Annual Shareholders Meeting - Freightways



ANNUAL SHAREHOLDERS MEETING

A. CHAIRMAN’S INTRODUCTION

Slide 1. Freightways – 27 October 2005, Annual Shareholders Meeting

Slide 2. Wayne Boyd, Chairman

Ladies and Gentlemen welcome to Freightways’ Annual Shareholders Meeting. My name is Wayne Boyd and I am the Chairman of Freightways’ Board of Directors.

Slide 3. Agenda

- Chairman’s introduction

- Managing Director’s review and trading update

- Resolutions

Before we get underway I will run through the structure of the meeting.

• I will begin with procedural matters, introduce the Freightways Board and senior executive team to you and then summarise some of the Company’s 2005 highlights. I will then ask Dean Bracewell, Freightways’ Managing Director, to provide a review of the Company and an update on current trading performance.

• I ask that you hold all questions about the performance of the Company until the close of the Managing Director’s presentation and direct them through the Chair. Any questions related to resolutions should be asked when we consider those resolutions.

• Following the Managing Director’s presentation, we will attend to the resolutions as outlined in the notice of meeting.

• The notice of meeting, which includes the explanatory notes, has been circulated to all shareholders, and I intend to take it as read.

The Company’s constitution prescribes a quorum requirement of 5 shareholders. As you can see this requirement is met. As a quorum is therefore present, the meeting is duly constituted and I declare it open.

Proxies have been appointed for the purpose of this meeting in respect of approximately 50 million ordinary shares. As was indicated on the proxy form, where proxy discretion has been given, the Directors and myself, as Chairman, intend to vote those proxies we have received in favour of the resolutions before the meeting.

I would now like to introduce those at the table with me:

• Mark Royle, Freightways’ Chief Financial Officer and Company Secretary. Mark has over 20 years accounting and commercial experience of which 13 years were with a major international chartered accounting firm. Mark was appointed Chief Financial Officer and Company Secretary of Freightways 5 years ago, having spent a number of years prior to that with Freightways’ then Australian owner.

Your Directors at the table are:

• Dean Bracewell, Freightways’ Managing Director. Dean has spent almost his entire career with Freightways. Over a 20-year term Dean has held a number of senior Executive and General Management roles within Freightways’ subsidiary businesses prior to his appointment to Managing Director in 1999.

• Warwick Lewis. Warwick was Dean’s predecessor as Managing Director of Freightways between 1994 and his retirement in 1999. Prior to that role Warwick was Freightways’ Commercial Manager for 8 years and prior to that he founded and managed Chep Pallets, a company that was previously part owned by Freightways.

• Sir William Birch will not require a great deal of introduction, however it may be helpful to recap Sir William’s career. Sir William began his career in 1957, when he established a private practice as a surveyor in Pukekohe. His keen interest in community affairs led to six years as Deputy Mayor of Pukekohe and election to Parliament in 1972. During his 27 years in Parliament he served for 15 years as a Minister of the Crown, including 6 years as Minister of Finance between 1993 and 1999.

Following the general election in 1999, Sir William retired from Parliament to start a private consultancy. As a member of the ABN AMRO Australia and New Zealand Advisory Council he is involved with the ABN AMRO group of companies in an advisory capacity on business transactions. He is currently a director of a number of public and private companies including St George Bank New Zealand and is a trustee of Mutual Fund Limited and Superannuation Investments Limited.

• Sue Sheldon is a professional director and a partner in the Christchurch chartered accountancy practice, Sue Sheldon Advisory. Sue is Deputy Chairman of Christchurch International Airport, Chairman of the Board of Trustees of the National Provident Fund and a director of CanWest Media Works, Smiths City Group, Asure New Zealand, Ngai Tahu Holdings, Fibre Tech NZ and Nimbus Bedware. Sue is a former president of the Institute of Chartered Accountants and is a Board Member of Guides New Zealand.

• I was appointed a Director and elected Chairman of Freightways in June 2003. After practising law for 18 years and spending 5 years in investment banking, I established a specialist advisory business and a career as a professional director. I am also Chairman of the Auckland International Airport and Meridian Energy, and am a director of Telecom and Forsyth Barr.

Also present today are several members of the Freightways team. I shall introduce the members of Freightways’ senior executive team to you:

• Steve Wells. General Manager of New Zealand Couriers and Parceline Express. Steve has been with Freightways for 21 years.

• Mark Troughear. General Manager of Post Haste Couriers. Mark has been with Freightways for 9 years.

• Richard Mitchell-Lowe. General Manager of Freightways Information Services. Richard has been with Freightways for 17 years.

• Stewart Maclaren. General Manager of Online Security Services. Stewart has been with Freightways for 15 years.

• Mark Brightwell. General Manager of DX Mail. Mark has been with Freightways for 11 years.

• Andrew McMaster. General Manager Fieldair Holdings Limited. Andrew joined Fieldair as General Manager of its Engineering division in 2001 and was appointed General manager of Fieldair last year.

During 2005 we made three additional appointments to Freightways Executive team.

• Devon Buckingham was appointed General Manger of Castle Parcels Limited a subsidiary of Post Haste Limited. Devon has been with Freightways for 9 years.

• Colin Shotter was appointed to the Freightways Executive in his capacity of Auckland Manager of New Zealand Couriers. Colin has been with Freightways for 25 years.

• Neil Wilson was welcomed back to Freightways after an absence of several years. Neil was appointed to the role of General Manager, Messenger Services Limited. Including his time in years gone by, Neil has been with Freightways for 7 years.

I would like to congratulate Devon, Colin and Neil on their promotions and appointment to the Freightways Executive team.

As you can see the senior executive team of Freightways has considerable depth of experience. It is a particular strength of Freightways that we are able to identify and promote talent from within, not only in these senior roles but across many occupations within the greater company.

The Company’s Auditors PricewaterhouseCoopers are represented here today by David Randell and Vicki Bond and the Company’s legal advisors Lee Salmon Long are represented here today by Matt Ryan.

The Financial Statements for the year ended 30 June 2005 have been set out in the Company’s Annual Report that was mailed to shareholders during September 2005. Spare copies are available at the rear of the room.

I would now like to speak briefly to some of the general and financial highlights of Freightways’ 2005 year. I will then ask Dean Bracewell to address you.

Slide 4. General Highlights

2005 has been Freightways’ first full financial year as a listed company on the NZX since its IPO in September 2003. A particular highlight of working with the Freightways team is seeing first hand the successful realisation of its strategies across all subsidiaries in the three distinct markets it is working in. This has been achieved by taking quite different strategies to each distinct market whilst leveraging the fundamental business methodology of the Freightways group. All Freightways subsidiaries have achieved profitable growth compared to the prior year.

The acquisition of Archive Security in March 2004 has delivered fully to expectation in its first full year of Freightways ownership. Acquisitions can be notoriously difficult. It is to the credit of the Freightways management team that the successful identification and eventual implementation of this particular acquisition, its first as a listed company, has gone according to plan. Freightways has continued to demonstrate its ability to successfully execute its growth strategies.

Freightways’ shareholder base remains strong with the majority of its shares held in New Zealand. The final sell-down by Freightways’ prior owners of their residual 6% shareholding during August was supported with demand from both institutional and retail investors and again underpinned the market’s positive acceptance of Freightways as a listed company.

Slide 5. Financial Highlights

As you can see from these figures, Freightways has delivered improved performance on all fronts against the previous year. The performance of the Company has been simply outstanding and it has enabled the Board to declare a dividend to shareholders well in excess of the previous year.

Slide 6. Dividends

Those who invested at the time of Freightways IPO only two years ago at the issue price of $1.60 per share have received a total shareholder return (i.e. gross dividends plus share price appreciation) of over 100%.

The 2005 year has been another record year for Freightways, and the Board would like to thank the Freightways team throughout NZ for their consistently delivered efforts. Your Board has enjoyed its year with Freightways Limited. I’ll now ask Dean Bracewell to address the meeting.

Slide 7. Freightways – Dean Bracewell, Managing Director

B. MANAGING DIRECTOR’S REVIEW AND TRADING UPDATE

Thank-you Wayne and thank-you ladies and gentlemen for coming along today to our second annual shareholders meeting.

Slide 8. Managing Director’s presentation

My presentation will provide an update of the markets that we work in, along with a brief description of our businesses. I will touch on Freightways’ over-arching strategy, before finishing with an update on our recent trading performance and outlook for the foreseeable future.

Slide 9. Pioneers

You will see this photo at all Freightways presentations. These 6 chaps were the pioneers of New Zealand’s express package industry and are then what is today New Zealand Couriers. New Zealand Couriers is Freightways’ largest subsidiary and its flagship brand. From these humble beginnings in 1964, Freightways now contracts to approximately 1,000 couriers throughout NZ and employs over 1,400 people who work in every major town and city throughout NZ.

Slide 10. Express package industry - overview and business description

Slide 11. Express package industry

The express package industry can be viewed in two quite different segments. Firstly there is the network courier segment, which is where Freightways generates approximately 90% of its activity. This segment requires a nationwide airfreight and road freight linehaul system, a nationwide branch network and significant IT infrastructure. E.g. a package picked up in Kaitaia at 5.00 p.m. tonight and delivered in Gore at 8.30 a.m. tomorrow morning will have travelled through up to 8 pairs of hands, 2 couriers vans, 3 linehaul trucks, 5 depots and 1 aircraft.

A smaller segment of the industry is the point-to-point courier segment that has quite different characteristics, including lower barriers to competitors entering the market, hence this part of the market is highly competitive with a number of players. A package travelling via a point-to-point courier is handled only once and requires no material physical infrastructure.

The express package industry is embedded in customers’ supply chains. We provide a service to all industries and most, if not all, NZ businesses will have a relationship with a courier.

There are two major players in the express package industry - NZ Post and ourselves.

Growth of the express package industry is effectively underwritten by the increasing demand for goods and services to be supplied faster today than they were in years gone by. It is this demand for urgent Just-in-Time delivery that continues to drive volumes to our businesses.

Slide 12. Business description – Strengths

The depth of experience of Freightways people is an absolute strength of our company. The kind of experience you have heard mentioned in relation to our executive team is replicated at many levels right through our company. This depth of experience is very difficult for any competitor to replicate and contributes to Freightways’ competitive advantage.

Our couriers and linehaul drivers that you see on the road are independent owner-driver contractors. As such they have invested in their van or truck to partner with Freightways and accordingly share in the risk and reward of doing business with us. Our contractors are paid typically based on their productivity – the more productive they are the more they earn. This model provides a high degree of variability for our major direct cost.

Freightways has a great culture of operational excellence – of getting our customers’ packages to the right place at the right time in good condition. While we are not perfect we do achieve 99% plus accuracy. And we have further improved this score even through the last two years of significant growth. We also have a very healthy profit culture at Freightways. We produce weekly P&L’s and talk revenue, costs and profit on a weekly basis throughout all levels of our business.

Our front line businesses are supported by a dedicated express package linehaul system. We own and operate aircraft and manage a road linehaul system totally geared around express packages. As such we have no conflict of priorities in our core linehaul network.

And we take a multi-brand strategy to the market, which is shown on the next slide.

Slide 13. Multi-brand strategy

We segment the express package market into 3, and position our brands at different price and service points within these segments. NZC is our premium brand, Post Haste our mid-tier brand and Castle Parcels our economy brand.

This strategy enables us to provide customers with choice right across the market and allows customers to move to a different service level without having to leave the Freightways Group. Importantly major costs such as linehaul, IT and occupancy are shared across these brands to ensure we do not unnecessarily duplicate our costs.

Slide 14. Information Management and Business Mail

Slide 15. Information Management

Our information management brands provide a total information management service for businesses, including the archiving and retrieval of documents, the destruction of confidential documents and the archiving and retrieval of computer backup tapes. We operate in AKL, WLG, PMR and CHC. We view this niche as an emerging business within the Freightways Group, one that we will continue to invest in and grow. After only 5 years of aggressively being in this market we have established ourselves as the third largest operator in New Zealand.

We have relocated to new purpose built facilities in AKL and CHC during 2005 to accommodate the outstanding growth we are achieving in the records management division of this business.

The information management business complements our courier businesses through the collection of Online’s back-up tapes and archive boxes by our express package brands.

Slide 16. Business mail

DX Mail is a specialist business mail service provider. It has grown successfully since the deregulation of NZ’s postal services industry in 1998 to be the only nationwide competitor to NZ Post.

While continuing to leverage our traditional box-to-box network, we have also invested in a street delivery network in CHC, WLG and HLZ and have posties completing letterbox deliveries of business mail in these centres. We will continue to rollout this network around New Zealand in a manner that ensures the profitable growth of this business. The full potential of this business will be realised over a number of years.

DX Mail drives volumes to the express package brands through the pick-up and delivery of DX’s mail bags by NZC.

Slide 17. Business strategy

Slide 18. Strategy

Freightways is investing in a number of areas of its business to ensure it retains and grows its market share. This investment has occurred particularly in people with expanded sales/marketing and operational teams, and also in the core infrastructure of our business to ensure capacity for growth and to create further competitive advantage. This investment, although initially resulting in an increased cost of sale, is already delivering positive returns, as I will show in the coming slides.

We will continue to work in our three core markets where we have unfinished business. Express package, business mail and information management all continue to provide ample opportunity for growth, as we are seeing.

We regularly review the positioning and relevance of each of our brands and how we take these brands to the market. We will also continue to innovate within the three markets that we operate in to extend our service range to a broader customer base. Most importantly all our subsidiary brands are well positioned with capacity to accommodate growth. We also have specific objectives concerning our people, how we can further improve our performance for our customers and naturally we are very focused on sustaining our track record of profitable growth.

We will continue to explore acquisitions and form alliances where we believe they complement our core capability and add value to our company. In this regard we recently announced the acquisition of Kiwi Express Couriers, a long established and successful point-to-point courier business based in Auckland and Wellington.

These strategies are designed to continue to deliver very good long-term value to shareholders.

Slide 19. Trading update

Slide 20. Operating revenue

Our 2005 result clearly sustains the ongoing track record of Freightways. From 1999 until the end of 2005 we have achieved compound average revenue growth of 7%.

Slide 21. EBITA

Our revenue growth has been translated into EBITA or operating earnings growth at an average 19% p.a. over the same period.

Slide 22. Current financial performance

This slide shows our most current ‘unaudited’ financial performance drawn from our management accounts for the quarter through until 30 September 2005. As you can see Freightways has again demonstrated consistently strong trading to deliver another record result, well above the prior corresponding period. This performance has been achieved through the continuing support of existing customers, good gains in market share and some pricing improvement. While some existing customers are trading at lower levels than for the same period last year, we have been able to offset this organic volume decline with the successful implementation of our growth strategies. This strong operating performance, coupled with a proactive approach to managing our finance facilities, results in a very positive net profit after tax improvement of 21% compared to the prior corresponding period.

Slide 23. Outlook

Slide 24. Outlook

From Freightways’ viewpoint the domestic economy is less buoyant than it has been in recent years. Freightways’ growth strategies are however offsetting this economy-related volume decline, as evidenced by the year on year improvement shown in our first quarter trading update.

We do not expect to see any material change to our competitors’ behaviour in the marketplace. We will not however be complacent against any potential or existing competitor. Ultimately our best form of defence is to offer a great service at a competitive cost and this is what we strive to do.

Demand for Freightways services remains strong right across our group of businesses and our services are more valid today than they ever have been. Freightways will continue to take consistent well-developed strategies to the market in areas where we have proven capability. These strategies will continue to be designed for the long term good of the company.

At this stage of our annual business cycle, and subject to economic and business factors beyond our control, the outlook for Freightways, its shareholders and all other stakeholders remains positive.

Slide 25. Summary

In summary your company is strong and successful. We are well positioned to deliver continuing earnings growth and we intend to pay a good dividend along the way.

Thank-you ladies and gentlemen.

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