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.

Outlook

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.

WAYNE BOYD Chairman		DEAN BRACEWELL Managing Director

Consolidated Statement of Financial Performance

For the half year ended 31 December 2005