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Report Card: Mainfreight stakes audacious claim to conquer the world

By David McEwen

Friday 2nd August 2002

Text too small?

Last year, logistics group Mainfreight's annual report boldly stated: "The next 12 months should see Mainfreight start to reap the benefits from the investments of the last few years."

"History would suggest otherwise," commented this column.

Depending on how you look at it, both parties were correct.

Mainfreight's 2002 report makes a feature of the company's 171% improvement in net profit in the year to March 31 of $6.6 million.

Revenue was down 2.4% to $401 million.

On the other hand, the turnaround has yet to bring it back to the same level of performance it achieved five years ago, before many major investments.

As its five-year performance review shows, net profit is still lower than 1998's despite a near doubling of revenues.

Earnings per share are down 9% from five years ago and net assets per share are up a mere 4%. Profit margin, equity ratio and return on assets are all down.

This company needs to do much more reaping before its growth strategy can be considered a success.

Executive chairman Bruce Plested acknowledges this in his "chairman's report to fellow shareholders."

He points out the company has reduced losses from its struggling Australian assets but is still not doing as well as expected.

Those hoping to receive some of the promised benefits from Australian investments will be disappointed by Mr Plested's comment that "It may take us most of this current year before we begin operating profitably, but this year will bring us very close to break even, or better."

Despite the setbacks in what is generally a graveyard for New Zealand company aspirations, Mr Plested is unequivocal.

"We are in Australia for the long haul. It is the absolute key to our strategy and the direction the business will take for the foreseeable future."

Managing director Don Braid spends much of his report making positive noises about the Australian assets while commenting more than once that performance is "far from satisfactory."

While Australian-based international freight operations are increasingly profitable, the domestic business remains a value destroyer.

Revenues have slumped nearly a third to $52 million in the past year while gross earnings (ebitda) were negative $2.3 million, an improvement over last year's loss of $5.5 million.

Mr Braid explains the decline in turnover came from "restructuring the customer base by eliminating low-quality, low-cost revenues and as a consequence increased rate structures."

At least the company is firing customers and not the other way around but the comment indicates that Mainfreight took on poor-quality growth in trying to achieve an internationally significant scale.

Restructuring in Australia means New Zealand business now makes up 55% of turnover from 52% last year, surely a trend nobody wants to see continued.

Mr Braid's report finishes with a bullish and specific statement that again can be revisited in a year's time.

"We expect our returns to continue to improve dramatically from their finish of 2002," he says.

Impressively, he goes into even more detail with a blow-by-blow expansion plan covering the next five years.

Initiatives include establishing new offices in the US and China, listing on the Australian Stock Exchange and, by 2006, achieving turnover of more than $1 billion.

Every managing director has a "big, hairy, audacious goal" but few are prepared to commit to it in an annual report. It will be a long, hard road to that goal but, as the positive thinking gurus say, you can't reach your destination without a map.

Mainfreight's map is no longer of New Zealand or even Australasia. It has global ambitions and it is prepared to share its vision with stakeholders.

Pity there aren't more companies and annual reports around like that.

David McEwen is an investment adviser and author of weekly share market newsletter McEwen's Investment Report. Internet: www.mcewen.co.nz, Email: davidm@mcewen.co.nz

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