Toll sees profits rise and more to come

Revenue and earnings figures top past six half-yearly performances with focus on contracts, productivity and cost control

February 20, 2013

Toll Holdings returned pleasing first-half results, with Managing Director Brian Kruger putting the rise in profits down to a focus on the basics.

Net profits after tax attributable to shareholders rose to $191.4 million, from $157.9 million in the previous first half, with much of that sheeted home to core domestic businesses performing despite difficult times.

"This result has primarily been achieved through the work we’ve done to win contracts, grow revenue and retain customers, while at the same time reduce costs and improve productivity," Mr Kruger said.

"We recognise that all parts of the business will need to retain a strong focus on productivity improvements and increased efficiency to ensure we maintain our leading position in what remains a highly competitive marketplace.

"I’m pleased that we’re starting to see the benefit of the recent investments we’ve made in fleet, IT and property both in Australia and in our developing international businesses, and we will continue to target our capital expenditure to grow our returns."

Toll Group sales revenue was $4.5 billion, up 2.5 percent on the prior corresponding period and the best such figure for the decade by more than $100 million.

Total operating profit before non-recurring items was $256.4 million, up 3.3 percent. Net profit after tax and before non-recurring items was $173.5 million, up 7.6 percent.

Non-recurring items marked a net gain of $22 million after $2 million went in tax.

There was a $52 million after-tax gain on the sale of Toll’s vehicle distribution business and Toll Refrigerated’s linehaul and warehousing business and a $30 million impairment of some assets in Toll Marine Logistics Asia, following a strategic review of that business, Toll says.

The company’s focus on energy and resources continues to pay it back, especially for its specialised and domestic freight arm, where Toll Express has been favoured by recent investment in IT, depots and fleet, coupled with operational improvements.

The arm saw earnings before interest, tax, depreciation and amortisation (EBITDA), excluding non-recurring items and profits from associates, up 15.9 percent to $88 million on a 5.7 percent revenue rise to $732 million.

For Toll Global Resources, the comparable figures were a 3.5 percent earnings rise to $88.6 million on revenues up 11.1 percent to $613 million. This was curbed somewhat by reduced Queensland coal volumes but Toll Energy’s performance was described as "outstanding".

Domestic operations of Toll Global Express were generally positive, with Toll IPEC up, particularly in Queensland and Western Australia.

"Margins were affected by NSW and Victoria depot capacity constraints which contributed to increased handling costs, which were offset by pick-up and delivery (PUD) efficiencies, including ongoing fleet replacement programs," Toll says of the unit.

It paints a promising picture of Toll Consumer Delivery, with its Nparcel alternate drop point joint venture up and
running in Victoria, being implemented in Queensland and New South Wales and expected to be national by the end of 2013.

The story was also positive at Toll Specialised and Domestic Freight, which saw EBITDA up 15.8 percent to $88.2 million on a 5.7 percent rise in revenue to $732 million.

Toll Express benefited from strong volumes in WA from the resources sector and recent investment in IT, depots and fleet, coupled with operational improvements, while Toll Liquids gained from new customer wins including Shell and 7-Eleven, and organic growth from existing contracts such as Woolworths and BOC.

Against that, Toll NQX faced headwinds.

"Volumes for Toll NQX in the less than full load (LTL) market were lower as a result of the downturn inactivity in the coal sector in Queensland," Toll says.

"Margins were under pressure in the period due to lower than expected volumes. However they are expected to improve as benefits are seen from cost saving initiatives and further investment in fleet."

Sustaining fleet capital expenditure to replace rental fleet, depot rationalisations within domestic businesses, sustaining capital expenditure on depots to drive handling efficiencies and use of IT to generate better service standards and automation were among the firm’s general cost management initiatives.

Looking ahead, Kruger says he was not assuming the external economic environment would get any better in the short term, so Toll’s focus would be on "continuing to win business and improve the things it can control".

"Overall, the company expects its results for the second half of the year to be better than for the same period last year," he adds.

In the second half, Toll expects to see amongst other things, completion of intermodal developments in Perth and Brisbane, continued benefits from recent fleet and IT investments and the wind-down of the Timor Leste Australian Defence Force contract affecting Toll Remote Logistics.

It also notes that the enterprise bargaining agreement with the Transport Workers’ Union will end in June.

Meanwhile, the company reported continued progress on safety.

For the 2012 calendar year, its Lost Time Injury Frequency Rate fell 15 percent from 2.33 to 1.97 and Total Recordable Injury Frequency Rate was down 25 percent from 25.42 to 18.95.

It was continuing to introduce programs to reduce the intensity of greenhouse gas emissions which has improved by around 3.5 percent since 2010 domestically.

"Carbon pricing has not had a material financial impact on Toll in the current financial year," Toll says.

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