Mainfreight: NZ downturn ‘not serious’

Results on soft side but ‘still strength in local economy’

CAndrea Fox

ooling 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 rising 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 . . . 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.

“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.”

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 ($63m), 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.

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 lift in ebitda to A$22.6m ($24.4m). Revenue rose 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].

“But we’ve continued to win market share and win new customers and since the half year, trading has been improved in [Australia and New Zealand], so we’re not overly concerned.”

Braid said Mainfreight wants no fulltime staff to be on a salary of less than $60,000 for a full working year.

“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.

Mainfreight’s half-year result was the first presented under a new leases accounting standard which took effect in April. Mainfreight shares lifted 1 per cent yesterday to $40.50.

We’ve only achieved about 5 per cent and . . . would’ve liked it to be more. Don Braid(right), managing director, Mainfreight