Monday 20th February 2017
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(Recasts adding comment from managing director)
Freightways, which has posted earnings growth every year except one since listing in 2003, says it expects the trend to continue through 2017 although the benefits of restructuring won't show up until the following year.
The Auckland-based 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". Profit rose 22 percent to about $34 million in its first half, driven by its largest business, the express package & business mail division, while earnings fell in information management in the face of restructuring costs at TIMG Australia's LitSupport business.
The company forecast full-year capital expenditure at $24 million, just above the $23 million it previously forecast and up from $17 million in 2016. Managing director Dean Bracewell said capex in the current year includes automation for roller beds at its Christchurch hub, racking and IT "for the growth we're still seeing for document storage", as well as trucks and IT.
Through the remainder of the 2017 year, Freightways expects to complete the relocation projects for its businesses in Sydney and Christchurch, "with the full benefits relating to these projects on target to be realised in the 2018 financial year".
Freightways' express package & business mail division, which makes up about three-quarters of sales and earnings, lifted revenue in the first half 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.
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 LitSupport 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.
"When we looked at LitSupport through due diligence there was risk and that was reflected in the range of earnings we gave that it might be able to achieve," Bracewell said. "That's why we will not be paying out earnouts. The business has work to do. It is less than 5 percent of revenue but it is still one we believe in."
"Recent restructuring of LitSupport and the winning of a number of new contracts is expected to assist in improving LitSupport’s performance over time," the company said today. 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."
Bracewell said Porirua came through in better shape from the Kaikoura quake than from the Christchurch quakes, which saw racking systems collapse, because the Christchurch lessons were applied to Porirua. High-spec racking is now used, he said, while noting that from quake to quake "the tremors can be quite different."
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 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.
"We don't require it at the moment. Gearing is quite conservative and we don't need to be issuing shares," Bracewell said. Debt in the first half at $159 million was unchanged from a year earlier.
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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