Wellington, Aug 17 NZPA - Freightways has disappointed investors with an annual result which raises concerns about how robust any recovery of the New Zealand economy will be.

The company today reported a 7 percent rise in full year net profit to $34.6 million, but the earnings performance of its core express package business dropped below the prior year. The result included $3.9m from the sale and lease-back of a property in Wellington.

Revenue from ordinary activities for the 12 months to the end of June was up 5 percent to $339.5m.

Brian Gaynor, of Milford Asset Management, said the result was not as good as expected, with Freightways also indicating earnings for the first half of the current year would be down on the same half last year.

"To me, Freightways is probably one of the best barometers in the New Zealand economy," Mr Gaynor said.

"So when it says things are difficult and they're showing no signs of turning up, it's not great news."

Freightways had been accurate, as a company, in assessing and predicting how the economy was going.

"They were one of the first to say that things were getting worse, so therefore we expect them to be one of the first to say that things are getting better," Mr Gaynor said.

"And what they said today was that they see no signs of an upturn."

Investors' disappointment showed in Freightways' share price which was down 26c, or 7.7 percent, to $3.14 at mid-afternoon.

In the past five weeks the price had risen strongly from $2.75 but was still some way short of the year-high of $3.65 reached last September.

Freightways' core express package business contributes most of its revenue and earnings.

Today the company said the economic downturn led to lower express package volumes from some of its existing customers.

Volumes were continuing to fluctuate week to week creating difficulties in financial forecasting and when planning near term operational capacity.

"Overall, the full year earnings performance of Freightways' express package business is below the prior year," the company said.

"The just completed fourth quarter has been particularly quiet when compared to the same period in the prior year."

Until a sustained economic recovery was under way, the performance of the express package and business mail division was expected to continue to track behind the year before.

In the information management division, full year earnings performance was well ahead of the prior corresponding period, Freightways said.

The economic downturn had not had any noticeable effect on either the data or document storage service lines.

Demand for those services was expected to continue to grow due to businesses seeking to free up expensive office space, needing to manage a growing volume of business information, and needing to meet growing compliance requirements.

Margins in the information management division contracted in the fourth quarter due to lower prices for recycled paper and also due to recent investment in increased capacity.

In the near term information management performance was expected to initially track behind last year, due to the recent capacity investment and lower paper sales revenue.

The position was expected to improve during the year as spare capacity was used and also if paper prices improved.

Overall, Freightways' cash flows were expected to remain strong throughout the year.

Freightways said proceeds from capital management initiatives had been used to reduce net bank debt in order to strengthen the company's balance sheet.

Those initiatives included the sale, for $8.3m, and lease-back of the Wellington property, and the raising of $49m of new equity through an institutional placement and subsequent retail share purchase plan.