TNT today unveiled disappointing Q3 results with lower profits due to weak mail results butimproving express figures. The group confirmed it is on course to split up the two core businesses
by January 2011 and also announced a six-year €240 million investment in its Dutch parcelsinfrastructure.The Dutch group increased revenues by 11.4% to €2,766 million between July and September 2010 ona reported basis, and by 7.2% to €2,662 million on an underlying basis. But reported operatingincome dropped 20.1% to €143 million, and underlying EBIT fell 14.7% to €157 million. Net profitswere 24.2% lower at €75 million.
“Business conditions in Q3 have generally followed the trends we experienced in the first halfof the year – good but not great – with a continuation of the general recovery of activity levelsheld back by a difficult pricing environment,” commented CEO Peter Bakker.
The Express division continued to show better results this year, with reported revenues up 14.7%to €1,683 million and underlying revenues up 8.2% to €1,588 million. Underlying International &Domestic revenues increased 6.9% to €1,218 million while its ‘emerging platforms’ (emergingmarkets) increased revenues by 12.8% to €370 million. Exports from China grew 17.4% whileday-definite volumes within China more than quadrupled. Express EBIT improved 23.8% to €78 millionon a reported basis and rose 8.8% to €74 million on an underlying basis.
Express volumes are now higher than pre-crisis 2007 levels, with a 9.8% year-on-year increase inkilos and an 8.1% rise in consignments, TNT said. International volumes outpaced domestic growth.But yields dropped 1.8%, in terms of “core revenue quality”, mostly due to larger customers tradingat previously agreed rates. TNT said it is still focusing on better yields, with a mix of highercontract and public rates, but the full effect will first be felt in 2011.
“In Express, volume growth continues to be strong,” Bakker said. “We continue to focus on thesuccessful implementation of multiple yield-improvement measures, the full benefits of which willhowever not be felt until next year. Meanwhile, the business continues its focus on containingcosts, including investing in own capacity to reduce intercontinental linehaul costs on the back ofrecent contract wins.”
The Mail division suffered from the structural decline in mail volumes in the Netherlands butbenefited from growing parcel volumes. The business reported revenues up 6.5% to €1,018 million andunderlying revenues up 5.6% to €1,010 million. Addressed mail volumes in the Netherlands declinedby 7.7% alongside some yield pressure, but Parcels/European mail revenues rose by 13.9%.
The division’s operating profit fell 31.6% to €78 million on a reported basis and dropped 27.2%to €83 million on an underlying basis. These figures were distorted, however, by pension expenses,according to the company.
Mail’s quarter was characterised by further electronic substitution and continuing competitivepressure, TNT stated. Key to Mail’s future is the successful implementation of the finalrestructuring programme, which lies at the heart of Master plan III. For this reason, TNT remainsactively engaged in discussions with the unions, despite their decision to present the company anultimatum regarding the restructuring programme.
In parallel, the company announced a 2010-2015 renewal programme of the Parcels infrastructure. “ The currently outdated and inadequate infrastructure requires re-investment to secure and expandParcels’ leading market position in the Netherlands,” it stated. A total investment of €240 millionin 17 new hybrid sorting-depot locations spread over the six-year period is scheduled. Thisinvestment will relieve already existing capacity constraints, allow for anticipated significantvolume growth and reduce operational costs.
The internal managerial and organisational separation of Mail and Express is on track for the 1January 2011 deadline, TNT said. The full separation of the two businesses would be “as soon aspracticable” in 2011. The company plans to provide more details at its Analysts’ Meeting onDecember 2.
Looking ahead, TNT said it continues to see modest improvement in the European economy. “However, given that the global economic recovery remains fragile, caution remains warranted. Thefocus on costs and cash will therefore continue.”
In Express, volumes and revenues are expected to be well above 2009 levels, TNT stated. The H22010 operating margin is expected to be in line with H1 2010’s. Yield pressure in Europe and costdevelopments outside Europe are not expected to be offset sufficiently by efficiency gains.Specific yield-management and ongoing cost-containment actions, once fully phased in, shouldincrease the operating margin.
In Mail, TNT expects addressed volume decline in the Netherlands at the upper end of 7-9%, dueto ongoing substitution combined with the first full-year effect of liberalisation. Master plansavings are expected to be somewhat higher than €75 million, and Mail operating income is expectedto be below 2009 levels. Cash pension charges are expected to be in line with last year.
