Mainfreight Limited — Interim / Quarterly Report 2019

Nov 13, 2018

MAINFREIGHT LIMITED HALF YEAR RESULT TO SEPTEMBER 2018

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Result Summary
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Revenue up 16.8% to $1.43 billion REVENUE (excluding foreign exchange effect, up 13.2%) An increase of $205.41 million

EBITDA at $108.34 million, up 22.1% EBITDA (excluding foreign exchange effect, up 19.3%) An increase of $19.58 million

NET SURPLUS Net surplus after tax before abnormal items up 30.7% to $55.90 million

Trading through October, and into November continues current trends OUTLOOK It is our expectation that pre-Christmas volumes will be strong across our global network

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First Half 2019 Review
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• Satisfactory performance from all five regions

• Sales growth strong; new business and growth from existing customers

• New Zealand domestic network – resumption of full rail access

• Improvement in profit contribution from Air & Ocean divisions

• New Zealand & Australia contended with higher overheads

• Salary increases, for those at the lower end of pay range

• Software implementation (Australia Domestic Transport)

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Dividend
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Interim dividend of 22.0 cents per share DIVIDEND Books close 7 December 2018; payment on 14 December 2018 3.0 cent increase on prior year’s interim dividend reflecting improved profitability and confidence for full year result

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Capital Management
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NZ$ MILLION	THIS YEAR	LAST YEAR
Operating cash flow 71.00 57.15

• Net capital expenditure totalled $40.19 million; of which $21.14 million is property development and $7.96 million is software development

• Expected full year capital expenditure ~$148 million On track with signalled land and property developments for 2019/2020

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Half Year Analysis: Revenue
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$000	THIS YEAR	LAST YEAR	VARIANCE
New Zealand: NZ$ 343,120 316,867 8.3%  Australia: AU$ 341,703 292,914 16.7%  USA: US$ 237,154 203,058 16.8%  Asia: US$ 40,333 37,612 7.2%  Europe: EU€ 182,329 162,511 12.2% 
Total Group: NZ$	1,430,994	1,225,583	16.8% 
(excl FX) 13.2% 

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Half Year Analysis: EBITDA
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$000	THIS YEAR	LAST YEAR	VARIANCE
New Zealand: NZ$ 45,426 38,446 18.2%  Australia: AU$ 22,518 20,829 8.1%  USA: US$ 10,990 8,442 30.2%  Asia: US$ 3,172 2,025 56.6%  Europe: EU€ 10,405 8,403 23.8% 
Total Group: NZ$	108,342	88,766	22.1% 
(excl FX) 19.3% 

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New Zealand
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Revenue: NZ$343m 8.3% EBITDA: NZ$45m 18.2%

• Revenue growth across all three divisions

• EBITDA improvements in Domestic Transport and Air & Ocean; Logistics at similar levels to prior period

• Transport

• Regional growth and profitability a highlight of the result

• Resumption of Main Trunk Line rail service has assisted over the year prior, although still constrained

• Owner driver rate increases to take effect November 2018

• Further KiwiRail rate increases to take effect early in 2019

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New Zealand
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 Air & Ocean

• Steady revenue and EBITDA improvements

• Regional development and contributions are a highlight; expect to replicate this offshore

• Southeast Asian volume via Mainfreight network vs agencies

• Improved chiller facilities post-result to capture more perishable freight opportunities

 Logistics

• Increased lease costs on additional sites kept profit on par with prior period

• Planning underway for new Hamilton warehouse

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Australia
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Revenue: AU$342m 16.7% EBITDA: AU$23m 8.1%

• Strong revenue growth across all three divisions

• EBITDA improved – however impacted in first half by:

• Increased overheads (labour, building leases)

• Gross margins predominantly steady on year prior

• Transport

• Increased labour costs fully absorbed heading into 2[nd] half

• More emphasis on multi-modal transport (rail, coastal)

• Stronger growth expectations for Chemcouriers

• Expect to develop 2[nd] cross-dock in Brisbane

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• Regional expansion continues; Tasmania imminent

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Australia
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 Logistics

• EBITDA improvement; despite short-term lease requirements to cope with growth

• Large Sydney site ready year end (Kookaburra Rd, Prestons)

• Planning underway for additional Melbourne site at Epping

• Current growth rate will require additional 50,000m[2] by 2021

 Air & Ocean

• Better revenue growth; however gross margins under pressure

• Strong focus on developing stronger airfreight presence

• Southeast Asian outbound volumes consolidating in Mainfreight network vs agencies

• Enhanced chiller facilities in Sydney post-result will help perishable airfreight growth

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The Americas
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Revenue: US$237m 16.8% EBITDA: US$11m 30.2%

• Revenue levels improved in all 3 divisions

• EBITDA increase driven by marked improvement in Transport and Logistics; Air & Ocean EBITDA impacted by margin pressure

• Domestic Transport

• Finally a breakthrough in LCL development across our top 6 locations, bringing improved performance

• New cross-docks in New Jersey & Toronto assisting

• Strong emphasis on improved quality to support growth initiatives

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The Americas
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 Logistics

• Better profit contributions from 4 of the 5 warehouses

• Utilisation high in Los Angeles & Newark

• New warehouse in Chicago a significant improvement on previous facility

• Sales growth rates strong and likely to provide momentum to additional facilities

 Air & Ocean

• Excellent sales growth, however EBITDA impacted by poor margins

• October/November have seen margins improve slightly

• Expect year end profitability to be improved

• Trade sanctions on eastbound trans-Pacific not yet affecting our volumes

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The Americas
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• CaroTrans

• Strong focus on sales has seen revenues improve

• EBITDA result assisted by better margin management

  • Container utilization

  • Improved inland repositioning cost management

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Asia
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Revenue: US$40m 7.2% EBITDA: US$3m 56.6%

• Growth in both inter-company (MFT network) and in-country sales saw revenues improve

• Including inter-company sales, growth was 17.3%

• Better cost control and margin management assisted EBITDA improvement

• Inter-Asia growth and improved trade with Europe continuing

• Opened in Malaysia, post-result

• Japanese business licences approved; expect to be operating early in the New Year

• Singapore trade-lane development operating very well for Mainfreight network

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Europe
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Revenue: EU€182m 12.2% EBITDA: EU€10m 23.8%

• Revenue & EBITDA improvement aided by good performance from Air & Ocean and Transport

 Forwarding/Transport

• Improved gross margins assisting

• Belgium cross-dock challenges remain

• Genk improving

• Ghent, a work in progress

• New facilities are a vast improvement

 Logistics

• Development of new sites and new customer implementations saw EBITDA result dip slightly

• Zaltbommel warehouse in Netherlands to implement customers from December 2018

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Europe
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• Air & Ocean

• Sales growth pleasing

  • Sales pipeline initiatives very good

  • Developing bigger sales team

• More to do to improve returns in Germany and Belgium

• Asia trade-lane development pleasing

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Land & Building Development Update
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• Total Land & Buildings expenditure to Sep-18

• $21.1 million

• Expected year-end spend

$103.0 million

Of Note:

• New Zealand

• Land purchase West Auckland completed post-result

• Mt Maunganui site development ongoing – Jan-20 completion

• Australia

• Land purchases in Adelaide and Melbourne (x2) expected in 2[nd] half

• Logistics Sydney – Dec-19 completion of facility (leased)

• Europe

• Born, NL warehouse – completed and operational

• Zaltbommel, NL warehouse – Dec-18 completion

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Group Outlook
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• Pleasing contributions from all regions; pre-Christmas freight volumes strong

• Second half prior period stronger than first; therefore improvements may be muted compared to first half

• Infrastructure investment continues to improve facilities and further intensify network development

• Expect ongoing development of global network as opportunities present

• Key areas of development and focus include:

• LCL freight growth for Air & Ocean – both modes

• Improvement of profitability per m[2] throughout all Logistics warehouses

• Business culture strengthening in USA/Europe

• Sales growth in all 5 regions

• Ongoing cross-selling to customers for additional products and regions

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Financial Calendar F19/F20
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DATE F19 – 12 months ended 31 March 2019 28 May 2019 Annual Meeting of Shareholders 30 July 2019 F20 – 6 months ended 30 September 2019 13 November 2019

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