Freightways Group Limited (FRW) Earnings Call Transcript & Summary

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

Thanks very much, and welcome, everybody, to the Freightways Half Year 2026 Results. Here in the room with me is, as usual, Aaron Stubbing, who heads up Express Package in New Zealand; Stephan Deschamps, CFO; and Neil Wilson, who looks after our Australian businesses and the Information Management division. First thing we just mentioned is just a terrible weather down the Lower North Island Wellington area, be affecting a lot of people. Certainly, we have people off the roads down in those areas, particularly DX Mail and our Express businesses that are affected by the wind and the weather conditions down there. So we wish them well today. And I think by this afternoon, things are looking a little more positive, and we'll be back on the road down there. Big thank you also to all of our teams across New Zealand and Australia. Really, every business has put in a pretty meritable performance over the half year. And so ,I'd just like to thank all of those staff and contractors throughout all of those businesses. And a big welcome to the VTFE team as of 2 weeks ago in Melbourne, who joined the Freightways family. In terms of just high-level overview, as I said, a pretty consistent set of performances across all our business divisions, Express Package, temperature controlled, information management, a little less so in waste renewal, but we're seeing some promising signs there. So we're happy that from a performance point of view, while there's always areas we can improve, and there's a couple of areas in particular that we'll keep working away at, it has been a pretty all-round result from the Freightways companies. There's a slight lift in the second quarter from what we reported in Q1 for the NZ Express and Temperature Controlled volumes. So as those economic conditions start to improve, we're just seeing that volume starting to ease up a little bit. And I'd emphasize a little bit, it is really pretty slow and steady. And I think that's what we talked about at the end of the full year last year that it would be a slow, steady gradual increase. The other trend we're seeing, and Aaron will talk a bit more about this, but still high demand for economy over premium services. So our businesses that perform 1-hour deliveries across town, point-to-point deliveries, that is still pretty soft demand. And then greater demand for the Economy Express services we provide through our brands. So that's certainly a feature. Fantastic to add VTFE into the Freightways fold. So we announced that just prior to Christmas. I'll talk a little bit more about that near the end of the presentation, just give people a reminder of the nature of the business and then talk a bit more broadly around M&A and what it is that we're hoping to achieve there. And really happy with how our balance sheet has been managed. Stephan will talk about that as well. But sitting midrange of the policy, acquiring VTFE puts Freightways in a pretty strong position, I think, when you look at the performance of the business in terms of picking up share, an economy, which is slowly and steadily improving and a balance sheet, which is in good shape. I won't go through and steal Stephan's thunder talking about all the numbers because that will leave nothing to talk about. But the important thing to note here is the arrows are going in the right direction. So there's a series of pretty impressive numbers there across the board, all going up other than debt, which is the one you want to see going down. So nice to see as a result of the strategy, our objective of owning niches and having a series of brands that sit in a niche with an objective of being #1 or a fast charging #2 of garnering competitive advantage through the service, which gives us a little bit of pricing power and gives our salespeople something to go out and sell and to win new business. that strategy is yielding results. And as conditions improve in New Zealand, and I'd have to say conditions for us in Australia have been pretty steady all the way through, and we are a bit less exposed to the Australian economy by virtue of the size of our business in Australia. Pretty happy again with the direction of those numbers. I'll hand over to Stephan to talk you through the consolidated numbers and balance sheet impact, and then we'll come back and talk about the divisional results.

Thank you, Mark. I'm not talking too much on the previous slide.

You're welcome.

The first half of FY '26 is really a continuation of and a confirmation of what we discussed at the ASM, the economic environment remains difficult, especially in New Zealand, but we are seeing some improvement, and that allows us to generate a level of same customer growth that adds to the market share gains. In Australia, Allied is doing extremely well, double-digit top line growth, even stronger bottom line growth. The 2 businesses that are in Australia balancing that are TIMG and Shred-X. TIMG because we are seeing a bit less digitization work in the first half of the year. And Shred-X, I will talk a bit more about that because we are still ongoing through a significant restructuring of the business, which means that the top line is not growing at the moment. So overall, our revenue is up 8.5% to almost $720 million. Consistent with the last couple of periods, also our bottom line is increasing faster than the top line. So EBITA, which is the measure we use internally, up 12.7% to $96.5 million and NPAT up 17% to $52 million. We've talked repeatedly about our focus on margin, which has really been what Aaron and Neil have been focusing on in the last 18 months. The cost base has remained generally quite stable. So the work of the businesses has allowed us to increase the margin across the group. Some businesses that I wanted to spotlight because they've done really well, Post Haste in New Zealand, DX in New Zealand and TIMG in New Zealand. And Allied also has seen really significant growth from significantly below the EP average when we acquired them to now pretty much the same level as Post Haste in New Zealand. So really good progress. Some of our businesses, though, remain quite exposed to the slower economic environment in New Zealand. And the fact that, as Mark mentioned, premium services are not rewarded in the same way in that more difficult environment. NZC and Big Chill are the 2 businesses that suffer more from that type of economy, and they will need to see a level of economic recovery to start seeing a significant improvement in margin. As I mentioned also in Australia, we are restructuring the Shred-X business. So there's a number of one-off costs that are still flowing through as we are reshaping activity, closing some depot, reducing headcount, and this is impacting the margin in the first half. But overall, the trend is quite positive and going where we want it to be. As Mark mentioned, in the absence of M&A in the first half of the year, we've generated quite strong cash flow. And we've used that to repay debt to a large extent, both pre and post IFRS 16. And that means, if you look at the next slide, that our gearing is coming down. Excluding the acquisition of VTFE, we would expect our gearing at the end of the year to be in the bottom half of our target range. VTFE will add about 0.2 to our net debt over EBITDA multiple. It's AUD 71 million price tag. We've raised [indiscernible] through a bridge facility, whilst we assess other opportunities and decide what the final funding will be. On the back of that strong balance sheet and slightly better economic environment, we decided to increase our first half dividend by $0.02. So we would be paying $0.21 compared to $0.19 last year. As Mark mentioned, that dividend will be fully imputed in New Zealand. In Australia, we do not generate enough profit yet to fully impute the dividend. So it will be around 46% imputed. I'll hand back to Mark.

Very good. So we'll talk about the EP and Business Mail performance, then Aaron will give a bit more color around the New Zealand aspect of that. Neil will then talk a little bit more around Australia, give you a bit more detail, particularly around the volume profile and then cover information management. So for EP and Business Mail, good increase in revenue, 10.4% and a bit of that leverage coming through a 14% increase in EBITA and NPAT. And again, as I said earlier, the benefit of a little bit of an upswing in the economy, giving us some same customer growth that Aaron will talk more about, net market share gains generated from superior services, better account management, local people on the ground in all of the areas, where we compete. And then price increases, where we just have a little bit of pricing power and the ability to recover the costs that we have through the cost base as well and in some cases, get a slight increment on that. The economy services, Allied and Post Haste. So when I talk about economy, these are predominantly road-based services rather than using overnight air freight. The delta between the 2 is pretty significant. So for an average parcel sending in air freight will cost you at least twice as much as the equivalent service on road freight. So when we talk about premium and economy, that is one of the key differentiations. Are we putting it on a plane, putting it in the air to land it? Or are we putting it over the road across the ferries and between the islands on road-based services. So still more customers using road-based than air-based. What we tend to see is as customers get busier and they become time poor, they shift back to the premium services again. So that's a pretty common trend that we would have seen in most of the recessions that we have worked through at Freightways. Pleasing uplift in margin. We have Evolve costs in here. So Evolve, just to remind you, is the billing and courier pay transformation project we have that will give us a modern state-of-the-art billing and courier pay system. And other than the efficiencies we get out of that, one of the key attributes of that system when it's complete will be the ability to price individual items at a much more micro level so that we can get the right pricing for the effort that we are putting in. So that program remains on budget. It was $10 million all up. We had $1.8 million extra cost on that in this half year than we did in the PCP. So I'll leave you to do the math if you added that in for the underlying margin of the business, but it's a nice improvement. DX Mail, again, continued their momentum, done an awful lot of local government work, particularly with local body elections. That's first for DX, did a particularly good job with that, and that's helped boost their momentum through the half. Big Chill revenue and earnings are both up. So Big Chill revenue up, not by as much as we would like, but you can just start to see a little turnaround coming through there. In December, Big Chill had a really good result. And I guess that is the impact where you have higher volume coming through a fairly fixed cost base, and you can see the margins start to increase. Hand over to Aaron to talk about Express Package volume and just a little bit more color in and around the New Zealand division.

Yes. Thanks, Mark. Good morning, everyone. So Express Package volumes were up 5.5% in H1, and we had positive contributions from net market share gains and same customer growth. The international e-commerce volume has certainly been a meaningful contributor to the same customer growth. And as the gents both mentioned, we are seeing that our customers are showing a preference for the economy services as opposed to the premium options. And that's just giving us a little bit more scope to review how we operate those services and gear up for when the economy starts to change into a bit more of a positive light. So industries that we're seeing improvements from relate to health care and 3PL. We're seeing a little bit of an increase in manufacturing. It's just starting to move forward. But industries that are still struggling for us, retail, accommodation and food services and education and training. So those areas are still very much doing it tough in the current market climate. Right. Freightways Global. Freightways Global is our facilitator of international and e-commerce freight into the EP brands and provides about 5% of our total volume. And we've been advised as of last year that given all this extra volume, the New Zealand customs need to recoup some of those costs that they are having to incur and have decided to increase -- or sorry, implement a levy-based system. And whilst we don't have a problem with the levy-based system, what we do have a problem with is there's 2 mechanisms, one for the national postal provider and one for everybody else. So at this stage, we're unsure as to what the impact these pricing differences will have on future volumes and how easily our customers will be able to pass it on to their base. But we haven't sat idly. We since becoming aware of this issue, we have lobbied customs, MB and the government to address this inequality. And our mitigation strategy or strategies is to have access to own postal channel, and we'll continue to explore this option as well as other alternatives to protect our current volume in the future. Thank you.

Neil will just give a bit of an update on the air network, which we have talked about a little bit over the last couple of announcements that is now coming to conclusion, which is a pretty good outcome for us. Then we'll move into Australia and information management.

Good morning, everyone. Yes, the Air Network just background again. It comprise at the moment of 1, 800 aircraft, 1, 737-800 and 3, 737-400s. It's performed really well during the period, and both operators are giving us on-time performance around about 98% or higher, which has been good. So sort of despite being a receivership, Airwork continue to operate as a going concern, while the receivers for caliber partners work through a sale process. The receivers have given us regular updates around that process, and we kind of expect the sale to happen in the next few months. On the back of that, we've got quite well developed plans to modernize the fleet by transitioning to 3, 737-800 aircraft backed up with a spare 400 aircraft around about August this year. The spare 400 aircraft will be used during peak periods or when the 800s are in maintenance. So moving to that new fleet configuration will be quite good from a -- both uplift capacity because 800s take 21 tonnes versus the 400, which takes -- sorry, 800s take 21 tonnes versus the 400, which takes 18 tonnes. And also, 800s are better from an ESG perspective because they generate around about 15% less emissions. Yes, sorry, the last point on that slide is that there are some one-off costs associated with transition to that newer fleet configuration, which we've actually provisioned for the last couple of years. Other than that, we expect the change to the new aircraft fleet to be cost neutral, give us better service and be more resilient. Allied, as Stephan talked about and Mark, they performed really well in the first half of the year. We've got really solid growth from existing customers, as well as a number of key new business wins, and that kind of resulted in volume growth of just under 14% compared to the prior year. The team has done a really good job in terms of improving the overall network performance, and that resulted in improved service levels during the period, particularly in the lead up to Christmas, which is a really important time of the year for Christmas, and we received positive feedback from a number of customers for the service that we delivered during that time. A key part of that success has been the investment that we made in larger depots and automation, which largely enabled the additional volumes to be handled through our existing infrastructure with the one exception being Melbourne, where we've actually added a 9,000 square meter satellite depot to enable us to meet the volumes that were coming through. Allied business is focused around B2C, B2C bigger items. So therefore, Black Friday and Cyber Monday are particularly major events for the business. During that week, which is the last week in November, volumes can peak by about 50% above what we would consider in a normal week. And it's a real credit to the team that we manage that volume with minimal impact to overall service levels. On the next few slides, I'll just quickly talk through some of the relevant points for TIMG New Zealand and TIMG Australia and Shred-X. The Information Management division delivered a flat year-on-year revenue performance. From a TIMG perspective, the biggest drag on performance was the finishing of a major scanning project in Australia that was a government project, which finished at the end of the first quarter. In both countries, TIMG has a really good pipeline of digital opportunities. However, unfortunately, those projects were not time to commence in the first half of this year. And as a result, digital revenues were down by about 14%. As Stephan touched on, Shred-X has implemented a performance improvement plan over the last year, which has impacted the first half result with a focus on improved margins, they have exited a number of low margin or unprofitable work, and that was predominantly across ITAD and some high-value waste products such as some vape construction work and coffee cup recycling. Both businesses, TIMG and Shred-X implemented really solid price increases of around 5% to 7% depending on the service, which resulted in improved margins. But given the less digital work and the Shred-X restructuring that we've done, the EBITA result overall was relatively flat. Just wanted to touch on LitSupport also where the performance has improved. The business has added legal legislative and commercial print sectors to their business. Traditionally, they've always been a legal print business, but that strategy of diversification has seen revenue grow by 7%. As it's worth noting in WA, they were successful in resecuring a major legislative print contract, which will go for another further 3 years, which will help underpin that performance. As you saw on the last slide, there was about $1.6 million in one-off restructuring incurred for the period at Shred-X. While that was a drag on first half result, the initiatives implemented will ensure that there is an improved performance in the Shred-X business in the second half of the year and beyond. Just broadly, the key initiatives are implemented, we're rationalizing the number of driver runs given the low volume work that we exited. They've used -- using automation to reduce admin and back office functions and exiting non-profitable locations. An example of that would be they've exited Canberra and Newcastle and instead, we're transporting volumes to centralized sites for processing, where we get better efficiencies. During the period, Shred-X have also increased their textile processing capabilities, which will benefit future periods. And lastly, on medical waste, medical waste has continued to scale over the last 3 years, and this trend continued in the first half of the year, as you can see in the graph, where medical waste volumes grew by 8%.

Thanks, Neil. And we talk about mergers and acquisitions, I guess, nice to be able to talk about an acquisition we executed, really the first meaningful one since we acquired Allied Express back in October '22. So just a reminder about the criteria and I guess, a bit of an update around M&A for Freightways. The primary focus, not exclusive, but the primary focus for us is really targeting proactively businesses, where we think they're closely adjacent or very complementary for Allied or VTFE. So having established Allied and put a bit of investment into that business over the last 3 years, we're pretty clear about how we want to carry on growing that business. There's opportunities for geographical expansion for taking more volume and market share in the key markets we are in. And then there are some very adjacent services, for example, 2-man white glove handling. We have a number of customers that would love us to be able to take some of the larger items they have that are beyond a one-man delivery. Likewise for VTFE, VTFE on the next slide, I will give a bit of a reminder around that business. But again, an expansion of the geographic footprint for our B2B entry into Australia will be a key point of focus for us in looking at those targets. It'd be fair to say over the last year or so, Neil, we've looked at 40 to 50 businesses in Australia in the transport sector. It's a really fragmented market. Because it is so big, you have a lot of operators, who operate in particular niches, and that can be a size of item. It can be a geography, a service standard, air freight, road freight, all of those types of things. That has given us really good knowledge of the industry, I would have to say, we've learned a huge amount over that period. And so, now what we're doing is narrowing the gun on those key targets that we think are highly complementary to VTFE or Allied Express. That approach will see us continue to remain disciplined. As we have done over these 3 years, we haven't sort of jumped out and backed with every passing car. It really has been a matter of looking for businesses that have a good cultural fit, really good service ethic and the potential for us to grow them. And then as Stephan had talked about earlier, the balance sheet supports that capacity to go out and make further acquisitions. There's still a range there. There are smaller businesses with a check of maybe $20 million. There are larger businesses with a check in the many hundreds of millions. So still quite a range of targets, who would meet the criteria that we have. A little reminder about VTFE, VT Freight Express and largely because we announced this 1 week prior to Christmas when many people would have had a lot of other things on their mind. B2B, I talked about it at the time we announced it as being very, very similar to Post Haste Group here in New Zealand. So it provides a very similar set of services and predominantly express road-based services. And in fact, many of VTFE's large customers are customers of Post Haste Castle parcels over here in New Zealand. So as we work through the final stages of due diligence, it was really nice to talk to a whole lot of companies, where we were quite familiar with the way they operated their needs, who their customers were. And I would have to say the feedback from those customers on the service that VT provided was nothing short of excellent. So it's an entry into B2B, these particular verticals that VTFE specialize in, the numbers down the bottom in terms of purchase price and what we expect to get out of the business. And those key benefits really, it's a very close, almost exact fit with the type of work that we do over here in New Zealand with the likes of Post Haste, as I mentioned. It's complementary to Allied. So when faced with the choice of do you diversify Allied into B2B as well as that oversized B2C, I think the operating model that we have here in New Zealand, which has worked so well for Freightways for so many years, clearly said that a brand per niche going out and trying to win, but working in the background, where it makes sense. And so, good examples of that will be where we can share facilities in the future, we will do, where we share line haul and leverage better rates, we will do. If we can share IT capability and some of the overhead capability, where it makes sense, we will do. And that's exactly what we do here in New Zealand with NZC and Post Haste as an example. VTFE, good, strong committed leadership team. So that team will continue to grow the business for us. And the early alignment really, it's been 2 weeks since we completed the deal. So the early alignment is really around some of the system, safety reporting, some of those commercial aspects. One of the initial projects for us is having a look at New South Wales. So VTFE picks up and delivers within Melbourne and Victoria, but has a reasonable amount of freight, which goes into state and is delivered by partners around Australia. The notable gap in that network is New South Wales. And the challenge there has been finding a partner, who lives up to the same service standards, data standards that VTFE require. So that really is the key focus point for us. Customers are very keen to give VTFE more freight going interstate from Melbourne to New South Wales. And we'll be looking at how we can either startup, acquire or partner to fill in that part of the network. But an obvious opportunity for us to keep growing the VTFE business around Australia and fill out what is a very big footprint opportunity. The other thing I wanted to do is just give a little reminder around Allied Express. Allied really have performed exceptionally well as some of those numbers there on screen tell you, compounding revenue growth of just under 11% over that 3-year period. EBITA growth, quite a notch up on that, which gives you a feel on the margin improvement that we've achieved through that business. Great cash flow and a really good return on investment that we have generated. The business has grown. The fundamentals of the business were a really strong service culture for their customers. And as Neil said, that was augmented by about $20 million that was spent on a couple of automated sorting systems in Vic and Sydney, but also the implementation of a very Freightways style of new business sales teams to go out and win either a greater share of wallet or win new customers. The margins have improved as that scale has built and plenty of opportunity for that business to keep growing. We must remind ourselves that really we're domiciled in the capitals of each of those states. And Australia is a very big country with some very big cities that sit outside those capitals. So again, a key point of focus for the Allied team in the near future. Finally, the outlook. And I guess we debated these words pretty heavily. But look, we do expect to see a steady improvement in same customer volumes. The same customer volumes that we saw in the NZ business that Aaron talked about 2.5%, the lion's share of that has come from international cross-border volume coming through. So New Zealand domestic customers are positive, which is great, but still have an awful lot of improvement left to go in our opinion. But we think that improvement will be steady. We think it will be slow and steady through the second half of the year and then beyond. Our efforts will be maintaining and growing margins in all of our businesses. So every business has a margin opportunity. Shred-X's margin opportunity and waste renewal will be a little bit bigger than others. Big Chill have a great margin opportunity as those volumes come in through the network. But every business has initiatives just to keep improving margins steadily over these coming years. Service quality is still paramount. We measure NPS in all of our businesses to understand where we sit at a macro level with customers. But we're a very accessible business. Every one of us, every one of our teams can hear from customers at any point and our job when things go wrong is to put it right. And that's one of the things that really sets us apart from our competition. So that focus on service will remain. That is the competitive advantage that allows us to pick up business usually at a bit of a premium on the competition, who I think is still struggling how to price things properly out there, particularly in New Zealand. And that's yielded positive results across our network. And then M&A, I think what we can say is that focus just narrowing from a really good learning for us, looking at many, many targets, just closing that down and having a much closer focus now on the ones that are complementary to VTFE and Allied Express. That is the presentation from the team here. And I think we've got a reasonable amount of time for questions. So I'll hand back to Kiara to manage that.

[Operator Instructions] Our first question comes from Andy Bowley.

Well done on another good result. A couple of questions from me to kick things off here. Firstly, just stemming from the slide on Allied, you've generated pretty impressive growth since that acquisition. Can you just give us a little bit more detail with regards to where that growth is coming from regionally, industry sectors, same customer sales versus new customers? I recognize that you've well cycled the removal of the volume caps at peak. But if you could just provide some illustrations of where that growth is coming from. And then, I guess that the question for us is to determine what the sustainability of that growth is.

So the growth predominantly out of the existing base. There's certainly contribution from new business. You're dead right, Andy, we removed the caps as we got the 2 automated sorting machines into Sydney and Melbourne. So that enabled us to remove caps that have often been placed on customers in those peak periods. The second piece that's really driving that is a lot of those customers are riding a bit of wave, probably taking a bite out of bricks-and-mortar retailers in Australia. So a lot of online providers. And these are customers like Temple & Webster, who are improving their penetration of the market selling from an online model. So those operators are growing as well. So we're winning a bit of share that might have gone in some cases to a competitor. We're riding the growth that they have in that niche. And then the new business, which would be the smaller part of it has come on top. Melbourne is the real standout geographically. So Melbourne has had by far and away the greatest growth. And I think that really is down to the fact that a lot of those e-commerce operators domiciled themselves in Melbourne quite a number of years ago, probably at a point, where rents were a lot cheaper than setting up warehouses in New South Wales. And as their volumes have grown, the geographic output from Victoria has been far, far greater. Having said that, areas like Queensland are still growing well. There's still really good growth coming out of that Queensland market. We're well resourced up there in terms of share. We're not at a point yet we put automation in, but as those volumes grow, we know the pivot point at which time we would. We haven't done a huge amount with pricing. So the game for us really has been to keep growing scale. So we haven't pushed pricing particularly hard, really. It's just been an effort to [ pour in ] and around the 2%, 2.5%, maybe up to 3% to cover the cost of inflation. Anything to add to that, Neil?

Yes. I mean the only other thing I'd add to that, Andy, will be the introduction of a margin model that we know a lot more about their costs and their margins. And because of that, they've introduced some different rate cards to target specific sectors, where we traditionally haven't moved volume, and then that's kind of knowing the margins has allowed us to do that. So -- and that's helped volume growth as well.

Sustainability of it, I mean, forecasting these things is hard. There's plenty of market share out there. It is -- because the market is so fragmented, almost every operator will do a little bit of oversize, but it's not their core. And so, they won't necessarily do it that well. They don't necessarily like it in some cases. Sometimes it just won't fit with their network, the fleet configuration and the depots. So plenty of opportunity there. There's a couple of competitors that are a kind of a smaller version of an Allied that we would keep looking at. And then there's market share to be taken off of any number of other operators there, not to mention the geographic piece. So when we look at a place like Canberra, capital of Australia is still a reasonably sized city, and we don't operate directly there ourselves. So those types of opportunities we have in front of us, too.

And I guess, there's no immediate capacity constraints in terms of continuing to grow at this type of low double-digit volume growth.

Yes. No, there's not. I mean, as Neil mentioned briefly, we have added another building in Melbourne, which helped us deal with the volume growth. I can't quite recall the total volume growth we've had over the 3 years there, but it's really significant. So there's another building there, which has just taken the heat out and allowed us to keep growing, but we still use that centralized sort system for all of your inbound and outbound freight. But no, very similar model over here in New Zealand, Andy, that we're not capacity constrained. We can add a bit more capacity in the areas that we need to. Usually, that has benefits, too, I'd say. So as we add a depot, usually, what it means is the contractors servicing out of that new depot get more time on the road and can complete more deliveries in a day.

Second question for me is just around Shred-X. There's been a couple of periods now where we've had those restructuring costs that have been well flagged. Now given the previous commentary, is it fair to now assume that there will be, one, no more restructuring costs? And then two, could you kind of give us a sense of the phasing of the strategic initiatives in terms of the uplift in profitability from here, i.e., what can we expect through the second half and then what annualized through FY '27? And is there more to come beyond then?

In the second half of this year, we should roughly double the [ EBIT ] (sic) [ EBITA ] from the first half of the year for Shred-X. So the majority of those initiatives are well entrained, the costs have been incurred. Those costs are anything from writing off some of the equipment that we might have had for certain product streams through to restructuring, changing the way we operate in a couple of those depots. So yes, that is largely done with. And I'd be disappointed if we didn't double the [ EBIT ] (sic) [ EBITA ] from the first half year, and then that should give us a run rate to still keep growing off FY '27.

What does that mean in dollar numbers, Mark?

We should -- we don't tend to break those out in too much detail, Andy, but --

It's twice the number of the first half.

Twice the number of the first half. How is that?

The next question comes from Wade Gardiner.

A few questions from me. Start out with the postal revenue, which is up about 26%, which you sort of alluded to a lot of that being local body elections. If we strip out that sort of one-off revenue from local bodies, what was the sort of underlying growth rate?

Oh, it's a very good question, but not one I could answer right off the cuff way. But what I can say is the business has continued to grow. They're still taking market share. They have customers that are choosing to use them because of the service standard that they offer and the level of account management and closeness. So I'm not -- I couldn't tell you off the top of my head if I stripped out local body, but it still had positive revenue growth if you exclude that.

What about the general election next year? Have you got that work? Or is that still out for tender.

[ Clearly ], the elections are typically run -- there's a couple of companies that tend to coordinate and run the elections. So certainly for local body, there were 2 of them, but the local bodies tended to choose one or the other. Look, that's not decided yet, but I would expect we have a very strong chance to be doing some work for the general election. I think reality is New Zealand post's capability, that will just be shrinking a little bit as their volumes come down. And the reality is national elections, that is a big -- it's a massive liquor volume in a very short period of time. So I would expect DX, to some extent, participate in the national election next year.

Is that a similar size to local body when you add all the local bodies up?

It would be [ on mass ], yes.

With your net market share gains, are you able to strip out how much of that is sort of still fallout from the Peter Baker deal? Or is there still an element there? Or is that wearing off?

What do you think gut feeling.

It's a tough one. We don't -- we haven't really made it a specific example --

I think there were a couple we picked up at the start of the half year that were sort of larger PBT customers, but probably stuck with Post for a year, gave them a year and then moved over. So there were a couple right at the start of that last year. And since then, look, it's just been a steady stream. I think the team have kind of focused on particular vertical. So supplements is a good example of vertical.

Yes. [ Little bit of ] supplements side, a little bit of pharmaceutical. But yes, I wouldn't say we actually specifically measure it on its own. It's just very much a -- it was very much a business as usual sort of one-off. And quite a few of those customers had been -- had some Freightways involvement previously anyway. So it were all new to us per se.

Still really good prospect lists [indiscernible] when I look at the prospect lists for all the businesses, really solid. So plenty of activity. Generally, the reasons service related, can we get a better service, can we get a better account management, how do we have local contact when things go wrong. All of those types of things are the reasons that customers will entertain our new business sales reps going in the door. And then we just have to work our way through price. We're still pretty picky. We still want to make sure we maintain margins. So we're rating things [ greatly ]. If you wanted to go mad, you could pick up a whole heap of volume at really low margin, but that's not us. So yes, still pretty happy with the size of the prospect list that we have across the businesses.

With Project Evolve costs, I mean, you've outlined the increase on last year. Can you just sort of remind us where we are at in terms of the total spend and how much to come in the second half and into FY '27.

Sure. We've spent about $2.8 million in the first half, if I'm not mistaken, and total spend for the year should be roughly $5.5 million.

[indiscernible] in FY '20 -- so there's -- once the $10 million is spent, there's a residual, which is part of the $10 million, we're paying some licensing costs now for the first of those products we are using for the billing platform. The ongoing cost will be $2 million per annum pretty much in licensing cost weigh. And you could have -- maybe you have $1 million, maybe $1.5 million in FY '27, just depending on timing. We'll give an update on that as we get a bit further through the second half of the year.

And finally, any guidance around the full year CapEx, including VTFE?

Excluding VTFE, pretty much in line with what we had last year. So from memory, we spent a bit more than $15 million in the first half, should be consistent in the second half. VTFE, there's probably a bit more work to get a better sense of CapEx. It will depend also on what we do with the location of the depot. But I wouldn't expect much in the next 6 months. I think there might be more coming in the next year.

Yes. VTFE is asset-light, again, very similar to Post Haste, where contractors bring their vehicles. We operate out of one large depot in Dandenong. We will certainly have a look at how we facilitate the type of growth that we would have aspirations for out of VTFE. And so, at a certain point, that will mean a bigger depot. And then what we do with all of our businesses, Wade, is just look at the volumes and look at where a bit of automation or mechanization at what point does that make sense and give us a return on investment. So there's all those types of things to go. But as Stephan had said, nothing material from a CapEx point of view in this first 6 months of ownership.

Our next question comes from Grant Lowe.

Firstly, just around the core Express Package business in NZ. Can you just talk to the price increases that you're achieving and how those sort of match against your expectations from the start of the year? And then just sort of partly linked to that, just around the trend between the economy and premium services, are we saying that the premium services are growing, but just to a lesser extent? Or are they sort of -- is there still sort of a bit of a trade-off shift towards economy?

Yes. Okay. So I guess, second question first, the premium services are still growing. It's just the economy side of the business is growing faster, which is understandable given where the market is at currently. As we see more organic growth and pressure comes on time, as Mark alluded to before, I think we will see the shift come back. And in some instances, where we have busier periods, you see that nature occur. So from an EP perspective, having the segmented businesses helps us understand exactly where the challenges are or where the opportunities are, and that's how we have sort of isolate them individually. From a price increase point of view, we are still looking at what our costs are, what we need to do to increase our margin and then put that out to market. And whilst it is getting a little bit tougher to get us higher numbers previously, we're still achieving probably around about 80% of our guidance. And obviously, that has to rate a little bit to the CPI side of things. So fundamentally, it's business as usual as we -- in terms of our approach. But yes, we are having to think about where the value is for some of our customers. And at the same time, looking at the -- how the business complements their service and how that relates to pricing.

I will give a slight CFO twist to that answer. So if we look at the premium services for EP in New Zealand, they are growing from a top line point of view. They are not growing from a bottom line point of view.

And then just around Big Chill, so still pretty subdued, but you did allude to a good December result. Just wondering how sort of January, February have gone? And then second part of that question relates to thoughts on expansion. Obviously, we're still waiting for a meaningful recovery in that business. But just where you see the trigger point for looking at expansion in that business around the 3PL side?

Yes. Big Chill, revenue growth in January, probably just on par with what we had for all of the first half, so very similar in January. December seasonally picks up a bit. I think Christmas hands going out to butchers and supermarkets and gift boxes and all those types of things. So think about that seasonal uplift. So what we saw in the December period, where you had the uplift, quite a meaningful expansion of margin for that month with that extra volume coming through. January pretty much reverted to the mean, to the norm for the 6-month period from a revenue and earnings point of view. The team have got some good new business that will come on around about March, April. So that will be nice just to see a bit of a kick in our volume to help fill up that utilization. In terms of future facilities, we're still assessing that. We're very mindful of -- in temperature controlled, because the facilities are so specialized, you can get a really good look at capacity around the country. You can look at who's added capacity in which areas and feed that into your thinking around where you go next. So there's been a few moves there. by a number of operators who we wouldn't necessarily say were competitors, but it is extra capacity in a couple of places. So still refining our view on where that is. What I can say though is that the team are very focused on filling out the branch transport network. So we added new Plymouth last year to the network, and there's a number of other branch locations from a transport point of view that we will assess and look at over this half.

And then just finally, around the M&A side of things. Like you've previously spoken about the size of acquisitions and sort of alluded to that again today. Just -- I mean, what would be -- you're obviously looking at everything, but if you're sort of picking where that might land, what sort of size do you think would be likely -- most likely for the next acquisition?

[ Impossible ] my hypothetical calling, Grant. Look, we actually have -- there's 2 pretty clear alternatives or you could either go with -- there's a number of larger sort of full network operators out there in different sort of stages of health, you could probably say. So there's a couple of those that we are looking at. And then there are a number of state-based operations that typically operate within a state and then we'll have a bit of outbound freight that they will give others. That's a really common way of operating over in Australia. We have these agents in other states. We could do one or the other or potentially both, but more likely one or the other. And that's really what we're focused on now, looking at some of those state-based operations, looking at a couple of the larger national operations. And we'll work through and do our numbers, but also just think strategically around which gives us the better outcome. So a bit of a toss of a coin at this stage because still early days on some of those parts to that puzzle, but nice to have sort of 2 clear alternatives. And as I said, having gone through 40 or 50 that we've had a look at, we're probably focused on a list of 10-ish from here on out.

Our next question comes from Ian Munro.

Just relating to Allied Express, perhaps are you able to comment on the competitive intensity of the oversized segment with respect to new supply, also the pricing environment and noting the cost pressures that we're seeing across Australian industry at the moment, how you're thinking about price negotiations into next financial year?

So Allied operate in the oversized niche. Where that niche is quite nice is that your mainstream Express Package companies don't really want that work. They doesn't -- the oversized nature of what they move, CKD furniture, larger items doesn't work on the automated sortation system that your major carriers in Australia operate. So in terms of the competition, they've got one key competitor that also operates in the oversized niche. But apart from that, it's not highly competitive. And that does allow you to maintain really good margins. And as Mark said, the customers are gaining market share. It seems to gaining market share on bricks-and-mortar retail. So you've got B2C online platforms, which are growing oversized capability and Allied is riding that wave. And from what we can see, there's no signs of that stopping, plus we've also invested quite heavily in a larger new sales team, and that seems to be delivering good gains in terms of new business. That said, we're quite selective in terms of making sure that the new business we bring on is at good margins, and that's where implementing that better margin models and understanding the utilization on different routes has become quite important [ call outs ].

Well, the team have also simplified pricing. So there's an element of transport revenue in Australia, more so than New Zealand that goes through brokers. And it'd be fair to say brokers have always found it a little bit hard with Allied because they've had so many different search like a lot of different surcharges that will apply, and it becomes really hard to actually feed into broker models. So one of the things the team has done is simplified the pricing model so that for that volume we might have coming through brokers, and it's not a massive proportion. It's made it a hell of a lot easier for the brokers customers to choose Allied. So I think from the pricing point of view, our approach probably won't change in the very short term, Ian. I think we're happy to still keep sort of attracting volume, don't need to hike pricing too much, but simplifying pricing and having a really good view on the margin from a pricing point of view, that's our key focus at the moment.

And just in terms of the capacity levels in Allied, you noted a new warehouse sort of pending or active already. Outside of that, how are you seeing the kind of availability of line haul contractors other more variable capacity constraints. Is that remaining unconstrained to growth for Allied? And are we kind of looking at any larger major sort of CapEx items to support that future growth?

The answer is probably no. They're not really constrained. The line haul is done through a contractor model. So -- and in most cases, we're paying a one-way rate. So it's just a matter of adding more contractors and as we do more -- as we add volume growth. We added say Victoria, which was 9,000 square meters last year, but apart from that, no, it's largely been -- I mean, it benefits from volume, Allied. The more volume you pump through the network, the better the margins are. So it's a pretty resilient model.

Yes. We -- the Allied team, one of their strategic objectives for this year was just to review the line haul carriers that they had. So they're working through that and just looking at where are the opportunities there to get better service, better timing, better price, those types of things. And we can explore that along with VTFE as well. The reality is now we have a greater volume coming at -- certainly coming out of Melbourne than we had previously. So just opportunities just to keep exploring the various line haul providers are out there. But, yet, again, very fragmented space and a lot of choice, I would say.

Just one final one with respect to Shred-X. Apologies if I missed it. Just we've been talking more recently in the last couple of reporting periods around renegotiating price, trying to drive better margin, are we sort of saying that, that top line sort of penetration of better rates maybe hasn't worked in the short term? Or have you had sort of -- there's been a level of deliberate contract losses, but how should we think about kind of that customer resistance to rate rises? Is that likely to support or kind of hold back top line growth?

I think it's a little bit of a mix in reality. So if you looked at the coffee cup collections, they started geez, probably back around COVID times. Team really enthusiastic around it because of the sheer volume and if it could be done at a margin and the product actually be recycled. It was quite an exciting waste stream for us to have a look at. But the reality was when we came back and reviewed it pretty clinically, you went -- there's quite a bit more you need in price to maintain a collection network for that. And that waste stream just could not support a higher price. So that was one that we were happy to let go, and I'm not sure it would -- it ever would have been realistic for the companies managing their recycling side to pay those rates. In other areas, we're getting a better price for what we do. So yes, there's a combination of both. But there's certainly a couple of waste streams that we have pushed away and said, yes, we're better off without that particular volume. And that relieves a little bit of capacity in a building and allows us to carry on targeting some of the ones that are good financial earners for us. So the answer is a bit of a mix, but they've all been done pretty deliberately by us knowing that, geez, if you can't stand a 20%, 30%, 40% increase in rate, it will likely go, and we're okay with that.

Thank you very much. That brings our Q&A session to a close. Mark, I'll hand it back to you for closing remarks.

Very good. Well, look, thanks, everyone, for your attention. And as I said, from a half year point of view, I think we're pretty happy that the business has performed well, that economy is just slowly starting to tick up and your company is really well positioned from a balance sheet point of view. So these are nice periods. It's nice to get out of probably 5 years of COVID and labor market shortages and pretty deep recession, long recession here in New Zealand. Yes, plenty for us to do across all of our brands. We look forward to getting stuck into it in the second half of the year. Thank you.