TNT Express stake drags down PostNL third quarter results

PostNL has seen addressed mail volumes surpassing expectations and good growth in parcels in its third quarter, but its pension fund and stake in TNT Express have dragged down its results. Operating income was down 15.7% to EUR 70m compared to the same quarter in 2010 thanks to declining mail volumes and pension costs, though partly offset by efficiency savings and contributions from parcels and international services.

Underlying revenues for the quarter were down 2% to EUR 996m.

PostNL, which split from TNT Express in May, took a EUR 337m write-down from its stake in the integrator during the third quarter. Excluding the impact of TNT Express, which has struggled with declines in Asian demand, PostNL would have made a EUR 27m profit for its latest quarter. As it was, the company recorded a EUR 313 loss for the period.

In the year to date, PostNL’s underlying revenues are up 2% to EUR 3.13bn, while underlying operating income is down 29.5% to EUR 279m, with operating margins narrowing from 12.9% in the same period last year to 8.9% in the first nine months of 2011.

CEO Harry Koorstra (pictured top right) was pleased with the operational performances of PostNL, and lifted his outlook for the rest of 2011, expecting a EUR 170m cash operating income for 2011.

Although expectations are for an 8-10% decline in mail volumes this year under a liberalised Dutch postal market, PostNL said it was responding with around EUR 60-70m in cost-cutting for the full year.

Better than expected

Commenting on the latest results, Koorstra said addressed mail volumes had developed better than expected in the quarter, and noted that a four euro-cent stamp price rise has been approved for January 2012.

He went on: “Parcels delivers as promised and shows good growth in volumes, revenues and results. International’s performance again improved and with the sale of mailroom activities in Italy in October the focus on value realisation in International has been successfully concluded.”

Koorstra blamed “extremely turbulent” financial markets for the hit from TNT Express, and noted that historically low interest rates in the Netherlands were taking effect on the company’s pension, which has a EUR 468m deficit and saw its coverage ratio dropping “well below” the minimum required level this quarter.

“We are looking at a variety of ways to mitigate some of the impact of the pension developments,” the PostNL promised, with his company facing EUR 40m in recovery payments next year if the pension situation is not improved.

Segments

Among its segments, domestic mail services saw mail volumes declining by 6.9% during the quarter, as Internet communications continue to substitute traditional mail. Underlying revenues in the domestic mail unit fell 3.4% year-on-year, while underlying income fell by EUR 23m to just EUR 17m with wage and price inflating taking an EUR 11m impact.

PostNL’s parcels segment saw both volumes and revenues rising by 7.5%, with a 21.4% improvement in underlying cash operating income thanks to new contracts signed with some large clients.

PostNL has been investing in its logistics infrastructure to match the parcels growth, with construction started on depots in Den Bosch and Hengelo, while a new hybrid depot in Waddinxveen is ready to start production this month.

The company’s International division saw a EUR 22m increase in revenues, while underlying income turned from a EUR 5m loss into a EUR 4m profit.

A 11.6% revenue growth in the UK was fueled by a 20% price increase from Royal Mail, and the company is now looking into possible development of TNT Post’s delivery services under the new regulation of Ofcom.

Elsewhere, the International division saw a 2.5% increase in revenues in Germany, to EUR 121m, driven by its PostCon unit, and now expects break-even for its German unit in 2013. In Italy, revenues were stable at EUR 46m.

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