Mainfreight Limited — Annual Report 2017

May 29, 2017

==> picture [363 x 541] intentionally omitted <==

MAINFREIGHT LIMITED FULL YEAR RESULT TO MARCH 2017

==> picture [183 x 31] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Result Summary
----- End of picture text -----

Net surplus after tax and before abnormal items up 17.0% to NET SURPLUS $103.2 million

Revenue up 2.1% to $2.33 billion (excluding FX up 5.1%) REVENUE An increase of $48.8 million Offshore revenues now exceed $1.72 billion

Another record EBITDA: $197.5 million; up 13.0% EBITDA Excluding FX up 15.3% Confident of current performance continuing into the OUTLOOK new financial year

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Business Highlights
----- End of picture text -----

• Financial milestone – exceeding $100 million net profit for the first time

• Strong contributions from New Zealand

• Marked improvement from our Australian operations

• Ongoing improvement and contribution from Europe

• Gearing ratio reduction from 31.2% to 24.8%

• Net debt reduction of $52.3 million

• Our largest ever bonus of $19.3 million to be paid to team members globally

• 18.7% increase on prior year

• European team participation

• Mainfreight branding initiated in our European business

• Success for our largest owned site at Epping, Melbourne

• Profitable in its first year

• Completion of software upgrade for New Zealand Domestic freight business

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Dividend
----- End of picture text -----

Final dividend of 24.0 cents per share DIVIDEND Books close 14 July 2017; payment on 21 July 2017 Total dividend for year 41.0 cents per share, increase of 4.0 cents (10.8%) over the previous year

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Capital Management
----- End of picture text -----

NZ$ MILLION THIS YEAR LAST YEAR Operating cash flow 131.2 130.3

 Working capital increased by $10.9 million  Capital expenditure totalled $61.4 million Land & Buildings: $24.9 million, including:  Christchurch Air & Ocean facility $12.0 million  Sundry New Zealand property $3.5 million  European property $4.7 million  Sundry Australian property $3.0 million

==> picture [133 x 23] intentionally omitted <==

		Capital Management …	Capital Management …
		Capital Expenditure Expectations FY18			NZ$ million
		Total Capital			112.1
		Property
		Tauranga	Land		15.0
		Other sundry (Sth Island x2)	Land		5.9
		Other sundry	Buildings		5.5
		Total New Zealand			26.4
		Melbourne (x2)	Land		37.0
		Adelaide	Land		11.7
		Total Australia			48.7
		Total Property			75.1
		Other			37.0	Mainfreight Air & Ocean Christchurch

Full Year Analysis:		Revenue	Revenue
$000		THIS YEAR		LAST YEAR		VARIANCE
New Zealand: NZ$		609,238		563,245		8.2%	
Australia: AU$		534,995		503,256		6.3%	
USA: US$		436,357		457,760		(4.7)%	
Asia: US$		63,352		47,058		34.6%	
Europe: EU€		291,927		264,585		10.3%	
Total Group: NZ$		2,333,591		2,284,807		2.1%	
						(excl FX) 5.1%	

Second Half Comparison: Revenue	Second Half Comparison: Revenue	Second Half Comparison: Revenue	Second Half Comparison: Revenue	Second Half Comparison: Revenue
		2ND HALF		2ND HALF
$000		THIS YEAR		LAST YEAR		VARIANCE
New Zealand: NZ$		321,692		292,288		10.1%	
Australia: AU$		277,345		254,672		8.9%	
USA: US$		210,259		229,588		(8.4)%	
Asia: US$		31,903		25,408		25.6%	
Europe: EU€		155,451		133,815		16.2%	
Total Group: NZ$		1,191,154		1,170,666		1.8%	
						(excl FX) 6.0%	

Full Year Analysis:		EBITDA
$000		THIS YEAR		LAST YEAR		VARIANCE
New Zealand: NZ$		91,021		77,642		17.2%	
Australia: AU$		42,315		34,199		23.7%	
USA: US$		18,585		18,688		(0.6)%	
Asia: US$		6,245		6,349		(1.6)%	
Europe: EU€		17,179		14,223		20.8%	
Total Group: NZ$		197,542		174,847		13.0%	
						(excl FX) 15.3%	

Second Half Comparison:	EBITDA
2ND HALF	2ND HALF
$000 THIS YEAR	LAST YEAR		VARIANCE
New Zealand: NZ$ 53,858	48,653		10.7%	
Australia: AU$ 26,223	21,015		24.8%	
USA: US$ 8,773	9,302		(5.7)%	
Asia: US$ 1,966	2,804		(29.9)%	
Europe: EU€ 9,529	8,323		14.5%	
Total Group: NZ$ 111,194	103,265		7.7%	
			(excl FX) 10.5%	

Domestic	vs Air	& Ocean Performance	& Ocean Performance	& Ocean Performance	& Ocean Performance	& Ocean Performance	& Ocean Performance
NZ$000		THIS YEAR		LAST YEAR		VARIANCE		VAR ex	FX
Group	Revenue	2,333,591		2,284,807		2.1%		5.1%	
	EBITDA	197,542		174,847		13.0%		15.3%	
Domestic	Revenue	1,387,693		1,315,550		5.5%		8.4%	
	EBITDA	141,797		119,949		18.2%		20.1%	
Air & Ocean	Revenue	945,898		969,257		(2.4)%		0.5%	
	EBITDA	55,745		54,898		1.5%		4.7%	

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

New Zealand
----- End of picture text -----

Revenue: $609m 8.2%  EBITDA: $91m 17.2% 

• Domestic and Logistics volume increased

• Despite earthquake disruption, Domestic freight performance strong

• Logistics warehousing utilisation much improved; new site required for Christchurch

• Air & Ocean activity positive in sea and air; occupation of new Christchurch facility post year end

• Capex: growth expectations require investment. Land and buildings required for:

• Auckland, Tauranga, Taupo, Wellington

==> picture [209 x 313] intentionally omitted <==

• Nelson and Dunedin

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

New Zealand …
----- End of picture text -----

• Technology

• Upgraded Domestic software – implemented 8 May

  • Disruption minimal

  • Improved screen technology, speed, visibility and freight management

• Improved scanner technology deployed to Owner Drivers

• Hardware upgrade and disaster recover facility moved

• Expect main trunk rail line Picton/Christchurch to be operational late 2017

• Likelihood of some long‐term supply chain changes for customers

• More warehousing in Christchurch

==> picture [209 x 313] intentionally omitted <==

• Direct imports into Christchurch

• Adjusted Auckland/Christchurch to weekly despatch

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

New Zealand …
----- End of picture text -----

 Customer gains continue

OUTLOOK

 Re‐opening of Picton/Christchurch rail line will be welcomed, reducing need for high cost road and coastal shipping services

 April trading less than year prior due to timing of Easter and ANZAC holidays

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Australia
----- End of picture text -----

Revenue: AU$535m 6.3%  EBITDA: AU$42m 23.7% 

• Strong performance from Domestic Transport and Logistics operations

• Steady and improving performance from Air & Ocean

• Domestic

• Improving gross margins and better management of costs in second half

• New regional branches planned to further intensify network

• Improving quality assisting customer retention

• Land and buildings to assist growth planned in Melbourne and Adelaide

==> picture [209 x 313] intentionally omitted <==

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Australia …
----- End of picture text -----

 Logistics

• All warehouses at maximum utilisation

• New leased facilities under construction in Sydney

• Land under offer in Melbourne to assist growth expectations

• Additional capacity required in Brisbane

• Strong beverage customer gains

• Air & Ocean

• Focused on developing Mainfreight trade lane activity particularly European imports

• Perishable freight competency developing across Melbourne, Sydney and Brisbane

==> picture [209 x 313] intentionally omitted <==

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Australia …
----- End of picture text -----

• Expect our Domestic and Logistics momentum to continue

OUTLOOK

 Customer gains and revenue levels improving

 April trading less than year prior due to timing of Easter and ANZAC holidays

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

The Americas
----- End of picture text -----

Revenue: US$436m (4.7)% EBITDA: US$19m (0.6)%

 Overall result disappoints

 CaroTrans: Revenue down 13.0% EBITDA down 8.4%

• CaroTrans leadership change initiated

• Renewed focus on sales and operational excellence

==> picture [199 x 313] intentionally omitted <==

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

The Americas
----- End of picture text -----

Mainfreight USA

• Revenues down 1.2%; EBITDA up 5.7%

• Airfreight volume declined

• Poor onboarding quality of domestic freight

 Domestically:

• Road line‐hauls gaining traction and improving utilisation; we continue to target every day LCL freight volume

• New customers being secured as quality improves

• Air & Ocean

• Development focus on increasing range of trading customers

• Trade lane focus heavily skewed to Europe and Asia

• Logistics

==> picture [210 x 313] intentionally omitted <==

• Increasing customer gains

• Utilisation not yet at optimal levels

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

The Americas …
----- End of picture text -----

 Domestic quality and on‐boarding of customers improving OUTLOOK and expect results to reflect this MAINFREIGHT

 Air & Ocean growth continues

 Improvement will take time

OUTLOOK CAROTRANS  CaroTrans remains an important part of our US presence

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Europe
----- End of picture text -----

Revenue: EU€292m 10.3%  EBITDA: EU€17m 20.8% 

 Growth has come from all three divisions

• Sales development/pipeline continues to be strong

• Gross margins improving via better warehouse and truck utilisation

 Logistics

• Warehousing utilisation at optimal levels with overflow in short‐term sites

• Completed construction of new leased site in ‘s‐Heerenberg, 22,600m[2] to provide for growth expectations

• Two new warehouses under contract for Geelen (NL) and Ghent/Zwijnaarde (BE)

==> picture [210 x 313] intentionally omitted <==

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Europe …
----- End of picture text -----

 Forwarding & Transport

• Improving quality and sales gains assisting across network

• New cross‐dock facilities for Genk and Ghent/ Zwijnaarde (BE) in 2018 financial year

• Will assist growth and efficiencies

• Planning underway for a further cross‐dock to service The Netherlands

• Ignore borders; proximity to customers

• Efficiencies

• German freight volumes much improved

==> picture [215 x 242] intentionally omitted <==

• Road line‐haul improvements to link operations in Eastern Europe to Benelux branches

• Upgrade of European domestic freight software almost complete

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Europe …
----- End of picture text -----

• Air & Ocean

• Steady sales growth across all branches

• UK and German locations profitable and requiring in‐country branch development

  • Manchester / Hamburg / Munich / Stuttgart / Dusseldorf

• Trade lane focus strong for USA and Asia

• Likely to open in Italy in the near future

==> picture [209 x 313] intentionally omitted <==

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Europe …
----- End of picture text -----

 Expect current financial improvements to continue

OUTLOOK

 Breakeven expectations for new Netherlands warehouse

 Business confidence improving in the region

 Expect Mainfreight branding to bring consistency across the full network

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Asia
----- End of picture text -----

Revenue: US$63m 34.6%  EBITDA: US$6m (1.6)%

• Disappointing EBITDA result

• Air export volume deteriorated over prior period

• Additional costs incurred to develop HK warehouse opportunity

• Prior to inter‐company revenue eliminations, total revenue increases 7.3%

• Inter‐company revenue reduced 14% year on year reflecting airfreight reduction to USA

• Hong Kong warehouse to close mid‐2017

• Unable to develop profitably

==> picture [209 x 313] intentionally omitted <==

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Asia …
----- End of picture text -----

OUTLOOK

 Expecting first half results to be below those of the prior year  Expect small EBITDA improvement by year end

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Group Outlook
----- End of picture text -----

SHORT‐TERM

• Sales growth continues to be a key focus for all business units in all regions

• Confident of the improvements we are seeing in Australia and Europe

MEDIUM TO LONG‐TERM

• Where we have confidence in regions, more capital will be invested in network enhancement

• Larger multi‐national customers are increasingly becoming a part of our supply chain initiatives

CAPITAL

• Capital spend on property likely to return to normalised levels for next 12‐36 months – $100+ million per annum

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Governance
----- End of picture text -----

• Board now numbers eight Directors, with the 1 January 2017 addition of Kate Parsons and Sue Tindal

• Kate: broad financial, analytical and IT skills; international and local commercial experience; high‐tech industry knowledge; M&A/change management

• Sue: senior roles in financial services, energy and IT; proficiency in banking, finance and technology; strong international and local experience

• Provides welcome refresh of Board; offers new skill‐sets, fresh vision and energy

• Both will stand for election at our Annual Meeting on Thursday 27 July 2017

• Shareholder approval will be sought to increase the quantum of annual Directors’ fees to cover the expanded Board (last increase in 2011 to $680,000, current increase to $904,000)

==> picture [133 x 23] intentionally omitted <==

==> picture [721 x 84] intentionally omitted <==

----- Start of picture text -----

Financial Calendar F18
----- End of picture text -----

RELEASE DATE

Annual Meeting of Shareholders F18 – 6 months ended 30 September 2017 F18 – 12 months ended 31 March 2018

27 July 2017 15 November 2017 29 May 2018

==> picture [133 x 199] intentionally omitted <==

==> picture [134 x 200] intentionally omitted <==

==> picture [134 x 200] intentionally omitted <==

==> picture [133 x 199] intentionally omitted <==

==> picture [133 x 23] intentionally omitted <==