Mainfreight Limited — Annual Report 2020

May 27, 2020

MAINFREIGHT LIMITED FULL YEAR RESULT TO 31 MARCH 2020

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Result Summary

Without IFRS 16: “apples with apples”		Variance	Variance (excl FX)
Revenue	$3.095 billion	up 4.8%	up 3.6%
EBITDA*	$281.01 million	up 9.3%	up 8.6%
Net profit before abnormals	$156.10 million	up 10.6%	up 9.9%
Under IFRS 16: “apples with oranges”		Variance	Variance (excl FX)
Revenue	$3.095 billion	up 4.8%	up 3.6%
EBITDA	$398.67 million	up 55.1%	up 54.2%
Net profit before abnormals	$147.98 million	up 4.9%	up 4.3%

 Under NZ IFRS 16, total assets increase by $618.04 million to $2.305 billion

• Abnormal items reflect a gain of $11.23 million; including a positive tax adjustment of $14.70 million, one‐off redundancy costs in Europe of $0.51 million, and $2.96 million for final write‐off of the European brand name.

• EBITDA (Adjusted): Earnings before net interest expense, tax, depreciation, amortisation, abnormal items, royalties (segment only; not Group)

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Full Year 2020 Review

• Satisfactory result, with only Asia behind year prior

• China close‐down and COVID‐19 pandemic impact Jan to Mar 2020: $6m on EBITDA, and $22m on Revenue

• Strong second half from Australia (has continued into April, May)

• Disappointed in sales growth at 4.8%

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COVID‐19 Effect on Trading: April / May Review

• Total Company Weekly Results * (7 weeks: 1[st] April – 17[th] May)  Revenue up $25.3 million up 5.7% (down 0.3% excl FX)  Profit before tax = $9.1 million down $6.5 million

• Australian trading through partial lockdown a highlight – ahead of year prior

• Asia improving through April and May

• New Zealand trading worst affected; recovery in May

• Americas – effects apparent later; likely for longer

• Europe – mix of results; short trading weeks in April/May affecting profit before tax

• Estimates only, based on branch weekly profit & loss accounts

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Dividend

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DIVIDEND
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Based on improving trading results late April/May; reduced capital expenditure; cash flow and facility levels, Directors have approved final dividend of 34.0 cents per share – in line with the year prior Record date 10 July 2020; payment on 17 July 2020

Full dividend 59.0 cents, an increase of 3.0 cents or 5.4% over last year’s full dividend

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Ca ital Mana ement p g

NZ$ MILLION	THIS YEAR	LAST YEAR
Operating cash flow pre‐NZ IFRS 16	200.16	197.42
Operating cash flow post‐NZ IFRS 16	300.80
 Net capital expenditure totalled $155.03 million	for the period, including
 Land & Buildings	$111.72 million
 Plant & Equipment	$26.64 million
 Information Technology	$16.67 million
 Estimated F21 full year capital expenditure	$80.00 million

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Ca ital Mana ement continued p g

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NET DEBT
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Net debt of $157.38 million, up $26.90 million from prior year Gearing ratio at 14.0%, previously 13.5% at 31/3/19

Debt facilities total $499.52 million Undrawn $234.79 million

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COVENANTS
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Banking covenants (still based on pre‐IFRS 16 numbers)  Interest Cover Ratio: EBIT / Net Interest 40.01 times vs 2.75 minimum required

 Total Debt Cover Ratio: Net Debt / EBITDA 0.64 times vs 3.75 maximum allowed

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Full Year Analysis: Revenue

$000	THIS YEAR	LAST YEAR	VARIANCE
New Zealand: NZ$	752,913	718,791	4.7%	
Australia: AU$	756,797	710,172	6.6%	
USA: US$	493,286	493,861	(0.1)%	
Asia: US$	61,364	74,448	(17.6)%	
Europe: EU€	401,390	376,279	6.7%	
Total Group: NZ$	3,095,394	2,954,087	4.8%	
			(excl FX) 3.6%	

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Full Year Analysis: EBITDA

		POST IFRS16	PRE IFRS16	PRE IFRS16	PRE IFRS16
	$000	THIS YEAR	THIS YEAR	LAST YEAR	VARIANCE
	New Zealand: NZ$	139,767	115,889	110,556	4.8%	
	Australia: AU$	99,579	61,797	55,372	11.6%	
	USA: US$	39,107	28,006	26,111	7.3%	
	Asia: US$	5,395	3,914	6,308	(37.9)%	
	Europe: EU€	49,710	29,568	23,264	27.1%	
	Total Group: NZ$*	398,671	281,006	257,049	9.3%	
					(excl FX) 8.6%	
*	Of the NZ$23.96 million	increase in EBITDA,	NZ$18.62 million was generated “offshore”

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Product Performance

NZ$000		THIS YEAR	LAST YEAR	VARIANCE	VARIANCE	VAR ex	FX
Transport	Revenue	1,576,320	1,450,942	8.6%		7.9%	
	EBITDA_pre‐IFRS16_	171,308	156,681	9.3%		9.1%	
	EBITDA_post‐IFRS16_	223,534
Warehousing	Revenue	383,728	346,567	10.7%		10.1%	
	EBITDA_pre‐IFRS16_	50,526	37,282	35.5%		35.0%	
	EBITDA_post‐IFRS16_	101,961
Air & Ocean	Revenue	1,135,346	1,156,578	(1.8)%		(3.7)%	
	EBITDA_pre‐IFRS16_	59,172	63,086	(6.2)%		(8.0)%	
	EBITDA_post‐IFRS16_	73,176

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Customer Tradin g

• Top 500 Customers = 57% of total revenue (last year 56%)

• Top 500 Customers: Use of Mainfreight Divisions (Transport/Warehousing/Air & Ocean)

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28%
31%
2020
41%
1 Division 2 Divisions 3 Divisions
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27%
31%
2019
42%
1 Division 2 Divisions 3 Divisions
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• Increasing regional trading opportunities across country locations where possible

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New Zealand

Revenue $753m 4.7% EBITDA pre‐IFRS16 $116m 4.8% EBITDA post‐IFRS16 $140m

• Acceptable result overall, lower growth than expected, higher overhead costs (salary increases)

• Construction of new Transport facilities at Mt Maunganui, Levin, Blenheim, Gore and Oamaru

• Additional Warehousing sites in Auckland; new contracts confirmed

• Air & Ocean continue to take market share

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New Zealand: April/May 2020 Trading (7 weeks)

Revenue Decline of 16% Profit before Tax Break‐even; down $7m

• Trading improving into May for Transport and Warehousing; expect this to improve further

• Air & Ocean continued to increase revenues during lockdown via air charter services

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Australia

Revenue AU$757m 6.6% EBITDA pre‐IFRS16 AU$62m 11.6% EBITDA post‐IFRS16 AU$100m

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• Second half improvements particularly in Warehousing and Transport

• Increased warehouse footprint, supported by customer gains

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• Air & Ocean steady, developing Perishable product slowly

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Australia: April/May 2020 Trading (7 weeks)

Revenue Increase of 13% Profit before Tax AU$6m, up AU$4m

• Australia’s partial lockdown has provided steady revenue increases/market share gains

• Ongoing strong customer enquiry

• Expect these trends to continue

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The Americas

Revenue US$493m (0.1)% EBITDA pre‐IFRS16 US$28m 7.3% EBITDA post‐IFRS16 US$39m

• Improving margins in Transport saw EBITDA increase

• However disappointing revenue growth in Transport and Air & Ocean (trans‐Pacific ex Asia volume decline)

• Warehousing providing good improvement, increasing footprint by 44%

• CaroTrans steady EBITDA progress

• Revenue growth a key strategy, particularly LCL FMCG (every day freight category)

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The Americas: April/May 2020 Trading (7 weeks)

Revenue In line with prior year Profit before Tax US$1m, down US$2m

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• Transport revenue declining as “stay at home” rules became stronger

• Stronger Warehousing activity – deliveries to homes

• Air & Ocean activity in air charters inbound assisting revenue improvement – margins slimmer

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• CaroTrans impacted at revenue and PBT level

• Expecting a slower, longer recovery from our US business compared to other parts of our network

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Asia

Revenue US$61m (17.6)% EBITDA pre‐IFRS16 US$3.9m (37.9)% EBITDA post‐IFRS16 US$5.4m

• USA import tariffs reduced volume ex China

• Hong Kong civil unrest also impacted

• Pandemic with Chinese New Year shutdown affected fourth quarter earnings and revenue

• Southeast Asia network development with Japan and South Korea now contributing to a 9‐country network in the region

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Asia: April/May 2020 Trading (7 weeks)

Revenue Improvement of 41% Profit before Tax US$1.1m, up US$0.5m

• Strong air charter activity assisting – NZ / US

• Spasmodic sea freight movements, multiple “blank” sailings, increasing

• Expecting continuation of air freight activity for a time

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Europe

Revenue EU€401m 6.7% EBITDA pre‐IFRS16 EU€ 30m 27.1% EBITDA post‐IFRS16 EU€ 50m

• Improved Warehousing and Transport margin management

• Continued investment in sales and network capability, both Transport and Air & Ocean

• Tilburg, Barcelona, Manchester new branches

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Europe: April/May 2020 Trading (7 weeks)

Revenue Declined by 5% Profit before Tax Break‐even, down EU€ 1m

• Easter and May public holidays impacting freight volumes

• Early April full week trading saw acceptable revenue

• Easing of lockdowns across EU countries is seeing more freight volume enter our network

• Air & Ocean increased air freight volume

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Land & BuildingDevelopment	Land & BuildingDevelopment	Update: F20
NZ$ MILLION
Total Land & Buildings Expenditure ‐ 2020		111.7
	Freight facility, Mount Maunganui	24.2
	Land and building, Whangarei	4.3
	Land, South Dandenong, Melbourne	32.6
	Warehouse facility, Epping, Melbourne	24.0
	Land, Epping, Melbourne	8.0
	Land, Adelaide	8.0
	Sundry Leasehold Alterations	4.9
	Sundry other property	5.7

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Ca ital Ex enditure U date: F21 p p p

NZ$ MILLION		NZ$ MILLION
Planned Capital Expenditure	80	Deferred Capital Expenditure	120
Mount Maunganui completion	13	West Auckland	27
Spring Creek, Gore, Levin	12	Hamilton Warehouse	10
Epping completion	11	Wellington	10
Sundry other property	6	Mount Maunganui Warehouse	8
Non‐property capex	38	Auckland CFS, Queenstown land	14
		Sundry other property NZ	4
		Adelaide	36
		South Dandenong	1
		Non‐property capex	10

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Sustainabilit y

• 2020 Annual Report will contain disclosure of our global carbon emissions inventories under ISO 14064‐1:2018 (for calendar years ended 2019 and 2018)

• Current footprint (2019 calendar year) is 1,662,867 tonnes CO2‐e per annum, of which 97.68% is freight related

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New Zealand Wa e Subsid g y

• The New Zealand business applied for and was granted $10.6 million in wage subsidies, paid on 16 April 2020

• 1,526 people

• Excluded Mainfreight Air & Ocean, and executive salaries

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• While the business met the Government’s qualifying criteria, we have chosen to return the full amount

• We are supportive of the Government’s wage subsidy measures

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Grou Outlook p

• The result of the past year is satisfactory, providing P&L strength and stability

• Impact of pandemic significant in April; May improving

• Maintaining operational and financial disciplines, no matter the improvement

• Sales activity strong

• Watchful for future economic downturn

• “Cautiously optimistic” for Mainfreight, in the words of our friends at Harbour Asset Management

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Financial Calendar F21

Annual Meeting of Shareholders F21 – 6 months ended 30 September 2020 Planning for Investor Day – Mt Maunganui F21 – 12 months ended 31 March 2021

30 July 2020 11 November 2020 14 October 2020 26 May 2021

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“There are exceptions to social distancing”

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