TNT is holding firm on prices amid pressure from market competitors, senior executives declared following the presentation of the company's fourth quarter results.
CEO Tex Gunning said that since the announcement in April 2015 of FedEx's proposed takeover, fierce competitor pressure, exerted on TNT's customers, had built up gradually. "This has been an opportunity for our competitors to do some (price) 'bashing' and undercut us," he remarked during conference calls with journalists and analysts yesterday.
However, despite this, Gunning underlined that TNT's across-the-board price increases, introduced last month and in December 2015 "have been holding on very well.” But he added: “Competitive intensity is quite high and of course that is all to do with our competitors taking advantage of the fact that we're still not merged with FedEx.”
CFO Maarten de Vries highlighted that pricing discipline was a focus area in the Outlook strategy along with revenue management and that the company was sticking to it. "Despite competitor pressure we have much higher price discipline right now than a year ago. We've made progress and we see it coming through partly in the margins as well."
Asked whether TNT was now letting a little more volume go because it didn't match the company's price discipline criteria, Gunning concurred: "We've let go of certain commodity-type customers where the margins are really squeezed and are focusing far more on the value-added small-to-medium enterprises (SMEs) which is the whole basis of the Outlook strategy. We feel we can be very competitive in the SME segment and deliver a service which SMEs really appreciate and with it we are improving the gross margin per consignment."
Turning to TNT's revenue growth in the fourth quarter of 2015, particularly in its International Europe segment, Gunning said it was difficult to say whether these strong results meant the company was increasing its market share.
"It is very difficult to determine market shares. We are focusing on SMEs and given the very high numbers we have scored in the fourth quarter (high, single-digit growth), we do believe we have gained market share in this segment. But of course if you talk about the overall market, then it is very difficult as some of our competitors might focus on large customers.
"In the Outlook strategy we have clearly said that the focus is SMEs. We realise of course that in Europe, SMEs are the backbone of economic activity and you see this in the Netherlands as well. And our focus is really to say, that is where the growth will be, that is where the innovations will be and TNT really wants to be the supportive partner of SMEs and their preferred partner and that's what we're doing. Given the high numbers in Q4, we could assume that we've gained market share but we are very cautious in claiming that.”
Asked whether TNT's growth was a sign that the European economy as a whole was picking up, Gunning said: "I think it is too early to draw conclusions on our growth and general economic growth. We've said that we are focusing on one specific part of economic activity in Europe – the SME segment. And we do see a lot of economic activity in this segment. But concluding that the European economy overall is doing better would be one step too far."
Returning to the FedEx deal, Gunning said that "clearance in China is progressing well and we are expecting that to be cleared in the first half of this year. So we're not changing our position when it should be cleared."
Commenting on reports that UPS is likely to file an appeal against Brazilian regulator CADE's decision to clear the takeover, he said: "We are not worried about it. We are all very confident that the deal between TNT and FedEx will go through. It will happen and close in the first half year (2016) despite what some of our competitors are saying or doing.”
Discussing current trends in the Chinese market, Gunning said: “As for China, that's a story of two 'half' years. In the first half of the year (2015) – and this what came out in the general information about China – there was a slowdown (in China) but we have seen that in the second half of the year things picked up, particularly in the fourth quarter. So there's a bit of a mixed message there. I don't think we should be worried about China. I'm pretty confident our Chinese business will do well this year.”
More of a concern is Brazil which is ranked among the top 5 markets in TNT’s Domestics segment. “Brazil is obviously in an enormous economic crisis so we see that the markets are shrinking. It means even the GDP is shrinking. It means the amount of trade is coming down and of course that affects the transport industry as well,” Gunning said.
“But we are regaining market share in Brazil. So we think our management team is doing the right thing. They are on top of managing their costs and are containing the damage but you can't deny the macro-economic situation in Brazil.”
CFO de Vries said that in 2014 TNT had “made a lot of progress (in Brazil) and came pretty close to breakeven” but admitted that the company had “moved backwards in effect” in 2015. “But our team is taking a lot of action to take cost out of the business in order to cope with the lower top lines and the pressure on the margins.”
Asked by CEP-Research about the implications of the FedEx takeover for TNT's activities in Iran, de Vries replied: "As you know, there is still a trade embargo and economic sanctions from the US perspective. As we are expecting the closing of the (FedEx) deal in the first half of the year and will therefore become part of a US company, we will start preparatory actions to make sure that before closing we comply with these economic sanctions."
