TNT focuses on adapting to difficult economic environment
TNT's Focus on Networks strategy has - since its launch at the end of 2005 - strongly positioned the Group as the market leading - road based - Express Networks operator in Europe and key emerging markets globally, as well as the leader in the Postal industry.
The year 2008 has seen the global economy enter into a severe recessionary phase, deepening in Europe both in the third and fourth quarters. This sharp change in the economic environment has a substantial impact on the results of TNT Express in the third as well as the fourth quarter of 2008 so far. Volumes, overall and in particular in the premium Express market in Europe, continue to decrease and are now well below levels of the comparable period in 2007. TNT does not assume improvement in these economic circumstances in the immediate future.
Although TNT Mail is considerably less sensitive to economic cycles, it is preparing its operations for slightly higher levels of volume decline, mainly resulting from expected increased substitution in the Dutch mail market. The recent decision of the Dutch cabinet to not fully liberalise the mail market on 1 January 2009 reflects the need for balanced Postal sector labour conditions and a European level playing field.
TNT is adapting and aligning its strategic short- and medium-term focus areas to strengthen the company through the recessionary phase in the global economy, whilst remaining alert to new growth opportunities provided by our strong platforms.
Short term 2009-2010
- The short term severe economic downturn requires aggressive steps from the Express business to protect the revenue and margin levels. Whilst our extensive European road networks offer our customers an option to optimise their delivery costs, TNT is implementing a full range of measures to reduce costs significantly in all areas of operations, including air and road platforms. In doing this, TNT Express adapts to overall lower volumes in the short term and solidifies its competitive advantage.
- The Mail business is preparing its operations for a volume decline from around 4% today to around 6% over the years to come resulting from higher levels of substitution and digitisation. Master plan II will continue to adapt the organisation and cost structure in 2009-2010 and the years thereafter.
- TNT's financial standing is solid and based on a balanced and secured funding position going forward. TNT will continue to focus on sustaining its strong cash flow by targeted reductions in working capital and cash capital expenditures. In addition, real estate will be sold, provided market conditions enable this to be realised close to normal market values. TNT will maintain its policy to retain a BBB+ credit rating.
- TNT intends to pay a stable dividend over 2008 at Euro 85 cents per share, barring any unforeseen circumstances. Further share buy-back programmes are not likely to be pursued in 2009 or in 2010. TNT reaffirms its dividend policy going forward, leading to a 40% pay out of normalised net income by 2010.
Cost savings targets and provisions
- TNT targets structural cost savings totalling Euro 270-330 million in the period 2009-2010.
- As part of this total, TNT Express targets total structural savings of Euro 170-210 million to be realised in full in 2010, of which Euro 90-125 million are to be achieved in 2009. In addition TNT Express will be ready to implement further volume dependent contingencies up to an amount of Euro 120 million savings in 2009.
- Mail will continue the implementation of its current Master plans and start a new Master plan. The targeted savings are Euro 60-70 million in 2009 plus a further Euro 40-50 million in 2010. These savings could be enhanced as a result of the full impact of a successful finalisation of the current CLA negotiations that aim to establish more market conform salary costs for its operations. A new Master plan III will be launched for the period from 2011 onwards, which aims at achieving Euro 200 million in recurring cost savings amongst others based on making flexible delivery models and structures and a higher level of parttime labour.
- TNT indicates a level of provisions for these cost optimisation initiatives in the period 2008 - 2010 of Euro 125 - 200 million and possible impairments up to Euro 150 million. The indicated range of provisions excludes the possible impact of successful CLA negotiations, which will result in earlier achievement of labour cost related savings.
Outlook 2008 / 2009
At the publication of its third quarter figures, TNT gave an outlook based on announced weaker volume assumptions for its Express business in Q4 2008. At that time, TNT also indicated that downward deviation from these assumptions would be possible given the unpredictable economic recessionary environment.
During the fourth quarter, significant further deterioration in market and business circumstances has occurred, as evidenced by frequent downward revision of many economic indicators during November. This situation has led to accelerated volume pressure beyond levels assumed for Q4 in European (premium air) Express flows and, more recently, also in International Economy/road volumes.
As a consequence, TNT Express overall volume development is now below the announced assumptions for the fourth quarter. Assuming a continuation of these volume developments for Express of November into December, TNT expects its full year 2008 Express results to come in somewhat below the outlook given at Q3.
The Mail business develops fully according to plan and its original forecast.
The current extremely volatile business environment is such that TNT will refrain from providing a full year 2009 outlook. TNT will in principle indicate its expectations on a quarterly basis, so for the first time at the publication of the full year 2008 figures on 16 February 2009 for Q1 2009. TNT is confident that the combination of its short term structural cost savings and operational leverage in its markets, will provide a solid performance under expected challenging economic circumstances.
Strategic mid-term objectives
In line with TNT's previously announced mid-term objectives for Express, Mail and the Group, a further development of the strategy will include the following sources of medium term growth:
- TNT will continue actively to develop its portfolio aimed at providing a broad range of "delivery solutions" through aligned and complementary BtB, BtC and CtC networks. As part of this ongoing development TNT will develop a broader growth platform with Parcels, Innight, Documents and selected verticals, like Fashion and Healthcare. TNT expects that it can leverage its strong brand, can-do mentality and unique niche solutions into a powerful concept to serve changing customer demands.
- In Express, the intra-regional connectivity in emerging platforms in Asia, MEA and LAM will grow further, complemented by improved intercontinental connectivity. TNT's focus on International Economy road products will be actively expanded. TNT Express will refocus the organisation on a regional basis, thereby aggressively pursuing additional revenue growth from regional flows and vertical markets.
- In Mail, TNT Post has started a programme to redefine its markets. So far, two growth platforms have been identified on top of the existing strategy. In the e-commerce market there is a growing demand for providers who service the total e-commerce value chain. TNT Post's positioning in the Netherlands is not only a good starting point for these activities in the domestic market, but could also be used to expand into Europe. Now the parcel services in the Netherlands have developed into a strong profitable market position, the moment has come to leverage on this market strength by entering new feeder markets such as shop logistics in the domestic markets or gateway solutions for international expansion.
- In Europe the development of mail liberalisation remains uncertain. A decision on the future development of EMN Germany is expected in Q1 2009, following the outcome of the minimum wage court case on 18 December and the responses by the regulators and other parties involved. In certain mail markets TNT will continue to exploit an independent European Mail Network strategy. In other markets, however, the changing views on liberalisation might offer new opportunities for mail consolidation as a source of value creation.
- The financial 2012 objectives, as announced in 2007, for revenue growth and margin in Express and Mail, will be reviewed during 2009. Although the underlying trend and strategic assumptions supporting the objectives are still valid, the review will have to include new economic and strategic realities as they emerge over 2009.
In a summary comment at today's conference, CEO Peter Bakker said:
"These are tough times for our customers and our industry. Although TNT is of course not satisfied with its performance in 2008, this was heavily impacted by unprecedented sharply deteriorating economic conditions. For 2009, TNT is aggressively implementing cost savings and preparing for a longer phase of economic recession. TNT is confident that as a result of its short-term focus on adapting its cost structures, and strengthening its medium term strategic opportunities, an even stronger company will emerge. TNT will maintain and dynamically adapt its current business portfolio to that extent, thereby providing the optimal business value for all of its stakeholders."
TNT Express GmbH
TNT provides businesses and consumers worldwide with an extensive range of services for their mail and express delivery needs. Headquartered in the Netherlands, TNT offers efficient network infrastructures in Europe and Asia and is expanding operations worldwide to maximise its network performance. TNT serves more than 200 countries and employs more than 161,500 people. Over 2007, TNT reported ¤ 11 billion in revenues and an operating income of ¤1,192 million. TNT is officially quoted on the Amsterdam Stock Exchange. TNT recognises its social responsibility and has formed partnerships with the United Nations World Food Programme and the United Nations Environment Programme to fight hunger and pollution in the world. Our efforts are being recognised; in 2008 TNT again reached the highest score of all companies included in the Dow Jones Sustainability Index and in the Carbon Disclosure Project in the carbon intensive sector. More information about TNT can be found on its website http://group.tnt.com .