Freightways' Troughear says new medical waste unit got $1M of sales in first 4 months

Monday 19th February 2018

Freightways' new chief executive Mark Troughear says the medical waste business acquired in the first half is on budget and has demonstrated the synergies expected with the existing document destruction unit.

Information management (IM), the Freightways division that expanded into medical waste in the first half, recorded stronger earnings growth than the larger express package & business mail (EP&BM) division. Earnings before interest and amortisation (ebita) at IM rose 9.2 percent to $14.6 million compared to the courier delivery division's 4.6 percent gain to $36.4 million. At the same time, the ebita margin at IM grew 30 basis points to 19.1 percent while EP&BM's shrank to 16.8 percent from 17.2 percent.

The company's Med-X unit was established with the acquisition of Australian State Waste Services for A$6 million upfront, or a total up to A$10 million including maximum earnout as at June 30, 2021. It is part of a group that provides medical waste services in Sydney and surrounding regional areas. It generated "just over $1 million" in revenue in the four months of ownership and "has tracked expectations," Troughear said.

"There's really good synergy between what we do in document destruction (Shred-X) and medical waste," he told BusinessDesk. "Everything we thought prior to buying it has played out." As a result, he said, "we will carry on looking for opportunities, particularly in Australia. The Australian market is fairly fragmented - processors and collectors."

Added to that, says Troughear who replaced the long-serving Dean Bracewell on Jan. 1, obtaining consents to establish a medical waste facility in Australia was onerous and bureaucratic, meaning there was also value in existing consents.

EP&BM makes up 74 percent of Freightways by sales but only 71 percent by ebita contribution. Troughear said the division incurred "a number of step-ups" during the half, including the increased Christchurch rent from relocating to a bigger facility and depreciation of the $10 million sorting machine at the new site.

There was a similar impact in Auckland, where the company moved into new facilities in Auckland's North Harbour and costs to carry extra airfreight capacity, a fourth Boeing 737, chartered for the month of December.

"We certainly used it but not at capacity," he said. For December 2018 one option was to lease a fourth 737, replacing extra capacity it has previously covered by chartering a Convair aircraft.

Troughear said although Freightways is upbeat it won't provide specific guidance now. He is "keeping a careful eye on Labour and its labour market reforms." While there is nothing currently of concern, "you worry what might be around the corner," he said.

Freightways typically employs drivers as contractors, so its own workforce is in sorting, sales and administration.

Profit fell to $31.4 million in the six months ended Dec. 31 from $34 million a year earlier when Freightways recognised a $4.5 million one-time gain, the Auckland-based company said today. Sales rose 7.1 percent to $292 million.

Freightways has steadily increased sales and earnings in each of the past seven years and the company said today the markets it operates in "remain positive", supporting year-on-year earnings growth for 2018.

The company didn't give a breakdown of the medical waste business contribution although it was expected to immediately boost earnings. Total assets rose by $28 million in the first half, including $9 million of intangible assets from the waste business. Its gearing ratio was little changed at about 40 percent.

It will pay a first-half dividend of 14.5 cents a share on April 3, with a record date of March 16, up from 13 cents a year earlier. The payment is tax-paid.

Freightways shares fell 0.7 percent to $7.48 and have dropped 8.4 percent in the past 12 months while the S&P/NZX 50 Index rose 14 percent.

(BusinessDesk)

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