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 Corporate 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%.