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Freightways 1H profit rises 22%; courier, mail growth offsets LitSupport costs

Monday 20th February 2017

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Freightways posted a 22 percent gain in first-half profit, driven by growth in its express package & business mail division, which made up for a drop in earnings from information management.

Net profit rose to about $34 million in the six months ended Dec. 31, including about $4 million of one-time items, from $27.7 million a year earlier, the Auckland-based company said in a statement. Operating revenue rose 7 percent to $272.8 million.

Freightways' express package & business mail division makes up about three-quarters of its sales and earnings and in the first half the company lifted sales by 8.4 percent to $202.5 million and earnings before interest, tax and amortisation by 7.4 percent to $34.8 million, while keeping its ebita margin unchanged at 17 percent.

"Volume and revenue growth throughout the half year was strong, particularly so in the peak December month," the company said. "Increased activity amongst existing customers and the winning of new customers contributed to this growth. Disruption surcharges were introduced during December to offset increased linehaul and delivery costs following November’s North Canterbury earthquake."

Information management also lifted sales, by 2.9 percent to $71.1 million, although restructuring costs at TIMG Australia's LitSupport business, resulted in a 6 percent decline in ebita to $13.4 million.

The company acquired Australian information management firm LitSupport in late 2014 for A$17.1 million upfront and potential earnouts of A$12.1 million. Instead, the vendors of LitSuport refunded A$5 million of the upfront payment and a $5.3 million earn-out was instead written back into the income statement as a non-cash, one-time gain.

"LitSupport has performed at the bottom end of the range of expectations set at the time of acquiring the business," Freightways said. "Recent restructuring of LitSupport and the winning of a number of new contracts is expected to assist in improving LitSupport’s performance over time." By contrast, the information management division had "strong results" from its Shred-X and TIMG New Zealand businesses, it said.

Freightways incurred some costs related to the Kaikoura earthquake, which affected its document storage facilities in Wellington.

"While the racking did its job and withstood the impact of the earthquake, its structural integrity was compromised, particularly in the major site located in Porirua," it said. "This has resulted in the likelihood of having to repair or replace most, if not all, of the Porirua racking and will involve repositioning boxes while repairs are made or replacement racking is installed." 

The company has comprehensive insurance cover for such events and expensed the related deductible as a corporate cost, it said. Net debt was little changed at $159 million.

The company typically doesn't give guidance although it said that both volumes and activity in the first half "support Freightways’ expectations of again improving its overall year-on-year performance".

"The markets in which Freightways operates in both New Zealand and Australia remain positive and the company is experiencing increasing demand for the services it provides." 

The company will pay an interim dividend of 13 cents a share, up 12 percent from a year earlier, on April 3 with a record date of March 17. It didn't offer a dividend reinvestment plan but said it will review the use of the DRP for each future dividend.

Freightways' shares last traded at $7 and have gained 15 percent in the past 12 months, tracking the S&P/NZX 50 Index's performance.

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