Oliver Mander: Mainfreight - the company that just keeps on delivering

Mainfreight serves customers in the US, Europe, Asia and Australasia. Photo / File

COMMENT:

Logistics has proven itself to be a resilient sector over the past few years, flying in the face of recessionary impacts; through the Christchurch and Kaikoura earthquakes, and now Covid-19.

Mainfreight is one of a few logistics companies listed on the NZX that also includes Freightways and TIL Logistics. Mainfreight is far and away the largest of this group, however, with revenue approaching $3.1 billion ($750 million in New Zealand), compared to Freightway's $620m and TIL's $355m.

Each has pursued their own paths for growth. Freightways has concentrated heavily on courier operations (including NZ Couriers, Post Haste and Sub 60). TIL arguably competes more directly with Mainfreight in freight and warehousing markets, continuing its growth by acquisition since its listing in 2018.

Smaller companies have also evolved on the NZX; QEX Logistics has created a niche in providing warehousing and supply chain solutions between NZ, Australia and China, while Scales Corporation has a division focused on the horticultural goods supply chain.

Mainfreight profile

Mainfreight has quietly built its business into a multinational haulier and logistics group serving customers in the US, Europe, Asia and Australasia. New Zealand is still a big part – nearly a quarter - of its revenues.

Mainfreight

Mainfreight has succeeded where many other high-profile New Zealand companies have failed – creating a successful global expansion well beyond New Zealand's borders.

Returns

My column would not be complete without a few numbers. To put Mainfreight's success in context, the company's share price has enjoyed a compound annual growth rate of nearly 21 per cent each year between June 2010 and today (excluding dividends).

So, a $10,000 investment back then (assuming re-invested dividends) would now be worth about $81,000. Incidentally, that calculation also shows the power of re-investing dividends; they add $15,000 to that return.

An investment into something tracking the NZX50 at the same time would have returned less than half of that; $10,000 would have become $37,500. To be fair, that represents a still-impressive 14 per cent compound annual return.

Mainfreight v NZX

The graph shows Mainfreight's continued strong performance over time compared with benchmark NZ50 index.

The other key feature highlighted in the chart is the massive Covid-19 downward spike this year. In spite of its size, this clearly shows the benefits of adopting a long-term horizon to investing; even if markets had remained at their lowest ebb during the recent depths of the Covid crisis, returns would still have been relatively respectable over a 10-year horizon.

What's bred Mainfreight's success?

Culture

Mainfreight's underpinning culture has gone a long way to supporting its growth. From an external perspective, it seems less "show pony" and more "workhorse". Its communications focus heavily on its people; many might remember their advertising slogans from the early 2000s with the "special people, special company" tagline.

Mainfreight's understated, "quiet" communication style and employee-focused culture resonate with New Zealand's own cultural values and appear to have underpinned the company's growth rather than acting as a handbrake.

Even the glorious simplicity of its financial statements support this understated approach to its stakeholders; they're a bit glossier in the annual report, but the consistency of their presentation in their interim and final results announcements highlight the "if it ain't broke, don't fix it" approach. I'm convinced Mainfreight has used the same set of spreadsheets since Excel was invented (all underpinned by effective financial systems and controls of course).

The latest annual results presentation, issued late May, continues the tradition. Words like "satisfactory" and "disappointed" on the first page of the presentation give no hint of just how strong its latest result was. And it's no fluke – Mainfreight has been a consistently strong performer on the NZX for the best part of the past decade, helping to create some stability within a tough sector.

People capability

The move to international growth, however, has been deliberate and well executed. A stable and experienced team, with Bruce Plested (chairman) and Don Braid (managing director) at the helm for longer than I can remember, has supported a long-term horizon to their international expansion.

A quick look at people profiles on the Mainfreight website shows most senior leaders have been associated with the company for decades.

Mainfreight managing director Don Braid. Photo / Supplied

From where I sit in Wellington, it seems almost unfashionable these days to follow the old adage that "growing your own" people creates long-term advantage. That's unfortunate as most published studies tend to favour an approach of promoting from within as a way to improve organisational performance, augmented by long-term hires of external recruits. There is some risk an organisation becomes bound by its own experience, although that does not appear to have had any effect at Mainfreight.

Financial alignment

It helps, of course, that Plested and Braid between them own about 18 per cent of the company's shares, creating a strong alignment with the interests of the other 82 per cent of shareholders.

That means a risk-balanced approach to growth has prevailed. Total debt has maintained at a level of roughly 45-55 per cent of total assets throughout, while capex investment is well-balanced between new growth and re-investment in established markets.

Coming up

Mainfreight's outlook remains strong, regardless of Covid-19. Nonetheless, the company has instituted a series of measures in response to Covid-19, including a deferral in capital expenditure as a mechanism to preserve short-term cashflow – although it has continued to maintain a dividend for shareholders.

Mainfreight is the first to state it's not happy with the recent performance of its Asian business. Some of that negative performance impact is related to the ongoing tariff battles between the US and China. Nonetheless, at only 3 per cent of revenues, shareholders are likely to be forgiving.

Most investors would also expect issues within the Asian business will be resolved, in the same manner performance issues have been addressed in the US, in Europe and Australia. Mainfreight has signalled that greater diversification of its Asian business will form a part of any future plan, as it looks to reduce reliance on China trade flows.

Based on Mainfreight's track record, investors have every reason to feel confident that improvement will occur.

Disclosure: The writer has held Mainfreight shares since 2013.