Half Year Report December 2007

Half Year Review

From the Chairman and Managing Director

The Directors are pleased to present the financial results of Freightways Limited (Freightways) for the half year ended 31 December 2007. Freightways has again achieved a record result, demonstrating the resilience of its business model and the value created by its strategic decisions. Freightways’ core express package business continues to perform soundly and its emerging growth businesses in the business mail and information management markets have both delivered outstanding results. Directors are pleased with Freightways’ performance and consequently have declared an increased interim dividend.

Operating Performance

The results for this half year have been prepared in accordance with NZIFRS for the first time. As there is no longer a charge for goodwill amortisation, the EBIT and NPAT for the prior corresponding period have also had goodwill amortisation excluded for comparative purposes.

Consolidated operating revenue of $162 million for the half year was 12% higher than the prior corresponding period.

Earnings before interest and tax (EBIT) of $31 million for the half year was 6% higher than the prior corresponding period.

Consolidated net profit after tax (NPAT) of $16.8 million for the half year was 2% higher than the prior corresponding period.

Cash generated from operations before interest and tax was $32 million.

Dividend

The Directors have declared an interim dividend of $12.2 million reflecting this sound half year result. This translates to 9.5 cents per share, fully imputed, which is 6% higher than the prior corresponding period and will be paid on 31 March 2008. The record date for determination of entitlements to the dividend is 14 March 2008.

Reveiw of Operations

Express Package and Business Mail

The core express package business contributes the majority of Freightways’ revenue and earnings.  Freightways operates in the domestic express package market with the brands of New Zealand Couriers, Post Haste Couriers, Castle Parcels, SUB60, Security Express and Kiwi Express.

Freightways’ primary objective in its core express package market is to defend and grow its business. A vast number of initiatives are implemented by a very experienced and capable team of people to achieve this objective. In the current operating environment of low organic volume growth and rising costs, Freightways has been careful to continue to make decisions for the long-term good of the business. As such, our investment in facilities, technology, customer service initiatives and most importantly in the training and development of our people has continued. It is our experience that the work we do today during these quieter times will determine our ability to reap the benefits from tomorrow’s growth.

The earnings performance of Freightways’ express package business has again been on a par with the prior corresponding period. The strength and flexibility of Freightways’ business model and the focus of its people are evident in the delivery of this result in a challenging operating environment.

Overall Freightways’ express package business has performed well.

DX Mail operates in New Zealand’s postal services market. In recent years, DX Mail has developed its own street delivery network in a number of city centres around New Zealand and gained real traction in the market by winning several important new customers. This market support demonstrates the value mail customers attribute to DX Mail’s provision of a competitive service to the Government-owned NZ Post.

DX Mail is closely integrated with Freightways’ express package business that performs the majority of DX Mail’s pick-up, linehaul and delivery services. DX Mail also operates from the premises of the express package businesses, in addition to its own network of over 250 postal exchanges located throughout New Zealand.

While its contribution to Freightways’ earnings remains at this stage relatively small, the performance of the DX Mail business during this half year has been outstanding.

DX Mail is seen as an emerging growth business within Freightways’ portfolio of businesses.

Information Management

Freightways also views the information management market as an emerging growth opportunity, as evidenced by the recent acquisitions it has completed, both in New Zealand and Australia. Within the information management market, Freightways provides data storage, document storage and document destruction services to a wide range of business customers.

Freightways’ information management businesses are experiencing very strong growth on both sides of the Tasman. In New Zealand, the businesses of Archive Security, Data Security Services, and Document Destruction Services are based in five key locations that enable the provision of a national service. In Australia, the businesses of DataBank and Shred-X are concentrated in New South Wales, Victoria and Queensland. A further DataBank branch has been opened in South Australia during January 2008. Both businesses offer a national service, using agents in states where they have no established operations.

In July 2007, Freightways announced the acquisition of the document destruction businesses of Shred-X and Document Destruction & Paper Recyclers in Queensland. These acquisitions have delivered against Freightways’ initial expectations and also enabled the closer investigation of further growth opportunities in Australia.

Increased outsourcing of the storage and management of backed-up computer data, archived documents and document destruction has contributed to the strong growth of Freightways’ information management businesses. Outsourcing decisions are being driven by an increasing awareness in the market for the need to professionally and securely manage business information, and specifically in regard to document destruction, the growing market demand to securely destroy documents and recycle paper.

Freightways’ information management businesses have delivered a strong contribution to its overall result.

Internal Service Providers

Fieldair Holdings Limited provides airfreight linehaul services, Parceline Express provides road linehaul services and Freightways Information Services provides IT support to Freightways front line businesses. All three internal service providers have continued to deliver outstanding service.

Corporate costs have increased with the establishment of an office in Australia to support the development and growth of our Australian businesses. Freightways’ finance facilities were re-negotiated in August 2007 for a further three year period, with sufficient funding headroom to enable the execution of any near term incremental acquisition opportunities. During the period, Freightways has increased its borrowings to support its recent growth and capacity initiatives. While approximately 50% of total debt is hedged, the average interest cost has increased as a result of the general market increase in interest rates.

Outlook

Freightways’ core express package business is expected to continue to perform soundly, although growth in this market will again be influenced by the performance of the domestic economy. Freightways’ emerging growth businesses in the business mail and information management markets are expected to continue their positive growth and development. Cost increases are expected to moderate in the near term, although the price of fuel continues to be volatile and remains well above historic levels.

In recent years, Freightways has successfully embarked on diversifying its activities both geographically and deeper into the information management market. Freightways will continue to seek and develop growth opportunities to support this strategy.

In the near term, management expect Freightways’ performance to continue the trend shown in this and recent results announcements, continuing to grow positively, while delivering a very good dividend to its shareholders. In the medium to long-term, Freightways is exceptionally well positioned to reap the benefits of any improvement in the domestic marketplace.

Conclusion

Freightways has again delivered a record result. Its core business has performed well and its emerging businesses have delivered outstanding performance. This result has enabled Directors to declare an increased interim dividend. Freightways expects to continue achieving positive performance for its shareholders and other stakeholders, subject to business factors beyond its control.

The Directors acknowledge the outstanding work and ongoing dedication of the Freightways team.

WAYNE BOYD Chairman		DEAN BRACEWELL Managing Director

Freightways Ltd Consolidated Income Statement

For the half year ended 31 December 2007 (unaudited)