Full Year Results to 30 June 2023 and Final Dividend

FULL YEAR REVIEW From the Chairman and Chief Executive Officer GROWTH ON BOTH SIDES OF THE TASMAN Against a backdrop of quite different market dynamics on each side of the Tasman, our teams have worked tirelessly to meet the needs of our customers and we have selectively invested in the exciting future we see for ourselves. Growth in the Australian economy in FY23 helped deliver solid financial performance from our Allied Express business, which lifted the overall Group result. The New Zealand economy, by contrast, was sluggish as businesses grappled with the challenges of a tight labour market, high labour costs, inflationary pressures and, of course, destructive weather. While some parts of our business, such as Information Management, have rebuilt after COVID-19, our linehaul businesses for both courier and temperature-controlled goods incurred much higher operating costs and disruptions during the year along with subdued growth in the operating environment. The end result reflected these contrasts. Overall, operating revenue increased by 29% from last year, with our Australian businesses growing by 143% and our New Zealand businesses increasing by 6% - net profit after tax lifted by 7% overall. INVESTING IN MOVING YOU TO A BETTER PLACE Despite economic pressures, we remain committed to "Moving you to a better place". Investment across our four key activities - Express Package and Business Mail, Temperature Controlled, Information Management and Waste Renewal - is broadening our business footprint, leveraging our expertise and presence in exciting ways. Strategically, we are confident these investments will form a powerful, collective catalyst for sustained growth in FY24 and beyond. Along the way, they will create opportunities to increase volume and achieve economies of scale, enhance our responsiveness and reliability for customers and strengthen our Group overall with more resilient, more efficient businesses. OUR THREE HORIZONS FUTURE The exciting feature of our three horizons approach is that it enables us to expand, in a disciplined way, into new areas characterised by greater value. o Our first horizon revenue streams are the backbone. Often built over decades, they provide the core expertise, infrastructure and national network capabilities. Businesses here range from business-to-business (B2B) deliveries to temperature-controlled transport to archive storage and document destruction. o Second horizon businesses utilise the fixed cost base established for horizon one but have faster growth prospects. These are activities like business-to-consumer (B2C) deliveries, temperature-controlled 3rd Party Logistics (3PL), digitisation and medical waste. o Our third horizon businesses are the innovators - focused on delivering long-term revenue streams by identifying emerging niches with healthy potential. Opportunities in this space include oversize express couriers, same-day temperature-controlled deliveries, high-value recycling and 3PL for eCommerce. CREATING ROOM TO GROW Our investments this year and next are about adding capacity for growth within our integrated model. For example, our new Big Chill facility in Ruakura will give us the room for growth that we need to meet the ongoing demand for temperature-controlled 3PL as well as expanding our nationwide delivery capability. Equally, our new ProducePronto facility in Auckland will allow us to grow our temperature-controlled same-day and 4PL offering. The arrival of our first Boeing 737-800 is a game-changer for our air freight services, enabling us to improve the resilience and efficiency of our first horizon businesses. This newer, faster and more fuel-efficient aircraft will allow us to carry more freight with reduced emissions and at better levels of reliability. The remainder of the fleet will be steadily upgraded over the rest of this decade. In Australia, installing a new automated sortation system for Allied Express and establishing a new medical waste processing facility for Shred-X in Victoria will underpin efficiencies and enable these businesses to pick-up, process and deliver greater quantities at improved efficiency. LEVERAGING OUR EXISTING NETWORKS 25kg+ couriers, same-day temperature-controlled delivery and high-value recycling all align with our core pick-up, process and deliver ethos. These activities have all been developed by using the facilities, teams of people, IT systems and customer-bases of our horizon one businesses. A BUSY YEAR FOR ALL Our Allied Express business has had a very good first year. Leveraging its footprint across five states has produced pleasing revenue growth. Now we are looking to make even more of their presence through world-class facilities that have the capacity to cope with a doubling of revenue in an express delivery market which is around 8 times larger than New Zealand's. Complementing the larger facilities with automation in NSW and Victoria is the first step. This project, which started towards the end of the year, will pair investment in the best freight sorting automation with Allied Express' deep business relationships to build the capacity for material growth. This will allow us to pursue growing market share and grow the business without worrying about constraints in infrastructure. To assist that growth, we are building a new business sales team in Australia to maximise the opportunities from Allied Express' service proposition. We are also actively looking for synergistic merger or acquisition opportunities to complement this investment in the years ahead. After a surge in growth driven by demand for our services during the peak COVID-19 period, our Waste Renewal businesses have reverted to trend levels in terms of both volumes and growth expectations. We foresaw this. But we also anticipated the opportunity for investment, again to allow these businesses to pursue more growth in the years ahead. With that in mind, we have developed a new medical waste facility set to open in Victoria in early FY24. In New Zealand, our Express Package brands have experienced a net gain in market share thanks to strong relationship/business development and differentiated service offerings that customers value. While the New Zealand economy goes through tougher times, it has been inspiring to see our teams winning new customers aided by superior performance and reliability and keeping customers better informed about their deliveries. Cost pressures have been material this year. High labour costs, in particular, have prompted us to announce new pricing from the beginning of the next financial year (1 July 2023) to offset those costs. Our Temperature Controlled businesses have also faced their share of challenges, with Cook Strait ferry disruptions and Cyclone Gabrielle adversely affecting a finely tuned supply chain system and generating cost pressures through the year's second half. Our teams have done a remarkable job of countering setbacks across a network where there is no inherent 'give' in the system. For both Big Chill and ProducePronto, time is our most significant advantage but potentially a costly adversary. When frozen perishables are waylaid because trucks are stranded in remote locations, often some distance from the nearest depot, the pressures come thick and fast. Our people battled disruptions, shortage of trucks and drivers, and delays to do the best for our customers. For many of those customers, daily or even multiple-times-per-day deliveries are a commercial necessity. With no redundant refrigeration anywhere in the system to hold stock, stoppages can potentially hurt everyone. The big out-take from what has happened this year was that some extra capacity across our network is a game changer. We're excited about the opening of Big Chill's new 13,000sqm 3PL cold store facility in Ruakura, adding to the nine depots we already have in our nationwide network. From October 2023, this state-of-the-art facility will enhance our existing capabilities with increased links to Port of Tauranga, the Waikato and the Bay of Plenty, and increase same-day and overnight services to Auckland. The new site will also allow us to store a significant number of temperature-controlled pallets. This generates new opportunities to build our customer base in these active food-producing regions and strengthen volumes. Adding 3PL services will align the site with our Auckland and Christchurch facilities and enable us to add more logistics services for clients if needed as part of our nationwide expansion. We're also investing in new vehicles for the business over the next 12 months. These fleet improvements will add resilience to our model, provide more capacity to take on new business as we look forward to strengthening the Big Chill network and produce lower emissions through better fuel efficiency. Our Information Management business grew well this year in terms of volumes as people returned to the office. We are especially pleased with our TIMG team's fantastic job in successfully completing a large digitisation project. The significant growth of the ProducePronto network in recent months has led us to invest in a new, much larger depot for Auckland to meet the same-day delivery needs of the growing convenience food market and quick services restaurants demands. We've identified a similar opportunity for such an offer in Australia. Work over the coming year will highlight the size of the Australian market, our cost of entry and the approach we will take should we decide to progress. OUR SUSTAINABILITY JOURNEY CONTINUES We continue to make steady progress in the area of sustainability. We remain committed to our science-based target of a 50% drop in Scope 1, 2 and 3 emissions by 2035. We have been TOITU certified since 2014. This year, we have brought together our performance and sustainability reporting into this one report, reflecting our wish to think about - and report on - our broader progress as a business. As we signalled last year, we reviewed our Sustainable Development Goals (SDGs) materiality as part of a review we do every five years to ensure our Goals continue to align with the interests of our stakeholders. We will continue to report on SDG 13 - Climate Action because we have firm commitments to this. Still, we will set a new baseline for those actions with the inclusion of our Australian businesses (and will include a full year of Allied Express in our FY24 report) and our Big Chill business in New Zealand. We already have milestones in place to move us to alternative fuels through our light vehicle and metro truck fleets as and when the technology to do so realistically becomes available. Well over 95% of our total Group emissions come from the fuel we use across our vehicles and aircraft. Our 2030 target of a 35% reduction in CO2e and our 2035 target of a 50% reduction in C02e align with what society needs to achieve globally to keep global warming to within 1.5 degrees Celsius. Electrification of our forklifts and company vehicles has been a key initiative which commenced this year. At this stage, we plan to convert 25% of our company cars to PHEV by 2025, with 100% either PHEV, EV or hydrogen by 2030. Our contractors' light vehicles will begin to meaningfully transition to EVs from 2028, with our entire light vehicle fleet made up of low-emission vehicles by 2035. We are looking at finance options and continued upward movements in courier incomes to help our contractors do this. We also anticipate that our heavy transport fleet will commence using alternative fuels from 2030, and by 2035 we foresee that half of these vehicles will have transitioned - in particular the metro trucks which service customers within city and town locations. OUTLOOK FY24 The economic climate has presented challenges over the past six months, and we expect this to continue through FY24. In NZ, while same-customer volume is lower than in FY23, we have secured new customers who are mitigating this impact. The tight labour markets in both NZ and Australia are beginning to ease. In the short term, we are cautious about the impact of the economy, particularly in NZ. Notwithstanding the current economic environment, we are excited about the potential to grow our revenue and profitability on both sides of the Tasman in the longer term. We look forward to a resumption of demand across our New Zealand businesses as the economy steadies and re-gathers confidence, hopefully later in the financial year. For our Express Package brands, our goals will be maintaining our quality network at the right price and containing and recovering costs where we can. Investing in our aviation assets will strengthen the network. At the same time, our investments in Big Chill are about taking advantage of growth opportunities where we see them. What heartens us are the number of new business opportunities we have identified in some of our divisions. Information Management will benefit from utilising existing capacity and Waste Renewal will take advantage of new capacity in Victoria. We will continue to develop our third horizon business and expect growth in 25kg+ courier, same-day temperature-controlled transport, high value waste opportunities and Stocka - our 3PL eCommerce offering. In Australia, we're confident that our investment in Allied Express will benefit from organic growth and will seek out complementary acquisition targets. We will continue to manage capital in a prudent way that seeks to achieve a number of objectives: o Invest to maintain or improve the level of service quality and network resilience: for example, fleet replacement or new facilities; o Invest in new technologies that support our value proposition; o Invest in businesses that support our horizons of growth. In addition, Freightways, through the acquisition of Allied Express in Australia, has acquired a strong network across Australia and is further investing in capacity there as well as considering bolt-on acquisitions. We will manage the level of debt carefully and aim to preserve our Investment Grade credit profile at all times. Our capital management will continue to reflect this objective. ASX DUAL LISTING Freightways Group Limited will today apply for admission to the official list of the Australian Securities Exchange (ASX) by way of an ASX Foreign Exempt Listing. Freightways' primary listing will remain on the NZX Main Board (NZX) while its dual listing on the ASX reflects the changing profile of the business, with Australian operations representing a higher proportion of Freightways' revenue and profit, particularly since the acquisition of Allied Express in October 2022. Freightways has had a presence in Australia since its 2007 acquisition of Databank and has steadily grown its footprint through the acquisition and growth of its information management, secure destruction and waste management businesses. Freightways' name was changed to "Freightways Group Limited" and NZX ticker code was changed to "FRW", each with effect from market open on 1 March 2023 to allow for a potential dual listing. Its ASX ticker code will also be "FRW". Subject to ASX approval, Freightways expects to become officially listed in mid-September 2023. REGULATORY Freightways is subject to a Commerce Commission investigation and is cooperating with the Commerce Commission. Freightways does not consider that this process will have a material financial or operational impact on the Group. TOTAL CAPITAL EXPENDITURE FOR THE YEAR WAS $37M As we reach the upper range of our target gearing we will assess the tools available to us to reduce debt and stay within the guidelines established by our capital management policy while taking into account the merger and acquisition opportunities that can be accretive for shareholders. In closing, we'd like to acknowledge our people's fierce loyalty and commitment. Thanks to all of you for engaging with our challenges and giving your all every day to make us the Freightways we are all so proud of. Thanks, too, to our board for your guidance as we stepped up our investments this year and to our shareholders and customers who continue to believe in and support us. We're excited about what's ahead. End CA:00416649 For:FRW Type:FLLYR Time:2023-08-21 08:37:37