zealand, the margins generated from data transformation were slightly lower, it said. The ebita margin was 17.8 percent versus 19.4 percent in the prior year.

Australian earnings marginally exceeded those of the New Zealand business for the first time in 2019. Given the larger scale of the Australian market, and the broader range of opportunities, including in the medical waste industry, Australia is expected to widen its lead on New Zealand’s earnings into the future, the company said.

In the Information Management division, there will be a continued drive on expanding storage and handling margins through improved facility utilisation.

Overall capital expenditure for the 2020 financial year is expected to be $22-24 million. Operating cash flows are expected to remain strong throughout 2020.

The stock recently traded down 3.7 percent at $7.85, on a day when the S&P/NZX 50 Index was down 1.5 percent.



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