Toll to sell off its Asian express business as part of large scale rationalisation

Toll Group has announced a raft of measures to help ‘rationalise’ its business portfolio, though it looks rather more like they are designed to trim down unprofitable areas of the business. Not least among these measures is the decision to sell off Toll Global Express Asia after the business has failed to achieve traction in highly competitive Asian markets.

Alongside this decision Toll also announced that it plans to exit from Toll Marine Logistics Asia and dispose of all its remaining assets, with some AU$45m worth of assets also being sold at Toll Marine Logistics in northern Australia. To complete this raft of measures Toll also plans to sell its 50% interest in the Toll dnata Airport Services joint venture and its 40% interest in BIC in India. Together these measures suggest that Toll has run out of funds to invest in building up these businesses for its own ends and could see no long term gain in maintaining them in their current form.

Brian Kruger, Managing Director of Toll said, “These decisions reflect our drive to improve sustainable shareholder returns through our focus on return on capital employed. These transactions will have multiple benefits for Toll, including releasing significant capital presently tied up in real estate, exiting loss making businesses, and selling businesses that are non-core to Toll to more natural long term owners.”

Kruger stated that he expected these transactions to be implemented by the end of Toll’s financial year in June 2015, but that some of the measures would come into effect much sooner. The cash proceeds from these transactions are expected to be in excess of AU$100m.

These decisions constitute what is perhaps an admission that the somewhat ambitious approach to acquisitions adopted by Toll between 2007 and 2011 may have overstretched the group’s resources.

Examining the reasoning behind these sales validates that point. For instance, the company admits that Toll Global Express Asia is being sold off because it has not been able to develop a network of sufficient scale to bring about critical mass which would allow it to be profitable.

Toll is gravitating back to its core business, where it does enjoy critical mass and a developed network. It is notable that the company intends to maintain those services without damage dealt by the Asian withdrawal, stating that, “Toll will continue to work collaboratively with the new owner and our other global strategic partners in relation to express freight being moved into, and out of, Australia.” Through these means the company should be able to maintain its services and increase its profitability.

What’s more Toll is not pulling out of any of the operations of Toll Global Logistics in Asia, illustrating that the company has not reached a point of crisis. The businesses being sold by the group are not necessarily weak or fatally flawed in and of themselves, they are just too small. It is likely that the break-up of Toll’s Asian operations will see its different business units being tagged on to larger regional rivals, where they will probably be lifted by the benefits of larger scale.

To learn more about mergers and acquisitions activity in the logistics industry, and how Toll fits in, you can register your interest in Transport Intelligence’s soon to be released Mergers and Acquisitions report here.