Toll reveals interim profit hit on its most important day


Economy and one-off items put pressure on the first half bottom line despite cost reductions

Toll reveals interim profit hit on its most important day
Brian Kruger reports a second-quarter lift.

 

News of Toll’s takeover by Japan Post overshadowed what were disappointing interim results in a soft market.

First half group net profit after tax (NPAT) was down 22.3 per cent from $175.9 million to $136.6 million, though revenues slipped only 2.6 per cent, from $4.523 billion to $4.407 billion.

"Domestic economic conditions continued to be challenging throughout the period with weakness in commodity prices and business and consumer sentiment slowing general activity," the company says.

"The impact of this was particularly seen in our Australian network businesses due to lower volumes, particularly from customers in the resource sector and from some discretionary retail and SME customers.

"Additionally, revenue was impacted by the contracts completed or lost in the prior period, such as the Australian Defence Force and Coles Far North Queensland, and by the wind-down of LNG construction projects, together with the impact of business divestments."

Savings were unable to cover the hits, despite solid reductions in direct transport and logistics costs, repairs and maintenance, and employee benefits,

Toll Domestic Forwarding saw lower Queensland volumes from resources customers, while the big trucking move there was the acquisition of Deeson Heavylift, which was described as strengthening the service offering to the resources sector, "with the ability to offer a ‘one stop shop’ for all general freight, project services, heavy haulage and related activity".

Toll Global Express faced stable consignment weights compared with the second half of the last financial year, but they were still down on the previous first half, impacting margins.

"The focus for both network divisions is on reducing their structural cost bases and continuing to invest in fleet and depots, both to address the current earnings pressures, and also to ensure growth in earnings and returns into the future," the group says.

Toll Global Logistics’ Contact Logistics Australia arm gained new business from Coca-Cola Amatil, while Customised Solutions gained Target regional distribution centres in Victoria and New South Wales.

Toll Intermodal won more business from Big W, Daiken and Spotlight and it should bring Fremantle wharf services in-house and consolidate pert activity into one facility soon.

Toll shipping copped a $5 million dry docking charge for its Bass Strait ships, with a flow on hit for Toll Tasmania.

As an indication of the tough and topsy-turvy nature of the marine business, ocean freight volumes were up by 7.8 per cent to 295,000 TEU, reflecting market growth, but gross profit margin fell from 19.5 per cent to 18.9 per cent "due to the competitive market conditions".

On a positive note, Toll CEO Brian Kruger saw some improvement in the financial year’s (FY15) second quarter that was expected to boost earnings, he left unsaid how that would translate to net earnings.

"While the first quarter was weaker than we had expected, as previously indicated, there was an improving trend in the second quarter which had operating earnings ahead of the prior corresponding period," Kruger says.

"We don’t expect the domestic economy to pick up anytime soon, so we will continue 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 that will support earnings, and we also expect to drive improved returns from the capital we have been investing 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 drive significant efficiencies throughout the company, reduce IT operating costs and provide Toll with a leading 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 operating earnings in FY15."

You can also follow our updates by joining our LinkedIn group or liking us on Facebook