Mainfreight Ltd [MFT.NZ] is a fledgling player in the global logistics business with an expanding footprint in the United States, Asia and an established presence in Australasia.
It has found the last year or so tough going 1, 2 , as other logistics companies also have, but has managed to keep a lid on their business costs by paring back on capital expenditure, freezing employee pay-packets and bonuses and paying very close attention to the day to day running of the business.
The company has a had a good history of expansion and profitability since it was founded with one truck by Bruce Plested in 1978 and as Don Braid has been on board since 1994 the company has grown considerably in revenue and profitability, has been listed publicly since 1996 and has found a foothold in Asia and the United States.
But what of the next 12 months and longer?
How will the business go under his leadership, will it continue its historically excellent financial results or will it flounder like so many other New Zealand companies have as it expands in the United States.
What new ideas does he have to take this company through the $1 billion revenue barrier and beyond and establish Mainfreight as a truly global logistics company
With this in mind I submitted some questions to Don via email and he kindly offered to answer them.
The Q & A
Don Braid - We found an element of complacency and a lack of urgency, or even acknowledgment of a recession, amongst our people despite our disciplines and culture, which identified a need to encourage tougher, faster decision making and to seek out opportunities.
SI - What are your thoughts on the recession and recent (apparent) recovery - if you want to call it that - and what effect that will have on the company's overall strategy in all the markets that you operate?
DB - We continue to manage the business week to week focusing on margin and cost. Our sales campaigns are very active as we look to increase sales growth at every opportunity, attracting new customers with exceptional quality. We don’t wish to waste any of the opportunities provided by the recession.
SI - Have you responded to the recession in an appropriate way by cutting costs and easing back on business expansion when other companies have used this time as an opportunity to expand their businesses because of cheaper assets and lower credit costs?
DB - We identified our areas of weakness, tightened cost controls including freezing salaries and bonuses, and focused on the opportunities available. We have treated acquisition opportunities with caution; distressed businesses are not necessarily good investments.
SI - How is Mainfreight currently doing in its various markets of operation and how well are profit margins holding up?
DB - We can do better in each market, and are working hard to further improve returns.
SI - What are the biggest commercial threats to your businesses in terms of competition and is your reaction to this competition likely to be aggressive or reactive in nature?
DB - We have always operated in a competitive market and enjoy being on the front foot.
SI - Any business has inherent risks. How do you manage those risks in the normal business operating environment that changes due to economic cycles and other outside and inside influences?
DB - Mainfreight’s culture of weekly profit and loss reporting, branch management responsibility and flat management structure assists us in managing risk. We scrutinise performance at every turn and maintain a strong discipline of cash management.
SI - The subsidy of Toll Holdings trucking business by the New Zealand taxpayer has reared its ugly head again recently. Can you do anything about that in your position and if so what?
DB -We will compete as we always have. We will continue to bring pressure to bear on the Government to ensure KiwiRail deals with the issue commercially. We are also of the opinion that the Government should appoint a commercially capable board rather than the current culture of political appointees.
SI - What are your biggest challenges as the company expands and do you prefer organic expansion rather than the purchase of companies to pursue revenue and profit growth?
DB - Organic growth is always the preference; acquisitions when and only if they fit the profile and requirements of the Group. Great people remain our most valuable resource.
SI - The issue of capital raising by other companies this year has been in the business news headlines. Why have you been able to avoid this to date and do you see the issue of capital raising being an issue for Mainfreight at a later stage should the economic downturn last longer?
DB - There has been no need to raise capital. Our debt to equity ratio is satisfactory and our relationship with our banks remains important to managing our debt facilities. These facilities have just been renewed for a further three years with improved covenants.
SI - Mainfreight pays a relatively low dividend compared to other NZX listed companies. Is that a conscious decision to keep more capital in the business for its day to day operation or are there other reasons for this?
DB - On listing in 1996 we stated that a dividend payment ratio of 40% to 50% of net profit is prudent, and allowed for further capital reinvestment. While at times we have exceeded this ratio we do wish to continue to re-invest in our business. Growth remains a high priority.
SI - What is your opinion on bonuses paid with stock options and other incentive pay and how do you feel about executives of other NZX listed companies receiving incentives even though pre-determined targets have not been met?
DB - We are not in a position to comment on remuneration in other listed companies. Ours continues to be reviewed to ensure we remain competitive and fair.
SI - Given enough time and expansion in the United States, where will be your main hubs and will you continue to build and own them given the huge capital expense they must be?
DB - The US remains an important part of our growth strategy and we are excited about the potential evident in this market. Capital investment will be evaluated and tailored to the returns available.
SI - The US market has been brutal to a couple of NZX listed companies, with Pumpkin Patch and Michael Hill recently losing lot of shareholder money by expanding there. How has your company planned to ameliorate any possible losses there as you expand and do you have an exit strategy if business there doesn’t look good or are you confident that in the long term the Mainfreight’s business there will be a strong one?
DB - We remain confident that our US operations will become significant contributors and a beachhead for our ongoing global development.
SI - How do you retain the wonderful family friendly Mainfreight culture that has been fostered over the years and is so central to the success of the company as it has moved from a smaller company to the one that it is now and how will you hold on to it as you grow into a larger business and into different markets and cultures?
DB - Our culture and style of doing business remains very important to us. Every day we work hard to maintain and develop this culture. The actions of our leadership team are key. The elimination and rejection of bureaucracy and hierarchical attitudes and actions at every step are paramount. Our people’s freedom to take responsibility, ownership and to contribute no matter their role is pivotal to our success.
SI - Along the lines of the question above, how much input does every worker at Mainfreight have into the business, is it like the culture at Toyota, commonly known as the “Toyota Way” where if anyone has a good idea that will improve productivity or the business in some way then they are credited for that input and rewarded in some way?
DB - As above.
SI - Who came up with those quotes on the back of all your vehicles and why?
DB - Many people contribute to the quotations, however Bruce Plested initiated the original concept. We hope the quotations make people think about what’s important in life. They also allow our owner drivers to express themselves through their chosen quotations.
SI - You and Bruce Plested are both very strong leaders and characters, how do you balance those strong personalities when you make company decisions?
DB - We enjoy a great deal of debate, we have respect for each other and a passion for the business. What is right for the business is key – the individual’s agenda is not a consideration.
SI- Who are some of your business mentors/heroes and why?
DB - Mainfreight’s Board of Directors remain key mentors and confidants.
SI - Who is your favourite New Zealand business leader/s and why?
DB - We have a lot of respect for many New Zealand business leaders; more so those business leaders who are forthright in their opinions, and who are energetic in growing their businesses and their people. Those who reject mediocrity and bureaucracy, and who are prepared to get off their backsides and develop their businesses around the world.
SI - In relation to the two questions above are there any particular books or periodicals that you have read that you would recommend to Share Investor readers?
DB - “Good to Great: Why Some Companies Make the Leap … and Others Don’t” – Jim Collins
SI - In my investing experience I have found the level of business leadership in New Zealand wanting – with a few very notable exceptions - when it comes to making good long-term decisions based on sound business skills, the basic understanding of running a business and accountability when it comes to making mistakes and this is often reflected in businesses hiring from an overseas talent pool. What are your views on how we can get better shareholder representation in the boardroom?
DB - New Zealand business needs leaders around the board table who have a passion for the business, are energetic and prepared to get involved, are commercial in their thinking and are not just appointed as part of “the club”. Political appointments have no place in New Zealand’s business future.
SI - Is there enough long-term thinking and planning when it comes to making decisions in the boardroom that affect New Zealand companies?
DB - Infrastructure planning in this country is woeful. Three-year political appointments don’t help. Entities would be better served by boards who spend less time on plans and budgets, focusing instead on strategic and competitive advantage to drive businesses (and the country) forward.
SI - I have recently become a dad for the first time and am now aware of higher demands on my time. I am sure the life of managing director at Mainfreight is very busy. How have the demands of Mainfreight impacted on your family and what skills as a dad have you used in your business life and where and how do you find the balance between home and work? Is it just good time management?
DB - A passion for life helps to keep things in perspective. Always ask a busy person if you want to get things done!
SI - What do you see as the strongest and weakest quality of your leadership style?
DB - Am not qualified enough to answer.
SI - Where do you see yourself and the business you help run over the next five years?
DB - Mainfreight will be a bigger and better business than it is today. We have some lofty goals to achieve and we remain an ambitious bunch!
SI - Thanks for your time Don.
Don Braid's Bio - Supplied by Mainfreight
Don Braid, Group Managing Director of Mainfreight Limited, was educated at Timaru
Boys’ High School and has over 30 years’ experience in freight forwarding and logistics both New Zealand and internationally. He joined Daily Freightways in 1978, gaining a thorough grounding in all aspects of the business and eventually heading up that company.
In 1994 Mainfreight purchased the business, and Don went on to hold various senior management roles at Mainfreight prior to his appointment as Managing Director in 2000.
Don has led the Mainfreight team through a significant period of change and expansion to become the successful global supply chain logistics provider it is today, with businesses operating in over 160 branches throughout New Zealand, Australia, Asia and the United
States.
His efforts were recently recognised when he was selected as the 2008 Deloitte/Management magazine Executive of the Year. Don is a member of the Board of the Starship Foundation.
Mainfreight History- Supplied By Mainfreight
Mainfreight was founded by Bruce Plested, joined later by Neil Graham in 1978 with a 1969 Bedford JI Truck and $2,700 in paid up capital. Mainfreight entered a highly regulated market which required all freight travelling over 150km to be moved on rail, and which was dominated by a virtual cartel of giant transport companies.
When deregulation occurred in 1985 Mainfreight were hardened from this market environment, and was evolving a deep culture and a vision of what we could achieve. Having formed Mainfreight International in 1984, Mainfreight established a beachhead in Australia in 1989, with an operation in Sydney, followed the next years by depots in Melbourne and Brisbane.
Investment in Australia was driven by a vision to let our customers treat New Zealand and Australia as one market, with Mainfreight's spread of branches and services, along with the best technology and people providing a bridge across the water. Mainfreight was publicly listed in June 1996 on the NZ Stock exchange (code MFT) and now has interests in the USA and Asia.
Disclosure: I own MFT shares in the Share Investor Portfolio
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