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Full Year Results to 30 June 2021 and Final Dividend

23/08/2021, 09:03 NZST, FLLYR

FULL YEAR REVIEW From the Chairman and Chief Executive Officer If last year was about resolving the many and varied challenges posed by COVID-19, this year focused on moving forward. There were still lockdowns and other issues to deal with, but overall, our teams continued to bring a problem-solving attitude to day-to-day operations that saw us manage these issues and focus on implementing our strategy. By further advancing Pricing For Effort for our courier brands; seeking efficiency opportunities in information management; integrating innovation into our workstreams and growing our waste renewal business, we demonstrated that Freightways has a powerful ability to profitably pick-up, process and deliver for customers at the same time as it develops new services. An updated purpose - We move you to a better place - articulates our approach. As a group of businesses, we are motivated by progress. Whether we are shifting physical and digital items for our customers, helping our people further their careers, increasing returns for our investors or moving the dial for communities, our focus is firmly on what's ahead. This year, we continued to set new expectations for our customers; lift income and boost career aspirations for our people; deliver healthy returns for our investors and made plans to further reduce our emissions. In FY21 we reduced the number injuries across a workforce that grew by around 350 people through the acquisition of Big Chill. We did all of that by encouraging everyone who works here to take individual responsibility for making things better and rewarding them for that, by doing deals that make sense, by thinking commercially, and by working as a family that cares for each other and supports safety, security and wellbeing within our businesses. We marked a year of owning Big Chill, and we are very happy with their progress. They are a clear example of a strongly positioned business which is focussed on meeting the needs of their customers, exploring new ways to generate value and improve earnings. At acquisition, Big Chill were a quality, temperature-controlled, express business. Since then, they have broadened activities to include coolstore-3PL capabilities and we have plans for this to continue as they add new value-adding services in the years ahead. Big Chill's progress is echoed across the Group. Our Express Package brands such as New Zealand Couriers and Post Haste have evolved from being leading business-to-business couriers, to brands that now include profitable business-to-consumer deliveries. Our Med-X business is shifting from document destruction to waste renewal by taking on high-value recycling opportunities. Messenger Services are moving from a pure-play point to point service to one that builds deeper relationships through dedicated services. We move you to a better place reflects an entrepreneurial mindset that builds on our relationships and keeps providing existing and new customers with complementary services. This year, it's seen us achieve important market share gains in our courier and waste businesses. Coupled with service standards that we believe are superior to those of any of our competitors, our businesses have enjoyed both organic growth and market share gains. That positive mindset has also been at play in other parts of the business. Our information management business in Australia has achieved a solid turnaround, despite ongoing lockdowns. They have improved profitability by focusing on greater efficiencies. The growth in medical waste in Australia is a great example of growth through innovation. When we bought into medical waste 4 years ago, it had $3 million in turnover. It now generates $16 million in revenue. There are success stories like this right across Freightways. Looking ahead, we see opportunities for growth across our courier businesses as ecommerce continues to grow. The emergence of new consumer trends, such as people wanting more direct access to fresh food, are a part of this. There's plenty of upside too in waste renewal. Beyond document destruction and medical waste, we're already making good gains in collecting materials to divert them from landfill. SaveBoard is a great example of how waste materials can be transformed with the right technology, coupled with our ability to pick up and deliver the feedstock through our customer reach. A radical shift pays off for everyone Our Pricing for Effort (PFE) initiative continues to build value for our contractors by better remunerating them for the effort required in completing residential deliveries. Last year we achieved a PFE rate of 73c per item. This year we lifted that to $1.32 per item. Couple that gain with increases in volumes and PFE has made a noticeable difference for our people. This year, average remuneration for our couriers improved by 8%. In particular, our residential contractors have experienced a healthy increase in earnings. Just as importantly, we've seen a 10% reduction in turnover in our courier fleet. By retaining more experienced couriers it means better experiences for our customers. We have an increased number of applicants applying to join our fleets and our people feel more valued, so they are more productive and more commercially minded. As a result, we've come through a challenging time with a growing team and increased business. Our goal now is to continue tackling PFE opportunities to keep improving contractor and company earnings. Residential deliveries are just one of a range of categories that have not been priced properly. There's no doubt in our minds, for example, that local pricing also needs to move to a better place. Customers are in essence paying the same rate for local delivery that they were paying 25 years ago. In that time, our cities have become much more congested and difficult to move around in. Our efforts to help resolve this have so far been absorbed by our brands. We've had to invest in satellite depots, for example, to try and keep inefficiencies for our couriers to a minimum. At some point, we need to step up, challenge the industry again and update pricing to reflect the true effort now required. Future-proofing our business Last year we released our first ever Sustainability Report. This year we have developed a science-based target for emissions reduction which will see us targeting a 50% drop in emissions by 2035, by maintaining a modern fleet and transitioning to EVs and alternative fuels as they and the networks that support them become available. We have also actively pursued plastic recycling to reduce waste from our own operations and we are targeting a 70% reduction in the use of plastic packaging in the coming year. In 2020, we established an innovation hub, The Startery, to help us commercialise ideas generated alongside our business-as-usual activities. The 30 ideas generated so far are an encouraging sign of the Group's ability to recognise and act on initiatives that could shape our future. Business unit performances Our businesses continued to tackle and adapt to different challenges throughout the year. Here are some of the highlights: Express Package o Growth was healthy overall, with important gains in market share as a result of customer acquisition and new customers coming into the market. Growth was also experienced across both B2B and B2C deliveries - in fact, volumes through most of the year were consistently higher than the previous year. o Big Chill revenues were up 14% aided by the opening of a new temperature-controlled third-party logistics warehouse and market share gains. This delivered improved utilisation and therefore stronger margins, a healthy improvement that backs up our confidence in the company's potential. o NOW Couriers volumes continued to increase on the back of their same-day guaranteed Auckland delivery promise. o Our international air freight service to NSW and Victoria, Australia finished in November 2020 and earned us $8.8 million in revenue. The year ahead o We will continue to aim for increased penetration into attractive market niches. o We will implement further rollout of our customer facing technology. o The success of Big Chill's 3PL initiatives has given us confidence that there is ample potential for expansion for this part of their business. We will continue to grow this capability. o The Startery is exploring a range of future opportunities for our Express Package business. Business Mail o Volumes recovered post-lockdowns to the point where they were similar to the previous year. This was particularly pleasing in the face of the market declining around 15% overall. o We are continuing to refine our DX Mail network to make it as efficient as possible. The year ahead o Dataprint will roll out their digital services. o DXMail will continue to explore further efficiency initiatives. We remain confident that New Zealanders are looking for a business mail delivery service with high levels of reliability and quality and we will continue to look for ways to deliver that proposition. Information Management in Australia o Understandably there was not a lot of growth this year because of lockdowns. However, by finding new ways of working and taking cost out of the Australian business - as well as seeking new revenue opportunities, we were able to improve profitability. o We continue to see opportunities to optimise the cost base for this business. The year ahead o We are pursuing opportunities to use our storage facilities for complementary services. o The Startery has identified a number of opportunities that could expand our IM offering which are getting closer to being released to the market. Waste Renewal (previously described as Secure Destruction) o A bounce back in New Zealand after lockdowns saw our volumes return to 2019 levels. o In Australia business was still impacted by lockdowns in Sydney and Melbourne, but elsewhere returned to levels experienced in 2019. o Medical waste in Victoria continued to grow in terms of both volume and revenue. o Volumes of other high-value recyclables such as electronic destruction (computers, hard drives) have increased. o We are dealing with higher volumes of other recyclable commodities including coffee cups. The year ahead o We expect collection and processing of medical waste to continue growing. o We have invested in the SaveBoard business and we look forward to seeing this launch and expand in 2022. o We are increasingly involved with collecting other higher value commodities, such as textiles and plastics. Balance sheet strength This year we developed a new policy to guide our capital management and give investors improved guidance on what to expect from us. We are committed to maintaining a strong credit profile that supports our growth strategy. Following the acquisition of Big Chill, and the additional debt raised to fund it, we have used healthy cash flow generation to return our balance sheet to a stronger position. As part of the policy, we have set our key metric for capital management at 2x to 3x Debt/EBITDA. If we make a significant investment, investors should expect the business to focus on cashflow generation to reduce debt. That has been the case this year. With the metric restored, the business will resume looking for acquisitive opportunities. The current dividend policy of 75% to 80% of NPATA, adjusted for significant one-offs, is well understood and is set at a level that the Board expects to be sustainable in the medium term. This will be managed in line with our ambition to maintain a strong investment grade profile. Last year, the Board chose not to declare a final dividend for FY20 given the uncertainty in both the New Zealand and Australian markets. This year, the Board has agreed a return to the payment of a full year dividend. We are pleased to declare a full year dividend of 18 cents per share. Outlook We have had a record year in terms of earnings and performances across the business mirror the huge efforts put in by our teams of people. What we have seen over the last year however is that even the best laid plans can be influenced by economic conditions and lockdowns. On that basis, we are not resting on our laurels. We will continue to focus on improving our margins, particularly in Australia, and continue to build momentum and profitability in our New Zealand brands. The macro factors we are conscious of are: the tight labour market which is pushing labour costs higher; a heavily constrained supply chain which could hamper the flow of products coming into the country for our couriers to deliver; and any future lockdowns in Australia or NZ. In keeping with our undertaking from last year, we will react decisively to any change in volumes while maintaining the service, safety and environmental standards that our customers, investors and other stakeholders expect. That means we will adjust our cost base to protect our margins. We will also prioritise the best strategies to deliver value to shareholders over the long term. Last week, New Zealand entered an alert level 4 lockdown. As a result, we have immediately implemented our well-established processes to ensure that all staff and contractors can operate safely. Under alert level 4, activity levels are significantly impacted across all the New Zealand businesses. However, experience from the lockdowns of last year suggests that as soon as alert levels are lowered from alert level 4 to alert level 3 or below, the express package businesses should recover quickly and tend to experience higher volumes than previously expected. Should the level 4 lockdown continue for an extended period we will continue to evaluate our cost base and other options available to us. In 2021 we welcomed Mark Cairns and Fiona Oliver to the Board and bid farewell to Andrea Staines. Our thanks to Andrea for her time with us, and to all directors for their expertise and guidance this year. We would again like to acknowledge the efforts of all our teams and to thank our shareholders for sharing this journey with us and for your continuing support. End CA:00377715 For:FRE Type:FLLYR Time:2021-08-23 09:03:02