Half Year Report December 2007

Half Year Review

From the Chairman and Managing Director

The Directors are pleased to present the financial results of Freightways Limited (Freightways) for the half year ended 31 December 2007. Freightways has again achieved a record result, demonstrating the resilience of its business model and the value created by its strategic decisions. Freightways’ core express package business continues to perform soundly and its emerging growth businesses in the business mail and information management markets have both delivered outstanding results. Directors are pleased with Freightways’ performance and consequently have declared an increased interim dividend.

Operating Performance

The results for this half year have been prepared in accordance with NZIFRS for the first time. As there is no longer a charge for goodwill amortisation, the EBIT and NPAT for the prior corresponding period have also had goodwill amortisation excluded for comparative purposes.

Consolidated operating revenue of $162 million for the half year was 12% higher than the prior corresponding period.

Earnings before interest and tax (EBIT) of $31 million for the half year was 6% higher than the prior corresponding period.

Consolidated net profit after tax (NPAT) of $16.8 million for the half year was 2% higher than the prior corresponding period.

Cash generated from operations before interest and tax was $32 million.


The Directors have declared an interim dividend of $12.2 million reflecting this sound half year result. This translates to 9.5 cents per share, fully imputed, which is 6% higher than the prior corresponding period and will be paid on 31 March 2008. The record date for determination of entitlements to the dividend is 14 March 2008.

Reveiw of Operations

Express Package and Business Mail

The core express package business contributes the majority of Freightways’ revenue and earnings.  Freightways operates in the domestic express package market with the brands of New Zealand Couriers, Post Haste Couriers, Castle Parcels, SUB60, Security Express and Kiwi Express.

Freightways’ primary objective in its core express package market is to defend and grow its business. A vast number of initiatives are implemented by a very experienced and capable team of people to achieve this objective. In the current operating environment of low organic volume growth and rising costs, Freightways has been careful to continue to make decisions for the long-term good of the business. As such, our investment in facilities, technology, customer service initiatives and most importantly in the training and development of our people has continued. It is our experience that the work we do today during these quieter times will determine our ability to reap the benefits from tomorrow’s growth.

The earnings performance of Freightways’ express package business has again been on a par with the prior corresponding period. The strength and flexibility of Freightways’ business model and the focus of its people are evident in the delivery of this result in a challenging operating environment.

Overall Freightways’ express package business has performed well.

DX Mail operates in New Zealand’s postal services market. In recent years, DX Mail has developed its own street delivery network in a number of city centres around New Zealand and gained real traction in the market by winning several important new customers. This market support demonstrates the value mail customers attribute to DX Mail’s provision of a competitive service to the Government-owned NZ Post.

DX Mail is closely integrated with Freightways’ express package business that performs the majority of DX Mail’s pick-up, linehaul and delivery services. DX Mail also operates from the premises of the express package businesses, in addition to its own network of over 250 postal exchanges located throughout New Zealand.

While its contribution to Freightways’ earnings remains at this stage relatively small, the performance of the DX Mail business during this half year has been outstanding.

DX Mail is seen as an emerging growth business within Freightways’ portfolio of businesses.

Information Management

Freightways also views the information management market as an emerging growth opportunity, as evidenced by the recent acquisitions it has completed, both in New Zealand and Australia. Within the information management market, Freightways provides data storage, document storage and document destruction services to a wide range of business customers.

Freightways’ information management businesses are experiencing very strong growth on both sides of the Tasman. In New Zealand, the businesses of Archive Security, Data Security Services, and Document Destruction Services are based in five key locations that enable the provision of a national service. In Australia, the businesses of DataBank and Shred-X are concentrated in New South Wales, Victoria and Queensland. A further DataBank branch has been opened in South Australia during January 2008. Both businesses offer a national service, using agents in states where they have no established operations.

In July 2007, Freightways announced the acquisition of the document destruction businesses of Shred-X and Document Destruction & Paper Recyclers in Queensland. These acquisitions have delivered against Freightways’ initial expectations and also enabled the closer investigation of further growth opportunities in Australia.

Increased outsourcing of the storage and management of backed-up computer data, archived documents and document destruction has contributed to the strong growth of Freightways’ information management businesses. Outsourcing decisions are being driven by an increasing awareness in the market for the need to professionally and securely manage business information, and specifically in regard to document destruction, the growing market demand to securely destroy documents and recycle paper.

Freightways’ information management businesses have delivered a strong contribution to its overall result.

Internal Service Providers

Fieldair Holdings Limited provides airfreight linehaul services, Parceline Express provides road linehaul services and Freightways Information Services provides IT support to Freightways front line businesses. All three internal service providers have continued to deliver outstanding service.

Corporate costs have increased with the establishment of an office in Australia to support the development and growth of our Australian businesses. Freightways’ finance facilities were re-negotiated in August 2007 for a further three year period, with sufficient funding headroom to enable the execution of any near term incremental acquisition opportunities. During the period, Freightways has increased its borrowings to support its recent growth and capacity initiatives. While approximately 50% of total debt is hedged, the average interest cost has increased as a result of the general market increase in interest rates.


Freightways’ core express package business is expected to continue to perform soundly, although growth in this market will again be influenced by the performance of the domestic economy. Freightways’ emerging growth businesses in the business mail and information management markets are expected to continue their positive growth and development. Cost increases are expected to moderate in the near term, although the price of fuel continues to be volatile and remains well above historic levels.

In recent years, Freightways has successfully embarked on diversifying its activities both geographically and deeper into the information management market. Freightways will continue to seek and develop growth opportunities to support this strategy.

In the near term, management expect Freightways’ performance to continue the trend shown in this and recent results announcements, continuing to grow positively, while delivering a very good dividend to its shareholders. In the medium to long-term, Freightways is exceptionally well positioned to reap the benefits of any improvement in the domestic marketplace.


Freightways has again delivered a record result. Its core business has performed well and its emerging businesses have delivered outstanding performance. This result has enabled Directors to declare an increased interim dividend. Freightways expects to continue achieving positive performance for its shareholders and other stakeholders, subject to business factors beyond its control.

The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team.

Managing Director

Freightways Ltd Consolidated Income Statement

For the half year ended 31 December 2007 (unaudited)
6 months ended
31 Dec 2007
6 months ended
31 Dec 2006
$000 $000 % Increase
Revenue 161,897 144,273 12%
Other Revenue 83 126
Total Revenue and other income 161,980 144,399 12%
Transport and logistics expenses (75,441) (68,785) 10%
Employee benefits expenses (35,426) (31,027) 14%
Occupancy expenses (3,721) (3,134) 19%
Other expenses (12,281) (8,477) 45%
Operating profit before interest, tax, depreciation and software amortisation 35,111 32,976 6%
Depreciation and software amortisation (3,737) (3,264) 14%
Operating profit before interest and income tax 31,374 29,712 6%
Net interest and finance costs (6,837) (5,413) 26%
Profit before income tax 24,537 24,299 1%
Income tax (7,772) (7,853) (1%)
Profit for the period 16,765 16,446 2%

Freightways Ltd Consolidated Statement of Cash Flows

For the half year ended 31 December 2007 (unaudited)
6 months ended
31 Dec 2007
6 months ended
31 Dec 2006
$000 $000
Inflows Inflows
(Outflows) (Outflows)
Cash flows from operating activities
Receipts from customers 157,230 140,124
Payments to suppliers and employees (125,055) (111,120)
Cash generated from operations 32,175 29,004
Interest received 84 119
Interest and other costs of finance paid (6,587) (4,978)
Income taxes paid (5,484) (4,361)
Net cash inflows from operating activities 20,188 19,784
Cash flows from investing activities
Payments for property, plant & equipment (5,517) (11,826)
Proceeds from disposal of property, plant & equipment 141 35
Payments for businesses acquired (21,397) (22,012)
Advances to related parties (347)
Payments for other investing activities (223)
Net cash outflows from investing activities (27,343) (33,803)
Cash flows from financing activities
Increase in bank borrowings 19,808 23,858
Finance lease liabilities repaid (574) (257)
Dividends paid (11,578) (11,255)
Net cash inflows from financing activities 7,656 12,346
Net increase (decrease) in cash and cash equivalents 501 (1,673)
Cash and cash equivalents at the beginning of the period 1,673 1,652
Cash acquired through acquisition of businesses 468
Exchange rate adjustments (4) (16)
Cash and cash equivalents at end of the period 2,170 431

Freightways Ltd Consolidated Balance Sheet

As at 31 December 2007 (unaudited)
As at
31 Dec 2007
As at
31 Dec 2006
$000 $000
Current Assets
Cash and cash equivalents 2,170 431
Accounts receivable 48,353 40,843
Inventories 6,290 5,892
Derivative financial instruments 210 102
Other current assets 113
Total Current Assets 57,136 47,268
Non-Current Assets
Accounts receivable 528 463
Property, plant & equipment 60,379 54,663
Intangible assets 211,440 180,685
Derivative financial instruments 3,687 1,623
Deferred tax asset 570 157
Other non-current assets 351
Total Non-Current Assets 276,955 237,591
Total Assets 334,091 284,859
Current Liabilities
Payables and accruals 44,708 29,979
Finance lease liabilities 494 557
Provisions 488 504
Unearned income 21,057 20,304
Total Current Liabilities 66,747 51,344
Non Current Liabilities
Borrowings (secured) 173,643 151,047
Deferred tax liability 2,851 2,878
Finance lease liabilities 540 209
Total Non-Current Liabilities 177,034 154,134
Total Liabilities 243,781 205,478
Net Assets 90,310 79,381
Contributed equity 58,351 57,717
Retained earnings 28,062 19,959
Cash flow hedge reserve 3,910 1,720
Foreign currency translation reserve (13) (15)
TOTAL EQUITY 90,310 79,381
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. Current period is EBIT, which excludes goodwill
amortisation (per NZ IFRS).