Fliway : Interim Report 31 December 2016

FLIWAY GROUP LIMITED
INTERIM REPORT
FOR THE SIX MONTHS ENDED 31 DECEMBER 2016
Contents
Directors Report	2
Comprehensive income	4
Changes in equity	5
Financial position	6
Cash flows	7
Notes to the Financial Statements	8 - 10
Directory	11

FLIWAY GROUP LIMITED

DIRECTORS REPORT

OVERVIEW - BUSINESS DEVELOPMENT SUCCESS

Stronger performance from the Business Development teams in both the Domestic and International divisions

meant revenue for 1H17 was down year on year by only 1.4% despite the customer loss announced in June 2016.

The December month's revenue was 5% ahead of last year as the new customer wins and existing customer uptrades

delivered a strong revenue finish to the first half of FY17. Further customer contract wins with commencement dates

in 2017 have seen us secure additional capacity in both Transport and Warehousing.

Fliway Group performance was impacted by the customer loss. As indicated at the time, it was expected the

EBITDA impact could appropximate 10% of Fliway's historical EBITDA performance and this has been reflected

in the 1H17 results. Issues additionally impacting the business have been capacity constraints in the Transport

business unit as a result of internal linehaul equipment availablility and the Kaikoura earthquake, which transferred

significant rail freight volumes onto road, thereby consuming capacity overflow options over a peak trading period.

Customer volumes, particularly in the second quarter, exceeded the network capacity in Transport.

Additional work was gained through the wider relationship with UPS and a number of initiatives were undertaken

in the UPS-Fliway joint venture to lower the cost of package delivery in New Zealand, in order to create a more

competitive international destination offering and facilitate higher levels of import package growth moving forward.

DIVISIONAL PERFORMANCE

Domestic Division

Transport volume levels for the six months to December were ahead of last year as a result of the excellent

business development work in that division that has seen new accounts either trading or signed, approximating

$5 million in annualised new revenue. The higher freight volumes in the Transport business unit have seen Fliway

operating outside its network capacity, requiring short term supplementary capacity solutions that have come at a cost

premium due largely to that capacity being consumed by the consequences of the Kaikoura earthquake which significantly

increased the road freight task as rail freight was disabled.

Internally, the Transport business unit implemented cost initiatives as a result of anticipated lower volumes that

reduced capacity, at a time when new business and customer uptrades saw volumes increase ahead of last

years levels. This short term capacity shortfall created cost issues that will have more economic solutions implemented

against them in the future.

In the Logistics business unit, warehousing revenues were slightly down on last year, with strong cost

management delivering a comparable profit result to last year. As a result of the business development wins in

the domestic division, Fliway will be increasing warehouse capacity in Auckland by a further 6,000 square metres,

or approx. 20%, in quarter 3 to accommodate the new growth.

The roll out of the new Warehouse Management System is progressing well and will deliver productivity gains once

fully implemented.

International Division

EBITDA for the division was in line with last year, as a result of strong customer focus and good results from the business

development team in winning new customers. The first half of FY17 saw significant changes in Flway International, with

management changes, a continuation of low sea freight rates and some customer churn. The management team of the

division has been re-organised and is performing well under the new leadership, strengthening relationships with

network partners, customers and carriers.

As part of the customer focus initiatives in International, progress is being made on creating improved

technological solutions to deliver for customers improved data and visibilty whilst at the same time moving

to a paperless environment with improved workflow.

UPS-Fliway Joint Venture
In 1H17 import packages handled by the joint venture grew on the prior year by 13% and with a more competitive import
cost, the expectation is to further grow these import volumes to produce higher financial returns in the future.
The contribution from the UPS-Fliway joint venture was down on last year, with NPAT down by $0.155 million, as a
result of a strategy designed to improve the cost of delivering a package in New Zealand in order to drive continued
import package growth.
GROUP CASHFLOWS AND DEBT
Operating cashflows were $1.1 million compared to the prior year's half figure of $3.0 million, as a result of the
the lower earnings and an increase in working capital levels by $1.2 million. The higher revenues in December 2016
pushed debtor levels and with lower payables saw net working capital lift on the prior year, with the intention to
manage this position back to historical levels, subject to continued revenue growth.
Net capital expenditure for the half year was $1.6 million, with $1.3 million of that spend relating to truck
expenditure as Fliway returns to a more normal vehicle replacement cycle. The prior year FY16 truck spend was
suppressed due to the significant fleet refresh in FY15 ahead of the NZX listing.
Fliway debt levels at 31 December 2016 were $8.8 million as compared to a bank facility of $18 million and represent
1.5 times EBITDA, ensuring the balance sheet gearing still allows room for growth.
DIVIDEND
Consistent with prospectus and historical guidance with respect to the percentage of NPAT payable and the
weighting between the first half and second half earnings, Fliway's Directors have approved the payment of an
interim ordinary dividend of 2.0 cents per share. The dividends are payable on 20 April 2017 to shareholders
recorded on the share register as at 5:00pm (New Zealand time) on 31 March 2017.
OUTLOOK
The first half reflects a perid of change in the business and a re-positioning for future growth. Transport capacity, margins
and cost management remain priorities for the Group in order to convert the significant new customer wins in 1H17
into improved profitability in 2H17.
The balance sheet and declared dividend remain conservative to ensure capacity exists in whatever form required
to convert the strong sales pipeline into improved future earnings.
Sales growth remains a focus for the Group as Fliway looks to sell to capacity in it's network and increase
relationships with existing customers and business partners. 1H17 volumes finished the year strongly and
with significant new customer wins still to come on board, it is our expectation that current momentum will be
continued, giving us confidence that 2H17 will deliver improved results over the prior year.
Craig Stobo, Chairman	Duncan Hawkesby, Managing Director

FLIWAY GROUP LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 31 DECEMBER 2016

Unaudited

Note	Six months ended 31 Dec 2016 $'000	Six months ended 31 Dec 2015 $'000	Year ended 30 June 2016 $'000
4	43,221	43,822	82,644
	458	613	1,282
5	(12,069)	(11,652)	(21,543)
	(2,426)	(1,829)	(3,502)
	(4,135)	(3,622)	(7,259)
	(14,494)	(15,110)	(29,627)
	(2,955)	(3,024)	(5,679)
	(3,324)	(3,066)	(6,128)
	4,276	6,132	10,188
	(1,151)	(1,005)	(2,087)
	3,125	5,127	8,101
	(242)	(382)	(801)
	2,883	4,745	7,300
	(688)	(1,165)	(1,684)
	2,195	3,580	5,616
	4.8	7.9	12.4

Audited

Revenue

Share of joint venture profit after tax

Disbursement costs Freight costs

Rental and leasing charges Personnel costs

Vehicle expenses

Other operating expenses

EBITDA

Depreciation and amortisation

EBIT

Net financing expenses

Profit before income tax

Income tax expense

Profit and total comprehensive income for the year Earnings per share

Basic and diluted earnings (in cents)

The notes to the financial statements form part of and should be read in conjunction with this statement.

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