TNT saw operating profits slump in the fourth quarter of 2010 due to lower mail volumes in theNetherlands and various one-off effects but full-year profits improved, the group announced today
as it gears up to split off the express business in May 2011. Detailed express figures were alsorevealed for the first time.In Q4, the Dutch group’s underlying EBIT fell 12.5% to €279 million from the previous year’s€319 million. The underlying full-year EBIT, however, improved by 3.1% to €897 million. Nolike-for-like group revenues were detailed.
Due to changes in the reporting structure ready for the group’s forthcoming split-up, theremaining financial figures were presented divided up into TNT NV (Mail), covering the maildivision and future parent company, and Express (Discontinued Operations), covering TNT Express,which will be split off into a separately listed company.
TNT NV (Mail) reported Q4 revenues of €1.2 billion, which was an underlying drop of 0.1%, andits underlying EBIT dropped 18.2% to €184 million. The operating margin fell back to 15.2%from the previous year’s 18.5%. Addressed mail volumes in the Netherlands declined by 9.6%,adjusted for working days, during the quarter and Dutch mail revenues declined 9.8% to €712million, with EBIT down 28.7% at €134 million. International mail revenues grew 24.3% to €374million, largely due to €85 million of additional revenues from VAT changes in Germany, and theactivities broke even. Parcel revenues rose 4% to €157 million and EBIT was stable at €21million.
For 2010 as a whole, the underlying operating profit for the mail business declined 7.9% to €580million while revenues were up 1.3% at €4.27 billion. The full-year operating margin droppedback to 13.6% from 15% in 2009. In the Netherlands, there was a 9% drop in addressed volumes. Dutchmail revenues fell 6.1% to €2.54 billion and EBIT slumped 24.9% to €359 million. But the companyreduced costs by €93 million. TNT’s Parcels business increased revenues by 6.2% to €564 million in2010 and improved its operating profit by 33% to €80 million. International Mail revenues increased18.8% to €1.27 billion and the operating loss was halved to €24 million.
“In Mail, the continuing volume declines require us to remain focused on cost savings tomaximise cash flows,” said CEO Peter Bakker. “In Q4 2010, we were unfortunately faced with thefirst nation-wide strikes in more than 25 years. These were testing times for our customers andemployees alike, particularly as the strikes were immediately followed by a few weeks of harshwinter weather. In December, an agreement with the unions was reached that was subsequentlyratified by members of the unions. This agreement allows for the full implementation of our Masterplan III redesign of the postal network in the Netherlands.”
This year TNT expects its Dutch addressed mail volumes to decline by 8-10% due to ongoingelectronic substitution and competition. The business aims for Master plan savings of €50 – 60million this year. Overall, the Mail business is aiming to save €430 million in Master plan savingsin the period 2010 – 2017, although the savings will come slightly later than originally planneddue to the compromise agreement with unions. Mail’s underlying cash EBIT (defined as underlyingEBIT minus pension cash outflows and cash out for restructuring) is expected to be €130 – 170million this year due to heavier restructuring costs and the impact of volume declines.
After separation, Mail’s dividend guidelines for the next few years will include a payout around75% of underlying net cash income, with a minimum of €150 million per annum. In addition,shareholders will be given the dividend that Mail receives from the Express business. CFO BernardBot stressed that in future the TNT NV (Mail) stock would be attractive for its high dividendpayouts.
In contrast, TNT Express improved its underlying Q4 EBIT by 1.1% to €95 million but revenuesfell fractionally by 0.3% to €1.73 billion. The operating margin was slightly better at 5.5%.Volumes rose 3.1% (daily core consignments), with domestic business stronger than international.Yields were held back by negative mix changes, exacerbated by severe weather, but boosted by rateincreases, surcharges and contract rationalization. Operating profits were hit by €20 million worthof integration-related claims in Brazil and a €15 million impact from severe weather in Europe.
TNT Express Europe & MEA revenues dropped 1.1% to €1.13 billion in Q4 and EBIT declined 3.1%to €125 million due to severe weather and fewer working days. Asia Pacific grew 6.8% to €392million and moved from a €15 million loss to a slight €2 million profit. The Americas suffered a12.8% revenue fall to €109 million and the operating loss increased 50% to €6 million due tocontract rationalisation in Brazil.
For 2010 as a whole, the express business improved its underlying EBIT by 32.1% to €317 million.Revenues were up 8% at €6.7 billion, leaving the operating margin at 4.7% compared to 3.9% in 2009.Volumes were ahead of pre-crisis levels last year but yields remained under pressure. In Europe& MEA, TNT’s revenues rose 5.6% last year to €4.38 billion and EBIT improved 19.7% to €395million. Asia Pacific grew 17.3% to €1.46 billion and turned a €20 million loss in 2009 to a€13 million profit. In the Americas, revenues rose 8% to €431 million but the operating losswidened by 29% to €31 million.
“In Express, 2010 has been the year in which volumes recovered to pre-crisis levels although themix and pricing environment has been challenging throughout,” Bakker commented. “The various yieldmeasures announced as of Q2 have begun to show positive effects, although the harsh winter weatherin Europe has caused not only additional costs but also negatively impacted Express’ productmix.
“2010 has been a year in which TNT’s strategy in emerging markets has continued to make goodprogress. In China, both day-definite domestic and intercontinental growth has been good. We aredisappointed with the integration related one-off costs in Brazil, but our strong market positionin South America remains a true asset for the future,” he added.
Explaining the problems in Brazil, CFO Bernard Bot said the merger of the two subsidiariesMercurio and Aracatuba had proven more complex than expected and there had been problems withadministrative supervision. However, automation of sorting was now being increased and TNT remainedstrongly placed with a leading domestic market share of 25% and a strong brand. Brazil shouldbecome profitable in 2011 or 2012, he added.
This year TNT Express will continue to focus on cost control and improving yields. The businessis targeting underlying revenue of €7.3 – 7.5 billion and underlying operating income of €400 – 420million. After separation, Express’ dividend guideline will include a payout of around 40% ofnormalised net income.
Asked at the Q4 press conference about TNT’s potential future role in “European consolidation”,CEO Bakker stressed that TNT Express would be positioned as an independent company in future. Ifany company thought it could “add value”, then “they should call us”, he commented. Bakker said hecould not imagine any link-up with DHL for competition reasons while “speculation” about DPD or GLSdepended on many factors connected with their owners, he added.
Concerning India, where TNT has been linked with major trucking company Gati, Bakker highlightedthe country’s potential but also the drawbacks of poor infrastructure and the fragmented taxationsystem that resulted in delays for trucks at inter-state borders. TNT would thus proceed “withcaution” regarding large investments in the country, he stated.
TNT also announced further details of the group’s split-up planning. The internal legalseparation was completed on January 1, 2011. De-merger accounts will be filed and the AGMofficially announced on or before April 13. There will be two Capital Markets days, May 3 forExpress and May 9 for Mail.
On May 25 the de-merger proposal will be voted on at the annual shareholders’ meeting and,assuming it is approved, Express will be legally turned into a separate listed company by the endof May. TNT NV shareholders will also receive shares in TNT Express and TNT NV will retain a 29.9%stake in TNT Express.
