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Financial Result for the Twelve Months Ended March 2008 (Unaudited)

Posted on 30 May 2008

Highlights
• Acquisition of Target Logistic Services Inc in the United States finalised in October 2007; ownership of Asian businesses increased to 100% in August 2007; disposal of interests in LEP and Pan Orient in May 2007
• Revenues in continuing businesses improved by 25.8% excluding foreign exchange
• Net surplus before abnormals in continuing businesses increased by 15.3% to $40.81 million
• Net surplus after abnormals and including all businesses $101.62 million
• EBITDA performance in continuing businesses a record $74.33 million, an increase of 16.2%
• Full year dividend increase of 20% to 18 cents per share.

Commentary
The Mainfreight Group is pleased to report another record net surplus after taxation but before abnormals of $40.81 million for the twelve months of the 2008 financial year. This represents a $5.41 million, or 15.3% increase when compared to the same period last year.

A further $60.54 million of abnormal gains from the sale of Mainfreight's interests in LEP and Pan Orient businesses (as announced last year), brings the total net surplus for the year to $101.62 million.

Total revenues (sales) for continuing businesses increased by 20.2% to $911.72 million, from $758.20 million last year (excluding foreign exchange, an increase of 25.8%).

The continuing businesses provided EBITDA of $74.33 million, an improvement of 16.2%. After taking foreign exchange effects into account, this increase is 18.6%.

Trading conditions in the fourth quarter were much improved on the prior year, with EBITDA results for the three month period increasing by a further 19.5%.
Strong performances from all our operations contributed to this increase, other than in our domestic operations in Australia, where additional costs were incurred to prepare for further growth.

Trading into the first quarter of our new financial year continues the trends seen in the fourth quarter.

This is a satisfactory result, achieved in our 30th year.

Global Expansion
We have also made good progress in strengthening our global logistics business.

The increasing diversification of our revenue streams across many countries, trade lanes and activities provides a natural protection for our earnings.

Trading and economic conditions may vary from country to country, bringing shifts in areas of profitability, but our wide-ranging operations give us confidence in increasing the profitability of the Group.

In the continuing businesses, sales revenues from outside of New Zealand now exceed 57% and will continue to grow in significance.

Divisional Performance
New Zealand
While trading conditions in the New Zealand economy softened during the year, our performance in both domestic and international trade continued to improve over the year.

Our Domestic operations saw EBITDA improve by 10.6% to $37.38 million on revenue growth of 4.2% to $281.36 million.

During the year we continued to take advantage of our extensive branch network to enhance our customers' supply chains. The range of services that we are now able to offer our customers has never been greater, as we leverage our domestic and international operations alongside each other. Market share gains in the first quarter of this new financial year will see performance continue to improve.

The decision by the New Zealand Government to purchase back the rail network and infrastructure was, in our view, inevitable. New Zealand now has the opportunity to manage this valuable core asset back to efficiency and profit. The appointment of a commercial board and management team is essential to allow this to happen. We seek additional rail services and rolling stock to assist the transfer of freight from road to rail.

Aspects of the rail purchase by the Government however are blatantly wrong and require substantial change to reduce the risk of anti-competitive behaviour.

If Australian transport companies want to operate in New Zealand, it needs to be without subsidies from the New Zealand tax payer.

In our International business, despite decreasing export volumes, EBITDA improved 13.6% to $4.92 million. Revenues declined 8% to $103.94 million.

During the year we expanded the branch network to 11, opening new branches in Dunedin, Hamilton, and a dedicated airfreight branch in Auckland. Significant import growth has been generated as our expertise in supply chain logistics continues to develop alongside our warehousing and distribution operations.

We have established CaroTrans as a neutral NVOCC brand in New Zealand, and the business is receiving strong support from the forwarding community as it develops its range of consolidated seafreight services.

Australia
Our operations in Australia are now well-established and have given us a solid base from which to continue the growth of our network. The past year has seen several significant milestones with new branches opening, new brands being established and property purchases made.

Domestically our revenues continue to increase, up 19.2% to $148.69 million Excluding foreign exchange this is an improvement of 21.6%. EBITDA declined 1.5% to $11.85 million; excluding foreign exchange EBITDA improved 0.3%..

While third quarter EBITDA performance was markedly improved on the first half, our fourth quarter EBITDA was down 9.6% before foreign exchange, as we increased cost structures in the business to address increased demand for services. For the most part this represented facility costs as new warehouses and freight terminals were occupied during the quarter. We are confident that as utilisation of these warehouses is increased, profit contribution will improve.

In the past year we have increased warehousing capacity by 35% with the commissioning of four new facilities. We now occupy 93,000m2 of warehousing in Australia. Freight generation from our warehousing facilities has doubled from the past year.

In our Distribution business, market share gains in the last quarter totalled a further $14 million of sales per annum. Trading for the first two months in the new first quarter is ahead of last year and we expect this to continue throughout the year. We have launched our hazardous goods service under the brand of Chemcouriers, and expect to have nationwide coverage established within 18 months.

Our International division has once again improved profitability, increasing EBITDA 17.2% to $7.79 million (excluding foreign exchange 19.4%). Revenues increased 3.7% to $144.91 million (excluding foreign exchange 5.7%). Our service offering and strength is in the inbound seafreight markets from Asia, the United States and New Zealand, where our market share places us as the largest consolidator from all three countries.

Opportunities exist in the development and growth of our trade lanes to and from Europe and South-East Asia in both seafreight and airfreight. To assist this development we have entered into discussions for a potential acquisition, and are in the process of completing sale and purchase documentation. This business, if acquired, will provide valuable airfreight tonnage and a stronger connection to and from Europe thereby further strengthening our world-wide international freight network.
As in New Zealand, the CaroTrans business was established in Australia during the year, offering much-valued wholesale consolidated seafreight services.

USA
Our presence in the United States dramatically increased during the year, with the acquisition of Target Logistic Services and the increasing growth we have in CaroTrans.

CaroTrans' performance has been particularly pleasing with revenues improving to $124.54 million; an increase of 12.3% (excluding foreign exchange, an increase of 29.9%). EBITDA increased to $7.79 million, an improvement of 9.1% (excluding foreign exchange a 26.1% improvement).

Target Logistics (to be renamed Mainfreight USA from 1 July) had revenues for the five month period of $96.07 million with an EBITDA of $2.53 million.

CaroTrans has increased its market share, through its reputation as a very good neutral NVOCC consolidator. This has strengthened our position in the US market and enhanced our services around the world. For this reason, the CaroTrans network has been extended beyond US shores this year, with offices established in Hong Kong, China, Australia and New Zealand. Locations in Europe are a high priority for development.

Export-led growth in CaroTrans USA continues to be strong as the weakness of the US dollar against world currencies is creating export opportunities for US manufacturers.

Mainfreight USA has traded for five months under Mainfreight's ownership. During that time we have identified a number of opportunities to improve performance.

Our ability to provide a larger range of international services to our customers, better technology platforms and the introduction of Mainfreight's culture and freight disciplines will see revenues and margins improve.

Cross-trading opportunities between CaroTrans and Mainfreight are numerous and are being implemented. Linehaul services for CaroTrans domestic freight, and CaroTrans international consolidation services for Mainfreight are good examples of this cross trade.

Chinese freight volumes to the United States are being transferred to Mainfreight Asia and will provide a stronger base for our Asian operations to increase US trade lane growth.

Asia
On 1 August 2007 we acquired the remaining shares in our Hong Kong and Chinese operations giving us 100% ownership.

Consolidated earnings are for the eight month period only. However full year performance saw revenues of $17.73 million, an increase of 18.1% excluding foreign exchange, and an EBITDA performance of $2.77 million, an improvement of 5.8% excluding foreign exchange.

Full ownership of the Asian business will allow us to develop at a faster pace, and frees us to respond rapidly to acquisition opportunities. We have also been able to convert the former Target Logistic agency relationships and freight throughout China to our Mainfreight network.

Branch development has continued with a fifth branch opening in Guangzhou. Trade-lane development has also been extended - to South America and the United Kingdom. European and intra-Asian trade-lane development remains a high priority.

Carbon Emissions
Mainfreight has always attempted to reduce the environmental impact of its operations. Our sustainability initiatives have often resulted in reduced costs; so the bottom line and the environment are both winners.

Real or not, climate change is fast becoming a core strategic issue for businesses everywhere. For Mainfreight, it begins with accepting that our business is based on an activity that generates carbon emissions and then taking responsibility to reduce those emissions over time; without negatively impacting on our competitiveness.

Our response is twofold:
• We have measured the carbon emissions we generated over the last financial year across Mainfreight New Zealand's operations.
• You will start to see us move more freight by rail because the simple fact is trucks emit 4.6 times more CO2 per tonne km carried than trains.

Group Operating Cash Flows
Operating cash flows were $40.7 million and were impacted by higher tax payments and slow debtor collection in the March quarter.

During the year net capital expenditure totalled $42.0 million. Property development accounted for $29.3 million of this.

Funds from the divestment of businesses was $93.16 million and monies expended on acquisitions totalled $80.33 million.

Net debt increased to $79.89 million from $71.13 million.

Dividends
The Directors have approved a final dividend of 10 cents per share fully imputed, with the books closing on 18 July 2087; payment will be made on 25 July 2008. This takes the full dividend for the year to 18 cents per share; an increase of 3 cents per share or 20% over the prior period.

Acquisitions
Negotiations to acquire a substantial international freight forwarding operation in Australia are progressing well, with an announcement imminent.

New Zealand International Financial Reporting Standards (NZIFRS)
This year's results have been issued under the new IFRS accounting regime. Excluding the elimination of goodwill amortisation, the following non-cash comparative changes have impacted continuing business profits as follows:

                                                                      2008      2007
Financial instrument recognition                   (607)         33
Share based payment expense                       (585)       (477)
Net profit before tax                                   (1,192)       (444)

The Directors and Management of Mainfreight are yet to be convinced that the cost of compliance with NZIFRS, and the onerous requirements under it, are in the best interests of its stakeholders.

Outlook
Trading during the first two months of this year continues to see improvement in both New Zealand and in our offshore interests. However, the New Zealand environment is expected to have its difficulties as fuel price increases continue unabated, and there is plenty of commentary about the economy tightening. Our New Zealand domestic operations have seen good improvements during this period from market share gains and efficiencies gained from freight terminal investments.

Offshore we expect to continue to see growth in all operations. Australian domestic returns are likely to remain neutral during the first half as costs for growth are absorbed.

Having our operations now located in a variety of countries in a growing logistics market, Mainfreight is well positioned to take advantage of the opportunities and we will continue to provide growth and increasing returns

For further information, please contact Don Braid, Group Managing Director,
telephone +64 9 259 5503, +64 274 961 637 or email don@mainfreight.com.