Monday, August 24, 2009

Freightways Ltd: 2009 Full Year profit commentary

OK, I am back to the wilderness of New Zealand from being ensconced in a hotel room and the back of taxi cabs in Bangkok for two weeks and the NZ stockmarket is smack in the middle of reporting season.

One company's results caught my fancy and I thought I would give you my thoughts on those results.

The full year profit to June 30 2009 that came out last week from Freightways Ltd [FRE.NZ] was a case of steady as she goes, at least at first glance

Revenue was up by 5% to NZ $340 million and net profit after tax up by 7% to just over $34 million. If you exclude the one-off $4 million profit on the sale and leaseback of a property then profit is down by over 12%. Not bad considering economic conditions but considering that revenue is up slightly it is clear that management have let business costs get out of control.

Having said that a large amount of that cost has been attributed to capital expenditure to allow for future growth and management say that this expense will achieve results in the coming year -10s of millions have been spent on many acquisitions over the last few years, which have been purchased with borrowed money.

Financing costs for a sizable company debt have also been considerable but a capital raising from earlier this year has been used to pay down some bank debt so this cost should be lessened for full year 2010.

Interesting that in comments about capital management, nothing was said about the sizable dividend being paid when profit was down. The company is borrowing heavily to fund this dividend and it should have been cut by more than it has. Other companies have done this during 2009 and for Freightway's management not to address this is very poor to say the least.

The courier businesses have been hit the hardest, while the company's purchase of document management businesses over the last several years seems to be paying off as these are achieving growth even when other parts of the the company have slowed.

Naturally management are cagey about company prospects for the coming year given economic uncertainty but I would have to say even if business operations and therefore revenue remain stagnant, the fact that a multitude of costs have been ameliorated in the current year will mean next years full year profit after tax should be substantially better than full year 2009.

The only worry and out clause about that statement is that management have flagged looking at buying businesses this year more than a few times and unless any prospective business is the "bargain of the century" and a great business to boot then such purchases would be folly given the still high company debt and issues surrounding the health of the global economy.

Overall, the full year 2009 result has been unexciting if not a little boring and disappointing from a shareholders point of view because opportunities to pay down more debt have been lost and the hiding of the fact that ordinary profit was actually down a reasonable amount, rather than the headline of a profit up 7% was disappointing management let down.

6.5 out of ten.

Disclosure: I own FRE shares in the Share Investor Portfolio


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c Share Investor 2009