TNT today presented a radical option of possibly spinning off its declining mail business inorder to focus on growth markets for its express activities. The news drove up the company’s share
price and generated renewed speculation about a possible future takeover.Along with the Vision 2015 strategic update ahead of today’s annual shareholders meeting, theDutch group also released a trading update showing improving business for the express divisionduring the first quarter of 2010.
In a prepared statement, CEO Peter Bakker commented: “Today we announce further steps inimplementing our Vision 2015 strategy. These steps see TNT continue the transformation towardsleadership in Day Definite Delivery services and furthermore aim to explore the best position forits Mail business for continued success, amongst others via partnerships or IPO.”
The plans sparked a strong rise in the company’s share price as traders and analysts speculatedthat a mail IPO could leave the remaining express business open to a takeover bid from UPS orFedEx. Bakker said in a conference call that the internal separation of the mail business could becompleted later this year, and outlined a partnership with other European mail operators or alisting of the mail business as two of the strategic options for the future.
Under its Vision 2015 strategy, which was announced on 3 December 2009, TNT will focus on fivebusiness areas and will transform “towards a more coherent high growth portfolio”. Four areas(Parcels, Freight, Special Delivery Solutions and Emerging Platforms) are presently covered mostlyby the Express division while the fifth area is mail.
TNT has already announced that it will restructure its Dutch mail business, downsize its otherEuropean postal businesses and consider partnerships. “In the continuously declining market in theNetherlands, Mail will focus on sustaining a solid cash flow, cost adjustments and growth throughcontinued business renewal in the areas of parcels and e-commerce,” the company said. The EuropeanMail activities will focus on value realisation through partnerships or sale and ultimatelyconcentrate on the large countries where TNT Post has obtained strong market positions: Germany,the UK and Italy.
Today, TNT disclosed more of its strategic planning by announcing that it is even consideringsplitting off the entire mail business. In order to explore the best structure in which a continuedsuccess for the Mail business can be achieved, it said, “an internal legal and financial carve-outwill be realised, documentation will be prepared, partnership discussions pursued and alternativepositions assessed, including a (partial) listing or IPO of the Mail business.”
A final decision on the future positioning of the Mail business would require preparation timeand depended on a full assessment of all possible alternatives, the required clarity on theregulatory position on the USO in the Netherlands as well as all necessary approvals from TNT’sshareholders and advice from TNT’s works councils.
Meanwhile, the company said it is currently developing detailed implementation plans for thefirst four focus areas. “Each of these focus areas offers attractive profitable growthopportunities and will further expand the leading market positions that TNT has been able to buildin Europe and emerging markets over the past decade,” it commented.
Together, the four areas would transform TNT into a leader in Day Definitive Delivery services.The company will expand its transportation networks in Europe and overseas, seek cost leadershipand enable profitable volume growth. To meet increased demand for its Intercontinental service TNTplans to introduce an additional B747 freighter at the start of Q2, 2010, to increase capacity onthe China-Europe trade lane.
In its trading update, TNT said that express international volume development in Q1 2010 overallwas in line with indications given on 22 February. For Air (+23%) and Road (+10%), volumes (in kgs)were up compared to Q1 2009, continuing the improving trend. When compared to Q1 2007, a morenormal operating period in terms of global trade than 2008 and 2009, Air and Road volumes remainsomewhat lower (-5% and -2% respectively).
Though the volume trend is improving, yield remains under pressure, TNT noted. The yield, as ameasure of the price development, was somewhat more negative sequentially and year on year, whichunderscores the continuing need to focus on cost control. Overall, the operating income for thequarter in Express is expected to show a significant improvement on the prior year, also supportedby continued good cost control.
Addressed volume declines in Mail NL in Q1 2010 were within the indicated range of a decrease of7%-9%. However, the Mail operating income for the quarter will be ahead of that in Q1 2009, mainlybecause of higher working days, lower pension costs and significantly better performance fromEmerging Mail & Parcels.
TNT said it will in future release quarterly updates on the implementation of Vision 2015starting with publication of Q1, 2010 results on 3 May 2010, and will provide the next in-depthupdate of its strategy during its Annual Analyst Day on 2 December 2010.
