TNT increases its focus on road transport

TNT reported a net loss of EUR56 million in the third quarter of 2014, well down from a EUR6 million profit in 3Q13, as revenue declined 2.0% y-o-y to EUR1.65 billion. Operating income in the quarter went from slightly positive (EUR3 million) a year ago to a EUR47 million loss this year. The reported figures include a variety of one-time charges, including significant restructuring costs and also a provision of EUR50 million for the settlement of a legal action brought by the French Competition Authority alleging anti-competitive behavior. Adjusting for these items, as well as for foreign exchange effects, TNT said operating income for the quarter was up 28.2% to EUR50 million and revenue was down 3.0% 6to EUR1.63 billion. The chart at right shows the adjusted financial data, but we point out that TNT offers a third revenue figure – revenue adjusted for the sale of the company’s domestic China operations and Dutch fashion business as well as the one-offs and FX effects mentioned above. Using this model, third-quarter revenue was up 2.7%

Discussing the third-quarter and year-to-date results, TNT CEO Tex Gunning said that while the Outlook Strategy (instituted following the European Commission decision to block a takeover by UPS at the end of 2012) had begun to pay off in terms of improvement in adjusted operating income, both he and CFO Maarten de Vries were clear that the company needed to improve efficiency and service quality. They also both indicated that TNT’s focus over the next four years would be on improving its European road network. “Our competitors’ strengths are in their road networks,” said Mr de Vries as he announced a EUR185 million investment. “We will focus on 12 of our 19 international road transit hubs and will open a new hub in Madrid. The investment will be spent on software and tools for route planning, and trailers.”

Mr. de Vries also indicated that there might be change coming for the TNT air network – particularly the long haul operations. In addition to a mixed fleet of narrowbody freighters in its European network, TNT currently operates two 747-400ERFs and three 777Fs in long-haul service connecting Europe and Asia (plus a daily Europe – New York service). Mr. de Vries said these five freighters were “fully utilized,” but that TNT did not plan to add more aircraft. “We are looking for long-haul partners. We are looking to play it smart, without significant investment.”

Looking briefly at TNT’s five geographical reporting segments:

• Europe Main: Adjusted revenues in the company’s core European region were down slightly, impacted by the slower European economy, pricing pressures, and “contract pruning” in Italy.

• Europe Other & Americas: Operating income was unchanged from 3Q13 despite the impact of price pressure in some markets, and difficult trading conditions in Russia and Ukraine.

• Asia, Middle East & Africa (AMEA): TNT said “adjusted performance improved as planned, supported by better revenue quality.” The company also noted that if the results were further adjusted for the sale of the domestic China business, revenue would be up 9.7%.

• Pacific: TNT’s Pacific region, which is made up mostly of its Australia business, reported better performance as a result of higher volumes and indirect cost savings

• Brazil Domestic: Following its failure to sell the money-losing domestic Brazil business, TNT made it a separate reporting segment at the beginning of this year, and is finally seeing better results, with a second consecutive quarter of adjusted operational profit.