European operations drag down Mainfreight's earnings, profit

A poor performance by European operations saw global logistics company Mainfreight book a decline in profit and before-tax earnings, despite an overall increase of almost 5% in revenue to $936 million.

New Zealand and Australian operations, with sales revenues up respectively almost 6% at $NZ228.29 million and more than 13% at $A209.42 million ($NZ266.7 million), bested the revenue contribution of Asia's 4.2% decline to $US14.75 million ($NZ18.03 million) and United States' 10% improvement to $US182 million.

Mainfreight's earnings before interest, tax, depreciation and amortisation (ebitda) declined 5.1% from last year's record $64.37 million to $61.06 million, while after-tax profit fell 4.6%, from $29.08 million a year ago to $27.74 million.

While Europe saw only a 1.4% decline in revenue to 122.36 million ($NZ190 million), ebitda plummeted by 50.4% to 5.26 million, Mainfreight's half-year unaudited result to the end of September said.

Mainfreight repeatedly gave versions of what its financial result could have been by "excluding Europe" - revenue contribution from there was $NZ190 million - and offered revised figures. It said "excluding Europe" revenue improved 9.5%, while ebitda "excluding Europe" would have been up 15% to $52.74 million - the latter percentage more than double the actual booked.

Craigs Investment Partners broker Peter McIntyre said the Europe, ebitda and the after-tax profit results were all "below expectations".

"Europe is obviously a problem and was even weaker than we thought," Mr McIntyre said.

On the subject of why Mainfreight repeatedly offered up "excluding Europe" analysis, Mr McIntyre said it was management reinforcing the problems faced in Europe.

"Mainfreight has now got enough diversification in its business to have one divisional segment underperforming without it being an outright handbrake," Mr McIntyre said.

However, while Mainfreight management maintained "confidence in the long-term benefits" of the Bosman acquisition in Europe, Mr McIntyre said investors may not share the same levels of confidence and "would be watching Europe closely, for some quarters to come".

Mainfreight purchased Netherlands-based Wim Bosman logistics company and its 14 branches in six European countries in early 2011 for $NZ205 million, later retaining a $17 million earn-out payment.

Mr McIntyre said the Bosman purchase filled in an obvious "geographical picture" for Mainfreight, but, with hindsight, a later purchase may have been better.

Mainfreight replicated last year's half-year 12c per share dividend, while its shares were down 15c at $10.25 following the announcement.

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