TNT Strongly Positioned Says CEO

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, CEO Peter Bakker told analysts.

“These are tough times for our customers and our industry,” he said. “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.”

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As the global economy entered into a severe recessionary phase, deepening in Europe both in the third and fourth quarters, this sharp change in the economic environment has had a substantial impact on the results of TNT Express in the third and fourth quarters of 2008. 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, said the company statement.

The short term severe economic downturn requires aggressive steps from the Express business to protect the revenue and margin levels, said TNT. The company is implementing measures to reduce costs significantly in all areas of operations, including air and road platforms. In doing this, the company pointed out, 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 digitization. “Master plan II will continue to adapt the organization and cost structure in 2009-2010 and the years thereafter.”

TNT said its financial standing is solid and based on a balanced and secured funding position going forward. The company will continue to focus on sustaining its strong cash flow by targeted reductions in working capital and cash capital expenditures. In addition, it will sell real estate, provided market conditions enable this to be realized at close-to-normal market values.

TNT intends to pay a stable dividend over 2008 at € 0.85 per share, barring any unforeseen circumstances. Further share buy-back programs 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 normalized net income by 2010.
TNT is targeting structural cost savings totaling € 270-330 million in the period 2009-2010.

As part of this total, TNT Express targets total structural savings of € 170-210 million to be realized in full in 2010, of which € 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 € 120 million savings in 2009.

For Mail the targeted savings are € 60-70 million in 2009 plus a further € 40-50 million in 2010. These savings could be enhanced as a result of the full impact of a successful finalization of the current CLA negotiations that aim to establish more market conforming salary costs for its operations. A new Master plan III will be launched for the period from 2011 onwards, which aims at achieving € 200 million in recurring cost savings, among others, based on making flexible delivery models and structures and a higher level of parttime labor.

At the publication of its third quarter figures, TNT gave an outlook based on announced weaker volume assumptions for its Express business in the fourth quarter of 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 the fourth quarter 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 through November and into December, TNT expects its full year 2008 Express results to come in somewhat below the outlook given in the third quarter.

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, it said. 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 February 16, 2009, it will issue a first-quarter 2009 outlook . TNT said it is confident that the combination of short term structural cost savings and operational leverage in its markets, will provide a solid performance under expected challenging economic circumstances.

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 niche solutions into a powerful concept to serve changing customer demands.
  • In Express, the intra-regional connectivity in emerging platforms in Asia, Middle East and Africa (MEA) and Latin America 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 organization on a regional basis, thereby aggressively pursuing additional revenue growth from regional flows and vertical markets.
  • In Mail, TNT Post has started a program 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, it says, this 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, said the company's outlook.
  • In Europe, the development of mail liberalization remains uncertain. A decision on the future development of EMN Germany is expected in the first quarter of 2009, following the outcome of the minimum wage court case on December 18, 2008 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 liberalization 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.
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