Full year Results to 30 June 2020
Results for announcement to the market
Name of issuer FREIGHTWAYS LIMITED
Reporting Period 12 months to 30 June 2020
Previous Reporting Period 12 months to 30 June 2019
Currency New Zealand dollars
Amount (000s) Percentage change
Revenue from continuing
operations
$630,940 3%
Total Revenue $630,940 3%
Net profit/(loss) from
continuing operations
$47,375 (25%)
Total net profit/(loss)
$47,375 (25%)
Final Dividend
Amount per Quoted Equity
Security
The Directors have decided not to declare a final dividend for
FY20 given the uncertainty in both the NZ and Australian
markets due to COVID-19.
Imputed amount per Quoted
Equity Security
Not applicable
Record Date Not applicable
Dividend Payment Date Not applicable
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
($1.01) ($0.47)
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Refer to the section “Full Year Review” for commentary.
Authority for this announcement
Name of person
authorised
to make this announcement
Stephan Deschamps
Contact person for this
announcement
Stephan Deschamps
Contact phone number +64 27 562 5666
Contact email address stephan.deschamps@freightways.co.nz
Date of release through MAP
24/08/2020
Audited financial statements accompany this announcement.
2
FULL YEAR REVIEW
From the Chairman and Chief Executive Officer
In the last quarter of this financial year, every one of Freightways’ business units was called upon to provide
essential services during the COVID-19 lockdowns in New Zealand and Australia.
The challenges were many and varied: from the delivery of food and personal protective equipment (PPE), the
retrieval of hospital files held in offsite storage and the establishment of new trans-Tasman airfreight services
to keep export markets open, to the collection of medical waste from newly formed quarantine facilities.
Freightways’ brands helped to pick up, process and deliver over 20 million essential items for our customers.
The response by our teams across all businesses was outstanding. We would like to acknowledge the
extraordinary efforts of all of our staff and contractors in delivering for our customers during the year, and
particularly in the challenging last few months - where COVID-19 has changed the shape of the environments
in which we operate. There have been so many heart-warming stories of the efforts our people made to connect
essential goods to their intended recipients, on time and in full.
Just days into level 4 lockdown in New Zealand the company also completed the acquisition of Big Chill
Distribution Limited (Big Chill) after receiving approval from the Overseas Investment Office (OIO). The
forced timing of the transaction along with the dramatic drop in volume in the initial week of level 4 lockdown
trading, resulted in us renegotiating the terms of the deal to partly settle the transaction in shares, thus
preserving cash.
The business has demonstrated strong resilience. Our financial results in FY20 are naturally affected by the
lockdowns in both New Zealand and Australia. Pleasingly, following the initial drop in activity during
lockdowns, our position has steadily improved through the lifting of restrictions, although the recovery in
Australia has now been affected by the situation in Victoria and New Zealand has experienced another
lockdown, albeit not to the extent of the level 4 lockdown which restricted our customer activity to only
essential services.
The current environment remains highly uncertain, with a resurgence of COVID-19 across the globe increasing
the risk of further trading and travel restrictions. The board feels the prudent course of action is to not declare
a final dividend for FY20 given the uncertainty in both the NZ and Australian markets. While recent trading
has been strong in NZ, there has been a recent return to level 3 lockdown in Auckland and level 2 nationally
along with a continued severe lockdown in Victoria. The consensus is the full economic impact has yet to be
felt in either country at this stage. Notwithstanding our current performance, this decision also better positions
our balance sheet for an uncertain wider economic impact and preserves headroom for potential growth
opportunities which may emerge from the current environment. It is also important to acknowledge that many
of our team, including management and directors, took pay cuts through the quarter and that some of our
businesses accessed the government wage subsidy to ensure that we kept our people in work. For all of these
reasons we feel not declaring a final dividend for FY20 is a one-off decision and is the right thing to do. At
this point, we do envisage a resumption of dividends in the current financial year (FY21), subject to a
continuation of our current trading conditions.
Getting through the work
COVID-19 drove changes in consumer behaviour and, following the initial impact of lockdowns in NZ, the
courier industry has seen a surge in the number of parcels. While some of our competitors struggled to cope
with that flow, our people responded to the change in volumes and got on with making it work. The teamwork
amongst the businesses was inspiring. Our people volunteered for roles as freight sorters and couriers to get
the job done.
3
We had to react quickly and decisively because level 4 lockdown had such a deep and immediate effect on us.
Express Package volumes initially dropped by 65% while Information Management activity in New Zealand
ground to a halt, leaving us with just storage revenue. In Australia, the decrease in Information Management
activity was around 25% but while the impact has been shallower, it has also been more prolonged than in
New Zealand and continues into FY21 particularly in Victoria and NSW.
We quickly adapted to this dramatic reduction in activity, cutting our discretionary costs, reducing our wage
and salary costs by rostering for lower volumes, taking leave without pay and through most of our team
working less hours to reduce our overall labour costs. In line with lower volumes, our businesses moved
quickly to right size operations by removing linehaul runs, flights and other variable costs to minimise the
impact on profitability. In addition, Directors and senior executives took a 20% cut in fees and fixed salaries
in the quarter.
We applied for the New Zealand Government Wage Subsidy for those businesses that incurred a greater-than-
30% decline in revenue. This enabled us to continue to retain our staff in those businesses. A number of our
businesses did not meet this threshold and either did not apply or promptly returned the subsidy when that
became clear.
Our unfaltering entrepreneurial spirit
During this period of time, we managed to do three things that perfectly capture the entrepreneurial spirit that
makes Freightways successful.
We commenced new services and quickly grew existing ones, such as trans-Tasman airfreight charters through
our aviation JV with Airwork, rapidly expanded medical waste collections through Med-X in Australia in
response to the need to dispose of PPE, and a new premium same-day guaranteed delivery service across
Auckland with NOW Couriers.
Secondly, we maintained our service levels through the spikes in B2C (home delivery) volumes which
occurred during level 3 lockdown.
Finally, while we were in lockdown (4 days in, in fact) we completed the acquisition of Big Chill, settling the
transaction with a combination of cash and shares.
Business Unit performance
Each line of business experienced a range of impacts through the year. The highlights are listed below along
with our strategic direction in the near term.
Express Package
Steady increases in organic volume up until March 25
th
(when Level 4 lockdown began in New Zealand)
had generated encouraging revenue and margin gains in that month;
As New Zealand moved through lockdown levels 4 to 2, we experienced growth in the proportion of B2C
freight from the combination of supporting our customers who were changing their models to enable B2C
for their essential items as well as increasing charitable deliveries (performed at cost). By June, this B2C
proportion had moderated from around half of all deliveries back to 24%, still 4% higher than pre- COVID-
19;
This has accelerated a trend that was already expected before the epidemic, and for which we had been
preparing through our Pricing For Effort (PFE) programme. B2C deliveries attract lower margins than
B2B, but this situation is improving and we expect to continue to make progress in this area over the
coming years;
Pricing for Effort (PFE) of 73c per item has thus helped considerably through the heightened B2C volumes
our brands have experienced since level 3 lockdown;
4
Residential productivity through the lockdown period increased by 17%, assisted by less congested roads
and a greater proportion of first-time deliveries because receivers were home to accept items;
Courier pay was impacted by the COVID-19 lockdown period, being 2% behind last year’s average of
$103k p.a. per contractor. Self-employed contractors were able to draw on the government wage subsidy
if their income dropped by 30% in a given month;
Volumes in June, July and August to date have been stronger than expected, which we attribute to market
share gains and also higher levels of organic trade from many customers;
We remain wary as volumes are still sensitive to overall economic conditions. At this stage, they seem to
be driven by a combination of pent up demand, stronger than expected retail sales and sustained B2C
volumes;
Big Chill initially suffered a 22% decline in revenue through level 4 and 15% through nationwide level 3.
Despite this, the business was able to adjust quickly and reduce costs in response to lower demand.
Business conditions had improved by June, with the last month of the year delivering revenue growth of
15% on the pcp;
Through Q4 we provided 1.4m kgs of international trans-Tasman airfreight capacity as part of the
Government’s International Airfreight Capacity Scheme. The profitability of this service depends heavily
on the degree of utilisation. This has varied, as the Australian States transition through various phases of
lockdown but is overall a positive contributor to performance. The agreement has been extended through
until the end of August when it will again be reviewed by the Government.
The year ahead
Express Package will continue to focus on building our market positions through providing superior levels of
service and pricing our services appropriately.
This focus will include introducing a further phase of our pricing for effort (PFE) strategy for B2C deliveries.
It is critical that our contractors are remunerated through item revenue (rather than company subsidies) for the
effort required for residential deliveries. We will implement additional customer-facing IT systems to make it
even easier for customers to deal with us and provide them and their receivers with greater visibility. We will
also continue to exploit our multi-brand strategy through positioning our brands to meet the needs of different
customer segments. Our latest initiative sees us position NOW Couriers as our guaranteed same-day Auckland
service provider, giving customers peace of mind and surety.
Big Chill’s expansion into 3PL in Auckland will be a focus as well as taking advantage of a larger temperature-
controlled Wellington hub. Customers will be able to benefit from a fully outsourced storage, picking &
labelling service that links seamlessly into Big Chill’s national delivery network. There are a number of new
market opportunities for Big Chill, some of which will leverage the ability to provide a last-mile express
delivery service to customers as well as improving their customer experience by leveraging our suite of express
package technology.
Business Mail
The volume trajectory for Business Mail followed a similar trend to that of Express Package. By the end
of June, volumes had recovered to be marginally higher than the previous year. This was particularly
pleasing, although we received slightly lower revenue per item as a result of direct price-based competition
for mail being delivered to those areas that DX Mail services;
Through lockdown, DX demonstrated the ability to flex its cost base to a greater degree than larger fixed
cost operators. It was satisfying to see the co-operation between businesses to lend support as volumes
ramped up in the Express Package division. DX employees offered to assist the courier brands, helping us
to maintain very high standard of on-time delivery.
Despite a 30% reduction in mail volumes during the months of April and May overall, DX Mail volumes
for the full year grew by 4%. This growth was achieved through market share gains obtained on the basis
of better and more frequent mail delivery services.
5
The year ahead
DX will expand its delivery network in response to customer demand. We expect demand to remain strong
although with a lower margin than in previous years due to the ongoing impact of our competitor’s zonal
pricing programme. Our experience is that many customers request and reward high levels of service and we
will continue to focus on providing a high delivery standard to those customers who require it.
Information Management
Storage revenue was solid through the year and particularly resilient to the impacts of COVID-19.
However, the number of new archives coming into facilities virtually halted as lockdowns occurred in
New Zealand and Australia;
Collection and retrieval of archives and media tapes reduced by 90% in New Zealand and by about 25%
in Australia in the last quarter of the year;
Our litigation support services – in particular print and copy services - were also heavily impacted as
lawyers vacated their offices as a result of COVID-19 and have remained working from home, in many
cases reducing the demand by up to 50% for printed material.
There have been positive signs of recovery in New Zealand, but Australia will take longer to recover
because staff in many organisations continue to work from home. CBD areas in particular are still devoid
of many of their office staff;
The digitalisation project that TIMG had geared up for late last year did eventually commence, but at lower
levels of activity than expected because physical data was difficult to collect during COVID restrictions.
This project is expected to be broken into stages and will take longer to process than initially anticipated.
The combination of these various negative trends has led to our decision to partially impair our litigation
support business in Australia.
The year ahead
With a lower level of storage facility utilisation than we would have liked, we will assess a number of alternate
opportunities to generate revenue from our warehousing footprint. There is an encouraging pipeline of
digitalisation opportunities in Australia, which our team will look to capitalise on to provide on-going revenue
in FY21.
We will also continue to review our range of services. In FY20, we created a Product Development team to
look at ways we can grow our existing services as well as look to systematically develop new revenue
opportunities. The team have assessed 12 concepts to date with 3 progressing to prototypes and early stage
customer acquisition.
Secure Destruction
In New Zealand, document destruction came to a complete standstill in April but has recovered well since
level 2 lockdown came into effect. In Australia, there was a 15% reduction in activity from March and,
despite pockets of recovery, the recent lockdown in Victoria has meant that it is likely to take longer to
return to pre-COVID-19 levels. However, volumes of paper collected by both businesses have been
encouraging and paper pricing is stable;
The collection of medical waste experienced two opposing impacts with many hospitals and clinics seeing
fewer patients, but newly established quarantine facilities requiring brand new services;
Revenue from high-value recyclables (eWaste, coffee cups, packaging waste) had been growing well off
a very small base but also took a hit during the close down of Quick Service Restaurants in Australia.
However, it remains an area of focus for the business as we develop our networks and capabilities.
The year ahead
Growing non-paper sources of waste that can be diverted from landfill, or treated to add value, will be a key
strategy for Shred-X in FY21 as will taking advantage of newly acquired medical waste processing capability
in New South Wales.
6
Balance sheet strength
Freightways has always been particularly disciplined around capital management, and capital expenditure and
management of cash will remain a clear focus. While the initial 65% drop in activity, which occurred the same
week that OIO granted approval for the completion of the Big Chill transaction, did present an interesting
challenge, the company has managed its position well and is well placed for the opportunities ahead.
Capital expenditure for FY20 was $23m. In FY21 capital expenditure will be carefully managed and targeted
toward projects that realise the greatest returns. Despite the addition of Big Chill to the group, capex is
expected to be managed to a range of $20-22m in FY21 and spent on a range of IT development projects,
replacement of vehicles and freight handling equipment.
Outlook
We are encouraged by strong early trading results consistently achieved in the last few months, however the
economic backdrop to FY21 can best be described as uncertain for all business units in Australia and New
Zealand.
In Express Package, the current higher level of volume, which includes a slightly higher proportion of lower-
margin B2C deliveries, will likely eventually track the level of macro-economic activity and of business and
consumer confidence. In Information Management, whilst storage revenues are reasonably resilient, the
activity-based revenue streams will be driven by the number of people returning to office environments and,
in some cases, this will be lower than pre-COVID-19.
In both divisions, we will react quickly to any reduction or growth in volumes to ensure we are providing
services as efficiently as possible whilst maintaining the service standards our customers expect. Using what
we learnt during the period of COVID-19 lockdowns, we will adjust our cost base to protect our margins. We
will also assess the portfolio of services we provide and make decisions on the best strategies to deliver value
to shareholders over the long term.
We expect that COVID-19 will also continue to provide opportunities that our teams can capitalise on, either
for new services, market share opportunities from customers valuing our reliability or the potential for
accretive acquisitions.
While Freightways is not alone in being cautious around the outlook for FY21 in a macro-economic sense, our
stakeholders can be assured that our response to movements in volume will be swift but will not compromise
on service to customers and the safety of our people.
The Freightways directors would again like to acknowledge the efforts of every one of our team across
Australasia during these exceptional times. We also thank you, our shareholders, for your continuing support.
Mark Verbiest Mark Troughear
Chairman Chief Executive Officer
24 August 2020
7
FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2020
2020
$000
2019
$000
Variance
%
Operating revenue 630,940 615,692 2%
Other income - 1,252 (100%)
Transport and logistics expenses (253,443) (241,907) 5%
Employee benefits expenses (168,017) (174,537) (4%)
Occupancy expenses (5,143) (28,912) (82%)
General and administration expenses (59,668) (58,119) 3%
Other expenses - (1,252) (100%)
Non-recurring items (9,598) 2,354 (508%)
Operating profit before interest, income tax,
depreciation and software amortisation and
amortisation of intangibles
135,071 114,571 18%
Depreciation and software amortisation (46,874) (15,438) 204%
Operating profit before interest, income tax and
amortisation of intangibles
88,197 99,133 (11%)
Amortisation of intangibles (3,477) (2,071) 68%
Profit before interest and income tax 84,720 97,062 (13%)
Net interest and finance costs* (18,420) (9,566) 93%
Profit before income tax 66,300 87,496 (24%)
Income tax
- Tax applicable to profit before income tax (20,355) (24,119) (16%)
- Tax benefits a result of tax law change 1,430 - 100%
Total income tax (18,925) (24,119) (22%)
Profit for the year 47,375 63,377 (25%)
Profit for the year is attributable to:
Owners of the parent 47,332 63,367 (25%)
Non-controlling interests 43 10 330%
47,375 63,377 (25%)
* The 2020 net interest amount includes $8.8 million in respect of the interest component of operating lease
payments, now accounted for under NZ IFRS 16.
8
FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2020
2020
$000
2019
$000
Profit for the year (NPAT) 47,375 63,377
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations 1,475 (2,210)
Cash flow hedges taken directly to equity, net of tax 1,826 328
Total other comprehensive income after income tax 3,301 (1,882)
Total comprehensive income for the year 50,676 61,495
Total comprehensive income for the year is attributable to:
Owners of the parent 50,633 61,485
Non-controlling interests 43 10
50,676 61,495
9
FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2020
Contributed
equity
Retained
earnings
Cash flow
hedge
reserve
Foreign
currency
translation
reserve
Non-
controlling
interests
Total equity
$000 $000 $000 $000 $000 $000
Balance at 1 July 2019
125,260 140,861 (4,229) (3,669)
-
258,223
Profit for the year
- 63,367
-
-
10 63,377
Exchange differences on translation of foreign operations
- - - (2,210) - (2,210)
Cash flow hedges taken directly to equity, net of tax
- - 328 - - 328
Total Comprehensive Income
- 63,367 328 (2,210)
10 61,495
Dividend payments
- (47,002)
-
-
- (47,002)
Acquisition of non-controlling interests
- - - - 114 114
Shares issued
1,180 - - - - 1,180
Balance at 30 June 2019
126,440 157,226 (3,901) (5,879)
124 274,010
Impact of adoption of NZ IFRS 16
-
(14,409)
-
(231)
-
(14,640)
Restated Balance at 1 July 2019
126,440 142,817 (3,901) (6,110)
124 259,370
Profit for the year
- 47,332
-
-
43 47,375
Exchange differences on translation of foreign operations
- - - 1,475 - 1,475
Cash flow hedges taken directly to equity, net of tax
- - 1,826 - - 1,826
Total Comprehensive Income
- 47,332 1,826 1,475
43 50,676
Dividend payments
- (47,403)
-
-
(53) (47,456)
Shares issued
54,190 - - - - 54,190
Balance at 30 June 2020
180,630 142,746 (2,075) (4,635)
114 316,780
10
FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 30 June 2020
2020
$000
2019
$000
Current assets
Cash and cash equivalents 16,686 15,986
Trade and other receivables 100,381 87,805
Income tax receivable 384 -
Inventories 6,019 5,009
Total current assets 123,470 108,800
Non-current assets
Trade receivables and other non-current assets 7,348 3,984
Property, plant and equipment 134,649 106,710
Right-of-use assets 278,142 -
Intangible assets 498,966 365,152
Investment in associates 7,842 -
Total non-current assets 926,947 475,846
Total assets 1,050,417 584,646
Current liabilities
Trade and other payables 87,656 68,967
Borrowings (secured) 5,210 -
Lease liabilities 30,641 127
Income tax payable 18,824 6,429
Provisions 1,225 860
Derivative financial instruments 750 880
Contract liability 15,142 15,664
Total current liabilities 159,448 92,927
Non-current liabilities
Trade and other payables 27,386 3,137
Borrowings (secured) 216,484 167,394
Deferred tax liability 41,425 37,762
Provisions 6,331 4,750
Lease liabilities 280,431 129
Derivative financial instruments 2,132 4,537
Total non-current liabilities 574,189 217,709
Total liabilities 733,637 310,636
NET ASSETS 316,780 274,010
EQUITY
Contributed equity 180,630 126,440
Retained earnings 142,746 157,226
Cash flow hedge reserve (2,075) (3,901)
Foreign currency translation reserve (4,635) (5,879)
316,666 273,886
Non-controlling interests 114 124
TOTAL EQUITY 316,780 274,010
Net Tangible Assets (Liabilities) per Security ($1.01) ($0.47)
11
FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2020
2020
$000
2019
$000
Inflows
(Outflows)
Inflows
(Outflows)
Cash flows from operating activities
Receipts from customers
634,749 609,744
Payments to suppliers and employees
(474,653) (501,203)
Cash generated from operations
160,096 108,541
Interest received 48 137
Interest and other costs of finance paid*
(19,380) (9,379)
Income taxes paid
(13,599) (23,292)
Net cash inflows from operating activities
127,165 76,007
Cash flows from investing activities
Payments for property, plant and equipment
(18,318) (16,844)
Payments for software
(5,313) (6,429)
Proceeds from disposal of property, plant and equipment
849 2,450
Payments for businesses acquired (net of cash acquired)
(94,973) (11,111)
Payments for investment in associates (7,468) -
Receipts from joint venture 1,202 2,478
Cash flows from other investing activities
(226) (470)
Net cash outflows from investing activities (124,247) (29,926)
Cash flows from financing activities
Dividends paid
(47,456) (47,002)
Increase in bank borrowings
45,802 9,512
Proceeds from issue of ordinary shares
24,126 748
Principal elements of lease payments (2019 – Principal elements of
finance lease payments)
(24,954) (91)
Net cash outflows from financing activities
(2,482) (36,833)
Net increase in cash and cash equivalents 436 9,248
Cash and cash equivalents at beginning of year
15,986 7,410
Exchange rate adjustments 264 (672)
Cash and cash equivalents at end of year 16,686 15,986
* The 2020 interest paid amount includes $8.8 million in respect of the interest component of operating lease
payments, now accounted for under NZ IFRS 16.
12
Earnings per Security (EPS)
Calculation of basic and fully diluted EPS in accordance with NZ IAS 33: Earnings Per Share:
Current year (cents
per share)
Previous corresponding
year (cents per share)
Basic EPS 30.0 40.8
Diluted EPS 29.9 40.7
Basic and diluted earnings per share calculated on the profit for the year attributable to shareholders, excluding
non-recurring items, net of tax, are 35.5 and 35.4 cents, respectively (2019: 39.3 and 39.2 cents, respectively).
Dividends
After careful consideration, the Directors have decided not to declare a final dividend for FY20 given the
uncertainty in both the NZ and Australian markets due to COVID-19.
Post Balance Date Events
COVID-19
Post year end, parts of both New Zealand and Australia have seen increased restrictions because of a resumption
of COVID-19 cases. To date this has not had a material impact on the Group’s business activities.
Freightways Performance Share Rights Scheme
In July 2020, the Freightways Board of Directors approved a new Executive Long-term Incentive Scheme for the
Freightways senior leadership team to replace the existing Freightways Senior Executive Share Performance Plan.
An initial issue of 141,916 Share Rights under the rules of the new scheme was made on 31 July, 2020. The Share
Rights have a 3-year vesting period commencing 1 July 2019 and will be eligible for vesting as of 30 June 2022.
Vesting is subject to the achievement of certain financial hurdles set by the Board and included in the annual offer
of participation to executives. Once it has been determined how many Share Right have vested, each Share Right
will convert to a Freightways fully paid ordinary share at that time.
Impact of COVID-19
In March 2020, the World Health Organisation declared COVID-19 a global pandemic. COVID-19 has brought
disruptions and uncertainties to businesses and economies globally. These disruptions impacted on the
Freightways operations in both New Zealand and Australia.
Freightways is deemed to provide essential services in both New Zealand and Australia. The Level 4 lockdown
in New Zealand initially decreased express package volume by 65% while information management activities in
New Zealand ground to a halt, leaving the Group with only storage revenue. In Australia, information
management activities decreased by around 25% initially.
As the lockdown eased, express package volume recovered and by June 2020, volume was stronger than expected.
The information management segment in New Zealand is showing positive signs of recovery but Australia will
take longer to recover.
Express package volumes have remained strong as Auckland entered a second Level 3 lockdown in August 2020.
However, the resurgence of COVID-19 cases in many countries, and the decisions to impose increased restrictions
in the Australian State of Victoria and in Auckland create a heightened level of uncertainty and could further
impact economic activity.
13
An assessment of the impact of COVID-19 on the Freightways financial statements is set out in the following
table.
Item COVID-19 assessment
Reduced remuneration Directors’ fees, as well as Management’s fixed remuneration were reduced by
20% in the last quarter of the financial year in response to the COVID-19
pandemic. While some of our lowest paid employees were paid a premium
during lockdown, many other employees worked reduced hours or agreed to pay
reductions during this period.
Employee entitlements The New Zealand and Australian governments introduced wage subsidy and
JobKeeper subsidy, respectively. Employee entitlements in the income
statement is net of wage subsidies of $15.1 million and JobKeeper subsidy of
$0.8 million. Some of Freightways’ businesses did not apply for the wage
subsidy.
Trade receivables Freightways has increased the expected credit loss allowance in trade receivables
to $2.9 million (2019: $1.5 million) given the increased risk of the macro-
economic environmen
t.
Software COVID-19 has resulted in the accelerated development and deployment of
various new IT initiatives and strategies, resulting in the need to write-off certain
previously capitalised software that is now considered obsolete.
Right-of-use assets The Group has engaged with landlords for rent relief. There is no significant
impact on the financial statements from the rent relief.
Goodwill and indefinite
lived intangible assets
The disruptions of COVID-19 to activity levels have contributed to the carrying
value of certain goodwill and brand names within the cash-generating unit of
The Information Management Group (Australia) exceeding their recoverable
amounts. An impairment loss of $5.8 million has been recognised with respect
to this CGU.
Borrowings Due to the uncertainty that COVID-19 presented, Freightways increased its
syndicated bank facilities and negotiated the extension of maturity dates for a
number of facilities within the banking arrangements. The Bank Facility increase
is for a period of 12 to 18 months from inception and there is no expectation that
they will be maintained beyond this point.
Income tax & deferred tax Re-introduction of depreciation allowances for commercial buildings by the
New Zealand Government has led to the need to adjust deferred tax balances.
14
Non-recurring Items
Non-recurring items in the income statement comprise the following gains and losses:
(i) Impairment loss in respect of (a) the carrying value of goodwill and brand names recognised upon the
acquisition of the LitSupport print & copy bureau ($5.8 million), and (b) an amount of the goodwill
originally recognised upon the acquisition of the NSW-based State Waste Services (SWS) business ($1
million) with $1.5 million earn-out payable for SWS reversed in 2020, refer (iv) below.
(ii) Write-off of internally-developed software considered obsolete as a result of the accelerated introduction
of new software applications and systems in response to business and market demands.
(iii) Advisory fee paid for assistance with the successful acquisition of Big Chill Distribution Limited.
(iv) Reversal of previously-accrued earn-out payables no longer expected to be paid related to the acquisition
of SWS.
(v) Insurance proceeds received (no tax applicable) from the Group’s insurers to reinstate racking in
Wellington damaged by the North Canterbury earthquake. NB. In 2019, the income statement included
as other expenses an amount of $1.3 million in additional costs of operations resulting from this
earthquake, while the compensation of $1.3 million received from the Group’s insurers for these
additional costs of operations was included in other income.
Segment Reporting
A segment is a component of the Group that can be distinguished from other components of the Group by the
products or services it sells, the primary market it operates in and the risks and returns applicable to it. Operating
segments are reported upon in a manner consistent with the internal reporting used by the Chief Executive Officer,
as the chief operating decision maker, and the Board for allocating resources, assessing performance and strategic
decision making.
The Group is organised into the following reportable operating segments:
Express package & business mail
Comprises network (hub & spoke) courier, refrigerated transport, point-to-point courier and postal services.
Information management
Comprises secure paper-based and electronic business information management services.
Corporate and other
Comprises corporate, financing and property management services.
The Group has no individual customer that represents more than 4% of external sales revenue.
Group
Non-recurring (gains) losses:
Note
2020
$000
2019
$000
Impairment of goodwill (i) 5,194 -
Impairment of brand names (i) 1,581 -
Impairment of intangible assets - software (ii) 608 -
Write-off of obsolete software (ii) 2,739 -
Acquisition advisory fee (iii) 981 -
Reversal of earn-out payables (iv) (1,505) (461)
Insurance proceeds for replacement racking (v) - (1,893)
15
As at and for the year ended 30 June 2020:
Express
Package &
Business Mail
Information
Management
Corporate Inter-
Segment
Elimination
Consolidated
Operations
$000 $000 $000 $000 $000
Income statement
Sales to external customers
472,151 158,783 6 - 630,940
Inter-segment sales
2,272 (58) 4,900 (7,114) -
Total revenue
474,423 158,725 4,906 (7,114) 630,940
Operating profit (loss) before non-
recurring items, interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles
101,690
47,055
(4,076)
-
144,669
Non-recurring items (3,347) (5,270) (981) - (9,598)
Operating profit (loss) before
interest, income tax, depreciation
and software amortisation and
amortisation of intangibles
98,343
41,785
(5,057)
-
135,071
Depreciation and software
amortisation
(23,929) (21,215) (1,730) - (46,874)
Operating profit (loss) before
interest, income tax and
amortisation of intangibles
74,414
20,570
(6,787)
-
88,197
Amortisation of intangibles (1,168) (2,309) - - (3,477)
Profit (loss) before interest and
income tax
73,246 18,261 (6,787) - 84,720
Net interest and finance costs (3,810) (5,188) (9,422) - (18,420)
Profit (loss) before income tax
69,436 13,073 (16,209) - 66,300
Income tax (18,815) (5,492) 5,382 - (18,925)
Profit (loss) for the year attributable
to the shareholders
50,621 7,581 (10,827) - 47,375
16
Segment Reporting (continued)
As at and for the year ended 30 June 2019:
Express
Package &
Business Mail
Information
Management
Corporate Inter-
Segment
Elimination
Consolidated
Operations
$000 $000 $000 $000 $000
Income statement
Sales to external customers
451,261 164,429 2 - 615,692
Inter-segment sales
1,716 67 4,651 (6,434) -
Total revenue
452,977 164,496 4,653 (6,434) 615,692
Operating profit (loss) before non-
recurring items, interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles
80,015
35,347
(3,145)
-
112,217
Non-recurring items - 2,354 - - 2,354
Operating profit (loss) before
interest, income tax, depreciation
and software amortisation and
amortisation of intangibles
80,015
37,701
(3,145)
-
114,571
Depreciation and software
amortisation
(7,821) (6,082) (1,535) - (15,438)
Operating profit (loss) before
interest, income tax and
amortisation of intangibles
72,194
31,619
(4,680)
-
99,133
Amortisation of intangibles (50) (2,021) - - (2,071)
Profit (loss) before interest and
income tax
72,144 29,598 (4,680) - 97,062
Net interest and finance costs (11) (30) (9,525) - (9,566)
Profit (loss) before income tax
72,133 29,568 (14,205) - 87,496
Income tax (19,967) (8,427) 4,275 - (24,119)
Profit (loss) for the year attributable
to the shareholders
52,166 21,141 (9,930) - 63,377
17
Revenue from Contracts with Customers
The Group derives revenue from the transfer of goods and services over time and at a point in time in the following
major product lines:
Express
Package &
Refrigerated
Transport
Postal
Storage &
Handling
Destruction
Activities
Other Total
2020 $000 $000 $000 $000 $000 $000
Revenue from external
customers
421,668 49,122 60,295 61,592 38,263 630,940
Timing of revenue
recognition:
At a point in time - 3,191 - 18,307 10,176 31,674
Over time 421,668 45,931 60,295 43,285 28,087 599,266
421,668 49,122 60,295 61,592 38,263 630,940
2019
Revenue from external
customers
397,220 54,041 62,567 59,707 42,157 615,692
Timing of revenue
recognition:
At a point in time - 3,480 - 20,083 8,848 32,411
Over time 397,220 50,561 62,567 39,624 33,309 583,281
397,220 54,041 62,567 59,707 42,157 615,692
18
Business Combinations
Acquisition of Big Chill Distribution Limited (“BCD”)
Effective 1 April 2020, the Group acquired 100% of BCD, a company operating in the New Zealand temperature-
controlled transport and facilities market, for an initial consideration of approximately $114.6 million and a future
earn-out representing 20% of BCD Enterprise Value as at 30 June 2022. This acquired subsidiary operates within
the Group’s express package & business mail division.
The contribution of BCD to the Group results for the year ended 30 June 2020 was revenue of $22 million and
operating profit before interest, income tax and amortisation of intangibles of $2.7 million. If this acquisition had
occurred at the beginning of the year, the contribution to revenue and operating profit before interest, income tax
and amortisation of intangibles for the period is estimated at $100.9 million and $12.9 million, respectively. There
was no material impact on these contributions from COVID-19.
The following table summarises the purchase consideration and the fair value of assets acquired and liabilities
assumed:
Purchase consideration $000
Cash paid during the period 84,553
Issue of Freightways shares 30,000
Fair value of future earn-out paymen
t 27,193
Total purchase consideration 141,746
Fair value of assets and liabilities arising from the acquisition
Cash and cash equivalents 5,715
Trade and other receivables 11,706
Plant and equipmen
t 24,256
Righ
t-of-use assets 91,292
Net investment in sublease 4,506
Brand name 5,500
Customer relationships 40,900
Non-compete agreemen
t 1,900
Goodwill 83,754
Trade and other payables (12,802)
Borrowings (6,023)
Deferred tax liability (12,723)
Lease liabilities (96,235)
141,746
The fair value of the trade and other receivables acquired as part of the business combination amounted to $11.7m.
The gross contractual amount is $12.1m, with a loss allowance of $0.4m recognised on acquisition.
The estimated discounted future earn-out payment of $27.2 million may be payable in August 2022 and has been
accrued for in the financial statements, but is contingent upon certain financial performance hurdles being
achieved for the years ended 30 June 2021 and 2022. The potential undiscounted amount of the future earn-out
payment that the Group expects could be required to be made in respect of this acquisition is between nil and $30
million. The Group has forecast several scenarios and probability-weighted each to determine a fair value for this
contingent payment arrangement.
The goodwill of $83.8 million arising upon this acquisition is attributable to the business know how and the
premium paid for strategic reasons, including acquiring an entry point into the temperature-controlled transport
and facilities industry. None of the goodwill recognised is expected to be deductible for income tax purposes.
19
The fair value of certain assets and liabilities arising from the acquisition have been determined on a provisional
basis due to the acquisition being completed close to the financial year end. Plant and equipment, customer
relationships and brand name have been measured provisionally, pending confirmation of certain determinants
and completion of independent valuations. The fair value of these assets will be finalised within 12 months from
the acquisition date.
Other acquisitions during the year:
During the year ended 30 June 2020, the Group acquired seven small information management businesses in
Australia for an aggregate purchase consideration totalling approximately $10.4 million. These businesses have
been integrated into the Australian businesses of the Group’s information management division. The acquisitions
were of the business & assets of:
Green Team in South Australia (SA) on 2 September 2019
Country Hygiene in New South Wales (NSW) on 1 October 2019
Scanning Conversion Services in SA on 1 November 2019
Specialised Waste Treatment Services in NSW on 2 December 2019
Pro Opt in NSW on 6 March 2020
Queensland Document Destruction on 16 March 2020
Avon Paper in Western Australia on 1 April 2020
The contribution of these businesses to the Group results for the year ended 30 June 2020 was revenue of $3.4
million and operating profit before interest, income tax and amortisation of intangibles of $0.5 million, net of
acquisition costs of $0.3 million.
If these acquisitions had all occurred at the beginning of the year, the contribution to revenue and operating profit
before interest, income tax and amortisation of intangibles for the half year is estimated at $6.5 million and $1.3
million (net of acquisition costs of $0.3 million), respectively.
Details of net assets acquired and goodwill for these acquisitions are as follows:
Purchase consideration
$000
Cash consideration paid during the period 10,168
Estimated working capital adjustment 194
10,362
Fair value of assets and liabilities arising from the acquisition
Trade and other receivables 7
Inventories 33
Plant and equipmen
t 1,139
Customer relationships
3,109
Goodwill 7,659
Trade and other creditors (288)
Provisions
(520)
Deferred tax liability (777)
10,362
The goodwill of $7.7 million arising upon these acquisitions is attributable to the business know how obtained
and economies of scale expected to be enhanced by integrating these businesses into the operations of the Group.
None of the goodwill recognised is expected to be deductible for income tax purposes.
The fair value of certain assets and liabilities arising from these acquisitions has been determined on a provisional
basis. Plant and equipment and customer relationships have been measured provisionally, pending confirmation
of certain determinants and valuation methods. The fair value of these assets will be finalised within 12 months
from the acquisition date.
20
Prior period acquisitions:
State Waste Services (SWS)
Effective 1 September 2017, the Group acquired the business and assets of SWS, an Australian-based medical
waste collection and destruction business, for an initial payment of approximately $6.5 million (A$5.9 million)
and a future maximum earn-out of up to $4.5 million (A$4.1 million). SWS was branded as Med-X and integrated
into the Group’s Shred-X business within the information management division.
The potential earn-out is contingent upon certain financial performance hurdles being achieved for the years ended
30 June 2019, 2020 and 2021. The Group has forecast several scenarios and probability-weighted each to
determine a fair value for this contingent payment arrangement. As at 30 June 2020, based on the actual
performance of the acquired business, management has estimated that there is likely to be no future earn-out
payment payable in September 2021 and accordingly has reversed the accrual of $1.5 million as a non-recurring
gain in the income statement.
Borrowings (secured)
In December 2019, the Group negotiated increases of NZ$70 million and A$20 million to its existing syndicated
bank facilities with 4-year and 5-year maturity, respectively. The increased facilities were effective from 23
December 2019 and are at similar pricing to existing facilities.
In May 2020, the Group negotiated a two-year extension of its syndicated bank facilities that were maturing on 1
September 2021. In addition, the facilities were increased by NZ$50 million as a buffer against the uncertain
impact COVID-19 might have on cash flows and debt headroom. The additional facilities mature in November
2021 and May 2022, as detailed in the maturity table above. The extended and increased facilities became effective
from 14 May 2020.
Investment in Associate
In October 2019, the Group acquired a 33% interest in Sweetspot Group Limited (trading as GoSweetSpot (GSS))
for $7.5m. GSS is a New Zealand-based courier and freight aggregator. GSS purchases courier services from the
Group for on-selling to its customers. The Group also utilises the GSS software solution to support some of its
own customers.
Changes in Accounting Policies
The Group adopted NZ IFRS 16 Leases for which application became mandatory for the Group for the financial
year beginning 1 July 2019. The impact of adopting NZ IFRS 16 is below.
Except for the adoption of NZ IFRS 16 Leases, the accounting policies and methods of computation are consistent
with those used in the year ended 30 June 2019.
Amendments to NZ IFRS 3: Business Combinations, mandatory from 1 July 2020, further clarify the definition
of a business, with the objective of assisting entities to determine whether a transaction should be accounted for
as a business combination or as an asset acquisition. Other than this, there are no other new standards,
amendments or interpretations that are not yet effective that would be expected to have a material impact on the
Group.
21
Adoption of NZ IFRS 16: Leases
The Group adopted NZ IFRS 16 Leases, effective from 1 July 2019. This standard replaces the guidance in NZ
IAS 17. Under NZ IAS 17, a lessee was required to make a distinction between a finance lease (on balance sheet)
and an operating lease (off balance sheet). NZ IFRS 16 now requires a lessee to recognise a lease liability reflecting
future lease payments and a ‘right-of-use’ (ROU) asset for virtually all lease contracts.
From the effective date of adoption, the income statement is impacted by the removal of operating lease expenses,
the recognition of an interest expense applicable to the future lease payment obligations and the recognition of a
depreciation expense in respect of the ROU asset.
This standard has changed the accounting for the Group’s operating leases. As at the effective date, the Group
had non-cancellable operating lease commitments of $127 million. Upon adoption, NZ IFRS 16 had a material
impact on a number of elements of, and disclosures within, the Group’s balance sheet, income statement and
statement of cash flows. The Group’s actual overall cash flows are unaffected by the adoption of this standard.
In calculating the financial impact, management was required to make various key judgements, including:
- the incremental borrowing rate (IBR) used to discount the ROU assets and the future lease payment
obligations (lease liabilities);
- lease terms, including any rights of renewal expected to be exercised; and
- foreign exchange conversion rates.
In applying NZ IFRS 16 for the first time, the Group has used the following practical expedients permitted by the
standard:
- applying a single discount rate to a portfolio of leases with reasonably similar characteristics;
- accounting for operating leases with a remaining lease term of less than 12 months as at 1 July 2019 as short-
term leases;
- excluding initial direct costs for the measurement of the ROU asset at the date of initial application; and
- using hindsight in determining the lease term where the contract contains options to extend or terminate the
lease.
When adopting the standard, management applied IBR’s of between 2.45% to 4.23%, with a weighted average
rate of 3.61%, to discount the ROU assets and the future lease payment obligations, depending on the nature of
the relevant leases. Some of the factors taken into consideration when calculating the IBR for each asset category
included observable market rates, economic conditions and lease tenure.
The new standard allowed a choice of transition methods. Management determined that the most appropriate
approach for the Group to use was the modified retrospective transition method. Under this transition method, the
Group was allowed to retrospectively value the ROU asset on a lease by lease basis without having to restate
comparatives and to recognise the cumulative effect of initially applying the standard as an adjustment to retained
earnings. Alternatively, the ROU asset on a lease by lease basis could have been measured at an amount equal to
the value of the lease liability. In arriving at the below financial impact of adopting the new standard, the latter
approach was applied to value the ROU asset for the majority, by number, of the Group’s operating leases, but
with 20 high value property operating leases (representing approximately 80% of the lease liability to be
recognised) being retrospectively valued.
Management’s process identified that the financial impact on the balance sheet as at 1 July 2019 was as follows:
- Recognition of ROU assets of $200 million;
- Recognition of lease liabilities of $223 million;
- A decrease in trade and other payables of $2 million;
- Recognition of a deferred tax asset of $6 million; and
- A decrease in opening retained earnings of $15 million.
The financial impact on the income statement for the year ended 30 June 2020 was a reduction in net profit after
tax of $2.5 million. This was made up of the following changes:
- a $33.7 million decrease in operating lease rental expenses (removed);
- a $28.4 million increase in depreciation (relating to ROU assets);
- an $8.8 million increase in interest expense (relating to lease liabilities); and
- a $1 million decrease in tax expense.
22
A summary of the financial impact on the income statement for the year ended 30 June 2020 is:
Before NZ
IFRS 16
IFRS 16
Adjustment
After NZ
IFRS 16
$000 $000 $000
Operating profit before interest, income tax, depreciation
and software amortisation and amortisation of intangibles
101,366 33,705 135,071
Depreciation and software amortisation (18,465) (28,409) (46,874)
Operating profit before interest, income tax and
amortisation of intangibles
82,901 5,296 88,197
Amortisation of intangibles (3,477) - (3,477)
Profit before interest and income tax
79,424 5,296 84,720
Net interest and finance costs (9,668) (8,752) (18,420)
Profit before income tax
69,756 (3,456) 66,300
Income tax (19,920) 995 (18,925)
Profit for the year attributable to the shareholders
49,836 (2,461) 47,375
Prior to the adoption of NZ IFRS 16, operating lease payments were included in payments to suppliers within
operating activities in the statement of cash flows. Following the adoption of NZ IFRS 16, the interest component
is allocated to operating cashflows and the repayment of the principal elements of leases is classified within
financing activities.
Intangible Assets
(i) Goodwill
Goodwill represents the excess of the consideration transferred in an acquisition over the fair value of the
Group’s share of the net identifiable assets of the acquired business at the date of acquisition. Goodwill is not
amortised, but is tested for impairment annually or whenever events or changes in circumstances indicate that
it might be impaired, and is carried at cost less accumulated impairment losses. Goodwill is allocated to cash-
generating units for the purpose of impairment testing.
(ii) Brand names
Acquired brand names are recognised at cost, being their fair value at the date of acquisition if acquired in a
business combination. Brand names with indefinite useful lives are not subject to amortisation, but are tested
for impairment annually or whenever events or changes in circumstances indicate that they might be impaired,
and are carried at cost less amortisation and impairment losses. The useful lives and amortisation methods
are reviewed and adjusted, if appropriate, at each balance sheet date.
Brand names are allocated to cash-generating units for the purpose of impairment testing. The allocation is
made to those cash-generating units or groups of cash-generating units that are expected to benefit from the
brand names.
(iii) Computer software
External software costs, together with payroll and related costs for employees directly associated with the
development of software, are capitalised. Costs associated with upgrades and enhancements are capitalised
to the extent they result in additional functionality. Amortisation is charged on a straight-line basis over the
estimated useful life of the software which ranges between 3 and 10 years. Included in the cost of software is
work in progress of $2.8 million (2019: $4.3 million) for which amortisation has not commenced. Software
under development not yet available for use is tested annually for impairment.
23
(iv) Customer relationships
Contractual
An intangible asset is recorded at fair value in respect of the amount of any contractual termination fees
payable by customers of businesses acquired in respect of their document holdings. As it is not known when
permanent retrieval fees may arise, this asset is only amortised upon the actual retrieval fee being charged to
the respective customer.
Other
Non-contractual customer relationships acquired in a business combination are recognised at fair value at the
acquisition date. These customer relationships have an estimated finite useful life and are carried at cost less
accumulated amortisation. Amortisation is calculated using the straight-line method over the expected useful
life of the customer relationship which ranges between 10 and 20 years.
Group Goodwill
Brand
names
Software
Customer
relationships
Other Total
2020 $000 $000 $000 $000 $000 $000
Opening net book value
212,737 113,932 17,797 17,477 3,209 365,152
Additions - - 4,937 - 173 5,110
Acquisition through business
combinations
91,475 5,500 37 44,009 1,900 142,921
Amortisation expense - - (3,705) (3,069) (408) (7,182)
Impairment loss (5,194) (1,581) (608) - - (7,383)
Written-off - - (2,739) - - (2,739)
Exchange rate movement
2,265 456 43 266 57 3,087
Closing net book value 301,283 118,307 15,762 58,683 4,931 498,966
As at end of year
Cost
319,945 118,307 35,419 70,480 7,024 551,175
Accumulated amortisation
and impairmen
t
(18,662) - (19,657) (11,797) (2,093) (52,209)
Net book value 301,283 118,307 15,762 58,683 4,931 498,966
COVID-19 has resulted in the accelerated development and deployment of various new IT initiatives and strategies,
resulting in the need to write-off certain previously capitalised software that is now considered obsolete.
Group
Goodwill
Brand
names
Software
Customer
relationships
Other Total
2019
$000 $000 $000 $000 $000 $000
Opening net book value
208,179 114,775 14,359 18,086 3,020 358,419
Additions - - 6,429 - 470 6,899
Acquisition through business
combinations
8,426 - - 1,722 - 10,148
Amortisation expense - - (2,922) (1,887) (184) (4,993)
Exchange rate movement (3,868) (843) (69) (444) (97) (5,321)
Closing net book value 212,737 113,932 17,797 17,477 3,209 365,152
As at end of year
Cost
231,399 113,932 33,838 26,030 4,878 410,077
Accumulated amortisation (18,662) - (16,041) (8,553) (1,669) (44,925)
Net book value 212,737 113,932 17,797 17,477 3,209 365,152
24
Impairment tests for indefinite life intangible assets
Goodwill and brand names are allocated to those cash-generating units (CGU) or groups of CGU that are expected
to benefit from them. The carrying amount of intangible assets allocated by CGU or group of CGU is outlined
below:
Goodwill Brand names
2020
$000
2019
$000
2020
$000
2019
$000
Big Chill 83,755 - 5,500 -
Messenger Services
8,766 8,766 5,100 5,100
New Zealand Couriers 47,752 47,752 58,500 58,500
New Zealand Document Exchange 10,967 10,967 5,900 5,900
Dataprint 4,125 4,125 1,310 1,310
Post Haste, Castle Parcels and NOW Couriers 27,159 27,159 18,395 18,395
Total Express Package & Business Mail 182,524 98,769 94,705 89,205
The Information Management Group (New Zealand) 17,577 17,577 4,400 4,400
The Information Management Group (Australia) 56,615 59,510 15,894 17,095
Shred-X 44,567 36,881 3,308 3,232
Total Information Management 118,759 113,968 23,602 24,727
Total
301,283 212,737 118,307 113,932
(i) Key assumptions used for value-in-use calculations
On an annual basis, the recoverable amount of goodwill and brand names is determined based on the greater of
value-in-use and fair value less costs of disposal calculations specific to the CGU associated with both goodwill
and brand names.
The value-in-use calculations use post-tax cash flow projections based on financial budgets prepared by
management and approved by the Board for the year ended 30 June 2021, taking into account each CGU’s
historical performance against budget. Cash flows beyond June 2021 have been extrapolated using growth rates
which take into consideration current and forecast economic conditions for the relevant products and industries.
A probabilistic approach was also adopted for businesses where the book value was close to the value-in-use: a
number of scenarios were considered and weighted by an estimation of their likelihood. In addition, the sensitivity
of the main financial variables was tested and considered in the final estimation.
A 1% (2019: 1%) revenue growth rate, a consistent EBITDA margin assuming costs increase in line with revenue
and 1% (2019: 1%) terminal growth rate have been applied to the Express Package & Business Mail businesses
in the value-in-use calculation.
A 2% (2019: 3%) revenue growth rate, a consistent EBITDA margin assuming costs increase in line with revenue
and 2% (2019: 2.5%) terminal growth rate, reflecting both historical and expected growth, have been applied to
the value-in-use calculation for the Information Management segment with the same scenarios and sensitivities
applied as described in the Significant estimate – impairment loss section below.
A post-tax discount rate of 7.5%, equating to a pre-tax discount rate of 10% (2019: 10% pre-tax discount rate)
has been applied to all CGUs, reflecting the current environment in financial markets.
25
(ii) Significant estimate – impairment loss
An impairment loss of $5.8 million (A$5.5 million) has been recognised in the CGU of The Information
Management Group (Australia) (TIMG AU). The LitSupport business acquired by Freightways in December
2014 and incorporated into the TIMG AU CGU has not performed to management’s expectation. LitSupport was
acquired for a potential total consideration of $32.2 million, made up of an initial payment of $18.3 million and
potential earn-out of $13.9 million. As a result of not meeting an initial financial hurdle for the 2015 calendar
year, the vendors were required to refund $5.3 million of the initial purchase price to Freightways. The financial
performance hurdles for the potential earn-out of $13.9 million were also not met and none of the earn-out was
paid to the vendors. This resulted in the total purchase consideration for LitSupport being $13 million instead of
the initial potential total consideration of $32.2 million.
The performance of LitSupport has continued to deteriorate in the last 12 months, exacerbated by the impact of
COVID-19, and is not expected to recover to the extent that the recoverable amounts of goodwill and brand names
will exceed their carrying values. The impairment modelling applied probability sensitivities, including a number
of different scenarios, an assessment of historical delivery against budget as well as the sensitivity to key financial
assumptions driving the valuation. In addition, the modelling used a series of balanced assumptions to the
underlying cash flow forecasts to lower the risk of over (or under)-stating the future performance of the CGU.
The following scenarios and sensitivities were used in preparing the valuation model:
- 90% achievement of FY21 budgeted revenue
- only 2% Revenue growth per year (with a range of scenarios going from -4% to 4% p.a considered);
- a consistent EBITDA margin assuming costs increase in line with revenue; and
- low 2% terminal EBITA growth rate.
The value-in-use calculation described above resulted in impairment losses of $4.2 million (A$4 million) and $1.6
million (A$1.5 million) being recognised in the 2020 financial year in respect of the TIMG AU CGU’s goodwill
and brand names, respectively. The impairment losses have been determined based on the greater of the
recoverable amount from value-in-use and fair value less cost of disposal calculations. No other class of asset in
the TIMG AU CGU was considered impaired by management.
For all other CGU, with the exception of the ones mentioned above, the value-in-use and fair value less cost of
disposal calculations indicate that the recoverable amounts of goodwill and brand names of other CGU held by
the Group exceed their carrying values and therefore there is no impairment in the value of those intangible assets.
(iii) Significant estimate - Sensitivity to changes in assumptions
With regard to the value-in-use assessment for all CGU’s, other than TIMG AU described above and New Zealand
Document Exchange (NZDX) discussed below, management believes that no reasonably possible change in any
of the above assumptions would cause the carrying values of goodwill and brand names to materially exceed their
respective recoverable amounts.
The value-in-use analysis prepared for TIMG AU based on the key assumptions described above is most sensitive
to a change in revenue growth, terminal growth and post-tax discount rate. If the revenue growth and terminal
growth rate used was reduced from 2% to 1%, the impairment loss recognised against intangibles would have
been $9 million and $17.1 million, respectively. Conversely, if the revenue growth and terminal growth rate used
was increased from 2% to 3%, the impairment loss recognised against intangibles would have been $2.8 million
and nil, respectively, with the latter showing the recoverable amount exceeding the carrying amount by $10.2m.
If the post-tax discount rate used increased from 7.5% to 8.5%, the impairment loss recognised against
intangibles would have been $19.4m. Conversely, if the post-tax discount rate used was decreased from 7.5% to
6.5%, there would be no impairment loss, as the recoverable amount would have exceeded the carrying amount
by $13.5m.
26
The carrying value of the NZDX CGU has been assessed as at 30 June 2020 by management as being on par with
its recoverable amount (2019: recoverable amount exceeded carrying value by $22.5 million). The analysis was
performed by comparing the value-in-use of NZDX with its fair value less cost of disposal. The value-in-use
analysis used the key assumptions described above (revenue growth rate of 1%, a consistent EBITDA margin
assuming costs increase in line with revenue, probability weighted scenarios, post tax discount factor of 7.5%),
with the value-in-use being sensitive to a change in the discount factor, although this would not materially change
the value-in-use. The analysis also recognised the ongoing decline in postal volumes in New Zealand and the
direct impact COVID-19 has taken in accelerating the market’s already growing demand for digital
communication solutions. NZDX has seen a recovery of its activity post lockdown, but a further deterioration of
the economic and competitive environment could reduce the estimated recoverable amount of the NZDX CGU
below the current carrying value of its intangible assets (2019: no reasonably possible change in any of the
assumptions would cause the carrying value to materially exceed recoverable amount).
---
FREIGHTWAYSFULL YEARRESULTSPRESENTATION
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
We’ve never been afraid to be the first to do something – if it’s the right thing to do
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
This year we’ve successfully
expanded into new areas because we
saw opportunities to add value across several sectors. We invested in
Big Chill
because we knew there was growth potential in the
food supply chain. We’ve re
vamped and strengthened courier
businesses like
NOW
to continue delivering at the high service
levels our customers expect. We introduced a
trans-Tasman
air
freight service to help exporters de
liver to their Australian markets.
And we introduced
PFE
to ensure our drivers take home the
earnings they deserve, and the bus
iness improved its margin on
residential delivery.Of course the country’s re
sponse to the threat of
Covid-19 affected us, just like it did most New Zealand businesses.
But it also brought out the best in our culture. Right across our brands, people stepped in to help where help was needed. Good things happened. Every day.Like all businesses, we’ll respond to the ebbs and flows of what has happened in ways that protect
our business and respect the
expectations of our investors. But entrepreneurship will remain our constant. We have always been, and will always be, a company that grows on the strengths of what we accomplish together.
Agenda1. 2020 HIGHLIGHTS & LOWLIGHTS2. FINANCIAL POSITION & PERFORMANCE3. DIVIDEND4. STRATEGY5. OUTLOOK
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
HIGHLIGHTS
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Full Year Results Presentation 2020
ACTIONS
Led the industry with
contactless deliveries
+ Range of onsite
precautionary measures
+ Implementing PODS+ Provision of PPE+ Contact tracing records
Extension and recognition
of lending facilities
Heightened
focus on cash
collection
Elimination of travel,
discretionary spending and
variable overheads
Reduction of
non-essential
capital
expenditure
Salary freeze (excluding the
increases of depot staff)
1000 staff work
from home
Use of DRP on 1
st
April and
$30m of equity for BCD
Reduced linehaul and
airfreight sectors
Reduction of overtime and
use of casual labour
Only affected businesses
claimed the Government
Wage Subsidy
$54m
COVID-19 Impact
All Freightways’ businesses in NZ and AU were categorised as essential services or suppliers to essential services, reflecting the critical nature of the items we pick up, process and deliver.
Our response included
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
2.4%
-33.0%
4.8%
10.1%
-40%-35%-30%-25%-20%-15%-10%
-5%
0%5%
10%15%
Jul-Mar
Apr
May
Jun
Express Package
Revenue Comparison - year-on-year
COVID-19 Impact
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Note:
For like for like comparison, the Express Package graph above excludes contribution from Big Chill.
-0.7%
-19.6%
-18.7%
2.8%
-25%-20%-15%-10%
-5%
0%5%
Jul-Mar
Apr
May
Jun
Information Management
Revenue Comparison - year-on-year
COVID-19 Impact
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
March
April
May
June
July
Network Courier Items by Delivery Point
Residential
Business
Rural
Note:
For like for like comparison, the Express Package graph above excludes contribution from Big Chill.
B2B, B2C MIX (in 2020)
Highlights
•
Ability to respond to the challenge and demonstr
ate the resilience of
the business model
•
Express delivery standards during
the (level 3) peak online s
hopping period were a credit to our team when the pressure
was on
•
Gained market share as a result
of superior delivery performance
•
Achieved 73c per item
Pricing for Effort by
the end of the year
•
Acquired Big Chill 4 days into lockdown.
While BCD experienced a drop in volume
of 22% during level 4, volumes have
bounced back and demonstrated YoY
growth of 15% in June
•
Commenced a Trans-Tasman airfreight operation within 4 wee
ks of lockdown, supported by
the Ministry of Transport
•
Launched NOW Couriers same-day
guaranteed service across Auckland
•
Launched Kiwidrive, a crowd sourc
ed point-to-point delivery serv
ice to provide variable deliv
ery resource in peak periods
•
Rapidly expanded our medical waste business
(Med-X) in response to demand for secu
re collection and disposal of waste
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Lowlights
•
Decline in Print and Copy
of 50% through Covid-19
•
Records Management facility utilisation stalled in 2HY
in AU as Covid-19 took pr
ecedence for our customers
•
Slower and lower uptake of the digitisation projec
t which is now expected
to continue through FY21
•
In AU many CBD office workers WF
H which results in lower activity
for our information management business
•
Discounting of bulk mail pricing wh
ich resulted in lower margins
•
Lower paper pricing
in NZ during FY20
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
FINANCIAL POSITION & PERFORMANCEFull Year Results Presentation 2020The financial results in this presentation should be read in conjunction with the abridged financial statements for the year ended 30 June 2020 which can be found in the NZX preliminary results announcement.
Financial SummaryFor the year ended 30 June
2020
NOTES(i)
Operating profit
before interest, tax and amortisa
tion, before non-recurring items
(ii)
Operating
profit before interest, tax and amortisation
(iii)
Net profit after tax (NPAT), before non-recurring items
(iv)
Profit for the year attribut
able to the shareholders
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
GAAP – Generally Accepted Account
ing Principles (IFRS-compliant)
FY19
FY20
Change
GAAP
$M
IFRS16
lease
adj.
$M
Excl.
leasing
$M
GAAP
$M
IFRS16
lease
adj.
$M
Excl.
leasing
$M
GAAP
%
Excl.
leasing
%
Note
Revenue
615.7 -
615.7
630.
9 -
630.9
2.5 2.5
EBITA, before non-recurring items
i.
96.
8 -
96.8
97.8 5.3 92.5
1.0 (4.4)
Non-recurring items
2.6 -
2.6
(9.6)
-
(9.6)
(462.9)
(462.9)
EBITA
ii.
99.4 -
99.4
88.2
5.3 82.9
(11.3)
(16.6)
NPAT, before non-recurring items
iii.
61.0 -
61.0
56.0 (2.5)
58.5
(8.2)
(4.1)
Non-recurring items after tax
2.4 -
2.4
(8.7)
-
(8.7)
(467.9)
(467.9)
NPAT
iv
63.4 -
63.4
47.4 (2
.5)
49.8 (25.2)
(21.4)
Basic EPS (cents)
39.3 39.3 35.5 37.0 (9.7)
(5.9)
(before non-recurring items)
Non-recurring Items
2020
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Non-recurring (gains) losses:
2020$000
Impairment of goodwill
5,194
Impairment of brand names
1,581
Impairment of intangible assets -software
608
Write-off of obsolete software
2,739
Acquisition advisory fee
981
Reversal of earn-out payables
(1,505)
Total non-recurring losses
(9,598)
Non-recurring benefits before tax totalling $2.6 million (no tax applicable) in respect of reversi
ng $1.6 million of a previously
accrued final acquisition payable t
hat is no longer expected to be
required and a $1 million gain upon recording the replacement of earthquake-related damaged racking funded by insurance proceeds. The gain on the racking r
eplacement arises from the $3
million of insurance proceeds re
ceived during the year for new
racking exceeding the $2 million written down book value of the structurally-compromised racking that was written-off.
2019
FY19
FY20
Change
$M
$M
%
Express package & refri
gerated transport
397.2
421.7
6.2
Postal
54.0
49.1
(9.1)
Storage & handling
62.6
60.3
(3.6)
Destruction activities
59.7
61.6
3.2
Other
42.2
38.3
(9.2)
Total revenue
615.7
630.9
2.5
Revenue Segmentation For the year ended 30 June
2020
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
NOTES* Other includes Digital Services and Print and Copy revenue
FY19
FY20
Change
$M
$M
%
Operating Revenue
453.0
474.4
4.7
EBITDA
80.0
85.6
7.0
EBITA
72.2
75.9
5.2
EBITA Margin
15.9%
16.0%
Express Package & Business MailFor the year ended 30 June
2020
Information Management For the year ended 30 June
2020
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
NOTES•
EBITDA, EBITA and EBITA margins on
this slide represent operating
results, exclusive of the im
pact of NZ IFRS 16 and non-recurr
ing items
•
Refer to appendix for reconciliation to GAAP results
FY19
FY20
Change
$M
$M
%
Operating Revenue
164.5
158.7
(3.5)
EBITDA
35.3
29.6
(16.3)
EBITA
29.3
22.4
(23.5)
EBITA Margin
17.8%
14.1%
•
Total assets increased from FY19 by $466m, including $278m of ri
ght-of-use assets (NZ IFRS16), $134m of intangible assets and
$28m of property, plant & equipment (both pr
edominantly due to acquisitions in FY20).
Higher trade & other receivables from in
creased
activity and timing of receipts ($13m).
•
Total liabilities increased from FY19 by $423m, including:
–
$311m of lease liabilities on adoption of NZ IFRS16
–
$54m in borrowings to fund acquisitions
–
$43m in trade and other payable from increased
activity and timing of payments, as well as accrual for deferred settlement on th
e
Big Chill acquisition
–
$12m in income tax payable with FY20 pr
ovisional tax funded through tax financing
•
Issued capital increased by $54m, including $23m
worth of shares issued in the April dividend reinvestment plan (DRP) and $30m
of
shares issued as part
of placement to certain vendors of Big Chill.
•
Gearing as at 30 June 2020 is 38% (excluding
lease liabilities related to NZ IFRS16) and 62% (including lease liabilities relat
ed to NZ
IFRS16).
Balance Sheet – Key Points
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Cashflow – Key Points
•
Cash generated from operations of $160m was $52m above the PCP.
With the adoption of NZ IFRS16, $34m of lease payments
previously included in payments to suppliers
are now classified in interest payment
($9m) and lease payments ($25m). COVID-19 w
age
subsidy of $16m has been netted agai
nst payments to suppliers and em
ployees. Net cash inflows from operating activities (i.e. af
ter
deducting interest and tax payments) were $51m above the PCP. Inco
me tax paid in FY20 is lower due to provisional tax being fun
ded
through tax financing and interest paid increase reflects
the previously mentioned interest on NZ IFRS16.
•
Cashflows from investing activities were up $94m on the PCP,
which included $91m more in acquisition payments compared to the PC
P
•
The $34m decrease in cash outflows from fi
nancing activities compared to the PCP refl
ects the drawdown of
$45m of debt in FY20
compared to $10m in the PCP and $24m from s
hares issued, partially offs
et by $25m of lease payment
s previously classified in
payments to supplier as described in point 1 above.
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Capital ExpenditureFor the year ended 30 June
2020
2020
Full Year Actual
$M
2021
Full Year Forecast
$M
Capital Expenditure
23
20 - 22
Depreciation and software amortisation(including impact of NZ IFRS 16)
47
52*
Depreciation and software amortisation(excluding impact of NZ IFRS 16)
18
23
*
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
* Increase from FY20 predominantly due to the annualised impact
of depreciation on assets of businesses acquired in FY20
DIVIDEND
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Full Year Results Presentation 2020
Dividend
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
•
The prudent course of action is to not dec
lare a final dividend for FY20 given the uncertainty in both the NZ and Australian ma
rkets.
•
While recent trading has been strong in NZ,
there has been a recent return to level 3 lockdown in Auckland and level 2 national
ly along
with a continued severe lockdown in Victoria.
•
The consensus is t
hat the full economic impact has yet to be
felt in either country at this stage.
•
This decision also better posit
ions our balance sheet for an unc
ertain wider economic impact
and preserves headroom for potenti
al
growth opportunities which may em
erge from the current environment.
•
It is also important to acknowledge also t
hat many of our team took pay cuts th
rough the lockdown period and that some of our
businesses accessed the government wage subsidy
to ensure that we kept our people in work.
•
For all of these reasons - not
declaring a final dividend for FY20, which is expec
ted to be a one-off decision, is the right thi
ng to do.
•
We envisage a resumption of dividends in the cu
rrent financial year (FY21),
subject to a continuation of our current trading con
ditions.
STRATEGY
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Full Year Results Presentation 2020
Strategy
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
4 CORE AREAS OF BUSINESS
Express PackageCurrent State•
Volumes have recovered after level 4 lockdown and, in the period from May-July, were above the pcp
•
Business to Consumer (home delivery) peaked at ~50% of volume and has since moderated back to 24% (4% higher than pre-COVID)
•
Achieved 73c/item in Pric
ing for Effort by June
•
Residential delivery produc
tivity increased by
17% during lockdown levels 4-2
•
Service levels were strong, outperforming competitors
•
Big Chill's volumes fell by 22% through level 4 and then have steadily recovered to be above the pcp by June
•
Trans-Tasman airfreight capacity exceeded 1.4 m kilos by the end of June
Strategy•
Pricing For Effort: Stage II has been launched effective 1st August at an additional 50c per item
•
We have elected to levy a
modest 1.9% price increase
across all services
•
NOW Couriers same-day-guaranteed service has been launched in Auckland
•
Streamlined IT systems will be launched to continue to improve customer experience
•
Big Chill will leverage new 3PL facility in Auckland as well as increased capacity in Wellington and Hawkes Bay
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Business MailCurrent State•
Mail volumes fell by 30% during level 4 lockdown but have recovered steadily to end the year above the pcp
•
Pricing for bulk mail is lower than the pcp due to "zonal pricing"
•
DX has a highly variable cost base enabling it to scale up and down easily
Strategy•
Continue to expand our network to meet customer demand and achieve greater efficiencies through scale
•
Provide customers with a multi-channel offer (digital and physical mail)
•
Provide high levels of se
rvice at premium prices
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Information ManagementCurrent State•
Covid-19 impacted a number of
services in both AU
and NZ:
‒
Archive growth stalled in
2H as decisions were
deferred
‒
Print and copy declined by
50% as lawyers left
CBDs
‒
Digitisation commenced but more slowly and at much lower levels than expected
•
NZ activity levels had largely recovered up until the new lockdown in August
•
AU activity still impacted
by Victoria's lockdown and
lower levels of office occupancy
•
Right-sized the business in Q3
Strategy•
Target alternate storage revenue streams in NSW and WA while Archives continue to be slow to transition in
•
Continue to work Digitisation which will largely shift from FY20 to FY21
•
Significant digitisation opportunities in the pipeline for FY21 & FY22
•
Develop new services to ma
rket to our large NZ and
AU customer bases
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Secure Destruction
Current State•
SD reduced by 90% during
NZ's level 4 lockdown
and by 15% in AU
•
NZ activity bounced back after lockdown to pre-Covid levels
•
AU's recovery will likely take longer due to Victorian restrictions and more CBD workers currently WFH
•
Paper pricing has stabilis
ed but lower than the pcp
•
Demand for medical waste collections in AU is high, particularly in Victoria
•
Non-paper destruction fini
shed the year strongly
with further opportunities for growth
Strategy•
Continue to target market share gains
•
Target new waste streams to divert from landfill
•
Use a combination of acquisition, alliance and start-ups to grow scale in NZ and AU
•
Generate transport efficiencies across the Shred-X and Med-X fleets
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
OUTLOOK
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Full Year Results Presentation 2020
•
Whilst the economic environment re
mains highly uncertain, we are
encouraged by the strong trading resu
lts achieved in the last few
months
•
We would expect that
–
In Express Package, volume will
eventually track macro-economic
activity;
–
In Information Management, whilst storage revenues are resilient, activity-based revenue depends
on the number of people
returning to offices.
•
We have learnt from the previous
lockdowns and will react quickly to
any volume change by adjusting our co
st base to protect our margins.
•
We will also review the portfolio of se
rvices we provide with a view to
delivering superior long-term value to shareholders.
•
We expect that COVID will also
continue to provide opportunities,
either for new services, market s
hare gains or accretive acquisitions.
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
7%
14%
12%
14%
7%
11%
10%
11%
W/c 29 June
W/c 6 July
W/c 13 July
W/c 20 July
W/c 27 July
W/c 3 August W/c 10 August
Total over 7
weeks
Growth in Items 2019 v 2020
Note:
Represents weekly growth in items wi
thin the Network Courier businesses.
Outlook
CONCLUSION
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Full Year Results Presentation 2020
While Freightways is not alone in being cautious around the outlook for FY21 in amacro-economic sense, our stakeholder
s can be assured that our response to
movements in volume will be swift but will not compromise on service tocustomers and the safety of our people.
Conclusion
The Freightways directors would again like to thank the efforts of every one of our teams across Australasia
during these exceptional times.
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Appendix: Reconciliation to GAAPFor the year ended 30 June
2020
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
Express Package & Business MailInformation Management
FY19
FY20
Change
$M
$M
%
Operating Revenue
453.0
474.4
4.7
EBITDA (before non-recurring
items and NZ IFRS16)
80.0
85.6
7.0
Non-recurring items
-
(3.3)
100.0
NZ IFRS16 adjustment
-
16.1
100.0
EBITDA (after non-recurring items and NZ IFRS16)
80.0
98.3
22.9
Depreciation expense (includi
ng NZ IFRS16)
(7.8)
(23.9)
206.0
EBITA (GAAP)
72.2 74.4 3.1
EBITA (GAAP) Margin
15.9%
15.7%
FY19
FY20
Change
$M
$M
%
Operating Revenue
164.5
158.7
(3.5)
EBITDA (before non-recurring
items and NZ IFRS16)
35.3
29.6
(16.3)
Non-recurring items
2.4 (5.3)
(323.9)
NZ IFRS16 adjustment
-
17.5
100.0
EBITDA (after non-recurring items and NZ IFRS16)
37.7
41.8
10.8
Depreciation expense (includi
ng NZ IFRS16)
(6.1)
(21.2)
248.8
EBITA (GAAP)
31.6 20.6 (34.9)
EBITA (GAAP) Margin
19.2%
13.0%
NOTES*
GAAP – Generally Accepted Accounti
ng Principles (IFRS-compliant)
Disclaimer.
This presentation has been prepared by Freightways Limited ("Freightways") for
information purposes only. This presentation is not a product disclosure statement, prospectus orinvestment statement. Nothing in this presentation constitutes an invitation to subscribe forshares, securities or financial products in Freightways. Nothing in this presentation constituteslegal, accounting, financial or taxation advice or any other advice of any kind. Any investor shouldconsult their own professional advisors and conduct their own independent investigation ofFreightways and the information contained in this presentation, including any statements relatingto the future performance of Freightways. The information in this presentation is given in goodfaith and has been obtained from sources believed to be reliable and accurate at the date of thispresentation. This presentation may include forward
-
looking statements regarding future events
and the future financial performance of Freightways. Such forward
-
looking statements are
based on current expectations and involve risks and uncertainties. Actual results may bematerially different from those stated in any forward
-
looking statements.
Nothing contained in this document is or should be relied on as a promise as to the futureperformance or condition of Freightways or as to any other future events. Except as required bylaw or the NZX Listing Rules, Freightways undertakes no obligation to update anyforward
-
looking statements, whether as a result of new information, future events or otherwise or
to report against any forward
-
looking statements. None of Freightways, their affiliates, or their
respective advisers or representatives, give any warranty or representation as to the accuracy orcompleteness of the information contained in this presentation, and exclude their liability to themaximum extent permitted by law.
Freightways Limited and its subsidiaries.Full Year Report Financial Year ended 30 June 2020
---
PricewaterhouseCoopers, 15 Customs Street West, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent auditor’s report
To the shareholders of Freightways Limited
We have audited the financial statements which comprise:
● the balance sheet as at 30 June 2020;
● the income statement for the year then ended;
● the statement of comprehensive income for the year then ended;
● the statement of changes in equity for the year then ended;
● the statement of cash flows for the year then ended; and
● the notes to the financial statements, which include a summary of significant accounting
policies.
Our opinion
In our opinion, the accompanying financial statements of Freightways Limited (the Company),
including its subsidiaries (the Group), present fairly, in all material respects, the financial position of
the Group as at 30 June 2020, its financial performance and its cash flows for the year then ended in
accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS)
and International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
(NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the financial statements section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1 International
Code of Ethics for Assurance Practitioners (including International Independence Standard) (New
Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the
International Code of Ethics for Professional Accountants (including International Independence
Standards) issues by the International Ethics Standards Board for Accountants (IESBA Code), and we
have fulfilled our other ethical responsibilities in accordance with these requirements.
Our firm carries out other services for the Group in the areas of agreed upon procedures over the poll
for the shareholder resolutions at the Annual General Meeting and Executives’ remuneration
benchmarking. The provision of these other services has not impaired our independence as auditor of
the Group.
PwC 2
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements of the current year. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matter How our audit addressed the key audit matter
Impairment assessment of goodwill and
indefinite lived brands, including the impact
of COVID-19
The Group has goodwill of $301.3 million and
brands of $118.3 million as disclosed in Note
17. The Group is required to perform an
annual impairment assessment of both
goodwill and brands, which are accounted for
as indefinite life intangible assets.
This is an area of focus for our audit due to the
value of these assets on the balance sheet and
the inherent judgement in assessing these
assets for impairment.
Management prepared an impairment
assessment for the Group based on the latest
forecasts for each Cash Generating Unit (CGU)
which included considerations relating to the
impact of COVID-19. The recoverable amount
of each CGU has been determined based on
the greater of its value-in-use and its fair value
less costs of disposal.
The key assumptions used by management in
the impairment assessment are included in
Note 17 of the financial statements.
As detailed in Note 17, as a result of the
impairment assessments the Directors have
recognised a total impairment expense of $5.2
million in goodwill and $1.6 million in brands.
Our audit procedures included aspects of the following
depending on the level of headroom and sensitivity to
impairment of each CGU:
● Considered the appropriate determination of each CGU
● Obtained an understanding of the current and forecast
outlook for the business, including consideration of, and
adjustments made for, the potential impact of COVID-19
and management’s basis for determining the key
assumptions in preparing the forecast cash flows
● In conjunction with our auditor’s valuation expert,
assessed the appropriateness of key assumptions by
performing the following:
− assessed the reliability of management’s
budgeting process by understanding the
differences between the historical and
budgeted performance in previous years;
− benchmarked key assumptions, to historic
performance and market data where relevant
and available.
● Tested the mathematical accuracy of the models
● Considered whether disclosures, including the
completeness of key assumptions and the impact of
reasonably possible changes in key assumptions that
may result in a CGUs carrying amount exceeding its
recoverable amount, are appropriate.
PwC 3
Key audit matter How our audit addressed the key audit matter
Accounting for Big Chill Distribution
acquisition
The Group acquired Big Chill Distribution on
the 1 April 2020 as disclosed in Note 33. We
consider this acquisition to be a key audit
matter due to the significance of the
acquisition to the Group and the significance
of the judgements involved.
Management applied judgement in
determining the fair value of the future earn-
out payment which makes up $27.2 million of
the total purchase consideration.
Management has also applied significant
judgement in completing a provisional
assessment of the fair value of the assets and
liabilities acquired, including recognising the
following separately identifiable intangible
assets:
● Brand of $5.5 million
● Non-compete agreement with the
founders/directors of $1.9 million
● Customer relationships of $40.9 million.
We audited the accounting treatment of the acquisition by:
● Reviewing the Sale and Purchase Agreement to
understand the key terms and conditions
● Testing the value assigned to the Freightways shares
that were issued as part of the total consideration by
comparing it to the market value of Freightways shares
at the transaction date
● Gaining an understanding of the valuation approach
and methodology undertaken by management to
identify separately identifiable intangible assets and
value the assets and liabilities acquired
● Considering whether identification and recognition of
intangible assets was consistent with the requirements
of the accounting standards
● Engaging our auditor’s valuation expert to:
a) evaluate management’s assumptions regarding
the calculation of the deferred payment
b) assess the valuation approach and methodology
undertaken by management in relation to the
brand, customer relationships, non-compete
agreement and the calculation of the deferred
payment
c) evaluate management’s assumptions regarding
the valuation of the brand, customer relationships
and non-compete agreement.
● Considering whether the relevant disclosures were
appropriately made.
PwC 4
Our audit approach
Overview
An audit is designed to obtain reasonable assurance whether the financial
statements are free from material misstatement.
Overall Group materiality: $4.15 million, which represents an average of
approximately 5% of profit before tax over the past three years.
We chose an average of profit before tax over the last three years as the
benchmark because, in our view, profit before tax is the benchmark
against which the performance of the Group is most commonly measured
by users and is a generally accepted benchmark. We chose to use an
average of the last three years because of lower sales in the second half of
the year ended 30 June 2020 related to the COVID-19 pandemic and the
impact of this on the Group’s results.
As indicated above, we have determined that there are two key audit
matters:
● Impairment assessment of goodwill and brands, including the impact
of COVID-19
● Accounting for Big Chill Distribution acquisition
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the financial statements as a whole as set out above. These,
together with qualitative considerations, helped us to determine the scope of our audit, the nature,
timing and extent of our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the financial statements and
our application of materiality. As in all of our audits, we also addressed the risk of management
override of internal controls including among other matters, consideration of whether there was
evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the financial statements as a whole, taking into account the structure of the Group, the
accounting processes and controls, and the industries in which the Group operates.
We conducted full scope audit work at four divisions which make up 68% of external revenue and 86%
of profit before tax in New Zealand and Australia. The remaining divisions in the Group were not
considered individually significant and depending on our risk assessment were subject to other audit
procedures such as analytical review, enquiry, testing key balances or reconciliations.
PwC 5
Information other than the financial statements and auditor’s report
The Directors are responsible for the annual report. Our opinion on the financial statements does not
cover the other information included in the annual report and we do not and will not express any form
of assurance conclusion on the other information.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with
the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard, except that not all other
information was available to us at the date of our signing.
Responsibilities of the Directors for the financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of
the financial statements in accordance with NZ IFRS and IFRS, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole,
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (NZ) and ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located at the
External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-report-1/
This description forms part of our auditor’s report.
PwC 6
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state those matters which we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our
audit work, for this report or for the opinions we have formed.
The engagement partner on the audit resulting in this independent auditor’s report is Leopino (Leo)
Foliaki.
For and on behalf of:
Chartered Accountants
24 August 2020
Auckland
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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