TNT Express will cut some 4,000 jobs, sell off its loss-making China and Brazil domesticbusinesses, restructure operations and re-focus on core strengths and Europe over the next three
years under its new ‘Deliver!’ strategy unveiled today following the failed UPS takeover bid.The Dutch express operator, with a worldwide workforce of some 70,000 staff, said the‘comprehensive profit improvement plan’ was designed to reduce operating costs by €220 million by2015, and improve profit margins in Europe to about 8 per cent. TNT put the restructuring costs at€150 million, mostly for redundancy payments, and announced one-off spending of €200 million ininfrastructure and IT modernisation. Most of the job losses are expected to be in Europe andthrough natural attrition rather than compulsory redundancies.
The new ‘standalone’ strategy follows the protracted year-long uncertainty over the planned€5.2 billion acquisition of TNT by UPS which was blocked by the European Commission on competitiongrounds in January and amid diverse strategic challenges including slow economic growth in Europe,changing market conditions such as blurring boundaries between express and economy/deferredshipments and competitive downward price pressures.
Bernard Bot, interim CEO, explained: “Our business faces difficult market conditions andstrategic challenges but we have a unique competitive proposition: an unrivalled European network,worldwide connections, an integrated range of services and recognised dedication to customers. Ourupdated strategy builds on these strengths.
“Successful execution will be critical to improving our performance. We are therefore takingimmediate steps to reshape our portfolio, make the company leaner and pursue efficiencies inoperational and supporting processes. We are also investing in our infrastructure to increaseproductivity and in IT solutions to better serve our customers,” he added.
“The Deliver! improvement programme we are launching will create a more focused, efficientand profitable TNT Express. Together with the Supervisory Board and proposed CEO Tex Gunning, wehave full confidence in TNT Express’ service offering and operations and are committed to Deliver!”Bot stressed.
TNT to sell off China, Brazil, eyes freighter changes
Outlining the planned portfolio changes, TNT confirmed that it will sell off its loss-makingdomestic businesses in China and Brazil as part of its geographical focus on Europe and connectingEurope with the rest of the world. “The sales process for domestic China is well underway and theoutcome should be known imminently,” the company said. In 2012, the China domestic business made anoperating loss of €13 million on revenues of €261 million, according to TNT’s annual report.
Preparations for the sale of the Brazil domestic business have started while TNT is alsoactively pursuing the unit’s turnaround plans with lower losses in the first two months of 2013. In2012, the Brazil domestic business increased adjusted revenues by 6.5 per cent to €329 million withhigher average prices but weak volume trends, and losses were reduced by 25 per cent to €72million.
TNT also said it is exploring options to reduce its exposure to intercontinental capacity,including capacity-sharing agreements, subleases and lease terminations. These options “will becarefully weighed against the return on the use of the aircraft, which currently covers cost”. TNThas two B747 freighters on lease until 2016/17 and three B777 freighters leased until 2023. Thefreighters fly from Asia (Hong Kong, Shanghai, Singapore and Chongqing) to Europe as well as fromLiege to New York.
€220m worth of cost savings
TNT outlined a series of measures designed to achieve €220 million worth of recurring savingsby 2015, including restructuring measures that will result in job losses mostly at the head officeat Hoofdoorp, the Netherlands, and in other parts of Europe. TNT wants to reduce its indirect costsof €800 million by €100 million by streamlining support functions across the organisation and othermeasures.
The company will consolidate services and reduce jobs by centralising local administrativetasks in regional shared-service centres, reorganise its IT organisation and set up commercial‘centres of excellence’, with the aim of cutting costs by €50 million.
A further €70 million worth of savings are targeted by restructuring the hub and depotnetwork in several major markets, including Australia, France, Germany, Italy, the Netherlands andthe UK/Ireland, by optimising sorting and delivery round planning and by creating a new “air androad network blueprint”.
The management structure will be changed with an enlarged global Functional Board withcross-company responsibilities. The current regional management covering Northern Europe, SouthernEurope & MEA and Asia Pacific will be scrapped. Instead, the nine business units (Australia/NewZealand, Benelux, Emerging, Europe/Americas, France, Germany, Italy, Other Networks and UK/Ireland)will report directly to the CEO. The Emerging unit will cover Africa, the Middle East and Asia,while the Europe/Americas unit will cover smaller European markets, North and South America.
Focus on profitable growth
Looking ahead, TNT Express said it will focus on higher-margin services and customersegments, by targeting SME and single-source customers, higher weight parcels and palletisedfreight Express and Economy shipments, and International and Special Services products. TNT Expresswill continue to offer a wider choice of domestic, intra-regional and intercontinental servicesrequired by its customers, albeit with increased pricing discipline to ensure adequate returns.
Up to 2015 the company will invest about €200 million in its infrastructure and ITmodernisation, including consolidation into larger facilities, more automation of depots and hubsand enhanced IT solutions such as new online booking and payment tools for customers.
In an accompanying strategy presentation, Bot and interim CFO Jeroen Seyger highlighted TNT’s strengths, including high market shares in European B2B Express markets, strong European air androad networks, competitive advantages in intercontinental Economy products and diverse SpecialServices offerings for vertical sectors such as High-Tech, Automotive and Healthcare.
However, they noted that TNT’s Europe, Middle East and Africa volumes had grown by 11 percent between 2008 and 2012 but the average price (revenue per consignment) had dropped 16 per cent.At the same time, the product mix had changed significantly, with slightly lower express volumesand a sharp rise in economy shipments.
In 2012, TNT reported a 1.1 per cent rise in revenues to €7,327 million, although theadjusted figure showed a 1.7 per cent fall. Reported EBIT was €89 million compared to the previousyear’s €105 million operating loss, but the adjusted figure was down 16.4 per cent at €188 million,with a profit margin of 2.6 per cent. Adjusted profits in Europe dropped 27 per cent, Asia Pacificreturned to profit but Brazil losses remained high. Challenging conditions are expected to continuethis year with lower profits in Europe and Brazil remaining in the red despite lower losses.
