Q&A WITH MARK TROUGHEAR – CEO, FREIGHTWAYS
Research Team, 22 December 2020
We take 5 minutes with CEO of Freightways, Mark Troughear. We discuss how COVID has impacted the business, their new acquisition Big Chill, and the investment advice Mark wishes he had earlier on.
Questions covered include:
- What does Freightways do?
- What impact has COVID had on your business?
- What’s been the big structural shift in that for your business?
- What's WFH done to your info management and waste management businesses?
- What's the strategic rationale for acquiring Big Chill?
- How will your network cope with the growth?
- What advice to you wish you were given when you started investing?
MS: Mark thanks for joining us today. I just want to start with you telling us a little bit about the Freightways business and some of your key segments.
MT: Yes, absolutely. Two thirds of Freightways is built around express package business. So that includes our courier brands like New Zealand couriers and Post Haste. As well as the new acquisition we’ve made, Big Chill, which is in the express temperature control business. The other third is split relatively evenly between secure destruction and medical waste, business mail, and traditional information management.
MS: And in terms of COVID, obviously it’s hit a lot of businesses throughout this year. What was the impact specifically on your business?
MT: Yes, the initial impact on us was pretty severe, so it cut the volume out of the bulk of our operations both in New Zealand and Australia. So level four lock down in New Zealand meant you lost 65% of your volume overnight. As you came into level three, online shopping opened up and we got this new bow wave of volume coming through. So B2B (business to business) recovered quickly but this business to consumer segment really took off. So from level three and level two, we’ve had increases in volumes, new customers to market, customers with different channels, and it’s been a really good sign for the business.
MS: And I wanted to touch on that online shopping that you mentioned. What’s been the big structural shift in that for your business? And do you see that ongoing or is this going to be a sugar hit, and as COVID passes you think things will normalise again?
MT: Look I do think it’s a structural shift. So, I certainly think you had a peak and it’s come a little bit off that peak. But we have had a structural shift in the amount of B2C (business to consumer) we have in our business. So that has increased – it’s gone up about five percentage points – and that’s pretty significant. I think the good thing for us is that we’ve managed to carve out a bit of margin in B2C. So the initiatives we’ve had in the last 18 months of charging a little bit more for a residential delivery have returned margin into B2C and actually given better courier payout to the contractors as well. But yes, I think it will stick around.
MS: And I guess the other big trend has been the working from home trend. What’s that done to your information management business? And also, I know you now own a medical waste business as well. How did that fare through the COVID period?
MT: Yes, I think a really good example’s Victoria where they’ve had the longest lockdown of the world, just about. So, you had document destruction volumes come off, by about 20-25 percent through that period. But we had our medical waste business sort of double, and then triple through that period. So we were able to shift resources, shift assets from document destruction to medical waste; the same bins, the same trucks, the same drivers. And that compensated for the loss of document destruction. We’ve seen document destruction bounce back really quickly as people have come back into businesses, even though they’re not fully occupied at the moment. In terms of pure information management, it’ll be a bit of a drag on archives. So you won’t produce as many archives with people working from home. And the decision to shift your offside provider from one to another is kind of at the bottom of the priority list for a lot of businesses. So, it will be slower for us to pick up that traction that we had in Aussie. We were growing at 10 percent for records. That’ll slow down for a period while people are working at home and it’s not the biggest decision for businesses to make.
MS: And at the beginning you mentioned Big Chill. I just wanted to get your views on the strategic rationale, and how does it fit in to the wider group?
MT: Big Chill gives us a second horizon of growth and there’s some neat intersections between Big Chill and what we’re doing with our courier businesses. And actually, that became really apparent in lock down, where you had a lot of businesses that had pivoted and said, hey we’re going to send food to people. We used to have a non-essentials product category, we’ve got a database though, we’re going to package up food and get it to people. And what they were talking to us about was solutions. Where we could use a Big Chill network, to keep that food in a chilled, temperature-controlled supply chain. And then get it out for the last mile distribution. And the last mile might have used New Zealand couriers then to deliver it to the door. So I think we will see more of that. But the Big Chill business is entirely complementary to what we do. It’s express, it’s hub and spoke networks, fixed lines. It’s all of the things we do in our courier business, it’s just cold.
MS: And it sounds like there’s plenty of growth on the horizon. How does your network cope with that into the future? Are you reaching capacity, or have you got plenty of runway before you need to go out and spend on a bit more capacity in the future?
MT: In express courier we scale up really easily, and very variably. So, as we need more pickup and delivery resource, contractors provide that, until they get maxed out and then you can start to add a few more runs here and there. And that comes at a pretty variable kind of rate. Same thing with line hall capacity, as we need more line hall capacity. So last night, we did six extra runs down to Hamilton. We were just double shifting trucks that worked during the day, to use them at night. So there’s not a whole lot of extra cost associated with expansion. I think we’ve also used our facilities a lot better in the last couple of years, where a facility used to need to expand every time you added too many more couriers. What we’re doing now with B2C delivery is double shifting the floor space. So a business to business courier comes in at six in the morning, leaves at seven. But a B2C courier can come in and use his space at seven in the morning and leave at eight. And what that means is you don’t need to expand facilities at the same sort of rate we have done in the past. So we don’t see any significant increases in fixed cost coming through our business as we cope with these extra volumes.
MS: And just finally to wrap up, is there a piece of advice you wish you’d been given when you first started investing?
MT: I think the best bit of advice I had was that actually, good companies cost good money. You know, there’s a reason why companies are cheap, and it doesn’t necessarily mean it’s a bargain. And there’s a reason why companies have a high share price or a high price to acquire. And generally, it’s because it’s good business. So, I think that’s actually a really enduring, good bit of advice when you’re looking at investments.
MS: Very good, thanks very much for your time today Mark.
MT: You’re welcome.