Leading Australian express, freight and logistics operator Toll Group today reported solidfull-year results, as restructuring and cost-improvement initiatives together with new contract
wins more than offset “generally challenging” market conditions experienced during the year to 30June.The group, which competes with TNT Express and Australia Post in the Australian express andparcels market, achieved a revenue increase of 1.1% over the previous year to A$8.8 billion (€6.2billion). Total earnings before interest and tax were up 4.3% to A$444.4 million and net profitafter tax was also up 5.7% to $298.5 million, excluding non-recurring items.
Toll Group managing director Brian Kruger said he was “pleased with the result given thedifficult environment seen throughout the year”, in which the group’s Australian domesticbusinesses continued to be pressured by a weaker mining sector and flat volumes in the retailsector.
He commented: “Cost reduction programmes across the group started to deliver a lower cost base.Our ability to implement these types of programmes has been facilitated by a realignment of ourcore operating divisions, improved labour productivity, lower handling and line-haul costs and agroup focus on driving continuous improvement and innovation.”
He said that although the company had seen the benefits of recent investments in its coreAustralian businesses in improving its cost base, he recognised that a continued focus onproductivity and efficiency was necessary in the current environment to drive earnings growth.
Kruger said that investments in recent years in the group’s Australian network businesses,including into new fleet and depots, had been “largely sustaining spend”, but the company had alsobeen positioning itself “for what we see as a strong demand for logistics services in Australia inthe medium and long term”. New major depots completed this year had included Bungarribee (Sydney),Brighton (Hobart) and Karawatha (Brisbane), with a major new depot under construction atTullamarine (Melbourne) and work commenced on a new port side facility in Fremantle.
Toll Global Express
The Australian domestic operations of Toll Global Express achieved revenue growth of 2% to$1.637 billion despite “challenging” trading conditions in the road express business that led to aslide in profits. Overall revenues for Toll Global Express declined by 0.3% to $2.227 billionbecause of falling revenues in its Japan Express business, where turnover dropped more than 6% to$589 million due to divestments. However, revenue in the air express parcel business and in theToll Group’s labour service provider, Toll People, grew.
Overall profits for Toll Global Express declined by 5.9% to $119.2 million, primarily due tomargin pressure and down-trading in the Toll IPEC road express and distribution and the Toll Fastmetropolitan courier businesses. Costs were also affected by capacity constraints in Toll IPEC,higher maintenance costs in its Toll Priority air express business and continued investment in itsnew B2C service Toll Consumer Delivery.
Toll IPEC’s road freight revenue was negatively impacted by down-trading from discretionaryretail customers in Victoria, and a decline in time-sensitive volumes from resource-relatedcustomers in Western Australia. Lower weight per consignment reduced yield, driven partly by anincrease in B2C volumes, as well as a decline in ad-hoc, higher-weighted consignments from theWestern Australian resources sector.
Handling costs continued to be impacted by capacity issues at the major Melbourne and SydneyDepots, particularly at peak periods. However, a new freight sorting facility in Western Sydney, tobe operational from September 2014, will alleviate capacity issues and provide handlingefficiencies, Toll said.
Construction of a new Melbourne facility at Tullamarine also commenced in June.
The Toll Priority air express business grew both revenue and earnings. Revenue benefitted from acombination of new business wins, higher volumes from existing customers and strong demand for aircharter work. Earnings benefitted from restructuring and other cost reduction programmes despiteadditional costs resulting from unscheduled aircraft maintenance and currency impacts on aircraftlease payments.
Toll Fast, Toll’s metropolitan courier, distribution and taxi truck business, recorded a revenuedecline in the “very competitive” courier markets across most capital cities. Revenue per courierjob was down and a large portion of the small to medium-size customer base down-traded the companysaid.
Meanwhile, the development of the division’s business to B2C product offering Toll ConsumerDeliveries continued and volumes grew as a result of its contract with GraysOnline, an Australianonline retail and auction company.
But Toll said costs were incurred to expand the new business’s alternative drop-point networkfurther, which has now been expanded to over 1,300 locations, and in developing a range of onlinetools and portals aimed at increasing market share of the small and medium size on-line market.
Toll Express Japan made a $1.2 million profit, compared with a loss of $4.2 million the previousyear, reflecting the on-going success of cost initiatives, increased efficiencies as a result ofhigher volumes and lower personnel costs. Revenue declined mainly due to the divestment of abusiness in the previous year; and in May, KSU Logistics was sold, further impacting revenue in thefourth quarter.
Elsewhere in the business, Toll Global Forwarding’s earnings benefitted from cost savingsdespite its markets remaining difficult, while Toll Global Logistics reported improved results fromits Asian activities, with a continued solid result in Australia.
In terms of outlook, Toll said the external business environment “remains difficult”. Itcontinued: “We will continue to pursue business-improvement initiatives including cost reductionsand investments in productivity-enhancing projects which, combined with our disciplined capitalmanagement approach, will see returns improved for shareholders and an increase in our leverage toany improvement in the external environment”.
The company said it expected to generate between $40-50 million in cost savings during FY15 frominvestments in restructuring programmes implemented or committed to in FY14, including cost savingstargeted in Toll Global Forwarding.
Assuming no material change in the external environment, it expects that these savings, otherefficiency gains and other growth initiatives will deliver higher earnings for Toll in FY15.
