Half Year Results to 31 Dec 2017 and Interim Dividend

HALF YEAR RESULTS19 FEBRUARY 2018

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1
AGENDA
•
Highlights
•
Operating Performance
•
Interim Dividend
•
Business Strategy
•
Outlook
•
Conclusion

HIGHLIGHTS

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GENERAL HIGHLIGHTS
•
Volume and revenue growth achieved in the Express Package businesses and the related earnings that have more than offset the cost impact of significant recent investment in capacity
•
Overall revenue and earnings growth of the Information Management division compared to the PCP reflects improvement in each of the businesses after a year of investment in capacity and integration
•
Freightways’ further diversification through its entry into the Medical Waste industry

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FINANCIAL HIGHLIGHTS
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 the shareholders
Note
Dec-17
$M
Dec-16
$M
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
(before non-recurring items)
(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

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NON-RECURRING ITEMS
2016:
A non-recurring benefit before tax of $5.6m (no tax applicable)relating to previously accrued final acquisition payables that areno longer expected to be required. A non-recurring cost before taxof $1.6m ($1.1m after tax) relating to the relocation of the TIMGbusiness in Sydney.

1
OPERATING PERFORMANCE

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1
Operating Revenue
2
nd
Half
1
st
Half
 ‐
 
100
 
200
 
300
 
400
 
500
 
600
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$M
Year
 
Ended
 
30
 
June

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 ‐
 
10
 
20
 
30
 
40
 
50
 
60
 
70
 
80
 
90
 
100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
$M
Year
 
Ended
 
30
 
June
1
EBITA
2
nd
Half
1
st
Half
NB: This graph represents the operating prof
it before interest, tax and amortisation of
intangibles, exclusive of any non-recurring items

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* Excluding non-recurring items
29%
71%
EBITA*
1
Business Segments Operating Performance
EP&BMIM
(Half year ended 31 December 2017)
26%
74%
Revenue

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EXPRESS PACKAGE & BUSINESS MAIL
Dec-17
$M
Dec-16
$M
Change
Operating Revenue
216.7
202.5
7.0%
EBITDA
39.8
37.3
6.8%
EBITA
36.4
34.8
4.6%
EBITA Margin
16.8%
17.2%

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INFORMATION MANAGEMENT
Dec-17
$M
Dec-16*
$M
Change
Operating Revenue
76.3
71.1
7.3%
EBITDA
17.3
15.8
9.6%
EBITA
14.6
13.4
9.2%
EBITA Margin
19.1%
18.8%
* Excluding non-recurring items

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BALANCE SHEET – KEY POINTS
•
Total Assets have increased since FY17 by $28m, including $9m of intangible assets in respect of the small acquisition of a medical waste business in Australia. Higher trade and other receivables due to increased activity ($12m) also contributed to higher recorded assets.
•
Total Liabilities have increased since FY17 by $16m, due mostly to a combination of higher accounts payable ($8m) and higher borrowings ($9m).
•
No significant changes in issued capital during the half year.
•
Gearing ratio has remained consistent during the half year at approximately 40%.

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CASH FLOWS – KEY POINTS
•
Cash generated from operations of $54m was $5m above the PCP. Net cash inflows from operating activi
ties (i.e. after deducting interest
and tax payments) were $6m above the PCP at $35m, reflecting comparatively lower tax payments for the period (timing only).
•
Cash outflows from investing acti
vities were up $2m on the PCP,
driven mostly by $3m more in acquisition payments compared to the PCP.
•
The $6m increase in cash outflows fr
om financing activities compared
to the PCP reflects $6m less drawn against borrowings compared to the PCP.

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CAPITAL EXPENDITURE & DEPRECIATION
2018
Half Year
Actual
$M
2018
Full Year
Forecast
$M
Capital Expenditure
10
16
Depreciation
714

INTERIM DIVIDEND

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•
Interim dividend:
14.5 cps
•
Imputation credits:
5.6389 cps (at 28% tax rate)
•
Supplementary dividend:
2.5588 cps
•
Record date:
16 March 2018
•
Payment date:
3 April 2018
•
No DRP was offered in respect of this dividend
1
INTERIM DIVIDEND

1
BUSINESS STRATEGY

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Express Package & Business Mail•
Continued focus on growing B2B market share
•
Execute B2C strategies which are focussed on a better customer experience and greater efficiency to generate improved returns
Information Management•
Improve the utilisation of the Australian footprint
•
Explore complementary acquisition and alliance opportunities
•
Scale-up digital service offerings
Secure Destruction and Medical Waste•
Explore growth opportunities for Medical Waste
•
Explore complementary acquisition and alliance opportunities for both revenue streams
1
BUSINESS STRATEGY

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EXPRESS PACKAGE & BUSINESS MAIL

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B2C Strategy
B2C
Segmentation
and pricing
Data
analytics
Customer
experience
Delivery &
collection
options and
efficiencies
Integrated
front-end
software
Marketing
and
education

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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
Medical waste

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Project Specific
18
19
20
21
22
1
INFORMATION MANAGEMENT
Revenue streams:
FY
Physical Service - ExistingDigital – Emerging

1
OUTLOOK

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OUTLOOK
•
The markets in which Freigh
tways operates remain positive.
•
Freightways is again targeting year-
on-year earnings growth for the full
year.
•
Strategic growth opportunities, including
acquisitions and alliances, will be
executed where they make commercial sense.
•
As an employer in NZ of around
2,300 employees and a business partner
to 1,200 independent contractors, Frei
ghtways will continue to monitor
employment law reform.
•
Annual capital expenditure tota
lling approximately $16 million will be
invested to support growth initiative
s. Cash flows are expected to remain
strong throughout the balance of 2018.

CONCLUSION

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CONCLUSION
•
Evident in this result are the:
-
strength of Freightways’ business models
-
expertise of its team of people
-
positive features of the markets it operates in
-
opportunities in all of its business lines
•
The Board of Directors has acknowledged the outstanding work andongoing dedication of the Freightways team of people

HALF YEAR RESULTS19 FEBRUARY 2018

---

1






FREIGHTWAYS LIMITED
Results for announcement to the market
Reporting Period 6 months to 31 December 2017
Previous Reporting Period 6 months to 31 December 2016

Amount (000s) Percentage change
Revenue from ordinary
activities
$292,133 7%
Profit (loss) from ordinary
activities after tax
attributable to shareholders
$31,409 (8%)
Net profit (loss) attributable
to shareholders
$31,409 (8%)

Interim Dividend Gross amount per share Imputed amount per share

20.1389 cents 5.6389 cents

Record Date 16 March 2018
Dividend Payment Date 3 April 2018

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 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:
 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;
 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
 Freightways’ further diversification through its entry into the Medical Waste industry.
Operating performance

The below table 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:




Note
Dec-17
$M
Dec-16
$M
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, before non-recurring items 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.

3

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:

 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.
 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.
 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.
 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.
 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.

4
 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:

 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.
 The new consolidated Sydney site is providing important quality capacity to accommodate
current and expected volume growth.
 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.
 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.

5



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.

Susan Sheldon Mark Troughear
Chairman Chief Executive Officer

19 February 2018

6

FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2017 (unaudited)




6 mths
ended

31 Dec 2017
$000
6 mths
ended

31 Dec 2016
$000
Variance
%


Operating revenue 292,133 272,782 7%
Other income 2,913 - -



Transport and logistics expenses (115,158) (107,862) 7%
Employee benefits expenses (79,233) (75,157) 5%
Occupancy expenses (13,124) (12,082) 9%
General and administrative expenses (28,490) (25,920) 10%
Other expenses (2,913) - -
Non-recurring items - 4,031 -

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



56,128


55,792



1%
Depreciation and software amortisation (6,895) (5,690) 21%
Operating profit before interest, income tax and
amortisation of intangibles

49,233 50,102 (2%)
Amortisation of intangibles (979) (806) 21%
Operating profit before interest and income tax 48,254 49,296 (2%)
Net interest and finance costs (5,127) (4,711) 9%
Profit before income tax 43,127 44,585 (3%)
Income tax (11,718) (10,598) 11%
Profit for the period attributable to shareholders 31,409 33,987 (8%)

7

FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2017 (unaudited)


6 mths ended
31 Dec 2017
$000
6 mths ended
31 Dec 2016

$000


Profit for the period 31,409 33,987


Other comprehensive income

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of foreign operations
2,274
(1,008)
Cash flow hedges taken directly to equity, net of tax
1,006
3,320
Total other comprehensive income after income tax3,280
2,312

Total comprehensive income for the period attributable to the
shareholders

34,689 36,299








FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year ended 31 December 2017 (unaudited)


6 mths ended
31 Dec 2017
$000
6 mths ended
31 Dec 2016

$000

Equity at the beginning of the period 236,568 214,856

Profit for the period
31,409 33,987
Exchange differences on translation of foreign operations
2,274
(1,008)
Cash flow hedges taken directly to equity, net of tax
1,006
3,320
Total comprehensive income for the period34,689
36,299

Dividends paid (22,880) (22,466)
Issue of ordinary shares, net of costs
680 452

Equity at the end of the period 249,057 229,141

8

FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 31 December 2017 (unaudited)


As at
31 Dec 2017

$000
As at

31 Dec 2016
$000
As at
30 Jun 2017

$000

(Restated)
ASSETS


Current assets

Cash and cash equivalents 10,45010,690 8,423
Trade and other receivables89,23477,483
77,184
Inventories 4,848 6,190 5,190
Income tax receivable
657222 705

105,18994,585 91,502
Assets held for sale -750
-
Total current assets 105,18995,335 91,502


Non-current assets


Trade receivables and other non-current assets2,1581,950 2,914
Property, plant and equipment
103,00291,946 101,934
Intangible assets
357,817342,504 343,543
Total non-current assets
462,977436,400 448,391
Total assets 568,166531,735 539,893


LIABILITIES


Current liabilities

Trade and other payables 71,87864,460 65,722
Finance lease liabilities
11870 147
Income tax payable
1,7911,690 3,350
Provisions
7951,101 1,008
Derivative financial instruments
1,343871 2,054
Unearned income
15,63316,044 15,446
Total current liabilities
91,55884,236 87,727


Non-current liabilities

Trade and other payables 4,8873,034 2,867
Borrowings (secured)
175,778169,196 166,241
Deferred tax liability
36,16835,250 35,606
Provisions
4,2683,323 3,691
Finance lease liabilities
142- 204
Derivative financial instruments
6,3087,555 6,989
Total non-current liabilities
227,551218,358 215,598
Total liabilities 319,109302,594 303,325
NET ASSETS 249,057229,141 236,568


EQUITY

Contributed equity 125,110124,304 124,430
Retained earnings
132,601117,345 124,072
Cash flow hedge reserve
(5,484) (6,097) (6,490)
Foreign currency translation reserve
(3,170)(6,411) (5,444)
TOTAL EQUITY
249,057229,141 236,568

Net tangible assets (liabilities) per security ($0.61) ($0.66) ($0.61)

9


FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the half year ended 31 December 2017 (unaudited)


6 mths
ended

31 Dec 2017
$000
6 mths
ended

31 Dec 2016
$000


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


Receipts from customers 284,333 264,165
Payments to suppliers and employees (230,720) (214,918)
Cash generated from operations 53,613 49,247
Interest received 41 43
Interest and other costs of finance paid (5,002) (4,957)
Income taxes paid (13,831) (15,829)
Net cash inflows from operating activities 34,821 28,504

Cash flows from investing activities

Payments for property, plant & equipment (7,402) (8,098)
Payments for software (2,953) (1,865)
Proceeds from disposal of property, plant & equipment 33 23
Payments for businesses acquired (net of cash acquired) (5,374) (1,991)
Payments to associate - (1,667)
Payments for other investing activities
(203) (231)
Net cash outflows from investing activities (15,899) (13,829)

Cash flows from financing activities

Dividends paid (22,880) (22,466)
Increase in bank borrowings 5,594 11,143
Proceeds from issue of ordinary shares 330 338
Finance lease liabilities repaid (93) (38)
Net cash outflows from financing activities (17,049) (11,023)

Net increase in cash and cash equivalents
1,873 3,652
Cash and cash equivalents at the beginning of the period 8,423 7,065
Exchange rate adjustments
154
(27)
Cash and cash equivalents at the end of the period 10,450 10,690

10


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 20.3 21.9
Diluted EPS 20.3 21.9



Dividends Paid


Date Paid Cents per share (fully
imputed)
Final Dividend for the year ending 30 June
2017
2 October 2017 14.75

14.75



Post Balance Date Events

Dividend declared

On 19 February 2018, the Directors declared a fully imputed interim dividend of 14.5 cents per share
(approximately $22.5 million) in respect of the year ended 30 June 2018. The dividend will be paid on 3
April 2018. The record date for determination of entitlements to the dividend is 16 March 2018. A
supplementary dividend of 2.56 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.

11
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 Chief Executive Officer, 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 3% 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 2017




Sales to external customers 215,815 76,318 - - 292,133
Inter-segment sales 864 - 2,281 (3,145) -
Total revenue 216,679 76,318 2,281 (3,145) 292,133

Operating profit (loss) before
interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles 39,776 17,345 (993) - 56,128
Depreciation and software
amortisation (3,380) (2,749) (766) - (6,895)
Operating profit (loss) before
interest, income tax and
amortisation of intangibles 36,396 14,596 (1,759) - 49,233
Amortisation of intangibles,
excluding software amortisation (25) (954) - - (979)
Operating profit (loss) before
interest and income tax 36,371 13,642 (1,759) - 48,254
Net interest and finance costs (12) (240) (4,875) - (5,127)
Profit (loss) before income tax 36,359 13,402 (6,634) - 43,127
Income tax (10,072) (3,997) 2,351 - (11,718)
Profit (loss) for the period
attributable to the shareholders 26,287 9,405 (4,283) - 31,409

12

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 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


Business Combinations

Effective 1 September 2017, the Group acquired the business and assets of State Waste Services (SWS), an
Australian-based medical waste collection and destruction business, for an initial payment of approximately
$6.5 million (A$5.9 million) and a future maximum earn-out of up to $4.5 million (A$4.1 million). SWS has
been branded as Med-X and integrated into the Group’s information management division.

The contribution of Med-X to the Group results for the half year ended 31 December 2017 was revenue of
$1.1 million and operating profit before interest, income tax and amortisation of intangibles of $0.3 million.

If this acquisition had occurred at the beginning of the period, the contribution to revenue and operating
profit before interest, income tax and amortisation of intangibles for the period is estimated at $1.8 million
and $0.5 million, respectively.

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

Purchase consideration
$000
Initial acquisition payments 6,481
Less Cash consideration payable as at the end of the period (1,107)
Cash consideration paid during the period
5,374
Cash consideration payable as at the end of the period 1,107
Fair value of future earn-out payment 1,603
Total purchase consideration8,084

Fair value of assets and liabilities arising from the acquisition

Plant and equipment 659
Customer relationships
1,793
Goodwill
6,273
Provisions
(136)
Deferred tax liability
(497)
Exchange rate movement (8)

8,084

The cash consideration payable at the end of the period of up to a maximum amount of $1.1 million may be
payable in September 2018, but is contingent upon certain financial performance hurdles being achieved for
the year ended 30 June 2018.

The estimated discounted future earn-out payment of $1.6 million may be payable in September 2021, but is
contingent upon certain financial performance hurdles being achieved for the years ended 30 June 2019,
2020 and 2021. 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 $4.5 million. The Group has
forecast several scenarios and probability-weighted each to determine a fair value for this contingent
payment arrangement.

The goodwill of $6.3 million arising upon this acquisition is attributable to the intellectual property obtained
and
the premium paid for strategic reasons, including acquiring an entry point into the medical
waste industry. 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.

14


Prior period acquisition - LexData

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.

An estimated discounted future earn-out payment of $1.6 million may be payable in September 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.

---

FREIGHTWAYS LIMITED













Half Year Report
December 2017

2

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:
 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;
 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
 Freightways’ further diversification through its entry into the Medical Waste industry.
Operating performance

The below table 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:




Note
Dec-17
$M
Dec-16
$M
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, before non-recurring items 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.

3


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:

 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.
 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.
 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.
 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.
 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.

4

 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:

 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.
 The new consolidated Sydney site is providing important quality capacity to accommodate
current and expected volume growth.
 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.
 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.

5




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.

Susan Sheldon Mark Troughear
Chairman Chief Executive Officer

19 February 2018

6


FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2017 (unaudited)



6 mths
ended

31 Dec 2017
$000
6 mths
ended

31 Dec 2016
$000
Variance
%


Operating revenue 292,133 272,782 7%
Other income 2,913 - -



Transport and logistics expenses (115,158) (107,862) 7%
Employee benefits expenses (79,233) (75,157) 5%
Occupancy expenses (13,124) (12,082) 9%
General and administrative expenses (28,490) (25,920) 10%
Other expenses (2,913) - -
Non-recurring items - 4,031 -

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



56,128


55,792



1%
Depreciation and software amortisation (6,895) (5,690) 21%
Operating profit before interest, income tax and
amortisation of intangibles

49,233 50,102 (2%)
Amortisation of intangibles (979) (806) 21%
Operating profit before interest and income tax 48,254 49,296 (2%)
Net interest and finance costs (5,127) (4,711) 9%
Profit before income tax 43,127 44,585 (3%)
Income tax (11,718) (10,598) 11%
Profit for the period attributable to shareholders 31,409 33,987 (8%)

7

FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 31 December 2017 (unaudited)


As at
31 Dec 2017
$000
As at
31 Dec 2016

$000

(Restated)
ASSETS


Current assets

Cash and cash equivalents10,450 10,690
Trade and other receivables89,234
77,483
Inventories 4,848 6,190
Income tax receivable
657 222

105,189 94,585
Assets held for sale - 750
Total current assets
105,189 95,335

Non-current assets

Trade receivables and other non-current assets2,158 1,950
Property, plant and equipment
103,002 91,946
Intangible assets
357,817 342,504
Total non-current assets462,977
436,400
Total assets 568,166 531,735

LIABILITIES

Current liabilities

Trade and other payables 71,878 64,460
Finance lease liabilities
118 70
Income tax payable
1,791 1,690
Provisions
795 1,101
Derivative financial instruments
1,343 871
Unearned income
15,633 16,044
Total current liabilities
91,558 84,236

Non-current liabilities

Trade and other payables 4,887 3,034
Borrowings (secured)
175,778 169,196
Deferred tax liability
36,168 35,250
Provisions
4,268 3,323
Finance lease liabilities
142 -
Derivative financial instruments
6,308 7,555
Total non-current liabilities
227,551 218,358
Total liabilities 319,109 302,594
NET ASSETS 249,057 229,141

EQUITY

Contributed equity 125,110 124,304
Retained earnings
132,601 117,345
Cash flow hedge reserve
(5,484) (6,097)
Foreign currency translation reserve
(3,170) (6,411)
TOTAL EQUITY
249,057 229,141

8


FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the half year ended 31 December 2017 (unaudited)


6 mths
ended

31 Dec 2017
$000
6 mths
ended

31 Dec 2016
$000


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


Receipts from customers 284,333 264,165
Payments to suppliers and employees (230,720) (214,918)
Cash generated from operations 53,613 49,247
Interest received 41 43
Interest and other costs of finance paid (5,002) (4,957)
Income taxes paid (13,831) (15,829)
Net cash inflows from operating activities 34,821 28,504

Cash flows from investing activities

Payments for property, plant & equipment (7,402) (8,098)
Payments for software (2,953) (1,865)
Proceeds from disposal of property, plant & equipment 33 23
Payments for businesses acquired (net of cash acquired) (5,374) (1,991)
Payments to associate - (1,667)
Payments for other investing activities
(203) (231)
Net cash outflows from investing activities (15,899) (13,829)

Cash flows from financing activities

Dividends paid (22,880) (22,466)
Increase in bank borrowings 5,594 11,143
Proceeds from issue of ordinary shares 330 338
Finance lease liabilities repaid (93) (38)
Net cash outflows from financing activities (17,049) (11,023)

Net increase in cash and cash equivalents
1,873 3,652
Cash and cash equivalents at the beginning of the period 8,423 7,065
Exchange rate adjustments
154
(27)
Cash and cash equivalents at the end of the period 10,450 10,690

9












* 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.
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make this notice
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numbernumber
Date
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BonusIf ticked,
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Tick as appropriate
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state whether:Taxable
/ Non TaxableConversionInterestRenouncable
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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 theISIN
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 theISIN
class of securities
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be issued following eventEntitlement
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Treatment of Fractions
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provide an
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ORexplanation
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of the
Strike Price available.
ranking
Monies Associated with Event
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Payment
(does not include any excluded income)
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(only applicable to listed PIEs)
Supplementary
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Currencydividendin dollars and cents
details -
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issue state strike priceWithholding Tax(Give details)
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Record Date 5pmApplication Date
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of applications this must be the
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Ex Date:
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EMAIL: announce@nzx.com
Notice of event affecting securities
1
Freightways Limited
Mark RoyleDirectors' resolution
(09) 571 9670(09) 571 967119022018
Fully Paid Ordinary SharesNZFREE0001SO
In dollars and cents
Current earnings for the year ended 30 June 2018
$0.1450
Enter N/A if not
applicable
$$0.010069$0.056389
$
NZD$0.025588
$22,492,000
Date Payable
3 April, 2018
16 March, 20183 April, 2018