Leading Australian express and freight transport group Toll Group plans to sell off underperformingnon-core businesses in a strategic U-turn after years of international expansion as its half-year
profits dropped back.New CEO Brian Kruger, who took over from long-serving Paul Little at the start of this year,told the Australian Financial Review that the company would be “seriously re-visiting” assets “thatare not contributing to the bottom line”. He also stressed he would focus more closely on bettermargins and returns on investments in future.
In the six months ending December 31, 2011, Toll Group increased revenues by 4.7 per cent toA$4.4 billion but operating profits fell 2.2 per cent to A$248.2 million. Net profits dropped 3.7per cent to A$157.9 million.
Commenting on the results, Kruger stated: “These results highlight Toll’s robust underlyingbusiness model. Once again, Toll’s diversity is proving to be its strength in these challengingeconomic times. Our exposure to the resources sector as well as the faster growing markets in Asiahas helped offset the difficult conditions in discretionary retail and in the manufacturing sectorin Australia.
“Our challenge going forward will be to focus on maximising returns from recent capital andacquisition expenditure and to take advantage of the many organic growth opportunities that we havein Australia and in our chosen overseas markets. Our One Toll initiative, which is already drivingimproved collaboration across the Group, as well as building brand recognition, will be a keydriver for us in meeting that challenge.”
The group’s largest division, Toll Global Express, which represents about 25 per cent ofgroup revenues, increased sales by three per cent to A$1.13 billion in the first half of the2011-12 year. But its operating profits dropped back to A$94.2 million from A$111.5 million oneyear earlier. Footwork Express, the Japanese express subsidiary, saw half-year revenues drop 2 percent to A$377 million while its operating profit dropped 86 per cent to just A$3.4 million.
Commenting on the express results, Kruger said: “The Australian businesses of Toll GlobalExpress have continued to perform well, while underlying earnings at Footwork Express in Japan wereadversely affected by a very weak market environment. The period on period comparison for overallreported EBIT is distorted by inclusion of net one-off gains in Footwork Express of around $18million in the prior period. In Australia our targeted offering to online retailers has begun togain traction.”
In its report, Toll Group stated that the Australian operations of Toll Global Express saw “robust” revenue growth and the EBITA performance was “pleasing” with stable margins. Expressbusiness Toll IPEC recorded revenue growth in all states as a result of success in securing newcustomers. Revenue from the Toll Priority express parcel and document service increased in allstates, driven primarily by customer wins, but also included some up-trade from existing customers.
The courier operator Toll Fast saw strong revenue growth from contract service customerswhile the integration of the Zip Express and Brochure Flow acquisitions had been successful, thegroup noted. “Toll Fast has spearheaded the Toll Group’s push into logistics services for thebusiness to consumer (B2C) market. The business has been trialling innovative solutions to drivemarket leading delivery success rates. The sales pipeline is strong and includes a number of “bricks and mortar” and online retailers,” it added.
In contrast, Footwork Express has faced “very challenging” flat economic conditions in Japan,the company said. “Since the small up-turn in revenue in the immediate aftermath of the earthquakeand tsunami in March 2011, volumes from existing customers, particularly those with exposure to theretail and manufacturing sectors, have been soft. While good progress has been made on linehaul andlocal delivery costs, this has not been sufficient to offset the impact of these difficult marketconditions.”
In the other divisions, Toll Global Forwarding’s revenues and operating profits droppedsignificantly but the logistics and domestic forwarding activities showed solid growth.
Looking ahead, Kruger said: “While the volatility we are all seeing in the macro environmentmakes it very difficult to have a firm view on the outlook for the remainder of the year, we areconfident that Toll is following a strategic path that will provide superior, sustainable returnsfor our shareholders over the longer term.”
