McColl’s Transport invests in staff and turns a corner

Michael Bleby Reporter

McColl’s Transport invests in staff and turns a corner

Published 21 August 2013 20:34, Updated 21 August 2013 20:58

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McColl’s driver simulator (pictured with Bolton, left, and Thornton) means that drivers are safer – and better for the bank balance, as they consume up to 9 per cent less fuel after training.Photo: Jesse Marlow

Mid-Market Awards 2013 | Best Mid-market Business ($100m to $250m): McColls Transport

McColl’s Transport has a truck that won’t crash. Well, it can, but it won’t cause damage – not in real life. The Geelong-based logistics company has a driver simulator, similar to what unit pilots use in training, for the drivers of its 185 prime movers. The two-year-old simulator cost $500,000 to buy and set up. It’s a fun piece of kit. A trainer can set different types of roads – city, country or suburban – as well as different weather and traffic conditions for drivers to experience. Under watchful eyes they can practise cornering, managing emergencies like a blown tyre and – road users will be pleased to know – stopping at a suitable distance behind passenger cars, rather than up close behind.More polite drivers may seem nice to have, rather than a crucial addition in an industry that runs on gross margins of about 7 per cent. But no. Better truck drivers, including ones who don’t breathe down the necks of other road-users, consume less fuel – up to 9 per cent less – after simulator training, the company says.

While drivers need ongoing refreshers, the benefits of this training run all the way to the bottom line. Smoother driving, optimisation of routes that cuts time on the road, fewer accidents and lower repair and maintenance costs are all things in the control of the front-line employees.

“Drivers can probably impact 40 per cent to 50 per cent of the cost structure in their behaviour,” says chief executive Jamie Bolton.

Recognising the effects that employees can have on the company’s performance and making sure they are aware of it, is a key part of the turnaround that has pulled the 61-year-old company back from the near-death experience of a failed private equity buyout and made it profitable again. McColl’s, which specialises in transporting milk, specialty chemicals and bulk foods, posted revenue last year of $102 million.

Back in 2009, however, when its parent company went into administration, there were no guarantees it would even survive. A break-up was the most likely option.

Drivers can probably impact 40 per cent to 50 per cent of the cost structure in their behaviour 

“I’ve got the liquidation papers on my computer,” laughs former chief executive and now director Simon Thornton, who was appointed chief executive by administrator Korda Mentha. “This was one that needed intervention.”

Dutch bank ABN Amro had bought the company in 2005 from founder Stuart McColl. The bank made it part of a new entity, Pure Logistics, with two other companies, Scott’s Refrigerated and ID Transport. It didn’t work. The debt used in the “roll-up” was too great and Pure Logistics went into administration.

Taken over by Korda Mentha-owned 333 Management, McColl’s then underwent a turnaround. Under Thornton it closed its $50-million general freight division that owned 80 trucks and employed 130 people. General freight, a commoditised service that competes on nothing but price, is a disaster, Thornton says. The company then focused on niche areas and building up capacity in the three segments that account for about one-third each of its revenue.

“What the guys have done is build up the barriers to entry and have a very asset-specific strategy,” says Bolton, who took over at the start of July.

Fresh investment

Closing the loss-making general freight division allowed the company to break even and start funding investments out of its own cash flow. Over the past two years the company has spent over $35 million buying 80 new prime movers and 25 new tankers. Last year it moved into newly built headquarters in Geelong. Now operating out of 10 depots across Victoria, NSW and Queensland, the company has a client list that includes dairy companies Murray Goulburn, Lion, Parmalat, Fonterra and Longwarry Food Park, food producers Sugar Australia, Kraft and Treasury Wine Estates and industrial companies BASF, Orica and Nationwide Oil. Bolton says there is room for growth in chemical sub-sectors like LNG and in bulk food, particularly canola oil.

While these may be growing niches, they are also niches that will be hard for others to get into. The volume of acid moved around Australia may only be enough for three tankers, but those three tankers belong to McColl’s and the high-spec equipment required for acid transport prevents anyone from undercutting on price, as could happen with general freight.

But where the company has also invested a lot in is staff. From a barrage of on-site signs warning staff about sunburn and melanoma (a risk for truck driver arms exposed to the sun for hours on end) to advertising a dedicated crime tip-off phone line, to sponsoring exercise classes, on-site gyms and running team fitness events, the company also makes efforts to inform staff about the high-level corporate strategy.

Much depends on the drivers

The so-called A3 plan – because it is handed out to staff on two A4 sheets of paper – spells out where the company wants to be in the next three to five years and what is happening in their division current quarter. As with the driver simulator investment, it reflects a realisation that front-line employees of the company are integral to, and need to understand, how the company works and how their behaviour affects it.

The company has also invested in a two-year graduate business analyst programme, rotating a team of young graduates through different divisions to help them gain an understanding of the company and lead projects to improve business performance. Following completion of the program, the graduates are offered a permanent role.

“Even straight from university, their business analysis skills have helped us to make more informed business decisions,” the company says.

McColl’s is now moving into its next stage. Founder Stuart McColl died last month, aged 95, but the company is restoring some continuity with past. When Bolton came in as chief executive, David Stevens, the former CEO of 25 years’ standing, – and Stuart’s son-in-law – joined the board as chairman.

Next leg of the journey

Last year, private equity firm KKR and Australian fund manager Allegro took over the outstanding debt of ABN Amro’s successor, Bank of Scotland International, and restructured it so that McColl’s had no outstanding debt liability dogging it. Free from the debt burden of its former corporate structure, the company is better able to invest to boost profitability.

Bolton, who comes from KKR and moved to Geelong from Hong Kong to take over the company, says the private equity firm typically holds investments for a five-to-seven-year period – longer than its peers. He says it is still too earlyto talk about how the investor may look to exit from McColl’s. “There has been no discussion at all,” he says.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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