19 July 2007

Chairman’s Report

Chairman’s Report 

Mainfreight has had another successful year with a 25% increase in net operating profit after tax and before abnormals. This increase in dollar terms is $7.4 million.

Where did the $7.4 million tax paid dollars come from? Sadly only $900,000 came from the New Zealand economy – the balance of $6.5 million was earned in Australia and the USA.
New Zealand’s $900,000 represented an increase over the previous year of 6%, the offshore $6.5 million represented an increase over the prior period of 48%.

Where should we be putting our efforts in the future?

To the financial analysts and other scaremongers who downgraded us in the early part of the 21st century as we put together our offshore strategy, you were wrong, and we were right. Stop discouraging New Zealand companies from expanding offshore – of greatest risk is the low growth available in New Zealand.

More and more the New Zealand economy slides down the OECD economic rankings as we milk our productive sector in the hope of remaining a first world country with taxpayer funded hospitals, education and social welfare.

There needs to be a clear understanding that the productive sector is the only means by which a country can prosper – interesting, challenging enterprises earning profits are the mechanism which creates opportunities for people to do well for themselves, the enterprise, and for mankind.

It has seldom felt so uncomfortable to be part of the New Zealand productive sector. Due to factors beyond our control, the sector is facing:

1.  Company tax rate of 33 cents in the dollar while Australia has been at 30 cents for some time. Although the government has signalled a reduction to 30 cents in 2008, there appears no intention to match our Asian trading partners

2.  Interest rates higher than any of our traditional trading partners

3.  A volatile and high exchange rate causing acute difficulties to
most exporters

4.  A growing, increasingly aggressive local government with more bureaucrats, delivering slower services, permits and resource consents. In Auckland at one of our facilities our people have been using portaloos for six months because of delays in issuing a building permit

5.  Marauding private equity with large cheque books, and questionable business ethics acquiring New Zealand companies, manipulating
their operations for short-term gains, and looking to then exit at exorbitant profits

6.  A bureaucracy so entangled in its own rules that it takes years and years to make a decision on a new motorway

7.  A bureaucracy prepared to spend $1 billion on a sports stadium planted right in the middle of Auckland’s working wharves

8.  A bureaucracy arrogantly determined to make business fund
New Zealand’s obligations under the Kyoto agreement through new fuel taxes, and new taxes for turning pine forests into farms

9.  Mean, efficiency-destroying taxes, whereby grapes are allowed to be moved between regions free of excise duty, while wine, bottled or bulk incurs duty for the same movement.

Do the bureaucrats not understand that New Zealand is almost last amongst OECD countries in the value of exports relative to our GDP?

We are at a significant disadvantage to all our trading partners through:

–  Our small population size

–  Our distance from the main markets of the world, USA, Asia, and Europe

–  The difficulties of serving markets of such large size

–  Trade barriers, quotas, tariffs, alleged green barriers all inflicted in some way by the large nations on New Zealand exports.

In summary, we do not have a large enough or vibrant enough business sector in New Zealand. Economically, New Zealand has been on a long slow decline relative to other OECD countries for close to forty years, and this decline has accelerated in recent years. Surely with the benefit of hindsight, New Zealand governments can recognise that our productive sector is not performing to the level necessary to ensure this nation’s future health and prosperity.

Right now we need bold new initiatives and inspirational leadership. Other countries have found ways to reverse economic decline, and that has involved low company tax rates as in Singapore and Ireland and a reduction in the weight of compliance costs.

Whatever the outcome, Mainfreight has a determination to remain a New Zealand owned and operated business while continuing to pursue global aspirations.


Bruce Plested
Executive Chairman
June 2007

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