Mainfreight keeps on Truckin

I'm a very recent convert to the Mainfreight Ltd [MFT.NZ] convoy but shareholder or not one cannot help but be impressed by this company.

It all starts at the top with great management. Don Braid, Managing Director and Bruce Plested, Executive Chairman, along with a great team locally and globally help drive this company forward.

Management are decisive, show strong leadership, and have very clear goals about where the company is going and significantly how they are going to get there:

"As we grow to become a world player we must maintain our culture and style of business by keeping a strong grip on our policy of being anti-bureaucratic; continuing to allow branch managers to make bold decisions; being energetic and entrepreneurial; and so continue to grow our business.

We expect to double the size of our business over the next 3-5 years."

Don Braid, GM, 2007

Mainfreight's management "style" then starts at the top and filters through all aspects of the business. Local decision making is crucial to the smooth running of the business and a smooth running business is more efficient, grows faster and makes more money.

One of the first things Warren Buffett looks at when buying into a company is the quality of its leadership. The management of Mainfreight and its people set it in a class above all, in my opinion, of listed companies in New Zealand and if it was large enough I believe Buffett would put this company in his portfolio because it is a well run, with a business that is easy to understand, revenues that continue to grow and an efficient use of shareholders capital, with good returns to shareholders. Certainly Mainfreight's historical financial background would attest to how well run the company has been.

The company is not afraid to ruffle political and financial analysts feathers either:


"To the financial analysts and other scaremongers who downgraded us in the early part of the 21st century as we put together our offshore strategy, you were wrong, and we were right. Stop discouraging New Zealand companies from expanding offshore – of greatest risk is the low growth available in New Zealand.

More and more the New Zealand economy slides down the OECD economic rankings as we milk our productive sector in the hope of remaining a first world country with taxpayer funded hospitals, education and social welfare.

There needs to be a clear understanding that the productive sector is the only means by which a country can prosper – interesting, challenging enterprises earning profits are the mechanism which creates opportunities for people to do well for themselves, the enterprise, and for mankind". Bruce Plested, Mainfreight, annual report 2007


The same approach is used when dealing with shareholders. Information in company reports is straight to the point with little or no "corporate speak", so one can actually read their company report and understand what the hell is going on. A rarity but an essential ingredient. Shareholders must know how their investment is doing and they must be able to do that easily.

The focus by the company on global growth has enabled Mainfreight to slowly assemble a network of operations around the globe that encompass a wide number of countries. With bases now in Australia, Asia and various states in the USA, Mainfreight is starting to have the ability to lever its logistics capabilities off an increasingly enlarged network and customer base.

Their current expansion goals have largely been met and medium term goals have already been mapped out and management are working towards achieving theses goals. Acquisitions have been a cornerstone to Mainfreight's expansion but once purchased and integrated, organic growth is a feature of these add-ons.

Mainfreight intend to have "global significance" in international logistics in the US, Europe, China and Australasia, with an aim to double revenue growth from the present 1 Billion NZ dollars. With full year profit of 55 Million NZ Dollars for 2007 the future for profit growth also looks good if margins can be maintained or even improved as logistical costs come down as the company grows.

In Bruce Plested's closing remark in his 2007 Chairman's report he takes a swipe at New Zealand's current economic decline and unfriendly business climate:

"In summary, we do not have a large enough or vibrant enough business sector in New Zealand. Economically, New Zealand has been on a long slow decline relative to other OECD countries for close to forty years, and this decline has accelerated in recent years. Surely with the benefit of hindsight, New Zealand governments can recognise that our productive sector is not performing to the level necessary to ensure this nation’s future health and prosperity.

Right now we need bold new initiatives and inspirational leadership. Other countries have found ways to reverse economic decline, and that has involved low company tax rates as in Singapore and Ireland and a reduction in the weight of compliance costs.

Whatever the outcome, Mainfreight has a determination to remain a New Zealand owned and operated business while continuing to pursue global aspirations".

Like many New Zealand businesses and business people, Bruce seems to be implying that Mainfreight exists in spite of what the current Labour government are doing to screw our economy and is clearly annoyed at the impediments that his business faces.

While it would be nice to have a government being "business friendly" we all know that the opposite is more than often the truth.

It is to Mainfreight's obvious advantage then that they see global expansion as their way to grow. They clearly cannot easily expand in their country of origin.

As I write this Mainfreight are in discussions with 3 freight forwarding companies with a view to purchase, with one company already in the hole.

I own shares In Mainfreight and I am looking to buy more for the long-term portfolio at any weakness.

The closing price of MFT shares today is $NZ 7.40, 1c above my original purchase price.


Disclosure I own MFT shares in the Share Investor Portfolio.


Mainfreight @ Share Investor

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c Share Investor 2007

Dubai Aerospace Enterprise Move on Auckland Airport: Will It Fly?

There has been much written about the recently announced "merger" of Dubai Aerospace Enterprise (DAE) with Auckland international Airport Ltd [AIA.NZX]

Let me give you my take.

DAE have offered the equivalent of $NZ 3.80 per share in quite a complex merger proposition that values AIA somewhere north of $NZ 5 billion in its entirety. This is substantially more than what the company was valued at before rumours of potential buyers started coming out of the woodwork a few months back. It was consistently trading at around the 2.20-2.40 range.

The hurdles that this merger proposition have to overcome are those that a midget would have trouble getting over even if he was thrown by a tall man.

Two city councils, Auckland and Manukau City, between them own almost 25% of the airport. Manukau Mayor Barry Curtis said they "wont sell" and the Auckland City Mayor, Dick Hubbard, has put proposals to be aired and voted on, one of the proposals includes ACC buying more AIA shares. It looks unlikely that these two shareholders will come to the party and sell, even at an increased offer.

The merger is also facing the wrath of other local and national politicians and the consensus of those in power and public opinion seems to be overwhelmingly in favour of don't sell. Public pressure against a sale is bound to resonate with a Labour Government wanting a 3rd term in 2008, its constituency would be overwhelmingly against such a sale.

The unpopularity of the AIA sale in the public's eyes focuses on the fact that they don't want to see a valuable "strategic" asset flogged off to any overseas company. Ironically though AIA is already owned 33% by foreign shareholders.

There are some, including yours truly, who have mentioned the obvious threat to national security that a bid from a Muslim backed company brings. We are reminded of last year when DAE was forced to relinquish ports bought in the US for similar security reasons. This itself alone is a good reason to block the sale of AIA to DAE.

I have no problem with AIA being sold to anyone else, foreign or local and in fact there is rumoured to be at least another seven possible buyers for AIA assets with a handful currently doing due diligence, among them are Melbourne airport owner, Australia Pacific Airport, Macquarie Airports and Canada Pension Plan. The last is said to be close to launching a bid.

The only problem that I see is price. While the offer by DAE is considerably more than historical AIA value placed on the company by the market AIA is a very attractive asset.

It is in a monopoly position, has one of the highest profit margins for any airport in the world and is highly undeveloped compared to foreign airports.

It is this undeveloped nature of the business that must seem the most attractive proposition to potential bidders. It is for me as a shareholder and I intend to hold long-term for that reason alone.

There are vast tracts of undeveloped land with uses for ancillary services for the airline business, retailing and hotel potential and a myriad of other possibilities. In fact AIA was discussing the possibility 2 or 3 months back of splitting the land/retail based assets of the business from airport business and trading the two entities separately on the NZX. That is where the value lies.

In my opinion the sale of AIA looks unlikely to anyone but when you have interventionist local and national politicians involved in public companies you never know what is going to happen. A couple of years ago Ports of Auckland, a publicly listed company, was bought by the Auckland Regional Council and delisted and before that Air New Zealand was grabbed by the State "in the interests of the country"

AIA CEO says the DAE offer "should be accepted by shareholders in the absence of another offer" but he himself has undervalued the very company he presides over and its shareholders.

Long-term the company is worth much more.

Disclosure: I own AIA shares

AIA @ Share Investor

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c Share Investor 2007

Panic! Wot me?

There has been a bit of a drop in world markets over the last few days, you might have noticed financial news creeping into the main news headlines again and journos urging investors to unlock office windows.

Of course we have seen this all before, headless chickens running for the hills, as their pockets spill over with moola, not as much as they could have had if they had kept their shares and sold them in a rising market but happy in the fact that they wont lose anymore capital. Clearly these individuals shouldnt have invested in the stock market if they pull out at the slightest fall in share prices.

The New Zealand Market was the first to open on Monday the 30 July after a weekend of thought by some investors over the world markets dropping last week.

It is likely that the US market will be volatile on Monday's Wall Street opening and the cycle will begin again here in NZ Tuesday. Similarly volatile global markets will probably be the order of the day for a time.

There is a silver lining though folks!!

If you are a long-term investor, like me, then you may want to do the opposite to all the chicken littles out there and buy instead of sell.

That stock that you have had your eyes on maybe alot cheaper now and aint it better to get a good deal in a sale rather than pay more as stock prices go up?


c Share Investor 2007

Love Xero?

Scott Manages a website development business in London and answered a few questions for me about the recently listed software company Xero [XRO.NZ]and what its prospects might be for the future. He is not affiliated in any way with the Xero company.




About the software


Powerful connections. With Xero, you can access your accounts and run your business from anywhere in the world, 24/7. And your trusted adviser's can login and view your accounts too, providing valuable real-time advice when you need it most. No more confusion, no more delays. Say goodbye to barriers. Xero's intuitive work flow makes painful data entry a thing of the past. Seamless bank integration allows your statements to be loaded daily without even clicking your mouse. And Xero's powerful Dashboard gives you a real-time snapshot of your business at a glance. Peace of mind. Xero takes care of your data security and privacy, so you don't have to. Your data is stored on our secure servers and backed up every day, so even if your computer is lost or stolen your data is safe. You control who has access. The only people who can see your personal data are those you choose.


The Questions

To answer your questions, most of which require some degree of speculation...

Share Investor: How much market share, given time, do you think Xero can take away from traditional off-line providers?

Scott: Plenty, with time. Initially people like myself will become the early adopters, and if it really is as good as it potentially can be, word of mouth will spread it far. The advantage for Xero, what harm can there be paying a couple of hundred dollars to test it out for a few months, indeed they could easily offer a free month or two, once you are hooked (or you get to the point that it's easier to persevere than change accountancy systems) then you have a customer for a very long time.

I can see growth potential with payroll integration also, email payslips, the whole thing. Too many companies use a different piece of software for every different tasks. Then licensing fees, upgrade costs, etc.

One of the biggest costs with traditional accountancy systems is multiple users on multiple PC's. This cost is gone with Xero.

S.I. Is the Xero product so superior that it will take users away from other online providers such as Quicken and MYOB?

Scott: I think yes, eventually. So it is a long-haul investment. MYOB and Quicken will respond, Quicken already has an online model in the US. But they rely heavily on what I outlined above, once a user has coughed up the $ and implemented their business on a system, they aren't going to change in a hurry. Give them a compelling and easy change though, and who knows?

Xero's advantage here is they can make changes, fixes and upgrades quickly and efficiently, Change a few lines of code and instantly fix a bug or small problem. Spend a day programming a new feature, test it, and it's online two days later.

S.I. The costs to the end-user, are they lower than online software?

Scott: I think if you looked at the OVERALL cost it would be competitive, compared to the features and abilities available. Sure, you can spend $400-600 on MYOB or Quicken and use it for 5 years - or spend $600 a year on Xero. But what are you missing out on that your competitors will have over you during that time? Quicken and MYOB still have issues emailing a frieken invoice! Xero will probably be able to integrate into your company website... it wouldn't surprise me if they implement a Credit Card payment module for you to use...

S.I. Margins for the company, how good could they be once initial establishment costs are factored in and then overcome over time?

Scott: Fantastic. SaaS is a wonderful business model. If things are done properly you could have a handful of people run the entire company (as it is). They will have to hit the right mix of features, price etc and I think that they will. It will be very interesting to see what offers they come up with, really I should email Rod Drury to see if some of the things I have mentioned here are on the cards.

S.I. Is the only point of difference between competitors off and online products the fact that Xero is online?

Yes, and No. Being online does lean toward a whole other set of advantages, a few of which I outlined above. There are certainly advantages to having offline software, if you are stuck somewhere with a laptop and no internet connection, but is that the way of the future? No, I didn't think so either.

S.I. Will it be horrendously expensive and or technically challenging for prospective clients to switch from their current provider to Xero?

Scott: I hope not. There are several options, either you keep your existing accountancy software around, but stop using it on a certain day and transfer balances, stock levels etc to the new system. Or Xero can come up with a migration tool. Or simply target NEW businesses first or those without an existing system.

They would be smart to sell this to the accountants, who will then recommend it to their clients as a system they can easily access as well. The possibilities are limitless, but no changeover will ever be VERY easy... or, it could be, who knows?

S.I. What is the main reason why you want to use this software and why not shift your current business accounts to Xero as well?

Scott: I sold both of my businesses before leaving for London, and my Trust accounts are so pathetically easy I do them in Excel. However, When I return to NZ my next business will be Xero based. I will use it to eliminate the frustrations I experienced with other accountancy software I used, mainly user limitations, bank reconciliations, expense management, jeepers almost everything!

The value I see in Xero is that if a feature ALMOST works the way you'd like, theoretically they can have change online within hours after a response to user feedback. This will happen thick and fast on startup, as they vie to impress...

S.I. Are any competitive differences easily overcome by Xeros rivals?

Scott: If Xero's rivals are well aware of their weaknesses, why haven't they done anything about them by now? I think they have underestimated the online market, to be honest, as have many people in the past - I can see Xero's advantages, and have watched them closely since listing. Maybe there will be rumblings, who knows? I am willing to bet the people behind Xero intend to stay ahead of the pack no matter what, and they are off to a good start.

S.I. How will the likes of giants such as Google online apps affect Xeros entry into the marketplace?

Scott: Hard to say, multinationals often forget New Zealands special needs in these areas, so Xero may rocket here but find it hard to break the US and UK. A tough call.

S.I. What are the costs of continuous development of this software to stay ahead of the pack?

Good question, although I don't have the answer I would say they are attractive compared to version updating, releases and distribution from the big two...

To put it in perspective, I work for a company in London that uses a SaaS model, they don't really even realise it. The IT Dept consists of 5 staff, which is more than sufficient to manage the website and support new development. The online model is worth hundreds of thousands of pounds to their business.

They developed it themselves to replace the offline model, shooting themselves in the foot? No. Because they have happier and more dedicated customers, spending more money with them!

S.I. Given mostly positive answers above how long do you think Xero could take to become a market player of some substantial nature or even a dominant player in this sector?

Scott: I will get onto the Xero bandwagon soon, I think their listing price could still drop a little more while they are quiet and people get itchy feet, or don't really understand what they have bought into... Xero will show it's results when it is ready, I get the feeling it will have VERY rapid growth, next year(2008) should be an interesting year.

End.


Xero @ Share Investor

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Discuss XRO @ Share Investor Forum

Download XRO Company Reports
Listen to Rod Drury Interview




c Share Investor 2007