MFT
28/05/2014 08:30
FLLYR
REL: 0830 HRS Mainfreight Limited
FLLYR: MFT: Mainfreight - FY Results to 31 March 2014
MAINFREIGHT LIMITED
Financial result for the twelve months ended 31 March 2014 (Unaudited)
Commentary
Mainfreight is pleased to announce a record full year net profit after tax
and abnormal items for the year ended 31 March 2014 of $89.64 million; an
increase of 36.0% over the previous year.
Sales revenue also increased; up 2.1% to $1.92 billion (excluding foreign
exchange effects the increase is 4.8%).
EBITDA was also at a record level of $149.19 million. This exceeded the
prior year's result by 8.5% (excluding foreign exchange effects the increase
is 11.7%).
Excluding foreign exchange effects, all geographical segments other than
Europe improved on their prior year's EBITDA result.
Europe completed the year slightly behind the prior year, by 5.6%. However
second half performance from the region showed EBITDA performance exceed the
same comparative period by 17.9%. This profit improvement has continued into
the new financial year, and is providing us with confidence of a turnaround.
Abnormal gains total $12.15 million and predominantly relate to the
settlement of the dispute with the vendor of our 2011 European acquisition.
During the year we responded to issues in a number of our divisions that
required us to fine-tune our activities.
Remedial activities included:
o Removing parcel-freight from our Australian Transport business, where these
volumes were negatively impacting gross margins, cost structures and the
efficiency of our network,
o In Europe, we closed an unprofitable operation in Belgium, rationalising
our network coverage in order to improve margin,
o In the USA, the Mainfreight Domestic operations have focused on everyday
LTL freight, sacrificing revenue streams from transactional freight to build
long-term customer relationships and to assist the implementation of
dedicated road linehaul between significant branch locations.
Early evidence of the success of these initiatives is apparent in improved
results in the later part of the financial year.
Divisional Performance (figures in local currencies)
New Zealand (NZ$)
All of our New Zealand divisions, once again, performed satisfactorily. Our
investment into high quality facilities and an intensive network has played a
role in improving our returns.
Total revenues for the New Zealand group of businesses increased 6.6% to
$505.19 million. EBITDA improved 12.4% to NZ$67.38 million.
Our New Zealand Transport division was challenged by a number of issues
relating to linehaul services, in particular the reduced availability of rail
and ferry services during our peak volume period October through to December.
Despite these constraints, we were able to move 200,000 consignments more
than we did in the prior year.
High levels of service and a focus on FMCG (fast moving consumer goods),
hardware and building-related industries contributed to the increase in
volume. Our development of additional services for the FMCG sector,
including movement of perishable, chilled and frozen food, will provide
substantial growth for the future.
The Logistics division is also exposed to the same sectors which has required
further investment in specialised facilities. A strong performance from our
Logistics team produced an improved net profit over the year prior.
The Air & Ocean division increased revenues across all modes of international
freight and, encouragingly, continued to lift our market share of the Asian
inbound trade lanes to New Zealand.
Our commitment to increase our regional presence throughout New Zealand has
resulted in our Air & Ocean team becoming more active in New Zealand's rural
sector.
We continue to invest in high quality operations for our New Zealand network:
o Our Christchurch redevelopment is progressing well with completion due May
2015,
o Land has been acquired and development has commenced for a new Hamilton
facility, and
o Construction is under way for a new temperature-controlled warehouse in
Auckland to facilitate the requirements of new FMCG customers.
Australia (AU$)
Despite the need to address issues relating to difficult parcel freight in
our Australian Transport operations halfway through the financial year, our
Australian business has continued to grow in stature and is becoming a
significant contributor to the Group's profitability and capability.
Australian revenues increased 5.8% over the previous year to AU$458.47
million. EBITDA improved 15.5% to AU$35.19 million.
Our Domestic operations (Transport and Logistics/Warehousing) have increased
their market share in what is a reasonably tough and competitive environment.
Our focus on delivering high quality freight services is a contributing
factor.
Our quality has improved from prior years, however we have some way to go to
satisfy our own internal measures and the expectations of our customers.
Over time small parcel consignments had infiltrated our normal freight
profile. This reached a tipping point halfway through the last financial
year, when inefficiencies placed unacceptable pressure on our network and
margins. As a consequence, we removed parcel traffic from our network, in
consultation with our customers. The value of the consequential lost sales
approximated AU$12 million annualised. Gross margins and operational
efficiencies have both seen improvement as a result.
Chemcouriers is now well established in Australia and is working alongside
Mainfreight to provide better hazardous goods transport solutions for our
customers.
Our Logistics operations continue to find financial improvement through
customer gains. Such is the level of success, new facilities have been built
in Sydney and Brisbane to assist this growth.
The Air & Ocean operations maintained a good level of sales growth and
profitability despite declining ocean freight rates from Asia. Market share
has increased, particularly as we focus on developing our Perishable air
freight capabilities. Our investment in perishable handling facilities
across Melbourne, Sydney and now Brisbane has given us a considerable
advantage over our competitors.
We now expect further improved financial returns in Australia notwithstanding
the cost commitments we have incurred with the investment in new facilities
to secure this business's potential growth.
The Americas (US$)
Improvement in performance across all three divisions (CaroTrans and
Mainfreight Domestic and Air & Ocean), sees sales revenues ahead of the prior
year by 1.7% to US$363.57 million. EBITDA improved by 11.4% to US$18.85
million.
CaroTrans (our independent wholesale business) adopted a back to basics
approach focusing on better freight utilisation of containers, improved
linehaul negotiation with shipping and air lines, and growth of imports to
the USA, which all assisted to produce a strong result.
In both Export and Import trades, CaroTrans' growth outpaced that of the US
market. Groupage services from China, Korea and France were launched during
the year, as were new services into the Caribbean after a long absence.
Western Europe is now a priority for CaroTrans to extend its borders to, and
increase our ability to drive more growth into and from the European markets.
The Mainfreight Domestic business has achieved a less than satisfactory
performance in the past twelve months, however improvements were seen in the
last quarter, and have continued into the new financial year. We expect this
momentum to increase further as initiatives that were put in place to drive
growth begin to deliver.
Additional fixed road linehaul between major cities has been committed to and
will assist the sales campaigns for more LTL freight volume.
The opening of a branch in McAllen, Texas will enhance our service profile
for trans-border freight between Mexico and the USA.
Customer interest in 3PL warehousing services has been steadily growing.
Developing credible third party warehousing operations similar to those we
have elsewhere in the world is now a priority. Purpose-built facilities will
be committed to in the next twelve months.
The Mainfreight Air & Ocean division has had good growth and we expect this
to continue as we link the USA with our developing world-wide network of air
and sea freight activity. We would expect the trade lanes to and from Europe
and Asia to be a high priority.
Our expectations for the USA are for a far greater level of growth and profit
contribution over the near term as market opportunities available to us are
exploited.
Europe (Euro EUR)
Full year sales revenues improved slightly, by 2.4% to EUR250.72 million,
EBITDA fell short of the year prior at EUR8.92 million, despite lifting
significantly during the second half of the year.
The improvement seen in the last six months of the year provides confidence
for the future. Gradual economic recovery in the Euro region will assist in
some part, however more important is our own improvement.
Progress was made in "right-sizing" our Belgian business, where the Antwerp
Forwarding operations were merged with our branch in Genk. This will assist
our utilisation and network efficiencies. While we have yet to find
profitability in our Belgian Forwarding business, we are certainly better
placed now than previously.
Our pan-European Forwarding and Logistics/Warehousing units are benefiting
from renewed opportunities in the marketplace providing steady revenue
growth. A number of customer gains in the food sector has bolstered
confidence.
Tender opportunities are many, where we are regularly achieving "last round"
status, reflecting our ability to compete and offer a point of difference to
much larger competitors.
Our Air & Ocean business has extended its network with a third branch in
France (Lyon) and the opening of a branch at Frankfurt Airport, as our first
foray into Germany.
We are cautiously optimistic that the worst of our European business's
disappointing performance is now behind us, and is well-positioned to provide
more growth and profitability into the future.
Asia (US$)
Sales revenues from our Asia division improved by 26.1% to US$37.70 million,
and EBITDA was up 35.3% to US$3.52 million.
All branches throughout Asia improved their financial performance during the
year. Trade lane growth was also strong, particularly to and from the USA.
Operationally, we have been able to continue the expansion of the network by
opening Thailand as our twelfth branch for the Asia region. We expect to
further intensify our Asian network in the coming financial year, opening a
second branch in each of Thailand and Taiwan, and establishing an air freight
operation in Beijing. The Singapore branch will move their operations to an
"on airport" site at Changi Airport to further our development of the air
freight product for the region.
As with our United States business, strengthening European trade lanes into
and out of Asia is of the utmost importance.
The Asian region continues to be an important part of our global supply chain
offering. Now that our Chinese operations are well-established, extending
our Southeast Asian network remains a priority. Opportunities to establish
branches in Vietnam, Malaysia, the Philippines and India continue to be
researched.
Group Operating Cash Flows
Operating cash flows were NZ$120.37 million up from NZ$83.17 million, largely
a reflection of increased operating profitability, working capital stability
and the abnormal gain of $12.15 million.
During the year net capital expenditure totalled NZ$78.66 million. Property
development accounted for NZ$55.76 million of this. Land and Buildings sold
during the period totalled NZ$15.0 million. Facilities in Palmerston North
and Hamilton remain for sale.
Land investments decisions are continuing to be made on an as required basis.
Current owned facilities with a limited future due to size and/or design,
will be sold and leased back with funds being invested in land designated for
future development.
Dividend
The Directors have approved a final dividend of 19.0 cents per share fully
imputed at the 28% company tax rate, with the books closing on 11 July 2014;
payment will be made on 18 July 2014. This takes the full dividend for the
year to 32.0 cents per share; an 18.5% increase year on year.
Funding
Subsequent to year end, Group funding facilities underwent a thorough review,
and a decision was taken to broaden our banking relationships from two to
four lenders.
The awarding of replacement contracts was completed during May 2014, and
includes an increase in debt facilities to approximately NZ$450 million (an
increase of approximately NZ$60 million). The new facilities result in an
overall reduced cost.
Fraud
The discovery of fraud (within a New Zealand subsidiary, Daily Freight)
during the year, has now been through the Courts and has resulted in the
conviction of the perpetrator.
A significant part of this complicated fraud was undertaken outside the
Company's purview and control. Detailed investigations have been undertaken
and our internal controls have been appropriately reinforced.
Restitution to all affected parties has been made, and has been offset by
recoveries received. At no time was Mainfreight's financial performance
materially impacted.
Outlook
The financial result achieved for the 2013/14 year has been satisfactory.
Trading for the first two months of the current financial year has seen
further improvement on the year prior.
The aches and pains of establishing our footprint in Europe through our 2011
acquisition are behind us, and the potential for growth can clearly be seen
in Australia, Asia and the Americas.
We are focused on developing all our off-shore operations into significant
profit and revenue contributors for our Group.
In New Zealand, our network intensity and investment into world-class
facilities is providing ongoing growth in a region where we already hold a
significant market share; a compelling blueprint as we build our network in
other regions of the world.
Our presence in Australia mirrors that of New Zealand; our capital investment
in better facilities for our people and our customers for world-class supply
chain services is well under way. We expect sales revenues and
profitability from Australia to eclipse those of New Zealand in the not too
distant future.
We are now well established and seeing improved financial returns from Asia,
Europe and the Americas. Our sales teams in all three continents are
developing significant relationships with many multi-national customers, and
at times beating larger, more dominant competitors with our more flexible,
high quality service and logistics offering.
It is just a matter of time - not if, but when - we are able to convince more
of these customers to experience the Mainfreight level of service across our
complete network.
Many shareholders will be focused on our financial expectations for the year
ahead. We are confident of bettering our financial performance again. More
importantly, we will maintain the momentum we have, growing Mainfreight into
a substantially bigger and better business.
Mainfreight will release its financial results for the first half of the 2015
financial year to the market on 11 November 2014.
For further information, please contact Don Braid, Group Managing Director,
telephone +64 9 259 5503, +64 274 961 637 or email [email protected].
End CA:00250927 For:MFT Type:FLLYR Time:2014-05-28 08:30:06
