Yesterday Freightways posted its printed Half Year Report with the NZX for the six months to December 2012. The Report shows that on an annualised basis Freightways had an EBITA of $17m in 1999 and if the current year to June 2013 comes in around $68m, then compound annual growth has been an impressive 10%pa in EBITA over the last 14 years.
There is little doubt that Freightways has been astute in diversifying its business over the years at the brand level (multiple express packaging brands are operated), at the geographical level (a growing presence in Australia) and importantly at the business sector level (a growing information management division).
Freightways operates in a duopoly with NZ Post, the other dominant player in the package delivery express business. Like NZ Post, Freightways is experiencing a decline in business letter volumes as the structural shift in favour of online based communication continues with a vengeance. But unlike NZ Post where shedding labour/downsizing is the response (leaving aside banking!), Freightways has diversified into other areas such as information management and storage to sustain its earnings growth. Moreover, Freightways is picking up market share in business mail despite falling volumes, but more importantly it is experiencing growth in margins in the Information Management division.
While there may be business or government constraints on NZ Post’s business strategy it is nonetheless encouraging to see their immediate competitor continuing to invest within their business for continued growth. Some $14m will be spent by Freightways in the current year on IT initiatives, airfreight and growth strategies.
It is not hard to believe that Freightways has benefitted from being a listed company, having had to respond to investor scrutiny to keep up its earnings momentum and to diversify its earnings stream to gain a competitive return on capital. By contrast its main (express packaging) competitor struggles to maintain profit momentum.
Disclosure of interest: Milford Funds Limited holds shares in Freightways Ltd on behalf of clients