Mainfreight announced its results for the six months ended 30 September 2011 this morning and the numbers continue to show good growth with a net surplus of $29m.  The good news is an increase in the (fully imputed) interim dividend of 3c to 12 cps – somewhat above market expectations.  CEO Don Braid commented that that the company is experiencing “sales growth and enhanced profitability across most divisions”.  This contrasts with a plethora of weak economic news around the globe and mixed earnings results for many New Zealand companies. 

But the interesting trends lie in a closer look at the company’s divisional numbers.  For example, EBITDA of Mainfreight USA was US$2.88m, up from US$0.24m in the prior year but CaroTrans, the company’s wholesale/container network, has continued to struggle in terms of volume growth with revenue flat on the previous year.  Further, the newly acquired European business Wim Bosman experienced some reduction in freight volumes and performance over the period, with reduced trading in the International division offset to some extent by growth in the Eastern European divisions.  The Wim Bosman business now has newly appointed management from New Zealand and numbers into October and November have improved according to the company.                                

Mainfreight has a small share of the global logistics market which provides significant opportunity for growth but it comes with associated risks.  The company needs to achieve not only market share growth but also margin expansion in its core divisions while fully integrating significant acquisitions such as Wim Bosman.  There is no doubt that Mainfreight has an attractive geographical diversification but this brings with it management demands.  We have seen many New Zealand companies struggle to manage offshore divisions with senior management falling into a trap of continual travel in an effort to stay on top of a global operation.  From here investors need to see a recovery in global growth and a pickup in world freight volumes to fully assess the Mainfreight business.

However the company’s track record to-date should give investors plenty of comfort in this regard.           

Graeme Thomas
Disclosure of interest: Milford is a shareholder of Mainfreight through our Funds