TNT profits rose strongly in the first quarter of 2010 thanks to an upturn in express volumesand better mail profits generated by parcels growth and despite lower mail volumes. But the firm
remained tight-lipped today over potential plans to sell off its mail business.In Q1, 2010, TNT increased reported revenues by 12.4% to €2,747 million due primarily to higherrevenues from Express, while underlying revenues, excluding additional working days and one-offitems, were up 5.1%. The reported operating profit (EBIT) grew by 54% to €251 million because of arebound in Express profitability as well as a good contribution from Mail, and underlying EBITimproved by 28% to €213 million. Net profits more than doubled to €143 million from €76 million oneyear earlier.
CEO Peter Bakker stated: “We have every reason to be satisfied with the results in all parts ofour business. The profit recovery testifies to the hard work of TNT’s employees around the world,squeezing the cost base and helping the company navigate through the 2008/09 economic crisis.”
TNT Express increased reported revenues by 18.8% to €1,620 million in the first quarter, whileits underlying revenues were up 9.1% to €1,488 million. The business reported an operating profitof €77 million, up from €20 million, one year earlier, and the profit margin rose to 4.8% from1.5%. Underlying EBIT more than doubled to €59 million from €23 million, pushing the margin up to4% from 1.7%.
Volumes rose strongly in the first three months of the year. On an adjusted basis, consignmentswere up 6.6% and kilos up 8.5%. Air volumes (in kilos) increased 22.4% and road volumes rose 10.4%.The other main revenue drivers were higher fuel surcharges (+2%), with a positive €10 millionfuel-timing effect year on year, and 4% growth in Emerging Platforms, Special Services and otherbusinesses.
But prices were under pressure, with a 2.8% drop in fuel-adjusted yield on core volumes. Thiswas mostly due to relatively fast growth from large customers, TNT noted. However, there were earlysigns of stabilisation for this negative year-on-year yield development. TNT Express also reducedoperating costs, with costs per core consignment down 5.6%. The division saved about €40 million inQ1, and aims for cost savings of €125 million in 2010 as a whole.
In geographical terms, TNT’s International & Domestic business, covering Europe and othermajor markets, increased underlying revenues 3.9% to €1,146 million because of higher volumes andreasonably steady, though still negative, core revenue quality yield. Eastern Europe and Germanyperformed relatively well. Emerging platforms experienced a strong quarter with an underlying 31%revenue rise to €342 million. In China, TNT Hoau increased domestic revenues by 28%, spurred on bythe growth of its day-definite freight product offering.
“Volumes in Express have improved, albeit against a soft Q1 2009 comparison. In recent weeks,volumes have almost returned to levels seen in the more normal trading period of Q1 2007, thoughsome customer feedback indicates that this is partially driven by re-stocking of supply chains. Thenegative year-on-year yield development shows early signs of stabilisation. Because cost increasesinevitably follow improving volumes, cost control will remain in sharp focus,” CEO Peter Bakkersaid.
In a Q1 conference call, CFO Henk van Dalen noted that express market capacity still exceedsdemand which, combined with strong competition, is resulting in strong pricing pressure. TNTExpress had not seen any impact from the Greek financial crisis, he added, noting that Greece is avery small market for the company. He confirmed plans for a third B747-400ER freighter servicebetween Asia and Europe in Q2 to accommodate higher intercontinental demand, especially fromChina.
The Mail division maintained nearly stable revenues in January-March 2010 with an underlying0.4% drop in revenues to €1,022 million and improved its operating profit by 6.7% to €159 million.This gave it a slightly higher operating margin of 15.6%. In the Netherlands, addressed mailvolumes dropped 9.7%, mostly due to electronic substitution but also partly due to competition. TNTexpects its Dutch mail volumes to decline about 7%-9% this year, van Dalen said.
But organic growth in Emerging Mail & Parcels (EMP) revenues and profits, along with €18million of operating cost savings bolstered the division’s results. Underlying EMP revenues(excluding Germany) grew 9.1% to €336 million, with higher profits in all units, especially Italy,Belgium and the parcels entity.
On the “carveout” of the Mail business to create the basis for a potential sale or IPO, vanDalen noted that the Dutch mail and parcels business and some European mail businesses would bepart of the separated Mail business although the “exact mix” had not been decided yet. But hedeclined to give any further information about potential interested parties or IPO plans, saying: “There is nothing new except that we will look at the carveout.”
On the full-year outlook, TNT said it expects higher express profits but lower mail results thanlast year based on a modest improvement in the economy, and will continue to focus on cost control.The financial impact from the Icelandic ash cloud would be limited to “perhaps a few million”, vanDalen noted.
“Express volumes, revenues and results are expected to be well above 2009 levels, though theycould be tempered by continuing yield pressure and cost inflation,” TNT stated. The group expectssome recovery of weight per consignment and lower cost per consignment. Most growth is expected tocome from international, especially International Economy. However, the extent of possible pressurebecause of price/mix, wage increases and cost inflation will influence the magnitude of theimprovement.
