Covid 19 coronavirus Delta outbreak: What level 4 lockdown will mean for Freightways

Freightways came through the impact of Covid-19 with flying colours, the express package company posting a record result and dividend for the June year, but what will current level 4 restrictions mean for the current year?

The company has lifted its net profit by 4.8 per cent to $49.6 million, driven by gains in market share and new customers – the New Zealand parcel delivery business being the standout.

Revenue jumped by 27 per cent to $800.5m while its final dividend came to 18c, taking the total to 33.5c per share.

Freightways scrapped last year’s final dividend because of Covid-19 to preserve its balance sheet.

Growth was seen in its business-to-business and business to customer deliveries and volumes through most of the year were consistently higher than the previous year.

Freightways’ newly acquired refrigerated transport company Big Chill reporteda 14 per cent lift in revenues, aided by the opening of a new temperature-controlled third-party logistics warehouse and market share gains.

Level 4 restrictions, introduced last week, have put much of the economy on hold.

Chief executive Mark Troughear said level 4 “is not a great a great place to for anyone to be in, and we are not different”.

“Our volumes drop by about 50 per cent under level 4,” he said.

“When we get to level 3, our volumes willincrease again.”

Past experience showed that as soon as alert levels were lowered from level 4 to alert level 3 or below, the express package businesses should recover quickly and the company then tended to experience higher volumes than previously expected, he said.

Forsyth Barr analyst Andy Bowley said the company was in good health, “notwithstanding the challenges that it will encounter with the current restrictions,” he said.

“If it lasts as long as it did last time, there will be a sizeable impact in terms of the 2022 result,” he said.

Bowley said the company’s 2021 result was in line with market expectations.

“The standout has been the parcel business in New Zealand – the core business of Freightways,” Bowley said.

Troughear said the “pricing for effort (PFE)” strategy had meant Freightways had built value for its contractors.

The PFE rate lifted to $1.32 per item in 2021, up from 73c a year earlier, lifting the average pay of its contractors by 8 per cent.

Troughear said the company was looking at lifting the rate by 25c this year.

“It has led to a far better quality of delivery and we are not having the same level of turnover of contractors who deliver to residential areas, so it has been a game changer for us,” he said.

Freightways paid 80 per cent of the value of Big Chill upfront in April 2020 – $115m.

The final 20 per cent will be paid in August 2023, and will be based on the 2022 EBITA.

“As Big Chill’s performance has been well above our expectation, we expect that this final payment will be $23m more than we had initially anticipated.”

This one-off cost had been treated as a cost this year, reducing both EBITA and net profitby the same amount, Freightways said.

Removing the non-trading impact of the Big Chill final payment showed earnings rose by almost 30 per cent to $72.7m.

Elsewhere, Freightways said its Australian medical waste business, which when it was bought four years ago generated $3m in turnover, now does $16 million.

Looking ahead, Freightways saw opportunities for growth across its courier businesses as e-commerce continued to grow.

The emergence of new consumer trends, such as people wanting more direct access to fresh food, were a part of this, it said.

Should the level 4 lockdown continue for an extended period, the company would continue to evaluate its cost base and other options available to it.

The rules around contractors are a key issue for Freightways.

The Government last year announced the formation of a tripartite working group to progress the work to better protect vulnerable contractors.

Separately, courier driver Asneil Kumar is taking the state-owned NZ Post to the Employment Court over conditions.

The case was to have been heard this week, before level 4lockdown put proceedings on hold.

Forsyth Barr’s Bowley said any legislative change for contractors could have an impact on Freightways.

“It’s an issue you cannot ignore.”

Source: Read Full Article