Survival strategies for McColl's Transport
333 Management was engaged to implement a range of measures designed to improve McColl’s operational efficiency and ensure the long-term financial health of the business. 333 Management Managing Director Simon Thornton outlines how this was achieved.
‘Following the appointment of receivers to transport company Pure Logistics in 2008, McColl’s Transport, creditors to its subsidiary, were aware of significant unmet potential in the struggling organisation and chose to pursue a turnaround strategy rather than opt for a liquidation of the company’s assets.
Drawing upon a network of skilled professionals, 333 Management brought specific new capabilities to the executive team and board. We appointed a new CEO with substantial industrial experience to drive the business and create a culture of market leadership; we installed a corporate finance specialist from the UK as Chief Financial Officer to address the funding requirements of a revitalised organisation; and we created a senior technology role to develop integrated transport management systems.
By ensuring the quality of key personnel, we were able to mitigate stakeholder concern and safety, and internal controls.
The company’s poor safety record was also of pressing concern. A comprehensive review of standards and procedures was undertaken, uncovering a series of vehicle accidents and injuries. The team immediately prioritised investment in driver training and implemented policies designed to improve the risk profile of the business. This included the development of a mandatory drug testing regime and a renewed focus on fatigue management and legal compliance. As a result of these measures, Workcover claims fell from $1.6 million in the FY09 to less than $100,000 in FY11, with premiums expected to shrink by $600,000 in FY13.
Whilst developing policies to remedy issues of risk and compliance, we also paid particular attention to the company’s direct costs, especially relating to driver labour, fuel, vehicle maintenance and depreciation. Employees were operating under nine separate and very different Enterprise Bargaining Agreements, complicating payroll administration and creating issues with timesheet fraud. As part of its drive towards improved efficiency and governance, the new management team negotiated a standardised agreement with transport unions and staff, and began to closely monitor ’Super Hour‘ overtime costs on a weekly basis, providing clear visibility to the wider management team of unusual spikes in driver hours.
As a result of the review, fleet valuation was identified as an area of particular concern, with total assets found to be under depreciated by $5 million. During the receivership of Pure Logistics, the parent company, we determined that McColl’s’ capital expenditure requirements were in excess of $15 million per annum.
Fleet financiers were unwilling to fund the replacement vehicles and insurance was unavailable through normal channels. In the first year of control, we wrote down the value of the fleet to realisable values, developing a fleet strategy that leaves sustainable replacement capital expenditure at $8 million per annum. Since then, the loss/gain on fleet-assets sales has fallen to immaterial levels.
We also found that drivers were not following planned routes and that small increases in distance travelled were having a huge impact on the bottom line. Investment priority was given to improve vehicle monitoring and the Ortec Dynamic Routing Optimisation Software was installed, giving management a greater level of control over vehicle-related direct costs.
With many of the operational concerns beginning to subside, attention turned to the financing activities of McColl’s. A non-performing division was reviewed and closed, with a $16 million debt reduction over the ensuing year. Over the past two reporting periods, drawing upon the restructuring and corporate finance expertise of the greater 333 and KordaMentha network, the business has been revitalised with $13 million in equity on the balance sheet and $25 million of performing debt.
From the perspective of key clients, this improved financial performance instilled a renewed sense of confidence in McColl’s operations, allowing 333 Management to focus upon its key initiative of improving margins through setting sustainable rates. A review of customer and segment profitability found that eight key clients contributed 72% of company revenue. The enhanced relationships allowed management the ability to initiate rate increases while maintaining a collaborative and transparent approach. Subsequently, most rate increases were implemented and increased revenues are now beginning to impact upon the bottom line. The year-on-year EBITDA impact of this project was 40%.
Over two years at McColl’s, we have driven profound changes and overseen dramatic improvements in performance across all areas of the business; the company now has the bank support to fund future growth and complete acquisitions to develop its industry position. McColl’s now differentiates itself as systematically better than its closest competitors, using the latest technology to monitor its assets and reduce the likelihood of human error causing losses to the company and its clients.’