Mainfreight Limited — Interim / Quarterly Report 2017

Nov 26, 2017

0141 Mainfreight Sept 2017 report V3.pdf 1 17/11/17 6:21 am

Statement of Changes in Equity for the Six Months Ended 30 September 2017

Balance Sheet as at 30 September 2017

017 2 lir p A 1 t a e c n ala B Profit for the period e m o c n I e vis n e h e r p m o C r e h t O Total Comprehensive Income for the Period Transaction with Owners in Their Capacity as Owners: Shares Issued sts o C e m e h c S e r a h S e vit u c e x E Supplementary Dividends Dividends Paid Foreign Investor Tax Credit 30 September 2017 t a e c n ala B	PENSION RESERVE TRANSLATION RESERVE REVALUATION RESERVE ORDINARY SHARES RETAINED EARNINGS TOT 85,821 50,616 (12,034) (420) 521,619 645,60 42,217 42,21 356 (1,198) (29) (87
	356 (1,198) (29) 42,217 41,34 824 82 (24,168) (24,16 (824) (82
	85,821 50,972 (13,232) (449) 539,668 662,78

					FOREIGN	FOREIGN	DEFINED
ORDINARY			ASSET REVALUATION		CURRENCY TRANSLATION		BENEFIT PENSION	RETAINED				30 Sept	30 Sept	31 March
	SHARES		RESERVE		RESERVE		RESERVE	EARNINGS		TOTAL		2017	2016	2017
017 2 lir p A 1 t a e c n ala B	85,821		50,616		(12,034)		(420)	521,619		645,602		$000	$000	$000
											Current Assets
Profit for the period								42,217		42,217	Bank	67,487	76,486	75,312
e m o c n I e vis n e h e r p m o C r e h t O			356		(1,198)		(29)			(871)	Trade Debtors	330,872	304,443	314,888
Total Comprehensive Income for the Period			356		(1,198)		(29)	42,217		41,346	Income Tax Receivable	644	-	1,829
											Properties Available for Sale	-	2,240	-
Transaction with Owners in Their Capacity as Owners:											Other Debtors	51,170	38,732	48,008
Shares Issued										-
sts o C e m e h c S e r a h S e vit u c e x E Supplementary Dividends									824	- 824		450,173	421,901	440,037
Dividends Paid								(24,168)		(24,168)	Non-current Assets
Foreign Investor Tax Credit								(824)		(824)	Property, Plant & Equipment	586,300	556,534	570,706
30 September 2017 t a e c n ala B	85,821		50,972		(13,232)		(449)	539,668		662,780	Software	45,326	39,142	43,086
											Goodwill	204,093	198,974	200,721
											Brand Names	11,262	10,693	10,546
Statement of Changes in Equity for the	Six Months Ended 30 September						2016				Other Intangible Assets	10,065	12,058	10,814
					FOREIGN		DEFINED				Deferred Tax Asset	8,851	7,905	8,855
			ASSET		CURRENCY		BENEFIT
ORDINARY SHARES			REVALUATION RESERVE		TRANSLATION RESERVE		PENSION RESERVE	RETAINED EARNINGS		TOTAL		865,897	825,306	844,728
016 2 lir p A 1 t a e c n ala B	73,912		52,303		(4,619)			459,477		581,073	TOTAL ASSETS	$1,316,070	$1,247,207	$1,284,765
Profit for the period								41,848		41,848
e m o c n I e vis n e h e r p m o C r e h t O			(780)		(13,248)					(14,028)	Current Liabilities
Total Comprehensive Income for the Period			(780)		(13,248)		-	41,848		27,820	Bank	-	-	947
											Trade Creditors & Accruals	280,521	258,813	261,206
Transaction with Owners in Their Capacity as Owners:											Employee Entitlements	50,698	42,846	47,907
Shares Issued	11,854									11,854	Provision for Taxation	7,569	4,275	14,121
sts o C e m e h c S e r a h S e vit u c e x E		55								55	Finance Lease Liability	1,838	1,896	1,801
Supplementary Dividends								(652)		(652)
Dividends Paid Foreign Investor Tax Credit								(23,160) 652		(23,160) 652		340,626	307,830	325,982
30 September 2016 t a e c n ala B	85,821		51,523		(17,867)		-	478,165		597,642	Non-current Liabilities
											Bank Term Loan	284,892	312,561	283,029
Statement of Changes in Equity for the	Twelve		Months	to 31 March 2017							Employee Entitlements	745	715	3,800
ORDINARY			ASSET REVALUATION		FOREIGN CURRENCY TRANSLATION		DEFINED BENEFIT PENSION	RETAINED			Deferred Tax Liability Finance Lease Liability	24,462 2,565	25,698 2,761	23,879 2,473
	SHARES		RESERVE		RESERVE		RESERVE	EARNINGS		TOTAL
16 0 2 lir p A 1 t a e c n ala B	73,912		52,303		(4,619)			459,477		581,073		312,664	341,735	313,181
Transfer of Revaluation Reserve for Land Sold Profit for the period e m o c n I e vis n e h e r p m o C r e h t O Total Comprehensive Income for the Period			(898) (789) (1,687)		(7,415) (7,415)		(420) (420)	101,523 898 102,421		101,523 - (8,624) 92,899	Shareholder’s Equity Accumulated Surplus Share Capital Revaluation Reserve	539,668 85,821 50,972	478,165 85,821 51,523	521,619 85,821 50,616
Transaction with Owners in Their Capacity as Owners: d e u s sI s e r a h S	11,854									11,854	Defined Benefit Pension Reserve (449) Foreign Currency Translation Reserve(13,232)		- (17,867)	(420) (12,034)
sts o C e m e h c S e r a h S e vit u c e x E		55								55
Supplementary Dividends								(1,212)		(1,212)	TOTAL EQUITY	662,780	597,642	645,602
Dividends Paid								(40,279)		(40,279)
Foreign Investor Tax Credit 17 0 2 h c r a M 1 3 t a e c n ala B	85,821		50,616		(12,034)		(420)	1,212 521,619		1,212 645,602	TOTAL LIABILITIES AND EQUITY	$1,316,070	$1,247,207	$1,284,765

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MAINFREIGHT LIMITED

INTERIM REPORT TO SHAREHOLDERS

SIX MONTHS TO 30 SEPTEMBER 2017 (UNAUDITED)

REGISTERED OFFICE

2 Railway Lane, Otahuhu

P.O. Box 14-038, Panmure, Auckland Phone 09-259-5500 www.mainfreight.com

0141 Mainfreight Sept 2017 report V3.pdf 2 17/11/17 6:21 am

Financial result for the six months ended 30 September 2017 (Unaudited)

Commentary

Mainfreight is pleased to report our six monthly financial results to 30 September 2017.

• Total revenue (sales) increased by $83.15 million, or 7.3% over the same period last year, to $1.23 billion (excluding foreign exchange effects, the increase is 7.4%).

• EBITDA improved $2.42 million or 2.8% to $88.77 million (no net foreign exchange effects).

• Net profit (before abnormals) is up 1.1% over the prior period at $42.77 million. Abnormal costs of $0.56 million after tax relate to restructuring our operations in the Americas.

Whilst our financial results are again ahead of the year prior, we had expected a better performance in this first half of our financial year.

Trading in our New Zealand Domestic operations was impacted by the additional costs associated with servicing inter-Island freight movements via road and coastal shipping following the Kaikoura earthquakes of last November.

Results from the Americas and Asia continue to disappoint, offset by a very satisfactory performance in Australia and ongoing improvement in Europe. Trading through October and into November has seen improvement over the prior year, with increasing volumes of freight throughout all regions.

Divisional Performance (figures in local currencies)

New Zealand (NZ$)

Our New Zealand Domestic operations have had to contend with increased transport and overhead costs to address the difficulties of moving freight to and from the South Island via increased usage of road and coastal shipping alternatives. Offsetting this, stronger intra Island volumes, together with an expanded and improving Logistics warehousing operation have assisted. In addition, the performance and resilience of our people has ensured continuity of supply chain services for our customers in what has been a challenging environment

Total revenue for the New Zealand division was up 10.2% at $316.87 million, while EBITDA improved 3.5% compared to the same period last year, to $38.45 million.

Domestic Transport freight volumes are increasing as pre-Christmas retail builds towards its peak season. Our Logistics operation continues to develop and is experiencing substantial activity which is expected to continue through to year end. Our Air & Ocean business maintains steady progress, with import revenues continuing to see more growth over exports. A concentration of focus on our own global network development remains a key differentiator for this business unit.

Australia (AU$)

Strong sales improvement across our domestic and warehousing divisions has assisted an improved financial performance from our Australian division. Two new regional branches (Toowoomba, Queensland and Bendigo, Victoria) are expected to open by year end, extending our Australian network to 53 branches.

Sales revenues increased 13.7% to AU$292.91 million, and EBITDA levels improved 29.4% to AU$20.83 million.

Both Domestic Transport volumes and Logistics warehousing activity continue to increase as the pre-Christmas season influences October and November trading. Air & Ocean activity remains subdued compared to the prior period.

Asia (US$)

A disappointing performance from our Asian operations. Whilst headline revenue growth is satisfactory, gross margins were adversely affected by the decline in inter company airfreight revenue.

Sales revenues increased 19.6% to US$37.61 million. EBITDA levels declined 52.70% on those of the prior period to US$2.03 million.

Senior management changes took effect from early October, with an ongoing focus on branch profitability improvement.

The Americas (US$)

A disappointing six months from our operations in the Americas. Revenues declined 10.20% to US$203.06 million, and EBITDA performance reduced 14.0% to

US$8.44 million, down US$1.37 million on the prior period.

The largest contributor to revenue and EBITDA decline was our Air & Ocean division, where the loss of a significant airfreight import account impacted our returns. When extracting this one-off large customer, divisional trading has seen market share and freight volumes improve. The Domestic Transport and Logistics divisions did not achieve trading expectations during the period.

In the CaroTrans wholesale business, revenue levels were stable compared to the prior period, halting the decline of the previous two years. Gross margin levels declined slightly. A senior management change also took effect in CaroTrans from 7th June 2017, with a clear mandate to improve quality and sales growth.

Activity across all USA divisions improved through September and October, and we would expect to see results at year end similar to the 2017 full year.

Europe (Euro �)

Ongoing improvement in our European business units sees revenues up 19.1% over the same period last year to €162.51 million, an increase of €26.03 million, and EBITDA up 9.8% to €8.40 million.

Our Logistics operation has contributed significantly to this result, whilst absorbing set-up costs for an additional 26,000m2 warehouse facility in The Netherlands. Further warehousing sales gains have been signalled subsequent to the half year, and will require investment in additional facilities in The Netherlands and Belgium.

Domestic forwarding is showing small progress across all countries with freight volumes markedly increasing during October, and now into November. Our new cross dock facility has opened and is operational in Genk, Belgium.

Our Air & Ocean business continues to find good growth and is contributing to our profitability. Network expansion has seen our first Italian operation opened in Milan on 4th September 2017, and it is pleasing to see that branch contributing positively. Trading through October and November remains ahead of the year prior.

Group Operating Cash Flows

Operating cash flows were NZ$57.15 million compared to the prior year’s half year figure of NZ$52.03 million.

During the half year, net capital expenditure totalled NZ$32.34 million, of which NZ$7.68 million related to property development, NZ$11.0 million to software development with the balance relating to plant and equipment across Europe, New Zealand and Australia.

Dividend

The Directors of Mainfreight have approved an interim dividend of 19.0 cents per share, up 2.0 cents on last year’s interim dividend level, reflecting current profit levels and ongoing confidence for further improvement at the year end result.

This dividend will be fully imputed and will be paid on 15 December 2017, with books closing on 8 December 2017. A supplementary dividend will be paid to non-resident shareholders.

Outlook

Whilst our expectations were higher for our first half result, to still be ahead of what was a strong performance in the prior period is a credit to our team, particularly in New Zealand, as they worked through the logistical difficulties and increased costs resulting from the Kaikoura earthquake.

With rail services reinstated and functioning to the South Island from the start of November, it is our expectation that our New Zealand Domestic operations will outperform the corresponding prior period in this next six months.

Our Australian businesses have significant momentum, and we expect full year results for this region to be at record levels.

Our European businesses continue to outperform the year prior, and we are seeing incremental improvements in Asia and the Americas as our new leadership teams settle into their roles.

It is our expectation that this current momentum will continue into the New Year, and will deliver another improved full year 2018 result.

Mainfreight will release its financial results for the full 2018 financial year to the market on 29 May 2018.

Income Statement for the Six Months Ended 30 September 2017

	30 Sept	30 Sept	31 March
	2017	2016	2017
	$000	$000	$000
Operating Revenue	1,225,583	1,142,437	2,333,088
e m o c n I ts e r e t n I	-	-	503
e u n e v e R la t o T	1,225,583	1,142,437	2,333,591
Transport Costs	(748,541)	(701,578)	(1,432,556)
Labour Expenses Excluding Share Based Payments	(266,441)	(242,085)	(476,256)
Occupancy Expenses and Rental Recharge	(35,727)	(31,790)	(65,792)
Depreciation and Amortisation Expenses	(23,115)	(21,454)	(43,492)
Other Expenses	(86,108)	(80,636)	(160,942)
sts o C e c n a ni F	(3,927)	(3,790)	(7,728)
Non-cash Share Based Payment Expense -		(55)	(55)
Profit Before Abnormal Items and
Taxation for the Year	61,724	61,049	146,770
Income Tax on Profit Before
Abnormal Items	(18,952)	(18,723)	(43,606)
Net Profit Before Abnormal Items
for the Year	42,772	42,326	103,164
Abnormal Items	(906)	(679)	(2,448)
Income Tax on Abnormal Items	351	201	807
Abnormal Items After Taxation	(555)	(478)	(1,641)
Profit Before Taxation for the Year	60,818	60,370	144,322
Income Tax Expense	(18,601)	(18,522)	(42,799)
Net Profit for the Year	42,217	41,848	101,523

Statement of Comprehensive Income for the Six Months Ended 30 September 2017

Net Profit for the Year	42,217	41,848	101,523
Other Comprehensive Income
Exchange Differences on Translation of Foreign Operations (1,198)		(13,248)	(5,260)
Income Tax effect	-	-	(2,155)
Revaluation of Land	356	(780)	(789)
Defined Benefit Pension Provision	(29)	-	(635)
Income Tax effect	-	-	215
Other Comprehensive Income for the Year, Net of Tax (871)		(14,028)	(8,624)
Total Comprehensive Income for the Year, Net of Tax	41,346	27,820	92,899
Statement of Cash Flows	for the	Six Months
Ended 30 September 2017
Operating Activities	57,148	52,034	131,226
Investing Activities	(32,131)	(27,904)	(61,647)
Financing Activities	(31,898)	(36,472)	(85,556
FXRate Fluctuations on Cash Held	3	(3,904)	(2,394)
NET INCREASE (DECREASE) IN CASH	(6,878)	(16,246)	(18,371)

Mainfreight Segmental Reporting

The Group operates in various geographical freight markets.

Geographical Segments

Mainfreight Six Months Ended September 2017 ($000’s)

This Year

This Year
New Zealand Australia The Americas Asia Europe Intercompany Total Group Last Year Total Group New Zealand Australia The Americas Asia Europe Intercompany	Revenues 287,546 273,950 319,798 44,481 216,662 - $1,225,583 Revenues $1,142,437 316,867 314,319 284,037 52,611 257,749 -	EBITDA 38,446 22,351 11,809 2,833 13,327 -	Total
		$88,766	$1,316,070
		37,163 17,110 13,878 6,052 12,145 - EBITDA	Total
		$86,348	$1,247,207

EBITDA is defined as earnings before net interest expense, tax, depreciation, amortisation, abnormals, share based payment expense, minority interests and associates.