Cooling confidence in the New Zealand economy this year had an echo in Mainfreight's domestic transport growth but there's still strength in the economy, says managing director Don Braid.
Delivering the global freight and logistics company's financial result for the six months to end September, Braid said both New Zealand and Australian operations had had to contend with slowing economic conditions and increased overhead costs from lifting lower-paid staff salaries.
Despite this, New Zealand revenue increased 5.7 per cent or $19.4 million to $362m and ebitda rose 3 per cent to $46.7m on the previous period, with market share increasing across all three Mainfreight operations - transport, warehousing and air and ocean.
The NZX listed company posted net group profit of $62.2m, up 11.7 per cent on the previous period and a 5 per cent lift in overall revenue to $1.5 billion. Ebitda was up 10 per cent to $119m.
Adjusted for foreign exchange impact, revenue was up 4.3 per cent, ebitda up 9.7 per cent and net profit before abnormals up 10.8 per cent. There were no abnormal costs.
Braid called the improvement "satisfactory" but said the company would have liked a higher rise in revenue.
"We've only achieved about 5 per cent and our target is more than that, so by our own standards we would've liked it to be more."
Braid said he didn't think cooling economic confidence was serious.
"I think there's still strength in the New Zealand economy but perhaps it's not as strong as this time last year. Maybe people are a little concerned about house prices, maybe [traffic] congestion, maybe a lack of infrastructure.
"But I don't see it as serious and our second half is always busier as we move through Christmas and into the New Year. We are seeing post-this result volumes improve."
The company will pay an interim dividend of 25c per share - a 13.6 per cent increase on the previous year's interim payment.
Mainfreight said it's strategy of growth through global expansion and reducing its exposure to challenged economies was paying off. Revenue and ebitda improved in all overseas operations, offsetting a decline in the Asia business.
Freight volumes in that region decreased across Mainfreight's major trading lane, China to the US, with import tariffs introduced in July last year in the China-US trade war having an impact. The Hong Kong riots had also affected confidence for air freight services.
Asia revenue was down 10.8 per cent at US$40m, while ebitda fell nearly 12 per cent to US$2.9m.
Mainfreight had responded by developing a greater diversity of markets to offset US trade. This included a focus on more intra-Asia trade and increasing market share to and from its European locations.
The company said its entry to Japan and Malaysia had been satisfactory.
Its first branch in South Korea was due to open before March 31.
Mainfreight currently operated in 24 countries, soon to be 26 with the South Korea debut and a branch opening in Spain, said Braid.
He said a better performance had been expected from the Australian business, which posted a 0.5 per cent increase in ebitda to A$22.6m ($24.4m). Revenue was up 5.5 per cent at A$360.4m.
"Some of that was our own doing. We increased our overhead costs like we did here in New Zealand attempting to get our lower-paid workers' salaries up higher again.
"At the same time we saw a reduction [in demand] particularly in domestic transport from our current customers. Generally economic conditions have been a little quieter than they were the year prior.
"But we've continued to win market share and win new customers and since the half year, trading has been improved in both Australia and New Zealand, so we're not overly concerned. We feel very comfortable in both these markets."
Braid said Mainfreight wants no fulltime staff to be on a salary of less than $60,000 for a full working year.
"We don't believe in paying the minimum wage, we don't believe in paying a living wage - we want to be above both. It's our style and getting our people to $60,000 plus is the right thing to do. Our people need to be engaged and they need to feel valued."
Group operating cashflows were $73.9m, up from $71m.
Net debt was $187.7m, an increase of $57m, with Mainfreight's gearing ratio increasing from 13.5 per cent at March 31, to 17.5 per cent.
During the half year, net capital expenditure totalled $90.5m.
Capital spend for the full financial year ending March 31, 2020 was expected to be in the range of $170m, with a further $190m estimated in the 2021 financial year.
Land and building projects in New Zealand and Australia were taking longer than anticipated, although construction schedules in Tauranga and Melbourne were on target.
Mainfreight is expecting an improved full-year result.
"Our Asian business is not likely to finish the current year better than the year prior as we both expand our network and deal with market volatility brought about by national unrest in Hong Kong, US tariff disputes and a slowing China economy," the company said.
Increasing profitability and growth was expected in Mainfreight's European and American markets, while further improvement was anticipated in the New Zealand and Australian markets.
Mainfreight's half-year result was the first presented under a new leases accounting standard which took effect in April.
The model requires Mainfreight as a lessee to recognise assets and liabilities for all leases with a term of more than 12 months.
When applied to the half result its impact on profit before tax was a decrease of $4.3m but an increase in ebitda of $57.3m. Total assets increased by $587.5m to $2.2 billion.
Mainfreight shares lifted 19c to $39.95.