Freightways bucks the trend: no covid-19 impact so far

Freightways chief executive Mark Troughear. Photo / Supplied

Freightways chief executive Mark Troughear says better margins and recovering economic activity make him guardedly optimistic about the rest of the financial year, notwithstanding the potential disruption of the covid-19 outbreak.

However, its business is mainly in New Zealand has yet to see any material impact from the global virus outbreak.

The company today reported flat first-half earnings, and while Freightways doesn't provide full year guidance, Troughear told BusinessDesk a pick up in the express package and business mail division continued into January and "that gives us cause for a bit of confidence, notwithstanding what the effect of the coronavirus might be."

"If in future it has a broader impact on the economies in which they (customers) operate, it could ultimately impact Freightways and this will be monitored closely," the company said.

According to Troughear, the company was not overly exposed to items coming in from overseas to New Zealand.

"We do deliveries for some of the international courier companies in areas where they don't have their own fleet, but 99 per cent of the volume we handle is picked up in New Zealand and delivered in New Zealand," he said.

However, any slowdown in the economy would weigh on the express package and business mail division in particular, Troughear said. That division represents around 70 per cent of the Freightways' business.

The company said revenue rose 1 per cent to $318.9 million in the six months to December 31 from a year earlier, while net profit fell 13 per cent to $29.2m. Earnings before interest, tax and amortisation declined 3.8 per cent to $50.1m.

The stock was down 1.1 per cent at $8.37 in early trading.

The company's express package and business mail division lifted operating revenue 1.8 per cent to $237.6m. Ebita was $39.1 per cent, up 1.1 per cent.

Troughear said the pick-up in activity through December and January was likely due to an improvement in the economy.

"The decline in the economy that we saw last year, we think bottomed out around about September, October, November," he said.

Troughear said another reason to be upbeat in the near term was the fact that the firm's "pricing per effort" delivered an average of 66 cents per item by December, up from 55 cents at the end of October. It is targeting 75 cents.

"It is trying to get a bit of margin back into a sector that had no margin and is good cause for optimism," he said.

Freightways said its information management and secure destruction division saw a 0.1 per cent lift in revenue to $82.3m.

Earnings were $11m, 24.8 per cent lower than the prior period, due to lower volumes moving through the largely fixed cost print and copy bureaus and the impact of lower prices for scrap paper for recycling experienced in the secure destruction businesses on both sides of the Tasman, it said.

Troughear said the lower recycling paper prices had hurt earnings to the tune of $1.5m and prices were not expected to recover materially in the short term.

Within the secure destruction business, the division will look to leverage its enlarged operations to provide medical waste and product destruction services to both new and existing customers.

The company said it expects its Big Chill acquisition to obtain Overseas Investment Office approval in the first half of calendar 2020.

Big Chill is a New Zealand market leader in temperature-controlled transport. The acquisition involved an initial payment of $117m for 80 per cent of its enterprise value. The balance is to be paid in 2022 based on its earnings performance.

Freightways will pay an interim dividend of 15 cents per share on April 1 to shareholders on the record on March 13.