Freightways Group Limited (FRW.AX) Earnings Call Transcript & Summary

Good morning, and thank you for joining the Freightways FY '25 Results Briefing. We will begin with a presentation by the Freightways management team followed by a Q&A session. [Operator Instructions] Now I will hand across to the Freightways management team. Over to you, Mark.

Thanks, Kiara, and good morning, everyone. Welcome to the FY '25 results session. In terms of people in the room here, as usual, Stephan Deschamps on my left, CFO; on my right, Aaron Stubbing, General Manager of Express Package in New Zealand. Occasionally, in a rugby game, someone pulls up lane just before the opening whistle, and that's Neil Wilson, who has contracted COVID and we've invited them out of the room, so he doesn't share that with us. So the 3 of us will walk through and cover off the results presentation for this year. Just by way of overview, and I guess, setting the scene, I mean, clearly, it's been a pretty tough economic environment, particularly in New Zealand, slightly better in Australia. But we have come off probably 2, 2.5 years of recession. And I think the result that the team have generated this year is a really solid result given those conditions. We're a bit more than just a New Zealand bellwether. So again, we get labeled with that a little bit, but the reality is that there's a good chunk of earnings now coming from Australia. And I think that diversification across Information Management and Express has really held Freightways in good regard. We're happy that we've got organic opportunities in all lines of business and across all 3 horizons. So I think relatively unique approach, particularly for people in our sector, where we target short, medium and longer term with Horizon 1, 2 and 3 growth. And we expect that growth across all of the businesses that we operate regardless of the part of the life cycle they are in. We have got a really well-positioned balance sheet. Stephan will talk a bit more about that later on, but we're happy with where that is and how that gearing has moved over the last year. The performance of the Australian businesses, in particular, Allied Express, which we acquired in '22 has been particularly pleasing and there's some really compelling numbers again as we move through the Express Package part of this presentation. We expect to grow revenue and earnings in FY '26. I think things generally will start to improve and we will get a bit of a tailwind behind us as that economy comes right. It's nice to see a series of numbers that are all going in the right direction. Pretty pleasing when you come through a period where the teams have performed well, the businesses have done well in their respective niches and you can come out with a set of numbers that are all going in that same direction. I mean, clearly, revenue growth of 6.6% and NPAT growth of close to 13%, I think it's a testament to the work that the team have done this year. A couple of numbers here that are quite interesting just in terms of contrast. So if you look at Express Package in New Zealand, Express Package growth. So this is just the growth through the network businesses of New Zealand Couriers, Post Haste, Castle Parcels, 0.4% for the year. So pretty modest and really reflecting that economic condition that we've been in. In Australia, 11.6%, and that's not necessarily to say the economy is going gangbusters. I think most people in Australia would acknowledge they're probably in the sort of first to second year, whereas New Zealand has been a neutral. But the niche in which we're playing and the opportunities in that particular segment have really borne out and the team have done a great job in Australia and generating that kind of growth. Information Management, digital growth is still really strong in Australia. And in fact, digital revenue surpasses storage revenue for archives in Australia, just reflecting the work the team have done to build their reputation and grow that digitization work. In terms of Temperature Controlled, Ruakura has been the big focus for us. Utilization there peaked at 83% just before the dairy dry off season drops a little bit for a couple of months, and we expect that we will pick that up. We'll talk a bit more about that later on as well. Same customer transport volume though in Temperature Controlled, down 5%. So last year, I think down around 8%, a flattening of the curve, but still pretty tough times for a lot of those customers. And just to put paid to the idea that document destruction is coming near the end of the cycle. It's a record volume that we've pumped through both New Zealand and Australia, 56,800 tonnes of recycled -- of paper that we've shredded and recycled. Market backdrop. Look, I won't spend a lot on this, but I guess, really, it's just a graph that shows that after we've come out of that COVID period, things have been flat and been tough. And while there might be some signs of life in a few areas of the New Zealand economy, primary produce and meat, dairy, horticulture in particular, we're not particularly exposed to those sectors. So while farmers as they're doing better, might replace parts and upgrade vehicles and those sort of things that could drive some courier deliveries through to those areas. The reality is those aren't areas that typically push a whole lot of growth for our businesses. Australia, as I said, slightly better, a slightly better economic situation over there. You'd like to think unemployment and it has peaked at the 5.2% in New Zealand, over an Aussie, nice surprise, steady at 4.2%. Again, I guess, I'm trying to get a read on where we're at in the cycle. We tend to think that things won't get worse. [Indiscernible] hand over to Stephan, who will take you through the high-level numbers and talk a bit about the balance sheet.

Thank you, Mark, and good morning, everyone. We chose to start that section a little bit differently. As Mark mentioned, we are hopeful that we're coming to the end of 3 years of pretty much recessionary environment in New Zealand. And so we thought it would be a good time to take stock and look at the path we followed to get here. So on these slides, we are showing the last 20 years of revenue growth. From the beginning to the end of that period, we've increased our revenue more than 5x, and that's an average annual increase of almost 9%. You can also see that in the last 5 or 6 years, that pace has increased significantly. One explanation could be that I joined about the same time. Another one is that we ramped up our acquisition. So we moved from reasonably small acquisition every year to larger acquisition that would make a big difference. So if you look at these numbers, in FY '20, we acquired Big Chill. In FY '23, we acquired Allied, and that's driven a lot of growth for us. If we look more closely at FY '25, as Mark mentioned, our revenue is almost NZD 1.3 billion. That's 6.6% over last year. The environment in New Zealand is still difficult. So if I look at the same customer growth, it's still pretty lackluster. But we've managed that with price increases, but also a lot of new business and market share gains. One significant contributor to that, which is new is our global e-commerce business, which is now delivering a significant increase in volumes through our network. In Australia, we've also seen significant increase. Allied volume is up double-digit, which reflects both a really excellent service quality, but also a new approach to sales, which is delivering a lot of results. On the IM and Waste side, the top line is also increasing, although not always in the way we want, and I'll come back a bit more to that. I won't talk too much about the EBITA margin because we've got a slide looking at that more precisely. But if you look at the bottom line, our NPAT reached NZD 80 million, which is almost 13% up on last year. On top of the business performance, we benefited from strong cash flow. I will come back to that, which allowed us to reduce debt and interest expense. So looking a bit more at the margin, which as you know, has been a significant focus of ours over the last few years. We got impacted significantly post-COVID by the labor cost increase. We had 2 or 3 years of double-digit increase, which we couldn't completely recoup with price increases. We've done a lot of work through that. And I'm pleased that this year, if I look at the EP businesses, pretty much all of them have seen an increase of margin. And overall, at the sector level, it's more than 500 basis points of margin. There's a lot of things behind that, price increases, but also a better utilization of our network. And the network growth in the last few years had contributed to the margin reduction that puts us in a position now where we can absorb significant additional volume with very limited marginal cost. On the IM side, it's not exactly the same story. We mentioned in the past that Shred-X was struggling at a margin level. The other IM businesses were reasonably stable, a little bit lower in New Zealand, reflecting the fact we didn't have census work this year. We still had some last year. But Shred-X has grown its top line, but at margins below what we would expect. So we've started a program of work there about 6 months ago. And we're basically looking at every single contract and piece of work we have to make sure that we are structured in a way that can deliver growth and profitable growth. The results so far are encouraging. And so I'm optimistic that we will be able to see margin growth across all the network next year. Mark mentioned also Big Chill. Big Chill's margins have improved last year driven by a better utilization of the 3PL business, but we still need economic recovery so that the transport revenue kicks in. One thing that's probably worth repeating around our global margin. As Australia becomes a more significant part of what we do, the margins in Australia tend to be slightly lower than some of our businesses in New Zealand. So there will be a natural dilution of the margins overall. But as I said, even in Australia, the trend remains a significant improvement of margins. This translates into reasonably good cash flows. There was no significant acquisition last year. So pretty much all our cash flows went into paying dividend to our shareholders, but also reducing debt. CapEx remains very controlled. CapEx was essentially a BAU CapEx below 3% of revenue last year. So all of that drives strong operating cash flow that translates into less debt. So if you look at the gearing, the bars are the CapEx. The big bar in FY '23 was investment we did in Allied for the sortation system. But you know that we have a capital management policy where we are targeting a net debt over EBITDA of between 2x to 3x. We started the year at 2.7x. We are now below 2.4x. So balance sheet sitting in a reasonably good position. This allows us to look at the dividend. Our policy is to pay between 75% and 80% of our NPATA. We decided to go to the top of the range this year based on the position of the balance sheet and based on a reasonable optimism for the next 12 to 18 months. So we've increased our dividend by 8% to NZD 0.40 overall for the year against NZD 0.37 for the last 3 years. As you can see on that graph, with the exception of the GFC and the first COVID year, we really tried to pay a dividend that we believe is sustainable and maintainable over time. And so hopefully, that increase in dividend reflects our optimism in our position in the market. I'll hand over back to Mark to look at the divisional results. Thank you.

It's a great graph, I think when you look at 20-odd years of sustained performance. Yes, it's graph that I know the team here are very proud of. Okay. In terms of Express Package and Business Mail, it feels like a little bit of repeat of what we talked about at the half year to be fair. Revenue growth of 6%, EBITA growth of 11.6% and NPAT 13% and really driven a lot by new business, market share gains, work coming over the border, as Stephan mentioned, through Freightways Global. So the ability to attract new customers to the network because of the quality of the service has been really critical, again, in this half year as it was really over the previous couple of years. Same customer volume, really pretty flat still. And there was a slight movement upwards in the second half of the year. So said to a few people over time, it's almost imperceptible, but less worse was the words we were using for quite a bit of the last 6 to 12 months that, that decline in same customer volume was a little bit less worse than it had been. We're now at a point where it's slightly positive, ever so slightly positive. Really pleasing uplift in margin despite the fact that we're not getting more volume out of the same customers. So that's good execution of pricing that Aaron will talk about, which reflects the targets we have for FY '26 as well. We've seen that margin move up really in the bigger businesses of New Zealand Couriers, Post Haste, Allied Express and DX Mail. So those brands, they are pretty variable cost basis in terms of contractors. And as we have grown volume and got a reasonable price increase, we have seen those margins expand in those businesses. Notwithstanding that, Big Chill improved their earnings as well and really need to see that our plan to implement Ruakura has paid off and really good utilization out of that facility that's helped Big Chill grow their earnings this year as well. And DX Mail, really strong result, very agile business, operates out of the corner of every courier depot that we have around the country, not a whole lot of fixed cost in that business and we can tweak and respond to our customers' needs pretty quickly. Just another way of looking at that margin graph. So this is pre-IFRS. And as Stephan alluded to earlier, just a nice movement of around 0.5% in terms of that margin trend. Remembering, of course, that the businesses of Big Chill and Allied trade at a lower margin than the likes of the New Zealand Express Package companies. We look at New Zealand Express Package volumes. So again, this is for the network businesses, predominantly New Zealand Couriers, Post Haste, Castle Parcels, NOW Couriers, those brands. In the first half, we talked about volume being down 1.5%. Temu was in the prior corresponding period. In the second half, volumes up 1.9%, no Temu in the PCP, giving an overall volume increase of 0.4%. So when you look at the graph at the bottom there, FY '20 lockdowns with COVID that impacted part of the back end of that year. FY '21 and to an extent '22, a bit of a boom with online shopping and e-commerce that really pushed volumes up. And then '23, '24 and '25 represent a lot of those pretty tough times from an economic point of view, but really hard mucky in terms of picking up new customers that have replaced those same customer down trades. A couple of other points to call out, the oversize initiative we have in New Zealand. So these are items typically between 25 and around 50 to 60 kilos. That has achieved its NZD 10 million target that we had for the year. So really pleasing to see. It's a mirror of what we do with Allied, but matching that over here in New Zealand. And again, a well-executed price increase that netted 3.6% with a bit of PFE that has helped us with margin and cost recovery. Over in Australia, it looks like a completely different planet, doesn't it? Half year growth, 8.5%, second half 15.2%, full year 11.6% in terms of items going through the network. I think there's a few things different around that Australian environment. So the economy is certainly, as I say, maybe 1 to 2 years up on where New Zealand has been. End of financial year sales for the niche that we're in. So they were pretty big this year, really helping the tail end of the year along and a little bit into the start of this year. I think the niche that we're in, the reality is we are moving a lot of -- really to assemble furniture. Well, in these economic times, that category, I think, does quite well. You're not buying necessarily a NZD 2,000 book case or sofa. You're buying a flat pack, which is worth hundreds of dollars and can be transported by Allied. The team have also done a really good job of winning share of wallet and removing the caps that previously customers would have had before we had automation, and I'll talk a little bit more about that shortly. The really pleasing thing, I guess, with that volume has come better margins. So we've got a bit of leverage through the P&L as those extra volumes have come through. And you certainly see that in the peak periods of November, December and any of the other periods where you have things like end of financial year sales. So just to remind people I guess of that case, the automation that has gone into Allied represented in the picture there is pretty unique in this part of the world. It really is aimed at that profile of freight from 23 kilos and up to 60 to 70 kilos. Automation in Sydney and Victoria does a fantastic job of absorbing a lot of that volume and pumping it out. And what that's enabled us to do is to reduce misdirect, so reduce the number of items that have been directed to the wrong courier and they needed to be rehandled. And it's given us a better labor to revenue ratio, because as the volumes have grown, we haven't had to add as much extra labor through the network. The machine also is very good from a revenue capture point of view. So as items come through, they are weighed, cubed, scanned. And that gives us a really good view of the actual revenue that we should be collecting for each parcel and the opportunity to recapture anything that has maybe been undeclared as it goes through. So look, really pleased with how Allied have gone since being part of the Freightways family, wrapped with the way the team have executed and implemented the automation. It's a tremendous result from a team there in what is still a pretty tough market. The other investment made through the depths of the recession over here was that decision to go into Ruakura 3PL for Big Chill. Again, pretty big call when your volumes are going backwards. But you see the opportunity in that particular niche, and that's our Horizon 2 niche for us. And again, the team have executed really well that the utilization of what really is a world-class facility has grown and grown. Customers have been really impressed by the work that the team do there. And we've had a lot of people that didn't get the chance to be customers that have been through the site, and again, have said, hey, didn't quite realize how good that was going to be. So that opened up October '23. We built pretty well, lost a bit of money in that FY '24 financial year as the utilization steadily built. But by around the end of the year, start of FY '25, we were at breakeven and that property has made a profit for us. And that really has resulted in the increase in earnings that we've seen in the Big Chill business. Good strong customer demand. It's also fed the transport network. So when you get that product line within the 3PL center, that all goes out on Big Chill vehicles for last mile delivery through the restaurants, cafes, supermarkets, food service outlets. We are actively looking at where we go next. So we expect that facility should be close to 90% come around September, October. And the team have been doing work on where the next facility could be. Hamilton and Christchurch are the 2 main areas that we've looked at. The facility has also given us a bit of resilience. So if you think back to Cyclone Gabriel, that was a really tough time for the Big Chill business because you had cook strait ferries not able to operate through a period at that time, but food that kept coming out going into the network and then fundamentally got stuck in either Picton or Wellington. Having Ruakura set up just gives a little bit of cushioning, I guess, in the event you know there are going to be ferry sailings that are affected to store that product and not have it sitting in mobile warehouses, which are trucks sitting on the wharf. So been a bit of a gold sand from that point of view as well. The other point of thought I'd raise being a little bit of media. We have a JV partner for the airfreight network called Airwork. We've been in JV partnership for them since around 2025, so around 10 years. In fact, that business was placed into receivership relatively recently, still operating as a going concern. It still makes money and operates in that regard. And we're not particularly worried about it falling over, but it's certainly a point to be aware of and it's caused us to make sure we have good contingency plans in place for aircraft. We operate 3 737-400s together with Airwork in that joint venture. We provide the crew and the ground handling services. We also operate one 737-800 with a company called Texel. We have contingency plans in place in the event we need them. The 2 of those 737-400s come off lease around this time next year. And our strong preference would be to slowly start moving to 737-800s, which have a greater carrying capacity and are also more fuel efficient. So just a bit of an update on the airfreight strategy and where we're at there. If we look to the future then in terms of those horizons of growth and think about FY '26 going forward, a big win for Big Chill has been the investment in the transport management system, which provides far greater visibility for items going through the network, gives customers the ability to track their own items, sign on glass, see the quality of product if it's been damaged or affected in any way at receipt or through the network. And there's another couple of steps of that program that we will continue to roll out through FY '26. But really important tool in the toolkit for the Big Chill team to go and win new business. In terms of Horizon 2, as I say, we expect to be 90-plus-percent utilization by the end of that first quarter. We've got verified volume that will come through into the facility over the next month or 2. And pretty close to, I guess, getting to a point where we make a decision on where we go next, whether that is Christchurch or Hamilton, having assessed customer demand and the cost of those facilities. Horizon 3, a smaller part of the business, but ProducePronto doing deliveries into service stations, convenience outlets. We've had a step-up in cost over this year to position the business with more capacity to grow into. While that has impacted their margins a little bit this year, we're confident that with that step-up in capacity, we can go out and win new business in that particular space. I will hand over to Aaron now who will talk about the key areas of focus for Express Package in New Zealand and just touch on Australia.

Thanks, Mark, and good morning, everyone. FY '25 was a good year for Express Package as the gents have covered off already. The 3 largest businesses and DX Mail all had solid performances. We continue to grow our market share and the new business team have had a stellar year in terms of their activity. They took advantage of PBT's exit from the market and made some solid gains in that area. Further areas of encouragement for the new business team were medical, wholesale to retail and the health supplements verticals. Complementing the new business team and the service from our operations team was the account management team. And I really want to sort of make a mention of them because they don't often get the limelight. But we just had some really solid outcomes with regards to the annual price adjustment, as Mark mentioned. But I want to go back to July '24, where we actually put out our largest APA in history, I believe, for Freightways and trying to ensure we cover off those significant costs or at least most of them. So that effort was stellar, and then they followed up this year in July '25 with another fine effort. Based on that, they moved forward into the key tenders and customer retention, which went very well for us in the last financial year. And then they've taken on the share of wallet challenge, which Mark mentioned earlier. And for us, share of wallet is about us having volume with a customer that we share with a competitor and how we extract more of that volume into our network. And the work that's gone in from the account management team has just been absolutely solid. And we have to thank them for the time and effort that goes in because this is not an easy transition in terms of moving freight into our network. So very proud of the efforts there. And then finally, the last bit that they've done is the address validation, and this is something we've been talking about for quite some time. It's about getting better data into the ticket of our customer, which then provides our freight sorting team with better information and they give a better pass to the contractor who could have a better service standard. And with that, we get a better DIFOT outcome and hopefully a better result all around for the customer and the business. Outside the core activities in Horizon 1, we've still got Project Evolve, our billing system technology piece that's under construction. We spent NZD 3.6 million on it last year. And this year, we've budgeted for NZD 5 million. Next couple of months, we rolled out Phase 1 of the system where we've had a lot of planning and testing underway. So it will be quite a milestone to have Phase 1 up and running and the internal customers starting to receive output from the Project Evolve team. And finally, under Horizon 1, we have the Christchurch hub expansion. So the freight hub, as we refer to it, where every piece of South Island freight travels through on a daily basis. That will increase the footprint by 20,000 square meters. We will also increase our automation and upgrade at the same time, which will have about a NZD 10 million CapEx. Our internal increase will be NZD 2 million a year and we're looking for completion around July '27. So 2 years from now, should be breaking ground in the next couple of weeks. So moving into Horizon 2, our B2C horizon. Once again, also mentioned previously was the e-commerce space or our niche that we've developed a call cycle of our team going up to China and spending time with our customers up there and potentially new customers and understanding their market and their needs. And from that, we've developed a solid number of medium-sized customers, which is our preference as opposed to putting all our eggs in 1 basket or 2. And then I guess we're just talking a little bit about pricing for effort, where that all began was charging more for residential deliveries because of the time and effort that, that takes. And we've broadened that to basically focus on anything to do with time, distance and complexity. And our customers are getting used to us having these honest conversations with them and hence growing better margins and better service standards with them at the same time. And we will look to continue that into FY '26 also. And then finally, in Horizon 3, it is the continuation of scaling the oversized volume. The Allied team has done a sterling job this year in terms of volume and profitability and very pleased that the Kiwi Express team have started to hit their milestones as well. Both businesses are looking to increase their areas of coverage. And what that means is the items will stay in the network. They'll have better transparency for our customers, better service standard and theoretically financially beneficial as well. We continue to leverage off our relationships across the Tasman, working together and take on opportunities between ourselves. And naturally, we will continue to assess the M&A opportunities in Australia moving forward. Thank you very much.

In terms of Information Management, yes, look, slightly disappointing result here where the revenue growth was really strong. We weren't able to increase earnings there. The story fundamentally was across the storage and digitization businesses, TIMG, really good solid performance. Storage continued to grow. Digitization grew 16% across both New Zealand and Australia. Good solid performance there. The area that we underperformed was in Waste Renewal. And what we had within that particular segment was actually really strong revenue growth and revenue growth really in Horizon 1, 2 and 3, but at the expense of margins. And there was a couple of one-off costs within that Waste Renewal piece, but there was just some general underperformance in terms of margin, really recognizing the revenue we were bringing on and the cost structure that supported that revenue. So we have a pretty clear line of what we need to do there, and I'll talk about that a little bit more shortly. In terms of TIMG, archive volume is still growing. We have one slightly larger warehouse down in Victoria. So we shifted out of an older property into a newer property, which is adjacent our first Victorian site. And that gives us a bit of a capacity for growth here. So we will focus on growing that vacant capacity. The digitization fundamentally as a strategy is helping us win new storage volume as well. So we really have staked the claim in terms of security credentials, accuracy, the ability to do a job on time. So those key capabilities around getting good efficiency and reliability. And what that's doing is as we win digitization volume, we will often then archive and store the paper and the records that come with that volume. So happy with that strategy where Horizon 2 is actually feeding Horizon 1 for us. In Australia, the Australian election slowed just a couple of those digitization projects near the tail end of the financial year. So with the new government elected, we will hope that those pick up again in FY '26. And for Horizon 3, pretty small, but we've started a business called Stocka a couple of years ago. It's e-commerce 3PL, really targeting small and medium enterprises. So it's part of the market, which is not particularly well served by anyone and often customers that are a little bit of trouble for some of the large 3PL businesses to cater to. We use the spare capacity that we have within the TIMG footprint, and we clearly feed the items either through New Zealand Couriers or Post Haste. So growing nicely, past NZD 5 million in FY '25 and a good chunk of the revenue there pushes back into the courier networks. In terms of Waste Renewal, look, we have a pretty good view as the crow flies about where we need to get with this business. And fundamentally, what we want to do is double the earnings. It is sort of the key reason that we didn't grow earnings and maintain or grow margins in the IM division. And the series of steps we have are relatively straightforward. It really is working through and saying, hey, have we got the price right for effort we are putting in. Often, we will be the only player in particular regions and sometimes just the prices we're charging in those regions don't match the costs that we have had. And that's sort of historical pricing, I guess, that we haven't come back and revisited well enough. We revisited, but not well enough given the cost increases over the last 2 years, in particular, with drivers wages and depot costs. So we will work through that. We're restructuring parts of the network. So what we want to do is improve the service, but also the efficiency. And as Stephan mentioned, seeing some quite good progress with that even over the last couple of months. So they're getting better utilization out of the wage driver fleet that we have. We have route optimization. We've done some tweaks to that to improve the number of bins that we can collect per run, which is giving better service, but also giving better efficiency and a better cost per bin. In Horizon 2, again, pretty simple. What we aim to do there is carry on growing. Medical waste group 16% over this past year. Again, we want to achieve double-digit revenue growth in the coming year. And most of that will be focused in Victoria where we're running at about 25% of the available capacity. So we have plenty of room to grow into. A lot of that focus is on private clinics, private hospitals. We have won a place on the Victorian HealthShare tender board. That gives us the ability to go into all of those various hospitals with prices locked in, terms and conditions locked in and approval, but you still have to win them one by one. And so we'll expect to win a little bit of volume there, but I think a lot of that focus will remain on the private clinics, private hospitals where we have achieved really good growth to date. As we improve the utilization of that facility, again, we'll improve the earnings that we get out of it. And then in Horizon 3, just reassess some of the products that we are collecting and the price for which we are charging for that collection, [ grading ] shading and sortation. The business have moved into quite a range of products. So we do ITAD, IT asset disposal, where we'll pick up laptops, servers, et cetera, et cetera. And those products can be refurbished and sold on after the data has been wiped. We do quite a bit of e-waste as well, where likewise, we're picking up data on devices and shredding and destroying that material. But we've moved into textiles, we've moved into high-value packaging. There was quite a number of waste streams there. The strategy for the team is really to consolidate those operations in a particular state, so we can get the best out of the processing capacity we will have in that state. And as I say, address the pricing. In some cases, we've been picking that up at breakeven margin or even a slight loss. And so we will sort that out. In terms of M&A, certainly, despite the fact that we haven't acted on an acquisition, we've certainly been active. The areas we're looking at fundamentally are things that are either complementary or synergistic with our existing operations. And 80% to 90% of the focus is in Australia and in and around the Express Package market. Complementary means something where we might be able to service the same customer, but with another service or it's a service that's closely adjacent to what we're doing with Allied Express. Synergistic clearly means that we can fold it in and get bigger scale efficiencies by perhaps rationalizing depots and runs and those types of things with a similar business. So those are the 2 areas that we are looking at. We're looking for businesses that align with our operating culture. And in most cases, I have to say most of the targets tick that particular box. But we want businesses that we can grow. We don't want a business that we can pick up and is going to do the same revenue and earnings next year as it has done this year. We want businesses where we've got the capability to add something to it and really help grow like we have done with Allied. And so that means that we're pretty disciplined. We're picky, we're fussy and we will continue to be that way. Having said that, there are a large number of businesses that we have looked at over the past year. And some of those remain very firmly in the choice set. Some of those we've gone through and drawn a bit of a line and said, hey, look for us. And a few of them have gone out of business, in fact, over in Australia in the last 12 months. But the pipeline still got a reasonable number of active and future potential opportunities. And I think we are probably better positioned this year than any other to be able to act on some of those. There's a big range in terms of size, anything from NZD 50 million to NZD 500 million of revenue and they fit across B2B and B2C focused businesses. The nature of the Australian market means that a lot of these transport businesses fit in particular niches. It might be a geography. It might be a freight size or type. It might be a particular industry vertical. It could be a service standard. So it's interesting. Again, our strategy is to be #1 or a fast growing, how do we become a fast growing #2 in a particular niche so that you can build a bit of power and concentration and density with what you do. So we are looking for those things as we work through that list. I think we've established really good relationships with a lot of these targets. Most of them are independently owned, family-owned type businesses and the vendors can only sell them once. So they need to make sure they're selling to the right party. I think in most cases, we tick that box for them. It's a matter of whether those businesses meet our criteria as well. All right. And finally, the outlook. I think what we'd all acknowledge is that trying to be economists and trying to pick when the economy is going to tick up is a pretty challenging thing to do, and that recovery has been delayed far longer than probably anyone anticipated. We don't kind of use those words around green shoots. I guess what we do say is just a very modest improvement in volume over the last 6 months. The customers have gone from being slightly negative in terms of the volume, they're sending to very, very slightly positive. So that turn has happened over the last 6 months. And we think that will keep building a bit of momentum into FY '26. The exact gradient of that, that's a little hard to tell. It's back in the realm of being an economist and a forecaster. What we do know is that if we get a bit of positive momentum, that organic same customer growth, coupled with winning new business, getting the right price for everything you do will allow us to expand margins in the coming year. So the gradient, that's not over to us. But when it comes, we know it will be a bit of a tailwind for us. Our focus then remains on just playing our game, improving service quality in every single one of the brands that we have, making sure that account management strategy we have of staying really close to customers and helping them and understanding their needs and growing with them and keeping them is really critical for us. And then going out and winning those new ones for each of those niches, which is what the team have done, not just last year, but in reality, probably over the last 4 to 5 years. And as I said right up front, we're really happy that for every one of our businesses, no matter what stage they are in a product life cycle that we have a Horizon 1, 2 or 3 opportunity that we can go and pursue. So I think you take a bird's eye view of where we sit as a business, and we're pretty happy. I think a lot of people would love to have the problems that we have, and we will be seeking growth in all of those areas. And if we find the right acquisition opportunity, I think we've got the balance sheet in a position where if it's small, we can do something there. And if it's big, hopefully, we would have the support of shareholders. That brings to the end the [indiscernible] of slides we've given you, and I might hand it back over to Kiara to manage any questions.

[Operator Instructions] Our first question comes from Grant Lowe.

Good result in tough operating environment, clearly. Just a couple from me. Just around -- you spoke -- I think Aaron spoke about the Evolve Phase 1 rollout in the next couple of months. What exactly does that deliver? And what's the implications for FY '26?

Maybe talk a little bit about what we're doing. But there's no particular impact financially in FY '26, Grant. So we're still constant in terms of what we talked about at the half year and the previous full year when we announced the project that we don't expect any major cost savings and there's no magic pricing for initiative that strikes in FY '26. But Aaron can bring you up to speed and just where that project is evolving to.

Yes. So firstly, it's all about credit control and invoicing. So just getting the basics right of the billing system. But that will then progress into how we actually can strategically bill and grow career remuneration -- graduate career remuneration in the billing process and take it further where we can actually do smarter things with our customers. We're getting ourselves out of spreadsheets and databases and actually into the new millennium. So basically, we'll be able to put more focus on getting more accurate and timely outcomes for our people in a cost-effective way that gives us a process that's robust enough for the next 20 years per se.

The one thing, and it's pretty small in terms of contribution, but the EP team this year tackled Auckland outer area deliveries and a bit of differentiated pricing for that. It was quite a nice dry run, I guess, in terms of thinking about what we do with local in particular, that we have talked about in the future. So that outer area pricing effectively established a ring around Auckland and said, hey, if you're sending items out to Beachlands as an example on the right side, that's not Auckland anymore, that's an outer area and it will cost you a little bit more. So the team have implemented that for FY '26, pretty modest gains. That was really us just picking on a small part of local. It's about 10% of Auckland's local volume, I think, goes out to those outer areas and testing that with customers around the differentiated pricing, which generally has gone pretty well.

Yes. Look, it's one of those pricing for effort strategies that we talked about, but it also just means that we don't have to create an exception in the system every time we want to do something new that the system can actually cope with the direction of the business and what we want to do from a systems and operational point of view.

That's great. Okay. It's a key building block, clearly. In terms of the Waste Renewal side of things, can you just remind me what the NZD 2.2 million of one-offs was, there was some in the first half, I recall? And then do you have a target in mind for earnings improvement in FY '26?

Yes, we do. So the NZD 2.2 million predominantly related to historical WorkCover premiums that tracked back over about a 4-year period, which WorkCover hadn't invoiced us for, partly our mistake, partly theirs. But regardless, you don't want to battle with a regulator, so you pay the bill. So that's what that related to. Look, the target for us is to double the earnings of that division over the next 2 years and a big chunk of that in this year.

Do --have you disclosed what the earnings of that business is, just I think about doubling?

No, we haven't. But if we double, look, it's sort of in the order of another NZD 5 million to NZD 6 million of earnings roughly.

Got it. Got it. Okay. And then just around the M&A side of things. Obviously, everybody appreciates the discipline that you guys have shown and nobody wants to see anything done rationally, clearly. But just in terms of the last comment there that you've got around the nature of the market means operators typically service a niche. What's the context of that point? Are you highlighting the fact that this is sort of like -- obviously, you're looking for the right thing. Is there a large number that come across your desk, which are not quite the right fit? Is that what you're getting at there?

Yes, yes. Look, absolutely. I think it's interesting. I mean you look at the TGE business over there, I guess that was a business that tried to be everything to everybody and literally do everything from full containers through pallets through overnight air freight, B2B, B2C, fast couriers, et cetera, et cetera. And that business has had a really tough time, right? And I think it's been on a turnaround path for probably about 4 or 5 years now. I think that's an example of one that's not a particular niche operator, has gone right across the board and maybe lost itself through that period. The -- a lot of the businesses, the better ones we have seen, the ones that have good margins that are capable of growth and have demonstrated growth, those are the ones that have tended to operate in niches, which as I say, could be a geography or it could be a market vertical in terms of the segments they service. It could be a freight type. In Allied's case, it was the size of the freight. That was the key niche they occupied. Those are probably the ones we have found more interesting and are spending more time on.

Got it. Got it. And just last one for me. So in terms of like the timing for that, like our prices -- is the pricing realistic? What's been the constraint, as I say, like nobody is looking for you to do some rash just for the sake of it. But like in terms of what has been the constraint, something you've been talking about for a little while now?

Look, there's a few with unrealistic pricing expectations, 100%. There's a couple we would have loved to have, but really highly -- very high expectations and they haven't sold. So they'll come around again, I think. A big part of it with sort of family and independent owners is what is the right time to let their business go. And I think for a lot of them, they've come out of this period again of high labor inflation and a lot of them in their mind go, if I could hang in for another 2 years or another year or another 6 months and just improve the earnings, even on the same multiple, I get a better price. And so there's quite a bit of that thinking I think as well amongst these independent owners is it's been a pretty tough 3 years. If I could just get my earnings back to where they were, if I can improve them by a little bit, then I've got another X million on my pocket. So yes, those people there, you've got to show them it's a good home for their people, which most of them are convinced of and then help them realize that this might be the right time. And if you don't go now, maybe you miss out. So anyway, we're working through them. I think we've done this for a reasonably long period of time. And we are disciplined and we're not going to rush and get something that's not right for us.

Our next question comes from Andy Bowley.

A couple of questions from me, the first of which is around pricing. And in Slide 18, you are referring to NZ Express Package pricing from a GRI point of view of netting at 3.6%. Now forgive me if I'm wrong, but I thought the GRI from a gross perspective last year was 6.5%. So I guess the first part of the question is, can you confirm that, that's like-for-like? And if so, why are we only netting off at such a low level versus what we've been accustomed to in recent years?

Yes. Sorry, the 3.6% is -- that's the price increase we have just implemented. So that's around 80% of the 4.4. We implement that through the months of May and June, which is the reason we had it on Slide 18 probably. So yes, we're pretty confident we get the 3.6% out of this FY '26 price increase that we communicated through May and June.

Okay. I get it. So maybe just confirm what you netted off last year as well while we're at it, please, Mark?

I think we hit 6% through 5.8% to 6%, Andy, in that region.

Great. And the 3.6% for FY '26 for NZ Parcels, can you maybe talk more broadly around the pricing expectations across other aspects of the business, be it Allied and Big Chill, please?

Yes. Allied, we've certainly gone at a lower rate with Allied. The key strategy with Allied really is to build volume through the network. So typically, we're a little bit dearer than others for the type of work we do, but can justify it because the quality of the service is really good. So the Allied team price increase we went with there was only high-2s, about 2.8%, 2.9%, and we hope to net around about 2.5% out of that particular price increase. The bigger focus for us is to get more volume through those larger facilities we have. Big Chill, tougher time for those customers. So price increase we went to the market with was high-3s, and again, hoping to net around high-2s. And just a tougher time for that customer base at the moment. So reasonably competitive. I think you've got fixed cost infrastructure across all of the competitors in the Temperature Controlled space. Everyone probably with volumes a little bit down. So important for us to hold on to our customers, which we have done with a bit of market share, which we have done, but yes, probably at the cost of a little bit of pricing that you'd like to have that we've elected to be a little bit more conservative on.

Great. Thank you, Mark. And now just moving to the outlook commentary where we talk about the broader economic backdrop and recognize it's been challenging, but perhaps there's some improvement now being observed. And we talk about assist to expand margins, and I kind of press the word slightly in the year ahead. Can you kind of clarify what you mean by slightly? And I'm mindful here that margin expansion has been a feature in FY '25. And if I look at broader market consensus expectations for the year ahead, they assume 70 basis points. And does that meet the kind of the slightly in the outlook commentary?

Maybe Stephan can talk about the quantum and I'll just give a little bit of the backdrop. I think that's -- if we just look at the component parts, particularly for NZ Express, and I think certainly for Allied, where we look at the leverage we get from the volume coming through, we would think that we will improve the margins in those sectors with a little bit of same customer growth, which is what we are seeing now. So I think that part is positive for Big Chill, still yet to see much in the way of same customer improvement. It's a little bit less worse again than what it had been. But a way to go I think in that particular industry before there is positive growth out of those same customers.

Yes. I mean, as we discussed for the EP business, I think we have the right network. We are well positioned. We can absorb additional volume. And for the businesses that haven't been doing well, we have a plan that's already delivering. So if I were not comfortable with consensus, I would have had to sell something. So I am reasonably confident with that and maybe we can even do better.

Our next question comes from Wade Gardiner.

Just a few questions from me. First up, also on Slide 18, you talked about the target of NZD 10 million for oversized. What would be the targets on that going forward? How much extra do you think you can get?

We reckon -- kind of go right from a bird's eye view. We reckon that market in New Zealand is probably about NZD 100 million, Wade. It's really spread between a whole lot of people who often don't want something that is 40 kilograms, not on a pallet and a bit awkward to handle. So we reckon the market is around NZD 100 million and our target would be to get up to that 40%, 45% market share in that market over a period of a few years. So yes, that's the direction of travel. I can't recall what we've got for this particular year off the top of my head. But around that NZD 40 million, NZD 45 million is where we're aiming over the medium term, 3 to 4 years.

Okay. Investment by Big Chill, why you sort of made up Hamilton and Christchurch as sort of an either or not doing both? Why would you not do both of them if it makes sense? And is the Hamilton one if it was there, is it an expansion of Ruakura or is it a new site?

It's potentially expansion of Ruakura. I guess we're at a stage of working through and negotiating what the cost basis look like for those 2. And there's a little bit of work to do there by the supplier.

Right. So potentially you do, do both?

Potentially, you could do. Potentially, you could do. I think we've always been a little bit mindful of when you go into them, you take on a big rent bill and you've got to build your volume. So you take a bit of a hit. I think in our perfect world, that would be staggered. So as you were getting one up to profitability, then you took on the next one. But yes, there is the potential you could do both, absolutely. I think with one of them, where -- with both of them, we're pretty happy with the demand profile. And then with one of them, yes, there's a little bit of work to do on the cost side of things.

Okay. And with Allied, why the much better volumes in the second half relative to the first half? Can you just provide a bit of color there?

So things like, for example, end of financial year sales coming in through that June period, that's probably a little bit symptomatic of just that Aussie economy, which has slowed a little bit more recently and a lot of those retailers going right, we're going to pump it out. We're going to sell stuff at discounts and really get it out. So that has really given a bit of a boom in the second half of the year.

If that's the case, if it was a June financial year sale, where -- like we had this -- having this conversation in May, where was it tracking at that point?

Where was it tracking in May.

In other words, was the second half growth consistent at that sort of 15-odd-percent level or was it really at a much lower level...

Yes, it would have been a little bit lower than that. The other thing can be just the timing of Christmas and where we cut off, Wade. So sometimes that can push a little bit more into second half or first half depending on where we cut off our financial month. But look, generally good volumes. We won a bit more share of wallet in the second half. So there was a bit more volume that was shared between a couple of providers and we have won more of that. And there has been a new business pickup as well in the second half. So those things have all contributed to a higher level. I'm not -- I certainly wouldn't say bank on a 15% run rate. That's not what I'm saying. But yes, between end of financial year sales, some of that new business that has now eventuated and come through and maybe just the timing around when Christmas cut off, that's why we've had a better growth profile in the second half of the year.

Okay. And finally for me, just in terms of the lower margins that you're getting at Allied, given the, I guess, the operating leverage from better volumes and maybe better pricing in the future. But where do you think you can get those margins to? Can you get them up around the New Zealand level?

I reckon up around 15% over time. And I say that because at the peak periods where you have the biggest amount of volume going through, they're not far off that. They're kind of in the 14s, low-14s. So I guess…

So is it EBITA or EBITDA?

EBITA. And that wouldn't be a million miles away from like a Post Haste margin. NZC will be higher for that overnight 9:30 service. But yes, that would be pretty close to Post Haste margins for EP.

Our next question comes from Ian Munro.

First one, just picking up on Allied and that second half performance. Are you able to just give us a sense of the mix of freight driving that result, please? Is there any kind of lumpier customer contributions? And maybe a little bit more, I guess, commentary around that sort of mix of B2B, B2C freight that's moving through Allied?

Yes. More of it B2C, but there is a bit of B2B in there as well. So there is some product. And if you think about -- what's a good example would be office equipment station where you think about the bigger items, it might be whiteboards and desks and chairs, those types of things. So they're going into a B2B setting, but it's a similar size profile to what we're doing through a B2C network. So there's certainly a pickup in that type of volume. We've got some customers that are just going great guns as well, Ian. So some of those Aussie brands, Temple & Webster and Kmarts have been trading really strongly and they're doing things right and Allied is benefiting from that because they're getting that volume to go out and deliver. So that has certainly helped as well. And then we've had a sales team out there knocking on doors for a little while now and just starting to get a little bit of traction in terms of picking up some of the smaller and medium-sized accounts. And I guess, what's nice about a small and medium-sized customer in Australia is often a medium to big customer here in New Zealand in terms of scale. So when we see the team bringing on some of these customers, yes, they look great from a New Zealand perspective. They're in the hundreds of thousands, high hundreds of thousands, which would be a really big customer over here, but that's a little bit of bread and butter in Australia. So yes, the new business momentum is starting to pick up as well. Yes. So the overall mix probably hasn't changed radically B2B, B2C. There's a little bit more B2B, but because the B2C has grown so much, the proportionality is pretty similar.

And just as a follow-up. With the kinds of growth rates that you're reporting in the second half, obviously, a bit of momentum behind the customer mix and also new accounts, are we getting into a situation where we're ramping up against sort of capacity constraints in any of these capital city facilities?

In Melbourne, we're just having a little look because Melbourne -- a lot of those e-com 3PL and warehousing operations have set up in Melbourne over the last 5, 6 years, probably because rents are a bit cheaper than Sydney. And it was interesting with the end of financial year sales that we had coming through in Melbourne, a lot of that freight is generated out of the big market, that gave us a bit of a surprise because some of that volume was up 27% and we were, geez, if that carries on, we might actually end up either with satellite depot or a little bit more capacity in Melbourne. So that's probably the only one. Brisbane, we moved into a big facility there in August, I think it was last year. So really happy with that. Sydney, 20,000 square meters going really well. Yes, Melbourne is probably the one where we will have a little look and say, either is that a satellite operation to take a bit of heat out for a peak season in future years or can we add a bit of capacity nearby.

And just one final question, please, maybe for Aaron, just picking up on the comment around picking up market share in Express in customers where you're kind of rubbing up against a competitor. Just maybe kind of looking at the segment, I guess now and the market share opportunities that you're seeing in Express relative to perhaps where it was maybe 5 years ago? I know it's a broad question, but just keen to understand kind of where you see the greenfields in the business in terms of new customer growth.

I think it's pretty positive. We've -- I think we've honed our craft a little bit over the years. We've learned a little bit more about our sales teams and what they do well and what they don't do well. But that all comes back to service. And so we're really utilizing our service standards as a key selling point, and that's where we base our pricing around. So I think we're in good shape. I think we're very positive. I don't think we've wasted a good recession in New Zealand in the EP space. So yes, we plan to hit it really hard and take advantage of all this good work that's been done so far and then leveraging off that.

Still, there's a lot of opportunity through that sort of cross-border e-commerce sector, Ian. It's a big market. We only have a pretty small share of that because we're pretty new to that game, right? And traditionally, pricing in that area has been pretty low and it hasn't really attracted us. But the team are forging some good relationships with customers, particularly up in Asia. There is more -- as Aaron said, there's more volume coming through Freightways Global. And I think we'll see that continue to grow. I think customers are enjoying the fact that there's a differentiated offer when that freight lands in New Zealand. There's different levels of service standard they can plug into depending on the niche of product they're bringing in. Yes, I certainly think that's an area that's probably got outsized growth. And it's sort of market share gains, but they're offshore customers. So yes, slightly different niche from that point of view. A lot of them are new to market as well. A lot of them are new businesses that are popping up selling into a New Zealand market that just haven't existed before. And so you're not necessarily taking them off anybody, you're joining on the spot to pick them up when they get up and running.

And Ian, I think the other advantage is having the brand differentiation. So having New Zealand Couriers in a particular lane, Post Haste in another lane and then the MSL team in another lane and that gives us such good coverage and at times even overlap. So we have 2 or 3 tracks at the same particular customer.

Yes. We're doing a bit of work like it's hard to know whether it will work or not, but just targeting trans-Tasman oversize and initiative between Allied and Kiwi oversize here. And with a couple of key customers that saying, right, can we help you get into New Zealand with your oversized product without necessarily having to have warehousing and what have you in New Zealand. So that will get up and running in a few months' time. You guys have done some really good work in terms of setting up how the network will operate for that. Yes, that will be interesting, but that's a nice third horizon opportunity in that oversized space.

And our final question comes from Marcus Curley.

Unfortunately, just a couple from me. So can you talk a little bit about the cost pressures in the business, Mark? You obviously talked about Express Package pricing going up. What are you seeing in terms of OpEx costs? What are you planning on paying courier drivers from a rate increase this year?

Yes. Look, across all our people, that rate of increase should cap at 3%, Marcus. So it's across 6,000 people in Freightways, contractors, employees, NZ and Aussi. But that will cap at around 3% this year. And so net increase out of NZEP around that 3.6%. In terms -- that's the single biggest category that we do have. I mean, overheads, I think even insurance, we might get a little bit of a win this year would be quite nice. That's sort of been on this massive upward trajectory over the last couple of years. I think that might abate a little. The airfreight piece, as we shift to 800s, once you get over that little transition cost, ironically, that could be about the same, could even be a little bit cheaper on an ongoing basis at the point we can get to 3 737-800s, depending on the number of flights we have to do with the volumes we have. So I think we're generally pretty comfortable in and around the 3s. It varies a bit by business. Obviously, big chill energy costs are significant for them. So that's a big uplift. Everyone in New Zealand probably having a -- feeling a bit of pain from the level of electricity price increases. But generally, across the board, we think that we'll have cost pressures that are roughly on line with the price increase that we've levied maybe a little lower.

And sorry, Mark, did you say just under 3 for drivers in New Zealand?

Yes. It depends on the brand, Marcus. So in some cases -- and the guys have put through some pretty good increases over the last few years. So in different fleets, the guys are taking a slightly different approach to that to say, how do we bring up the ones with maybe lower volumes and lower density, how do we bring them up by a bit more. The ones that are doing well, we might not shift their rate as such. So slightly hard to answer. It's a little bit horses to horses depending on where your particular earnings are as a contractor.

It's not just one particular increase for the whole fleet. It's done on a case-by-case basis based on their sustainable earnings.

Okay. And so that's -- it's below 3% on a total cost basis. So that includes any volume growth.

Yes, yes.

Okay, great. You mentioned the uplift in the waste performance. Excluding waste, what would be your sort of perspective on the, let's say, the EBITA in the remainder part of the Information Management business looking into '26?

Sort of slow and steady increase, Marcus. So there won't be anything ratable. She's a pretty -- a very stable business. These great businesses. I call it a bit of a shock absorber actually through recessions because the amount that you're holding in storage doesn't really change in a recession. So yes, for TIMG, NZ and Aussie, that will be slow and steady. Top line be digitization based in particular. And then on the waste business, that's where we really need to turn around those earnings.

And then just finally, you mentioned a margin lift in Allied this year. I know that you don't want to give away the margin itself, but could you just give us some color on what was the quantum of the change? Like how much margin increase did you see in Allied?

Allied, it was around 500 basis points.

Okay. And a further increase expected this year?

Hopefully.

Yes, hopefully.

Thank you very much, everyone. That brings our call to a close.