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TNT plans aggressive UK expansion
TNT, the Dutch mail group, is planning a further aggressive expansion in the UK and elsewhere in Europe in a new drive to offset its declining postal business at home.
Executives said in Amsterdam that the company was raising its forecast for volume growth in its European mail networks (EMN) division – mainly Britain and Germany – to between 30 pct and 35 pct this year from 25 pct and its operating margin to 17.5 pct from 17 pct. Volume growth was 37 pct in the second quarter.
TNT, which has capitalized on the running series of strikes by postal workers at Royal Mail, said organic growth in EMN was up 21.3 pct in the first half, driven overwhelmingly by its UK business. It has started up a new parcels business in Britain. But mail volumes in Holland declined by 3.5 pct in the second quarter.
The former Dutch monopoly, one of Royal Mail’s biggest new rivals, has already indicated that it plans to develop a full-scale network in Britain rather than use that of its UK rival to deliver mail. Peter Bakker, chief executive, said today the group’s new strategy would be disclosed in December.
Giving an upbeat outlook for the full year, Mr Bakker said operating income fell 2 pct in the second quarter to EUR 330 m (GBP 223 m) because of one-off costs but half-year sales were up 9.6pct at EUR 5.4 bn and profits up 2.6 pct at EUR 681m. TNT is raising the interim dividend by 15 pct to EUR 0.30 and initiating a further EUR 500m share buy-back.
Mr Bakker made plain that TNT is worried by the delayed date – 2011 rather than 2009 – for the introduction of full-scale liberalization of EU postal markets and the impact of this in Germany which is due to bring in full competition for Deutsche Post next year. Britain’s market has been open to competition since 2006 and TNT is active in eight of the 27 domestic European markets.
Read MoreCharities fear reduced income due to postal strikes
Major UK charities fear that the UK-wide postal strikes could reduce fundraising revenue.
Response rates are set to suffer because of the strikes, with some smaller charities likely to experience the biggest problems with income over the two-week strike period.
“The postal strike has not only delayed the appeals we have sent out to donors, but it has postponed incoming funds from those who want to help us support disabled people,” said Karen Barnes, head of direct marketing and legacies at Scope.
However, Barnes stressed that the charity had taken steps to ensure that the services it provides were not affected.
Geraldine Cetin, marketing manager for acquisitions at the Royal National Lifeboat Institution said that in combination with the recent flooding across large areas of the UK, the strikes could prove most detrimental to smaller charities, which lack the contingency funds of larger organizations.
As well as delays to campaigns, charities are concerned about the strike’s potential impact on response rates and subsequent income.
“If donors receive two-week’ worth of mail in a couple of days, response rates will decrease,” said Andrew Jones, head of direct marketing at the Royal British Legion. “The strike could mean that we have significantly reduced direct mail income for two weeks.”
Jones also highlighted problems with response management at mailing and fulfillment houses and disruption to planned campaigns as further issues.
Read MoreRoyal Mail lines up next sell-off
Royal Mail is to sell off a second multi-million pound property port-folio of post offices and sorting depots just months after concluding its first GBP 70m deal.
The state-owned postal service has appointed property agents Atisreal to undertake the sell off, which property professionals predict will contain a significant number of retail post offices, as well as industrial and office buildings.
Although many of the transactions are likely to be sale-and-leasebacks, the move to cut liabilities and generate cash from its property portfolio is likely to anger campaigners trying save the post office network in the face of planned closures.
The sale in March of 300 properties was a mixture of freeholds and leaseholds, some occupied some vacant, and was bought by Land Securities Trillium, the outsourcing arm of the largest property company in the UK.
Although the make up and size of the portfolio now being put together has not been defined the sale price could top GBP 20m.
With a countrywide property portfolio estimated to exceed GBP 2 bn in value, Royal Mail is in a position to realize a lot of value from its assets, as it implements a rationalization programme aimed at cutting losses and helping it compete against the private sector.
Read MoreEuropean Commission plots action over postal VAT
The European Commission is threatening to take the Government to the European Court of Justice unless it amends the law which allows Royal Mail to be exempt from paying VAT, in a move which could force a huge hike in postal rates.
The postal operator’s rivals have been pushing for a review for months, saying the exemption gives Royal Mail a significant price advantage.
The EC has formally requested that the UK, as well as Germany and Sweden, amends its legislation on the exemption.
The threat is part of EC plans to ensure fair competition between former monopolies and market entrants. The EC has described Royal Mail’s VAT exemption as ‘the single most important obstacle to achieving effective competition in this sector’.
The Commission also claims to have received a number of complaints that the different tax liabilities distort competition and that Royal Mail should be subject to the same tax regulations as its competitors.
Laszlo Kovacs, European Commissioner for Taxation and Customs, says: “The EC, as guardian of the EC Treaties, is obliged to ensure that EU rules are applied in a harmonised manner across the Community.”
A Royal Mail spokesman says: “Royal Mail remains opposed to the imposition of VAT on our postal charges. While the issue of VAT is a matter for the UK Government, we have said that an increase in stamp prices as a result of the imposition of VAT is the last thing we want for any of our customers, particularly charities and small business.”
Royal Mail also questioned the actions of the European Commission in pursuing its VAT exemption, when large parts of the EU will not have fully liberalised postal markets until 2009 at the earliest, under the latest EU timetable. The UK’s postal market was opened up to full competition in January 2006.
Postcomm recently urged the EC to change its VAT framework so that all postal operators can pay a reduced uniformed VAT rate to make the market ‘a level playing field’ for all operators. The independent postal service regulator welcomed UK Mail’s recent move to make it exempt from paying VAT on its downstream access.
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