TNT profit drops on cost of cutting Dutch postal jobs

TNT NV, Europe's second-biggest express-delivery service, posted the first profit decline in five quarters because of the cost of cutting jobs and quitting U.K. parcel services.
Fourth-quarter net income fell 22 percent to 148 million euros (USD 217 million), or 40 cents a share, from 189 million euros, or 46 cents, a year earlier, Hoofddorp, Netherlands-based TNT said today. Sales rose 8.6 percent to 3 billion euros.
TNT put aside 110 million euros in the quarter to prepare for eliminating 6,500 jobs over the next three years at its mail business in the Netherlands, which has been struggling with rising competition and the substitution of personal letters by e- mail. TNT also said it may exit the German mail business in a dispute over minimum wages for letter carriers.
“2007 was a year of heavy underperformance for TNT,'' Thijs Berkelder, an Amsterdam-based analyst at Petercam SA with a “buy'' recommendation on the stock, wrote today in a note to investors.
TNT shares rose 24 cents, or 0.9 percent, to 27.48 euros in Amsterdam. The stock has dropped 2.7 percent this year.
Labor Talks
Talks with unions on the workforce cutbacks are likely to conclude in the second quarter, Chief Executive Officer Peter Bakker said at a press conference today. TNT probably won't cut more than 6,500 positions, he said.
The provision is only a “first step'' and the reorganization, including spending on retraining, may cost the company as much as 175 million euros between 2007 and 2009, Bakker said. The program is designed to achieve annual cost savings of 85 million euros by 2010.
TNT also took a 28 million-euro charge in the quarter for exiting a parcel-delivery contract in the U.K.
Analysts surveyed by Bloomberg had estimated net income would rise to 249 million euros. Sales matched the median estimate. Earnings before interest and taxes fell 29 percent to 253 million euros, counter to analysts' prediction of an increase to 378 million euros.
The postal operator plans to increase the 2007 dividend by 16 percent to 85 cents a share.
TNT has bought express-delivery companies and mail carriers abroad, including stakes in two German regional services in 2007, to prepare for the country's market opening last month.
Considering German Future
The Dutch company may withdraw from Germany after the government set a minimum wage for letter carriers, Bakker said.
Parliament approved a pay rate in December for about 200,000 German postal workers of between 8 euros and 9.80 euros an hour. That's “much too high'' compared with the 7.50 euros called for by TNT, Bakker said.
“There's a chance we will leave Germany'' in the event TNT loses a court case against the minimum wage and should a sales- tax exemption for Deutsche Post AG, the country's biggest mail carrier, remain in place, Bakker said. “If we have to pay 9.80 euros, that would be an enormous shock to our business model, concerning a huge jump in costs.''
TNT expects an outcome to the court case in April, Chief Financial Officer Henk van Dalen said in an interview today.
The Dutch government in December postponed plans to open the country's postal market to competition following Germany's minimum wage decision, which critics say puts competitors such as TNT at a disadvantage to Bonn-based Deutsche Post, Europe's largest postal operator.
No `Major' Slowdown
“So far, TNT sees no evidence of a major slowdown in its business, which primarily is focused on European markets,'' the company said. While aware of risks stemming from a possible recession in the U.S., the Dutch company “is strongly positioned to respond as appropriate and is confident about its performance for the year 2008.''
The express unit's international and domestic operations will generate “high single-digit organic revenue growth'' and a “low double-digit operating margin'' this year, TNT said. The mail unit is forecast to produce “low single-digit organic revenue'' growth and an operating margin of about 16.5 percent.
The postal service said in a separate statement that it will recommend reappointing Bakker and Marie-Christine Lombard, head of the express division, for another four years at the annual shareholders' meeting in April.
Mail-Market Opening
The Dutch government opened the market in 2000 for handling mail items weighing more than 50 grams (1.8 ounces), retaining TNT's legal monopoly on lighter letters. Since then, TNT has faced increasing competition from Deutsche Post and local operators such as Apeldoorn, Netherlands-based Sandd.
European Union lawmakers passed legislation in late January to open local mail service to competition starting in 2011. Under an agreement with national governments, 11 countries, including Greece and several new EU members in eastern Europe, can wait until 2013 to admit competitors. Germany eliminated Deutsche Post's monopoly on 50-gram letters at the beginning of this year.
Letters make up two-thirds of the EU's 88 billion-euro mail market and offer twice the profit margin of packages and express delivery, according to the European Commission.