TNT’s turnaround – a work in progress

TNT reported a net fourth-quarter loss of €137 million, a substantial decline from the €32 million profit reported in 4Q13.

As shown in the charts at right, revenue in the quarter was up 1.6% to €1.79 billion, and reported operating income fell from €79 million in 4Q13 to a loss €53 million.

TNT has once again made major changes in its method of financial reporting (see below), which makes year-over-year and year-to-year comparisons difficult, but the short version is that the turnaround strategy undertaken following the failed takeover by UPS has put the company in difficulty for the short term, but will lead to profitability in the long term.

It can be hard to keep track of TNT’s plans and strategies, but the current one, known as “Outlook”, was announced in 2014. In its overview of the year, TNT said the “building blocks” of the Outlook strategy had been “put in place,” but that the year’s results were “influenced by restructuring charges, one-off charges, and valuation allowances, reflecting the scale of the transformation underway and needed at TNT”

The company went on to say that 2015 would be a year of transition, 2016 would see the beginning of year-on-year improvement, and that the “full benefits of Outlook” would be realized between 2018 and 2019.

All of which, in our view, can be summed up as “things are tough now, are going to stay tough for a few years, but will get much better eventually.”

Regarding the changes in financial reporting, prior to 4Q14, TNT operated its business through five reportable segments: Europe Main; Europe Other & Americas; Pacific; AMEA; and Unallocated. Beginning with the 4Q14 report, the company created a new structure, based on four reporting segments:

• International Europe: TNT says this segment “is centrally led with integrated responsibility across Europe.”

• International Asia, Middle East, Africa (AMAE): This segment “is managed separately but operates in close cooperation with International Europe.”

• Domestics: This segment includes the domestic operations in France, Italy and the United Kingdom, as well as Brazil, Chile, Australia and New Zealand. “The domestic entity creates a dedicated focus on domestic operations, whilst keeping the synergies with the international activities.”

• Unallocated: This segment continues to consist of Other Networks (TNT Innight), Central Networks, IT, GBS (Global Business Services) and the TNT Head Office.

The segment definitions, particularly the first two, are not very clear. Presumably TNT offers domestic express service in Germany and the Netherlands, for example, but that service seems to be excluded from “Domestics” and yet hardly fits “International Europe.”

So take what you will from the charts above, but remember our short version of the report: “things are tough now, are going to stay tough for a few years, but will get much better eventually.”