Freightways 'not highly geared'

By Nick Stride

Friday 12th September 2003

Critics who say Freightways is heavily indebted have failed to read the prospectus properly, managing director Dean Bracewell says.

Mr Bracewell is annoyed by criticisms aimed at the float, which closes today for public applications. The charge the company is highly geared was nonsense, he said. In 2000 it had $100 million of debt. Today it had $140 million but the pretax profit had more than doubled since.

Mr Bracewell is also annoyed by suggestions dividends had been forecast at a rate that was unsustainable. While the forecast $14 million cash dividend next year would exceed net earnings of $12.7 million, those earnings would include a non-cash $4.8 million amortisation bill, he said. And Freightways had a track record of many years of sustained earnings growth, capital expenditure needs of only $4 to 5 million a year, low working capital requirements, and favourable cash collect.

The company had gone through a series of due diligence processes and was entitled to think it had a good idea how it could perform. There were the due diligence exercises last year by those interested in buying former parent Ausdoc, banking due diligence in May and June this year, and the IPO (initial public offering) due diligence straight afterwards.

Mr Bracewell said he thought it unlikely the transport industry shake-up would throw out a serious competitor to Freightways and New Zealand Post's domination of the express package market.

While Toll had courier businesses in Australia, some bought from Mayne Nickless and some from Ausdoc, it would be hard to replicate an express package business in an environment of two major players. The really expensive bit, airfreight capacity linking the North and South Islands, would be critical.

Using Air New Zealand or Qantas wasn't an option because they don't fly the times, 7.30pm to 4.30am, that express packages need. Two smaller national competitors, Fastways and PPT, used Origin Pacific but the carrier had only modest space. Freightways' five Convair 580s had a capacity of six-and-a-half tonnes each.

Mr Bracewell said that 40 years ago when Freightways was formed most deliveries were documents. Now most were product.

That, said the prospectus, gives the company some insulation from economic slowdown as businesses tend to look for efficiencies through "just in time" inventory management.

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