TNT reports Q4 profit growth

TNT has announced a soar in company profits for Q4, but warned that mail volumes will continue to decline ahead of plans to separate its Mail and Express divisions. For its Mail arm, profit jumped by more than 400% as the business recorded a figure of EUR 126m, against a figure of EUR 25m for the same period of 2009.

Revenues were also up for the quarter (Q4 2010 – EUR 1.22bn; Q4 2009 – EUR 1.21bn), with additional revenue coming from the changed VAT regulation in Germany (1 July 2010).

The company’s operating income also rose, jumping from EUR 85 to EUR 187m – a rise of 120%.

Net cash from operating activities grew from EUR 140m to EUR 184m.

Tight management limited investment outflow to EUR 41m. Year end net debt was EUR 993m, including contribution from discontinued operations, which compares to EUR 908m last year.

To show the underlying developments in the business, the Mail business excludes one-offs, impairments and the impact of currency movements.

TNT reported that there was a 9.6% drop in mail volumes for the period.

The company said it was able to offset the loss triggered through volume decline, with a growth in parcels and international mail.

A TNT statement said: “Underlying operating income decreased by 18.2% to EUR 184m, which represents an underlying operating margin of 15.2% (Q4 2009: 18.5%). Master plan savings contributed EUR 29m. The contribution to operating income from Parcels and International was EUR 15m higher than the prior year.

“The decline in operating income also includes the phasing impact of P&L pension costs, which were EUR 11m higher than the prior year. In addition to the one-off effects adjusted for in the underlying performance figures, the business was negatively impacted by three fewer working days.”

For its Express arm, revenues rose from EUR 1.74bn to EUR 1.83bn – a rise of more than 5%.

However, operating income for the quarter was down 44% – from EUR 43m to EUR 24m; as was the divisions’ net cash from operating activities (down 34.6% – from EUR 211m to EUR 138m).

TNT said that underlying operating income increased by 1.1% to EUR 95m, which represents an underlying operating margin of 5.5%.

In addition to the one-off effects adjusted for in the underlying performance figures, the business was also negatively impacted by three fewer working days and higher fuel costs, the company said.

TNT claimed that revenues in Europe were “impacted by the net of severe weather, fewer working days and volume growth, with slightly lower operating income”.

In the Asia Pacific region, revenue growth was “impacted by contract rationalisation leading to improved profitability”.

Integration-related issues affected financial performance in the Americas region – with a reported “one-off adjustment of EUR 20m experienced in Brazil”. Several measures were taken to secure the 2011 performance of Express’ Brazilian operations, TNT said.

Peter Bakker, CEO at TNT,  announced late last year that he will leave the company after its separation. He said: “In Q4 2010, we were unfortunately faced with the first nation-wide strikes in more than 25 years. These were testing times for our customers and employees alike, particularly as the strikes were immediately followed by a few weeks of harsh winter weather.

“In December, an agreement with the unions was reached that was subsequently ratified by members of the unions.

“This agreement allows for the full implementation of our Master plan III redesign of the postal network in the Netherlands. The years 2011 and 2012 will be the most concentrated years of the restructuring, requiring substantial cash outflow and investment.

“Declining volumes will not be fully offset by savings from this redesign in these years. However, today we announce that the (independent) Mail company will pay stable dividends from 2011 onwards.

“In Express, 2010 has been the year in which volumes recovered to pre-crisis levels although the mix and pricing environment has been challenging throughout.

“The various yield measures announced as of Q2 have begun to show positive effects, although the harsh winter weather in Europe has caused not only additional costs but also negatively impacted Express’ product mix.

“2010 has been a year in which TNT’s strategy in emerging markets has continued to make good progress. In China, both day-definite domestic and intercontinental growth has been good. We are disappointed with the integration related one-off costs in Brazil, but our strong market position in South America remains a true asset for the future.

“To realise the 2011 operating income outlook, management will focus on the continued implementation of our yield measures alongside revitalised efforts to reduce structural costs.

In December, TNT announced the intention to separate its Mail and Express into two listed companies. Bakker confirmed that the proposals will be set for approval at the company’s AGM in May.

“Our strong management teams are hard at work creating independent futures. All preparations for the AGM at which the separation proposal will be put up for approval are well underway.

“Between today and the general meeting of shareholders on May 25, the Board of Management will ensure a smooth transition towards the separated Mail and Express companies,” he said.

Due to falling mail volumes, TNT Post said it was required to cut around 11,000 jobs. Allowing for natural attrition and voluntary redundancies, 4,500 compulsory job cuts were originally planned.

However, TNT reached an agreement with various unions in December to reduce the number compulsory redundancies by 1,700.

The agreement – between TNT and Abvakabo FNV, CNV Publieke Zaak, and BVPP unions – saw that figure reduced to 2,800.

Looking at 2011, TNT expects mail volumes to fall even further.

The company said it expects an addressed volume decline of 8-10% for the year, as a result of e-substitution and the liberalisation of the mail industry.

Bakker said: “”In Mail, the continuing volume declines require us to remain focused on cost savings to maximise cash flows.”

TNT has highlighted plans to save EUR 50-60m through its Master Plan, whilst the business’ underlying cash EBIT is expected to be EUR 130-170m.

“After separation, Mail’s dividend guidelines for the next few years will include a payout around 75% of underlying net cash income, with a minimum of EUR 150m per annum. In addition, shareholders will be given the dividend that Mail receives from the Express business,” TNT said.

In terms of Express, TNT foresees a “mostly stable economic environment”.
The Express unit will continue to focus on “structural costs and cash alongside yield improvements which continue to be a priority”.

For 2011, the unit will aim for underlying revenue of EUR 7.3 – 7.5bn and underlying operating income of EUR 400 – 420m.