Mainfreight Limited — Interim / Quarterly Report 2019

Nov 20, 2018

Statement of Changes in Equity for the Six Months Ended 30 September 2018

Balance Sheet as at 30 September 2018

018 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 2018 t a e c n ala B	PENSION RESERVE TRANSLATION RESERVE REVALUATION RESERVE ORDINARY SHARES RETAINED EARNINGS TOTA 85,821 51,254 (10,644) (232) 583,359 709,55 55,703 55,70 325 14,721 (7) 15,03
	- 325 14,721 (7) 55,703 70,74 (989) (98 (26,182) (26,18 989 98
	85,821 51,579 4,077 (239) 612,880 754,11

						FOREIGN	FOREIGN	DEFINED	DEFINED
	ORDINARY			ASSET REVALUATION		CURRENCY TRANSLATION		BENEFIT PENSION		RETAINED					30 Sept	30 Sept	31 March
		SHARES		RESERVE		RESERVE		RESERVE		EARNINGS		TOTAL			2018	2017	2018
018 2 lir p A 1 t a e c n ala B		85,821		51,254		(10,644)		(232)		583,359		709,558			$000	$000	$000
													Current Assets
Profit for the period										55,703		55,703	Bank		85,318	67,487	80,521
e m o c n I e vis n e h e r p m o C r e h t O				325		14,721		(7)				15,039	Trade Debtors		432,321	330,872	361,737
Total Comprehensive Income for the Period			-	325		14,721		(7)		55,703		70,742	Income Tax Receivable		-	644	270
													Properties Available for Sale		8,473	-	7,852
Transaction with Owners in Their Capacity as Owners:													Other Debtors		53,446	51,170	60,811
Shares Issued												-
e m e h c S e r a h S e vit u c e x E Supplementary Dividends	sts o C									(989)		- (989)			579,558	450,173	511,191
Dividends Paid										(26,182)		(26,182)	Non-current Assets
Foreign Investor Tax Credit										989		989	Property, Plant & Equipment		605,584	586,300	582,310
30 September t a e c n ala B	2018	85,821		51,579		4,077		(239)		612,880		754,118	Software		49,956	45,326	49,374
													Goodwill		216,681	204,093	207,919
													Brand Names		8,096	11,262	7,863
Statement of Changes in Equity for the		Six Months Ended 30 September						2017					Other Intangible Assets		8,237	10,065	9,164
						FOREIGN		DEFINED					Deferred Tax Asset		9,189	9,149	8,882
				ASSET		CURRENCY		BENEFIT
	ORDINARY SHARES			REVALUATION RESERVE		TRANSLATION RESERVE		PENSION RESERVE		RETAINED EARNINGS		TOTAL			897,743	866,195	865,512
017 2 lir p A 1 t a e c n ala B		85,821		50,616		(12,037)		(420)		518,982		642,962	TOTAL ASSETS	$1,477,301		$1,316,368	$1,376,703
Profit for the period										42,217		42,217
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)	Current Liabilities
Total Comprehensive Income for the Period			-	356		(1,198)		(29)		42,217		41,346	Bank		-	-	36
													Trade Creditors & Accruals		355,666	284,152	298,916
Transaction with Owners in Their Capacity as Owners:													Employee Entitlements		56,093	50,698	53,373
Shares Issued												-	Provision for Taxation		2,234	7,569	12,323
e m e h c S e r a h S e vit u c e x E	sts o C											-	Finance Lease Liability		1,956	1,838	2,077
Supplementary Dividends										(824)		(824)
Dividends Paid Foreign Investor Tax Credit										(24,168) 824		(24,168) 824			415,949	344,257	366,725
30 September t a e c n ala B	2017	85,821		50,972		(13,235)		(449)		537,031		661,040	Non-current Liabilities
													Bank Term Loan		277,595	284,892	270,753
Statement of Changes in Equity for the		Twelve		Months	to 31 March 2018								Employee Entitlements		3,856	745	3,634
	ORDINARY			ASSET REVALUATION		FOREIGN CURRENCY TRANSLATION		DEFINED BENEFIT PENSION		RETAINED			Deferred Tax Liability Finance Lease Liability		21,835 3,948	23,769 2,565	21,526 4,507
		SHARES		RESERVE		RESERVE		RESERVE		EARNINGS		TOTAL
17 0 2 lir p A 1 t a e c n ala B		85,821		50,616		(12,037)		(420)		518,982		642,962			307,234	311,971	300,420
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				638		1,393		188		107,678		107,678 2,219	Shareholder’s Equity Share Capital		85,821	85,821	85,821
Total Comprehensive Income for the Period			-	638		1,393		188		107,678		109,897	Accumulated Surplus		612,880	537,031	583,359
													Revaluation Reserve		51,579	50,972	51,254
Transaction with Owners in Their Capacity as Owners:													Foreign Currency Translation Reserve		4,077	(13,235)	(10,644)
d e u s sI s e r a h S												-	Defined Benefit Pension Reserve		(239)	(449)	(232)
e m e h c S e r a h S e vit u c e x E	sts o C											-
Supplementary Dividends Dividends Paid										(1,497) (43,301)		(1,497) (43,301)	TOTAL EQUITY		754,118	660,140	709,558
Foreign Investor Tax Credit										1,497		1,497
18 0 2 h c r a M 1 3 t a e c n ala B		85,821		51,254		(10,644)		(232)		583,359		709,558	TOTAL LIABILITIES AND EQUITY	$1,477,301		$1,316,368	$1,376,703

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MAINFREIGHT LIMITED

INTERIM REPORT TO SHAREHOLDERS

SIX MONTHS TO 30 SEPTEMBER 2018 (UNAUDITED)

REGISTERED OFFICE

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

Financial result for the six months ended 30 September 2018 (Unaudited)

Commentary

Mainfreight is pleased to report our six monthly financial results to 30 September 2018, with comparisons to the same period last year.

Revenue $1.43 billion Up $205.41 million or 16.8% EBITDA $108.34 million Up $19.58 million or 22.1% Net profit (before abnormals) $55.90 million Up $13.12 million or 30.7%

Adjusted for foreign exchange impact, revenue is up 13.2%, and EBITDA up 19.3%.

This satisfactory performance is attributable to ongoing growth and profitability across all five regions in our global network. Our offshore divisions are now contributing 58.1% of EBITDA, totalling $62.92 million. Sales generated offshore in this first half year totalled $1.09 billion, 76.0% of our total revenue. Within this result, our Air & Ocean division contributed significantly to both revenue and EBITDA performance, and our expectation is that this division of the business will contribute more over time. Trading through October and into November has seen the trend of improved financial performance continue.

Divisional Performance (figures in local currencies)

New Zealand (NZ$)

Revenue $343.12 million Up $26.25 million or 8.3% EBITDA $45.43 million Up $6.98 million or 18.2%

Strong regional freight growth and reliable rail services, compared to the long periods without South Island rail in the prior year, has assisted our Domestic operations to deliver sales growth and increase EBITDA performance. Our Air & Ocean operation has also improved their trading results compared to the same period last year, with Logistics (warehousing) remaining level with the prior year.

Domestic freight volumes were at record levels for this six-month period, with existing customer and new business increases, particularly from regional New Zealand, where we continue to invest in infrastructure to strengthen our services to those communities.

Our Air & Ocean division has seen a lift in revenue and EBITDA as our global network trategy bears fruit. The Logistics operations are also performing well at the revenue level, and with increased levels of warehouse utilisation, will require additional commitment to new facilities, impacting EBITDA returns in the short-term but positioning for further growth.

Pre-Christmas freight volumes across all three divisions are at record levels.

Australia (AU$)

Revenue AU$341.70 million Up AU$48.79 million or 16.7% EBITDA AU$22.52 million Up AU$1.69 million or 8.1%

The continuing increase in sales revenues across all three divisions has assisted an improved financial performance, albeit with slower growth at the EBITDA level as higher growth-related overhead costs impacted our Transport division through the first quarter.

Improving quality in our Transport division is attracting new customers and assisting in the retention of our current loyal customer base. Freight volumes continue to grow heading into the pre-Christmas period. The use of rail is assisting to ease pressure on road transport.

Our Logistics warehousing activity continues to find growth, necessitating further short term warehouse leases as volume increases. The new purpose-built facility in Sydney is expected to assist early in the New Year. Air & Ocean , like the other divisions, has achieved improved revenue and EBITDA results for the first half year as international freight volumes assist performance.

Asia (US$)

Revenue US$40.33 million Up US$2.72 million or 7.2% EBITDA US$3.17 million Up US$1.15 million or 56.6%

Network development across Southeast Asia has also gained momentum with our first Malaysian operation opening post-result, on 15 October 2018. We also expect to have our first Japanese operation open early in 2019, with licensing and business documentation requirements completed and accepted by Japanese authorities.

The Americas (US$) Revenue US$237.15 million Up US$34.10 million or 16.8% EBITDA US$10.99 million Up US$2.55 million or 30.2% A pleasing result from our North American operations, with performance improvement largely driven by our Domestic Transport operations, where new customer gains have lifted revenue and EBITDA.

Our Logistics division has also secured new business, improving warehouse utilisation across all five locations. Further gains are expected as the year progresses, likely necessitating new facilities.

Our Air & Ocean operations saw revenues increase but we were unable to convert this to positive returns as gross margins declined. Improvements in margin are evident during October and November, providing confidence for an improved EBITDA result from Air & Ocean at year end.

Trading within the CaroTrans wholesale business has been steadily improving during the year, with an increase in revenue and EBITDA. All our USA divisions have seen trading conditions in October and November remain positive, and it is our expectation for this current level of improvement to continue.

Europe (Euro €)

Revenue EU€182.33 million Up EU€19.82 million or 12.2% EBITDA EU€10.40 million Up EU€2.00 million or 23.8% We continue to find further financial and operational improvement in our European business, with sales growth across all divisions.

We continue to find further financial and operational improvement in our European business, with sales growth across

Our Domestic forwarding operations contributed significantly to this improvement, providing improved EBITDA results through better line-haul and pick-up-and-delivery management. Whilst our Belgian forwarding operations are yet to be profitable, the infrastructure investment in two new cross-docks is assisting.

Our Logistics operation grew sales revenue, but saw EBITDA at similar levels to the prior period, as new warehouse leases and new customer implementations increased overhead costs. Similarly to our global Air & Ocean development, our European Air & Ocean division achieved improved revenues and EBITDA contributions. Trading through October and November sees current trends continue and expectations are for a satisfactory year end result.

Group Operating Cash Flows

Operating cash flows were NZ$71.00 million compared to the prior year’s half year figure of NZ$57.15 million. During the half year, net capital expenditure totalled $40.19 million of which $21.14 million related to property development.

Dividend

The Directors of Mainfreight have approved an interim dividend of 22.0 cents per share, up 3.0 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 14 December 2018, with books closing on 7 December 2018. A supplementary dividend will be paid to non-resident shareholders.

Outlook

This first half result is satisfactory, compared with a somewhat muted result in the prior year, and provides us with a good platform for further improvement over the longer term.

To have all regions contributing improved financial and operational results is pleasing. Therefore it is our expectation that financial performance will continue to be better for the full year, delivering another improved full year profit.

Our land and building projects are generally progressing well. Capital expenditure for land and buildings for the full year is likely to be in line with our projections.

Importantly, these new and refurbished land and building projects will bring improved facilities complementing the development of our network and providing our people with the resources to develop further growth over the long term.

Income Statement for the Six Months Ended 30 September 2018

		30 Sept	30 Sept	31 March
		2018	2017	2018
		$000	$000	$000
Operating Revenue	1,430,994		1,225,583	2,616,189
e m o c n I ts e r e t n I		-	-	511
e u n e v e R la t o T	1,430,994		1,225,583	2,616,700
Transport Costs	(875,751)		(748,541) (1,605,459)
Labour Expenses Excluding Share Based Payments	(305,700)		(266,441)	(538,483)
Occupancy Expenses and Rental Recharge	(40,247)		(35,727)	(73,192)
Depreciation and Amortisation Expenses	(26,080)		(23,115)	(47,788)
Other Expenses	(100,954)		(86,108)	(183,941)
sts o C e c n a ni F		(3,966)	(3,927)	(7,567)
Profit Before Abnormal Items and
Taxation for the Year		78,296	61,724	160,270
Income Tax on Profit Before
Abnormal Items	(22,400)		(18,952)	(48,266)
Net Profit Before Abnormal Items
for the Year		55,896	42,772	112,004
Abnormal Items		(291)	(906)	(7,224)
Income Tax on Abnormal Items		98	351	2,898
Abnormal Items After Taxation		(193)	(555)	(4,326)
Profit Before Taxation for the Year		78,005	60,818	153,046
Income Tax Expense	(22,302)		(18,601)	(45,368)
Net Profit for the Year		55,703	42,217	107,678
Statement of Comprehensive Income for				the
Six Months Ended 30 September			2018
Net Profit for the Year		55,703	42,217	107,678
Other Comprehensive Income
Exchange Differences on Translation of Foreign Operations		13,780	(1,198)	(1,978)
Income Tax effect		941	-	3,371
Revaluation of Land including Foreign Exchange Movements		325	356	638
Income Tax effect		-	-	-
Defined Benefit Pension Provision		(7)	(29)	325
Income Tax effect		-	-	(137)
Other Comprehensive Income for the Year, Net of	Tax	15,039	(871)	2,219
Total Comprehensive Income for the Year, Net of Tax		70,742	41,346	109,897

Statement of Cash Flows for the Six Months Ended 30 September 2018

Operating Activities	71,006	57,148	140,236
Investing Activities	(40,187)	(32,131)	(64,729)
Financing Activities	(29,918)	(31,898)	(69,767)
FXRate Fluctuations on Cash Held	3,932	3	380
NET INCREASE (DECREASE) IN CASH	4,833	(6,878)	6,120

Mainfreight Segmental Reporting

The Group operates in various geographical freight markets.

Geographical Segments

Mainfreight Six Months Ended September 2018 ($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 EBITDA 316,867 38,446 314,319 22,351 284,037 11,809 52,611 2,833 257,749 13,327 - - $1,430,994 $108,342 Revenues EBITDA $1,225,583 $88,766 343,120 45,426 370,530 24,418 345,655 16,018 58,786 4,623 312,903 17,857 - -	EBITDA 45,426 24,418 16,018 4,623 17,857 -	Total
			$1,477,301
		38,446 22,351 11,809 2,833 13,327 - EBITDA	Total
		$88,766	$1,316,368

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

Renewed energy and a clear international Air & Ocean freight strategy within our Asian operations has seen financial performance improve markedly compared to the same period last year.

Mainfreight will release its financial results for the full 2019 financial year to the market on 28 May 2019.