NZ courier firm ready for new competitors
An increasing number of express parcels are whizzing around New Zealand's buoyant economy, generating strong profit growth for newly listed courier group Freightways.
The main competitor to NZ Post yesterday unveiled a better-than-expected 42 per cent rise in net profit for the first four months of the financial year.
Freightways shares surged 15 cents, or 6%, to a record 285, nearly double its float price of 160 set before it listed last September.
Chairman Wayne Boyd told the group's annual meeting economic conditions were favourable and trading had been consistently strong.
Freightways' existing customers were increasing volumes and its three courier brands — New Zealand Couriers, Post Haste and Castle Parcels — were winning market share from NZ Post.
"There has also been some small pricing and margin improvement compared to the previous year," Boyd said.
"The result continues the strong historic performance of Freightways and the company is well on track to deliver continued record earnings," he said.
Freightways' revenues for the first four months were $74.8 million, up 11% on the same period last year, while earnings before interest and tax were 32% higher at $15.5m. These figures beat analyst forecasts.
Boyd said economic conditions remained favourable.
"As at October, we have seen no sign of a trend that would suggest a slowdown in any area of our business."
The breadth of Freightways courier operations makes its activity an economic bellwether and the results show some economists' predictions of a slowdown in business activity have yet to be proven.
First NZ Capital analyst Andrew Mortimer said he had forecast 8% revenue growth for the year, and less than 20% growth in earnings before interest, tax and amortisation.
Elsewhere, Freightways said it was well placed to deal with increased competition from NZ Post, which is in partnership talks with German-owned courier giant DHL, and with Australia's Toll Holdings, which owns the rail network and is launching a courier service.
Freightways managing director Dean Bracewell said Freightways may be interested in acquiring NZ Post's courier businesses if the Government decided to put them on the market.
Bracewell said the company had asked the Government to be given the chance to buy the businesses.
"We await a positive response," he said. Currently, there was no proposition on the table and the value of the assets was unclear, he said.
NZ Post is in exclusive talks with DHL and the Government has given no indication it would open it up to any tender process.
Analysts are also doubtful Freightways would be allowed to bid by anti-monopoly authorities, given the two operators dominate the market.
"The question is whether they can actually participate and whether the Commerce Commission would allow it, seeing as the two have a significant proportion of the market," said First NZ's Mortimer.
Boyd said Freightways was ready to battle any new competitor.
"If any Australian transport operator actually makes a foray into our market, as has been talked about in recent months, we will also back ourselves to compete against them.
"It is not easy nor is it an inexpensive task to start up a successful nationwide express package business," he said.
In terms of acquisitions, the company was keeping an eye out for opportunities, with New Zealand being "the first port of call", Bracewell said.
Ninety per cent of the company's shares are held in New Zealand.
If the company were to buy NZ Post businesses, it would have to fund the acquisition through a mix of debt and equity, he said.
In August, Freightways reported a 27% surge in profit for the year to June, beating its prospectus forecast.
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PROFIT IN PARCELS
Freightways' profits are rising strongly on hefty growth in express parcel volumes.
KEY FACTORS
* Trading strong in first four months of 2004/05.
* Net profit up 42 per cent to $6.5 million.
* Existing customers increasing volumes.
* Also gaining market share from NZ Post.
* Prices and margins rising
