Australia’s Toll Group, set to be acquired by Japan Post, is aiming to further reduce costs in thecoming months after its half-year profits dropped due to tough trading conditions.
The company plans “aggressive pursuit of structural costs and portfolio alignment” in theJanuary – June second half of the 2014/15 year after weaker than expected market conditionsimpacted its Australian network businesses from July – December 2014.
Toll Group reported a 2.6 per cent drop in sales revenue to A$4,407 million and a 4 per centfall in EBIT to A$248.8 million. There was a 22.3 per cent decline in net profit to A$136.6million, although this included a net $33.6 million charge for previously announced assetimpairments and business divestments. Net profit excluding this was down 3.2 per cent to $170.2million.
Toll Global Express, covering the express businesses in Australia and Japan, saw revenuesdrop by 2.2 per cent to A$1,105.8 million and operating profits (EBITA) declined by 4.6 per cent toA$65.8 million.
In Australia, revenues increased by 3.5 per cent to A$852.2 million but EBITA was down by14.5 per cent to A$57.7 million. Toll IPEC’s road express revenues declined due to lower volumesand a changing customer mix. There were stable consignment weights compared with the second half ofFY14, but they were still down period on period impacting margins. Air express business TollPriority had slight revenue growth but earnings were impacted by changes in the customer mix and alower weight per consignment.
The Japanese business suffered a 17.5 per cent drop in revenues to A$253.6 million butboosted its low profits significantly to A$8.1 million.
Toll Global Express will focus on reducing the structural cost base and continuing to investin fleet and depots, both to address the current earnings pressures, and also to ensure growth inearnings and returns into the future. The sale of Toll Global Express Asia was completed lastNovember and in future Toll will “focus on growing its international business via its virtualnetwork of world class alliance partners such as DPD, UPS and Aramex”.
Explaining business trends, the company said domestic economic conditions “continued to bechallenging” throughout the period with weakness in commodity prices and business and consumersentiment slowing general activity. The impact of this was particularly seen in the Australiannetwork businesses due to lower volumes, particularly from customers in the resource sector andfrom some discretionary retail and SME customers.
The challenging conditions also resulted in ongoing margin pressure in some business units.An aggressive approach to structural and fixed costs is gaining momentum and will positively impactearnings going forward, the company emphasised.
Toll Group Managing Director Brian Kruger said: “Clearly the external environment continuesto provide challenges on volumes, but we continue to respond to these conditions by our focus onoperational improvements, customer service, cost management and are continuing to invest for futuregrowth.
“This year will be something of a transformative year for Toll. Having spent the past fewyears primarily focussed on getting the culture right to allow us to drive portfolio and structuralchanges, continuous improvement and improved collaboration, we are moving into a more aggressiveimplementation phase. We have already changed our divisional structure, and have recently announceda number of business portfolio changes. We have also seen a number of management changes and theintroduction of new skills to our team. Our recent commitment to move our IT platform to acloud-based environment is a good example of the kind of innovative thinking that will drive verysignificant cost benefits while making Toll a technology leader in our industry.
“I would again like to thank all the employees of Toll around the world for their dedicationand hard work. This half year has not been without its challenges, and the current half does notlook any easier, but the commitment from our workforce is allowing us to deliver on our significanttransformation programs.”
Looking ahead, Kruger commented: “While the first quarter was weaker than we had expected,as previously indicated, there was an improving trend in the second quarter which had operatingearnings ahead of the prior corresponding period.
But he cautioned: “We don’t expect the domestic economy to pick up anytime soon, so we willcontinue our focus on the areas under our control. This includes portfolio rationalisation,reducing fixed costs, continuing capital investment to support cost efficiencies and future growth,and providing innovative and superior service to our customers. We have many cost-out programs thatwill support earnings, and we also expect to drive improved returns from the capital we have beeninvesting in the business to provide a strong platform for future growth.
“The Toll Global Technology Transformation, the next stage of Toll’s IT strategy, will drivesignificant efficiencies throughout the company, reduce IT operating costs and provide Toll with aleading edge platform to support its growth.
“Assuming no further deterioration in the external environment, with cost savings,efficiency gains and recent contract wins, we still expect to deliver higher underlying operatingearnings in FY15,” Kruger concluded.
