As the mastermind behind the $6.5 billion take-over of the Toll Group by Japan Post, Toll Chief Executive, Brian Kruger, has firmly cemented his position as one of the most influential people in Australian road transport during 2015. Now backed by an $80 billion powerhouse that has publically committed to growing the Toll brand, not compromising it, he is able to steer the Melbourne logistics giant back onto the merger and acquisition highway.
Q: It’s almost exactly a year ago now that you announced the Toll Group would become part of Japan Post. How have you experienced the whole process since you made it public in February? What has changed within the Toll organisation?
A: Most of our stakeholders – and by that I mean our customers and suppliers here in Australia – would not have felt much change with the acquisition by Japan Post, and that’s been intentional.
Internally, it has certainly impacted a small number of people, though, especially those in corporate roles. While Toll is no longer a public company in Australia, Japan Post is now publicly listed on the Tokyo Stock Exchange, which has brought with it a lot of changes for those of us that used to have to interact with the Australian Stock Exchange and tens of thousands of shareholders. Take myself – now I just report to my board and no one else. The most noticeable thing that will change in due course will be us looking at acquisition opportunities again, perhaps more proactively so than when we were still on our own.
Q: That would mean breaking with the somewhat conservative mentality you’ve dispayed over the past four years or so.
A: Correct. I’m not going to go into a lot of detail on what those opportunities might look like, but I what I can say is that we will be back on the acquisition trail, which is something we’ve intentionally slowed down with since I took over as CEO four years ago.
Q: Why the change of mind?
A: To be honest, we were already on track to reaching the point where all past acquisitions were sufficiently integrated before the Japan Post opportunity came along – that’s essentially what happened under the One Toll program that we started a few years ago in collaboration with Paul Little (Ex-Toll Chief Executive, ed.). It just so happened that we, as a management team and a board, were ready to start looking at acquisitions again when the Japan Post deal unfolded.
Q: Will the Toll brand remain intact as part of that process? In The Australian, Paul Little recently indicated he feared for the company’s brand identity.
A: Yes, that’s actually one of the things we spoke about with Japan Post fairly early on. The people there want us to retain the Toll brand and continue to grow under the Toll name, which is fantastic. They recognise the strength and diversity of our domestic Australian business and understand the importance of scale. Also, they’re very focused on growing their business and didn’t acquire us to shrink us. [Instead] they acquired us to use us as a platform for growth.
Q: Just to put it into perspective: Would you consider the Japan Post deal the biggest project in your career, given its enormous size and scope? What did it teach you?
A: I have been involved in big corporate mergers in the past, but it’s certainly been a unique experience driving one as CEO. I guess one of the key lessons learnt is to communicate constantly: You need to be clear and unambiguous with your message to market, otherwise people will fill in the gaps and rumours will develop. I think we did a good job in that regard post-announcement and up until the time the deal was closed. Then, subsequent to that, we kept reassuring our employees and our customers, but also unions and governments here in Australia, about our future intentions so no one would be able to circulate any inaccurate information.
Q: Is this something you’ve realised early on in the process or is it a lesson learnt in hindsight?
A: We knew what we had to do in terms of communicating the deal all along [but] I was still surprised at the extent of it all – even though I probably should not have been. After all, we had a foreign, government-owned organisation buying an iconic Australian company – that’s a big deal for anyone. If we hadn’t been really specific with particular issues, people would have jumped to inaccurate conclusions very quickly.
Q: The result was a relatively low-key merger given the size of the Toll organsiation.
A: I think so – depending on what you call low-key, of course. It certainly wasn’t low-key once we announced it. But, the job that we did, that Japan Post did, that our advisors did, in keeping the deal confidential until that point, was definitely a good one. I can’t think of another example in corporate Australia where that’s been done.
Q: The proposed Asciano take-over by Canadian company Brookfield was first reported on in early November but has not been finalised as yet. In comparison, how long did it take you to wrap up the Japan Post acquisition?
A: Luckily we finalised the transaction very quickly. The first interaction with Japan Post was in the first week of December and we announced the deal in mid-February. From a speed and confidentiality perspective, that’s an absolutely unprecedented transaction – even though I didn’t have a particularly relaxing Christmas holiday that year.
Q: The result, however, is what The Australian called “the best job in corporate Australia”. That’s a good outcome for you personally, isn’t it?
A: It’s a great opportunity for both the Toll Group and myself. I’ve talked about acquisition opportunities before, but there’s even more potential that being part of Japan Post brings with it, particularly in terms of working with Japanese companies in the global arena. We’re finding that our ability to open doors with these businesses completely changed now that we’re part of Japan Post, which is exciting.
On an operational level, we keep learning from what Japan Post does really well and vice versa. That process of ‘best practice sharing’ across both organisations is a big opportunity in itself.
And for me personally, well, I’m now no longer leading a public company, where managing shareholders and investors is a big part of the job. I’ve only got one shareholder I need to keep happy now.
Q: Which may be a challenge in itself given the cultural differences between Japan and Australia?
A: There are certainly differences, but Toll has been a global company for the best part of the last 10 to 15 years, so our people are very used to interacting with different cultures – myself included.
Q: What kind of differences have you observed?
A: With our old board at Toll, a lot of decisions would have been made at the actual board meeting, after a lot of debate. In Japan, a lot of the decision-making is taking place ahead of it, so there are a lot more pre-briefings to attend. That takes a bit more time and effort but that’s okay – after all, those differences are only affecting a relatively small amount of people. We’re an organisation of nearly 40,000 staff and the vast majority of them would not be feeling any different in their everyday job.
Q: A lot of them would still be curious to find out what the underlying vision is behind those opportunities you’ve mentioned.
A: What Deutsche Post has done with DHL is probably a good analogy: It’s a large, government-owned postal organisation that has embarked on a series of acquisitions and grown extremely successfully over a relatively short period of time. It’s really only been in the 2000s that DHL has been created, so if you think about what Japan Post could be able to do in years to come, there’s no limit.
Q: Let’s start locally, then. If there were such a thing as a business barometer for Australian trucking, it probably wouldn’t be very high at the moment. OEMs lament a lack of sales activity and transport businesses struggle with shrinking margins across the board. What’s your take on the status quo?
A: It’s difficult to give you a one-size-fits-all response to that. Clearly, and I’m stating the bleeding obvious here, both the retail and the resources sector are pretty tough at the moment – the resources downturn obviously being driven by what’s happening on the commodity market. I think if you were an organisation that was solely in that space, it would be pretty rough.
Retail is also a difficult space, and I’m not just talking about the big supermarkets here. Part of that is driven by online sales and increasing levels of price transparency in the market, which has had a negative impact on margins that they’re now looking to pass on.
Manufacturing is also challenging, we know that first-hand because we do a fair bit of work in that field, so I’m not surprised to hear that people are struggling and registrations are falling.
Q: That’s a sobering assessment. Are there still industries that are doing well?
A: Agriculture is still promising at the moment, and the pharmaceutical sector is also not a bad place to be. Residential construction is also interesting, and certainly infrastructure – there’s going to be some great opportunities there too. I guess it’s about picking the right sector and trying to demonstrate that you can actually add value to it. If you’re in a position where you can do that, you’ll still be able to grow your business.
Q: So will we see Toll expanding in the infrastructure field, for example? You don’t see many Toll tippers around at the moment.
A: That’s right. We haven’t done a lot in the heavy haulage space up until recently, but we’ve made a few small acquisitions in that space that should give us more leverage in the future. I do think we will see an increase in infrastructure spending in Australia, so from my perspective, that’s a promising market sector for the Toll Group.
Q: Speaking of potential fleet investment – do you believe an organisation of Toll’s size and scope has an obligation to push the innovation agenda and drive truck sales?
A: Definitely, and that’s what we’re doing. The majority of our trucks are five years old or less so that’s in line with the US and Europe and much lower than the Australian average.
Q: Then again, you must be wearing two hats here – one that’s Toll-focused and one that’s industry focused?
A: Yes. As much as we want to lead from the front and set the agenda, we must also have the best interest of our organisation in mind. Sometimes those two areas go hand in hand, and sometimes there can be conflict – for instance when we want to keep certain technologies to ourselves for the time being. You just have to find the best balance in those scenarios.
But, there are also areas where we never compromise, safety for example. Linfox is doing a good job in that domain too – it’s actually one of the few topics Peter Fox and I regularly speak about. We don’t talk about a lot of other issues, but in terms of improving safety in the road transport industry, our interests are absolutely aligned.
Q: To what degree can the CEO of such a large business remain in sync with the technology used across the Group?
A: Let’s be honest – I’m not a long-time truck person, so it’s not easy. The main area where I do try to keep up to speed with what we’re doing and how we’re doing it is safety technology.
I’ve got a real passion for safety and want to make sure we do the best we can in that field. But when it comes to fuel efficiency or trailer design, I rely on other people to make sure we have the best possible solution. For me, that means I need to make sure we’ve got the right people and right processes in place to achieve that outcome.
Q: Is there a technology solution you’re especially interested in at the moment?
A: We are using cutting-edge technology from Seeing Machines, for example, where the driver’s eye movement is monitored to gauge his or her fatigue level. It’s a great safety initiative that I would like to see made compulsory for all vehicles doing line haul work. The same is true for electronic work diaries, for example. I’d like to see them mandated as soon as possible.
Q: So you think driving innovation can’t be left to the industry alone?
A: If there’s good technology out there, why wouldn’t the government be mandating it? Of course it doesn’t have to be done tomorrow. You need to give people some space to make the investment and get the processes right. But yes, I think we still don’t talk enough about those opportunities to use technology to improve the safety performance of the industry.
Q: Even without the government intervening, you would arguably still have a lot of power to drive the agenda. Think about the technology you specify when sub-contracting.
A: Good point. Fair to say we don’t mandate some of the technology that is already out there for our sub-contractors at the moment. The use of modern safety features obviously has to be one of factors to consider in choosing a sub-contractor in the future, but that’s a discussion we’re having internally. Still, I’m not seeing enough of the discussion at government level – if you make technology mandatory, then industry pricing should adjust in a way that everyone can be competitive.
Q: Which role should the government play exactly? Are you thinking about a tax incentive for new truck sales, for example?
A: Well, I think what the government should be doing is not necessarily providing rebates or incentives or anything like that, but I do think it should be debating which technologies should become mandatory for heavy vehicles in the future. It’s exactly what happened when the seat belt arrived in Australia. Why shouldn’t we mandate some of the other new technologies as well when they deliver a proven outcome?
Q: Speaking of new technologies, how long will it be until we see Toll-branded drones in Australia?
A: Especially in the online retail space, things can change so quickly that it’s very difficult to stay ahead of the curve. Two years ago, I thought the likelihood of drones doing package deliveries in Australia was extremely low. Now my view on that has changed – I am sure we will see drones doing package deliveries in certain parts of the country at some stage in the future, no question.
Q: Is Toll already testing drone delivery?
A: No, we’re not. It’s just one of those things where we’ll keep an eye on it for a while so we can make an informed decision down the track. But, we’re already employing some pretty advanced technology today through the business. An example for the future is our work with Dulux subsidiary B&D Garage Doors on the feasibility of a remote garage door access system when customers aren’t home. It’s still a work in progress, but would be an interesting application.
Q: How about the advent of the autonomous truck? Are you afraid or excited by the notion of a self-driving heavy vehicle?
A: Probably a bit of both. I think when you look at how much manufacturers are investing in developing autonomous vehicles, there’s no question they will become reality at some stage. Ultimately, that will be a good thing if it can lead to more efficiencies and make the industry a safer place, but I think we’re still a long way from seeing heavy vehicles running up and down the eastern seaboard without anyone sitting behind the wheel.
Q: Be it the remotely opened garage door or the self-driving truck, in how far does the skillset required of a modern driver have to change for the job to be future-proof?
A: That’s anyone guess. What I can say is that the role of the driver is changing rapidly and doesn’t just involve operating a vehicle safely and efficiently anymore. They actually have to be able to deal with technology and communicate extremely well, and they need to be able to handle unexpected events professionally, too. There will definitely be a lot of change.
Q: Does that open the door for more female participation?
A: Yes, and that’s very important to us. I sit on the Victorian ‘Male Champions of Change’ council because I believe Toll has to lead improvements in gender equality in the transport industry in Australia. I don’t see any conflicts between my role as the CEO of Toll and Toll as the leader in the industry with that initiative.
Q: Does the industry present itself well enough to become an employer of choice for such a demographic?
A: That’s a great question. The industry can probably do significantly better in that area. If you’re just limiting your talent pool to males, you’re not going to attract the best talent … so there’s a huge opportunity in opening up more. As a company, we arguably haven’t been as coordinated as we should have been in that respect in the past, but we work with universities and schools to change that, and we see fantastic turnouts at our family days across the country.
Q: Final question: Who do you think are the three organisations or individuals that will shape 2016?
A: You’d have to nominate our Prime Minister, Malcolm Turnbull, who is obviously trying very hard to restart the nation’s innovation engine. He will have a big impact on the political front. Within our industry, those involved in the industrial relations reform debate will no doubt get a lot of airplay over the coming 12 months – and I think the outcome of that will be absolutely critical to our future. Finally, I would have to say Brendon Bolton at Carlton, I’m hoping he’ll have a big impact on the team.