Freightways play safe with its balance sheet amid Covid-19 uncertainty

Freightways chief executive Mark Troughear. Photo / File

Disruption arising from the Covid-19 means Freightways will not pay a final dividend for the first time ever.

The express package and information management company said its net profit fell by 25 per cent to $47.4 million in the June year because of the pandemic and said it would not pay a final dividend due to the uncertainty caused by it.

Freightways, which listed on the NZX in 2003, paid an interim dividend of 15c early this year.

Last year's final dividend came to 15.5c, taking the total to 30.4c.

Chief executive Mark Troughear said not paying a dividend was the most appropriate thing to do under the circumstances.

Staff and management had taken pay cuts, with many going on reduced hours due to Covid-19.

The company also accessed the Government's wage subsidy.

"In an uncertain climate where your team has taken a pay cut, we thought that it was a one-off but a balanced decision," Troughear said.

However, he was confident the company would restart paying dividends for the current half year to December.

Freightways has bolstered its balance sheet in other ways.

As luck would have it, four days in to level 4 lockdown the company completed the acquisition of food distributor Big Chill Distribution on April 1.

The timing of the transaction along with the dramatic drop in The Big Chill's volume in the initial week of level 4 lockdown resulted in Freightways renegotiating the terms of the deal to include equity - $85m in cash and $30m in shares.

"It was a good outcome for all concerned but it was pretty important in those early days when we thought we might be materially impacted by Covid-19, so again, it was to preserve the balance sheet."

Accounting changes under standard IFRS 16 meant that net interest costs were $8.8m higher - at $18.42m - than they would have been under the previous standard.

Harbour Asset Management senior portfolio manager Shane Solly said the impact of Covid-19, the consolidation of the The Big Chill into its accounts, and accounting changes, combined to produce a mixed result.

"There were a lot of moving parts in this result, which was why at the margin, it was a bit softer than expected," he said, adding axing the final dividend would have come as a surprise to some.

Solly said that like many other companies this reporting season, Freightways was wary about providing an earnings guidance, other than to say that trading conditions at present were buoyant.

Troughear said the company had to react quickly and decisively because level 4 lockdown had such a deep and immediate effect.

The Big Chill's business fell in April but improved under level 3.

In the July month The Big Chill's revenue was up 15 per cent, year-on-year.

In its earnings outlook, Freightways said it was 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," it said.

Shares in Freightways initially fell as low as $6.84 on the back of the result, later recovering to close at $7.10 - up seven cents from Friday's close.