TNT Express today reported an 11.6 per cent decline in its third-quarter adjusted operating incomeand a slight decline in adjusted revenues, but said this was mainly due customers ‘down-trading’
due to challenging market conditions rather than any damage to the business caused by the prolongeduncertainty surrounding the planned takeover by UPS.Responding to questions from CEP-Research, interim CEO Bernard Bot said that the continuinguncertainty caused by the European Commission’s extended investigation into the UPS deal had notled to any noticeable customer migration or any difficulty retaining or recruiting staff. “I am notseeing an impact on customers, nor am I seeing issues with staff,” he insisted.
The group, whose former CEO Marie-Christine Lombard left the company unexpectedly last monthto take up a position at SNCF Geodis, reported revenues up by 2.1 per cent to €1.814 billion,although adjusted for foreign exchange effects it showed an underlying decline of 1.9 per cent.Reported operating income grew by almost 44 per cent to €46 million, but adjusted for foreignexchange effects and one-off payments it dropped to €38 million, down by €5 million compared withthe same period last year.
Bot told journalists and analysts: “Unfortunately, trading conditions were more challengingthan we would have liked and held back particularly the performance of our EMEA (Europe, MiddleEast & Africa) segment. However, we made the necessary cost savings for profitability and wetightly managed our cash. Performance in our Asia Pacific and Americas segments was better.”
Overall he said the company had achieved “good customer growth”, while TNT’s OrangeExperience Score showed “the highest customer satisfaction score ever. So we are still deliveringon our USP, quality of service.”
Bot said there was not much additional information he could give regarding the UPS deal. “Progress towards the UPS transaction continues. The European Commission issued its Statement ofObjections recently, and we are working hand in hand with UPS on our response to that, which wewill deliver in the coming weeks.”
He said both companies remained committed to the deal and were confident of its completionearly in 2013. However, he said TNT was no longer discussing its mid-term plans as an independentcompany, as its future lay with UPS.
Asked whether TNT had an alternative plan in case the transaction could not be completed, Botreiterated his confidence that the deal would go ahead and would not speculate on any otherscenario.
He declined to say whether the company intended to sell 100 per cent of its TNT Airwayssubsidiary, or only 51 per cent in order to satisfy EU airline ownership rules, saying merely thatit would be done in a way that satisfied those rules. But he said the airline divestment wouldoccur “just a few seconds prior to the completion of the UPS deal, and we are in the process ofmaking sure that we can do that”.
Asked by CEP-Research whether TNT was likely to sell its TNT Airways business to an existingairline operator rather than a financial institution, Bot responded: “We want to have a partnerthat is credible. Obviously, the airline itself is relatively standalone, but partners that do haveexperience in running airlines, and most importantly can contribute to the growth and developmentof our activities, of course have a plus.”
He accepted that the airline would also have to fly for other customers, includingcompetitors, in order to satisfy airline ownership and control rules. “The new airline will be acompletely independent and autonomous third-party operator and it will offer its services to whothey want,” Bot told CEP-Research. “It will fly specific routes for UPS, but it will be free tooffer its services to whoever it wants.”
Although he said TNT currently does not use subcontractor airlines for many of its routes, hedid not see a problem using subcontractor airlines that also fly for competitors.
He said TNT was in discussions with Emirates Airline over the B747 freighters andblocked-space that TNT provides to the Dubai-based airline. “We are continuing our negotiationswith Emirates, but it is a tough market, and so we are looking at alternative options,” said Bot.He said there would be no material impact on TNT’s 2012 results, and that he hoped to minimise anypossible impact in 2013.
Bot said EMEA “flat” revenues of €1.092 billion were “the result of good volume growth,offset by negative yields”. He said volumes increased in all product segments, with the highestgrowth in the company’s international economy product.
“This is the advantage of a wide product portfolio, which shows that even in difficulteconomic environments, we can grow our volume,” he said. “However, part of the growth ininternational economy was because customers were trading down from premium products. So the yieldwas negatively impacted by this mix-change, and there is general pricing pressure, which is to beexpected in this economic climate.”
Bot said the number of consigments had grown faster than kilos, “due to down-trading ingeneral, and growth in the B2C market, which has a lower weight per consignment”. He said costcontrol measures had “partially mitigated the impact of negative yield”, with cost per consignmentdown by 4.3 per cent, while revenue per consignment was down by 5.6 per cent, at constant currencyrates.
The company’s Asia Pacific region showed a slight improvement in adjusted operating income,despite a drop in revenues, consignment volumes, and revenue per consignment (RPC), while revenuesper kilogramme increased by almost 10 per cent. Revenue declined because of lower internationalvolumes, targeted reductions in the company’s China domestic LTL volumes, and the disposal of itsIndia domestic road service. The lower RPC was “mostly due to pressure on international prices”.
TNT’s Americas region remained lossmaking, due largely to its Brazil business, although thelosses were lower than last year. TNT’s Brazil revenue increased compared to the prior year, mainlyas a result of higher prices, while Brazil’s adjusted operating losses declined. However, theturnaround more challenging than had been expected, and additional yield and cost actions werebeing taken, said TNT’s new CFO Jeroen Seyger.
In terms of the outlook for the remainder of 2012, Seyger said TNT expected continuingchallenging trading conditions in Europe and for the Asia Pacific intercontinental sector. Indirectand fixed cost control initiatives had been put in place to help mitigate the impact of negativeyield trend in EMEA, while Asia Pacific would see a year-on-year benefit from reduced exposure tofixed intercontinental air capacity and improved performance from domestic businesses, while thecompany’s Americas would continue to focus on improving its results in Brazil.
