Jenny Keown

Mainfreight managing director Don Braid says private equity firms are likely to push up acquisition prices in the logistics sector, but sees it as an opportunity rather than a cause for concern.  The New Zealand transport and logistics company has been scouring Australia and the US for suitable acquisitions to add to its rapidly growing overseas business, but Braid said he expected private equity buyers would pay more than Mainfreight.

"We are not intending to pay any inflated prices and we have a natural advantage in acquiring a business in our industry over a private equity business," said Braid as he released another strong earnings result.  Private equity investors would probably pay too much for transport businesses and gear them up using debt, he said.  "With some patience and the likelihood of some of those [deals] failing, there may be opportunities in the future, where there may be fire sales," he said.

Mainfreight's latest results showed continued overseas expansion, but with slower growth in New Zealand.  For the nine months to December 31, Mainfreight posted a net profit after tax and before abnormals of $25.7 million, a 27 per cent increase on the same period last year. Revenue rose to $740 million, an increase of 4 per cent.

Braid said he was comfortable with the result but would have liked it to have been stronger.  A softer result for the domestic freight business in December had been the main cause of a downturn in New Zealand operations during the third quarter, he said.

New Zealand domestic revenues went up 1 per cent to $206 million and earnings before interest, tax, depreciation and amortisation increased 6 per cent to $18.7 million. New Zealand international revenues dropped 50 per cent to $114.8 million driven by foreign currency conversions and fluctuating ocean freight rates.  But Mainfreight's strong growth in international operations had offset the New Zealand downturn, said Braid. About half of its earnings before interest, tax, depreciation and amortisation were now derived from overseas, and would continue to grow.

It had short-listed international freight forwarding businesses it was interested to acquire in the US and a couple of opportunities had come to the table in Southeast Asia.  Australian domestic revenues jumped 14 per cent to $97.5 million, with earnings before interest, tax, depreciation and amortisation up 14 per cent to $7.8 million.

In the US, revenue grew 21 per cent to $87.6 million and earnings before interest, tax, depreciation and amortisation jumped 77 per cent to $3.8 million.  "Third-quarter performance was in line with last year's as a result of increased costs in the opening of two new branches in Boston and San Francisco," said Braid.  Mainfreight's shares yesterday closed down 28c to $7.60.

The New Zealand logistics company Mainfreight is shifting its headquarters to a new $30 million facility while aggressively seeking acquisition opportunities in Australia and the US. Mainfreight managing director Don Braid said the company was keenly looking to acquire logistics, freight-forwarding and domestic operations in Australia, and freight-forwarding operations in the US.

"It has to be the right business, and is not a question of when but if the business fits well with our model," Braid said. "Once we find that business, we will move aggressively."

Overseas operations are becoming increasingly important for Mainfreight, with more than half of the company's revenue coming from overseas last year. Braid has just returned from a business trip to Asia and America, and is upbeat about Mainfreight's prospects abroad. In Australia, it plans to substantially increase its 10 per cent share of the international freight-forwarding market and 5 per cent stake in the domestic road sector.

"Customers have started to realise that logistics is an important part of their supply chain requirements," he said. "In Australia the logistics sector is expected to grow at a faster rate than its gross domestic product."

Also, Braid said Mainfreight had freight-forwarding operations in Shanghai, Ningbo, Shenzhen and Hong Kong that would enable it to take advantage of the continued increase in trade volumes between China, the US and Australia. Mainfreight had increased its focus overseas, but that did not mean growth was stopping in New Zealand.

In September, Mainfreight would move its 150 staff from its south Auckland Penrose headquarters to a $30 million facility in Otahuhu. "It is a large investment, but we are positive that it will create more efficiencies in the business." A branch off the main railway line would run through the middle of the new building, allowing Mainfreight to load freight efficiently under cover, and its trucking operations would have close access to the main southbound motorway, said Braid.

Mainfreight's subsidiary business, Owens, will take over Mainfreight's building in Southdown Lane. Owens' operations in Felix St will be sold when it shifts to Southdown Lane in January. Braid said he believed Mainfreight, which held 30 per cent of the logistics market in New Zealand, was unique because it was the only business with a philosophy for its overseas businesses of both organic growth and growth through acquisitions.

He was not fazed by the large number of Kiwi companies being taken over by Australian companies. He was determined to remain Kiwi-owned, and believed if the company was performing well, and forging into markets overseas, it made a hard target for a takeover. " We are a passionate New Zealand-owned company. We don't see any benefit in an offshore company taking over Mainfreight," said Braid, who owns 2 per cent of the shares in the company. As a country, we have to stop worrying about what is coming at us and start believing in the companies which are doing well here."

Mainfreight shares closed up 7c at $5.40 on Friday.

Performance

• Mainfreight, last financial year:
• Overseas business contributed 43 per cent to its earnings.
• Overseas revenue was over 52 per cent of total sales.
• Australian earnings jumped 114 per cent to $17 million.
• US operations went up $4 million.
• Overall net profit increased by 115 per cent to $29 million.