FRE freightways limited

Ann: ADDRESS: FRE: Annual Shareholders Meeting - Chairman's &...

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    • Release Date: 29/10/15 10:00
    • Summary: ADDRESS: FRE: Annual Shareholders Meeting - Chairman's & MD's Commentary
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    					FRE
    29/10/2015 10:00
    ADDRESS
    NOT PRICE SENSITIVE
    REL: 1000 HRS Freightways Limited
    
    ADDRESS: FRE: Annual Shareholders Meeting - Chairman's & MD's Commentary
    
    A.  CHAIRMAN'S INTRODUCTION
    
    Slide 1. Freightways - 29 October 2015, Annual Shareholders Meeting
    
    Slide 2. Sue Sheldon, Chairman
    
    Shareholders and guests, welcome to Freightways' Annual Shareholders Meeting.
    My name is Sue Sheldon. I am the Chairman of Freightways' Board of Directors.
    
    Slide 3. Agenda
    
    Before we get underway I will run through the structure of the meeting.
    
    o I will begin with procedural matters, introduce the Freightways Board and
    senior executive team to you, and then summarise some of the Company's 2015
    highlights. I will then ask Dean Bracewell, Freightways' Managing Director,
    to provide a review of the Company and an update on current trading
    performance.
    
    o I ask that you hold all questions about the performance of the Company
    until the close of the Managing Director's presentation and direct them
    through the Chair. Any questions related to resolutions should be asked when
    we consider those resolutions.
    
    o Following the Managing Director's presentation, I will introduce the
    resolutions as outlined in the Notice of Meeting. Again this year, polls will
    be held in respect of the resolutions put to shareholders. The polls will be
    conducted following the meeting.
    
    o The Notice of Meeting, which includes the explanatory notes, has been
    circulated to all shareholders, and I intend to take it as read.
    
    The Company's constitution prescribes a quorum requirement of 3 shareholders.
    As you can see this requirement is met. As a quorum is therefore present, the
    meeting is duly constituted and I declare it open.
    
    Proxies have been appointed for the purpose of this meeting in respect of
    approximately 71 million ordinary shares. As was indicated on the proxy form,
    where proxy discretion has been given, the Directors, and I as Chairman,
    intend to vote those proxies we have received in favour of resolutions 1, 2,
    3 and 5 set out in the Notice of Meeting. As also indicated on the proxy
    form, unless directed how to vote by the shareholder giving the proxy in
    respect of resolution 4 relating to Directors' fees, the Directors, including
    myself, will not be able to vote on resolution 4 on behalf of the proxy.
    
    I would now like to introduce those at the table with me:
    
    o Mark Royle, Freightways' Chief Financial Officer and Company Secretary.
    Mark has 30 years accounting and commercial experience of which 13 years were
    with a major international chartered accounting firm. Mark was appointed
    Chief Financial Officer and Company Secretary of Freightways 15 years ago,
    having spent a number of years prior to that with Freightways' then
    Australian owner.
    
    Your Directors at the table are:
    
    o Dean Bracewell, Freightways' Managing Director. Dean has spent almost his
    entire career with Freightways after initially joining the company in 1978.
    He worked his way through the company and held a number of senior Executive
    and General Management roles within Freightways' subsidiary businesses prior
    to his appointment as Managing Director in 1999.
    
    o Mark Verbiest. Mark was appointed a Director in February 2010.  He is a
    professional director who has a strong working knowledge of technology and
    technology-related businesses, as well as having extensive capital markets
    experience. A lawyer by training, with widespread corporate legal experience
    in private practice, he spent 7.5 years on the senior executive team of
    Telecom NZ through until mid-2008, where among other things he had executive
    accountability for two business units. Mark is Chairman of Spark New Zealand
    Limited, Transpower New Zealand Limited and Willis Bond Capital Partners
    Limited. Mark is also a director of ANZ Bank New Zealand Limited, a
    consultant to law firm Simpson Grierson and a member of the Commercial
    Operations Advisory Board of The Treasury.
    
    o Roger Corcoran. Roger is based in Australia and was appointed a Director in
    May 2009. He gained extensive global business experience during a 30-year
    career with multi-national transport & logistics operator, TNT. Roger retired
    as CEO of TNT Australia, New Zealand and the Pacific Islands in 2008.
    
    o Kim Ellis. Kim was appointed a Director in August 2009, having spent 28
    years in chief executive roles in a number of sectors, including 13 years as
    Managing Director of Waste Management NZ Limited, and has developed
    businesses in both New Zealand and Australia. Kim is now a professional
    director working with both private and listed companies. Kim is Chairman of
    Metlifecare Limited and NZ Social Infrastructure Fund Limited and a director
    of Port of Tauranga Limited, Envirowaste Services Limited and a number of
    other companies.
    
    o Mark Rushworth. Mark is our newest Director, appointed last month. Mark has
    extensive experience in the technology sector, with a decade's governance
    experience, predominantly in the high tech and innovation space. An
    electrical engineer by training, with widespread operations and marketing
    experience, he spent 4 years on the senior executive team of Vodafone NZ
    through until 2010, where among other things he had executive accountability
    for the fixed line business and as executive director of marketing. Currently
    Mark is the CEO of New Zealand's digital payments business Paymark Limited
    and a director of mobile wallet technology company Semble Limited. Mark
    previously served as chief executive of Pacific Fibre and internet provider
    ihug.
    
    o I was appointed a Director of Freightways ahead of its IPO in 2003 and
    elected Chairman in 2010. I am a Chartered Accountant and full-time
    professional director. I am currently Chairman of Paymark Limited, a Director
    of Contact Energy Limited and the Chairman of the Audit & Risk Management
    Committee of the Christchurch City Council. I am a former president of the
    New Zealand Institute of Chartered Accountants and was made a Companion of
    the New Zealand Order of Merit in 2007.
    
    Also present today are several members of the Freightways executive team who
    I would like to introduce to you:
    
    o Mark Troughear, General Manager of the Freightways Information Management
    Division.
    
    o Ben Fitzpatrick, General Manager of DX Mail.
    
    o Peter Graham, General Manager of Dataprint.
    
    o Devon Buckingham, Auckland Regional Manager of New Zealand Couriers.
    
    o Charles Giliam, General Manager of Fieldair Holdings.
    
    o Neil Wilson, General Manager of Post Haste.
    
    o Aaron Stubbing, General Manager of Messenger Services.
    
    o Michael Claydon, General Manager of Castle Parcels.
    
    o Richard Mitchell-Lowe, General Manager of Freightways Information Services;
    and
    
    o Ben Pryor, General Manager of TIMG New Zealand
    
    And from our Australian businesses:
    
    o Chris Cotterrell, General Manager of TIMG Australia.
    
    o Van Karas, General Manager of Shred-X; and
    
    o Nick Karos, Founder and now Sales Director of Shred-X.
    
    These people represent the 3,500 strong Freightways team which operates in
    every town and city throughout New Zealand and in all states & territories of
    Australia. This executive team has considerable experience, often in more
    than one Freightways business and has an average tenure at Freightways of
    approximately 15 years per executive. It is a particular strength of
    Freightways that it is able to identify and promote talent from within, not
    only in these senior roles, but across many occupations within the greater
    company.
    
    The Company's Auditors, PricewaterhouseCoopers, are represented here today by
    Pip Cameron and the Company's legal advisors, Russell McVeagh, are
    represented here today by Pip Greenwood.
    
    The Financial Statements for the year ended 30 June 2015 are set out in the
    Company's Annual Report that was released to shareholders last month.
    
    I would now like to speak briefly to some of the financial highlights of
    Freightways' 2015 year. I will then ask Dean Bracewell to address you.
    
    Slide 4. Financial Highlights - 2015
    
    Freightways had a stellar year in 2015. Strong revenue growth assisted the
    return of good operating leverage through the P&L which led to increased
    bottom line margins.
    
    This slide presents the reported 2015 result and the underlying trading
    result compared to the prior comparative period, when excluding the impact of
    non-recurring items. EBITDA refers to earnings (or operating profit) before
    interest, tax, depreciation and amortisation. EBITA refers to earnings (or
    operating profit) before interest, tax and amortisation. NPAT refers to net
    profit after tax. And EPS refers to earnings per share.
    
    Slide 5. Non-recurring items
    
    At this time last year, we announced the 1st quarter 2015 Trading Update and
    provided a breakdown of the benefit relating to 5 extra trading days in that
    quarter compared to the prior comparative period that contributed
    approximately $7 million of operating revenue, $2 million of EBITDA & EBITA
    and $1.4 million of NPATA & NPAT. This 2015 full year result also includes
    the benefit of these additional trading days compared to the prior
    comparative period.
    
    The non-recurring items shown on this slide, that the Directors believe
    should not be included when assessing the underlying trading performance of
    Freightways, relate to:
    
    o in respect of the 2014 Year's result: a one-off expense of $1.25 million in
    the information management division that related to the final earn-out
    payment for the Filesaver business acquired in 2011; and
    
    o in respect of the 2015 Year's result: a total non-recurring charge of $9
    million (or $6.5 million after tax) comprised of 3 elements:
    
    1. - a one-off expense of $7.6 million relating to the write-down of the
    carrying value of the existing Convair fleet of aircraft and related spare
    parts (being $5.5 million after tax). As a non-cash item this write-down did
    not impact on Freightways' 2015 final dividend payment to its shareholders;
    
    2. - a one-off expense of $0.7 million expected to be incurred in the 2016
    financial year relating to the transition from the Convair aircraft (being
    $0.5 million after tax); and
    
    3. - a one-off expense of $0.65 million expected to be incurred in the 2017
    financial year relating to the relocation of 3 of Freightways' Sydney-based
    information management businesses into a single purpose-built site (being
    $0.45 million after tax).
    
    While these non-recurring items are included in the full year financial
    statements contained in your annual report, we believe for the purposes of
    assessing the underlying year-on-year operational performance of Freightways,
    these non-operational items should be excluded for this presentation and my
    commentary.
    
    Slide 6. Financial Highlights - 2015 (again)
    
    Consolidated operating revenue of $480 million for the 2015 full year was
    10.9% higher than the prior comparative period.
    
    EBITDA of $96 million was 13.9% higher than the prior comparative period and
    EBITA of $83 million was 15% higher than the prior comparative period.
    
    Consolidated NPAT of $50 million was 15.8% higher than the prior comparative
    period; while NPATA (which is NPAT before Amortisation, and used to determine
    Freightways' dividends) was $51 million, 16.6% higher than the prior
    comparative period.
    
    Earnings per share (EPS) for the full year (and again exclusive of
    non-recurring items) were 32.2 cents per share, an improvement of 15.4% over
    the prior comparative period.
    
    Overall, an outstanding year's result.
    
    Slide 7. Express Package & Business Mail division - 2015 performance
    
    All businesses in the express package & business mail division had improved
    revenue and earnings compared to the prior comparative period. Increased
    volumes from within our existing customer base, quality new business wins and
    some improved pricing all contributed to this result. Additionally,
    innovative new and expanded services across our businesses within this
    division realised new revenue and increased market share.
    
    The Express Package & Business Mail division delivered a record result for
    the 2015 year.
    
    Slide 8. Information Management division - 2015 performance
    
    Within this division around 60% of our revenue is generated in Australia and
    40% in New Zealand. Growth in both Australia and New Zealand was consistently
    strong throughout the year.
    
    Following the renegotiation of 2 major customer contracts and investment in
    additional sales resource since acquisition, LitSupport's earnings are not
    yet at anticipated levels. If earnings targets are not achieved by December
    2015, up to A$5 million of the purchase price will be reimbursed by the
    vendors.
    
    The information management division also delivered a record result for the
    2015 year.
    
    Slide 9. Final Dividend - 2015
    
    The Directors declared a final dividend of 12.5 cents per share, fully
    imputed at a tax rate of 28%. This represented a payout of approximately
    $19.3 million compared with $17.4 million for the prior comparative period
    dividend of 11.25 cents per share; an 11% increase. The full year's dividend
    payout was in line with the Company's dividend policy of paying out 75% of
    annual NPATA, excluding any non-cash, non-recurring items.
    
    The Dividend Reinvestment Plan (DRP) was not offered in relation to this
    dividend. As a capital management tool, the application of the DRP will
    continue to be reviewed for each future dividend.
    
    The positive features of the markets Freightways operates in, the resilience
    of its business models to accommodate growth and adapt to changing market
    circumstances and the successful execution of its growth strategies by a very
    experienced and capable team are again evident in this result.
    
    The Directors acknowledge the outstanding work and ongoing dedication of the
    Freightways team of people throughout New Zealand and Australia.
    
    I'll now call on Dean Bracewell to address the meeting.
    
    Slide 10. Freightways - Dean Bracewell, Managing Director
    
    B.  MANAGING DIRECTOR'S REVIEW AND TRADING UPDATE
    
    Thank-you Sue and thank-you ladies and gentlemen for coming along today.
    
    Slide 11. Managing Director's presentation agenda
    
    My presentation will discuss some of the features of the industries that
    Freightways works in and its businesses. I will then touch on Freightways'
    over-arching strategy, before finishing with an update on recent trading
    performance and our outlook for the remainder of the year ahead.
    
    Slide 12.  Express Package & Business Mail
    
    Slide 13.  Express Package & Business Mail (brands)
    
    We operate a multi-brand strategy in the express package and business mail
    markets. Our brands are positioned to service different niches of the market,
    including urgent one hour delivery, premium through economy metropolitan, and
    overnight to 2-day nationwide deliveries. We service a broad range of
    industry sectors.
    
    The majority of Freightways' express package volumes are collected from
    businesses and delivered to businesses, referred to as B2B. The balance of
    our volume is collected either from businesses or consumers and delivered to
    consumers, i.e. B2C and C2C. Growth in B2C volume has in recent times
    outstripped B2B growth and this is likely to continue as increasingly more
    people shop online.
    
    Freightways' business mail operator, DX Mail, continued to grow market share
    in the postal services market. DX Mail's growth has come from customers who
    still require overnight delivery for their standard-priced letters. DX Mail
    has increased its postie delivery fleet in response to this positive market
    demand. The Dataprint business, which is positioned higher on the supply
    chain than DX Mail with a full suite of both physical and digital
    transactional mailhouse services, is also achieving increased market share in
    all of its service lines.
    
    Branch relocations to larger premises that occurred during 2015 or are
    planned to occur in the year ahead include Auckland's North Harbour & East
    Tamaki, New Plymouth, Tauranga, Dunedin and Palmerston North.
    
    An upgrade to the aircraft fleet, which we announced in June, will see a
    transition from Convair aircraft to Boeing 737-400 aircraft and will occur
    between February and May 2016. Boeing 737-400s are expected to provide
    increased capacity, faster sector speeds, savings in annual capital
    expenditure and operating costs and reduced carbon emissions per item of
    freight carried.
    
    Our express package & business mail division currently contributes around 75%
    of revenue and earnings to the Freightways group.
    
    Slide 14. Information Management
    
    Slide 15. Information Management (brands)
    
    We have recently re-launched our New Zealand and Australian information
    management businesses under the umbrella brand of TIMG - The Information
    Management Group, as shown on this slide. The new brand better represents the
    suite of physical and electronic services now offered by these businesses.
    This new over-arching image for our business enables our sales teams to have
    broader 'information management' conversations with our customers.
    
    Demand for physical storage services for both documents and computer media
    continues to increase. Newly-introduced digital information management
    services have gained support from existing customers and assisted the winning
    of new customers. The document destruction businesses, particularly Shred-X
    in Australia, has seen increased demand for secure destruction services and
    improved prices from the sale of shredded paper for recycling.
    
    Investment in larger document storage facilities in Queensland and South
    Australia occurred during 2015, as well as the establishment of new document
    destruction facilities in New South Wales and the Australian Capital
    Territory. A new facility has been identified in Sydney to enable the
    consolidation of TIMG's business units, which are currently operated from 3
    existing locations, and will be operational in 2017.
    
    The Information Management division contributes approximately 25% of
    Freightways' revenue and earnings.
    
    Slide 16. Business strategy
    
    Slide 17. Business strategy
    
    Freightways' strategy contains several key elements. At a high level these
    are:
    
    o First, and most importantly, our strategy to enhance capability and service
    levels wherever possible within each of Freightways' existing businesses to
    ensure the retention of existing customers and to grow market share;
    o Second, our ongoing strategy to diversify the Company into the information
    management industry to further strengthen the earnings base and increase the
    Company's resilience to adverse economic cycles;
    o Third, our strategy to diversify activity away from a sole reliance on the
    domestic New Zealand market. This has been achieved by establishing
    operations throughout Australia; and
    o Fourth, the strategy to extend Freightways' presence into complementary
    areas of growth, either through the establishment of alliances or by
    acquisition.
    
    Our positioning strategies have ensured your Company has quality capability
    and capacity and that its brands are leaders in all the markets they operate
    in. As demand emerges for complementary and/or substitute services relating
    to digital communication and management of general business information, we
    will work alongside our customers to develop appropriate solutions utilising
    the skills we have developed internally and those that we have acquired
    through recent acquisitions.
    
    Our people strategies, that firmly establish safety as management's number
    one priority, also include an ongoing commitment to training and development,
    to job security, to appropriate reward and to encouraging career development
    across the Freightways group of companies so that the future of our business
    is in experienced hands.
    
    Our performance strategies concentrate on the quality of service to our
    customers, where we will continue to innovate and further improve.
    
    The strategies I have outlined are designed to sustain Freightways'
    profitability and deliver long-term value to shareholders.
    
    Slide 18. Trading update
    
    These next 2 slides present the long-term performance of your Company.
    
    Slide 19. Operating revenue
    
    This slide shows Freightways' revenue results since its IPO in 2003.
    
    Slide 20. EBITA
    
    Our operating earnings (or EBITA) results over the same period are equally
    sound.
    
    Slide 21. Consolidated financial performance - Q1 result
    
    This slide provides Freightways' financial performance for the 1st quarter
    period from 1 July to 30 September 2015.
    
    This 1st quarter of the prior comparative period included 5 extra trading
    days compared to the 1st quarter of this year. The extra 5 trading days
    contributed approximately additional revenue of $7 million, EBITDA and EBITA
    of $2 million and NPAT of $1.4 million.
    
    After excluding revenue and operating earnings generated from the 5 extra
    trading days from the prior comparative period result, revenue for this 1st
    quarter of $127 million was 10% above the prior comparative period and EBITDA
    of $25 million and EBITA of $22 million for this 1st quarter were 13% and 15%
    above the prior comparative period, respectively. NPATA of $14 million and
    NPAT of $13 million for this 1st quarter were 14% and 13% above the prior
    comparative period, respectively.
    
    The benefits of Freightways' successful strategic industry and geographical
    diversification, the positive features of the markets it works in and the
    successful execution of a wide range of growth strategies are once again
    evidenced in this strong 1st quarter result.
    
    Slide 22. Express Package & Business Mail division - Q1 result
    
    After excluding the impact of the 5 extra trading days in the prior
    comparative period, our express package & business mail division's revenue
    for this 1st quarter of $92 million was 4% above the prior comparative period
    and EBITDA of $17 million and EBITA of $16 million for this 1st quarter were
    4% and 5% ahead of the prior comparative period, respectively.
    
    Sound performance across all Freightways express package and business mail
    businesses was underpinned by increased activity from existing customers,
    quality market share gains and some pricing improvement.  Volume increases
    from both Business-to-Business and Business-to- Consumer segments of the
    market have contributed to this result.
    
    Slide 23. Information Management division - Q1 result
    
    After excluding the impact of the 5 extra trading days in the prior
    comparative period, our information management division's revenue of $35
    million for this 1st quarter was 27% ahead of the prior comparative period
    and EBITDA of $9 million and EBITA of $7 million for this 1st quarter were
    33% and 37% ahead of the prior comparative period, respectively.
    
    This division's performance, as expected, demonstrated resilience to the
    economic cycle, with growth being achieved in both Australia and New Zealand.
    Increased document storage and destruction volumes generated from both
    existing and new customers contributed to improved utilisation of existing
    equipment and facilities. Revenue and earnings from businesses acquired in
    the latter stages of the prior calendar year and from our relatively new
    suite of electronic services also contributed to this result. The
    acquisitions of 2 small businesses, one in Sydney and one in Brisbane, during
    this quarter for a total cost of $3 million, are expected to generate
    annualised EBITDA of $1 million once fully integrated with our existing
    businesses.
    
    Slide 24.  Outlook
    
    Slide 25. Outlook (key points)
    
    Freightways' businesses are well-positioned to benefit from the growth
    opportunities that exist in both the express package & business mail and
    information management markets.
    
    The express package market is expected to continue to expand, albeit not at
    the same rate as seen in the prior financial year. The business mail
    operations of DX Mail and Dataprint are expected to sustain their positive
    growth, largely from market share gains.
    
    The information management market is expected to continue to grow due to the
    service and cost advantages for businesses of outsourcing their document and
    data storage requirements. Privacy of business information will continue to
    be a primary driver of demand for secure document destruction services.
    Customers will continue to seek complementary and substitute electronic
    services relating to the creation and management of business information,
    which Freightways' businesses are also able to offer.
    
    Capital expenditure for the full year is expected to be approximately $20
    million to support the growth and development of both Freightways operating
    divisions. Overall cash flows are expected to remain strong throughout the
    2016 financial year.
    
    Freightways will continue to seek out and develop strategic growth
    opportunities, including acquisitions and alliances that complement its core
    capabilities.
    
    Thank-you.
    End CA:00272490 For:FRE    Type:ADDRESS    Time:2015-10-29 10:00:16
    				
 
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