TNT today reported improved revenues and profits for the second quarter of 2015 as trading conditions improved slightly in Europe and it generated higher sales from SMEs, offsetting lower China volumes.
The Dutch company reported second-quarter revenues of €1,757 million, up 6.2% year-on-year, and an operating profit of €19 million, compared with €3 million in the second quarter of 2014.
Adjusted for positive currency effects, which increased revenues by 4.1%, the negative impact of lower fuel surcharges, which lowered revenues by 1.3% and disposals (-0.6%), TNT’s underlying revenue growth for the period was 4.1%, driven by the continued growth of revenues from SMEs.
Adjusted operating profit was €41 million in the second quarter, €29 million below last year. Profitability was affected by IT transition and Outlook project costs (€15 million), costs to introduce new services and facilities, as well as pricing pressures. Operating profits for the second quarter of 2015 includes €22 million of restructuring and other charges.
CEO Tex Gunning stated: “TNT’s turnaround is progressing well under our Outlook strategy. Service levels and customer satisfaction scores further improved. We are achieving good growth in the SME customer segment after years of decline. Operational excellence investments in infrastructure and Global Business Services are being implemented according to plan and we continue to attract top industry talent. We have guided that we expect 2015 to be a transition year in terms of bottom-line performance, as we continue to invest in the transformation of TNT.”
International Europe revenues increased 5.1% year-on-year to €719 million despite lower fuel surcharges. Currency comparable revenue growth was 3.9%. Adjusted for positive currency effects, which increased revenues by 1.3%, and the negative impact of lower fuel surcharges, which lowered revenues by 1.9%, the segment’s underlying revenue growth was 5.7%.
The revenue increase was driven by continued revenue growth from SMEs and supported by continued improvement of on-time delivery performance. The International Europe segment transported more (+4.1%) and heavier (+6.4%) shipments in the second quarter, with a marginal decline in revenue per consignment (-0.4%) due to lower fuel surcharges and some price pressures.
Gunning told journalists on the company’s Q2 results press call that “there are signs that Western European economies are doing better” but warned that imports and exports to/from Greece “are coming to a halt”. TNT currently has double-digit growth in Southern and Eastern Europe, he pointed out.
The segment’s adjusted operating income in the second quarter of 2015 was €28 million, compared to €43 million in the second quarter of 2014. The main factors for the decrease were IT transition and Outlook project costs (€8 million) and costs of introducing new road and air connections, such as the flights to Tel Aviv and Malta. The segment also experienced higher air network costs associated with the stronger US dollar (€7 million).
International AMEA revenues rose 16.3% in the second quarter to €257 million, as a result of stronger local currencies. Currency comparable revenue growth was -1.8%. Adjusted for positive currency effects (18%) and the negative impact of lower fuel surcharges (-2.4%), the segment’s underlying revenue growth was flat.
CFO Maarten de Vries commented that Asia revenues were affected by a sharp decline in China’s exports and in response TNT is trying to build up its intra-Asia business. Gunning commented that China “is seriously coming to a halt. China is really not doing well.”
The segment’s service quality continued to show marked improvements year-on-year, with on-time delivery performance 5 to 6 percentage points higher than in 2014. The segment also experienced continued revenue growth from SMEs in the second quarter.
As in the first quarter, the AMEA segment transported fewer (-3.3%) but heavier consignments compared to the prior year. Average daily weights rose by 10.3%, which reflects the growth of higher weight Economy freight shipments. Revenue per consignment rose slightly year-on-year (0.8%).
The International AMEA adjusted operating income increased by €3 million to €21 million, supported by ongoing Outlook improvement initiatives.
In the Domestics segment, revenues increased 4% year-on-year to €655 million. Currency comparable revenue growth was 1.1%. Adjusted for positive currency effects (2.9%) and the negative impact of lower fuel surcharges (-0.6%), the segment’s underlying revenue growth was 1.7%.
Revenues from SMEs improved year-on-year in all markets, supported by improved service quality. On-time delivery performance was 3 to 4 percentage points higher than in 2014. TNT delivered 5.3% more consignments per day than in the second quarter of 2014. However, revenue per consignment declined 3.8% due to pricing pressures.
In terms of individual markets, Domestic France was affected by lower yield and higher B2C delivery cost. Performance in Pacific (Australia) and Brazil remained under pressure due to downtrading and pricing pressures in challenging macroeconomic environments, with Brazil in recession and Australia slowing down due to lower mining investments.
Adjusted operating income slumped by €21 million to a €1 million loss, reflecting the pressure on yields, especially in France, Brazil and Australia, as well as €5 million of costs related to the execution of the Outlook strategy (IT transition and Outlook project costs).
TNT said the Domestics segment continues to execute plans to increase productivity through new or upgraded facilities and to reduce indirect costs further. Asked about last week’s one-day strike in Italy, de Vries said TNT Italy is seeking to reduce overhead costs, such as back-office functions, which had led to the industrial action. The restructuring has now been moved from the second to the third quarter.
The Unallocated segment, consisting of Other Networks (TNT Innight), Central Networks and corporate head office functions, increased revenues by 5.8% year-on-year to €128 million, and the adjusted operating loss was reduced to €7 million, compared with €11 million in the second quarter of 2014.
Looking ahead, TNT reiterated its current financial year and longer-term guidance. “TNT expects 2015 to be a challenging year of transition marked by the progressive ramp-up of new and upgraded facilities and other transformation projects, such as the outsourcing of IT.”
The company anticipates restructuring charges of between €25 million and €30 million in the third quarter of 2015.
