Half Year Report December 2005

Half Year Review

From the Chairman and Managing Director

The Directors are pleased to present the financial results for Freightways Limited (Freightways) for the half year ended 31 December 2005.

Consolidated operating revenue of $130 million for the half year was 11% higher than the prior corresponding period.

Earnings Before Interest Tax and Amortisation (EBITA) of $29 million for the half year was 10% higher than the prior corresponding period.

Consolidated net profit after tax and minority interests of $14 million for the half year was 20% higher than the prior corresponding period.

The Directors have declared a dividend of $10.9 million reflecting the strong interim result. This dividend translates to 8.5 cents per share fully imputed, 13% higher than the previous interim dividend, and will be paid on 31 March 2006. The record date for determination of entitlements to the dividend is 17 March 2006.

The half year result to 31 December 2005 reflects another record period for Freightways. All Freightways businesses have delivered improved year on year performance.

Reveiw of Operations

Express Package

The express package businesses contribute the majority of Freightways’ revenue and earnings. Results from the brands of New Zealand Couriers, Post Haste Couriers, Castle Parcels, SUB60 and Security Express were all ahead of the prior half year. This performance demonstrates the underlying strength of Freightways’ well recognised and strongly positioned brands in the marketplace. It also demonstrates the success with which Freightways has continued to implement its growth strategies in an environment where existing customers are not growing their express package deliveries at the same rate as they have done in recent years.

Modest growth from existing customers, good market share gains and disciplined pricing strategies have all contributed to revenue growth.  Included in the express package businesses’ revenue growth during this period is sales revenue achieved from the recent acquisition of Kiwi Express and pricing increases that have been introduced to offset the cost impact of the exceptionally high fuel prices during this period.

Investment has occurred in a number of areas, including increased network capacity and additional personnel to assist our service quality and growth strategies. The second year of our transition to a next generation IT operating environment has been managed to budget and timetable.  Customer service initiatives further enhancing Freightways competitive advantage will leverage this new system.

The acquisition in October 2005 of Kiwi Express, a well established point-to-point courier business operating in Auckland and Wellington, has been very successful. The Kiwi Express brand has been maintained in the marketplace and will continue to operate in its own right while leveraging the existing capability of Freightways’ SUB60 business. Benefits of this acquisition are being evidenced through the delivery of improved operational performance for both SUB60 and Kiwi Express customers. This has been achieved through the ability to cross-utilise a significantly greater combined fleet of couriers for urgent across town delivery.  Fleet size is the primary factor in an urgent point-to-point courier business’ ability to achieve 1 hour deliveries in increasingly congested cities.

Business Mail

DX Mail has again delivered strong revenue growth in comparison to the previous half year. Demand for DX Mail’s broad suite of alternative letter delivery services is continuing to grow from its targeted market of business mail customers. The development of DX Mail’s domestic street mail delivery network is also progressing to plan. Although still in its infancy, the domestic street mail delivery network is contributing positively to an overall improved result for DX Mail.

Information Management

Archive Security, Document Destruction Services, and Data Security Services have again delivered a greatly improved result. Relocation of the Auckland operations into a purpose-built facility adjacent to Freightways’ main operating site in Penrose was completed in October 2005. The Archive Security business in particular is experiencing significant growth, both from existing customers and from new customers who have made the decision to outsource the management of their archived documents. Consequently we have brought forward plans to extend our facilities in Auckland and Christchurch, with Wellington to follow shortly thereafter.

Internal Service Providers

The internal service providers of Fieldair Holdings (air linehaul/aviation engineering), Parceline Express (road linehaul) and Freightways Information Services (IT) continue to support our front line brands with outstanding service. In addition, Fieldair Engineering, the engineering arm of Fieldair Holdings that offers design, manufacturing and maintenance services to the aviation market, has experienced particularly strong growth. Corporate costs continue to be managed within expectations. Freightways’ financing structure has been adequate to accommodate the growth and development of the business during this period.


Freightways will continue to take consistent, well-developed strategies to the market in areas where it has proven capability. Growth opportunities that exist in all three of its core markets will continue to be aggressively yet pragmatically pursued. It is expected that in the near term we will continue to see lower growth from our existing customers than has been experienced in recent years and that the business environment will remain challenging. Freightways’ growth strategies are designed to lessen the impact of this slower growth, as has been evidenced in this half year result.

The Directors acknowledge the outstanding work and dedication that continues to be shown by management and staff throughout Freightways.

Managing Director

Consolidated Statement of Financial Performance

For the half year ended 31 December 2005
6 months ended 31 December 2005 Unaudited 6 months ended 31 December 2004 Unaudited
$000 $000 % variance
Operating revenue 129,796 117,226 11%
Other Revenue 105 69
Total Revenue 129,901 117,295 11%
Earnings before interest, tax, depreciation and amortisation (EBITDA) 31,043 28,212 10%
Depreciation (2,375) (2,212) 7%
Earnings before interest, tax and amortisation (EBITA) 28,668 26,000 10%
Amortisation of goodwill (2,470) (2,547) (3%)
Earnings before interest and tax (EBIT) 26,198 23,453 12%
Net interest expense (4,651) (5,278) (12%)
Net surplus before income tax 21,547 18,175 19%
Income tax (8,011) (6,937) 15%
Net surplus after income tax (NPAT) 13,536 11,238 20%
Net surplus attributable to minority interest
Net surplus attributable to members of the Company 13,536 11,238 20%

Consolidated Statement of Cash Flows

For the half year ended 31 December 2005
6 months ended 31 December 2005 Unaudited 6 months ended 31 December 2004 Unaudited
($000) ($000)
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 126,918 115,925
Payments to suppliers and employees (99,864) (88,088)
Cash generated from operations 27,054 27,837
Interest received 90 68
Interest and other costs of finance paid (3,964) (4,563)
Income taxes paid (5,680) (4,151)
Net cash inflows from operating activities 17,500 19,191
Cash flows from investing activities
Payments for fixed assets (4,010) (3,877)
Capitalised Interest (119) (64)
Proceeds from sale of fixed assets 20
Payments for businesses acquired (3,600) (300)
Net cash outflows from investing activities (7,729) (4,221)
Cash flows from financing activities
New bank borrowings 3,500 133,000
Repayment of bank borrowings (136,000)
Dividends to ordinary shareholders (10,735) (8,553)
Proceeds from shares issued to employees 107
Net cash outflows from financing activities (7,128) (11,553)
Net increase (decrease) in cash held 2,643 3,417
Cash at beginning of period 2,237 761
Exchange rate adjustments (2)
Cash at end of period 4,878 4,178

Consolidated Statement of Financial Position

As at 31 December 2005
As at 31 December 2005 Unaudited As at 31 December 2004 Unaudited
$000 $000
Current Assets
Cash and bank balances 4,878 4,178
Accounts receivable 34,950 30,132
Inventories 4,127 2,473
Total Current Assets 43,955 36,783
Non-Current Assets
Fixed assets 47,976 44,139
Goodwill 69,284 71,932
Brand names 88,800 87,400
Deferred tax asset 213 937
Total Non-Current Assets 206,273 204,408
Total Assets 250,228 241,191
Current Liabilities
Payables and accruals 26,509 27,198
Provisions 445 1,050
Unearned income 18,644 16,691
Total Current Liabilities 45,598 44,939
Non Current Liabilities
Borrowings (secured) 130,500 128,000
Total Non-Current Liabilities 130,500 128,000
Total Liabilities 176,098 172,939
Net Assets 74,130 68,252
Shareholders’ Equity
Share capital 56,442 54,671
Retained earnings 17,688 13,581
Total Shareholders’ Equity 74,130 68,252
Freightways Operating Revenue

Freightways EBITA

Note: Historic EBITA amounts above for the years ended 30 June 1999 to 2003 have been presented
on a pro-forma basis consistent with the Freightways Investment Statement and Prospectus issued
in August 2003.