Freightways volumes halve under level 4 lockdown; hopes to avoid wage subsidy

Monday, 23 August 2021

Freightways’ express package and refrigerated transport service was the best performer over the past year.

Courier company Freightways has seen its volumes halve since level 4 lockdown restrictions came into effect last week, as deliveries between businesses ground to a halt.

About 80 per cent of the company’s deliveries are business-to-business, and that work has mostly stopped since level 4 restrictions were imposed at midnight on Tuesday last week, said chief executive Mark Troughear.

“All of those businesses are closed, or most of them are, and so we are not doing those deliveries,” he said. While there has been a pick-up in business-to-consumer work as the company delivers essential goods to people at home, “it nowhere near compensates for the drop in business to business deliveries”, he said.

Freightways, whose brands include New Zealand Couriers, Post Haste Couriers and Big Chill Distribution, on Monday posted a 4.8 per cent increase in profit to $49.6 million in the year to June 30. It includes provision for a $23m extra payment for last year’s acquisition of Big Chill after it exceeded performance targets.

Jacinda Ardern announces that NZ will stay at alert level 4 until midnight Tuesday.

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Troughear said it was too early to estimate the impact the latest lockdown would have on profit for the coming year.

“There’s a whole bunch of levers that we can pull, but at the moment we have kept all our people on, they are all being paid 100 per cent, and we would like to think that level 4 doesn’t go on for too long, and we can get into level 3 where the volume of deliveries will increase again,” he said.

Freightways chief executive Mark Troughear says the company’s balance sheet is in a better position this year to handle a level 4 lockdown.

Prime Minister Jacinda Ardern will announce this afternoon whether the level 4 lockdown will continue beyond midnight Tuesday.

“There is headroom in our banking facilities, and the ability to flex our cost base to adapt to changing events,” Troughear said.

Over the past year, the company generated $198m of cash from its operations, $37m more than the previous year, and used some of the cash to reduce its borrowing by $58m to $164m.

Freightways claimed $15.1m in wage subsidies for its New Zealand businesses in its 2020 year, but Troughear said the company may not have to tap the scheme this time around.

An increase in home deliveries is not enough to make up for a decline in business deliveries, Freightways says.

“We are looking pretty hard to make sure that we can get through,” he said. “We are in a pretty good position. Our balance sheet is much, much stronger than it was last time around. We know what to expect a bit more this time around and we are hoping not to rely on the Government wage subsidy.”

Forsyth Barr analyst Andy Bowley said Freightways had been doing well up until level 4 restrictions kicked in last week.

While those restrictions would have a significant impact, the company had previously shown that it could bounce back.

“It’s a business in relatively good health, notwithstanding the challenges over the next few weeks, and hopefully they are weeks not months,” Bowley said.

Freightways acquired Big Chill in April last year, and is on the hunt for further acquisitions.

“We will be on the lookout for things that fit really well and on the lookout for quality businesses where we think we can add to what we already do,” Troughear said.

There were a number of opportunities on the table being looked at, but the company was being cautious at the moment, he said.

“We will see how level 4 goes because we will soak up a little bit of money through that period,” he said. “We will come out the end of that and then assess what we might be able to do.“

The company’s express package and refrigerated transport service was the best performer over the past year, lifting revenue 36 per cent to $572.6m. Total group revenue increased 27 per cent to $801m.

Freightways has increased the amount it charges for deliveries, as part of its ‘pricing for effort’ strategy which targets the areas of its business where the prices do not fully reflect the cost of performing the service.

That’s seen the average remuneration for its couriers improve by 8 per cent and reduced turnover in its courier fleet by 10 per cent, the company said.

“By retaining more experienced couriers it means better experiences for our customers,” Troughear said. “We have an increased number of applicants applying to join our fleets and our people feel more valued, so they are more productive and more commercially minded.

“As a result, we’ve come through a challenging time with a growing team and increased business.”

Freightways will pay a final dividend of 18 cents a share on October 1. That’s a turnaround from last year when the board decided against paying a final dividend after its business was disrupted by Covid-19.

Shares in Freightways were up 0.5 per cent to $13.05 at midday, and have gained 32 per cent over the past year.