2000 Half Yearly Financial Report - (December 31, 2001)

21 February 2001

Toll Group Results, Half Year to December 2000 

Toll Holdings, Australia's leading provider of integrated transportation and logistics services, has continued its record strong earnings growth for the six months to 31 December 2000, with EBIT increasing by more than 26% over the previous corresponding period to $37.9 million. 

The improved performance was attributed to greater asset efficiencies and technology developments together with deeper business integration, all of which are designed to strengthen customer relationships.Together with organic growth and the Finemore and ARN Logistics acquisitions, greater internal efficiencies and improved infrastructure are expected to raise Toll to a new level of financial and operating performance and position the Group for further acquisition opportunities and continued long-term profitable growth. 

With results since the end of December 2000 being above the previous corresponding period, Toll remains confident of continuing margin expansion and earnings growth. 

Toll recorded a 6.5% increase in revenue for the six months from $686 million to $731 million. 

Profit after tax increased 27% to $27 million, compared to the previous corresponding period of $21.2 million (before an abnormal income tax gain of $1.06 million). 

EBIT margin increased by 18% to 5.19%, which was achieved in a challenging environment highlighted by the introduction of GST and abnormally high fuel prices. Margin improvement was achieved by every division.

EBIT Margin Improvement from all Divisions 

The Long Distance division continued its strong earnings growth, generated from revenues of $350 million. 

The performance of Toll IPEC and Toll Express were again pleasing, as new facilities and enhanced customer service levels assisted earnings. 

The improvement in Refrigerated Roadways also continued during the six months, with the linehaul division breaking even for the period. 

Long Distance rail operations were constrained by a lack of rail network efficiency, an area that should benefit from the proposed privatisation of National Rail Corporation. 

Toll North performed satisfactorily during the six months, with revenues of $168 million. The flat mining sector and reduced building and construction activity in Queensland both affected revenue growth. The establishment of a major new facility for NQX in Brisbane is expected to further improve operational efficiencies and earnings of Toll North. 

Logistics again reported higher earnings, with revenue of $156 million generally in line with the previous period. The ability of the Logistics division to produce supply chain efficiencies is generating improved margins while capturing significant savings for Toll's customer base. 

Toll Technologies reported revenues of $56 million with the inclusion of Removals Australia. Earnings for the period were in line with plan. Progress on the relocations strategy has been significant, with the service integration of Movinghome.com.au and the recently acquired International Corporate Relocations. The web based trading solution for Removals Australia is in place, which will assist cost reduction as well as customer service efficiency. 

The rollout of the TollWorks technology platform is now in full swing and is proceeding on time and on budget. In addition, customer response to the TollConnect range of services has been strong, with significant growth in the number of customers now using the services. 

Financials 

Cashflows remained strong, with cashflow from operations growing 50% to $31.5 million. The company's balance sheet strengthened during the six months; at 31 December 2000 the net cash position was $1.6 million compared to $31.4 million net debt twelve months earlier. Since the December 2000 close, the company has sold Phase 1 of its Altona property development for approximately $19 million, the proceeds of which were received at the beginning of February 2001, and the ARN Logistics acquisition has settled for around $12 million. 

Earnings per share (fully diluted), grew by 15.3% to 42.9 cents during the six months. 

The company has declared a 15.4% increase in its interim dividend from 13 cents to 15 cents per share, with franking of 60%, compared to 20% previously. 

Acquisitions 

The Finemore acquisition has now received Supreme Court approval to proceed with the Scheme of Arrangement, and effective control will transfer to Toll on 2 March 2001. 

The integration plans for the Finemore businesses are well advanced and will be implemented quickly. Expected synergy benefits of over $10 million per annum are forecast to be achieved over the next two years. 

The company completed the acquisition of ARN Logistics in early February. Its integration will be completed by 30 June 2001. 

Both of these acquisitions are expected to be earnings positive in the current financial year. 

The company expects to aggressively pursue infrastructure opportunities in the ports and rail areas, both through participation in the privatisation of Government assets and expansion of its current portfolio. 

Outlook 

Although current indications are that economic growth has begun to slow, the company plans to maintain its earnings growth by focus on cost controls and technology-based cost reductions, and on expanding its revenue base as outsourcing by major customers continues. The diversity of industries in which Toll operates will also assist the company in the event of any slowdown in the economy. 

Results since the end of December 2000 continue to exceed plan and are ahead of the previous period. Based on current conditions, the company expects to deliver another strong full year result. 

Based on debt levels at 31 December 2000 and after adjusting for the subsequent settlement of the Finemore and ARN Logistics acquisitions and disposal of the Altona property, the Group will have a gearing level of around 80%, with net debt of around $150 million, including debt assumed from the Finemore Group. 

The company has established a platform for profitable growth based on an unparalleled integrated logistics capability within Australia. 

Opportunities already secured include: 

• Nike long term contract commencing September 2001 quarter 
• Commissioning of Albany Port operation commencing December 2001 quarter
• Customer focused technology applications
• Significant operational and customer benefits from new national depot developments. 

Opportunities such as these will underpin the company's future earnings and cashflow streams.