TNT records small profit for third quarter, pledges cost-cutting

TNT has promised more “corrective measures” to counter excess network capacity in Asia and to tackle its problems in Brazil, as operating income fell 13.5% in its third quarter. Profits for the quarter fell 64% year-on-year to EUR 5m, although some analysts had been predicting a loss following a difficult summer following the company’s demerger from Dutch postal service PostNL.

However, thanks to a “resilient” performance in Europe, revenues increased 1.3% compared to the same period last year, to EUR 1.77bn.

In the year-to-date, TNT has seen a 3% increase in revenues compared to the same period in 2010 to EUR 5.37bn, but a EUR 65m profit has been turned into a EUR 98m loss so far in 2011. The company has generally seen a shift from premium express services to economy services, and a movement from air services to road transport, while its expectations that economic growth would continue in Asia have not come to pass.

TNT executives stressed today that in an uncertain global economy, they were focussing on trying to build growth in international express services and reduce network operating costs, and are working to restore profitability in the Americas and Asia.

The company has deadlines in place to achieve a turnaround in Brazil by the second half of 2012, and profitability in Asia in 2013.

Overall cost-cutting across the network is expected to bring EUR 20m in savings in 2011.

TNT CEO Marie-Christine Lombard said: “Further operational improvements are being identified to secure profitability in an uncertain economic environment, such as reducing network costs and increasing flexibility of our Asia-Europe capacity,” she said.

“Meanwhile, we are taking all measures to ensure our emerging platforms meet near-term deadlines.”

Europe

In its core market within Europe, TNT posted a 1.1% increase in revenues to EUR 1.09bn, while adjusted operating income was 6.4% down.

The company said revenue growth was slowing in the region, with some growth in economy services but flat growth in domestic services and a decline in international express shipments, which has hit particularly hard because of its fixed costs related to capacity in the air network.

CFO Bernard Bot said this morning that TNT’s overall costs grew by 1.7%, which was mainly from inflation and fuel price increases, though these had been offset by efficiency measures.

In light of declined international express demand, going forward TNT is looking at what opportunities there are to ship more items by road, rather than air, the CFO said.

Bot said: “With inflation, significantly higher fuel cost and very lacklustre growth of 1.1% and in that situation we have a steady profit, and that shows the resilience of our activities in Europe and that we are well positioned in different product groups, so that the rise in road shipments and economy services is able to offset the decline in international express.”

Asia

TNT has seen growth in the Asian market, with revenues rising 7.8% to EUR 455m in the third quarter, but with pressure on prices and a “sub-optimal” use of air capacity, the segment achieved a EUR 9m operating loss.

Bot said there had been a good performance in Australia, bouncing back following strikes and floods that hit first quarter results earlier this year.

The main issue in the Asian region has been weakening demand, which has led to price falls for shipments from Asia to Europe, particularly related to China’s manufacturing sector. TNT runs four aircraft on intercontinental Asian routes, but next year will be looking to reduce the number of its own aircraft in the region “by one or two” in order to improve flexibility to changes in demand, said Bot.

Bot said the company would also be looking to pass on its increased operating costs from inflation and rental price increases through higher shipping prices.

TNT will be continuing to invest in its day-definite services in the region, he said, which is increasing to 23% of revenues in China, expected to grow to 40% in the near future.

Americas

In its Americas region, TNT said its revenues are not yet sufficient to cover the losses of major customers following integration of its acquisitions in Brazil.

Between the third quarters of 2010 and 2011, revenues have dropped 8.4% to EUR 120m, with operating losses worsening from a EUR 6m operating loss in this period last year, to a EUR 32m operating loss in the most recent three months.

Outside the problems in Brazil, the TNT CFO said the Americas region was in line with expectations. In Brazil, he said the company now has its operations in order, and now needs to go after revenues.

“I would say we are on track with our plan to turn around Brazil,” said Bot, adding that there have been no further significant customer losses, and operational indicators were improving in the country, with a 93% on time rate and shipment losses down threefold. “The key is now to get more revenues in.”