Half Year Results to 31 Dec 2016 and Interim Dividend

HALF YEAR RESULTS
20 February 2017

HEADLINEHEADLINEHEADLINE
HY17
AGENDA
•
Highlights
•
Operating Performance
•
Interim Dividend
•
Business Strategy
•
Outlook
•
Conclusion

HEADLINEHEADLINEHEADLINE
HY17
HIGHLIGHTS

HEADLINEHEADLINEHEADLINE
HY17
1
GENERAL HIGHLIGHTS
•
Strength of underlying volume
growth and margins in the EP&BM
division
•
Progress to budget and timetable of two major building projects andrelated relocations
•
Execution of robust contingency pla
ns that ensured minimal service
disruption, despite the significant impact of the North Canterburyearthquake
•
Performance of our information man
agement businesses, other than
TIMG Australia, which was primarily affected by a poor result atLitSupport

HEADLINEHEADLINEHEADLINE
HY17
1
FINANCIAL HIGHLIGHTS
NOTES(i) Operating profit before interest, tax, depreciation and amortisation(ii) Operating profit before interest, tax and amortisation (iii) Net profit after ta
x (NPAT) before amortisation
(iv) Profit for the period attributable to the shareholders
$M
Note
Dec-16
Result
Non-recurring
items
Underlying trading result
Increase
Dec-16
Dec-15
Revenue
272.8
-
272.8
254.9
7.0%
EBITDA
(i)
55.8
4.0
51.8
51.2
1.2%
EBITA
(ii)
50.1
4.0
46.1
45.0
2.4%
NPATA
(iii)
34.8
4.5
30.3
28.7
5.6%
NPAT
(iv)
34.0
4.5
29.5
27.7
6.2%
EPS (cents)
21.9
2.9
19.0
17.9
6.1%

HEADLINEHEADLINEHEADLINE
HY17
1
NON-RECURRING ITEMS
•
A non-recurring benefit before tax of $5.6m ($5.6m after tax) relatingto previously accrued final acquisition payments that are no longerexpected to be required. The interim dividend was calculatedexclusive of this non-cash benefit.
•
A non-recurring cost before tax of $1.6m ($1.1m after tax) relating tothe relocation of the TIMG business in Sydney

HEADLINEHEADLINEHEADLINE
HY17
OPERATING PERFORMANCE

HEADLINEHEADLINEHEADLINE
HY17
1
Operating Revenue
-
100 200 300 400 500 600
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$M
Ye ar En de d 3 0 J u n e
2
nd
Half
1
st
Half

HEADLINEHEADLINEHEADLINE
HY17
1
EBITA
2
nd
Half
1
st
Half
-
10 20 30 40 50 60 70 80 90
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
$M
Year Ended 30 June
NB: This graph represents the operating prof
it before interest, tax and amortisation of
intangibles, exclusive of any non-recurring items

HEADLINEHEADLINEHEADLINE
HY17
* Excluding non-recurring items
27%
73%
EBITA*
1
Business Segments Operating Performance
EP&BMIM
(Half year ended 31 December 2016)
26%
74%
Revenue

HEADLINEHEADLINEHEADLINE
HY17
1
EXPRESS PACKAGE & BUSINESS MAIL
Dec-16
$M
Dec-15
$M
Change
Operating Revenue
202.5
186.8
8.4%
EBITDA
37.3
35.4
5.1%
EBITA
34.8
32.4
7.4%
EBITA Margin
17%
17%

HEADLINEHEADLINEHEADLINE
HY17
1
INFORMATION MANAGEMENT
Dec-16
$M
Dec-15
$M
Change
Operating Revenue
71.1
69.1
2.9%
EBITDA*
15.8
16.5
(4.3)%
EBITA*
13.4
14.2
(5.6)%
EBITA Margin*
19%
20%
* Excluding non-recurring items

HEADLINEHEADLINEHEADLINE
HY17
1
BALANCE SHEET – KEY POINTS
•
Total Assets have increased since FY16 by $23m, primarily as a resultof higher accounts receivable at the end of half year, following a verybusy Christmas period. Capital expenditure and acquisitions alsocontributed to higher recorded assets.
•
Total Liabilities have increased si
nce FY16 by $9m, also primarily as a
result of the busy Christmas period, which drove accounts payablehigher.
•
No significant changes in issued capital during the period.
•
Gearing ratio has remained consistent at approximately 40% duringthe period.
•
The fair value of derivative financial instruments has decreased as aliability to approximately $8m, reflecting the progressive increase inmedium to long-term floating interest rates relative to the fixed rates ofthese instruments.

HEADLINEHEADLINEHEADLINE
HY17
1
CASH FLOWS – KEY POINTS
•
Cash generated from operations was similar to the PCP at just under$50m. Net cash inflows from operating activities (i.e. after deductinginterest and tax payments) were $4m below the PCP at $29m due tothe timing of tax payments.
•
Cash outflows from investing activities were in line with the PCP, butthe mix was more weighted to capital expenditure than acquisitionsthis period compared to the PCP, as the businesses invest inautomated facilities and enhanced IT solutions.
•
The $9m decrease in cash outflows from financing activitiescompared to the PCP mostly reflects $10m higher use of bankborrowings during the period, compared to the PCP, to assist withfunding of capital expenditure and acquisitions.

HEADLINEHEADLINEHEADLINE
HY17
1
CAPITAL EXPENDITURE & DEPRECIATION
2017
Half Year
Actual
$M
2017
Full Year Forecast
$M
Capital Expenditure
10
24
Depreciation
612

HEADLINEHEADLINEHEADLINE
HY17
INTERIM DIVIDEND

HEADLINEHEADLINEHEADLINE
HY17
•
Interim dividend:
13.0 cps
•
Imputation credits:
5.0556 cps (at 28% tax rate)
•
Supplementary dividend:
2.2941 cps
•
Record date:
17 March 2017
•
Payment date:
3 April 2017
•
No DRP was offered in respect of this interim dividend
1
INTERIM DIVIDEND

HEADLINEHEADLINEHEADLINE
HY17
BUSINESS STRATEGY

HEADLINEHEADLINEHEADLINE
HY17

Develop
 
organic
 
growth
 
opportunities

Diversification
 
by
 
industry
 
and
 
geography

Positioning,
 
People,
 
Performance,
 
Profit

Explore
 
complementary
 
acquisition
 
and
 
alliance
 
opportunities
1
BUSINESS STRATEGY

HEADLINEHEADLINEHEADLINE
HY17
1
Network
 
Courier
Point
‐
to
‐
Point
Business
 
Mail
Support
EXPRESS PACKAGE & BUSINESS MAIL

HEADLINEHEADLINEHEADLINE
HY17
1
INFORMATION MANAGEMENT
Manage
Transform
Destroy
Archive Security
Imaging & document capture
Secure destruction
DataBank & Data Security
Automated accounts payable
eDestruction
FileSaver
Workflow Solutions
Product destruction
Secure Distribution Services
Digital mailroom
Paper recycling
LitSupport – Bureau Services
LitSupport - eDiscovery

HEADLINEHEADLINEHEADLINE
HY17
OUTLOOK

HEADLINEHEADLINEHEADLINE
HY17
1
OUTLOOK
•
Volumes and activity experienced i
n this first half year result support
Freightways’ expectations of again improving its overall year-on-yearperformance
•
As stated in previous market announcements, results from theExpress Package & Business Mail division will partly be offset by theinvestment we are making in the information management divisionand poor results from LitSupport
, whose performance is expected to
improve in the second half of the financial year
•
Two major building projects and related relocations in Christchurchand Sydney are on target to be completed by the end of June 2017,with the benefits relating to these projects being realised in 2018

HEADLINEHEADLINEHEADLINE
HY17
1
OUTLOOK continued
•
Capital expenditure for the full year is expected to be approximately$24 million
•
Cash flows are expected to remain strong throughout the remainder ofthe 2017 financial year
•
Strategic growth opportunities, inc
luding acquisitions and alliances
that complement existing capabilities, will be executed where theymake commercial sense

HEADLINEHEADLINEHEADLINE
HY17
CONCLUSION

HEADLINEHEADLINEHEADLINE
HY17
1
CONCLUSION
•
Strong revenue growth and good margins in the EP&BM division werethe primary contributors to this half year result, that is above the PCP
•
The outlook for the balance of the 2017 financial year remains positive
•
Directors acknowledge the outstanding work and ongoing dedicationof the Freightways team of people, particularly following the NorthCanterbury earthquake

HEADLINEHEADLINEHEADLINE
HY17
HALF YEAR RESULTS
20 February 2017

---

1






FREIGHTWAYS LIMITED
Results for announcement to the market
Reporting Period 6 months to 31 December 2016
Previous Reporting Period 6 months to 31 December 2015

Amount (000s) Percentage change
Revenue from ordinary
activities
$272,782 7%
Profit (loss) from ordinary
activities after tax
attributable to shareholders
$33,987 22%
Net profit (loss) attributable
to shareholders
$33,987 22%

Interim Dividend Gross amount per share Imputed amount per share

18.0556 cents 5.0556 cents

Record Date 17 March 2017
Dividend Payment Date 3 April 2017

Audit 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.

Comments: Refer to the section “Half Year Review” for commentary.

2


HALF YEAR REVIEW
From the Chairman and Managing Director

The Directors are pleased to present the consolidated financial result of Freightways Limited
(Freightways) for the half year ended 31 December 2016. This report discusses the result, reviews
the operations of each division and provides an outlook for the financial year ending 30 June 2017.

Highlights include the strength of the underlying volume growth and margin in the express package
& business mail division, progress to timetable and budget of establishing major purpose-built
facilities in Sydney and Christchurch and the related relocation projects, the execution of robust
contingency plans that ensured minimal service disruption following the significant impact of the
North Canterbury earthquake and the performance of our information management businesses,
other than TIMG Australia, which was primarily affected by a poor result at LitSupport.

Operating performance
The below table presents the reported half year result compared to the prior comparative period
(pcp), both before and after the inclusion of non-recurring items:

$M Note
Dec-16
result
Non-
recurring
items
Underlying trading result
Dec-16 Dec-15 Increase
Revenue

272.8 - 272.8 254.9 7.0%
EBITDA
(i) 55.8 4.0 51.8 51.2 1.2%
EBITA
(ii) 50.1 4.0 46.1 45.0 2.4%
NPATA
(iii) 34.8 4.5 30.3 28.7 5.6%
NPAT
(iv) 34.0 4.5 29.5 27.7 6.2%
EPS (cents)
21.9 2.9 19.0 17.9 6.1%
Notes:
i. Operating profit before interest, tax, depreciation and amortisation.
ii. Operating profit before interest, tax, and amortisation.
iii. Net profit after tax (NPAT), before amortisation.
iv. Profit for the half year attributable to shareholders.

The results discussed throughout this commentary exclude the impact of the following non-
recurring items that the Directors believe should not be included when assessing the underlying half
year trading results:
 A non-recurring benefit before tax of $5.6 million relating to previously accrued final
acquisition payments that are no longer expected to be required. The interim dividend was
calculated excluding this non-cash benefit.
 A non-recurring cost before tax of $1.6 million relating to the relocation of the TIMG business
in Sydney.

3

Dividend

The Directors have declared an interim dividend of 13 cents per share, fully imputed at a tax rate of
28%, being a 2% increase above the pcp dividend of 12.75 cents per share. This represents a payout
of approximately $20.1 million compared with $19.7 million for the pcp dividend. The dividend
will be paid on 3 April 2017. The record date for determination of entitlements to the dividend is 17
March 2017.

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 2016 are provided below for the express
package & business mail division and the information management division.

Express Package & Business Mail

Operating revenue of $202.5 million was 8% higher than the pcp. EBITA of $34.8 million was 7%
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.

Volume and revenue growth throughout the half year was strong, particularly so in the peak
December month. Increased activity amongst existing customers and the winning of new customers
contributed to this growth. Disruption surcharges were introduced during December to offset
increased linehaul and delivery costs following November’s North Canterbury earthquake. Overall,
costs have been well contained and the higher operating costs involved with the transition to a new
aircraft operating model reduced through the second quarter. Key matters:

 The transition to Boeing 737-400 aircraft is progressing well. The four superseded freighter
aircraft owned by FRE have all been sold for their combined book value of $1 million. Three of
the aircraft were sold subsequent to the end of the half year. The Boeing 737-400 aircraft
provided important capacity during the peak volume period leading into Christmas.
 The new airside facility currently being constructed at Christchurch airport is on schedule. This
facility will be automated with physical conveyor equipment, which is currently being
assembled on site, and IT developed collaboratively by Freightways’ IT team and the
European-based suppliers. Overall this project is running to budget expectations.
 Increased resourcing of the IT team has enabled the progression of a number of key projects in
support of Freightways’ strategic intent to be a technology leader in the markets it operates in.
 The North Canterbury earthquake had a significant impact on the division’s inter-island and
intra-South Island linehaul services. Providing a consistent nationwide overnight and two-day
delivery service relies on the network operating to a strict timetable. An issue at one point in
the linehaul system has a ripple effect throughout the entire network and if not addressed, will
severely affect customers who are reliant on the performance of this service. Immediately
following the earthquake, the businesses developed a contingency plan to address the loss of
State Highway One in the upper South Island and the initially disrupted inter-islander ferries to
ensure the least possible impact on customers. This plan required the deployment of several
additional linehaul trucks, drivers and depot handling staff at key sortation hubs throughout the
country. The teamwork and passion displayed by Freightways’ people to provide the best
possible service in working through this significant challenge was and remains outstanding.
Likewise, the support of customers during this period is acknowledged and appreciated.

4
Freightways’ business mail operator, DX Mail, further expanded its postie network and now
businesses in most urban locations throughout New Zealand are able to choose DX Mail for
overnight and 5-day per week delivery of their standard-priced letters. Despite the decline of the
overall physical letter market, the demand for DX Mail’s suite of services is increasing. Dataprint,
which provides physical and digital transactional mailhouse services, increased market share in all
of its service lines, both physical and digital.

Information Management

Operating revenue of $71.1 million was 3% higher than the pcp. EBITA of $13.4 million was 6%
lower than the pcp.

The information management division operates under the brands of The Information Management
Group (TIMG) and Shred-X.

Strong results from Shred-X and TIMG New Zealand were primarily offset by poor performance
from TIMG Australia’s LitSupport business, which led to some restructuring and related costs. Key
matters:

 LitSupport has performed at the bottom end of the range of expectations set at the time of
acquiring the business. While forecast revenue growth has been achieved, forecast EBITDA
growth has not occurred. This outcome was anticipated as a possibility at that time and hence the
payment for this business was structured to reduce Freightways’ financial risk should this occur.
As previously announced, the vendors of LitSupport refunded A$5 million of the initial A$17.1
million purchase price in March 2016. Based on the forecast for the current year, the effective
multiple of EBITDA applicable to the reduced purchase price remains at approximately the same
level as originally expected. This has, however, meant that an earn-out payment of $5.3 million
previously accrued is not now anticipated to be paid to the vendors and accordingly it has been
written back to the income statement as a non-cash, non-recurring benefit. Recent restructuring
of LitSupport and the winning of a number of new contracts is expected to assist in improving
LitSupport’s performance over time.
 During the prior year, it was announced that Freightways would invest in the relocation of three
Sydney-based information management facilities into a single purpose-built facility. The cost of
this relocation has at this stage been $1.6 million of the $2.5 million budget for this project and
overall is tracking to budget expectations and timetable. Operating from a single site will deliver
operating efficiencies that will contribute to a positive return on this investment from the
completion of this project in June this year.
 Demand for the digital services offered by TIMG and the e-destruction services offered by
Shred-X continues to gain momentum. It is expected that these new revenue streams will
become an increasingly important part of the overall information management division’s revenue
and earnings in the near to medium term.
 The severity of the North Canterbury earthquake had repercussions for the division’s document
storage facilities in Wellington. While the racking did its job and withstood the impact of the
earthquake, its structural integrity was compromised, particularly in the major site located in
Porirua. This has resulted in the likelihood of having to repair or replace most, if not all, of the
Porirua racking and will involve repositioning boxes while repairs are made or replacement
racking is installed. Freightways carries comprehensive insurance for events such as this. The
related deductible has been expensed as a corporate cost. Thanks to the strong service culture
within the TIMG business, the quick actions of its people and the support of key suppliers, the
service disruption to TIMG’s customers has been minimal. Again the support of customers
during this period is acknowledged and appreciated.

5

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. As volumes have
grown, the services provided by these businesses have adapted to ensure the provision of quality
sustainable capacity.

Freightways Information Services provides IT development and support to the express package &
business mail division. This team is responsible for providing the front line businesses with robust
and secure information management systems and supporting their technology-related strategic
objectives.

Corporate

Corporate costs have increased compared to the pcp, primarily due to expensing the insurance
deductibles related to earthquake insurance claims.

Net debt levels are unchanged from the pcp at $159 million. A finance facility has also been
established with a US-based lender on the same terms as those that are in place with Freightways’
existing banking syndicate.

Capital expenditure during the half year of $10 million, including the investment made in the new
Christchurch and Sydney premises, has been funded from operating cash flows.

OUTLOOK

Volumes and activity evidenced in this first half result support Freightways’ expectations of again
improving its overall year-on-year performance. The markets in which Freightways operates in both
New Zealand and Australia remain positive and the company is experiencing increasing demand for
the services it provides.

As had been stated in the prior annual result announcement and as is evident in this half year
announcement, results from the express package & business mail division will be partly offset by
the investment being made in increased capacity in the information management division to
accommodate current and future expected growth and poor performance of LitSupport in this half
year. Expectations are for improved performance from LitSupport in the second half of the financial
year.

The next six months will see the completion of the major projects that are underway to relocate the
businesses in Sydney and Christchurch, with the full benefits relating to these projects on target to
be realised in the 2018 financial year.

Capital expenditure for the full year is expected to be approximately $24 million. Overall cash
flows are expected to remain strong for the remainder of the 2017 financial year.

Strategic growth opportunities, including acquisitions and alliances that complement existing
capabilities, will be executed where they make commercial sense.

6

CONCLUSION

The strength of the 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.

The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team
of people throughout New Zealand and Australia.

Susan Sheldon Dean Bracewell
Chairman Managing Director

20 February 2017

7

FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2016 (unaudited)



6 mths
ended
31 Dec 2016
$000
6 mths
ended
31 Dec 2015
$000
Variance
%

Operating revenue 272,782 254,898 7%



Transport and logistics expenses (107,862) (97,104) 11%
Employee benefits expenses (75,157) (70,140) 7%
Occupancy expenses (12,082) (11,708) 3%
General and administrative expenses (25,920) (24,759) 5%
Non-recurring items 4,031 - -

Operating profit before interest, income tax,
depreciation and software amortisation and
amortisation of intangibles


55,792


51,187


9%
Depreciation and software amortisation (5,690) (6,188) (8%)
Operating profit before interest, income tax and
amortisation of intangibles
50,102 44,999 11%
Amortisation of intangibles (806) (963) (16%)
Operating profit before interest and income tax 49,296 44,036 12%
Net interest and finance costs (4,711) (5,741) (18%)
Profit before income tax 44,585 38,295 16%
Income tax (10,598) (10,547) -
Profit for the period attributable to shareholders 33,987 27,748 22%

8

FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2016 (unaudited)


6 mths ended
31 Dec 2016
$000
6 mths ended
31 Dec 2015

$000


Profit for the period 33,987 27,748


Other comprehensive income

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of foreign operations
(1,008)
(2,011)
Cash flow hedges taken directly to equity, net of tax
3,320
272
Total other comprehensive income after income tax2,312
(1,739)

Total comprehensive income for the period attributable to the
shareholders


36,299


26,009






FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year ended 31 December 2016 (unaudited)


6 mths ended
31 Dec 2016
$000
6 mths ended
31 Dec 2015
$000

Equity at the beginning of the period 214,856 207,804
Adjustments for acquisition accounting - 583
Restated equity at the beginning of the period 214,856 208,387

Profit for the period
33,987 27,748
Exchange differences on translation of foreign operations
(1,008) (2,011)
Cash flow hedges taken directly to equity, net of tax
3,320 272
Total comprehensive income for the period 36,299 26,009

Dividends paid (22,466) (19,345)
Issue of ordinary shares, net of costs 452 878

Equity at the end of the period 229,141 215,929

9

FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 31 December 2016 (unaudited)

As at
31 Dec 2016
$000
As at
31 Dec 2015
$000
As at
30 Jun 2016
$000
ASSETS
Current assets

Cash and cash equivalents 10,690 12,378 7,065
Trade and other receivables 77,483 73,062 68,865
Income tax receivable 222 - -
Inventories 6,190 6,432 5,248
94,585 91,872 81,178
Assets held for sale 750 5,797 1,000
Total current assets 95,335 97,669 82,178


Non-current assets

Trade and other receivables 1,950 421 190
Property, plant and equipment 91,946 84,851 88,621
Intangible assets 312,493 309,091 307,843
Total non-current assets 406,389 394,363 396,654
Total assets 501,724 492,032 478,832


LIABILITIES

Current liabilities

Trade and other payables 64,460 57,954 54,679
Finance lease liabilities 70 9 79
Income tax payable 1,690 4,411 6,145
Provisions 1,101 1,563 1,115
Derivative financial instruments 871 72 779
Unearned income 16,044 16,308 16,391
Total current liabilities 84,236 80,317 79,188


Non-current liabilities

Trade and other payables 3,034 6,019 6,368
Borrowings (secured) 169,196 170,976 158,801
Deferred tax liability 5,239 7,182 4,430
Provisions 3,323 2,832 3,035
Finance lease liabilities - - 32
Derivative financial instruments 7,555 8,777 12,122
Total non-current liabilities 188,347 195,786 184,788
Total liabilities 272,583 276,103 263,976
NET ASSETS 229,141 215,929 214,856


EQUITY

Contributed equity 124,304 123,736 123,852
Retained earnings 117,345 103,531 105,824
Cash flow hedge reserve (6,097) (6,509) (9,417)
Foreign currency translation reserve (6,411) (4,829) (5,403)
TOTAL EQUITY 229,141 215,929 214,856

Net tangible assets (liabilities) per security ($0.46) ($0.54) ($0.53)

10


FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the half year ended 31 December 2016 (unaudited)

6 mths
ended
31 Dec 2016
$000
6 mths
ended
31 Dec 2015
$000

Inflows
(Outflows)
Inflows
(Outflows)
Cash flows from operating activities

Receipts from customers 264,165 258,554
Payments to suppliers and employees (214,918) (208,114)
Cash generated from operations 49,247 50,440
Interest received 43 63
Interest and other costs of finance paid (4,957) (5,168)
Income taxes paid (15,829) (13,048)
Net cash inflows from operating activities 28,504 32,287

Cash flows from investing activities
Payments for property, plant & equipment (8,098) (6,764)
Payments for software (1,865) (881)
Proceeds from disposal of property, plant & equipment 23 20
Payments for businesses acquired (net of cash acquired) (1,991) (5,805)
Payments to associate (1,667) -
Payments for other investing activities (231) (521)
Net cash outflows from investing activities (13,829) (13,951)

Cash flows from financing activities
Dividends paid (22,466) (19,345)
Increase (decrease) in bank borrowings 11,143 (645)
Proceeds from issue of ordinary shares 338 296
Finance lease liabilities repaid (38) (38)
Net cash outflows from financing activities (11,023) (19,732)

Net increase (decrease) in cash and cash equivalents
3,652 (1,396)
Cash and cash equivalents at the beginning of the period 7,065 13,946
Exchange rate adjustments (27) (172)
Cash and cash equivalents at the end of the period 10,690 12,378

11


Earnings per Security (EPS)

Calculation of basic and fully diluted EPS in accordance with NZ IAS 33: Earnings Per Share:


Current half year
(cents per share)
Previous corresponding
half year (cents per
share)
Basic EPS 21.9 17.9
Diluted EPS 21.9 17.9



Dividends Paid


Date Paid Cents per share (fully
imputed)
Final Dividend for the year ending 30 June
2016
3 October 2016 14.50

14.50



Post Balance Date Events

Dividend declared

On 20 February 2017, the Directors declared a fully imputed interim dividend of 13 cents per share
(approximately $20.1 million) in respect of the year ended 30 June 2017. The dividend will be paid on 3
April 2017. The record date for determination of entitlements to the dividend is 17 March 2017. A
supplementary dividend of 2.29 cents per share will be paid to overseas shareholders when the interim
dividend is paid. The Freightways Dividend Reinvestment Plan will not operate for this dividend.

Sale of aircraft
On 31 January 2017, the Group sold its three remaining Convair freighters for their combined book value of
$0.75 million. An initial payment of $0.1m was received and the balance of the sale proceeds will be
receivable in 24 equal monthly instalments, commencing February 2017.

12
Segment Reporting

The Group is organised into the following reportable operating segments which categorise the business into
its primary markets and reflect the structure and internal reporting used by the Managing Director, as the
chief operating decision maker, and the Board to assist strategic decision-making and allocation of resources:

Express package & business mail
Comprises network courier, point-to-point courier and postal services.

Information management
Comprises secure paper-based and electronic business information management services.

Corporate and other
Comprises corporate, financing and property management services.

The Group has no individual customer that represents more than 2% of external sales revenue.

Express
package &
business
mail
Information
management
Corporate &
other
Inter-
segment
elimination
Consolidated
operations
$000$000$000$000 $000
Half year ended
31 December 2016




Sales to external customers 201,668 71,114 - - 272,782
Inter-segment sales 829 19 2,255 (3,103) -
Total revenue 202,497 71,133 2,255 (3,103) 272,782

Operating profit (loss) before
non-recurring items, interest,
income tax, depreciation and
software amortisation and
amortisation of intangibles 37,252 15,824 (1,315) - 51,761
Non-recurring items
- 4,031 - - 4,031
Operating profit (loss) before
interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles 37,252 19,855 (1,315) - 55,792
Depreciation and software
amortisation (2,467) (2,458) (765) - (5,690)
Operating profit (loss) before
interest, income tax and
amortisation of intangibles 34,785 17,397 (2,080) - 50,102
Amortisation of intangibles,
excluding software amortisation (25) (781) - - (806)
Operating profit (loss) before
interest and income tax 34,760 16,616 (2,080) - 49,296
Net interest and finance costs (4) (62) (4,645) - (4,711)
Profit (loss) before income tax 34,756 16,554 (6,725) - 44,585
Income tax (9,803) (3,214) 2,419 - (10,598)
Profit (loss) for the period
attributable to the shareholders 24,953 13,340 (4,306) - 33,987

13

Segment Reporting (continued)

Express
package &
business
mail
Information
management
Corporate &
other
Inter-
segment
elimination
Consolidated
operations
$000$000$000$000 $000
Half year ended
31 December 2015




Sales to external customers 185,785 69,113 - - 254,898
Inter-segment sales 998 - 2,253 (3,251) -
Total revenue 186,783 69,113 2,253 (3,251) 254,898

Operating profit (loss) before
interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles 35,439 16,532 (784) - 51,187
Depreciation and software
amortisation (3,052) (2,371) (765) - (6,188)
Operating profit (loss) before
interest, income tax and
amortisation of intangibles 32,387 14,161 (1,549) - 44,999
Amortisation of intangibles,
excluding software amortisation (25) (938) - - (963)
Operating profit (loss) before
interest and income tax 32,362 13,223 (1,549) - 44,036
Net interest and finance costs (2) (454) (5,285) - (5,741)
Profit (loss) before income tax 32,360 12,769 (6,834) - 38,295
Income tax (9,122) (3,956) 2,531 - (10,547)
Profit (loss) for the period
attributable to the shareholders 23,238 8,813 (4,303) - 27,748

14


Business Combinations

On 1 July 2016, the Group acquired the business and assets of LexData Management Pty Limited (LexData),
an Australian-based information management business, for initial payments in aggregate of approximately
$2.9 million (A$2.8 million) and a future maximum earn-out of $3.6 million (A$3.5 million). LexData has
been integrated into the Group’s information management division.

The contribution of LexData to the Group results for the half year ended 31 December 2016 was revenue of
$2 million and operating profit before interest, income tax and amortisation of intangibles of $0.5 million.

The following table summarises the purchase consideration and the fair value of assets acquired and
liabilities assumed:

Purchase consideration
$000
Initial acquisition payments 2,900
Less Allowance for liabilities assumed (285)
Less Cash consideration payable as at the end of the period (624)
Cash consideration paid during the period
1,991
Cash consideration payable as at the end of the period 624
Fair value of future earn-out payment 2,199
Total purchase consideration4,814

Fair value of assets and liabilities arising from the acquisition
Plant and equipment
73
Customer relationships
554
Goodwill
4,562
Provisions
(299)
Deferred tax liability
(76)

4,814

The future earn-out payment of up to a maximum discounted amount of $2.2 million may be payable in
August 2019, but is contingent upon certain financial performance hurdles being achieved for the years
ended 30 June 2017, 2018 and 2019. The potential undiscounted amount of the future earn-out payment that
the Group expects could be required to be made in respect of this acquisition is between nil and $3.6 million.
The Group has forecast several scenarios and probability-weighted each to determine a fair value for this
contingent payment arrangement.

The goodwill of $4.6 million arising upon this acquisition is attributable to the intellectual property obtained
and the strategic benefit of increasing and strengthening TIMG’s digital offer and increasing the national
scale and coverage of LitSupport. None of the goodwill recognised is expected to be deductible for income
tax purposes.

The acquisition accounting for this acquisition has been determined on a provisional basis. The fair value of
assets and liabilities acquired, including identified intangible assets, will be finalised within 12 months from
the acquisition date and upon confirmation of certain determinants.

---

FREIGHTWAYS LIMITED













Half Year Report
December 2016

2

HALF YEAR REVIEW
From the Chairman and Managing Director

The Directors are pleased to present the consolidated financial result of Freightways Limited
(Freightways) for the half year ended 31 December 2016. This report discusses the result, reviews
the operations of each division and provides an outlook for the financial year ending 30 June 2017.

Highlights include the strength of the underlying volume growth and margin in the express package
& business mail division, progress to timetable and budget of establishing major purpose-built
facilities in Sydney and Christchurch and the related relocation projects, the execution of robust
contingency plans that ensured minimal service disruption following the significant impact of the
North Canterbury earthquake and the performance of our information management businesses,
other than TIMG Australia, which was primarily affected by a poor result at LitSupport.

Operating performance
The below table presents the reported half year result compared to the prior comparative period
(pcp), both before and after the inclusion of non-recurring items:

$M Note
Dec-16
result
Non-
recurring
items
Underlying trading result
Dec-16 Dec-15 Increase
Revenue

272.8 - 272.8 254.9 7.0%
EBITDA
(i) 55.8 4.0 51.8 51.2 1.2%
EBITA
(ii) 50.1 4.0 46.1 45.0 2.4%
NPATA
(iii) 34.8 4.5 30.3 28.7 5.6%
NPAT
(iv) 34.0 4.5 29.5 27.7 6.2%
EPS (cents)
21.9 2.9 19.0 17.9 6.1%
Notes:
i. Operating profit before interest, tax, depreciation and amortisation.
ii. Operating profit before interest, tax, and amortisation.
iii. Net profit after tax (NPAT), before amortisation.
iv. Profit for the half year attributable to shareholders.

The results discussed throughout this commentary exclude the impact of the following non-
recurring items that the Directors believe should not be included when assessing the underlying half
year trading results:
 A non-recurring benefit before tax of $5.6 million relating to previously accrued final
acquisition payments that are no longer expected to be required. The interim dividend was
calculated excluding this non-cash benefit.
 A non-recurring cost before tax of $1.6 million relating to the relocation of the TIMG business
in Sydney.

3

Dividend

The Directors have declared an interim dividend of 13 cents per share, fully imputed at a tax rate of
28%, being a 2% increase above the pcp dividend of 12.75 cents per share. This represents a payout
of approximately $20.1 million compared with $19.7 million for the pcp dividend. The dividend
will be paid on 3 April 2017. The record date for determination of entitlements to the dividend is 17
March 2017.

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 2016 are provided below for the express
package & business mail division and the information management division.

Express Package & Business Mail

Operating revenue of $202.5 million was 8% higher than the pcp. EBITA of $34.8 million was 7%
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.

Volume and revenue growth throughout the half year was strong, particularly so in the peak
December month. Increased activity amongst existing customers and the winning of new customers
contributed to this growth. Disruption surcharges were introduced during December to offset
increased linehaul and delivery costs following November’s North Canterbury earthquake. Overall,
costs have been well contained and the higher operating costs involved with the transition to a new
aircraft operating model reduced through the second quarter. Key matters:

 The transition to Boeing 737-400 aircraft is progressing well. The four superseded freighter
aircraft owned by FRE have all been sold for their combined book value of $1 million. Three of
the aircraft were sold subsequent to the end of the half year. The Boeing 737-400 aircraft
provided important capacity during the peak volume period leading into Christmas.
 The new airside facility currently being constructed at Christchurch airport is on schedule. This
facility will be automated with physical conveyor equipment, which is currently being
assembled on site, and IT developed collaboratively by Freightways’ IT team and the
European-based suppliers. Overall this project is running to budget expectations.
 Increased resourcing of the IT team has enabled the progression of a number of key projects in
support of Freightways’ strategic intent to be a technology leader in the markets it operates in.
 The North Canterbury earthquake had a significant impact on the division’s inter-island and
intra-South Island linehaul services. Providing a consistent nationwide overnight and two-day
delivery service relies on the network operating to a strict timetable. An issue at one point in
the linehaul system has a ripple effect throughout the entire network and if not addressed, will
severely affect customers who are reliant on the performance of this service. Immediately
following the earthquake, the businesses developed a contingency plan to address the loss of
State Highway One in the upper South Island and the initially disrupted inter-islander ferries to
ensure the least possible impact on customers. This plan required the deployment of several
additional linehaul trucks, drivers and depot handling staff at key sortation hubs throughout the
country. The teamwork and passion displayed by Freightways’ people to provide the best
possible service in working through this significant challenge was and remains outstanding.
Likewise, the support of customers during this period is acknowledged and appreciated.

4


Freightways’ business mail operator, DX Mail, further expanded its postie network and now
businesses in most urban locations throughout New Zealand are able to choose DX Mail for
overnight and 5-day per week delivery of their standard-priced letters. Despite the decline of the
overall physical letter market, the demand for DX Mail’s suite of services is increasing. Dataprint,
which provides physical and digital transactional mailhouse services, increased market share in all
of its service lines, both physical and digital.

Information Management

Operating revenue of $71.1 million was 3% higher than the pcp. EBITA of $13.4 million was 6%
lower than the pcp.

The information management division operates under the brands of The Information Management
Group (TIMG) and Shred-X.

Strong results from Shred-X and TIMG New Zealand were primarily offset by poor performance
from TIMG Australia’s LitSupport business, which led to some restructuring and related costs. Key
matters:

 LitSupport has performed at the bottom end of the range of expectations set at the time of
acquiring the business. While forecast revenue growth has been achieved, forecast EBITDA
growth has not occurred. This outcome was anticipated as a possibility at that time and hence the
payment for this business was structured to reduce Freightways’ financial risk should this occur.
As previously announced, the vendors of LitSupport refunded A$5 million of the initial A$17.1
million purchase price in March 2016. Based on the forecast for the current year, the effective
multiple of EBITDA applicable to the reduced purchase price remains at approximately the same
level as originally expected. This has, however, meant that an earn-out payment of $5.3 million
previously accrued is not now anticipated to be paid to the vendors and accordingly it has been
written back to the income statement as a non-cash, non-recurring benefit. Recent restructuring
of LitSupport and the winning of a number of new contracts is expected to assist in improving
LitSupport’s performance over time.
 During the prior year, it was announced that Freightways would invest in the relocation of three
Sydney-based information management facilities into a single purpose-built facility. The cost of
this relocation has at this stage been $1.6 million of the $2.5 million budget for this project and
overall is tracking to budget expectations and timetable. Operating from a single site will deliver
operating efficiencies that will contribute to a positive return on this investment from the
completion of this project in June this year.
 Demand for the digital services offered by TIMG and the e-destruction services offered by
Shred-X continues to gain momentum. It is expected that these new revenue streams will become
an increasingly important part of the overall information management division’s revenue and
earnings in the near to medium term.
 The severity of the North Canterbury earthquake had repercussions for the division’s document
storage facilities in Wellington. While the racking did its job and withstood the impact of the
earthquake, its structural integrity was compromised, particularly in the major site located in
Porirua. This has resulted in the likelihood of having to repair or replace most, if not all, of the
Porirua racking and will involve repositioning boxes while repairs are made or replacement
racking is installed. Freightways carries comprehensive insurance for events such as this. The
related deductible has been expensed as a corporate cost. Thanks to the strong service culture
within the TIMG business, the quick actions of its people and the support of key suppliers, the
service disruption to TIMG’s customers has been minimal. Again the support of customers
during this period is acknowledged and appreciated.

5


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. As volumes have
grown, the services provided by these businesses have adapted to ensure the provision of quality
sustainable capacity.

Freightways Information Services provides IT development and support to the express package &
business mail division. This team is responsible for providing the front line businesses with robust
and secure information management systems and supporting their technology-related strategic
objectives.

Corporate

Corporate costs have increased compared to the pcp, primarily due to expensing the insurance
deductibles related to earthquake insurance claims.

Net debt levels are unchanged from the pcp at $159 million. A finance facility has also been
established with a US-based lender on the same terms as those that are in place with Freightways’
existing banking syndicate.

Capital expenditure during the half year of $10 million, including the investment made in the new
Christchurch and Sydney premises, has been funded from operating cash flows.

OUTLOOK

Volumes and activity evidenced in this first half result support Freightways’ expectations of again
improving its overall year-on-year performance. The markets in which Freightways operates in both
New Zealand and Australia remain positive and the company is experiencing increasing demand for
the services it provides.

As had been stated in the prior annual result announcement and as is evident in this half year
announcement, results from the express package & business mail division will be partly offset by
the investment being made in increased capacity in the information management division to
accommodate current and future expected growth and poor performance of LitSupport in this half
year. Expectations are for improved performance from LitSupport in the second half of the financial
year.

The next six months will see the completion of the major projects that are underway to relocate the
businesses in Sydney and Christchurch, with the full benefits relating to these projects on target to
be realised in the 2018 financial year.

Capital expenditure for the full year is expected to be approximately $24 million. Overall cash
flows are expected to remain strong for the remainder of the 2017 financial year.

Strategic growth opportunities, including acquisitions and alliances that complement existing
capabilities, will be executed where they make commercial sense.

6


CONCLUSION

The strength of the 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.

The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team
of people throughout New Zealand and Australia.

Susan Sheldon Dean Bracewell
Chairman Managing Director

20 February 2017

7


FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2016 (unaudited)



6 mths
ended
31 Dec 2016
$000
6 mths
ended
31 Dec 2015
$000
Variance
%

Operating revenue 272,782 254,898 7%



Transport and logistics expenses (107,862) (97,104) 11%
Employee benefits expenses (75,157) (70,140) 7%
Occupancy expenses (12,082) (11,708) 3%
General and administrative expenses (25,920) (24,759) 5%
Non-recurring items 4,031 - -

Operating profit before interest, income tax,
depreciation and software amortisation and
amortisation of intangibles


55,792


51,187


9%
Depreciation and software amortisation (5,690) (6,188) (8%)
Operating profit before interest, income tax and
amortisation of intangibles
50,102 44,999 11%
Amortisation of intangibles (806) (963) (16%)
Operating profit before interest and income tax 49,296 44,036 12%
Net interest and finance costs (4,711) (5,741) (18%)
Profit before income tax 44,585 38,295 16%
Income tax (10,598) (10,547) -
Profit for the period attributable to shareholders 33,987 27,748 22%

8

FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 31 December 2016 (unaudited)

As at
31 Dec 2016
$000
As at
31 Dec 2015
$000
ASSETS
Current assets

Cash and cash equivalents 10,690 12,378
Trade and other receivables 77,483 73,062
Income tax receivable 222 -
Inventories 6,190 6,432
94,585 91,872
Assets held for sale 750 5,797
Total current assets 95,335 97,669

Non-current assets
Trade and other receivables 1,950 421
Property, plant and equipment 91,946 84,851
Intangible assets 312,493 309,091
Total non-current assets 406,389 394,363
Total assets 501,724 492,032

LIABILITIES
Current liabilities

Trade and other payables 64,460 57,954
Finance lease liabilities 70 9
Income tax payable 1,690 4,411
Provisions 1,101 1,563
Derivative financial instruments 871 72
Unearned income 16,044 16,308
Total current liabilities 84,236 80,317

Non-current liabilities

Trade and other payables 3,034 6,019
Borrowings (secured) 169,196 170,976
Deferred tax liability 5,239 7,182
Provisions 3,323 2,832
Derivative financial instruments 7,555 8,777
Total non-current liabilities 188,347 195,786
Total liabilities 272,583 276,103
NET ASSETS 229,141 215,929

EQUITY

Contributed equity 124,304 123,736
Retained earnings 117,345 103,531
Cash flow hedge reserve (6,097) (6,509)
Foreign currency translation reserve (6,411) (4,829)
TOTAL EQUITY 229,141 215,929

9


FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the half year ended 31 December 2016 (unaudited)

6 mths
ended
31 Dec 2016
$000
6 mths
ended
31 Dec 2015
$000

Inflows
(Outflows)
Inflows
(Outflows)
Cash flows from operating activities

Receipts from customers 264,165 258,554
Payments to suppliers and employees (214,918) (208,114)
Cash generated from operations 49,247 50,440
Interest received 43 63
Interest and other costs of finance paid (4,957) (5,168)
Income taxes paid (15,829) (13,048)
Net cash inflows from operating activities 28,504 32,287

Cash flows from investing activities
Payments for property, plant & equipment (8,098) (6,764)
Payments for software (1,865) (881)
Proceeds from disposal of property, plant & equipment 23 20
Payments for businesses acquired (net of cash acquired) (1,991) (5,805)
Payments to associate (1,667) -
Payments for other investing activities (231) (521)
Net cash outflows from investing activities (13,829) (13,951)

Cash flows from financing activities
Dividends paid (22,466) (19,345)
Increase (decrease) in bank borrowings 11,143 (645)
Proceeds from issue of ordinary shares 338 296
Finance lease liabilities repaid (38) (38)
Net cash outflows from financing activities (11,023) (19,732)

Net increase (decrease) in cash and cash equivalents
3,652 (1,396)
Cash and cash equivalents at the beginning of the period 7,065 13,946
Exchange rate adjustments (27) (172)
Cash and cash equivalents at the end of the period 10,690 12,378

10












* This EBITA graph represents the operating results of the company, exclusive of any non-recurring items.




Freightways Operating Revenue
Freightways EBITA*
1
st
half 2
nd
half

---

APPENDIX 7 – NZSX Listing Rules
Number of pages including this one
(Please provide any other relevant
NZSX Listing Rule 7.12.2. For rights, NZSX Listing Rules 7.10.9 and 7.10.10.details on additional pages)
For change to allotment, NZSX Listing Rule 7.12.1, a separate advice is required.
Full name
of Issuer
Name of officer authorised to
Authority for event,
make this notice
e.g. Directors' resolution
Contact phone
Contact fax
numbernumberDate
Nature of event
BonusIf ticked,Rights Issue
Tick as appropriateIssuestate whether:Taxable/ Non TaxableConversionInterestRenouncable
Rights IssueCapitalCallDividend
If ticked, stateFull
non-renouncable
change
x
whether:
Interim
x
YearSpecialDRP Applies
EXISTING securities affected by this
If more than one security is affected by the event, use a separate form.
Description of theISI
N
class of securities
If unknown, contact NZX
Details of securities issued pursuant to this eventIf more than one class of security is to be issued, use a separate form for each class.
Description of theISI
N
class of securities
If unknown, contact NZX
Number of Securities toMinimum
Ratio, e.g
be issued following eventEntitlemen
t
1 for 2 for
Conversion, Maturity, Call
Treatment of Fractions
Payable or Exercise Date
Tick i
f
provide an
pari passu
ORexplanation
Strike price per security for any issue in lieu or date
of the
Strike Price available.
ranking
Monies Associated with Event
Dividend payable, Call payable, Exercise price, Conversion price, Redemption price, Application money.
Source of
Amount per securityPayment
(does not include any excluded income)
Excluded income per security
(only applicable to listed PIEs)
SupplementaryAmount per security
Currencydividendin dollars and cents
details -
NZSX Listing Rule 7.12.7
Total monies
TaxationAmount per Security in Dollars and cents to six decimal places
In the case of a taxable bonusResident
Imputation Credits
issue state strike priceWithholding Tax(Give details)
Foreign
FDP Credits
Withholding Tax(Give details)
Timing
(Refer Appendix 8 in the NZSX Listing Rules)
Record Date 5pmApplication Date
For calculation of entitlements -
Also, Call Payable, Dividend /
Interest Payable, Exercise Date,
Conversion Date. In the case
of applications this must be the
last business day of the week.
Notice DateAllotment Date
Entitlement letters, call notices,For the issue of new securities.
conversion notices mailedMust be within 5 business days
of application closing date.
OFFICE USE ONLY
Ex Date:
Commence Quotin
g RightsSecurity Code:
Cease Quoting Rights 5pm:
Commence Quoting New SecuritiesSecurity Code:
Cease Quoting Old Security 5pm:
EMAIL: announce@nzx.com
Notice of event affecting securities
1
Freightways Limited
Mark RoyleDirectors' resolution
(09) 571 9670(09) 571 967120022017
Fully Paid Ordinary SharesNZFREE0001SO
In dollars and cents
Current earnings for the year ended 30 June 2017
$0.1300
Enter N/A if not
applicable
$$0.009028$0.050556
$
NZD$0.022941
$20,142,000
Date Payable
3 April, 2017
17 March, 20173 April, 2017