Full Year Results to 30 June 2018 and Final Dividend

FULL
YEAR
RESULTS
13 AUGUST 2018

AGENDA
•Highlights
•OperatingPerformance
•FinalDividend
•BusinessStrategy
•Outlook
•Conclusion

HIGHLIGHTS

GENERAL HIGHLIGHTS
•Year on year revenue, earnings and dividend growth
•Investment in capacity for the air network and critical Auckland
and Christchurch facilities
•The move to Agile IT deployment
•The successful completion of a major data transformation
project
•A successful first year in the Medical Waste industry
•Sustained strong cash generation leading to reduced gearing
levels

FINANCIAL HIGHLIGHTS
Note
Jun-18
$M
Jun-17
$M
Increase
%
Revenue
580.9545.36.5
EBITA (before non-recurring items)
(i)93.789.34.9
Non-recurringitems
2.63.7
E B I TA
(ii)96.393.03.5
N PAT (before non-recurring items)
(iii)59.656.65.3
Non-recurring items after tax
2.64.3
N PAT
(iv)62.260.92.1
Basic EPS (cents)
(before non-recurring items)
38.436.5
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 year attributable to the shareholders

NON-RECURRING ITEMS
2018:Non-recurringbenefitsbeforetaxof$2.6min total(notax
applicable)inrespectofreversing$1.6mofa previously
accruedfinalacquisitionpayablethatisnolonger
expectedtoberequiredanda $1mgainuponrecording
thereplacementofearthquake-relateddamagedracking
fundedbyinsuranceproceeds. Thegainontheracking
replacementarisesfromtheinsuranceproceedsfornew
racking($ 3m)exceedingthe$2mwrite-offofthewritten
downbookvalueofthestructurally-compromisedracking
2017:A net$3.7mnon-recurringbenefitbeforetax($ 4.3mafter
tax)comprisedofa$5.6mbenefit(notaxapplicable)
relatingtopreviouslyaccruedfinalacquisitionpayables
thatarenolongerexpectedtoberequiredandanon-
recurringcostbeforetaxof$1.9m($ 1.3maftertax)
relatingto therelocationoftheTIMGbusinessin Sydney

OPERATING
PERFORMANCE

OPERATING REVENUE
-
100
200
300
400
500
600
700
200420052006200720082009201020112012201320142015201620172018
$M
Year Ended 30 June 2018
1H
2H

EBITA
1H
2H
-
10
20
30
40
50
60
70
80
90
100
200420052006200720082009201020112012201320142015201620172018
$M
Year Ended 30 June 2018
NOTES
This graph represents the operating profit before interest, tax and amortisation of intangibles, exclusive of any non-recurring items

DIVISIONAL OPERATING PERFORMANCE
EP & BM
IM
NOTES
* Excluding non-recurring items
30%
70%
EBITA*
26%
74%
Revenue
(Year ended 30 June 2018)

EXPRESS PACKAGE & BUSINESS MAIL
Jun-18
$M
Jun-17
$M
Change
Operating Revenue428.8402.66.5%
EBITDA74.870.46.4%
E B I TA67.965.34.0%
EBITA Margin15.8%16.2%

INFORMATION MANAGEMENT
Jun-18*
$M
Jun-17*
$M
Change
Operating Revenue153.8144.26.6%
EBITDA35.432.78.1%
E B I TA29.827.77.8%
EBITA Margin19.4%19.2%
NOTES
* Excluding non-recurring items

BALANCE SHEET -KEY POINTS
•Total Assets have increased sinceFY17 by $21m, including
$11m of intangible assets in respect of the acquisitions of three
small businesses in Australia. Higher trade and other
receivables due to increased activity ($5m) also contributed to
higher recorded assets
•Total Liabilities have decreased slightly sinceFY17 by $1m
•No significant changes in issued capital during the year
•Gearing ratio has decreased below 40%

CASH FLOW - KEY POINTS
•Cash generated from operations of $105m was $5m above the
PCP. Net cash inflowsfrom operating activities (i.e. after
deducting interest and tax payments) were $10m above the
PCP at $76m, reflecting comparatively lower tax payments for
the period (partly timing and also a tax refund for overpaid
provisional tax in FY17)
•Cash outflows from investing activities were down $4m on the
PCP, mainly due to $7m less capital expenditure, partially offset
by $5m more in acquisition payments compared to the PCP
•The $17m increase in cash outflows from financing activities
compared to the PCP reflects repayment of $8m of debt this
year compared to a $7m increase in borrowings in the PCP

CAPITAL EXPENDITURE & DEPRECIATION
2018
Full Year
Actual
$M
2019
Full Year
Forecast
$M
Capital Expenditure1720 - 22
Depreciation1416

FINAL
DIVIDEND

FINAL DIVIDEND
•Finaldividend:15.25cps
•Imputationcredits:5.9306cps(at28%taxrate)
•Supplementarydividend:2.6912cps
•Recorddate:14September2018
•Paymentdate:2 October2018
•NoDRPwasofferedin respectofthisdividend

BUSINESS
STRATEGY

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

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

DATA ANALYTICS
•90+% of NZ geo-mapped
•Data quality adequate for:
–Analysis of customer margin
–Identification of residential
courier runs
–Defining service standards
•Requires refinement for automated
charging: Targeting 2019
•Intend to administer courier pay
through definition of areas: 2019

DATA ANALYTICS

CUSTOMER EXPERIENCE
•New scanner software and
equipment - pilot underway
•Provides:
•Improved visibility
•Productivity tools (Authority
to leave options)
•Two-way communication
•Reduces costs to contractors
•Full roll out by end of June 2019

DELIVERY EFFICIENCY
•Run intensification - single courier delivery of multi brand
residential items
•Create smaller / denser areas for couriers
•Increased productivity target ~10%
•Use of Artificial Intelligence for route optimisation
•250 pure residential areas under review
•30 runs restructured at 1 July

SEGMENTATION & PRICING
•Differentiate pricing for
Business / Residential / Non
Urban areas across NZ
•Provide address checker tools
for customers
•Assess margins across B2C
customers
•Implement new B2C pricing
immediately for new business
and phase in for existing
customers

ManageTransformDestroy
Archive SecurityImaging & document captureSecure destruction
DataBank & Data SecurityAutomated accounts payableeDestruction
FileSaverWorkflow SolutionsProduct destruction
Secure Distribution ServicesDigital mailroomPaper recycling
LitSupport – Bureau Services LitSupport - eDiscoveryMedical waste
INFORMATION MANAGEMENT

FACILITY UTILISATION
•Only incremental footprint to
be added in 2019
•Target utilisation 70% in AU,
85% in NZ
•Mix of organic, market share
gains and conversion from
self-service customers
•Continue to assess bolt-on
acquisitions in AU

DIGITAL SERVICES
•2018 completed major data
transformation project for
Statistics NZ
•Strengthened our reputation
in digital with Government /
corporates
•Investment in sales and
marketing resource
•Assess Digital acquisitions /
partnering opportunities

SECURE DESTRUCTION
•Expansion of WA business
through the acquisition of SSS,
–Larger facility
–Access to Government
contracts
•Medical Waste:
–SWS rebranded as Med-X
–Acquired Medico (VIC) in
June 2018
–Established small QLD
start-up
•Continue to explore
complementary opportunities

OUTLOOK

OUTLOOK
•The markets in which Freightways operates remain positive
albeit we are cautious about declining business confidence
•Freightways is again targeting year-on-year earnings growth in
2019
•Strategic growth opportunities, including acquisitions and
alliances, will be executed where they make commercial sense
•As an employer in NZ of around 2,900 employees and a
business partner to 1,100 independent contractors,
Freightways will continue to closely monitor employment law
reform
•Annual capital expenditure of $20-22m will be invested to
support growth initiatives. Cash flows are expected to remain
strong throughout 2019

CONCLUSION

CONCLUSION
•Freightways has, and will continue to, invest in the future of its
businesses
•There are opportunities in all lines of business to continue to
grow and evolve services to meet customer demand
•Freightways remains entrepreneurial and resilient in the face of
external factors
•Each brand will compete strongly in their respective niche while
collaborating on infrastructure and capability
•TheBoardofDirectorshasacknowledgedtheoutstandingwork
andongoingdedicationoftheFreightwaysteamof people

FULL
YEAR
RESULTS
13 AUGUST 2018

---

FREIGHTWAYS LIMITED













Full Year Report
June 2018

1






FREIGHTWAYS LIMITED
Results for announcement to the market
Reporting Period 12 months to 30 June 2018
Previous Reporting Period 12 months to 30 June 2018

Amount (000s) Percentage change
Revenue from ordinary
activities
$580,886 7%
Profit (loss) from ordinary
activities after tax
attributable to shareholders
$62,161 2%
Net profit (loss) attributable
to shareholders
$62,161 2%

Final Dividend Gross amount per share Imputed amount per share

21.1806 cents 5.9306 cents

Record Date 14 September 2018
Dividend Payment Date 2 October 2018

Audit The abridged financial statements attached to this report have
been audited and are not subject to a qualification. A copy of
the audit report applicable to the full financial statements is
attached to this announcement.

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

2


FULL YEAR REVIEW
From the Chairman and Chief Executive Officer

The Directors are pleased to present the consolidated financial results of Freightways Limited
(Freightways) for the year ended 30 June 2018. This report discusses the results, reviews the
operations of each division and provides an outlook for the year ahead.

Highlights of the year include:
 Overall year-on-year revenue, earnings and dividend growth
 In the express package & business mail (EP&BM) division:
- Attaining essential network capacity to support future growth objectives, and
- Transitioning to Agile IT deployment, driving progress towards achieving greater speed
of execution on our IT business priorities.
 In the information management (IM) division:
- A major data collection/transformation contract win, supporting the growth of the
division’s suite of digital IM services, and
- A successful first year in the Medical Waste industry, supporting the objective to further
diversify the Secure Destruction business.
 Sustained strong cash generation from both divisions, leading to reduced gearing levels.

Operating performance
The below table presents the reported 2018 result compared to the pcp, both before and after the
inclusion of non-recurring items that were reported in the pcp:




Note
Jun-18
$M
Jun-17
$M
Increase
%
Revenue
580.9 545.3 6.5%

EBITA, before non-recurring items i. 93.7 89.3 4.9%
Non-recurrin
g items 2.6 3.7
EBITA ii. 96.3 93.0 3.5%

NPAT, before non-recurring items iii. 59.6 56.6 5.3%
Non-recurrin
g items after tax 2.6 4.3
NPAT iv 62.2 60.9 2.1%

B
asic EPS (cents), before non-recurring items 38.4 36.5

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 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 underlying
trading performance:

3


 2018: Non-recurring benefits before tax totalling $2.6 million (no tax applicable) in respect of
reversing $1.6 million of a previously accrued final acquisition payable that is no longer
expected to be required and a $1 million gain upon recording the replacement of earthquake-
related damaged racking funded by insurance proceeds. The gain on the racking replacement
arises from the insurance proceeds for new racking ($3 million) exceeding the $2 million
written down book value of the structurally-compromised racking written-off.

 2017: A non-recurring benefit before tax of $5.6 million (no tax applicable) relating to
previously accrued final acquisition payables that are no longer expected to be required. A
non-recurring cost before tax of $1.9 million ($1.3 million after tax) relating to the relocation
of the TIMG business in Sydney.

Dividend
The Directors have declared a final dividend of 15.25 cents per share, fully imputed at a tax rate of
28%, being a 3% increase above the pcp final dividend of 14.75 cents per share. This represents a
payout of approximately $23.7 million compared with $22.9 million for the pcp. The dividend will
be paid on 2 October 2018. The record date for determination of entitlements to the dividend is 14
September 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 year ended 30 June 2018 are provided below for the EP&BM division
and the IM division.

Express Package & Business Mail Division

2018 Result
The EP&BM 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.

Operating revenue of $428.8 million was 6.5% higher than the pcp. EBITA of $67.9 million was
4.0% higher than the pcp.

This result is a sound outcome, particularly given increased costs relating to investment in
network capacity to accommodate current, and expected future, increases in volumes. This
investment has included the use of a chartered Convair aircraft to supplement the jet fleet and
moving into larger depots in Christchurch and Auckland’s North Harbour. Additionally, the
transformation of Freightways’ dedicated IT business to agile work practices and the recruitment
of a number of new team members has enabled the progression of many key IT projects. Overall
labour costs also stepped-up throughout the year, an inevitable outcome of operating in a tight
labour market. Volume growth, and consequently revenue and earnings, were slightly stronger in
the first half of the year than the second half.

4


Freightways’ smaller postal business, DX Mail, had a challenging second half and overall returned
lower earnings than the prior year. Despite overall growth in mail volumes, higher margin mail
declined and was offset by lower margin bulk mail.

The EP&BM division delivered a sound full year result, while increasing important network
capacity and strengthening its service capability.

Key Strategies in 2019
Residential Network Review: A review of the residential fleets of contractors across all brands
commenced in the latter months of the financial year to improve the productivity and earning
capacity of these courier runs. The overall mix of business continues to see faster growth in
Business to Consumer (B2C) than Business to Business (B2B) volume. This strategy for
residential deliveries will see an increased number of items delivered per courier through greater
consolidation of volume from all brands channelled into single-area runs, improving the density of
deliveries into smaller concentrated geographic areas. It is expected this will have a positive
impact on a number of Freightways’ environmental, social & governance (ESG) initiatives,
including, ongoing strategies to improve courier earnings & service levels, as well as reducing
carbon emissions.

Pricing for Effort: A strategy to appropriately price B2C services to ensure both the company
and its contractors are motivated to facilitate profitable e-commerce revenue growth is being
actively pursued. It is expected e-commerce will continue to drive increased volumes to
Freightways year on year and the group is committed to ensuring this growth is both profitable
and sustainable and that the B2C services provided meet customers’ expectations. Similarly, the
DX Mail business will raise its prices for the first time in two years to reflect the increasing cost of
mail delivery.

Visibility and Data Analytics: New scanning technology for the EP businesses will be
implemented over the coming financial year to enable improved visibility for customers and their
receivers. This will complement improved reporting capabilities which will allow the EP teams to
better analyse every aspect of their operations so as to help deliver improved efficiency, profit
margins and service standards.

Information Management Division

2018 Result
This division operates under the brands of The Information Management Group (TIMG), Shred-X
and, following the recent acquisition of a business in the Medical Waste industry, Med-X.

Operating revenue of $153.8 million was 6.6% higher than the pcp. EBITA of $29.8 million was
7.8% higher than the pcp.

Compared to the pcp, improved financial results were achieved by all businesses within this
division. Utilisation of IM facilities across New Zealand and Australia improved as storage
volumes increased. Secure Destruction revenues increased across the suite of paper sold, as well
as revenue for eDestruction and Medical Waste services. In recent years, a range of digital IM
services has been developed and introduced to the market. Growth in these digital services, while
at an early stage, has been positive and was boosted by the winning of a major data collection and
transformation project in New Zealand.

5

Good progress is being made 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 $2.0 million write-off of the written down book value of the
structurally-compromised racking in the division’s result and its progressive replacement with
new racking since have been funded by insurance proceeds received during the year, resulting in a
non-recurring accounting gain of $1 million in this year’s result. Importantly, this project is
tracking to timetable and is being managed in a way that ensures no service disruption to
customers.

Australian IM earnings were at the same level as the New Zealand’s earnings for 2018. Given the
larger scale of the Australian market, and the broader range of opportunities, including in the
Medical Waste industry, it is expected that Australia will surpass New Zealand’s earnings going
forward.

Key Strategies in 2019:
Facility Utilisation: The footprint for facilities across Australasia will require only incremental
additional storage space in the short term. In particular, the current focus is to add profitable new
business into existing facilities to take advantage of the investment made in recent years in
Australia.

Digital Services Growth: TIMG is well-positioned with a range of digital services which is
proving to be attractive to its customer base. In the coming year, TIMG will invest in additional
sales & marketing resource to increase revenue growth in these service lines. TIMG will also
continue to assess new digitally-delivered services which are considered complementary to the
existing portfolio of services.

Secure Destruction and Medical Waste: It is planned to continue the investment and
management focus on revenue streams in related markets that complement the physical footprint
established by Shred-X in the Secure Destruction market. These markets present an opportunity to
apply Shred-X’s consistent and high quality national service standards and sales methodologies to
grow through a number of niches, including; eDestruction, Medical Waste, Product Destruction
and other high value recycling.

Acquisitions and Alliances: Freightways will continue to explore and investigate acquisition and
alliance opportunities for both current and future complementary service offerings.

Freightways is pleased to announce the recent acquisition of a number of small businesses in
Australia that operate in the IM and Medical Waste industries. Two businesses were acquired
shortly before year-end and two will be effective from early in the new financial year. These
businesses were acquired for a total of $9.8 million. EBITDA of $1.7 million per annum is
expected to be realised after the businesses have been fully integrated. Related capital expenditure
will be approximately $0.6 million. These acquisitions will be immediately EPS positive.

The LexData scanning business acquired in 2016 involves a potential maximum earn-out of $3.6
million, dependent on certain financial performance hurdles being achieved for the three years
ended 30 June 2019. Latest forecasts indicated the estimated earn-out payable recorded in the
balance sheet was in excess of that likely to be required and has been reduced by $1.5 million,
resulting in a non-recurring earnings benefit in Freightways’ 2018 consolidated result.

6

Corporate
Corporate costs increased by $0.4 million compared to the pcp, primarily due to of one-off costs
associated with transitioning leadership and appointing a new non-executive Director.

Net debt decreased by approximately $4 million to $154 million during the year, driven by strong
cash flows from operations, offsetting investment in operating capacity and a number of small
acquisitions. Debt to debt & equity gearing levels have decreased below 40%.

OUTLOOK

The markets in which Freightways operates in both New Zealand and Australia remain positive,
albeit the company is cautious, noting, as recently reported, an apparent decline in business
confidence in New Zealand. Organic and acquisition growth opportunities exist in both New
Zealand and Australia. Subject to factors beyond its control, Freightways is once again targeting
year-on-year earnings growth in the 2019 year.

Within the EP&BM division, current indications are that organic volume growth will be slightly
lower in 2019 than it was in 2018. Network capacity costs are not expected to step-up at the same
level as in the pcp, with investment in capacity and capability expected to be more incremental.
Strategies to better align service with customer expectations will continue to be implemented,
particularly in the faster-growing B2C market. The inflationary cost of operating in a tight labour
market, along with a generally higher cost of doing business, is expected to be offset by increased
pricing, including pricing related to higher fuel costs. Freightways will continue to monitor
employment law reform.

Within the IM division, increased utilisation of existing capacity will be a key focus. Encouraging
progress has been made with digital IM services and Freightways will continue to invest in its
digital capability. The group’s recent entry into the Medical Waste industry has tracked to
expectations and Freightways’ presence in this market will be extended through a small, recently-
acquired Victorian business.

Overall capital expenditure for the 2019 financial year is expected to be in the range of $20-22
million. Operating cash flows are expected to remain strong throughout 2019.

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

CONCLUSION

Freightways has continued to invest in the future of its businesses, while returning a sound result
for 2018. There are opportunities for all of the group’s businesses to continue to grow and evolve
their service offerings to meet customers’ demands. Freightways’ agility and entrepreneurial
outlook should see it continue to adapt to changing markets and conditions and continue to be
resilient in the face of external factors. The strength of Freightways’ brands allows them to
compete strongly in their respective niches and collaborate behind the scenes to share common
infrastructure and capability. Freightways is committed to improving the long-term sustainability
of its business for the benefit of its teams of people, its customers, its shareholders and the
environments in which it operates.

7


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



Susan Sheldon CNZM Mark Troughear
Chairman Chief Executive Officer

13 August 2018

8

FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2018


2018
$000
2017
$000
Percentage
Variance
Operating revenue 580,886 545,262 7%
Other income 2,572 2,119 21%
Transport and logistics expenses (229,812) (215,883) 6%
Employee benefits expenses (159,161) (149,896) 6%
Occupancy expenses (26,385) (24,768) 7%
General and administration expenses (57,798) (53,718) 8%
Other expenses (2,572) (2,119) 21%
Non-recurring items 2,556 3,686 (31%)
Operating profit before interest, income tax,
depreciation and software amortisation and
amortisation of intangibles
110,286 104,683 5%
Depreciation and software amortisation (14,000) (11,652) 20%
Operating profit before interest, income tax and
amortisation of intangibles
96,286 93,031 3%
Amortisation of intangibles (1,954) (1,679) 16%
Profit before interest and income tax 94,332 91,352
3%
Net interest and finance costs (9,666) (9,570)
1%
Profit before income tax 84,666 81,782
4%
Income tax (22,505) (20,926)
8%
Profit for the year attributable to the shareholders 62,161 60,856
2%

9

FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2018


2018

$000
2017
$000
Profit for the year (NPAT) 62,161 60,856
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:


Exchange differences on translation of foreign operations 1,775 (41)
Cash flow hedges taken directly to equity, net of tax 2,261 2,927
Total other comprehensive income after income tax 4,036 2,886
Total comprehensive income for the year attributable to the
shareholders

66,197 63,742

10

FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2018



Contributed
equity

Retained
earnings

Cash
flow
hedge
reserve

Foreign
currency
translation
reserve

Total
equity

$000 $000 $000 $000 $000
Balance at 1 July 2017 124,430 124,072 (6,490) (5,444) 236,568
Profit for the year
- 62,161 - - 62,161
Exchange differences on
translation of foreign operations

- - - 1,775 1,775
Cash flow hedges taken directly
to equit
y, net of tax
- - 2,261 - 2,261
Total Comprehensive Income - 62,161 2,261 1,775 66,197
Dividend payments - (45,372) - - (45,372)
Shares issued 830 - - - 830
Balance at 30 June 2018 125,260 140,861 (4,229) (3,669) 258,223



Contributed
equity

Retained
earnings

Cash
flow
hedge
reserve

Foreign
currency
translation
reserve

Total
equity

$000 $000 $000 $000 $000
Balance at 1 July 2016 123,852 105,824 (9,417) (5,403) 214,856
Profit for the year
- 60,856 - - 60,856
Exchange differences on
translation of foreign operations

- - - (41) (41)
Cash flow hedges taken directly
to equity, net of tax

- - 2,927 - 2,927
Total Comprehensive Income - 60,856 2,927 (41) 63,742
Dividend payments - (42,608) - - (42,608)
Shares issued 578 - - - 578
Balance at 30 June 2017 124,430 124,072 (6,490) (5,444) 236,568

11
FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 30 June 2018





2018

$000
2017
$000

Current assets

Cash and cash equivalents 7,410 8,423
Trade and other receivables 82,150 77,253
Inventories 4,804 5,190
Income tax receivable - 705
Total current assets 94,364
91,571

Non-current assets
Trade receivables and other non-current assets 4,803 3,787
Property, plant and equipment 103,102 100,992
Intangible assets 358,419 343,543
Total non-current assets 466,324 448,322
Total assets 560,688 539,893

Current liabilities
Trade and other payables 66,887 65,722
Finance lease liabilities 126
147
Income tax payable 5,525 3,350
Provisions 710 1,008
Derivative financial instruments 451 2,054
Unearned income 15,864 15,446
Total current liabilities 89,563
87,727

Non-current liabilities
Trade and other payables 3,446 2,867
Borrowings (secured) 161,800 166,241
Deferred tax liability 37,506 35,606
Provisions 4,465 3,691
Finance lease liabilities 286 204
Derivative financial instruments 5,399 6,989
Total non-current liabilities 212,902 215,598
Total liabilities 302,465 303,325
NET ASSETS 258,223 236,568

EQUITY
Contributed equity 125,260 124,430
Retained earnings 140,861 124,072
Cash flow hedge reserve (4,229) (6,490)
Foreign currency translation reserve (3,669) (5,444)
TOTAL EQUITY 258,223 236,568

Net Tangible Assets (Liabilities) per Security ($0.55) ($0.61)

12


FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2018


2018
$000
2017
$000

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

Receipts from customers 575,864 535,943
Payments to suppliers and employees (471,175) (436,385)
Cash generated from operations 104,689 99,558
Interest received 182 78
Interest and other costs of finance paid (9,710) (9,820)
Income taxes paid (19,451) (24,559)
Net cash inflows from operating activities 75,710 65,257

Cash flows from investing activities
Payments for property, plant and equipment (14,062) (21,507)
Payments for software (4,343) (3,689)
Proceeds from disposal of property, plant and equipment 1,160 1,064
Payments for businesses acquired (net of cash acquired) (7,865) (2,648)
Receipts (payments) from (to) associate 464 (1,671)
Cash flows from other investing activities (218) (517)
Net cash outflows from investing activities (24,864) (28,968)

Cash flows from financing activities
Dividends paid (45,371) (42,608)
Increase (decrease) in bank borrowings (7,522) 7,174
Proceeds from issue of ordinary shares 704 716
Finance lease liabilities repaid (114) (174)
Net cash outflows from financing activities (52,303) (34,892)

Net increase (decrease) in cash and cash equivalents (1,457) 1,397
Cash and cash equivalents at beginning of year 8,423 7,065
Exchange rate adjustments 444 (39)
Cash and cash equivalents at end of year 7,410 8,423

13


Earnings per Security (EPS)

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


Current full year
(cents per share)
Previous corresponding
full year (cents per share)
Basic EPS 40.1 39.3
Diluted EPS 40.0 39.2



Dividends Paid


Date Paid Cents per share (fully
imputed)
Final Dividend for the year ending 30 June
2017
2 October 2017 14.75
Interim Dividend for the year ending 30 June
2018
3 April 2018 14.50
29.25


Subsequent Events after Balance Date

Dividend declared
On 13 August 2018, the Directors declared a fully imputed final dividend of 15.25 cents per share
(approximately $23.7 million) in respect of the year ended 30 June 2018. The dividend will be paid on 2
October 2018. The record date for determination of entitlements to the dividend is 14 September 2018.

Debt facilities
The Group has negotiated a two-year extension to approximately half the existing syndicated bank facilities
and decreased the Australian dollars facilities by A$16.6 million. The extension is effective from 27 July
2018 and is at higher pricing compared to existing facilities.

On 11 July 2018, the Group drew an additional A$20 million for 7-years from the US$125 million
uncommitted finance facility that was established with a US-based lender in December 2016. This A$20
million was partially used to repay the A$16.6 million syndicated bank facilities above.

Acquisitions
On 5 July 2018 and 1 August 2018, Freightways acquired the business and assets of Formfile Records
Management Group Pty Limited (Formfile) and Specialised Security Shredding (SSS), respectively, both
small information management businesses based in Australia, for aggregate purchase consideration
totalling approximately $7 million. Incremental annual EBITDA of $1.2 million is expected to be
generated after the businesses have been fully integrated into Freightways. The initial accounting for these
business combinations is incomplete at the time these financial statements are authorised for issue, given
the short period of ownership. The fair value of assets and liabilities acquired, including identifiable
intangible assets, will be disclosed in the financial statements for the half year ended 31 December 2018 on
a provisional basis and finalised by 30 June 2019.

At the date of this report, there have been no other significant events subsequent to the reporting date.

14
Segment Reporting
A segment is a component of the Group that can be distinguished from other components of the Group by
the products or services it sells, the primary market it operates in and the risks and returns applicable to it.
Operating segments are reported upon in a manner consistent with the internal reporting used by the Chief
Executive Officer, as the chief operating decision maker, and the Board for allocating resources, assessing
performance and strategic decision making.

The Group is organised into the following reportable operating segments:

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.

As at and for the year ended 30 June 2018:
Express
Package &
Business Mail
Information
Management
Corporate Inter-
Segment
Elimination
Consolidated
Operations

$000 $000 $000 $000 $000
Income statement
Sales to external customers
427,096 153,789 1 - 580,886
Inter-segment sales
1,664 38 4,535 (6,237) -
Total revenue
428,760 153,827 4,536 (6,237) 580,886


Operating profit before non-
recurring items, interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles




74,840



35,378



(2,488)



-



107,730
Non-recurring items - 2,556 - - 2,556
Operating profit before interest,
income tax, depreciation and
software amortisation and
amortisation of intangibles




74,840



37,934



(2,488)



-



110,286
Depreciation and software
amortisation

(6,931) (5,550) (1,519) - (14,000)
Operating profit before interest,
income tax and amortisation of
intangibles



67,909


32,384


(4,007)


-


96,286
Amortisation of intangibles (50) (1,904) - - (1,954)
Profit before interest and income tax
67,859 30,480 (4,007) - 94,332
Net interest and finance costs (20) (251) (9,395) - (9,666)
Profit before income tax
67,839 30,229 (13,402) - 84,666
Income tax (18,729) (8,105) 4,329 - (22,505)
Profit for the year attributable to the
shareholders

49,110 22,124 (9,073) - 62,161


Balance sheet

Segment assets 300,254 220,930 39,504 - 560,688
Segment liabilities 60,080 29,623 212,762 - 302,465
Additions to non-current assets,
excluding deferred tax asset
10,204 19,939 48 - 30,191

15

As at and for the year ended 30 June 2017:
Express
Package &
Business Mail
Information
Management
Corporate Inter-
Segment
Elimination
Consolidated
Operations

$000 $000 $000 $000 $000
Income statement
Sales to external customers
401,071 144,190 1 - 545,262
Inter-segment sales
1,522 47 4,510 (6,079) -
Total revenue
402,593 144,237 4,511 (6,079) 545,262


Operating profit before non-
recurring items, interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles




70,353



32,727



(2,083)



-



100,997
Non-recurring items - 3,686 - - 3,686
Operating profit before interest,
income tax, depreciation and
software amortisation and
amortisation of intangibles




70,353



36,413



(2,083)



-



104,683
Depreciation and software
amortisation

(5,083) (5,050) (1,519) - (11,652)
Operating profit before interest,
income tax and amortisation of
intangibles



65,270


31,363


(3,602)


-


93,031
Amortisation of intangibles (50) (1,629) - - (1,679)
Profit before interest and income tax
65,220 29,734 (3,602) - 91,352
Net interest and finance costs (30) (320) (9,220) - (9,570)
Profit before income tax
65,190 29,414 (12,822) - 81,782
Income tax (18,050) (6,883) 4,007 - (20,926)
Profit for the year attributable to the
shareholders

47,140 22,531 (8,815) - 60,856


Balance sheet

Segment assets 292,718 206,126 41,049 - 539,893
Segment liabilities 83,065 32,940 187,320 - 303,325
Additions to non-current assets,
excluding deferred tax asset
19,456 12,567 96 - 32,119


Segment assets and liabilities are disclosed net of inter-company balances.

For the year ended 30 June 2018, external revenue from customers in the Group's New Zealand and
Australian operations was $472.6 million and $108.3 million, respectively (2017: $444.1 million and
$101.2 million, respectively). As at 30 June 2018, non-current assets in respect of the New Zealand and
Australian operations (excluding deferred tax assets) were $310.9 million and $155.4 million, respectively
(2017: $308.2 million and $140.2 million, respectively).

16


Business Combinations

State Waste Services (SWS)

Effective 1 September 2017, the Group acquired the business and assets of 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 Shred-X business within the information management
division.

The contribution of Med-X to the Group results for the year ended 30 June 2018 was revenue of $2.8
million and operating profit before interest, income tax and amortisation of intangibles of $0.7 million.

If this acquisition had occurred at the beginning of the year, the contribution to revenue and operating
profit before interest, income tax and amortisation of intangibles for the period is estimated at $3.4 million
and $0.8 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 pa
yable as at the end of the period (1,107)
Cash consideration paid durin
g the period 5,374
Cash consideration payable as at the end of the period 1,107
Fair value of future earn-out pa
yment 1,603
Total purchase consideration
8,084

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 liabilit
y (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 is
payable in September 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
. Successful integration of the acquired business into its CGU is a key assumption
in annual impairment assessment. 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.

17

Other current period acquisitions
During the year ended 30 June 2018, the Group acquired the business and assets of two small information
management businesses in Australia for an aggregate purchase consideration totalling approximately $2.5
million. These businesses have been integrated into the Group’s Shred-X business within the information
management division. The businesses acquired were:

 Medico Hygiene Service and Medico Waste Disposal (collectively Medico) on 1 June 2018
 Shredway on 1 June 2018

The contribution of these businesses to the Group results for the year ended 30 June 2018 was revenue of
$0.2 million and operating profit before interest, income tax and amortisation of intangibles of $0.03
million.

If these acquisitions had all occurred at the beginning of the year, the contribution to revenue and operating
profit before interest, income tax and amortisation of intangibles for the year is estimated at $2.6 million
and $0.4 million, respectively.

Details of net assets acquired and goodwill for these acquisitions are as follows:

Purchase consideration
$000
Initial acquisition payments 2,509
Less Cash consideration payable as at the end of the period (18)
Cash consideration paid during the period
2,491
Cash consideration payable as at the end of the period 18
Total purchase consideration
2,509


Fair value of assets and liabilities arising from the acquisition
Inventor
y 170
Property, plant and equipment
426
Customer relationships
626
Goodwill
1,872
Trade and other pa
yables (443)
Deferred tax liability
(142)

2,509

The goodwill of $1.9 million arising upon these acquisitions is attributable to the intellectual property
obtained and economies of scale expected to be enhanced by integrating these businesses into the
operations of the Group. Successful integration of the acquired businesses into their CGU is a key
assumption in annual impairment assessment. None of the goodwill recognised is expected to be
deductible for income tax purposes.

The acquisition accounting for these acquisitions have 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.

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 $0.3 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.

---

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
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number
number
Date
Nature of event
BonusIf ticked,
Rights Issue
Tick as appropriate
Issue
state whether:Taxable
/ Non TaxableConversionInterestRenouncable
Rights IssueCapitalCallDividend
If ticked, stateFull
non-renouncable
change
x
whether:
InterimYear
x
SpecialDRP 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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Tick if
provide an
pari passu
ORexplanation
Strike price per security for any issue in lieu or date
of the
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ranking
Monies Associated with Event
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Source of
Amount per security
Payment
(does not include any excluded income)
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(only applicable to listed PIEs)
Supplementary
Amount per security
Currency
dividendin 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)
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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,
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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 Quoting Rights:Security Code:
Cease Quoting Rights 5pm:
Commence Quoting New Securities:Security Code:
Cease Quoting Old Security 5pm:
14 September, 20182 October, 2018
$$0.010590$0.059306
$
NZD$0.026912
$23,712,000
Date Payable
2 October, 2018
Enter N/A if not
applicable
NZFREE0001SO
In dollars and cents
Current earnings for the year ended 30 June 2018
$0.1525
(09) 571 9670(09) 571 967113082018
Fully Paid Ordinary Shares
EMAIL: announce@nzx.com
Notice of event affecting securities
1
Freightways Limited
Mark RoyleDirectors' resolution