The Full Year 2010 Freightways Ltd [FRE.NZX] Profit out this morning is a case of steady as she goes, with a few points to elaborate on along the way.
The 2010 full year net profit of $23,164 million is down by 33% (after a one-off $5.7 million balance sheet tax charge due to recent Government tax changes) on the 2009 result and is 2% down on last year if the tax change is excluded.
Revenue was down by 3% to NZ $328,469 million, indicating a flat economy.
A dividend of 7c is to be paid compared with last years 8c, so little attention has been made to keeping cash within the business. Very important at this time in my not so humble opinion.
Financing costs for a sizable company debt have also been considerable but a capital raising from earlier last year has been used to pay down some bank debt so this cost was lessened for the period.
In comments about capital management, nothing was said about the sizable dividend being paid when profit is down. The company should focus on paying down debt instead of a generous dividend and it should have been cut by more than it has. Other companies have done this during 2009 and will again in 2011 and for Freightway's management not to address this is poor considering economic constraints surrounding listed company spending.
The courier businesses have again been hit the hardest, while the company's purchase of document management businesses over the last several years continues to pay off as these are achieving growth and management indicate this will continue through 2011.
Freightway's management are cautious about company prospects for the coming year but indicate another tough year ahead and a focus on costs savings as things remain flat. Given economic uncertainty I would have to say that business operations and therefore revenue will probably remain subdued over the 2011 period. This is without taking into account another possible dip in the economy. Profit levels will depend strongly on cost savings until the New Zealand economy bounces back and real growth for the company can return.
Overall, the full year 2010 result has been a good indicator of a patchy 2009 and an indicator that there is more uncertainty to come for Freightways. The same can also be said about the New Zealand economy as a whole.
8 out of 10.
Disc I own FRE shares in the Share Investor Portfolio
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