Toll sets out ‘low risk’ joint venture path into Asia

<p>Toll Holdings’s Paul Little says that the company is looking for "low risk and secure" joint venture investments in Asia, and has partners in mind that it will pursue in tandem with the bid for control of Patrick Corp. </p> <p>The company stressed its organic growth and improvement in margins as it announced record half-yearly profit growth yesterday (Tuesday, February 22). </p> <p>Pre-tax profits were up 10.1% to $115m, ahead of analyst expectations, on revenues of $2.1bn, excluding Pacific National. </p> <p>Toll’s full year profit is expected to stay in line with forecasts at $250m. </p> <p>The company said that its core Australian business had seen overall margins grow to 7.8%, the best ever, and the revenues were over those forecast in the bidder statement for Patrick last year.</p> <p>Macquarie Securities said that the result was solid, but the broker recommended continuing to price Toll on a stand-alone basis, saying that Toll will need to restructure the bid for Patrick significantly. </p> <p>However, other brokers took a more downbeat view of the Toll results, with one describing them as "not as impressive as they look". </p> <p>Mr Little said that Pacific National’s contribution to Toll was expected to rise from $42m to $49m for the full year. </p> <p>Mr Little savaged Patrick’s move to break up Pacific National, saying that the destruction of value in the joint venture including customer contracts could reach $1.1bn. </p> <p>He pointed out that the intermodal and east-west business which Patrick is seeking to take a half share of is worth less than $400m, or just 15% of the total business that Patrick is seeking to break up. </p> <p>He also warned that Patrick’s own PortLink network could suffer in a break-up of Pacific National.</p> <p>Nevertheless, Mr Little said that last week’s Federal Court decision on Acacia Ridge is a problem for both Toll and Patrick, and he hoped that he hoped "common sense would prevail" in getting agreement both at the Pacific National board meeting on Friday on how to negotiate with Queensland Rail on access.</p> <p>Patrick believes that there may have to be substantial writedowns to accommodate QR at the facility. </p> <p>Toll New Zealand had seen its results improve by 47%, and Mr Little stressed that the ferry earnings on the Marlborough Sound would not be affected by any new government regulation of the ferry operations.</p> <p>As expected, Toll stressed that it is an Asian company. </p> <p>Mr Little said that there had "never been such focus on supply chain re-engineering", with companies now looking for cross-border tendering and logistics pricing right to the factory gate in China and elsewhere in Asia. </p> <p>Toll was looking for a partner in Asia that would be low risk, with sound management, strong and compatible customer base, and no early requirement for capital. </p> <p>"There are two or three that can do this," he said.</p> <p>Mr Little said that out of Toll’s long record of acquisitions, "only a relatively few have taken us up to a new level. Asia would be one of this sort". </p> <p>Pacific National aside, he said,"Toll has a good record with joint ventures that would be the way into Asia. We are looking for the security of a local partner rather that going in and competing with them". </p> <p>Mr Little said that joint ventures with overseas companies that could take over and run Patrick assets are part of a strategy document being prepared for the Federal Court as answers to the competition issues. </p> <p>Patrick’s expenditure of $1.1bn in the 18 months to September 2006 was leaving a cash black hole in Patrick, he said. </p> <p>Patrick should warn its shareholders that the company will need to raise equity to cover the gap, Mr Little said. </p> <p>"Ask the chief executive of Patrick how he will cover it rather than what we will do when we restructure the finances of the company," he said. </p> <p>A Patrick spokesman said the expenditure was investment in the future, something that Mr Little was not familiar with. </p> <p>"There is plenty of borrowing capacity if we need it, and Patrick remains conservatively geared," the spokesman said. </p> <br />