GFC hits Toll revenues and profits


Toll reports 16 percent fall in earnings and 6 percent decline in revenues for December 31 half year as a result of lower volumes across the group

GFC hits Toll revenues and profits
GFC hits Toll revenues and profits

February 25, 2010

Toll recorded earnings before interest and tax (EBIT), acquisition amortisation charges and a re-measurement charge associated with Footwork Express, of $224.1 million for the half year ended December 31, down 16 percent on the previous corresponding period.

Revenue for the six months was $3.3 billion, a decrease of 6 percent over the previous corresponding period’s revenue of $3.5 billion.

Revenues across the group were lower, reflecting the impact of the global financial crisis in the markets in which the company participates.

Global forwarding revenues were impacted negatively by currency translation due to the strengthening of the Australian dollar against the Singapore and Hong Kong dollars.

These negative impacts were partially offset by the addition of newly acquired businesses and new contract wins.

In addition, the group continued its focus on strong cost management and a disciplined approach to maintaining EBIT margins across the business.

Profit after, and before the Footwork re-measurement charge of $37.4 million, was $147.3 million, 16% lower than the previous corresponding period of $176.3 million.

Operating cash flow after capital expenditure for the six months of $82 million was lower as a result of lower cash profits and higher capital expenditure that reflected the company’s ongoing investment in growth.

Toll Global Express

Total revenue of $794 million was 18 percent higher than the previous corresponding period due to two months’ contribution from Footwork Express in Japan.

Most other businesses recorded reduced volumes during the six months.

EBIT of $71 million was 7 percent lower than the comparable half year, as a direct result of lower revenues in Australian businesses.

Toll IPEC’s revenue was lower due to reduced volumes and some competitive pressure on customer rates. Offsetting operational savings were achieved in a number of areas such as equipment and subcontractor costs that helped mitigate the impact on EBIT margins.

Toll Priority results were affected by lower volumes, partially countered by cost efficiencies in pickup and delivery costs and also in line-haul cost.

The previously announced acquisition of the Hong Kong and Singapore operations of Deltec UK contributed a small profit to the group result in the period.

Toll Fast and Stream Solutions traded slightly lower than the corresponding period last year. Toll Fast started an industry specific offering for the distribution of magazines and associated product during the period and is growing this product with new customer wins.

Toll Domestic Forwarding

Revenue of $555 million was 12 percent below the previous corresponding period with a reduction in EBIT to $44 million from $49 million in the prior year.

Toll SPD and Toll Tasmania performed strongly during the period with reduced costs and new contract wins.

Both QRX and Toll Refrigerated posted results higher than the previous corresponding period in a difficult trading environment.

The Managed Transport Services business recorded significantly lower revenues due to the loss of some customer accounts and generally lower volumes.

Toll New Zealand’s results reflected continuing weakness in the New Zealand economy.

Importantly, no major customers were lost during the period. Successful contract extensions with Kelloggs, Griffins and Daikin underpin the continued profitability of the warehousing business.

Toll Specialised and Domestic Freight

Revenue declined 14 percent compared to the previous corresponding period from $626 million to $536 million as most businesses were affected by lower customer volumes.

EBIT of $42 million was $7 million lower than the previous corresponding period. However, cost control enabled EBIT margins to be maintained.

Toll Express and NQX experienced a significant decrease in customer volumes during the period.

Strong cost control measures have been utilised to offset the reduced volumes and maintain EBIT margins.

Toll Transitions performed well during the period with EBIT above the previous corresponding period. A significant long-term contract for both removals and relocations work for the Australian Defence Force was signed during the period.

Toll Global Logistics

EBIT for Toll Global Logistics for the six months was $46 million, which was 11 percent lower than the previous corresponding period.

Revenue of $626 million was down from $712 million previously, reflecting difficult market conditions in many of the markets in which the business operates and the impact of the stronger Australian dollar.

Revenue from the Asian logistics operations was adversely affected by lower volumes generally across the region. However, a strong focus on margin management and cost controls generated EBIT margins above those achieved in the previous corresponding period.

The in2store business in Australia delivered an excellent result with revenues and EBIT higher than the previous corresponding period. This business achieved excellent new customer growth despite the challenging economic conditions.

The Contract Logistics business was affected by reduced customer volumes but maintained a strong EBIT result due to improved cost structure, new customer wins and an improved mix of higher-margin business.

The Auto Logistics business was affected by continuing low production and sales levels. This, together with increasing competitive pressures, led to lower revenue and EBIT. These issues were partially offset by improved components volumes as a result of a new contract win.

This business continues to pursue growth opportunities in the growing Chinese and Indian markets. In May 2009, Toll announced its intention to acquire the remaining shares in the ST-Anda Logistics business in China that it did not already own.

Toll Global Resources

Toll Global Resources revenue and EBIT levels were above the previous corresponding period by 13 percent and 7 percent respectively. This is mainly the result of strong results in both energy and mining businesses plus the impact of the Perkins acquisition completed in July 2009.

The Marine Logistics business has seen continued strength in the bulk commodities area, mainly in thermal coal and steel aggregates, but suffered during the period from the suspension of sand exports between Vietnam and Singapore. These exports commenced again in January 2010.

PDL Toll had a strong result for the six months with a slightly lower EBIT than the previous corresponding period largely due to the wind down of operations in the Solomon Islands and further decline in troop numbers in Timor. However, the contract with the Australian Defence Force in Timor has recently been signed for a further four-and-a-half year term providing a solid revenue base for the business.

Mining revenue was lower during the period, however strong EBIT margins were still achieved as the impact of previous capital investments in more efficient equipment benefited the results. The recovery in bulk commodity, prices and demand, especially iron ore, coal and copper is providing numerous opportunities for this business.

Toll Energy achieved significant growth in both revenue and earnings despite the slowdown in drilling and exploration activity on the North West Shelf off the coast of Western Australia. This was largely due to the impact of the recently awarded Barrow Island Supply Base Contract for the Gorgon LNG project. The project is on track to deliver an additional $180 million of revenue over three years.

Perkins Shipping contributed from July 2009 when the acquisition was completed. The integration of this business is continuing and synergies with other Toll businesses are being explored.

Toll Global Forwarding

Toll Global Forwarding continued to be impacted by significant customer volume declines as a result of the global financial crisis. The effect of these volume reductions began late in the second half of FY2009 and continued in the current period.

Revenue was 21 percent lower at $440 million, whilst EBIT was 64 percent lower at $7 million. The strengthening Australian dollar also negatively impacted the translation of this division.

During the period two acquisitions were completed which contributed positively to the results. ELG in New Zealand was completed at the end of October 2009. LDS in Dubai was completed during December 2009.

Subsequent to the half-year end the acquisition of Summit Logistics in the US was announced. Summit is one of the United States’ leading independent freight forwarding and supply chain businesses.

These acquisitions are major steps for the business to achieve its goal of being a top-10 player in the global forwarding market segment.

Finance

The company has a strong balance sheet with a net debt position of $760 million at December 31.

The company currently has net debt to net debt plus equity gearing of 22 percent with interest cover exceeding 14 times. The company has maintained high levels of cash balances and committed undrawn facilities in order to ensure that value creating growth opportunities can be pursued aggressively.

Operating cash flow after capital expenditure for the six months was $82 million, compared with $230 million in the previous corresponding period, reflecting the impact of lower cash profits and higher capital expenditure.

Outlook

Trading conditions in the Australian businesses improved progressively through the period and revenues for the first two months of calendar 2010 provide encouraging signs that this trend will continue.

The Global Resources business is continuing to see higher activity levels off the back of strong commodities demand.

Toll’s Asian businesses continue to experience flat trading conditions in most regions and the Global Forwarding business is still facing the challenging conditions that are being experienced throughout that market segment.

Overall, the company expects trading results in the second half of the fiscal year to be broadly in line with those achieved in the first half.

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