Announcement

HALFYR: FRE: Half Year Results to 31 December 2021 and Interim Dividend 08:46am 
FRE
21/02/2022 08:46
HALFYR
PRICE SENSITIVE
REL: 0846 HRS Freightways Limited

HALFYR: FRE: Half Year Results to 31 December 2021 and Interim Dividend

HALF YEAR REVIEW
From the Chairman and Chief Executive Officer

Freightways' business model again demonstrated its resilience as both NZ and
Australia operated in various states of lockdown or restrictions for much of
the first half of FY22. Throughout level 4 lockdown in NZ and in particular
during the extended lockdown of Auckland, we continued to see express package
and information management activity decrease materially as businesses were
forced to remain closed. Those express package volumes then rebounded
strongly as online shopping was permitted and NZ began to slowly re-open for
business-to-business freight. Australia also experienced material lockdowns,
initially in Victoria, but then eventually across all states in some form.
While this hindered core information management activity, it provided an
opportunity for our burgeoning medical waste business which benefitted from
extremely strong customer demand.

Our "half of two quarters" has delivered pleasing top-line revenue growth of
7.7%, EBITA growth of 5.6% and NPAT growth of 7.4% (before changes in the
fair value of contingent consideration for the Big Chill earn out). We are
also pleased that this was achieved whilst remaining focused on the health
and safety of our people in what has been a particularly challenging period
to operate in.

While the first quarter of the year was challenging with revenue and EBITA
down by 4.1% and 9.2% respectively primarily due to the financial impact of
lockdowns, the second quarter generated revenue growth of 20.3% and EBITA
growth of 20%, as the network benefitted from a surge in volumes for express
courier items and perishables carried through our Big Chill network; a
material increase in the amount of medical waste which required collection
and processing in Australia; and an increase in Business Process Outsourcing
activity within information management. Revenue growth in these three areas
was driven by a combination of organic growth, market share gains and
improved pricing versus the same period last year.

During the half year, we also announced the acquisition of ProducePronto
which complements Big Chill with its same-day temperature-controlled delivery
and 4PL capabilities. We also announced a $2.7 million investment in
SaveBoard: a building product made from packaging waste such as courier
satchels and TetraPak cartons. The plant has produced over 13,000m2 of board
for a building sector that welcomed the introduction of 100% recycled
building products.

Freightways is well positioned to take advantage of the opportunities that
are in front of us with loyal customers, high-performing businesses, a strong
balance sheet as well as experienced and adaptable customer-focused teams.

The Board has announced an interim dividend of 18 cents for the first half of
the year, based on the strong performance of the businesses.

Divisional performance

Each division's key features are listed below for HY22.

Express Package & Business Mail

o Strong volume growth from new and existing customers after the level 4
lockdown. The express package & business mail division was successful in
winning market share and helping new-to-market customers with their logistics
needs. This resulted in 7.2% improvement in revenue over the same period last
year.
o B2C deliveries also contributed positively to revenue and contractor
incomes, without weighing on margins. B2C deliveries increased by 16% over
the pcp with peaks during level 2 and 3 lockdowns establishing a sustainable
higher base volume for 2022.
o Pricing For Effort (PFE) peaked at $1.41 per item by December, which has
assisted courier income to grow by an average of 8.4% on the pcp.
o Volumes placed pressure on existing facilities at the very end of 2021 and,
as a result, the EP brands will add further capacity in South Auckland and
Christchurch in 2022.
o Big Chill 3PL utilisation approached 95% for the Auckland facility. We have
committed to a new 16,000 pallet facility in Tainui's Ruakura logistics hub
which should be ready for completion by July 2023.
o DX Mail volumes were up 3% on the pcp despite the impact of lockdowns.
o Labour costs are forecast to increase in 2022 as the labour market further
tightens and the new minimum wage pushes up the overall base rates for
labour. We expect to recover these costs in the pricing strategies we will
execute over the coming year, to ensure we have the right level of resource
and capability so our customers to continue to receive the levels of service
they have come to expect.

Information Management & Waste Renewal

o The first half year was characterised by solid revenue and strong earnings
gains for the division, off the back of digitisation wins and extremely
strong medical waste volumes at premium rates.
o We achieved incremental gains in storage volume through the half year even
though the main metro markets are still challenged by Covid-related
disruption to their businesses.
o There were a number of contracts signed for digitalisation revenue for FY22
and FY23 on both sides of the Tasman representing $10 million and $21 million
respectively.
o Our litigation support services -print and eDiscovery - operated at lower
levels for most of the HY due to customers predominantly working from home
over that period.
o Document destruction volumes were steady at slightly higher levels of paper
pricing during the HY.
o Medical waste revenue increased by 67% on the pcp as Covid required many
more sites to be serviced. While we expect some of that pricing to moderate
over the second half of the year revenue for FY22 should exceed $20 million
for the first time for the full year which would represent a 7x fold increase
on the small business we acquired in 2018.

Balance sheet strength

Capital expenditure for FY22 is forecast to be in a range of $24-26 million
and invested in a number of IT development projects, medical waste plant,
replacement of vehicles and freight handling equipment. Thanks to strong cash
flow generation, our gearing has continued to reduce as expected following
the Big Chill acquisition. We remain committed to a solid investment-grade
credit profile.

Director Movements

After over 11 years on the Board, Mark Verbiest, the current Chair of the
Board of Directors, has announced that he will be retiring from the Board
with effect from 31 March 2022. Mark joined Freightways Limited as an
independent director in 2010 and has been Board Chair since June 2018.

Mark's strong commercial acumen, knowledge of Freightways and broad
experience as a listed company chair, have supported Freightways' development
in particular over the past 3 years. Mark has been a key figure in the
expansion of Freightways' interests into temperature-controlled freight and
waste renewal as well as a steady hand as the company navigated the
challenges of Covid-19.

The Board has unanimously resolved to appoint Mark Cairns to replace Mark
Verbiest upon his retirement. Mark joined the Board of Freightways as an
independent director in April 2021. He has been Chief Executive of Port of
Tauranga, New Zealand's largest and most successful port, since 2005,
retiring in June 2021 to pursue a full-time governance career.

The Board has also appointed David Gibson to the Board of Freightways,
effective on 1 April 2022. David will stand for election at the Annual
Shareholders Meeting currently scheduled to be held on 27 October 2022. David
is a professional director and investor. His current directorships include
the NZX listed companies Trustpower, Goodman (NZ) Limited and NZME Limited.
His background is in finance with a 20-year career in investment banking
having held senior positions and governance roles with Deutsche Bank and
Deutsche Craigs, in New Zealand. He holds a Bachelor of Laws (Honours) and
Bachelor of Commerce from the University of Canterbury. He is actively
involved with several New Zealand growth companies.

Outlook

Whilst the economic climate remains uncertain, we are encouraged by the
strong trade in express package and the resilience of our information
management businesses, as demonstrated in our results in HY22. The second
quarter delivered strong volume growth after the lockdowns of August and
September. Much of this growth was from profitable delivery of B2C and this
higher level of volume will be supported by further investment in facilities
in Auckland and Christchurch.

We do however expect that the impact of Covid-19 will continue in this
financial year through:
o Higher volumes of home delivery (B2C) during periods of higher in-home
isolation;
o Potential restrictions to either our customer's businesses or our own
networks as Omicron forces; workers into isolating, all in the context of a
very tight labour market.

We will continue to target revenue and earnings growth in FY22 and we have
plans in place to adapt to:
o A tight labour market putting upward pressure on labour costs,
o The impact of Omicron in AU & NZ;
o A constrained supply chain which could continue to disrupt the flow of
goods coming in NZ and ultimately impact the volumes we receive from our
customers.

We will continue to review the portfolio of services we provide with a view
to delivering superior long-term value to shareholders through short, medium
and long-term initiatives.

The company will continue to consider acquisition opportunities that are
complementary to our existing operations and capabilities.

The Freightways directors would again like to acknowledge the efforts of
every one of our team across Australasia during what have been and remain
highly challenging times.
End CA:00387560 For:FRE Type:HALFYR Time:2022-02-21 08:46:27

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