KEY POINTS:
NZHerald.co.nz Business Chat talks with Dean Bracewell, managing director of package delivery and information management company Freightways.
Freightways operates a number of brands, including Post Haste, Sub60, New Zealand Couriers and DX Mail, rather than one main Freightways brand. Can you explain this strategy?
The multi-brand strategy is designed simply to position our respective brands in specialist niches, so they can become leaders in those particular niches of the market.
We believe, for example in the express package market, which is the biggest market, where we have New Zealand Couriers as our premium brand. New Zealand Couriers provides quite a distinctly different service than Castle Parcel that operates on the economy brand.
NZC will use planes to connect both islands of the country and provide a nationwide, overnight, 9am delivery.
Whereas Castle, we use a lot more road based systems to provide a two day delivery to the South Island and Post Haste is in the middle of those two.
Dean, you've actually been with Freightways most of your working life. How do you maintain enthusiasm for the company?
Pretty easy when you love what you're doing.
The industry that I've worked in - express packages - provided everything I could have asked for.
It's been challenging, it's dynamic, it's fast paced, it's competitive and it's rewarding in so many ways.
But then I'm only one person of many that have built their careers in Freightways. There's many people here in our business for 10, 20, 30 and 40 plus years.
I think Freightways is big enough so our people can develop their careers within the one company, in lots of different roles, in lots of different parts of the industry without having to leave the company. So it works well for employees.
Is it hard to keep a fresh eye on the company's direction?
No, our companies ensure that we are constantly fresh in our outlook and we are constantly trying to meet customer demand with the strategies we have.
This business started off in the 1960s with just six people delivering across town.
We then developed and overnight inter-city network. We then developed an overnight interisland network. We then added additional planes to the network. We've added technology. We've done so much over the years, so it really is quite an evolving industry. It's great to be in.
At one stage Freightways had three owners in two years and then listed on the stock exchange. As a managing director, what was the most challenging aspect of these changes?
First and foremost the most challenging aspect was that the businesses themselves and our people from the businesses didn't get distracted by the change of ownership.
So our primary focus at that time was on the business and growing business performance and we were able to achieve that. So that was the most challenging aspect - not to get caught up in the change of ownership game, but to keep focussed on what we were doing within the business.
I think history showed we managed that pretty well.
What about for you personally?
It was just another management challenge.
Part of the beauty of being at Freightways is there's different challenges every day. That was another one - you take it on board.
I'm surrounded by some pretty exceptional people on the Freightways team, so it isn't just me personally. It's a team of us involved in these things and we managed to cope fairly well.
There's a global trend for private equity involvement in merger and acquisition deals and New Zealand is no exception. You've experienced life under private equity ownership - how did that affect your running of Freightways?
Really it was absolutely business as usual.
The private equity company that bought into Freightways also bought an existing strategy that the management of Freightways was fairly intent on executing and they supported that strategy.
So really it was a very positive experience for us. It meant we ultimately established ourselves in our own right. We listed on the NZX and we've got 7,000 Kiwi shareholders now - who all made a good decision to come on board at the time - and overall it was a positive time and very much business as usual.
From private equity you went public in 2003 - what was biggest change for you as a managing director?
Really running a listed business for us didn't create a lot of change because we already operated with a fair bit of the reporting and compliance requirements that a listed business has.
Prior to our public listing we had issued preference shares a number of years previously, so we had a taste of the public markets albeit full listing is quite different.
I guess the major change is you're under the scrutiny of a lot more interested parties. But we take that on board as just another thing we need to deal with and we take our responsibilities to our shareholders very seriously. They've invested some hard-earned money into this company and we realise we need to front up and talk about how we're going, what we're doing.
Last year you moved in the Australian market with the purchase of information management company, Databank Technologies. How does this fit with your company's direction?
Our strategy for some time has been to continue to defend and extend what we do within our core business - the express package business.
But also alongside that we've been developing our information management business and we've grown pretty much from a standing start seven or eight years ago now to be the number two player in the New Zealand information management sector.
So it was a fairly natural thing for us to actually look into the Australian market with that particular business.
The Australian move was really just a continuation of a strategy here and we don't put walls around New Zealand saying that 'we will only operate here' if we see a good opportunity elsewhere - and we saw that with this business, Databank.
Can we expect to see more expansion into Australia?
We said at the time of acquiring Databank that we hoped it would be a catalyst for future growth.
But we'll do it on our timeframe, when we're good and ready.
So you can't tell me what that timeframe might be?
The timeframe isn't always determined by us. Sometimes it's determined by the market opportunity that's there at the time.
The information management industry has traditionally been about the storage and destruction of paper files. Where do you see the growth potential?
We see the information management - although we'd label it as three parts: the storage of documents, the storage of computer media or backup tapes and there is the destruction of the documents.
The data, the backup tapes, will continue to grow for the reason there is a growing need for these services, to outsource and professionally manage data. Particularly off a lot of legislation that occurred over in the States when they had issues with some of their businesses over there - the Sarbanes-Oxley legislation - and our growing compliance in this part of the world as well.
So the data will grow and certainly the documents will continue to grow with that as well.
The market is quite under-developed and so there is a lot of businesses yet to outsource the professional management of data and we're exceptionally well positioned to accommodate those customers when they come on board.
In 2004 you undertook a strategic alliance with Mainfreight - would further alliances with someone like Mainfreight benefit in expansion into overseas markets?
The relationship with Mainfreight was designed to bring two complementary services together and our services in New Zealand do complement each other.
Currently the two businesses are at different stages of their development overseas, but one day if we were to have to have complimentary services overseas, sure, we'd love to work with our friends from New Zealand.
You recently announced strong revenues and earnings from your first half, in spite of what you described as a "challenging business environment." Your business outcomes are obviously quite closely linked to the economy - what are the major challenges for 2007?
We see the challenges in 2007 as being really a continuance of what we've had over the last 18 months and during that 18 months we have seen a number of our customers trading at lower levels or some of their trading was slowing.
So really for us it is about continuing to work other strategies to offset the quieter times among our existing customer base, to continue the growth momentum that Freightways has.
It's about working smarter, it's about thinking a bit more laterally out of the box and hopefully pushing on with some of the growth in the other markets that are under-developed such as business mail and information management.
However, we must first and foremost keep sight of our core business - the express package - and make sure that we continue to invest in capacity and innovation, so that we do retain and attract a bit more market share over there as well.
So what strategies can we expect to see this year?
It's not a new strategy. Back in the start of 2006 we then saw the market was slowing down.
So it was at that time we decided not to hunker down and bury our heads in the sand. We decided to actually get out and invest in additional resource - in more people, in more capacity, in some operational efficiencies.
So really it's just a continuance of taking those strategies through to the 2007 year and we hope that will continue to contribute to our growth.
Do you think Allan Bollard will lift the official cash rate next week?
Well, I'm not an economist - far from it - but I think that from what we are seeing amongst our customer base that things have been pretty tough and challenging for a lot of New Zealand businesses over the last year and I don't an increase in the interest rate will assist them.
So my preference naturally, is that interest rates aren't increased, however I'm not an economist and I don't have his job.
If the official cash rate did lift, what would be the impact for Freightways?
It probably impacts us two ways.
Firstly, we have debt at the bank. We have a fair amount of that which is hedged, but the balance of it will attract potentially a higher interest rate. That's the more immediate impact.
The second part of it is that as interest rates go up it flows right through the market place.
It might mean that people spend less at the shops and there is less courier packages to be delivered to those shops to replenish what was on the shelf beforehand.
So it can affect us two ways.
Is the price of oil a concern to Freightways operation? If it is, to what extent does the price of oil affect profitability?
Once again there's two parts to the answer there as well.
Naturally oil, if it races away and increases - we're currently running running at a lot higher levels today than we were a couple of years ago, even though there was some fall at the end of last year, we're still well above.
So when oil races away we get a direct and immediate impact on our cost lines within the business.
So we need to structure our pricing arrangements with our customers so that that impact is minimised. So I guess we share the pain with our customers with what is happening to those cost which are beyond our control such as oil.
The other part of it is once again if the market place is experiencing higher costs, if consumers are spending more at the petrol pump, then they're spending less potentially on consumer items and that means lower volumes of packages to be delivered as well.
Do you look at a petrol supplier for discounted bulk buy fuel prices?
Yes, absolutely. We negotiate on behalf of our bulk-buying power and so we do have a well established discount rate at the pump.
A question from a Herald reader. They are interested to know how technology fits into the future of Freightways.
They say that Freightways seems to have lagged behind their largest competitor - CourierPost - in this area, but they have maintained market share and profitability.
Do you see any major disadvantages in not having had the technology?
Not at all, but that question's probably got three or four parts to it.
Just stepping through them, technology is a part obviously of running a transport business such as Freightways and it always has been a key part of what we're about.
We've actually three quarters of the way through a $10 million upgrade to our IT system, so there's a fair bit of money and investment attached with IT.
It's played a pivotal role in the business for 20 plus years and the information systems that we have are geared around delivering scalability because our business has grown very strongly so you've got to have information systems that can cope with that significant growth.
It's a very robust system but it has also got to be flexible to meet the varying customer needs. So we've got a very powerful, core information management system.
The part about lagging a competitor and still maintaining market share, well I think we've actually done more than that. We've grown our market share and we've grown our profitability over a number of years, so it's not just about maintaining it.
I think we've done this by keeping in touch with our customer needs and developing our services to suit those needs rather than getting caught up in a side-game that technology can distract from what you're really here to do.
We think it's most important not to lag customer demand rather than try and keep up with a competitor whose strategies we might disagree with.
Are we disadvantaged by not having some of the technology? Well, we made a decision to roll out in-van data capture technology this year and that's as a result of our customer demand but a time when we've assessed the network that transmits that data as being ready for us and the scanners that will go into our courier vans as being ready for us.
So, a few things have needed to come together but we believe the time is right.
And whilst we've been lining up to make that decision about the technology in the vans we've been focussing very heavily on ensuring we deliver our core service, which is getting packages to the right place at the right time.
What we believe we now have is a very compelling customer offer - premium service, competitive price and the latest technology to over-lay it all.
You talked about the scanners - how are the trials for those going?
They're going fine. We're rolling them out into the Auckland marketplace which is the most rigorous, high volume market to test the scanners and we'll get any glitches that are involved with new technology out of the way in this market prior to rolling them out around the rest of the country.
What developments - technology or otherwise - can we expect to see from Freightways in 2007?
I think you're going to see more of the same and whilst that might sound a bit ho hum, it's kind of what our customers like.
They want consistency, they want reliability, they want innovation when they're ready to innovate and when there is demand for it.
So what you're going to see from us is really more of the same and hopefully that will continue to deliver the sort of performance to all our stakeholders - our people, our employees, our contractors, our customers and our shareholders.
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Freightways was floated on the NZX in September 2003 by private equity players ABN Amro Capital - its third owner in two years.
Investors at issue paid $1.60 and just over three years later the stock trades around the $4.50 mark.
In the last year Freightways has bought the DataBank records management business, Pete's Post mail delivery and took on freight customers left stranded by the failure of Nelson-based airline Origin Pacific.
Bracewell joined Freightways in 1979 and other than a five-year period, including time overseas, he has spent his entire career with the company.
He attended Rosehill College in Papakura.
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Next week Business chat will be sitting down with Tony Gibbs - the man who grows ezipeel citrus in Matakana and is a director of investment company Guiness Peat Group.
