TNT suffered a heavy drop in profits in the second quarter of 2010 due to mail restructuringcosts and despite strong express growth and a return to 2007 volume levels.
The group’s reported operating profit (EBIT) dropped 69.1% to €55 million, due to an initial€168 million provision for mail restructuring costs. But the underlying operating profit, excludingthis and other one-off costs, was up slightly at €211 million from €201 million 12 months earlier.The net profit (attributable to shareholders) dropped by 102.5% from €81 million to €3 million.Group revenues grew 9.6% to €2,771 million.
CEO Peter Bakker commented: “In Q2 2010, TNT experienced generally improving businessconditions. Express volumes were up significantly and Mail performed well. However, integrationcosts and certain temporary cost pressures in emerging markets and intercontinental linehaul, alongwith continuing yield pressure in our core markets, are holding back Express’ margin expansion. Allof TNT’s Express management is focused on improving the yield and margin to reflect the now morepositive volumes we are carrying.”
TNT Express reported revenues grew 18.3% to €1,715 million in the second quarter, withunderlying revenues up 10.3% to €1,600 million. Reported EBIT rose to €86 million from €29 million,while underlying operating income increased 15.9% to €73 million from €63 million in Q2 2009. Theunderlying profit margin improved to 4.6% from 4.3%.
The key Q2 business trends were the return of volumes and revenues to around 2007 levels, withhigher year-on-year increases due to the weak previous year. Volumes were up 9.5% year-on-year interms of kgs and by 6.1% in terms of consignments. TNT continued to grow strongly in Asia, inparticular. But yields, excluding the fuel surcharge, continued to drop compared to both 2009(-2.1%) and 2007 due to lower base rates and a different customer mix. TNT is putting up rates inEurope by 3.5% to try to reverse this trend.
Other measures to reduce costs and improve yields include the rollout of additional ownedAsia-Europe capacity, up-rating of underperforming contracts, rebalancing customer portfoliotowards, amongst others, more volume from the SME segment, more International than Domesticproducts, and the implementation of an improved pricing mechanism for a significant part of thecustomer base.
TNT Post reported a 2.6% drop in Q2 revenues to €993 million, and an underlying 2.7% decline.Addressed mail volumes in the Netherlands declined by 8.4% but parcel volumes grew by more than10%. The mail division reported an operating loss of €27 million, including the restructuringprovision, but the underlying profit declined only 2.2% to €136 million. A strong profitcontribution from Emerging Mail & Parcels helped balance the declining profit level from MailNetherlands.
Looking ahead, TNT said it sees a modest improvement in the European economy. However, giventhat the global economic recovery remains fragile, caution remains warranted. The focus on costsand cash will therefore continue. TNT aims to reduce structural costs by about € 200 million andlimited capital spending to about €350 million.
In Express, 2010 volumes and revenues are expected to be well above 2009 levels, with operatingmargin improvement for the year clearly tempered by yield pressure and cost inflation offsettingsome efficiency gains. Specific yield management and cost actions, once phased in, aim to improvethe margins coming from the higher volumes.
In Mail, TNT expects addressed volume decline in the Netherlands of 7-9%, due to the firstfull-year effect of liberalisation combined with ongoing substitution. Master plan savings of € 75million are targeted. Mail operating income is expected to be below 2009 levels, including theimpact of higher P&L charges for pensions.
