Half Year Results to 31 Dec 2017 and Interim Dividend

SUMMARY OF PRELIMINARY HALF YEAR ANNOUNCEMENT Name of Listed Issuer: Freightways Limited Reporting Period: 6 months to 31 December 2017. This report has been prepared in a manner which complies with generally accepted accounting practice and fairly presents the matters to which the report relates and is based on unaudited financial statements. These financial statements have been subject to an independent review by our auditors, PricewaterhouseCoopers. CONSOLIDATED INCOME STATEMENT Current Half Year NZ$'000; Up(Down)%; Previous Corresponding Half Year NZ$'000 OPERATING REVENUE: 292,133; 7%; 272,782 PROFIT BEFORE INTEREST AND INCOME TAX 48,254; (2%); 49,296 Net interest and finance costs 5,127; 9%; 4,711 PROFIT BEFORE INCOME TAX 43,127; (3%); 44,585 Income tax 11,718; 11%; 10,598 NET PROFIT ATTRIBUTABLE TO SHAREHOLDERS 31,409; (8%); 33,987 Earnings per share: 20.3; (7%); 21.9 Interim Dividend (fully imputed) 14.5cps; 13.0cps Record date: 16 March 2018 Payment date: 3 April 2018 Appendix 7 is attached. Detailed information: The Half Year Report December 2017 and the presentation are attached and can also be located in the Investor Relations section of Freightways' website (www.freightways.co.nz). HALF YEAR REVIEW From the Chairman and Chief Executive Officer Freightways Limited (Freightways) is pleased to present its consolidated financial result for the half year ended 31 December 2017. This report discusses the result, reviews the operations of each division and provides an outlook for the financial year ending 30 June 2018. Highlights of the result include: o the volume and revenue growth achieved in the express package & business mail division and related earnings margins, that have more than offset the cost impact of significant recent investment in capacity; o the overall revenue and earnings growth of the information management division compared to the prior comparative period (pcp) following the completion of a significant premises relocation project in New South Wales; and o Freightways' further diversification through its entry into the Medical Waste industry. Operating performance The below table (refer attachments) presents the latest half year result compared to the pcp, both before and after the inclusion of non-recurring items that were reported in the pcp: $ million - December 2017 Result; December 2016 Result; Increase % Revenue: 292.1; 272.8; 7.1% EBITA, before non-recurring items(i): 49.2; 46.1; 6.9% Non-recurring items: -; 4.0 EBITA(ii): 49.2; 50.1; (1.7%) NPAT(iii): 31.4; 29.5; 6.5% Non-recurring items after tax: -; 4.5 NPAT(iv): 31.4; 34.0; (7.6%) Basic EPS (cents), before non-recurring items: 20.3; 19.0 Notes: i. Operating profit before interest, tax and amortisation, before non-recurring items. ii. Operating profit before interest, tax and amortisation. iii. Net profit after tax (NPAT), before non-recurring items. iv. Profit for the half year attributable to shareholders. The results discussed throughout this commentary exclude the impact in the pcp of a non-recurring benefit before tax of $5.6 million (no tax applicable) relating to previously accrued final acquisition payables that were no longer expected to be required and a non-recurring cost before tax of $1.6 million ($1.1 million after tax) relating to the relocation of the TIMG business in Sydney. Dividend The Directors have declared an interim dividend of 14.5 cents per share, fully imputed at a tax rate of 28%, being a 12% increase above the pcp interim dividend of 13 cents per share. This represents a payout of approximately $22.5 million compared with $20.1 million for the pcp. The dividend will be paid on 3 April 2018. The record date for determination of entitlements to the dividend is 16 March 2018. The Dividend Reinvestment Plan (DRP) will not be offered in relation to this dividend. As a capital management tool, the application of the DRP will be reviewed for each future dividend. REVIEW OF OPERATIONS Divisional results for the half year ended 31 December 2017 are provided below for the express package & business mail division and the information management division. Express Package & Business Mail Operating revenue of $216.7 million was 7% higher than the pcp. EBITA of $36.4 million was 4.6% higher than the pcp. The express package & business mail division operates a multi-brand strategy in the domestic market through New Zealand Couriers, Post Haste, Castle Parcels, NOW Couriers, SUB60, Security Express, Kiwi Express, Stuck, Pass The Parcel, DX Mail and Dataprint. Recent investment in aircraft, premises and IT has been essential to accommodate and appropriately service the volume growth from existing and new customers throughout this half year. While this investment results in higher operating costs it means that quality capacity exists to support the division's current and expected future growth. Overall earnings margins remain sound, particularly when allowing for the additional cost of this capacity and expenses incurred in relation to the relocation of our Christchurch businesses during the half year. Key matters: o The recently introduced Boeing 737-400 aircraft are performing well. The introduction of a fourth aircraft will continue to be considered. In the meantime, the current operating model using 3 Boeings and the charter of a Convair, as required, is providing sufficient airfreight capacity. o The relocation of the Christchurch express package businesses from four independent sites to one purpose-built airside facility at Christchurch Airport was completed during the half year. o Good progress was made by Freightways' IT team in addressing the many initiatives planned in support of Freightways' strategic intent to be a technology leader in the markets it operates in. o New Zealand Couriers relocated to significantly larger premises on Auckland's North Shore during October 2017, with Post Haste and Castle Parcels to follow in July 2018. This site will enable the operation of a twin-Auckland city operation to accommodate the current and expected growth in volume from the North Harbour and West Auckland areas for many years to come. These new premises complement, and effectively extend the life of, the existing Penrose site, south of the city. o Overall volume mix within the customer base continues to evolve as consumers increasingly shop online, resulting in Business to Consumer (B2C) deliveries growing faster than Business to Business (B2B) deliveries. A number of wide-ranging initiatives are being developed to ensure these B2C deliveries are completed as efficiently as possible and to the satisfaction of customers. Ensuring integrity in pricing is also important to properly enable the support required to service this volume. o Freightways' business mail operators, DX Mail and Dataprint, while small, continue to perform profitably. Both revenue and earnings have remained on par with the pcp. The organic decline in physical mail volumes has been offset by market share gains and an increase in the contribution from Dataprint's digital mail offering. Information Management Operating revenue of $76.3 million was 7.3% higher than the pcp. EBITA of $14.6 million was 9.2% higher than the pcp. This division operates under the brands of The Information Management Group (TIMG), Shred-X and, following the recent acquisition in the medical waste industry, Med-X. Positive results were achieved in all businesses within this division, while investment occurred in resources to support the growing suite of digital information management services. Key matters: o Within TIMG Australia, the performance of the LitSupport business improved, albeit the project nature of this business means that revenue does fluctuate from month to month. This requires careful management attention to appropriately align resources with activity. o The new consolidated Sydney site is providing important quality capacity to accommodate current and expected volume growth. o Demand for the broad suite of digital services offered by TIMG in New Zealand and Australia, and the e-destruction services offered by Shred-X, continues to gain momentum. Accordingly, further investment has been made in resources to support these growing revenue streams. o A project is underway to replace all racking in TIMG's Porirua document storage facility that was damaged in the North Canterbury earthquake. Freightways carries comprehensive insurance for events such as this. The $1.4 million write-off of the written down book value of the structurally-compromised racking in the division's half year result has been offset by the recognition of insurance proceeds received during the half year. Importantly, this project is being managed in a way that ensures no service disruption to customers. Internal service providers Fieldair Holdings, through its subsidiary of Air Freight NZ, operates a joint venture company that leases and operates the Boeing 737-400 aircraft fleet that provides Freightways' overnight airfreight linehaul service. Fieldair also provides specialist engineering and contracting services to the general aviation market. Parceline Express provides Freightways' road linehaul service. The service provided by both these businesses throughout the half year, but particularly during the peak December volume month, was outstanding. Freightways Information Services provides IT development and support to both operating divisions. Good progress is being made by this team in support of our front line businesses' technology-related strategic objectives. Corporate Corporate costs decreased compared to the pcp, primarily due to higher one-off costs in the pcp which included expensing insurance deductibles in respect of the November 2016 earthquake. Net debt increased by approximately $7 million to $165 million during the half year, driven mostly by the acquisition of a small medical waste business in Australia for an initial payment of $5 million. Investment in operating capacity has been funded from operating cash flows. OUTLOOK The markets in which Freightways operates in both New Zealand and Australia remain positive. In particular, the growth in express package volume and activity levels throughout this half year supports Freightways in targeting the delivery of year-on-year earnings growth again for the 2018 financial year. Within the express package & business mail division, investment will continue to be made in IT development and new initiatives to service projected B2B and B2C volume growth. As a significant employer of around 2,300 team members and while working alongside 1,200 business partners in New Zealand, Freightways will continue to carefully monitor any further proposed changes to workplace legislation. The recently announced minimum wage increases are not expected to have a material impact on Freightways' overall cost base, given that its employees are all paid above the minimum wage. Freightways will continue to consider pricing annually to mitigate necessary cost increases, including the projected impact of ensuring its workforce remains above the minimum wage as it progressively steps-up. Within the information management division, increased utilisation of existing capacity will support improving margins, while also enabling continued investment in digital information management services. Overall capital expenditure for the 2018 financial year is expected to be approximately $16 million. Operating cash flows are expected to remain strong throughout the balance of the 2018 financial year. Strategic growth opportunities, including acquisitions and alliances that complement existing capabilities, will be executed where they make commercial sense. CONCLUSION The strength of Freightways' business models, the expertise of its people and the positive features of the markets it operates in are once again evident in this half year result. This result has benefited from recent capacity investment decisions, which have been important in providing capacity for current volumes and also to ensure sufficient quality capacity is available to enable servicing of future expected growth. The Board and Chief Executive Officer acknowledge the outstanding work and ongoing dedication of the Freightways team of people throughout New Zealand and Australia. End CA:00314381 For:FRE Type:HALFYR Time:2018-02-19 09:52:53