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Forsyth Barr

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2>Freightways FY20 Result Initial Thoughts</h2>
Freightways (FRE) reported a softer COVID-19 impacted FY20 result with NPAT (before non-recurring items and IFRS-16 adjustments) down -4% against the prior year. With the introduction of IFRS-16 it was -8%. Moreover, after accounting for the ~NZ$16m of wage subsidies in NZ and Australia, the result was weaker than we anticipated by c.-10% at the underlying NPAT level.
The introduction of IFRS-16, the impact of COVID-19 and the first time consolidation of Big Chill makes the result difficult to interpret. The company has clearly been impacted materially from COVID-19, albeit ended the year with monthly like-for-like revenue in both Express Package, Information Management and Big Chill up against the prior year.
FRE will not pay a final dividend. This is consistent with our view; we believe this is a very sensible Board decision in light of (1) its wage subsidy receipts, and (2) the uncertainty that persists around activity momentum. &nbsp;
Outlook commentary is typically conservative, and understandably so given the current backdrop.
Key highlights/lowlights
<ul>
<li>Express Package revenue +2.4% for the first nine months of FY20.</li>
<li>‘Pricing for effort’ on Express Package residential deliveries: FRE achieved 73c per item by the end of the year, compared to the target of 75c per item.</li>
<li>Information Management’s Print &amp; Copy volumes fell -50% through COVID-19. The uptake on the large digitalisation project was slower and lower than anticipated.</li>
<li>Information Management also impacted with lower paper pricing in NZ, and NZ Post’s revised bulk mail pricing.</li>
<li>Net debt increased to NZ$205m (in-line with expectations), up from NZ$151m in FY19, a function of the Big Chill acquisition.</li>
<li>Big Chill contributed NZ$22m of revenue and NZ$2.7m of EBITA for the year (consolidated from April 2020).</li>
</ul>
Conference call
Management is hosting a zoom post-result meeting at 11am (<a href="https://freightways.zoom.us/j/94509668310?pwd=RnF3WW9qVHdiOVA1cUE5U1N2RTlWdz09&amp;from=msft" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://freightways.zoom.us/j/94509668310?pwd%3DRnF3WW9qVHdiOVA1cUE5U1N2RTlWdz09%26from%3Dmsft&amp;source=gmail&amp;ust=1598315384289000&amp;usg=AFQjCNGR8lMQdgl4Up-xl0kdPOBRvVv-hQ" rel="noopener">https://freightways.zoom.us/j/94509668310?pwd=RnF3WW9qVHdiOVA1cUE5U1N2RTlWdz09&amp;from=msft</a>). Meeting ID: 945 0966 8310&nbsp; Passcode: 559091.
Result summary as reported (NZ$m)
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 170.8pt;"></td>
<td style="width: 50.8pt;">
FY19
</td>
<td style="width: 50.8pt;">
FY20
</td>
<td style="width: 50.8pt;">
Chg
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Sales revenue
</td>
<td style="width: 50.8pt;">
615.7
</td>
<td style="width: 50.8pt;">
630.9
</td>
<td style="width: 50.8pt;">
2.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Express Package &amp; Business Mail
</td>
<td style="width: 50.8pt;">
80.0
</td>
<td style="width: 50.8pt;">
101.7
</td>
<td style="width: 50.8pt;">
27.1%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Information Management
</td>
<td style="width: 50.8pt;">
35.3
</td>
<td style="width: 50.8pt;">
47.1
</td>
<td style="width: 50.8pt;">
33.1%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Corporate &amp; Other
</td>
<td style="width: 50.8pt;">
(3.1)
</td>
<td style="width: 50.8pt;">
(4.1)
</td>
<td style="width: 50.8pt;">
29.6%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
EBITDA
</td>
<td style="width: 50.8pt;">
112.2
</td>
<td style="width: 50.8pt;">
144.7
</td>
<td style="width: 50.8pt;">
28.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Depreciation and amortisation
</td>
<td style="width: 50.8pt;">
(15.4)
</td>
<td style="width: 50.8pt;">
(18.5)
</td>
<td style="width: 50.8pt;">
19.6%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Lease deprecition
</td>
<td style="width: 50.8pt;">
0.0
</td>
<td style="width: 50.8pt;">
(28.4)
</td>
<td style="width: 50.8pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Acquisition amortisation
</td>
<td style="width: 50.8pt;">
(2.1)
</td>
<td style="width: 50.8pt;">
(3.5)
</td>
<td style="width: 50.8pt;">
67.9%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
One-time items
</td>
<td style="width: 50.8pt;">
2.4
</td>
<td style="width: 50.8pt;">
(9.6)
</td>
<td style="width: 50.8pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Interest expense
</td>
<td style="width: 50.8pt;">
(9.6)
</td>
<td style="width: 50.8pt;">
(9.6)
</td>
<td style="width: 50.8pt;">
0.6%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Lease interest
</td>
<td style="width: 50.8pt;">
0.0
</td>
<td style="width: 50.8pt;">
(8.8)
</td>
<td style="width: 50.8pt;">
n/a
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Profit before tax
</td>
<td style="width: 50.8pt;">
87.5
</td>
<td style="width: 50.8pt;">
66.3
</td>
<td style="width: 50.8pt;">
-24.2%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Taxation
</td>
<td style="width: 50.8pt;">
(24.1)
</td>
<td style="width: 50.8pt;">
(18.9)
</td>
<td style="width: 50.8pt;">
-21.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Reported NPAT
</td>
<td style="width: 50.8pt;">
63.4
</td>
<td style="width: 50.8pt;">
47.4
</td>
<td style="width: 50.8pt;">
-25.2%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Abnormals (post tax)
</td>
<td style="width: 50.8pt;">
(2.4)
</td>
<td style="width: 50.8pt;">
8.7
</td>
<td style="width: 50.8pt;">
-467.5%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Underlying NPAT
</td>
<td style="width: 50.8pt;">
61.0
</td>
<td style="width: 50.8pt;">
56.0
</td>
<td style="width: 50.8pt;">
-8.2%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Underlying EPS (cents)
</td>
<td style="width: 50.8pt;">
39.3
</td>
<td style="width: 50.8pt;">
35.5
</td>
<td style="width: 50.8pt;">
-9.7%
</td>
</tr>
<tr>
<td style="width: 170.8pt;">
Final DPS (cents)
</td>
<td style="width: 50.8pt;">
15.50
</td>
<td style="width: 50.8pt;">
0.00
</td>
<td style="width: 50.8pt;">
-100.0%
</td>
</tr>
</tbody>
</table>
Source: FRE, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research
<figure class="editor-figure mceNonEditable"><img src="https://mail.google.com/mail/u/0?ui=2&amp;ik=f57c39853c&amp;attid=0.1&amp;permmsgid=msg-f:1675857895963813430&amp;th=1741d7e096f4e636&amp;view=fimg&amp;sz=s0-l75-ft&amp;attbid=ANGjdJ_aJ6D_Md-3AOcj2NL54LPNag0aV97T8r2jAFuiCoYMHy_VNq5C-3lq9b0DIIrhALDVrbpT_04HjV4Jz2ccangW3xAbIg7ABBgWR7hoWdU6wBmyyddaOuTUYQE&amp;disp=emb" class="editor-image img-responsive"></figure>
M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Freightways FY20 Result Initial Thoughts
Freightways (FRE) reported a softer COVID-19 impacted FY20 result with NPAT (before non-recurring items and IFRS-16 adjustments) down -4% against the prior year. With the introduction of IFRS-16 it was -8%. Moreover, after accounting for the ~NZ$16m of wage subsidies in NZ and Australia, the result was weaker than we anticipated by c.-10% at the underlying NPAT level.
The introduction of IFRS-16, the impact of COVID-19 and the first time consolidation of Big Chill makes the result difficult to interpret. The company has clearly been impacted materially from COVID-19, albeit ended the year with monthly like-for-like revenue in both Express Package, Information Management and Big Chill up against the prior year.
FRE will not pay a final dividend. This is consistent with our view; we believe this is a very sensible Board decision in light of (1) its wage subsidy receipts, and (2) the uncertainty that persists around activity momentum. &nbsp;
Outlook commentary is typically conservative, and understandably so given the current backdrop.
Key highlights/lowlights

Express Package revenue +2.4% for the first nine months of FY20.
‘Pricing for effort’ on Express Package residential deliveries: FRE achieved 73c per item by the end of the year, compared to the target of 75c per item.
Information Management’s Print &amp; Copy volumes fell -50% through COVID-19. The uptake on the large digitalisation project was slower and lower than anticipated.
Information Management also impacted with lower paper pricing in NZ, and NZ Post’s revised bulk mail pricing.
Net debt increased to NZ$205m (in-line with expectations), up from NZ$151m in FY19, a function of the Big Chill acquisition.
Big Chill contributed NZ$22m of revenue and NZ$2.7m of EBITA for the year (consolidated from April 2020).

Conference call
Management is hosting a zoom post-result meeting at 11am (https://freightways.zoom.us/j/94509668310?pwd=RnF3WW9qVHdiOVA1cUE5U1N2RTlWdz09&amp;from=msft). Meeting ID: 945 0966 8310&nbsp; Passcode: 559091.
Result summary as reported (NZ$m)





FY19


FY20


Chg




Sales revenue


615.7


630.9


2.5%




Express Package &amp; Business Mail


80.0


101.7


27.1%




Information Management


35.3


47.1


33.1%




Corporate &amp; Other


(3.1)


(4.1)


29.6%




EBITDA


112.2


144.7


28.9%




Depreciation and amortisation


(15.4)


(18.5)


19.6%




Lease deprecition


0.0


(28.4)


n/a




Acquisition amortisation


(2.1)


(3.5)


67.9%




One-time items


2.4


(9.6)


n/a




Interest expense


(9.6)


(9.6)


0.6%




Lease interest


0.0


(8.8)


n/a




Profit before tax


87.5


66.3


-24.2%




Taxation


(24.1)


(18.9)


-21.5%




Reported NPAT


63.4


47.4


-25.2%




Abnormals (post tax)


(2.4)


8.7


-467.5%




Underlying NPAT


61.0


56.0


-8.2%




Underlying EPS (cents)


39.3


35.5


-9.7%




Final DPS (cents)


15.50


0.00


-100.0%




Source: FRE, Forsyth Barr analysis
Andy Bowley&nbsp; Head of Research

M: +64 21 338 941 |P: +64 4 495 8246 | TF: 0800 367 227&nbsp; Level 22, NTT Tower, 157 Lambton Quay, Wellington

Freightways: FY20 Result Initial Thoughts

Freightways Ltd

Freightways: FY20 Result Initial Thoughts