Toll Holdings

rambles Ltd expects strong profit growth for fiscal 2008 on the back of solid sales growth from CHEP, its pallets and containers business and Recall, its document and information management division.

"Overall, Brambles expects to deliver another year of strong profit in 2008," Brambles chairman Don Argus told shareholders at the company's annual general meeting in Brisbane on Friday. The board is confident of the positive outlook for our business, notwithstanding ongoing volatility in global capital markets, because of the strength of CHEP's business model and the breadth and quality of our customer base."

Brambles' bullish outlook saw its shares surge 51 cents, or 4.29 per cent, to $12.40 as the broader market fell.

In the four months to the end of October, Brambles said the sales and profit performance of CHEP and Recall were ahead of the comparative period in the prior year, with all regions performing to expectations. Both CHEP and Recall were expected to deliver solid sales growth and strong profit growth for the full year.

Argus said in the four months to the end of October, CHEP had achieved like-for-like sales growth of six per cent, led by CHEP Americas where sales rose nine per cent. CHEP Europe sales lifted two per cent, and CHEP Rest of World sales rose eight per cent. Recall delivered sales growth of nine per cent.

Brambles reported a net profit for 2006/07 of $US613.4 million ($A766.5 million), down from the $US647.1 million ($A808.6 million) in the prior year. But on a like-for-like basis, accounting for the effect of businesses sold during the year, comparable operating profit was up 21 per cent to $US932.8 million ($A1.17 billion).

Brambles chief executive Michael Ihlein told shareholders Brambles was in an excellent position to accelerate profitable growth. "We are continuing to win new business in both new and existing markets," Ihlein said.

In the past few months, Brambles had signed deals with some notable customers, including Pepsi in Canada, personal care products maker Body Blue, Italian tissue paper manufacturer Sofidel, UK meat supplier Anglo Beef, and Australian supermarket firm Woolworths.

Brambles had exciting growth opportunities, including in new segments in existing geographies, such as the US beverages market where Brambles had a penetration of less than 20 per cent. "We are also intensifying our focus on other opportunities in the US, such as home improvement, food service and office supplies," Ihlein said.

Brambles was also looking towards the growing economies of central and eastern Europe. Brambles' newly established CHEP business in China was making pleasing progress. The company was also looking at acquisition opportunities in businesses offering related supply chain solutions.

Argus told shareholders that neither transport infrastructure company Asciano Group nor logistics firm Toll Holdings Ltd had made a takeover proposal for Brambles. In August, Brambles notified the market that it had become aware that Asciano and Toll had taken small stakes in Brambles, fuelling speculation that one of the two could make a takeover bid. Since then, there had been three meetings with representatives of Toll and one meeting with representatives of Asciano. "Each of the discussions we have held with them has been general in nature, and no offer of any nature has been received from either Toll or Asciano," Argus said.

Brambles had heard nothing from Toll since September 28.

Brambles had met with Asciano on November 9, and after the meeting, Asciano notified the market that it had no current intention of making a takeover bid for Brambles. Asciano has said it would retain its 4.09 per cent shareholding in Brambles.

Argus said no suggestion had been made by Toll or Asciano which had not been considered in Brambles' own strategic review, and the board did not believe it would be in shareholders' interests to add lower-growth, lower-margin assets to the company's portfolio.

Freightways' first-quarter profitability was flat as the express delivery company continued to be shackled by the sluggish economy. Managing director Dean Bracewell told shareholders at the annual meeting in Auckland yesterday that operating earnings for the three months to September 30 were up by 4 per cent. But higher interest rate costs meant net profit was flat at $7.7 million, he said.

Mr Bracewell declined to comment on mounting takeover speculation. Freightways, which shares the New Zealand express package market with NZ Post in a near-duopoly, has long been touted as a likely takeover target. Suggestions that Toll Holdings might launch a bid have been around for a couple of years. This month, the Australian Financial Review reported that as well as Toll, Qantas, FedEx and Deutsche Post's DHL were interested.

"I have no doubt that it's on at least a couple of companies' radar screens," First NZ Capital analyst Andrew Mortimer said. "I certainly wouldn't discount it but it's a question of timing. It's got an open register and it's vulnerable."

Mr Bracewell said he saw no short-term let-up in the challenging New Zealand conditions. "We said at the full-year we expected a flat environment and that's what we've got," he said. "It will come back; it always does. And when it does we'll be ready with good-quality capacity and we'll reap the benefits of it then, but I couldn't put a time frame on that."

At close the Freightways share price was down 15 cents at $3.80.

Growth in the business mail and information management businesses continued to outpace the core express business, Mr Bracewell said. Capital investment of $15 million would be spent during the 2008 year including the initial development of a recently acquired information management site in Wellington.

Freightways' largest shareholder is Fisher Funds, which has a 9.8 per cent stake. Fisher Funds chief investment officer Warren Couillault said Freightways was doing well relative to the conditions it was operating in. "It does feel to me that the underlying barometer of the economy, in moving freight around the country, has been weak for about a year and a half," he said. "The fact that they're holding their bottom line is good, given that they've got huge cost increases in labour, occupancy and energy. "The little nibbling acquisitions they are making in data and storage are good as well. That will give them a springboard in Australia and it's exactly what we want them to be doing."

Directors Sue Sheldon and Sir William Birch were re-elected to the board at the meeting. Directors' fees were increased from $225,000 to $336,000. This includes $52,000 to be available if a sixth director, likely to be an Australian, is added to the board.

AUSTRALIA'S biggest private transport owner, Linfox, surprised the investment community yesterday with the purchase of Westgate Logistics for an estimated $180 million.

The move triggered speculation that it was part of the Fox family's grand plan to list on the Australian Securities Exchange for at least $1.5 billion.  The market has been waiting for a second force behind Toll Holdings, and analysts say Linfox is conscious of this.  It is not the first time Linfox has listed on the ASX. It listed in 1987, but that lasted less than two years before the family bought back the company.  Linfox is the second biggest transport company in Australia and has operations in 11 countries.

To fund its expansion -- especially projects in other parts of the Fox family empire such as Avalon and Essendon Airports -- it will need large amounts of capital.  Pricing multiples in the transport industry have never been so high. Transport companies are selling for 15 to 20 times earnings.

As a private company, Linfox does not release profit figures, but it says the latest acquisition will bump up its turnover from $1.8 billion to $2 billion.  This is still a far cry from transport industry leader Toll Holdings, which is forecast to report annual revenue in 2007 of close to $10 billion, and net profit of almost $500 million.  Linfox's purchase of Sam Tarascio's Westgate business follows two other acquisitions in the past year, including Bill Gibbons' freight forwarder FCL Freight last August for $170 million and Provincial Freightlines in May this year.

Apart from his transport interests, Mr Tarascio is one of Melbourne's most high-profile builder-developers, with a current construction work book of more than $700 million. His Salta Constructions is one of Australia's largest and most diversified privately owned building groups.  Westgate beefs up its warehouse capabilities and extends its offerings to customers to include more dangerous goods warehousing. It also ensures that it maintains at least one of the big retailers as a key client.  Right now Coles is Linfox's biggest client. Indeed, Linfox founder Lindsay Fox used to sit on the Coles board.  But, with Coles for sale, future contracts may be reviewed. Westgate has a big chunk of the Woolworths transport business.

Linfox has been trying to consolidate its position in the Australian transport market for the past two years, even before Toll Holdings' purchase of Patrick Corporation.  For instance, Lindsay Fox spoke to Chris Corrigan about selling Linfox into Patrick and taking a 20 per cent stake in the merged entity. These plans were derailed when Paul Little's Toll came along and made an offer for Patrick.  He then spoke to Qantas about selling its business.  Sources close to Qantas say the Fox family wanted $1.1 billion, which the airline considered far too much.

Executive chairman Peter Fox's goal is to turn Linfox into a $4 billion to $6 billion operation by 2010, but after the Toll-Patrick merger, the Australian transport landscape changed so dramatically that it forced many of the smaller transport operators to either close or sell out.

Peter Fox said Linfox decided to build up its acquisitions because if it had sat still after the Toll deal it would now be finished. "We have made three acquisitions in the past year to consolidate our position in the industry," he said.  "You can only be number one or two or maybe three in this industry. The others will get squeezed out."  Because of this he expects the third-biggest transport operator, Allan Scott's transport business, to put up the for-sale sign.  "Let's face it, Allan Scott is 84 and there isn't a clear succession in place as far as I can see," he said.  Not surprisingly, Linfox would be first in line to bid for the business. "It's a good business and I can't imagine the ACCC letting Toll buy it.  "Then again, you never know. I didn't expect them to let the Patrick deal go through."

Transport is one of the toughest industries to operate in. It got even tougher when Toll emerged as a fully integrated logistics and transport operator.  It got tougher again with the rising fuel prices, heavy capital expenditure in IT and difficulty in getting staff.  For this reason there will be a lot more consolidation in the next few years.  "As I see it, this place is built on monopolies and duopolies. Companies at the bottom will get squeezed out," he said.  Mr Fox said the company was not looking at listing at the moment. But, he said, "Never say never."

Toll Holdings

Logistics giant Toll Holdings (Au:TOL) is hinting at major new acquisitions now that its restructuring is complete, and the freight business Linfox is in its sights. Toll is not underestimating the competition issues this might create with the authorities. Nevertheless, it was to open the way to acquisitions that Toll split itself into two companies: Toll owning the logistics assets, and a new company Asciano owning assets such as stevedore Patrick Corp, rail company Pacific National and its stake in Virgin Blue. This was done in order to satisfy the Australian regulator, which was making moves to break Toll's competitive power. Toll has grown enormous on the back of acquisitions, numbering 22 at the time it made its pitch for Patrick. One of its most problematic has been the NZ railway assets now contained in Toll NZ. But this is a pinprick compared to its successes.

Hellaby Holdings

Hellaby (HBY) chief executive David Houldsworth announced his resignation last week, closing another chapter in the diversified company's recent decline. At the beginning of May Hellaby announced it had initiated a strategic review of the footwear businesses, and was considering a number of alternatives to create additional value from them. But last week it issued a profit warning, saying annual profit would fall by a third due to a disappointing performance from its industrial assets. Hellaby has been a strong recovery story for many years, with a clever eye for acquisitions. It developed in two directions, footwear and clothing and industrial assets, adding value for shareholders along the way. But in a still strong economy it seems to have lost its way. The acquisition of BBQ Factory at a premium price, when the latter failed to list on the sharemarket, was very unlike Hellaby. And recently even the strong assets have been slipping.

BRW Rich 200 members have offloaded assets valued at more than $15 billion in the past year. So why have they done it and what does it mean for the economy?

Australia's super wealthy have engaged in an unprecedented level of selling over the past 12 months, disposing of more than $15 billion worth of assets. Enormous fortunes have been made, empires have been liquidated overnight, careers have ended and new businesses have been born. The economy is awash with money and private equity firms, property developers and public companies are desperate for new assets to boost returns. BRW Rich 200 members such as James Packer, Kerry Stokes, Solomon Lew and Lang Walker have been presented with deals that were simply too good to refuse.

But there are other reasons behind the great sell-off. Some Rich 200 members are selling up to expedite the transfer of wealth to their children. Some just want to retire. Others are seizing the opportunity to enter new businesses or rebalance their investment portfolios. And in what should be a warning for the business community, the Rich 200 - who are legendary for their ability to spot trends - are also selling up because they see trouble ahead.

Queensland billionaire John Van Lieshout was one of the first Rich 200 members to sell up last year. In May 2006, Van Lieshout offloaded his Super A-Mart furniture business to the private equity group Ironbridge Capital for $500 million. Van Lieshout, a Dutch migrant who arrived in Brisbane as a teenager in the 1960s and owned his first furniture store by the age of 23, built Super A-Mart into a 21-store chain with revenue of more than $350 million. The business was his life's work, but Van Lieshout knew it was time to sell up. "I got 13 times earnings," he says. "I think only once in a lifetime someone comes along and offers you that sort of money."

Greg Will, a PricewaterhouseCoopers partner who looks after a number of moneyed clients, says it is a common refrain among the legion of wealthy sellers. "There are some prices for businesses out there that are just too good to refuse. We've never seen anything like the past 12 to 24 months."

Market observers have been regularly surprised by the magnitude of many deals involving Rich 200 members. Property commentators were stunned when the Besen family received $621 million for a half-share in its Highpoint Shopping Centre and surprised at the $270 million David Burger received for the Mid City Centre building in Sydney. Media industry insiders were amazed when James Packer got $4.5 billion for a half-share in Publishing & Broadcasting Ltd's media business and when Kerry Stokes sold a half-share in his Seven Network for about $4 billion.

The $130 million Solomon Lew received for his Witchery women's fashion chain was more than most pundits predicted. Harvey Norman executive chairman Gerry Harvey thought Archer Capital's offer for the company's stake in Rebel Sport was overly generous, so he sold up and took a $150 million profit. The founder of the RAMS Home Loans business, John Kinghorn, is selling that business. Some analysts value the company at $500 million, but offers are flooding in about the $1 billion mark.

There is an old saying in the business world: when the rich start selling, the market is about to turn down. Will says many of his clients are worried about when Australia's decade-long period of prosperity will end. "It is definitely a concern for them. Waiting for the downturn is really top of mind, because that's how they have made their investment decisions in the past."

The senior vice-president of Merrill Lynch's private wealth services division, Dara Minbashian, agrees. "If you are a seasoned investor you always get worried when there is so much money around." Van Lieshout has clearly made a judgement that the prosperous times the company has enjoyed thanks to the Queensland population boom could be about to end. "The furniture business is wonderful when there is a housing boom. But it is tough when the housing market isn't going so well."

Indeed, Van Lieshout seems genuinely confused about the state of the Australian economy. As part of the Super A-Mart sale, Van Lieshout retained the property Super A-Mart sits on, including its stores, warehouses and offices (the portfolio is believed to be worth about $400 million). He had planned to plough some of the proceeds from his sale into more property investments but he is struggling to pick the market. Prices have skyrocketed in recent months to levels Van Lieshout cannot understand. "There must be so much money in the market that people are willing to pay anything. I don't want to sit on the sidelines for too long because maybe the market will stay like this. It makes me a little bit worried. Whenever I see that it's too good for too long I get concerned. It is certainly different to what I have seen in the past 40 years."

Some property-industry moguls are also wondering whether the market is near its peak. In November 2006, Lang Walker sold a $1.1 billion chunk of his property portfolio to listed property group Mirvac. Included in the deal were shopping centres and a slew of retail, commercial and industrial property. Walker started the sale process in March 2006, but most potential suitors baulked at the price he was asking. In the end, Mirvac picked through the assets individually and Walker sold only those he felt were priced correctly. West Australian investor and Rich 200 member Stan Perron also purchased some of Walker's assets. What makes the sale particularly significant is that it is the second time

Walker has sold the bulk of his portfolio. In 2000, he sold the listed Walker Corporation to Australand for $110 million, brilliantly picking the top of the cycle. Bill Bowness sold the Australian portfolio of his Wilbow Corporation to listed property company FKP for $330 million in September 2006. The sale was partly driven by Bowness's desire to step away from what he calls the "property coalface" and diversify into areas such as mezzanine financing.
Last year, however, he said he was shocked at the prices being paid for property assets. "There is so much money around and there are fund managers who are wanting to do all sorts of things," he says. "There will be tears."

But it is not all bad news. The managing director of Goldman Sachs JBWere's private wealth management division, Paul Heath, believes there are other reasons for the great sell-off besides big prices and concerns about the business cycle.

He points to succession as a big motivator. Australia's wealthy entrepreneurs are ready to hand over to their children, but are finding the next generation unwilling to grab the reins. "The younger generation see other opportunities that don't involve the family business," Heath says. Many rich entrepreneurs are finding that selling their business and splitting the proceeds is a lot easier than trying to persuade unwilling family members to take over.

Goldman Sachs JBWere's head of investment banking, Clark Perkins, says the spate of sell-offs also has much to do with the rapid growth of the private equity industry in the past 12 to 18 months. While wealthy business people have always had the option of selling their business through a public float or a private trade sale, the extremely flexible nature of private equity deals gives them a range of new options. They can sell a business in its entirety, or just sell a chunk. They can arrange to stay in the business for five years or stop work immediately. They might, like Van Lieshout, sell the operating business and keep the property.

"Private equity is providing ... a very real alternative that just didn't exist five years ago," Perkins says. He adds that a private equity deal is also often more palatable for a wealthy entrepreneur than selling out to a bitter rival through a trade sale or facing the public scrutiny a float brings. "Private equity provides a discreet, more confidential exit compared to the public market."

Of course, not every sell-off was motivated by a desire to exit. Perkins says many wealthy business people are also looking to do private equity deals to take their business to the next phase of its life. "They are looking for some fresh thinking and a drive to push the business to grow again." That is exactly why James Packer and Kerry Stokes did private equity deals.

By selling half of their media businesses for $4.5 billion and $4 billion respectively, Packer and Stokes have built massive war chests with which to make other acquisitions and expand their businesses. Packer has already made several acquisitions in the gaming sector while Stokes appears poised to play a big part in the coming shake-up of the Australian media sector.

So will the great sell-off continue? Almost certainly. Private equity funds are swollen with cash and must find ways to spend it if they are to earn the returns their investors demand. This means Rich 200 members will continue to be courted and tempted with huge prices for their businesses.

Rich 200 members are also likely to court private equity firms. Perkins says wealthy individuals and families now understand the private equity model and are more confident it can deliver them a profitable exit or capital to grow.

The sell-off will also continue as the members of the Rich 200 age. Merrill Lynch's Minbashian says: "The next 10 years will see a lot of people selling up simply because they are getting old. These guys are getting to 70 and 80 and 90 and they don't want to run a business any more."

OFFLOADING
Rich 200 members who have sold assets in the past yearBill Bowness Sold the Australian assets of his Wilbow Corporation to FKP Property Group for $330 million in September 2006. He is pessimistic about the Australian property industry and was keen to cash out while the price he could get for his portfolio was sky-high.
David Burger The Sydney property developer sold the Mid City Centre in Sydney for $270 million in May last year.

John Gandel The shopping centre magnate cashed up last year by selling his management stake in the $4.8 billion CFS Retail Property Trust to Commonwealth Bank for about $400 million. In December 2006, Gandel also sold his portfolio of upmarket retirement villages to a consortium of Macquarie Bank and property group FKP for about $105 million.

Tony Haggarty and Chris Ellis In October 2006, Haggarty, Ellis and their fellow directors of Excel Coal agreed to sell the company for $1.8 billion to Peabody Energy, the world's largest private sector coal producer.

Gerry Harvey The veteran retailer sold Harvey Norman's $185 million stake in Rebel Sport to private equity firm Archer Capital. Harvey Norman made $150 million on the deal. John Kinghorn The jewel in John Kinghorn's investment portfolio, RAMS Home Loans, is on the sale block. There have already been a few offers about the $1 billion mark from suitors including National Australia Bank. Private equity firms are ready to pounce, but a float has not been ruled out.

Solomon Lew Veteran retailer Solomon Lew agreed to sell his stake in Coles Myer to Wesfarmers for about $1.14 billion in April this year, severing his ties with the retail giant after a 20-year relationship. In July 2006, Lew sold the Witchery women's fashion chain to private equity firm Gresham Private Equity for $130 million, about $15 million more than its original offer.

James Packer In October 2006, Publishing & Broadcasting Ltd sold 50 per cent of its media business to private equity group CVC Asia Pacific for $4.5 billion. Packer got the best of both worlds: PBL retains control of the new media company and also gets a pile of cash to pay down debt and sink into expanding gaming assets.

Ralph Sarich Ralph Sarich's property company, Cape Bouvard, sold $500 million of assets to United States conglomerate GE in January. The portfolio includes office buildings in Perth, Sydney and Melbourne. While the portfolio was not officially for sale, Sarich says he had many unsolicited approaches during the previous year. GE paid cash for the assets. Peter Scanlon When Peter Scanlon agreed to sell his stake in ports company Patrick Corporation to logistics company Toll Holdings, the takeover battle for Patrick was effectively over. Scanlon took
$405 million worth of cash and shares from the deal.

Kevin Seymour He put a $250 million portfolio of properties on the market in early 2006 and sold an office building in Brisbane in February for $28 million. He is good at picking market cycles and regularly trades properties to lock in profits.

Kerry Stokes He followed the lead of James Packer by selling a 50 per cent stake in Seven Network to private equity company Kohlberg Kravis Roberts for about $4 billion. Ken Talbot The coalmining veteran, who owns a majority stake in Macarthur Coal, sold his chain of six hotels to Cairns pub baron Tom Hedley in October 2006 for $110 million. Talbot plans to invest the proceeds of this sale in a private mining group. Talbot Group Holdings recently invested $26.4 million in Timor Sea explorer Karoon Gas Australia.

Lang Walker In November 2006, Lang Walker sold a $1.1 billion chunk of his property portfolio to listed property group Mirvac. West Australian investor and Rich 200 member Stan Perron also purchased some assets.

Besen family In March 2006, the Besen family sold a half share and the management rights to its Highpoint Shopping Centre for a mammoth $621 million.

Hannan family After an emotional sale process, the Hannan family sold the newspaper, magazine and online assets of its Federal Publishing Company to News Corporation for an undisclosed sum, believed to be about $340 million.

Knowles family The Knowles family company, Australian Retirement Communities, sold a portfolio of 17 existing retirement villages (home to nearly 4000 residents), three villages under development and six villages in the planning stages to listed property company Stockland in February for $329 million.

Smorgon family In June 2006, the Smorgon family agreed to sell its $550 million stake in steel company Smorgon Steel into the $1.6 billion takeover by rival OneSteel. Smorgon Steel chairman Graham Smorgon said the decision was an emotional one. "But it was a business judgement that needed to be made."

The business of living
What next? That is the question that has confronted many Rich 200 members who have sold their businesses in the past year.

Greg Will, a partner at PricewaterhouseCoopers who works with wealthy clients, says it can be a difficult question for prosperous people who leave their business. "Having a large bank balance is great, but what are you going to do the next day?"

John Van Lieshout, who sold his Super A-Mart furniture for $500 million last year, is representative of many Rich 200 members who say that selling their business allows them to indulge passions such as sailing and golf. "It's a good life. I should have done this years ago really," he jokes.

Will says retirement sounds easy, but it can be very hard for men and women used to the intense lifestyle associated with running a business. Many struggle to find something to fill in their spare time. In most cases, the only thing that helps is finding another company to channel their energies into. "They get some little business interest that soon takes over and the cycle starts again," Will says.

Van Lieshout has plenty to keep him busy. He has retained the properties Super A-Mart sits on, a portfolio believed to be worth about $400 million. He has a small property development firm called Unison and he has established a small office with five staff to examine other investment opportunities. "I'm doing an apprenticeship in trying to learn about money markets and shares and investments," Van Lieshout says. "It is complex and I don't have a lot of education so it takes me a while to understand, but I am enjoying the learning process. He keeps an eye on the Super A-Mart business - it is, after all, his biggest tenant - but says he does not want to interfere with the new owners, the private equity firm Ironbridge Capital.

Van Lieshout, who prided himself on running a very tight ship at Super A-Mart, has caught up with one bit of scuttlebutt that makes him chuckle. "I have heard them say that it is one of the few businesses they haven't been able to trim any costs from."

Press Release: Toll New Zealand
January 31, 2007

Toll NZ Update
As a result of a number of changes occurring in the Toll Holdings Group and the current trading outlook, an update is provided in respect of the Toll NZ business.

Impact of Restructure
On 13 December 2006, Toll Holdings' directors announced a planned restructure of the group. The impact of the restructure will be the separation of port and rail infrastructure assets into a separately managed Infrastructure Company (Infrastructure Co). Remaining aspects including Toll Australia, Toll NZ, Toll Asia and the investment in Virgin Blue will continue with the network and supply chain business of Toll Holdings. It is expected that the proposal for the restructure will be put to the Toll Holdings' shareholders for approval via schemes of arrangement during the first half of 2007.

The current New Zealand port and stevedoring operations of Toll Holdings conducted through the Toll/Owens joint venture between Toll and Port of Tauranga will be owned by Infrastructure Co. Toll NZ and Toll Owens have co-operated effectively in the past to support major customer solutions, for example the use of port and rail operations to deliver imported coal by the Huntly Power Station. It is expected that the same level of cooperation will prevail following the restructure, where Toll NZ can bring its land based logistics capability to produce highly efficient customer outcomes.

Board of Directors
The Board of Toll NZ has appointed Mr John Ludeke to its Board. Mr Ludeke is currently director of Australian transport operations for Toll Holdings.

Upon implementation of the Toll Holdings' Group restructure, current Chairman Mr Mark Rowsthorn plans to resign in order to take up the position of Infrastructure Co Chief Executive. It is anticipated that Mr Ludeke will thereafter assume the role of Chairman of Toll NZ.

Trading Update
As advised at the Toll NZ AGM, trading has been impacted by the slow down in the NZ domestic economy combined with persistently high exchange rates affecting export levels, and lower margins particularly in the Interislander and Toll Rail businesses. Underlying EBIT to 31st December 2006 is currently ahead of budget, however it will be lower than the previous corresponding period. Whilst economic conditions remain patchy, based on current forecasts, it is expected that the second half result will be improved through a range of initiatives being implemented.

Negotiations with the Crown
Toll NZ has been involved in ongoing discussions with the Crown in order to design a long term sustainable track access regime which will encourage greater use of rail and support long term capital investment horizons.

Whilst discussions are generally positive Toll NZ is still concerned that the Crown appears to be unwilling to recognise the inequality of the funding support between road and rail and the need to adopt a more commercial approach to track access management.

Toll NZ stands ready to implement a major rail fleet re-equipment programme once viable long term track access arrangements are established.

MarketDefinition

The road and rail industry is composed of the railroad sector and the trucking sector. Values for the trucking sector reflect total revenues garnered from local, national or international general freight road transport, while values for the railroad sector reflect total revenues collected from passenger rail transportation and from freight rail transportation.

The global value is composed of the US, Asia-Pacific, Europe, Canada, Brazil, Mexico and South Africa.  Europe is comprised of Belgium, Czech Republic, Denmark, France, Germany, Hungary, Italy, Netherlands, Norway, Poland, Russia, Spain, Sweden and UK.  Asia-Pacific is composed Australia, Taiwan, China, India, Japan, South Korea.

ResearchHighlights

*On top of the funding for new roads from the Federal, State and Local government, the private sector is also a significant contributor.

*Toll Holdings, a strong domestic operator, does not reach beyond the borders of Australia and New Zealand.

*Companies active within the Asia-Pacific region tend to target the fast growing countries of China, India and others before entering into Australia.

MarketAnalysis

Whilst growth in Australia's road and rail industry was initially tame, 2003 saw recovery from global economic slowdown and revenues were suddenly fanned into flame. In the midst of phenomenal double-digit growth in the region as a whole, revenues from road freight, rail freight and rail passenger transportation are set to continue rising.

The Australian road and rail industry reached a value of $14.9 billion in 2004, having grown with a compound annual growth rate (CAGR) of 3.8% in the 2000-2004 period. This growth was slightly weaker than that of the Asia-Pacific industry itself, leading to the Australian industry's regional share decreasing by 0.2 percentage points between 2000-2004, accounting for 5.3% of the Asia-Pacific industry by the end of this period.

The leading revenue source for Australia's road and rail industry in 2004 was the road transportation sector, which accounted for 54% of the industry's value. In value terms this sector was worth $8.1 billion in 2004. The rise in larger US-style commercial vehicles should see road freight spanning this rapid-growth nation. Just as across a number of industries, spiraling oil prices are raising costs and, as a result, road and rail demand is beginning to shift toward the more fuel-efficient rail sector.

The railroad sector generated the rest of 2004 revenues, reaching a value of $6.9 billion, equivalent to 46% of the industry's value. Current funding rail infrastructure is primarily from the State Governments, with minimal contributions from the Federal Government. On the other hand funding in road assets are well balanced between the Federal, State and Local government, as well as a high contribution of the private sector.

During the next five years, the industry is expected to experience accelerating growth rates. By 2009, the industry is forecast to reach a value of $21.4 billion, which equates to a CAGR of 7.5% in the 2004-2009 period, lower than the Asia-Pacific regional average. Although this rate still compares favorably to Japan's predicted CAGR of -1.1%, the Chinese industry is expected to continue pulling regional share out of the Australian's reach, growing at a 25.7% year-on-year average over the same period.

Value

The Australian road and rail industry grew by 5.6% in 2004 to reach a value of $14.9 billion.  The compound annual growth rate (CAGR) of the industry in the period 2000-2004 was 3.8%
      Australia Road & Rail Industry Value
      Unit: USD
     
      Year=2000     Value=12,900,000,000
      Year=2001     Value=13,200,000,000     Growth=2.10%
      Year=2002     Value=13,500,000,000     Growth=2.60%
      Year=2003     Value=14,100,000,000     Growth=4.90%
      Year=2004     Value=14,900,000,000     Growth=5.60%
     
      CAGR: 2000-2004                               3.80%
   

Segmentation

The largest sector in the Australian road and rail industry is the road transportation sector, accounting for 54% of revenues.

Railroads comprise the remaining 46%.
      Australia Road & Rail Industry Segmentation
      Year: 2004
      Name=Road Transportation     Percentage=0.54
      Name=Railroads               Percentage=0.46

Segmentation: The Australian road and rail industry comprises 5.3% of Asia-Pacific revenues.

Japan dominates the region with a 56.7% share.
      Australia Road & Rail Industry Segmentation
      Year: 2004
      Name=Japan                    Percentage=0.567
      Name=China                    Percentage=0.330
      Name=Australia                Percentage=0.053
      Name=Rest of Asia-Pacific     Percentage=0.043
      Name=South Korea              Percentage=0.007

CompetitiveLandscape

In recent years, the Australian road and rail industry has seen firms spanning a range of commercial and industrial markets, embracing air and sea capabilities. Nonetheless, it is likely that road transportation continue to hold its leading share of the nation's freight due to its already dominant role, flexibility and ability to respond quickly to the marketplace. However, firms are increasingly looking to provide more of a 'one-stop-shop' in which the key players span not only Australia, but also other high growth Asia-Pacific countries such as India and China.

SembLog, one of the lead players, has recently divested of much of its shipping operations. SembLog are based in Singapore but cover the whole Asia-Pacific region and have held an increasing presence in Australia since 2001. Nonetheless, amongst its principle targets are to accelerate company growth throughout China (typical of any firm in the region) and to improve operations in India.

Despite the continuing presence of certain key operators, years of downsizing and mergers have seen the industry consolidate. Such consolidation has tended to witness many of the smaller domestic players eliminated and larger players flourish. In Australia, the industry continues to be dominated by a handful of domestic firms rather than foreign firms entering the industry. For example, Toll Holdings, a domestic operator, is another leading player in the Australian road and rail industry. The company continues to expand its Australian and New Zealand network and is in a strong position to integrate with larger players from abroad. Since then, Toll has maintained its inorganic growth strategy through the acquisition of firms such as DX Group, Brambles and Mayne Group in 2002, increased its holdings in Tranz Rail and Owens Group in 2003 but disposed of its interest in Australian Transport Network (ATN) during 2004.

Companies are increasingly threatened by the need to meet newly introduced government laws and regulations. A range of environmental legislation aimed at cutting diesel pollution and sulfur emissions has yet to emerge in the manner to which other governments' intervention has taken place. Vehicle costs will almost certainly have to rise and fuel economy will suffer through measures to clean up fuel and engines, having a direct affect on the Australian road and rail industry.

LeadingCompanies RankedBy="Unranked"

This section contains brief overviews of the leading companies in the Australian road and rail Industry.

Company

Toll Holdings Limited: Toll Holdings is a provider of integrated logistic services in Australia and New Zealand. For the fiscal year 2004, it generated revenues of $2.3 billion.  The company provides express freight forwarding, storage, warehousing and freight distribution by road, rail and sea. Toll Holdings is headquartered in Melbourne, Australia.

Company: SembCorp Logistics

SembCorp Logistics (SembLog) is an integrated logistics company in the Asia Pacific region, providing a range of supply chain solutions to more than 300 multi-national corporations and many of the world's best known brands. The company is headquartered in Singapore.  For the fiscal year ended December 2004, SembLog generated revenues of $1.13 billion.

Company:  Chalmers Limited is an Australian trucking company, responsible for transporting freight by road as well as providing warehousing and container storage services.  In 2004, the company generated Aus$28.8 million (US$21.2 million), up from 2003 revenues of Aus$26.5 million (US$19.5 million).

ForecastValue

In 2009, the Australian road and rail industry is forecast to have a value of $21 .9 billion, an increase of 43.6% since 2004.  The compound annual growth rate (CAGR) of the industry in the period 2004-2009 is predicted to be 7.5%.  The annual industry growth is forecast to rise from 5.6% in 2004 to a high of 8.5% in 2009.
      
      Australia Road & Rail Industry Value Forecast
      Unit: USD
     
      Year=2004     Value=14,900,000,000     Growth=5.60%
      Year=2005     Value=15,900,000,000     Growth=6.40%
      Year=2006     Value=17,000,000,000     Growth=6.80%
      Year=2007     Value=18,300,000,000     Growth=7.70%
      Year=2008     Value=19,800,000,000     Growth=8.10%
      Year=2009     Value=21,400,000,000     Growth=8.50%
     
      CAGR: 2004-2009                               7.50%

MacroeconomicData

Population
      Australia Size of Population
      Unit: Population
     
      Year=2000     Value=19,200,000
      Year=2001     Value=19,400,000     Growth=1.00%
      Year=2002     Value=19,500,000     Growth=1.00%
      Year=2003     Value=19,700,000     Growth=0.90%
      Year=2004     Value=19,900,000     Growth=0.90%

GDP
      Australia GDP
      Unit: Real GDP (1995=100)
     
      Year=2000     Value=121.8
      Year=2001     Value=124.9     Growth=2.60%
      Year=2002     Value=129.4     Growth=3.60%
      Year=2003     Value=133.4     Growth=3.10%
      Year=2004     Value=138.5     Growth=3.80%

Inflation
      Australia Inflation
      Unit: Inflation Rate %
     
      Year=2000     Value=0.058
      Year=2001     Value=0.031
      Year=2002     Value=0.030
      Year=2003     Value=0.024

ExchangeRate FromCurrency="USD" ToCurrency="AUD"  
      Exchange Rate
      Unit: Exchange Rate
     
      Year=2000     Value=0.006
      Year=2001     Value=0.005
      Year=2002     Value=0.005
      Year=2003     Value=0.006
      Year=2004     Value=0.007