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Mainfreight’s Braid 'impatient' on fix for Europe after region's underperformance dents earnings

Wednesday 29th May 2013

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Mainfreight managing director Don Braid says he's impatient to bed down the European business after tough trading conditions in the region wiped out the transport group's full-year earnings growth.

Europe was the only region to record a drop in earnings before interest, tax, depreciation and amortisation in the year ended March 31, the Auckland-based company said today. Total group EBITDA fell 0.5 percent to $137.5 million, in line with the company's March guidance. Sales rose about 4 percent to $1.88 billion.

Mainfreight cemented its foothold in Europe in early 2011 by buying Netherlands-based Wim Bosman Group for 110 million euros plus earnouts. While the new business was expected to lift earnings, Mainfreight lost key trading accounts in its first 12 months of ownership while having to cope with poor trading conditions in the face of a European recession and bedding in the operations.

"We're an impatient bunch and would like it fixed yesterday," Braid told BusinessDesk. "We're progressing."

The shares rose 3.1 percent to $10 on the NZX today, having declined 17 percent this year. The stock has a 'buy' rating and a median price target of $12, based on a Reuters survey. The company will pay a fully-imputed final dividend of 15 cents a share, making 27 cents for the year, up 3.8 percent from last year's payment.

"Most of the operations looked to be reasonable except for Europe," said James Lindsay, equities manager at Tyndall Investment Management. "Europe's economy is struggling - we saw some of the same impact in Nuplex's result."

Earlier this month, specialty chemicals maker Nuplex Industries cut its full-year guidance while noting "a general softening in demand" in Europe.

Mainfreight's sales revenue in Europe was little changed at 244.7 million euros while EBITDA tumbled 43 percent to 9.46 million euros.

"This is our most challenging business unit, as we confront and guide the business through a series of issues - including high-margin earning customer losses, poor economic trading conditions and the transition from private ownership to being a contributing member of the Mainfreight Group," the company said.

It didn't give detailed guidance for the current year. Trading in the first two months reflected a similar pattern to 2012.

"This is of concern and reflects a softening in some of the economies where we are located, and the issues we are currently addressing in our Australian domestic operations," the company said. "It would be our expectation to have exceeded profit levels of the year prior during this period."

Total revenue from Australia rose 12.4 percent to A$433 million and EBITDA climbed about 17 percent to A$30.5 million. But Mainfreight said its Australian domestic operations had suffered margin decline as operational costs rose.

It said "exceptional growth" in the sector had put pressure on "ageing and increasingly inadequate operating facilities" as it coped with increasing volumes of parcel traffic. Mainfreight is to begin building new facilities in Queensland next month, is developing on leased facilities in Sydney and has acquired land in Melbourne.

EBITDA at its Australian Air & Ocean business rose 4.4 percent on steady revenue.

Mainfreight plans $49 million of capital expenditure on Australian property for the 2014 year, amounting to 53 percent of total forecast capex of $91.8 million, according to its results presentation.

In its biggest market of New Zealand, its transport, logistics and Air & Ocean businesses all performed "at a satisfactory level over the year," the company said.

Total New Zealand revenue climbed 5.5 percent to $474 million and EBITDA rose 9.8 percent to $59.9 million.

Its Asian operation lifted revenue by 3.6 percent to US$29.9 million and EBITDA jumped 22 percent to US$2.6 million.

Revenue in the Americas climbed 7.6 percent to US$357 million and EBITDA rose about 11 percent to US$16.9 million, which Mainfreight said was satisfactory though "our expectations have yet to fully materialise". Mainfreight USA lifted revenue by 12 percent and EBITDA by 31 percent. CaroTrans had a slight increase in revenue and a 3.1 percent decline in EBITDA.

Mainfreight's full-year net profit fell18 percent to $65.9 million after one-time charges of about $2 million versus one-time gains of $14.7 million a year earlier.

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