Toll makes progress on financial rebound


Cost reduction and productivity plan show worth as revenue and earnings rise

Toll makes progress on financial rebound
Michael Byrne

 

Toll Group continues to pull itself out of the financial mire, despite battling certain market conditions parent company Japan Post describes as "harsh".

Toll reports gross earnings up 7 per cent to $127 million on a revenue rise of 6 per cent to $8.7 billion, while keeping the pedal down on its capital expenditure.

The subsidiary notes that it is the second year earnings and revenue have risen together.

The $749 million spend on core technology, fleet and facilities "resulted an overall negative cash outflow for the year", it says.

Group MD Michael Byrne views the results as showing strong customer growth for the year and good progress on Toll’s productivity program, despite ongoing challenges in the Australian, New Zealand and US markets, as well as tough conditions in the mining and retail sectors.

"While today’s financial results show parts of our business continue to face significant headwind, there are positive signs particularly with the improvement in the US business and double-digit revenue growth in the Asian logistics market," Byrne says.

"We have continued to focus on delivering better solutions and outcomes for our customers.

"This has led to organic revenue increasing by $447 million over the prior year, driven by strong demand in Asia, and major account wins and renewals in the groceries, technology and government sectors.

"Economic conditions have been challenging and we continue to see upward pressure on costs in a number of categories, including labour and compliance.

"We have made significant progress to reduce underlying fixed costs with around $300 million annualised cost reductions achieved since FY18, and we have strong momentum to further accelerate the productivity program in FY20."

For its part, Japan Post notes tough times experienced by Global Express business, Global Logistics business and Global Forwarding "resulting from the deceleration of the Chinese economy and a temporary increase in other expenses primarily due to natural disasters".


Read about the urgent directive to return Toll to health, here


The past financial year is cast as a "springboard" to future growth, given the investments made. These include:

  • operational start for two purpose-built ships, "part of a $311 million investment that will drive a 40 per cent capacity increase in Bass Strait trade and related revenue uplift"
  • delivery of 1,900 new fleet and equipment, "part of a six-year $1.6 billion asset investment program. The technology of these assets will lead to improved safety and fuel and maintenance costs, as well as reduced emissions, with benefits starting to flow through from FY20"
  • launch of several new technology platforms "as part of a three-year $400 million investment in digital infrastructure. This includes the delivery of a single, global finance system that will replace multiple legacy systems; the migration of 100,000 users to our enhanced MyToll self-service portal; and the introduction of digital signing to improve the customer experience"
  • new joint ventures in Indonesia and Japan, and the opening of a $200 million high-tech facility in Singapore, "that will tap into strong demand for end-to-end logistics solutions in these markets"
  • introduction of new operating models in finance, technology and human resources to reduce cost structures and improve efficiencies in back office operations.

Byrne believes that a robust and sustainable transport industry is vital to a strong economy, but cautions that the industry must "change rapidly to respond to emerging issues and remain viable".

"Current market dynamics are driving unsustainable margin pressure across the industry, which is seeing many operators hit the wall. In addition, operators are requiring huge technology and infrastructure investments to meet consumer expectations for greater speed and transparency.

"Toll is adapting to keep up with the pace of change and remain competitive.

"While we have more work to do, I am encouraged by the improvements we are making at Toll in the face of continued challenging conditions.

"This is the second year of what is a multi-year transformation, and we continue to focus on improving the underlying performance of the business to create sustainable, long-term value for our shareholder, customers and employees."

 

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