Full Year Report June 2005

From the Chairman and Managing Director

The Directors are pleased to present the financial results for Freightways Limited (Freightways) for the year ended 30 June 2005. 2005 has again been a very successful year for Freightways with the company delivering another record result.

Operating performance

Consolidated operating revenue for the year of $234 million was 9% higher than the prior corresponding period.

Earnings before interest, tax and amortisation (EBITA) were $50.5 million, 24% higher than the prior corresponding period.

Consolidated net profit after tax and before amortisation (NPATA) was $27 million, 28% higher than the prior corresponding period.

Cash generated from operations before interest and tax was $54.9 million.

Dividend

The Directors have declared a final dividend of $10.7 million, delivering a full year payout in line with the dividend policy. The final dividend translates to 8.5 cents per share fully imputed, which will be paid on 30 September 2005. The record date for determination of entitlements to the dividend is 16 September 2005. This brings the total payout in respect of the year to $20.2 million or 16 cents per share (fully imputed), 26% higher than the previous corresponding period.

Reveiw of Operations

All Freightways subsidiaries have performed well, with demand for Freightways services continuing to grow across its range of services.

Express Package

Freightways’ core express package business contributes the majority of Freightways’ revenue and earnings. The brands of New Zealand Couriers, Post Haste Couriers, Castle Parcels, SUB60 and Security Express all achieved strong growth over the prior year. A favourable domestic economy, growth in express package volumes from existing customers and smaller pricing and market share gains were the primary drivers of revenue growth.

The strength of Freightways’ business model has again been proven with the efficient management of significantly increased volumes of packages through all brands. Ongoing focus on the fundamental disciplines of business mix, margin integrity and cost management has contributed to strong performance in all brands. Freightways’ culture of operational excellence has pleasingly delivered improved levels of customer service in key areas of the business at this time of significant growth.

Incremental investment in Freightways’ network capacity to accommodate future growth has resulted in branch relocations to larger facilities in Christchurch, Auckland’s North Harbour and a number of other smaller regional locations.

Although acquisition opportunities are few and far between in the express package market a small Wellington based point-to-point courier business was acquired and successfully merged with SUB60 in March 2005. In addition a number of alliance opportunities have been progressed. A relationship has been established with Mainfreight that enables a total supply chain solution, encompassing both companies’ unique range of services to be offered to both Freightways’ and Mainfreight’s respective customers.

Business Mail

DX Mail again increased its contribution as it gained further sales traction in the business mail niche of the Postal Services market. DX Mail is a nationwide business mail competitor to NZ Post and is seen as an emerging growth opportunity within Freightways’ portfolio of businesses. Low revenue per mail item and the high cost components associated with mail delivery will in the near term result in DX Mail’s contribution being relatively modest in the perspective of Freightways’ total earnings. DX Mail’s growth strategy will be implemented over a number of years. Strategically DX Mail is integrated with New Zealand Couriers which picks up and delivers mail bags for DX Mail’s growing customer base.

Information Management

Freightways also defines its information management business of Online Security Services (OSS) as an emerging growth opportunity. Continued penetration in the document destruction, computer media storage and records management markets has contributed to strong growth in this smaller business. The acquisition of Archive Security in 2004 has also been highly successful and has contributed, as expected, in its first full year of ownership, to a greatly improved result from OSS. Freightways operates the front line brands of Document Destruction Services, Data Security Services and Archive Security in the information management market.

The OSS Christchurch operation was relocated in December 2004 and the Auckland operation relocated in July 2005. Both businesses are now operating from new purpose-built, high-stud facilities and have expansion land available at each location. It is expected that the growth we are experiencing in this business will result in extensions to both these facilities occurring within the next 12-18 months. In addition, these new facilities will enable OSS to further extend its range of services to offer customers a total disaster recovery service including the hosting and management of disaster recovery computer servers and access to fully-equipped business recovery office suites.

A small competitor to Data Security Services in Christchurch was acquired in December 2004.

Internal Service Providers

Fieldair Holdings Limited provides airfreight linehaul services to the express package brands through the ownership and operation of our fleet of Convair 580 aircraft by its subsidiary Air Freight NZ Limited. During 2005 a larger Convair 5800 was leased in addition to our existing fleet of aircraft. This Convair 5800 provides additional capacity and reduced flying times on the main trunk route between Auckland and Christchurch. The benefits derived from directly controlling our airfreight linehaul continue to be evidenced, particularly through this period of strong growth. Fieldair Engineering Limited, the aviation engineering subsidiary of Fieldair Holdings Limited, has continued to extend and develop its presence in the aviation engineering market. Increased workload is evidenced by staffing levels increasing by approximately 40% in our primary engineering location of Palmerston North.

Parceline Express Limited provides road linehaul services throughout New Zealand and has continued to accommodate the growth from our front line brands while providing them with a premium service.

Freightways Information Services Limited, our in-house IT services provider, has successfully completed the first stages of the three-year planned migration to a next-generation information systems operating environment. Capital expenditure associated with this project is running to expectation.

Corporate costs continue to be managed within expectations. A refinancing was completed in December 2004 to replace relatively expensive subordinated debt with normal commercial bank facilities on more favourable terms. The annualised benefit of $0.5 million arising from this refinancing will flow from 1 July 2005. At the same time, additional headroom of $22 million was negotiated to enable Freightways to continue to explore and develop stepped growth opportunities.

Outlook

Freightways is a strong successful business that is well positioned to deliver continuing earnings growth. Freightways will continue to take consistent, well developed strategies to the market in areas where we have proven capability.

Capital investment expected to total approximately $7 million will be spent during the next financial year in areas that support the growth of our core and emerging businesses. Investment will also continue to be made in the development of our people and to enable the achievement of our positioning and performance objectives.

Freightways has completed an exceptional year with several factors combining to enable the delivery of this record result. These factors included a strong domestic New Zealand economy and a competitive environment that delivered no surprises. As at 30 June 2005, Freightways had not experienced any significant downturn in volume. It is however anticipated that the economy will not be as strong in 2006 as it was in 2005, as has been evidenced by lower levels of activity at some customers in recent weeks.

It is expected that Freightways will continue to enjoy positive growth in 2006 although its growth will not be at the same rate as 2005. At this early stage of the new financial year, Freightways remains comfortable with the market analysts’ 2006 NPATA range between $26.2 million and $31.2 million. Subject to economic and business factors beyond our control, the outlook for Freightways, its shareholders and all other stakeholders remains positive.

Conclusion

Freightways has again delivered outstanding performance during a year of significant growth. This has been achieved by a continuing focus on fundamental business disciplines by a highly-motivated Freightways team. The Directors acknowledge this outstanding teamwork and dedication.

WAYNE BOYD Chairman		DEAN BRACEWELL Managing Director

Consolidated Statement of Financial Performance

For the year ended 30 June 2005