Toll’s dire quarter could lead to split

The due diligence process for asset sales looks set to be heavily hampered by the pandemic and restrictions in Victoria.

Toll Holdings chairman John Mullen says the company’s performance has “bottomed”. Picture: AAP

Toll Holdings chairman John Mullen says the company’s performance has “bottomed” after its embattled Global Express division lost as much money in the past quarter as it did in the previous year, following the impact of COVID-19 and targeted cyber attacks.

As Toll’s Japanese parent Japan Post has its adviser Nomura testing the market for a potential break-up of Toll ahead of a final decision expected early next month, Japan Post’s latest accounts reveal its Global Express business — which includes the Toll Priority and IPEC operations — lost $101m in the three months to June 30.

The business lost $99m in the entire 12 months to March 31.

Japan Post’s international logistics business, which includes Toll, JP Toll Logistics and Toll Express Japan, recorded a $116m operating loss in the three months ending July 30, $92m worse than a year ago.

The business lost $117m for the 12 months ending March 31, compared to a $127m profit a year earlier.

“It has been a very difficult and unfortunate time. Toll had two cyber attacks that were pretty devastating. We were in a position where we were unable to invoice for many weeks. On top of that we had COVID-19,” Mr Mullen, who is also chairman of Telstra and Brambles, said.

“The worst is definitely behind us. The business is starting to do better across the board and overall the company has bottomed and is on the way back up. But there is there is no way of gilding the lily. It was a bad year last year and a bad June quarter.”

Advisers pitching for mandates in the break-up process believe the Global Express business is likely to be the first asset jettisoned by Japan Post if it proceeds with a break-up of Toll. IPEC is one of the poorest performing parts of the business.

But the due diligence process for asset sales looks set to be heavily hampered by the pandemic and restrictions in Victoria.

Mr Mullen declined to comment on the process being run by Nomura.

The latest result comes after a number of key, longstanding Toll executives left the business over the past year. The most senior have been Singapore based Chris Pearce — Toll’s global logistics president for six years, and Bruce Wilson — president of Global Express for four years and a 14-year Toll veteran.

Toll global forwarding chief operating officer Mark Kellet and 18-year Toll veteran Shaun Mooney, who held a variety of commercial roles across the group, also left. In May Mr Mooney was appointed Port of Melbourne’s executive general manager, commercial.

While Toll’s operating income increased by 26.2 per cent to $546m during the June quarter due to large-scale handling of COVID-19 prevention supplies by the Global Logistics Asia division, the pandemic and the impact of the cyber attacks led to lower volumes being handled by the Global Express division.

The cyber attacks, which occurred in January and early May, affected Toll’s track and trace technology all the way through to its invoicing, creating huge confusion in the company, Mr Mullen said.

Toll’s back-office finance and accounting services have been provided by Accenture since they were outsourced to the consulting giant in October 2018.

Costs increased by $637m in the quarter with the large-scale handling of COVID-19 prevention supplies, despite a $30m reduction in personnel expenses and cost cuts in the Global Express division.

The Toll Global Logistics business and Global Forwarding are both now showing improved performance, Mr Mullen said.

Management consultants Bain and Company were hired three years ago by former chief executive Michael Byrne to develop a three-year turnaround plan and overall six-year strategy to return Toll to sustainable growth. They finished working with Toll last year.

During his tenure Mr Byrne cut 3000 jobs but profits continued to fall.

Singapore-based Thomas Knudsen took over from Mr Byrne in January.

He spent more than 20 years with Danish shipping group Maersk before joining Toll in 2018 to run its global forwarding business from Singapore.

Japan Post acquired Toll in a $6.5bn deal in 2015 but ongoing losses forced the Japanese group to write off $4.9bn in 2017.