Half Year Report December 2006

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 2006.

Consolidated operating revenue of $144 million for the half year was 11% higher than the prior corresponding period.

Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) of $33 million for the half year was 6% higher than the prior corresponding period.

Consolidated net profit after tax and before amortisation of $16.5 million for the half year was 3% higher than the prior corresponding period.

The Directors have declared a dividend of $11.6 million reflecting this sound interim result. This dividend translates to 9.0 cents per share fully imputed and will be paid on 31 March 2007. The record date for determination of entitlements to the dividend is 16 March 2007.

The half year result to 31 December 2006 reflects another strong period for Freightways that has continued to deliver upon its strategy in spite of the challenging business environment.

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, Kiwi Express and Security Express were sound with revenue growth contributing to offset the higher cost of doing business during this period. Overall the express package consolidated earnings result is on par with the prior half year. This performance, despite lighter activity from existing customers, demonstrates the underlying strength of Freightways’ well recognised and strongly positioned brands in the marketplace.

Key initiatives during this period have included the initial implementation of in-van data capture that provides customers with access to real time service information and the agreement with Qantas to market its same day domestic freight capacity on the network of services it operates in New Zealand. While New Zealand’s same day market is relatively small, this new service further extends Freightways’ existing suite of express package services.

Business Mail

DX Mail has continued to build its presence in its targeted business mail niche of the Postal Services market. DX Mail’s focus on the service needs of business is being rewarded with growing demand for the services it provides. Revenue and earnings have again increased during this period.

In late December, DX Mail acquired the franchisor rights of the Pete’s Post mail delivery business that operates in Taranaki, Manawatu, Wanganui, Hawkes Bay and the Bay of Plenty. The services provided by this business are complementary with those already offered by DX Mail in other regions of New Zealand and will contribute to the accelerated development of DX Mail’s own nationwide street delivery network.

Information Management

Subsequent to the acquisition of DataBank in Australia, Freightways now operates information management businesses on both sides of the Tasman. In New Zealand we offer secure data and document storage and destruction services through our well established brands of Data Security Services, Archive Security and Document Destruction Services. All three of these services are showing sound growth as demand for the professional management of business information continues to increase. Our investment in the future of this business has recently included the purchase of our second Wellington site that houses one of our existing facilities and also provides adjacent expansion land. Upon development, this expansion land will more than double our current storage capacity at this site.

In Australia, the acquisition of DataBank has delivered against all initial expectations. DataBank currently operates in the data storage niche of the information management market in Sydney and Melbourne. As well as delivering good quality revenue and earnings growth, it has also assisted investigation into other growth opportunities in the Australian market. This has resulted in the expansion of DataBank into the Brisbane market with a start-up operation that leverages existing data storage customers that had previously been outsourced to an agent. In addition to data storage, we have also made the decision to invest in the capacity and capability to enable the provision of document storage services in this new Brisbane operation.

Internal Service Providers

Fieldair Holdings, through its Air Freight New Zealand subsidiary, has continued to support Freightways’ front line businesses with an outstanding service. The capacity that exists within our fleet of dedicated freighter aircraft is sufficient to accommodate the continued growth of our core express package business well into the future. Fieldair Engineering provides engineering support to our own aircraft and also to the general aviation market in New Zealand. Externally generated revenue from this business was lower than the prior year as major overhaul work was not repeated.

Freightways Corporate costs continue to be managed to expectation. During this period debt funding has been used to acquire DataBank, Pete’s Post and the Wellington information management site.

Outlook

The growth of Freightways’ core express package businesses will continue to be influenced by the performance of New Zealand’s domestic economy. In more recent times we have seen some improving of activity amongst our existing customer base that had in the previous 18 months been showing signs of slowing down. DX Mail is expected to continue to contribute growth as it realises the opportunities both in its market and as a result of its recent acquisition. Our information management businesses are also expected to continue to grow and as such we will continue to invest in their development. Cost pressures are expected to moderate in the near term, particularly in regard to fuel, although the cost of fuel is still well above historic levels.

Acquisitions and alliance opportunities will continue to be investigated in all three Freightways’ market segments where we have proven capability.

The business environment, particularly in regard to the express package businesses, is expected to remain challenging in the near term. In the medium to longer term, and subject to business factors beyond its control, Freightways remains exceptionally well positioned in all aspects of its business to continue to deliver positive performance to its shareholders and all other stakeholders.

Conclusion

Freightways has again delivered sound financial performance in a challenging period. Growth opportunities and service enhancement initiatives continue to be developed in all three market segments. Freightways’ core express package business will in the near term continue to be influenced by a challenging business environment, albeit expectations are of continued sound performance. Freightways’ emerging business mail and information management operations are expected to continue to show good positive growth.

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

WAYNE BOYD Chairman		DEAN BRACEWELL Managing Director

Consolidated Statement of Financial Performance

For the half year ended 31 December 2006