TNT Express is to reduce the size of its air express fleet and the level of its investmentsoutside its core European market, particularly in Brazil and China, in a new strategy announced
today aimed at cutting its losses.The ‘Building on Strengths’ strategy aims to re-establish profitable growth by focusing on theoperator’s “unrivalled” network in Europe, and connecting it efficiently with the rest of theworld, while an optimisation programme in Europe, the Middle East and Africa (EMEA) aims to cutfixed costs by €150 million by the end of 2013.
The new strategy was launched with the announcement of the company’s full-year financial resultsfor 2011, in which the company – which split from the former Dutch national postal operator in May– reported a full-year operating loss of €105m. CEO Marie-Christine Lombard declined to discussTNT’s recent approach from UPS, other than to insist that the new strategy had nothing to do withthis attempted acquisition by its large US rival.
“We have been working on this strategy for nine months,” she said. “It is about looking ateverything the company is doing. The core of our business is express services in Europe, which wecan leverage on to deliver better results in the future.”
Lombard said around one third of the €150 million savings would be made through reducing thecompany’s air express fixed costs, by eliminating 10-12 aircraft from the 50-strong intra-Europeanfleet and halving the size of its Asia-Europe intercontinental fleet, which currently consists oftwo B747s and two B777 freighter aircraft.
The reduction of the European air capacity could be achieved by using the other aircraft in thefleet more efficiently and by making use of the company’s dense road network, while Asia-Europecapacity could be purchased more cost-effectively through negotiating preferred-partnerarrangements with commercial airlines.
Chief Financial Officer Bernard Bot said there were a number of ways that the intercontinentalcapacity could be restructured. “For example, we can lease aircraft out or have codeshares. But wehave listed the B747s as assets for sale.” The company has also listed a €39 million write-off forits B747s. The other two thirds – or €100 million – in savings would come from reorganisingback-office functions, such as outsourcing administration and IT.
Lombard insisted that the turnarounds of the group’s operations in Brazil in China were on track– with the Brazil turnaround expected to be completed in the second half of this year, and Chinanext year – but said the company had concluded that the best way to move forward in these keymarkets was through some kind of partnership. She acknowledged that one option was to sell thebusinesses, but said there were other possible arrangements, such as joint ventures.
“We have built strong positions in these two markets, but we have looked at what we have andrealised that there are more investments needed in order to develop these into high-standardoperating companies, and develop these opportunities,” said Lombard. “We will explore partnershipopportunities for our domestic activities in Brazil and China in order to enhance theproposition to customers, while also reducing our financial exposure.”
Lombard insisted that there were still plenty of opportunities for TNT to grow in its coreEuropean market, which was why consolidating its position in Europe was the right strategy.
“We have an air and road network in Europe that has enabled us to build a very strong portfolio,and to grow and achieve very solid margins in that business,” she said. “Europe provides us withfurther opportunities to grow. Why? Because it is fragmented: TNT has a 17% market share, and thereother companies with a similar share, but around 50% of the market is with a number of smallerplayers. So there will be consolidation going on that TNT can take part in.”
Other opportunities come from sectors where TNT has a leading specialist position, such as thehealthcare sector, and from the growing B2C parcels market, driven by the expansion of onlineretail, she added.
TNT reported a full-year operating loss of €105m, but said that adjusted for currency effectsand excluding one-offs, this would have been an operating profit of €228m – down 29.4% comparedwith 2010. It reported a net loss of €270m, compared with a net profit of €66m 2010, despite 2.7%increase in revenues to €7.2 billion.
For its EMEA region, it reported an adjusted operating margin of 8.4% on adjusted revenue growthof 2.1%. However, based on the worse-than-expected performance of its Brazil business last year, itlisted a €104m write-down, based on its fourth quarter 2011 value assessment.
Lombard said the start to 2012 had been difficult. “But we are taking measures to make sure ourperformance is as strong as it can be,” she said. “Given the uncertain economic environment, theyear 2012 will be challenging. However, our leading market positions, together with managementactions, make us confident we can realise our medium term growth and profit ambitions.”
TNT announced last Friday that it had turned down a €4.9 billion takeover offer from UPS, butsaid the two companies remained in talks. The bid, which followed a lower earlier offer, was madeon 11 February and valued TNT at €4.9 billion (US$6.4 billion) based on a price of €9 pershare.
International and Dutch media reported over the weekend that TNT was now under pressure fromshareholders to seek an improved offer from UPS, with analysts suggesting that FedEx appeareduninterested in bidding for TNT, Europe’s second-largest express company behind DHL Express.
UPS confirmed that discussions between the two companies concerning its proposal were “ongoing”,although there was currently no certainty that any agreement will be reached.
Bot said that TNT had a great presence in European countries, and that he could see no reasonwhy it cannot grow independently.
