Half Year Results to 31 Dec 2018 and Interim Dividend

WE’RE A
COMPANY
THAT
DELIVERS
HY19 PRESENTATION

−
Highlights
−
Operating Performance
−
Interim Dividend
−
Business Strategy
−
Outlook
−
Conclusion
· FRE Half Year Results Presentation
· AGENDA · Slide 2
Agenda
IN SO
MANY
WAYS

HIGHLIGHTS

· FRE Half Year Results Presentation
· HIGHLIGHTS · Slide 4
General Highlights
−
Half on half revenue, earnings and dividend growth
−
Productivity growth through the c
ourier fleet in residential areas
−
Development of IT capability to enable Pricing for Effort initiatives
−
New scanning technology for courier fleets implemented in Castle Parcels
−
Three acquisitions in the IM division
−
Improving utilisation in Australia in line with our targets
−
Solid organic growth in secure destruction and medical waste
−
An interim dividend of 15 cents per share
−
Sustained strong cash generation building headroom for growth

· FRE Half Year Results Presentation
· HIGHLIGHTS · Slide 5
Financial Highlights
Note
Dec
‐
18
$M
Dec
‐
17
$M
Increase
%
Revenue
314.8
292.1
7.7
EBITA
 
(before
 
non
‐
recurring
 
items)
(i)
50.7
49.2
3.0
Non
‐
recurring items
1.4
‐
EBITA
(ii)
52.1
49.2
5.8
NPAT
 
(before
 
non
‐
recurring
 
items)
(iii)
32.0
31.4
2.0
Non
‐
recurring
 
items
 
after
 
tax
1.4
‐
NPAT
(iv)
33.4
31.4
6.3
Basic
 
EPS
 
(cents)
(before
 
non
‐
recurring
 
items)
20.6
20.3


























 


 














 


























 


 





































 


 









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· FRE Half Year Results Presentation
· HIGHLIGHTS · Slide 6
Non-Recurring Items
2018:
Non-recurring benefit before tax of $1.4 million (no tax applicable) in respect of the
gain arising during the half year upon the progressive recording of the replacement ofearthquake-related damaged racking funded by insurance proceeds. A gain on theracking replacement arises because the ov
erall insurance proceeds for new racking
will exceed the written down book value of the structurally-compromised rackingwritten-off

OPERATING PERFORMANCE

· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 8
Operating Revenue
 ‐
 
100
 
200
 
300
 
400
 
500
 
600
 
700
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$M
Year Ended 30 June
1H2H

· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 9
EBITA
1H2H
-
10 20 30 40 50 60 70 80 90
100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$M
Year Ended 30 June

 


































 


 







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· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 10
Divisional Operating Performance
IMEP&BM

#
!










 
28%
72%
EBITA*
26%
74%
Revenue

· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 11
HY19 Express Package & Business Mail
Operating Revenue
$233.5m
EBITDA
$42.4m
EBITA
$38.6m
EBITA Margin
16.5%
7.8%
6.6%
6.1%

· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 12
HY19 Information Management
* EBITDA, EBITA and EBITA Margin repres
ent the operating results of the division,
exclusive of any non-recurring items
.
Operating Revenue
$82.2m
EBITDA
$17.6m
EBITA
$14.7m
EBITA Margin
17.9%
7.6%
1.5%
0.5%

· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 13
Balance Sheet – Key Points
−
Total Assets have increased since FY18 by
$17m, with higher trade and other receivables
due to increased activity ($13m) cont
ributing to higher recorded assets
−
Total Liabilities have increased since FY18 by $8
m, with higher activities resulting in trade
and other payables increasing by $6m.
−
Net borrowings have increased by $8m si
nce FY18, mainly to fund acquisitions
−
No significant changes in iss
ued capital during the half year

· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 14
Cash Flow – Key Points
−
Cash generated from operations of $52m was
$2m below the PCP, reflecting timing of
receipts from customers and payments to s
uppliers. Net cash inflows from operating
activities (i.e. after deducting interest and tax
payments) were also $2m below the PCP at
$32m
−
Cash outflows from investing activities we
re up $5m on the PCP, due to $5m more in
acquisition payments compared to the PCP
−
The $2m decrease in cash outflows from financi
ng activities compared to the PCP reflects
the drawdown of $8m of debt this year
compared to $6m drawn down in the PCP

· FRE Half Year Results Presentation
· OPERATING PERFORMANCE · Slide 15
Capital Expenditure & Depreciation
2019
Half
 
Year
Actual
$M
2019
Full
 
Year
 
Forecast
$M
Capital
 
Expenditure
11 20
 ‐
22
Depreciation
716

INTERIM DIVIDEND

· FRE Half Year Results Presentation
· INTERIM DIVIDEND · Slide 17
Interim Dividend
−
Interim dividend:
15 cps
−
Imputation credits:
5.8333 cps (at 28% tax rate)
−
Supplementary dividend:
2.6471 cps
−
Record date:
15 March 2019
−
Payment date:
1 April 2019
−
No DRP was offered in respect of this dividend

BUSINESSSTRATEGY

· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 19
Express Package & Business Mail
1.
Residential Network Review
−
Assess the opportunities across all of our
brands to improve our
delivery density,
productivity and courier earnings
Our objective is to improve our resident
ial delivery productivity by at least 5%
−
Restructured 80 runs which resulted in the
removal of 28 runs dur
ing the half year –
predominantly in Auckland
−
Our AI programme is underway to assess furt
her efficiency opportunities in North Harbour
−
Average courier pay has in
creased by 8% half on half

· FNZC North Harbour Site Visit
· EP OVERVIEW ·
Before Run Rationalisation – July 2018
East Coast Bays
Deliveries by Courier Company
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 20

After Run Rationalisation – November 2018
East Coast Bays
Deliveries by Courier Company
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 21

· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 22
Express Package & Business Mail
2.
Pricing for Effort (PFE)
−
Recognise the lower density, the extra effort
required, and therefore the higher cost
incurred, for delivering to residential addr
esses and price these items accordingly.
Our objective is to improve our prici
ng per item to fund higher courier pay
and improve our B2C margins
−
EP has won a number of new customers
on PFE rates over the last 6 months
−
Geo-coded NZ to define business vs residential areas
−
Built API’s for electronic-ticketing cust
omers to access rating by destination
−
We are preparing to introduce PFE to exis
ting customers at our annual uprate on 1 July

Business Delivery Zone Mapping
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 23

· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 24
Express Package & Business Mail
3.
Visibility and Data Analytics
−
Improve visibility for customers and receiv
ers on the progress of their deliveries and
improve reporting on every aspect
of our business for our teams
Our objective is to improve customer and re
ceiver satisfaction and enable our teams with
accurate and timely data to impr
ove efficiency and service quality
−
Castle Parcels implemented new scanner technol
ogy in Q2. This will be rolled out to the
remaining fleets in Q3 & Q4
−
Full suite of real-time reporting released to
the business in Q2 – provides margin per
route, branch and most importantly per
customer, reflecting their B vs C mix
−
Technology upgrades to provide receiver
notifications to be launched 1 July

· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 25
Information Management

IM – Strong Market Position
New Zealand −
Largest market share across core services
−
All-of-government contract renewed through to 2021
−
Credibility with customers is helping to
scale-up our emerging digital solutions
−
Archive volumes still growing – customer mix /
pricing / risk all contribute to retention
Australia−
Number 1 in document destruction, number
two in media and number four in archive
−
Successful strategy to build nationwide presence and footprint while growing EBITA performance
−
Double digit archive growth se
lling into our warehouse capacity
−
Digital growth coming from much broader base of SME customers
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 26

1.
Facility Utilisation
−
Improve facility utilisation to achieve increased
margins in the AU business, in particular.
Our objective:
−
Warehouse utilisation was 81% in NZ and 65%
in Australia at the end of half year
83%
FY19 NZ
70%
FY19 AU
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 27
Information Management

2.
Growth in Digital Services
−
Invest in further sales & marketing resour
ce to be able to scale-up our digital revenue
streams, which are currently ~
10% of revenue for this division
Our objective is to grow the revenue for t
hese services and, through that scale, drive
improved EBITA margins
−
Established a Product Development team
charged with developing new solutions and
digital efficiencies for our target markets
Customer design / journey mapping

Strategy aimed at broadening existing physical services, as well as creating new digital opportunities

Focus on product developments which can be scaled
−
New digitisation project has leveraged our
NZ census experienc
e and established strong
capability in AU
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 28
Information Management

Digital Growth Strategy – Digitalisation
−
Successful NZ census project gav
e TIMG large scale credibility
−
Revenues lumpy, but customer
demand for services increasing
−
Australian royal commissions will
continue to present opportunities
−
Technologies available today not
economical enough to create back scan
revenues from most archive custom
ers, define future revenue opportunity
Scanning Paper
• Surveys• Engineering• Land &
survey
• Legal
records
Data Extraction
•OCR• Delimiting• Objective
Coding
Data cleansing
•In AU this
involves E Discovery tools
• Data entry
Data hosting or remit to client
•Within
internal systems
• Or secure
back to client
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 29

3.
Secure Destruction / Medical Waste
−
Develop the niches within Secure Dest
ruction and Medical Waste through start-ups,
alliances and acquisitions to provide a nat
ional, high quality service offering to our
customers
Our objective is to establish a
new arm of growth for Freightways
−
Acquired a second Medical waste business (V
IC) to add to the initial NSW operation.
−
Achieving promising organic growth from
existing customers and market share gains
−
Costs incurred in rolling-out a number
of new large contracts in Q2
−
Currently integrating the WA acquisition – e
xpected to be a combined operation by June
this year
−
Actively exploring adjacent
product destruction opportunities
which leverage our core
capabilities
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 30
Secure Destruction

Medical Waste
−
Strategic Rationale
−
Complementary to Secure Destruction (SD)

Leverages SRX capabilities - fleets, facilities and systems

First observed in North America (Stericycle)
−
Future off-set revenue stream if SD declines
−
Large market with many adjacencies. (e.g.
nappy & hygiene, quarantine, sharps, washroom
products)
−
Process is similar to SD, r
equiring a high quality service:
Customer
 
ownership
Product
 
Collection
Processing
Disposal
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 31

1.
Acquisitions completed during half year (Q1)
−
Bolt-on Secure Destruction business in WA
−
Medical Waste business in VIC
−
75% share in a Digital Online back-
up business servicing NZ & Australia
2.
Continue to explore opportunities to add bolt-on ac
quisitions to current lines of business, as
well as acquisitions which are co
mplementary to our business model
3.
Prepared to exploit FRE’s strong balance sheet
position with opportunities which leverage
our core capabilities
· FRE Half Year Results Presentation
· BUSINESS STRATEGY · Slide 32
Acquisitions & Alliances

Outlook
 
image
 
to
 
go
 
here
OUTLOOK

1.
Increased demand for services in both divisions
2.
Continue to target year on y
ear earnings growth for FRE
3.
Expect that in FY20 our pricing and effici
ency initiatives for B2C have gained greater
traction
4.
Investing for the future in terms
of IT, sales and marketing resource
5.
Capital expenditure of $20-22m forecast for FY19
6.
Continue to explore complementary acquisition opportunities
· FRE Half Year Results Presentation
· OUTLOOK · Slide 34
Outlook

CONCLUSION

· FRE Half Year Results Presentation
· CONCLUSION · Slide 36
Conclusion
−
FRE will continue to invest in its businesses to generate growth
−
There are opportunities in all li
nes of business to continue to
grow and evolve services to
meet customer demand
−
FRE remains entrepreneurial and resilient
in the face of external factors
−
We are committed to improving our long term su
stainability – for our teams, our customers,
the environments in which we operat
e and ultimately, our shareholders
−
Each brand will compete strongly in their
respective niche, while collaborating on
infrastructure and capability
−
The Board of Directors has acknowledged
the outstanding work and ongoing dedication of
the Freightways team of people

---

Results for announcement to the market
Name of issuer FREIGHTWAYS LIMITED
Reporting Period 6 months to 31 December 2018
Previous Reporting Period 6 months to 31 December 2017
Amount (000s) Percentage change
Revenue from ordinary
activities
$314,769 8%
Profit (loss) from ordinary
activities after tax attributable
to security holder
$33,402 6%
Net profit (loss) attributable
to security holders
$33,402 6%
Interim/Final Dividend
Gross amount per Quoted
Equity Security
$0.208333
Imputed amount per sec
Quoted Equity Security
$0.058333
Record Date 15 March 2019
Dividend Payment Date 1 April 2019
Net tangible assets per
Quoted Equity Security
31 December 2018 - ($0.52) 31 December 2017 - ($0.61)
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Refer to the section “Half Year Review” for commentary.
Authority for this announcement
Name of person

authorised
to make this announcement
Mark Royle
Contact phone number +61 407 777 039
Contact email address mark.royle@freightways.co.nz
Date of release through MAP

25/02/2019


Unaudited financial statements accompany this announcement.

2
HALF 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 six months ended 31 December 2018. This report discusses the results, reviews
the operations of each division and provides an outlook for the year ahead.

Highlights of the half year include:
 Overall year-on-year revenue, earnings and dividend growth
 In the express package & business mail (EP&BM) division:
- Strong revenue and volume growth;
- Productivity gains through improving the number of items per courier delivered in
residential areas, and
- Development of IT capability to enable ‘pricing for effort’ initiatives to be implemented
 In the information management (IM) division:
- Three further acquisitions;
- Pleasing progress in improving utilisation in the Australian storage footprint:
- A major data digitisation contract win at the end of the half year, and
- Solid growth in both secure destruction and medical waste revenue in Australia.
 Sustained cash generation from both divisions, maintaining debt headroom to pursue further
growth initiatives and acquisitions.

Operating performance
The below table presents the reported 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-18
$M
Dec-17
$M
Increase
%
Revenue
314.8 292.1 7.7%

EBITA, before non-recurring items i. 50.7 49.2 3.0%
Non-recurring items 1.4 -
EBITA ii. 52.1 49.2 5.8%

NPAT, before non-recurrin
g items iii. 32.0 31.4 2.0%
Non-recurrin
g items after tax 1.4 -
NPAT iv 33.4 31.4 6.3%

Basic EPS (cents), before non-recurrin
g items 20.6 20.3

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 of the following non-recurring
item that the Directors believe should not be included when assessing underlying trading
performance:

3

 2018: Non-recurring benefit before tax totalling $1.4 million (no tax applicable) in respect of the
gain arising during the half year upon the progressive recording of the replacement of
earthquake-related damaged racking funded by insurance proceeds. A gain on the racking
replacement arises because the overall insurance proceeds for new racking will exceed the
written down book value of the structurally-compromised racking written-off.

Dividend
The Directors have declared an interim dividend of 15 cents per share, fully imputed at a tax rate of
28%, being a 3% increase above the pcp interim dividend of 14.5 cents per share. This represents a
payout of approximately $23.3 million compared with $22.5 million for the pcp. The dividend will
be paid on 1 April 2019. The record date for determination of entitlements to the dividend is 15 March
2019.

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 2018 are provided below for the EP&BM
division and the IM division.

Express Package & Business Mail Division

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 $233.5 million was 7.8% higher than the pcp. EBITA of $38.6 million was
6.1% higher than the pcp.

Strong revenue growth in the first half was driven by a combination of organic growth in volumes
from existing customers, which largely tracked as it had done in the financial year ended 30 June
2018 (FY18), market share gains and improved pricing. The ParcelAir Limited joint venture, that
provides Freightways’ airfreight capacity, leased a 4
th
Boeing 737 and operated it as part of the
network from November until the end of December to assist with peak volumes. This aircraft will
become a permanent fixture in the network in FY20, but is not expected to result in any material
increase in operating costs for Freightways. Labour costs stepped-up throughout the half year as a
result of the tight labour market and planned increases to wage rates.

Freightways’ smaller postal businesses, DX Mail and Dataprint, grew combined revenue in the half.
DX Mail lifted its EBITA by over 7% compared to the pcp while expanding its network, however
Dataprint’s earnings were down on the pcp as customers continued the shift from physical mail to
digital communications.

The EP&BM division delivered a sound half year result, while positioning itself well to implement
its B2C strategies.

4
Key Strategies in 2019

Residential Network Review: The programme of residential network intensification resulted in 28
fewer courier runs by December. Given higher volumes than the pcp and fewer courier runs, our
productivity increased as a result. An exercise using advanced data analytics will take place in the
second half of FY19 to assess further opportunities for improved delivery efficiency and increased
contractor earnings. This initiative is expected to 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: The strategy to appropriately price B2C express package (EP) services to ensure
both the company and its contractors are motivated to facilitate profitable e-commerce revenue
growth is being actively pursued. The EP brands have been testing the pricing approach with both
new and existing business customers during the half year and are now rolling the programme out to
all new business opportunities and it will form part of our 2019 uprates in July this year. 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.

Visibility and Data Analytics: New scanning technology for the EP businesses was successfully
piloted in November and December and will be rolled out for the wider courier fleets over the
remainder of the financial year. The technology enables 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

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 $82.2 million was 7.6% higher than the pcp. EBITA of $14.7 million was 0.5%
higher than the pcp.

Compared to the pcp, revenue growth was achieved by all businesses within this division. A number
of additional costs relating to acquisitions and an increase in sales, marketing and IT labour were
incurred during the period. Utilisation of IM facilities across New Zealand and Australia continued
to improve as storage volumes increased. Secure destruction revenues increased across the suite of
paper grades sold, eDestruction and medical waste services. Approximately 10% of IM revenues are
now generated by digital services, of which some are annuity services, and some are project-based.
Growth in these digital services, while at an early stage of development, has been positive and in
2019 has been boosted by the winning of a large data collection & digital transformation project in
Australia.

TIMG’s Porirua document storage facility, that was damaged in the North Canterbury earthquake,
has now had its racking fully replaced. This was a significant project completed by the business
during December 2018 and was accomplished on time and with no disruption to customer service.
Freightways carries comprehensive insurance for events such as this. The $2 million write-off of the
written down book value of the structurally-compromised racking in the division’s FY18 result and
its progressive replacement with new racking since have been funded by insurance proceeds received
during the project, resulting in a non-recurring accounting gain of $1 million in the FY18 result and
a further $1.4 million in this half year result. These gains have been disclosed as non-recurring items
in the respective income statements.

5

Key Strategies in 2019:
Facility Utilisation: Utilisation of IM facilities in Australia has improved steadily throughout the
half year and is on track for 70% by the end of the financial year, despite taking on a small additional
warehouse in Queensland. This improvement has been achieved through an equal mix of market share
gains and organic growth in the volume of records stored by existing customers.

Digital Services Growth: The increased investment in sales & marketing is beginning to pay off,
with a number of new digital opportunities won toward the end of the period. Growing the division’s
existing digital services and exploring opportunities for adjacent digital offerings will continue to be
a focus for the business in 2019.

Secure Destruction and Medical Waste: These markets present an opportunity to apply Shred-X’s
consistent and high-quality national service standards and sales methodologies to grow in a number
of adjacent niche markets. The business has demonstrated particularly strong revenue growth in all
lines of business during the half year. Growth has been generated from a number of smaller bolt-on
acquisitions completed at the beginning of the half year, as well as through new business acquired in
the 2
nd
quarter. Management will continue to focus on both the integration of these acquisitions, as
well as closing additional opportunities in the pipeline.

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. Three businesses were acquired early in the half
year for a total of $10.3 million. These businesses are expected to be contributing annualised EBITDA
of $1.6 million by the end of the financial year, as the businesses become fully integrated. Related
capital expenditure will be approximately $0.5 million. These acquisitions will be immediately EPS
positive.

Corporate

Corporate costs increased by $0.8 million compared to the pcp, primarily due to the reclassification
of certain managers from the divisions into newly-created corporate roles, in addition to an uplift in
consulting costs relating to internal audit, external reporting and ESG initiatives.

Net debt increased by approximately $9 million to $163 million during the year. While cash flows
from operations remained strong and adequately covered all planned expenditures, an additional $10
million was invested in three small acquisitions. Freightways continues to have excellent support
from its lenders and sufficient headroom in facilities and gearing levels to continue actively pursuing
its solid pipeline of acquisition opportunities.

OUTLOOK

The markets in which Freightways operates in both New Zealand and Australia continue to remain
positive, albeit the company will continue to closely monitor indicators for any adverse changes in
economic activity in New Zealand, in particular. Growth opportunities leveraging the current
customer base and through acquisitions exist in both New Zealand and Australia and will be actively
pursued. Subject to factors beyond its control, Freightways is once again targeting year-on-year
earnings growth for the full year.

6


Within the EP&BM division, the company expects that its strategies to better align price and
efficiency will gain further traction, 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 continue to be a key focus.
Freightways is encouraged by recent digital services wins and will continue to invest in this
capability. The group’s entry into the Medical Waste industry has tracked to expectation, with a
presence now in both New South Wales and Victoria.

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

CONCLUSION

Freightways has continued to invest in the future of both divisions, while returning a sound result for
the first half of the 2019 financial year. The key EP&BM strategies are critical to generating both
growth and improved returns from the growing B2C sector. In Information Management, the group
will continue to grow scale in existing revenue lines and will be alert to new opportunities which can
leverage the group’s existing customer relationships and core competencies. 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. 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.

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



Mark Verbiest Mark Troughear
Chairman Chief Executive Officer

25 February 2019

7
FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2018 (unaudited)




6 mths
ended

31 Dec 2018
$000
6 mths
ended

31 Dec 2017
$000
Variance

%

Operating revenue 314,769 292,133 8%
Other income 1,194 2,913 (59%)


Transport and logistics expenses (125,990) (115,158) 9%
Employee benefits expenses (83,982) (79,233) 6%
Occupancy expenses (14,403) (13,124) 10%
General and administrative expenses (32,174) (28,490) 13%
Other expenses (1,194) (2,913) (59%)
Non-recurring items 1,373 - -

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



59,593



56,128


6%

Depreciation and software amortisation (7,492) (6,895) 9%
Operating profit before interest, income tax and
amortisation of intangibles

52,101 49,233 6%
Amortisation of intangibles (1,004) (979) 3%
Operating profit before interest and income tax 51,097 48,254 6%
Net interest and finance costs (5,009) (5,127) (2%)
Profit before income tax 46,088 43,127 7%
Income tax (12,686) (11,718) 8%
Profit for the period attributable to shareholders 33,402 31,409 6%

8
FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 December 2018 (unaudited)


6 mths ended
31 Dec 2018
$000
6 mths ended
31 Dec 2017
$000


Profit for the period 33,402 31,409

Other comprehensive income

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translation of foreign operations
(2,373) 2,274
Cash flow hedges taken directly to equity, net of tax

324 1,006
Total other comprehensive income after income tax
(2,049) 3,280

Total comprehensive income for the period attributable to the
shareholders

31,353 34,689








FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year ended 31 December 2018 (unaudited)


6 mths ended
31 Dec 2018
$000
6 mths ended
31 Dec 2017
$000

Equity at the beginning of the period 258,223 236,568

Profit for the period
33,402 31,409
Exchange differences on translation of foreign operations

(2,373) 2,274
Cash flow hedges taken directly to equity, net of tax

324 1,006
Total comprehensive income for the period
31,353 34,689

Dividends paid (23,695) (22,880)
Issue of ordinary shares, net of costs
1,180 680

Attributable to non-controlling interests 109 -

Equity at the end of the period 267,170 249,057

9
FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 31 December 2018 (unaudited)


As at
31 Dec 2018
$000
As at
31 Dec 2017
$000
As at

30 Jun 2018
$000
ASSETS


Current assets

Cash and cash equivalents 3,441 10,450 7,410
Trade and other receivables 95,199 89,234 82,150
Inventories 5,327 4,848 4,804
Income tax receivable - 657 -
Total current assets
103,967 105,189 94,364

Non-current assets

Trade receivables and other non-current assets 3,390 2,158 4,803
Property, plant and equipment 106,531 103,002 103,102
Intangible assets 363,532 357,817 358,419
Total non-current assets 473,453 462,977 466,324
Total assets 577,420 568,166 560,688

LIABILITIES

Current liabilities

Trade and other payables 72,718 71,878 66,887
Finance lease liabilities 119 118 126
Income tax payable 3,687 1,791 5,525
Provisions 745 795 710
Derivative financial instruments 617 1,343 451
Unearned income 15,548 15,633 15,864
Total current liabilities 93,434 91,558 89,563

Non-current liabilities

Trade and other payables 3,201 4,887 3,446
Borrowings (secured) 166,487 175,778 161,800
Deferred tax liability 37,394 36,168 37,506
Provisions 4,720 4,268 4,465
Finance lease liabilities
208 142 286
Derivative financial instruments
4,806 6,308 5,399
Total non-current liabilities
216,816 227,551 212,902
Total liabilities 310,250 319,109 302,465
NET ASSETS 267,170 249,057 258,223

EQUITY

Contributed equity 126,440 125,110 125,260
Retained earnings 150,568 132,601 140,861
Cash flow hedge reserve (3,905) (5,484) (4,229)
Foreign currency translation reserve (6,042) (3,170) (3,669)
267,061 249,057 258,223
Non-controlling interests 109 - -
TOTAL EQUITY
267,170 249,057 258,223

Net tangible assets (liabilities) per security ($0.52) ($0.61) ($0.55)

10

FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the half year ended 31 December 2018 (unaudited)


6 mths
ended

31 Dec 2018
$000
6 mths
ended

31 Dec 2017
$000


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


Receipts from customers 304,469 284,333
Payments to suppliers and employees
(252,636) (230,720)
Cash generated from operations
51,833 53,613
Interest received 51 41
Interest and other costs of finance paid
(4,610) (5,002)
Income taxes paid
(14,925) (13,831)
Net cash inflows from operating activities 32,349
34,821

Cash flows from investing activities

Payments for property, plant & equipment (10,199) (7,402)
Payments for software
(1,972) (2,953)
Proceeds from disposal of property, plant & equipment
507 33
Payments for businesses acquired (net of cash acquired)
(10,516) (5,374)
Receipts from associate 1,709 -
Payments for other investing activities
(204) (203)
Net cash outflows from investing activities
(20,675) (15,899)

Cash flows from financing activities

Dividends paid (23,695) (22,880)
Increase in bank borrowings
8,193 5,594
Proceeds from issue of ordinary shares
390 330
Finance lease liabilities repaid
(68) (93)
Net cash outflows from financing activities
(15,180) (17,049)

Net increase in cash and cash equivalents (3,506) 1,873
Cash and cash equivalents at the beginning of the period 7,410 8,423
Exchange rate adjustments (463) 154
Cash and cash equivalents at the end of the period 3,441 10,450

11

Earnings per Security (EPS)

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


Current half year
(cents per share)
Previous corresponding
half year (cents per
share)
Basic EPS 21.5 20.3
Diluted EPS 21.5 20.2

Basic and diluted earnings per share calculated on the profit for the year attributable to shareholders, excluding
non-recurring items, net of tax, are both 20.6 cents.


Dividends Paid


Date Paid Cents per share (fully
imputed)
Final Dividend for the year ending 30 June
2018
2 October 2018 15.25
15.25



Post Balance Date Events

Dividend declared

On 25 February 2019, the Directors declared a fully imputed interim dividend of 15 cents per share
(approximately $23.3 million) in respect of the year ended 30 June 2019. The dividend will be paid on 1 April
2019. The record date for determination of entitlements to the dividend is 15 March 2019. A supplementary
dividend of 2.65 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.


Non-recurring Items, Other Income and Other Expenses

Included in non-recurring items is a non-recurring benefit before tax totalling $1.4 million (no tax applicable)
in respect of the gain arising during the half year upon the progressive recording of the replacement of
earthquake-related damaged racking funded by insurance proceeds. A gain on the racking replacement arises
because the overall insurance proceeds for new racking will exceed the written down book value of the
structurally-compromised racking written-off.

Included in other expenses is an amount of $1.2 million in additional costs of operations resulting from the
above-mentioned earthquake, which are also recoverable from insurance, and compensation of $1.2 million
received from the Group’s insurers for these additional costs of operations has been included in other income.

12
Segment Reporting

The Group is organised into the following reportable operating segments which categorise the business into
its primary markets and reflect the structure and internal reporting used by the 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 2018


Sales to external customers 232,613 82,156 - - 314,769
Inte
r-segment sales 866 - 2,414 (3,280) -
Total revenue 233,479 82,156 2,414 (3,280) 314,769

Operating profit (loss) before
non-recurring items, interest,
income tax, depreciation and
software amortisation and
amortisation of intangibles 42,401 17,609 (1,790) - 58,220
Non-recurring items - 1,373 - - 1,373
Operating profit (loss) before
interest, income tax,
depreciation and software
amortisation and amortisation of
intangibles 42,401 18,982 (1,790) - 59,593
Depreciation and software
amortisation (3,773) (2,947) (772) - (7,492)
Operating profit (loss) before
interest, income tax and
amortisation of intangibles 38,628 16,035 (2,562) - 52,101
Amortisation of intangibles,
excluding software amortisation (25) (979) - - (1,004)
Operating profit (loss) before
interest and income tax 38,603 15,056 (2,562) - 51,097
Net interest and finance costs (6) (99) (4,904) - (5,009)
Profit (loss) before income tax 38,597 14,957 (7,466) - 46,088
Income tax (10,689) (4,147) 2,150 - (12,686)
Profit (loss) for the period
attributable to the shareholders 27,908 10,810 (5,316) - 33,402

13
Segment Reporting (continued)

Express
package &
business
mail
Information
management
Corporate &
other
Inter-
segment
elimination
Consolidated
operations
$000 $000 $000 $000 $000
Half year ended
31 December 2017


Sales to external customers 215,815 76,318 - - 292,133
Inte
r-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

14

Business Combinations

During the half year ended 31 December 2018, the Group acquired three small information management
businesses in Australia for an aggregate purchase consideration totalling approximately $10.5 million. These
businesses have been integrated into the Australian businesses of the Group’s information management
division. The acquisitions were:
 the business & assets of Formfile Records Management in Victoria on 5 July 2018
 the business & assets of Specialised Security Shredding in Western Australia (WA) on 1 August 2018
 a 75% interest in Southwest Onsite Data Backup Management Pty Ltd in WA on 1 October 2018

The contribution of these businesses to the Group results for the half year ended 31 December 2018 was
revenue of $1.6 million and operating profit before interest, income tax and amortisation of intangibles of $0.2
million.

If these acquisitions had all occurred at the beginning of the period, the contribution to revenue and operating
profit before interest, income tax and amortisation of intangibles for the half year is estimated at $1.7 million
and $0.3 million, respectively.

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

Purchase consideration
$000
Initial acquisition payments 10,488
Less Cash consideration payable as at the end of the period (545)
Cash consideration paid during the period
9,943
Cash consideration payable as at the end of the period 545
Total purchase consideration
10,488

Fair value of assets and liabilities arising from the acquisition

Cash 526
Trade and other receivables 120
Inventories 223
Plant and equipmen
t 679
Customer relationships
1,706
Goodwill 8,385
Trade and other creditors (278)
Provisions
(361)
Deferred tax liability (403)
Non-controlling interest (109)

10,488

The goodwill of $8.4 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. None of the goodwill recognised is expected to be deductible for income tax purposes.

The acquisition accounting for these acquisitions 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 respective acquisition dates and upon confirmation of certain determinants.

Prior period acquisitions:

LexData

On 1 July 2016, the Group acquired the business & assets of LexData Management Pty Ltd (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.

15
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.

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 was branded as Med-X and
integrated into the Group’s Shred-X business within the information management division.

An estimated discounted future earn-out payment of $1.7 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.

Changes in Accounting Policies

Except as described below, the accounting policies and methods of computation are consistent with those used
in the year ended 30 June 2018.

The Group adopted the following new standards for which application was mandatory for the first time in the
financial year beginning 1 July 2018 and there has been no material impact on the financial statements:
 NZ IFRS 9: Financial Instruments addresses the classification, measurement and recognition of financial
assets and liabilities and introduced new rules for hedge accounting and a new impairment model for
financial assets.
 NZ IFRS 15: Revenue for contracts with customers deals with revenue recognition and establishes
principles for reporting useful information to users of financial statements about the nature, amount, timing
and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. It replaced
the previous revenue recognition guidance in NZ IAS 18 Revenue and NZ IAS 11 Construction Contracts
and related interpretations. The new standard is based on the principle that revenue is recognised when a
customer obtains control of a good or service and therefore has the ability to direct the use and obtain the
benefits from the good or service.

Standards, Amendments and Interpretations to Existing Standards That Are Not Yet Effective

From time to time, certain new standards, amendments and interpretations of existing standards are published
by the International Accounting Standards Board (IASB) and the External Reporting Board (XRB) that become
mandatory for future periods and which the Group will adopt when they become mandatory. As at 31 December
2018, the following new standard is applicable to the Group include:

 NZ IFRS 16: Leases (mandatory from 1 July 2019)
This standard replaces the current guidance in NZ IAS 17. Under NZ IFRS 16, a contract is, or contains, a
lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange
for consideration. Under NZ IAS 17, a lessee was required to make a distinction between a finance lease
(on balance sheet) and an operating lease (off balance sheet). NZ IFRS 16 now requires a lessee to recognise
a lease liability reflecting future lease payments and a ‘right-of-use’ (ROU) asset for virtually all lease
contracts. Included is an optional exemption for lessees in respect of certain short-term leases and leases of
low value assets.

16

From the effective date of adoption, the income statement will also be impacted by the removal of operating
lease expenses, the recognition of an interest expense applicable to the future lease payment obligations
and the recognition of a depreciation expense in respect of the ROU asset.

This standard will change the accounting for the Group’s operating leases. As at the reporting date, the
Group had non-cancellable operating lease commitments of $126 million. Upon adoption, NZ IFRS 16 will
have a material impact on a number of elements of the Group’s balance sheet and income statement, but
no impact on the Group’s statement of cash flows.

The Group engaged one of the large accounting firms to model the estimated financial impact of adopting
the new standard using the Group’s operating lease portfolio and contractual lease data as at 31 March
2018, as if the new standard was to be adopted on 1 July 2018. The modelling calculated the estimated
adjustments that would potentially need to be made to the balance sheet upon adoption of the new standard,
as well as the financial impact on the income statement for the year of initial adoption. The model required
management to make various key judgements, including:
- incremental borrowing rate (IBR) used to discount the ROU assets and the future lease payment
obligations;
- lease terms, including any rights of renewal expected to be exercised;
- foreign exchange conversion rate; and
- application of practical expedients and recognition exemptions allowed by the new standard, including
in respect low value assets and short-term leases exemptions, of which none were applied for the
purposes of the initial assessment.

For the purposes of the model, a blanket IBR was utilised for the two major lease categories, property and
non-property assets, and any prepaid or accrued lease payments carried on the balance sheet were ignored
based on the amounts involved being immaterial.

The new standard allows a choice of transition methods. Management has determined that the most
appropriate approach for the Group at this point in time, will be to use the simplified modified retrospective
transition method. For the purposes of this disclosure only, the Group has calculated the initial ROU asset
as the equal amount of the initial lease liability recognised (which is calculated as the present value of the
remaining lease payments from the date of adoption). Using this transition method will mean a neutral net
asset outcome upon adoption of the new standard. The estimated potential impact on the balance sheet is
estimated to be an approximate $248 million increase in both assets and liabilities equally, following the
recognition of the ROU asset and the discounted future lease obligations, respectively.

The financial impact on the income statement for the year of adoption is estimated to be an approximate
reduction in net profit before tax of $9 million. The following approximate changes to the current treatment
of operating leases in the financial statements have been estimated for the year the new standard is adopted:
- a $27 million decrease in operating lease rental expenses (removed);
- a $22 million increase in depreciation (relating to ROU assets); and
- a $14 million increase in interest expense (relating to lease liability finance costs).

There will be no changes applicable to the Group’s statement of cash flows as a result of adopting the new
standard, as operating lease payments will continue to be paid as usual. The adjustments above are only for
financial reporting purposes.

17

The estimated potential financial adjustments above are expected to change at the time of adopting the new
standard on 1 July 2019 for the following reasons:
- some lease contracts will terminate prior to the adoption date;
- new lease contracts will be entered into by the Group prior to the adoption date;
- there may be changes to the terms & conditions of some existing lease contracts; and
- finalisation of various management judgements by management regarding:
• the measurement method to be applied in calculating the ROU asset;
• the application of the various practical expedients available upon adoption;
• the application of low value assets and short-term leases exemptions;
• the expectation of exercising rights of lease renewals; and
• the IBR to be used for discounting future lease payments.

The Group, at this stage, does not intend to restate comparative amounts for the financial year prior to the
first year of adoption.

There are no other new standards, amendments or interpretations that are not yet effective that would be
expected to have a material impact on the Group.

---

FREIGHTWAYS LIMITED













Half Year Report
December 2018

2

HALF 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 six months ended 31 December 2018. This report discusses the results,
reviews the operations of each division and provides an outlook for the year ahead.

Highlights of the half year include:
 Overall year-on-year revenue, earnings and dividend growth
 In the express package & business mail (EP&BM) division:
- Strong revenue and volume growth;
- Productivity gains through improving the number of items per courier delivered in
residential areas, and
- Development of IT capability to enable ‘pricing for effort’ initiatives to be implemented
 In the information management (IM) division:
- Three further acquisitions;
- Pleasing progress in improving utilisation in the Australian storage footprint:
- A major data digitisation contract win at the end of the half year, and
- Solid growth in both secure destruction and medical waste revenue in Australia.
 Sustained cash generation from both divisions, maintaining debt headroom to pursue further
growth initiatives and acquisitions.

Operating performance
The below table presents the reported 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-18
$M
Dec-17
$M
Increase
%
Revenue
314.8 292.1 7.7%

EBITA, before non-recurring items i. 50.7 49.2 3.0%
Non-recurrin
g items 1.4 -
EBITA ii. 52.1 49.2 5.8%

NPAT, before non-recurring items iii. 32.0 31.4 2.0%
Non-recurrin
g items after tax 1.4 -
NPAT iv 33.4 31.4 6.3%

Basic EPS (cents), before non-recurrin
g items 20.6 20.3

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 of the following non-
recurring item that the Directors believe should not be included when assessing underlying trading
performance:

3



 2018: Non-recurring benefit before tax totalling $1.4 million (no tax applicable) in respect of
the gain arising during the half year upon the progressive recording of the replacement of
earthquake-related damaged racking funded by insurance proceeds. A gain on the racking
replacement arises because the overall insurance proceeds for new racking will exceed the
written down book value of the structurally-compromised racking written-off.

Dividend
The Directors have declared an interim dividend of 15 cents per share, fully imputed at a tax rate of
28%, being a 3% increase above the pcp interim dividend of 14.5 cents per share. This represents a
payout of approximately $23.3 million compared with $22.5 million for the pcp. The dividend will
be paid on 1 April 2019. The record date for determination of entitlements to the dividend is 15
March 2019.

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 2018 are provided below for the EP&BM
division and the IM division.

Express Package & Business Mail Division

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 $233.5 million was 7.8% higher than the pcp. EBITA of $38.6 million was
6.1% higher than the pcp.

Strong revenue growth in the first half was driven by a combination of organic growth in volumes
from existing customers, which largely tracked as it had done in the financial year ended 30 June
2018 (FY18), market share gains and improved pricing. The ParcelAir Limited joint venture, that
provides Freightways’ airfreight capacity, leased a 4
th
Boeing 737 and operated it as part of the
network from November until the end of December to assist with peak volumes. This aircraft will
become a permanent fixture in the network in FY20, but is not expected to result in any material
increase in operating costs for Freightways. Labour costs stepped-up throughout the half year as a
result of the tight labour market and planned increases to wage rates.

Freightways’ smaller postal businesses, DX Mail and Dataprint, grew combined revenue in the half.
DX Mail lifted its EBITA by over 7% compared to the pcp while expanding its network, however
Dataprint’s earnings were down on the pcp as customers continued the shift from physical mail to
digital communications.

The EP&BM division delivered a sound half year result, while positioning itself well to implement
its B2C strategies.

4

Key Strategies in 2019

Residential Network Review: The programme of residential network intensification resulted in 28
fewer courier runs by December. Given higher volumes than the pcp and fewer courier runs, our
productivity increased as a result. An exercise using advanced data analytics will take place in the
second half of FY19 to assess further opportunities for improved delivery efficiency and increased
contractor earnings. This initiative is expected to 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: The strategy to appropriately price B2C express package (EP) services to
ensure both the company and its contractors are motivated to facilitate profitable e-commerce
revenue growth is being actively pursued. The EP brands have been testing the pricing approach
with both new and existing business customers during the half year and are now rolling the
programme out to all new business opportunities and it will form part of our 2019 uprates in July
this year. 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.

Visibility and Data Analytics: New scanning technology for the EP businesses was successfully
piloted in November and December and will be rolled out for the wider courier fleets over the
remainder of the financial year. The technology enables 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

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 $82.2 million was 7.6% higher than the pcp. EBITA of $14.7 million was
0.5% higher than the pcp.

Compared to the pcp, revenue growth was achieved by all businesses within this division. A
number of additional costs relating to acquisitions and an increase in sales, marketing and IT labour
were incurred during the period. Utilisation of IM facilities across New Zealand and Australia
continued to improve as storage volumes increased. Secure destruction revenues increased across
the suite of paper grades sold, eDestruction and medical waste services. Approximately 10% of IM
revenues are now generated by digital services, of which some are annuity services, and some are
project-based. Growth in these digital services, while at an early stage of development, has been
positive and in 2019 has been boosted by the winning of a large data collection & digital
transformation project in Australia.

TIMG’s Porirua document storage facility, that was damaged in the North Canterbury earthquake,
has now had its racking fully replaced. This was a significant project completed by the business
during December 2018 and was accomplished on time and with no disruption to customer service.
Freightways carries comprehensive insurance for events such as this. The $2 million write-off of the
written down book value of the structurally-compromised racking in the division’s FY18 result and
its progressive replacement with new racking since have been funded by insurance proceeds
received during the project, resulting in a non-recurring accounting gain of $1 million in the FY18
result and a further $1.4 million in this half year result. These gains have been disclosed as non-
recurring items in the respective income statements.

5

Key Strategies in 2019:
Facility Utilisation: Utilisation of IM facilities in Australia has improved steadily throughout the
half year and is on track for 70% by the end of the financial year, despite taking on a small
additional warehouse in Queensland. This improvement has been achieved through an equal mix of
market share gains and organic growth in the volume of records stored by existing customers.

Digital Services Growth: The increased investment in sales & marketing is beginning to pay off,
with a number of new digital opportunities won toward the end of the period. Growing the
division’s existing digital services and exploring opportunities for adjacent digital offerings will
continue to be a focus for the business in 2019.

Secure Destruction and Medical Waste: These markets present an opportunity to apply Shred-X’s
consistent and high-quality national service standards and sales methodologies to grow in a number
of adjacent niche markets. The business has demonstrated particularly strong revenue growth in all
lines of business during the half year. Growth has been generated from a number of smaller bolt-on
acquisitions completed at the beginning of the half year, as well as through new business acquired
in the 2
nd
quarter. Management will continue to focus on both the integration of these acquisitions,
as well as closing additional opportunities in the pipeline.

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. Three businesses were acquired early
in the half year for a total of $10.3 million. These businesses are expected to be contributing
annualised EBITDA of $1.6 million by the end of the financial year, as the businesses become fully
integrated. Related capital expenditure will be approximately $0.5 million. These acquisitions will
be immediately EPS positive.

Corporate

Corporate costs increased by $0.8 million compared to the pcp, primarily due to the reclassification
of certain managers from the divisions into newly-created corporate roles, in addition to an uplift in
consulting costs relating to internal audit, external reporting and ESG initiatives.

Net debt increased by approximately $9 million to $163 million during the year. While cash flows
from operations remained strong and adequately covered all planned expenditures, an additional
$10 million was invested in three small acquisitions. Freightways continues to have excellent
support from its lenders and sufficient headroom in facilities and gearing levels to continue actively
pursuing its solid pipeline of acquisition opportunities.

OUTLOOK

The markets in which Freightways operates in both New Zealand and Australia continue to remain
positive, albeit the company will continue to closely monitor indicators for any adverse changes in
economic activity in New Zealand, in particular. Growth opportunities leveraging the current
customer base and through acquisitions exist in both New Zealand and Australia and will be
actively pursued. Subject to factors beyond its control, Freightways is once again targeting year-on-
year earnings growth for the full year.

6



Within the EP&BM division, the company expects that its strategies to better align price and
efficiency will gain further traction, 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 continue to be a key focus.
Freightways is encouraged by recent digital services wins and will continue to invest in this
capability. The group’s entry into the Medical Waste industry has tracked to expectation, with a
presence now in both New South Wales and Victoria.

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

CONCLUSION

Freightways has continued to invest in the future of both divisions, while returning a sound result
for the first half of the 2019 financial year. The key EP&BM strategies are critical to generating
both growth and improved returns from the growing B2C sector. In Information Management, the
group will continue to grow scale in existing revenue lines and will be alert to new opportunities
which can leverage the group’s existing customer relationships and core competencies.
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. 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.

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



Mark Verbiest Mark Troughear
Chairman Chief Executive Officer

25 February 2019

7


FREIGHTWAYS LIMITED
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 December 2018 (unaudited)




6 mths
ended

31 Dec 2018
$000
6 mths
ended

31 Dec 2017
$000
Variance

%

Operating revenue 314,769 292,133 8%
Other income 1,194 2,913 (59%)


Transport and logistics expenses (125,990) (115,158) 9%
Employee benefits expenses (83,982) (79,233) 6%
Occupancy expenses (14,403) (13,124) 10%
General and administrative expenses (32,174) (28,490) 13%
Other expenses (1,194) (2,913) (59%)
Non-recurring items 1,373 - -

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



59,593



56,128


6%

Depreciation and software amortisation (7,492) (6,895) 9%
Operating profit before interest, income tax and
amortisation of intangibles

52,101 49,233 6%
Amortisation of intangibles (1,004) (979) 3%
Operating profit before interest and income tax 51,097 48,254 6%
Net interest and finance costs (5,009) (5,127) (2%)
Profit before income tax 46,088 43,127 7%
Income tax (12,686) (11,718) 8%
Profit for the period attributable to shareholders 33,402 31,409 6%

8

FREIGHTWAYS LIMITED
CONSOLIDATED BALANCE SHEET
as at 31 December 2018 (unaudited)


As at
31 Dec 2018
$000
As at
31 Dec 2017
$000
ASSETS


Current assets

Cash and cash equivalents 3,441 10,450
Trade and other receivables
95,199 89,234
Inventories 5,327 4,848
Income tax receivable
- 657
Total current assets
103,967 105,189

Non-current assets

Trade receivables and other non-current assets 3,390 2,158
Property, plant and equipment
106,531 103,002
Intangible assets
363,532 357,817
Total non-current assets
473,453 462,977
Total assets 577,420 568,166

LIABILITIES

Current liabilities

Trade and other payables 72,718 71,878
Finance lease liabilities
119 118
Income tax payable
3,687 1,791
Provisions
745 795
Derivative financial instruments
617 1,343
Unearned income
15,548 15,633
Total current liabilities
93,434 91,558

Non-current liabilities

Trade and other payables 3,201 4,887
Borrowings (secured)
166,487 175,778
Deferred tax liability
37,394 36,168
Provisions
4,720 4,268
Finance lease liabilities
208 142
Derivative financial instruments
4,806 6,308
Total non-current liabilities
216,816 227,551
Total liabilities 310,250 319,109
NET ASSETS 267,170 249,057

EQUITY

Contributed equity 126,440 125,110
Retained earnings
150,568 132,601
Cash flow hedge reserve
(3,905) (5,484)
Foreign currency translation reserve
(6,042) (3,170)
267,061 249,057
Non-controlling interests 109 -
TOTAL EQUITY
267,170 249,057

9


FREIGHTWAYS LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
for the half year ended 31 December 2018 (unaudited)



6 mths
ended

31 Dec 2018
$000
6 mths
ended

31 Dec 2017
$000


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


Receipts from customers 304,469 284,333
Payments to suppliers and employees
(252,636) (230,720)
Cash generated from operations
51,833 53,613
Interest received 51 41
Interest and other costs of finance paid
(4,610) (5,002)
Income taxes paid
(14,925) (13,831)
Net cash inflows from operating activities 32,349
34,821

Cash flows from investing activities

Payments for property, plant & equipment (10,199) (7,402)
Payments for software
(1,972) (2,953)
Proceeds from disposal of property, plant & equipment
507 33
Payments for businesses acquired (net of cash acquired)
(10,516) (5,374)
Receipts from associate 1,709 -
Payments for other investing activities
(204) (203)
Net cash outflows from investing activities
(20,675) (15,899)

Cash flows from financing activities

Dividends paid (23,695) (22,880)
Increase in bank borrowings
8,193 5,594
Proceeds from issue of ordinary shares
390 330
Finance lease liabilities repaid
(68) (93)
Net cash outflows from financing activities
(15,180) (17,049)

Net increase in cash and cash equivalents (3,506) 1,873
Cash and cash equivalents at the beginning of the period 7,410 8,423
Exchange rate adjustments (463) 154
Cash and cash equivalents at the end of the period 3,441 10,450

10




 ‐
 100
 200
 300
 400
 500
 600
 700
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$M
Year Ended 30 June






 ‐
 10
 20
 30
 40
 50
 60
 70
 80
 90
 100
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$M
Year Ended 30 June


* 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
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EMAIL: announce@nzx.com
Notice of event affecting securities
1
Freightways Limited
Mark RoyleDirectors' resolution
(09) 571 9670(09) 571 967125022019
Fully Paid Ordinary SharesNZFREE0001S0
In dollars and cents
Current earnings for the year ended 30 June 2019
$0.1500
Enter N/A if not
applicable
$$0.010417$0.058333
$
NZD$0.026471
$23,307,000
Date Payable
1 April, 2019
15 March, 20191 April, 2019