Transport firms' shares languish despite upturn in rural economy

By Peter V O'Brien

Friday 15th June 2001

The share price performance of companies in the transport sector over the past year has lagged behind the market as measured by the NZSE40 capital index.

TRANSPORT COMPANIES' SHARE PRICES (c)

Company	Price 11.6.01	Price 21.6.00	% change 6.00-6.01	2001 high	2001 low

Mainfreight	115	170	-32.3	130	100
Owens Group	95	108	-12.0	95	72
Tranz Rail	365	370	-1.9	428	355
NZSE40 cap	2060.56	2029.89	+1.5	2120.39	1875.18

Prices for the three companies last Monday are in the table and compared with the situation a year ago when The National Business Review last examined the sector.

Recent reports from the companies noted they were all restructuring either through internal reorganisation or reshaping acquisitions.

The reports also indicated the groups had benefited from the solid improvement in the rural economy.

Mainfreight's report for the year ended March 31 was imminent at the time of writing and might have been released by now, but earlier reports said the company's provincial branches were benefiting from the rural upturn and revenue gains were achieved through both existing and new customers.

That comment was made in November when Mainfreight issued its figures for the six months ended September.

A shorter report for the nine months ended December showed pre-tax earnings from New Zealand domestic operations were $10.47 million, compared with $8.7 million in the corresponding period of the previous year.

Total pre-tax profit was down from $10.27 million to $5.71 million, due mainly to a $6.23 million loss on Australian domestic business which the company said it was extensively restructuring.

Mainfreight acquired K & S Express in Australia at the beginning of the year and had at the time identified restructuring, interest and goodwill amortisation costs.

The company said it expected the Australia domestic operations to break even by April. A comment on that matter may be included in the preliminary annual result.

Mainfreight also operates in the US through an associate company, Carotrans International, which had a loss for the nine months ended December.

Owens Group enjoyed a solid improvement from its New Zealand operations in the year ended March.

Profit before tax, "allocation of group services" and abnormal items went from $5.46 million in the previous year to $6.32 million, an increase of 15.7%.

The group said the overall result was satisfactory, given the "difficult and mixed economic conditions that prevailed in both New Zealand and Australia during the latter part of the financial year."

Owens improved sales and profit in a difficult period for the transport industry, where input costs such as diesel fuel had increased significantly, imports reduced in volume terms because of the weak Australian and New Zealand dollars compared with trading partners' currencies and the overall growth rate of economic activity was reduced.

In the year ended March 2000 Owens took up unusual items of $5.38 million before tax which related mainly to rationalising and modernising the Owens Cooltainer fleet of leased refrigerated containers ($4.17 million), redundancy costs ($700,000) and other rationalising and restructuring costs ($510,000).

Owens obtained 62.7% of total group revenue from New Zealand operations and 37.3% from Australia in the year ended March compared with, respectively, 62.5% and 37.5% in the previous year.

Tranz Rail was the best-performing company in terms of share price movements over the past year, which may seem surprising given the company's difficulties over the nine months ended March.

The group's revenue for the period went from $339.6 million to $350.1 million, an increase of 3.1%, but operating costs jumped from $396.3 million to $457.6 million, a movement of 15.5%.

Operating costs included $16.5 million for restructuring.

That amount was provided to cover the costs of executive and management change, relocation of "certain marketing and corporate functions" to Auckland and "the outsourcing and re-engineering of certain operational functions."

Tranz Rail was another company to feel the effects of higher fuel costs. It said the average cost per litre of rail diesel and light fuel increased 66% and 44% respectively on a year to date basis.

In terms of reorganisation, Tranz Rail is undertaking one of the more massive exercises of any New Zealand company for years, with well-publicised plans to sell substantial parts of the business.

It is doubtful many private investors would actively seek shares in the transport sector under current conditions, particularly as it lacks a sexy image.

The sector is still an important part of the local economy, being a good guide to regional and national economic health of lack of it.

It is a basic, service-based industry, reliant on the level of activity in many other sectors, including the rural economy from which it received a boost over the past year.

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